REVITALIZE, RE-ENGAGE AND GROW A STUDY OF CONSUMERS AND SHOPPER EXPERIENCE Nielsen and Ainsworth Pet GMA Leadership Forum August 2015
Copyright 2013 The Nielsen Company. Confidential and proprietary. MEET YOUR SPEAKERS KAREN FICHUK President, North America Nielsen JEFF WATTERS President & CEO Ainsworth Pet Nutrition WALT WODIAK Director, New Product Development & Marketing Insights Ainsworth Pet Nutrition 2
TODAY S DISCUSSION: 1 GROCERY COMPRESSION BUT GROWTH OPPORTUNITIES ARE OUT THERE Growth challenged, but opportunities below the macro 2 PRECISION, FOCUS AND AGILITY TO GROW One manufacturer s strategy for staying relevant and competitive
Copyright 2012 The Nielsen Company. Confidential and proprietary. BELOW AVERAGE PERFORMANCE BUT CLOSING THE GAP CAGR 2014 to 2019 14% DEPARTMENT 12% 10% 8% 6% 4% 2% 0% -2% -4% AVG 4.1% -3.0% -2.8% 2.4% 3.6% 4.0% 4.1% 4.3% 5.4% 5.6% 12.3% MASS DRUG SUPERMARKETS SUPERCENTERS CLUB CONVENIENCE/GAS DOLLAR PET E-COMMERCE 1.8% SALES GROWTH PAST 52-WEEKS vs 2.5% for all measured channels DOLLAR SHARE -10.2 (2001-14) FORECASTED TO BE -0.6 (2014-19) Sources: Nielsen TDLinx & Nielsen Analytics; CAGRs ( dollar basis); Nielsen Answers, Total U.S., 52 weeks ending 06/27/2015 (vs. year ago) in Nielsen measured channels 4
ht 2015 The Nielsen Company. Confidential and proprietary. WINNING RETAILERS PROVE OPPORTUNITY EXISTS 10 % Same-Store-Sales Growth (average latest 52 weeks) 5.4 5.3 5.3 4.2 4.0 2.9 SPROUTS PUBLIX SAVE-A-LOT KROGER DELHAIZE WHOLE FOODS FRESH MARKET Source: Company press releases; monthly or quarterly news releases excluding gas 5
Copyright 2013 The Nielsen Company. Confidential and proprietary. GROWTH IS OUT THERE, FOR THOSE WILLING TO WORK FOR IT FOCUS ON RETAILERS AND LOCALIZATION GET GRANULAR TO CAPITALIZE ON CONSUMER FRAGMENTATION DRIVE THE CATEGORY TRENDS BRING IT ALL TOGETHER IN-STORE 6
Copyright 2012 The Nielsen Company. Confidential and proprietary. EXAMINE WINNING CATEGORIES Fastest Growing Supermarket Categories* (Dollar Trend) ALCOHOLIC CIDER REFRIGERATED APPETIZER LIQUID TEA FRESH MEAT PET MEDICINE SUSHI 10.2 16.6 16.6 16.6 15.8 15.3 19.5 25.1 23.1 33.7 47.1 BUTTER LIQUID COFFEE REFRIGERATED LIQUID TEA FRESH POULTRY 8.9 15.2 16.8 15.1 13.9 11.7 13.1 11.5 SUPERMARKETS ALL OUTLETS COMBINED, INCLUDING CONV/GAS Supermarkets driving faster growth in many categories Source: Nielsen Answers, Total U.S. All Outlets Combined plus Conv, 52 weeks ending 06/27/2015 (vs. year ago), categories w/ sales of $50 million+ in Food $2MM+ Channel; UPC coded items 7
Copyright 2013 The Nielsen Company. Confidential and proprietary. AND UNCOVER LOCAL VARIATIONS IN DEMAND Pockets of growth for even saturated categories exist Pizza Category Sales Growth Index Sales per MM Growth High Growth High Decline Source: Nielsen ScanTrack 104 weeks ending 3/28/2015 8
Copyright 2012 The Nielsen Company. Confidential and proprietary. CONVERGING TRENDS UNVEIL NEW OPPORTUNITIES Unlock the consumer trend and you ll uncover new opportunity HEALTH & WELLNESS AGE & ETHNICITY NEW CONSUMER UNDERSTANDING = NEW GROWTH OPPORTUNITIES PREMIUMIZATION 9
Copyright 2012 The Nielsen Company. Confidential and proprietary. WELLNESS HELPING MAINSTREAM WIN THE SPECIALTY TRIP NATURAL/GOURMET** CHANNEL DOLLAR SHARE 8.0% 10.5% $1B KROGER SIMPLE TRUTH EXPECTED TO HIT $1 BILLION 3.5% 2006 2014 2019* "Kroger is expected to surpass Whole Foods Market within two years and become the nation's top seller of organic and natural food, according to a recent report by JPMorgan Chase. businessinsider.com (3/5/2015) *Forecasted, **Whole Foods, Trader Joe s, Fresh Market & Sprouts 10
Copyright 2012 The Nielsen Company. Confidential and proprietary. CONSUMERS CHANGING DEFINITION OF H&W 2012 2015 CAGR FOR WELLNESS TRENDS POPULAR THEN VS. NOW 20 TH CENTURY CHARACTERISTICS VS. 21 ST CENTURY CHARACTERISTICS 93% QUINOA 48% GRAIN FREE 25% CAGE FREE BRAN -17% 16% 15% GMO FREE GLUTEN FREE GOOD SOURCE OF CALCIUM LOW CALORIE LESS SUGAR FAT FREE -7% -5% -3% -2% Center store products with at +5.8% least one 21 st Century wellness value show a CAGR +5.8% CAGR 11
Copyright 2012 The Nielsen Company. Confidential and proprietary. CAN INCOME DRIVE GROWTH VIA PREMIUMIZATION? Center store spending among more affluent households experienced a significant increase Center store dollar trend percent change 2012 2015 14% HH INC $70,000+ HH INC LESS THAN $70,000 12% 10% 11% 8% 6% 4% 2% 0% -2% -4% -6% -6% Source: Nielsen xaoc -8% 12
Copyright 2013 The Nielsen Company. Confidential and proprietary. PREMIUM BRANDS OUTPACING TOTAL GROWTH Consumers are flocking to some premium products PREMIUM GROWTH TOTAL GROWTH EGGS 11% 14% COFFEE 7% 19% SHAMPOO 3% 10% Source: Nielsen Answers, Total U.S. All Outlets Combined, 07/25/2015 vs year ago dollar sales 13
Copyright 2012 The Nielsen Company. Confidential and proprietary. FRAGMENTATION IN CURRENT AND FUTURE BUYING POWER BANKING ON BOOMERS make up almost 50% of all FMCG sales, massive buying power now MILLENNIAL MOVEMENT spend 82% of their income; buying power today and tomorrow MOSTLY WHITE 2X MORE LIKELY TO READ THE NEWSPAPER 58 SHOPPING TRIPS PER HH MULTICULTURAL 73% OF SHOPPING IS MOBILE 39 SHOPPING TRIPS PER HH PRICE DRIVES STORE-SWITCHING HEAVY PERIMETER SHOPPERS Source: Nielsen Pop-Facts, Homescan Panel total U.S. 52-weeks 14
Copyright 2013 The Nielsen Company. Confidential and proprietary. THE STORE IS WHERE IT ALL COMES TOGETHER >50% of purchase decisions are made in-store At the point of purchase, you often have less than 2 seconds to influence decisions Source: Nielsen in-store tracking studies; Nielsen Homescan Panel 15
WHAT DOES SIZE HAVE TO DO WITH IT A Nielsen study reveals that small can be big percent growing vs. flat or declining GROWING Rate: 2.3% GROWING Rate: 9% 28% 56% LARGE MANUFACTURERS 44% 72% MID-SIZE MANUFACTURERS FLAT/ DECLINING FLAT/DECLINING Mid-size manufacturers a predominant growth engine in challenging conditions Source: Nielsen Retail Measurement Data, includes manufactures represented in Nielsen/BCG article plus manufactures with +$3B in sales for the 52-week period ending 2/14/14; CAGR 09-14
Copyright 2013 The Nielsen Company. Confidential and proprietary. MID-SIZE COMPANIES USE THEIR ATTRIBUTES TO THEIR ADVANTAGE But any size company can take a page from their book NIMBLE: Act fast and deliberate in the face of change FOCUSED: Get the most important things right ENGAGED: Digital, social, and local are the big equalizers 17
Copyright 2012 The Nielsen Company. Confidential and proprietary. GETTING A FEW THINGS RIGHT CAN DRIVE BIG OUTCOMES Growers focus budget & resources on strategies that will drive the biggest outcomes CONSUMER INSIGHT INNOVATION MARKETING EFFECTIVENESS SALES EFFECTIVENESS RETAILER COLLABORATION 18
PRECISION, FOCUS and AGILITY to GROW
LEADING THE GROWTH OF MAINSTREAM SUPER PREMIUM PET FOOD
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Ainsworth Company Background America s oldest family-owned pet food company: 5 th generation owned and operated in Meadville, PA From 1933 to 2000 sold one value brand (DAD S) in roughly an 8-hour radius around corporate headquarters A differentiating reputation as a mainstream channel Pet Category problem solver
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Fast Forward to Circa 2007: A Company And Channel At A Crossroads DAD'S is the family-owned, wholesome, pet food brand made with ingredients sourced from small, local farms. While big, the brand competes in the value segment - a rapidly declining segment of pet food At the core of today s narrative: the successful re-positioning of Ainsworth against emerging consumer trends to Drive growth for the company Help our mainstream channel partners compete more effectively for the valuable pet consumer Extend Ainsworth s category problem solver Brand
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Humanization of Pets Some 62% of pet parents agree their pets contribute more than just companionship 49% wouldn t give up their pets if someone in their household developed an allergy 45% feel safe and less lonely with their pets around This mindset shift accounts for the rise in pet expenditures, with owners increasingly treating their pets as they would themselves, with special food and treats Statements by pet owners, March 2014
Super Premium Mainstream Channels Underdeveloped in the Most Attractive Sub-Category of Pet: Super Premium Dry Dog Food All Outlet Dry Dog Food Dollar Volumes 2011-2014 CAGR (%) $7.6B $8.1B $8.3 B $8.3B +9.0% Value Premium Super Premium 3.5B 3.9B 4.2B 4.5B 2.8B 2.8B 2.8B 2.6B 1.3B 1.4B 1.2B 1.2B Value Premium -2.2% -4.2% 2011 2012 2013 2014 L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D 24
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Mainstream Channels (and Their Manufacturer Partners) Failed to Take the All Outlet Battle with Pet Specialty Seriously for Years RETAILERS SUPER PREMIUM BRANDS SUPER PREMIUM BRANDS RETAILERS OPPORTUNITY
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Ainsworth Pet Nutrition Saw An Opportunity to Address This Gap FOCUS NIMBLE ENGAGED Big Bets Courage Differentiating Vision Organizationally Aligned On Trend Brand First Moving Flexibility Differentiating Investment Insight-Driven Social Media Centric
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Ainsworth Led the Charge to Break Down the Super Premium Wall Rachael Ray Nutrish Launched July 2008
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D We Overcame our Position as a Small Manufacturer Competing Against National Brands LIMITED RESOURCES BUDGET CONSTRAINTS THIRST FOR KNOWLEDGE HURDLES IN THE WAY SIGNIFICANT COMPETITION REGIONAL TO NATIONAL CONVERSION COMPANY CULTURE
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D with an Investment in Resources and Insights to Overcome the Challenges Flexibility FOCUS Shopper Immersion Relationships Innovation + Insights Nielsen Partnership Strategic Priorities
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D How We Continue to Win? Collaborating with Nielsen on an Aisle Management Strategy Qualitative Execution and Implementation Quantitative Validation Virtual Simulator Store Mapping Top to Top Retailer Partnership Engage Customers, on Shopper Research Conduct Shop Along, In Home & Survey Research Develop redesigned Aisle scenarios Quantify size of the opportunity Develop Retailer and brand choice models Develop visual stimuli and 3D Aisle scenarios Conduct Customer Immersion sessions In Market Execution Implement Aisle Assortment Create winning outcomes for Retailer and Ainsworth Align on Expansion
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D Retail Collaboration was Critical for Our Success Shopper Immersion AINSWORTH + NIELSEN + RETAILERS Assortment Optimization Consumer Need State Segmentation Channel and Shopper Shift Competitive Landscape Path to Purchase
L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D in Addition to Other Initiatives, Partnerships and Insights that Lead to Market Success! Category and consumer need gap analysis and trend mapping Partnerships with global leading New Product Development firms and Nielsen Qualitative Immersion Established nimble and flexible New Products Stage Gate Process with discipline Leading edge Consumer Qualitative Immersion programs Innovative online and digital target marketing investments
Nutrish is Now The Fastest Growing Brand in Mainstream (+44% Five Year CAGR) L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D
Our Efforts have Resulted in a Dramatic Portfolio Mix Shift L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D
Most Importantly, Our Collaborative Efforts Have Helped Mainstream Channels Outperform Pet Specialty in Super Premium +12.9% Dry Dog Super Premium Dollar % Change 8.1% +6.9% +8.9% +9.7% +6.4% 2012 2013 2014 Mainstream Pet Specialty L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M P E T F O O D 36
Copyright 2012 The Nielsen Company. Confidential and proprietary. MID-SIZE MANUFACTURERS A GROWTH ENGINE But still only make up a small piece of the pie Center store food CAGR 2012 2015 Percent of center store food sales 5.3 LESS THAN $10MM $10MM - $100MM 8% 3% $100MM - $1B $1B+ 3.4 21% 68% 1.4 0.3 $1B+ $100MM - $1B $10MM - $100MM LESS THAN $10MM Source: Nielsen POS; 52-week sales ending 1/2015 37