Baking Trends

American Pie Council Seminar

April 22, 2010

Paula Frank, chief editor, Baking Management

Agenda

Economic Factors

Marketing

Wellness trends

Environmental wellness

Product specific trends

Pie segment

Economic Factors

Visits to restaurants down in each of the four quarters in 2009

• A total decline of 3% for the year compared to 2008

Consumer spending at restaurants declined for the first time since the NPD began tracking foodservice in 1974

• All segments–quick service, midscale, casual, non-commercial and fine dining–posted traffic declines

NPD Group

Economic Factors

In 2008, consumers began trading down.

• Moving from fine dining to casual dining or from casual dining to quick serve

In 2009, consumers simply made fewer visits to restaurants overall and when they did go to restaurants, they chose the lower priced menu items.

NPD Group

Economic Factors

Unemployment a large factor for the fewer restaurant visits

• Nearly half of the traffic declines are tracked back to fewer consumers picking up something to eat at work.

Lower commodity prices also worked to make grocery stores more appealing

• Consumers began viewing in-home meals as more affordable

NPD Group

Economic Factors

Until unemployment recovers, the outlook for foodservice remains murky.

• Foodservice is expected to be weak through the first three quarters of 2010.

• Only modest growth is expected in the fourth quarter.

NPD Group

Private Labels (Store Brands)

Poll of 800 supermarket shoppers

• 39% say economy is “very important” factor when buying store brand

• 62% intend to purchase more PL going forward

• When asked if they’d recently ditched a national brand in favor of “generic” purchase, 43% said yes

• Awareness of PL options highest among 18 to 24 age group; 72% say they are more aware of PL than they were a year ago

• 97% say store brands compare favorably with pricier national brands; 49% say “very favorably”

• Store brands accounted for 90% sales growth; adding $1.5B in incremental sales

• National brands sales were flat www.mediapost.com 4/19/10

Economic Factor affecting Bakers Sugar Quotas

USDA will reportedly relax sugar quotas, allowing increase in imports. Will it be enough?

“Restrictions on imports caused American users to pay much more than the rest of the world for sugar. That gap recently blew out to its widest in a decade.” – www.wsj.com 4/19/10

Impact of Social Media

Less than 10% of adults, 18-34, who are online, are socially inactive.

Participation in social sites grew 60% last year for adults 35-54

• More than half of 35-44 are in social networks.

• 38% of those ages 45 to 54 use social network sites regularly.

Marketers can now safely create social media marketing for people ages 35 and older.

Forrester Research, The Broad Reach of Social Technologies

Impact of Social Media

Sprinkles, The Original Cupcake Bakery, Los Angeles, uses Twitter to broadcast a “secret” word every week.

• Customers who follow the company on Twitter are privy to the secret word and able to cash in their secret word for free cupcakes.

• Within a minute of posting, we get people in our store redeeming our promotions, the company said in a statement.

Bakery TV

With the rise of TV food networks and especially cake decorating programming on those networks, bakery is more visible than ever before.

Exposure can have a long-lasting effect.

• Levain Bakery in New York was featured in several Food Network programs and it sees an uptick in calls and customers after each airing of the episodes.

Bakery TV

Programs also make instant celebrities of bakers and decorators.

• Buddy Valastro of Carlo’s Bakery in Hoboken and star of Cake Boss on TLC

• Duff Goldman of Charm City Cakes in Baltimore and star of Ace of Cakes on the Food Network

Symbol Overload

Labels are becoming overly cluttered with symbols and nutritional claims

Will manufacturers turn to color-coding labels to help consumers make faster choices?

Symbol Overload

Several U.S. supermarket chains implement “Guiding Stars” program to identify good-better-best nutrition rating system • The program assesses products and assigns it zero

to 3 stars depending on the amounts of saturated and trans fats, cholesterol, sodium, added sugars, vitamins, minerals, fiber and whole grains. The more stars, better the food is for you.

• It employs the most current guidelines and recommendation of organizations such as FDA, USDA, WHO

Guiding Stars Program

Reduced sodium

From 2007 to 2008, a 121% increase in product introductions

• 2007: 19 new bakery products introduced with low/no/reduced sodium claims

• 2008: 42

• First 6 months of 2009: 23

(Mintel GNPD)

Reduced sodium

CPGs vow to reduce sodium in their products • …but marketing is often low-key

• “Sometimes they’d rather practice stealth health, for fear of driving away customers worried about taste.” (Chicago Tribune, Feb. 15, 2010)

Reducing salt is scientifically complex • Affects flavor

• Prevents spoilage/improves shelf life

• Requires process changes, particularly in bread baking

Reduced sodium

Similar to trans-fat, trend is an industry and government push rather than a consumer pull • Yet, 51% of U.S. consumers say they always or usually are

watching sodium intake (Mintel Oxygen)

New report indicates FDA may heed call from Institute of Medicine and AMA that would force food mfg to gradually reduce salt

(Tuesday, April 20th)

Michelle Obama launches initiative to fight obesity

• Introducing children to vegetable gardening at White House

• Increased public awareness of obesity issue

Calorie counting

48% of consumers say it would help them reduce caloric intake if the number of calories was on the front of packaging.

In recent research, 88% said the calorie postings led them to purchase more healthful items, but their actual sales receipts don’t back that up.

Gluten-free still on the rise

Tesco-owned Fresh & Easy Neighborhood Market (operates

136 stores in CA, AZ & NV) claims gluten-free is #1 dietary request from customers • Store is introducing new gluten-free products & adding

special shelf labels

U.S. consumers are purchasing gluten-free products for: • well-being

• digestive health

• weight loss

• nutritional value (The Hartman Group’s “Gluten-Free: Context, Insights and Predictions” per Tate & Lyle’s

2010 Food & Beverage trends)

Local goes national

Consumers still interested in “living la vida locavore”

• Purchasing foods made with locally sourced and renewable resources

• However, the definition of local is expanding by necessity.

• 43% of U.S. consumers claim to buy local when possible. (Mintel)

Sustainability/Eco-friendly takes center stage

In a study of 1500 adults, nearly 60% are willing to pay more for eco-friendly, sustainable foods

(Burst Media study)

Eco-friendly packaging revenue expected to double by 2014

(Colorado’s Pike Research as reported in Denver Business Journal; Jan 4, 2010)

This ethical responsibility gives consumers a reason to buy the product and get beyond the price. Companies are creating emotional connections and establishing credibility.

Sustainability/Eco-friendly takes center stage

25% of consumers are suspicious when companies claim to be green (Mintel Oxygen)

• In 2010, there will be increased scrutiny of ethical claims, such as eco-friendly.

• Companies are making smaller, yet perceptible steps regarding

the environment, which garner more respectability among consumers.

Sustainability/Eco-friendly takes center stage

The National Restaurant Association survey of 1,800 professional chefs shows the hottest trends are local sourcing of ingredients and sustainability.

This plays into the retro factor that is hot right now.

Simple sells

2009 was about cheap, 2010 is about simple

• If consumers can’t pronounce the ingredient, they don’t want it.

• Consumers are looking for:

• simple & slimmer packaging

• and simple formulations

• fewer ingredients

• cleaner labels

Simple sells

48% of products in the U.S. showed a decline in the average number of ingredients in the first three quarters of 2009 (Mintel)

• Haagen-Dazs introduced its Five line of ice cream with only five ingredients–milk, cream, sugar, eggs and one natural flavor, like mint.

• Starbucks changed its banana bread from 15 ingredients to 10.

Simple sells

According to Lynn Dornblaser of Mintel, products with simplified labels will be more sought after in 2010 than those that contain the former buzzwords “organic” or “natural.”

• From 2005 to 2008, there was an almost 65% increase in products using the words “simple” or “simplify” in the product or brand name. (Datamonitor)

Redefining ethnic

American food has always been made up of a mish-mash of ethnic staples and favorites.

Ongoing interest in flavors, seasonings and products from the south, such as South and Central America

• Authenticity is key to tap into these markets.

Small is big

Menu Item Dish Q4 2007 Q4 2008 Q4 2009 Number of

Items Difference

Pie - Apple 62 57 57 176 -5 Pie - Key Lime 44 50 51

145 7 Pie - Pecan 27 28 27

82 0 Pie - Chocolate 17 20 16

53 -1 Pie - Peanut

Butter

13 17 18 48

5 Pie - Banana

Cream

15 15 15 45

0 Pie - Pumpkin 11 15 14

40 3 Pie - Coconut 13 14 12

39 -1 Pie - Meringue 14 12 9

35 -5 Pie - Mud 11 10 11 32 0 Pie - Lemon 8 9 13

30 5 Pie - Berry 10 9 10 29 0 Pie - Cherry 10 9 9

28 -1 Pie - Caramel 10 9 8

27 -2

Mintel Menu tracks 580 U.S. restaurant menus

Apple pie

appeared

on the

menu 57

times

during Q4

2009

Pie

Represent simple, homemade desserts

Remain all-time classics

Evoke feelings of nostalgia

Pie is making a comeback at trendy restaurants

• Opera (Chicago): key lime with brandy whipped cream

• Highland’s Bar and Grill (Birmingham): Grandmother White’s Fried Apple Pie with vanilla ice cream

Pie Flavor Trends

Layered cream pies that combine unique flavors

Nostalgic versions

Modern interpretations of classic flavors

Pie

“Pie has proven to be recession proof.”

“We are actually receiving more requests from our customer base to produce unique, high-end products that will ‘stop the shopping car.’”

– Mark Grandanetti, president, Rocky Mountain Pies

Pie

Quality & value trumps price

• Can apply this mantra to smaller sizes

• 8-inch pies

• 6-inch pies

• “Offering high quality at these sizes can help grow the category.”

Seen a shift in spending from foodservice to retail side

-Scott Chavkin, director of marketing, Legendary Baking

Pie Sustainability Initiatives

“Go Green” initiative – Legendary Baking

• Reduced nearly one pound of solid waste from each case shipped by reducing packaging

• Using energy & natural resources more efficiently

• Creating efficiencies in shipping

Working with pkg suppliers to develop more eco friendly – Rocky Mountain Pies

Use simple, pure ingredients – Mystic Desserts

• Fruit sourced from , local, environ-managed small farms

• Pies made in reusable tin