© 2016 Mintel Group Ltd. All Rights Reserved. Confidential to Mintel. Private Brands Up Their Game in a Competitive Marketplace Presented by: Lynn Dornblaser Director, Innovation & Insight Mintel Ltd.

2 First, a look at overall private label product activity The role of premium and value introductions The movement toward more simple products Then, discussion about two major issues impacting product development What consumers think What we see on the market How private label stacks up:Some thoughts for the future Today’s webinar

3 Private label accounts for 25% of all product launches In any given year in the US market, private label accounts for about 25% of all new products introduced. This percentage is up considerably from the 17%-18% we saw before the recession. However, it is quite different from the contribution made by private label in other parts of the world. Source: Mintel

4 But the percentages are quite different by category

5 Premium and value private label

6 Source: Mintel The groups that are most likely to purchase private label instead of national brands appear to be those with children (which often includes Older Millennials), and men. Note also that those with the highest income overindex on purchase as well. The value provided by private label appeals to specific groups Percent of US consumers who say they always or often by private label instead of national brands, by select demographics, USA

7 Clearly, the days of “ugly” private label are long gone Part of a restaging of the company’s entire Market Pantry line, with a new look and feel to the packaging Side dish mix in a package that looks more like a modern, branded product Use of white is now standard in much value private label offerings Target’s Market Pantry Salted Butter, USA Kroger’s P$$t... Mushroom Flavored Rice & Sauce, USA Hy-Vee’s That's Smart Tomato Sauce, USA

8 Value private label addresses everyday needs Everyday cookies at a value price and position Snacking almonds, also with a 50% less sodium claim Sliced bacon to be cooked on the stovetop or in the microwave Target’s Market Pantry Peanut Butter Crème Sandwich Cookies, USA Kmart’s Smart Sense Lightly Salted Almonds, USA H-E-B’s EconoMax Sliced Hardwood Smoked Bacon, USA

9 And also provides more elevated values Similar to restaurant fareSourced ingredients, a bit unusual for private label Organics at every day low prices Supervalu’s Essential Everyday Jalapeño Peppers Stuffed with Cheddar Cheese, USA Supervalu’s Essential Everyday Balsamic Vinegar of Modena, USA Walmart’s Great Value Organic Vitamin D Organic Whole Milk, USA

10 Millennials a key target for premium private label Although most consumers are not willing to pay more for premium private label, they are interested in purchasing more of it. This is particularly true of Millennials. Source: Mintel

11 Imagery sets premium private label apart Typeface, photography, uncluttered label makes the product look more upscale Black packaging and photography telegraph upscale Upscale look in a 5.5 lb. bag Hy-Vee Dark Chocolate Pineapple, USA Aldi’s Specially Selected Assorted Macarons, USA Costco’s Kirkland Signature Stir-Fry Vegetable Blend, USA

12 As does branding “Premium Quality” sends the message, “Daily Chef” indicates it is for anytime use Safeway’s broad Signature Select line conveys a more premium offering Co-branding and the 7-Select branding sets this product apart from many other private label offerings Sam’s Club’s Daily Chef Premium Quality Atlantic Salmon, USA Safeway’s Signature Select New York Style Mini Cheesecakes, USA 7-Eleven’s 7-Select Jones Soda Co. Tropical Slam Rambutan Premium Soft Drink, USA

13 Simple, easy to understand ingredients

14 People are paying more attention to what’s in their food of US consumers agree “there are probably more harmful or excess ingredients in food than manufacturers are telling us.” of US consumers agree “gluten-free products are beneficial for everyone, not only those with a gluten allergy/intolerance/sensitivity.” of Canadian internet users ages 18+ say eating less processed foods is part of their personal health and wellness goals. Source: US and Canada- Lightspeed GMI/Mintel

15 Use of artificial ingredients is starting to declining Source: Mintel GNPD

16 US companies make pledges to remove artificial ingredients

17 Consumers look to private label to deliver “simplicity” About a third of consumers say that minimal or simple ingredients influences their purchases, far more than does an organic or US-made claim. Source: Mintel

18 Private label lags in some “better for you” claims Although private label accounts for more than a quarter of all new product introductions in the US market, only 15% of products labeled as All Natural are private label, and only 22% are organic. Note, however, that private label over-indexes when it comes to more basic claims such as Vitamin/ Mineral Fortification, with 30% of all launches being private label. Room for expansion Source: Mintel

19 Source: Mintel Millennials more likely to look for natural values

20 Organic positioning contributes to idea of “simple” Company says it is formulated without genetically engineered ingredients, and is free from fat and sodium. The vegan product is said to be a convenient choice in everything from smoothies to homemade fruit salad, or can be also used as a simple afternoon snack Blend is from 100% juice from six juice concentrates and other natural flavors Product statements: The meat is from chicken fed a vegetarian diet and raised with no antibiotics or added hormones. The fully cooked product contains no preservatives and is USDA inspected. Whole Foods’ 365 Everyday Value Organic Tropical Fruit Medley, USA Target’s Simply Balanced Organic Orange Strawberry Banana Juice Blend, USA Kroger’s Simple Truth Stuffed Chicken Breast with Three Cheeses, Spinach & Wine, USA

21 “Simple” formulations appear across product types Trader Joe's Simply Nutty Bars Dark Chocolate, Walnut, Peanut, Fig & Date Bar Simply Nutty Bars, USA Aldi’s Millville Pumpkin Spice Cranberry Granola, USA Nutty Bars are fruit and nut bars made with walnuts, figs and dates dipped in dark chocolate, and said to have an “excellent fruit to nut ratio” This seasonal granola combines clusters of wholegrain oats, pumpkin seeds, sweet cranberry and apple pieces to provide 5g of protein per serving. It is said to be a simple and versatile way to add protein throughout the day.

22 While private label often mirrors the rest of the market, it can diverge Knowing your customers as you do allows you to provide them exactly what they want Tiered private label can answer the needs of a diverse customer base Give some thought to Millennials They say they will pay more (and they might actually do that) They want unique products that have a unique look They are on the forefront of trends Simple formulations continue to grow and answer the needs consumers have How can you simplify yet still offer a good price? Can you talk about where your products come from? Clear, straightforward communication is key A few final thoughts

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