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Better-for-you Foods Its Just Good Business Hank Cardello Senior Fellow & Director Obesity Solutions Initiative October 9, 2013

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Mission Drive win-win market solutions to obesity

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The Issue: High Obesity Rates Persist and Are Impacting Business Practices www.hudson.org

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Is There a Business Case for Selling Better-for-you Foods & Beverages? www.hudson.org

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BFY Items Drove a Disproportionate Share of 5-Year Sales Growth Source: Nielsen Food, Drug and Mass Merchandiser sales tracking (2007-2011) www.hudson.org

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Companies Growing Their BFY Products Faster Than Traditional Ones Exhibited Greater Overall Sales Gains Source: Nielsen Food, Drug and Mass Merchandiser sales tracking (2007-2011) www.hudson.org

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These Same Companies Demonstrated Superior Operating Profit Growth % Growth in Operating Profit Source: Nielsen Data & Company Annual Reports (2007-2011) www.hudson.org

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Lower-calorie Products Drove HWCF Company Sales Growth 50.5% 82.0% www.hudson.org Source: Nielsen Food, Drug and Mass Merchandiser sales tracking (2006-2011)

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Lower-calorie Products Accounted for 2/3 of New Products Achieving Sales of $50 + Million 10 5 15 www.hudson.org Source: Nielsen Food, Drug and Mass Merchandiser sales tracking (2006-2011)

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The Restaurant Case for Lower-calorie Products www.Hudson.org

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Lower Calorie Items Were the Key Growth Engine Across Both Foods & Beverages Total Food & BeveragesFood OnlyBeverages Only Source: NPD Group/Crest -1.6% +2.5% -4.2%-2.3% +1.8% -4.9% +0.1% +4.5% -2.3%

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www.Hudson.org Lower Calorie Items Outperformed Traditional Ones in Overwhelming Majority of Chains Source: NPD Group/Crest

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www.Hudson.org Critical Same Store Sales (SSS) Metric Superior for Chains Growing Their Lower Calorie Servings Total 21 Chains Chains With Lower Calorie Servings Growth Chains With Lower Calorie Servings Declines Sources: Nations Restaurant News, Trinity Capital, Company Annual Reports

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Better-for-you Case Studies www.hudson.org

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Cumulative* Achievement of GMI Sales Improved FY05-FY11 & F12-F16 Projection Health Improvement Model Key Drivers Nutritional Improvement FY05-FY11 Increasing Positives 34%Decreasing Limiters 66% Focused on doing the right thing to make our products nutritionally better 16 *includes: serving veg/fruit, antioxidants, probiotic, protein, omega-3, GMI Better-for-You *On a cumulative basis: products that have been nutritionally improved more than once are counted only one time

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KEY 2007 Sugar level 2008 Sugar level 2009 Sugar level 2010 Sugar leve l Goal Sugar leve l 13g 07 12g 08 11g 09 9g Goal 10 10g Commitment to further reduce sugar levels Reducing Sugar in Cereal 17

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Fiber One a $400 + million Brand

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Company Leads Peers in Operating Profits www.hudson.org Source: Better-for-you Foods: Its Just Good Business, Hudson Institute, 2011

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Corporate Social Responsibility Done Right www.hudson.org

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Leading the Way with CSR Metrics

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Company Reaping Benefits from Strategic Shifts www.hudson.org Source: Better-for-you Foods: Its Just Good Business, Hudson Institute, 2011

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www.hudson.org

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Iconic Products Under Assault

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Soda Consumption in Decline www.Hudson.org

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French Fries Declining Source: NPD Group/Crest QSR chains $3 billion; Fries 20% of chain servings 24.1% 24.8% - 1.9% +1.2% French Fry Trends (2006 to 2011) Fries Share of Total Foods% Change in Servings French Fries Total Food

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Baked Goods Under Fire

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www.Hudson.org Mandate for Healthier Kids Products

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www.Hudson.org Traditional Offenders Heavily Targeted

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www.Hudson.org What Can You Do?

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31 2012, NMI 31 2012, Natural Marketing Institute 1. Understand where your Better-for-you growth will come from

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32 Natural Marketing Institute (NMI), 2012. All Rights Reserved.Source: NMIs 2011 Health and Wellness Trends Database (HWTD) WELL BEINGS: 17% Most health pro-active Most health pro-active Market leaders & Influencers Highest organic usage Use some supplements Use many health modalities Most Green FOOD ACTIVES: 15% Mainstream healthy Mainstream healthy Basics, balance and control Desire inherently healthy foods Most influenced by physicians Least eco-friendly Price sensitive MAGIC BULLETS: 23% Conveniently healthy Conveniently healthy Heavy pill usage supplements OTC, Rx Health managers vs. preventers Weight managers Least likely to cook at home Least likely to exercise FENCE SITTERS: 20% Wannabe healthy Wannabe healthy Most likely to have kids Stressed out, want help and control More health kicks but no clear goals Receptive to eco-friendly Active weight loss High social media usage EAT, DRINK & BE MERRYS: 25% Least health active Least health active Unconcerned about prevention Focused on taste Most price driven Younger One-size-fits-all Approach Doesnt Work

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33 Natural Marketing Institute (NMI), 2012. All Rights Reserved.Source: NMIs 2011 Health and Wellness Trends Database (HWTD) WELL BEINGS: 17% Most health pro-active Market leaders & Influencers Highest organic usage Use some supplements Use many health modalities Most Green FOOD ACTIVES: 15% Mainstream healthy Mainstream healthy Basics, balance and control Desire inherently healthy foods Most influenced by physicians Least eco-friendly Price sensitive Price sensitive MAGIC BULLETS: 23% Conveniently healthy Heavy pill usage supplements OTC, Rx Health managers vs. preventers Weight managers Least likely to cook at home Least likely to exercise FENCE SITTERS: 20% Wannabe healthy Wannabe healthy Most likely to have kids Most likely to have kids Stressed out, want help and control More health kicks but no clear goals Receptive to eco-friendly Active weight loss High social media usage EAT, DRINK & BE MERRYS: 25% Least health active Unconcerned about prevention Focused on taste Most price driven Younger Growth Opportunity Segments

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www.Hudson.org Example: Burger King Satisfries 20% fewer calories 25% less fat Kept Classic fries

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www.Hudson.org 2. Incorporate Healthier Oils

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Consumers Want Healthier Oils

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www.Hudson.org 3. Make Changes to Your Mainstays Quietly (Stealth Health)

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Thank You! HCardello@Hudson.org www.Obesity-Solutions.org