The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Christmas Report 2010

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Contents Executive Summary Christmas Season and Candy Christmas Candy Sales Results Christmas Candy Support Opportunities 2010 Key Takeaways

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Executive Summary - Results Candy Category is big, growing, and critical to winning Holiday shoppers for retailers Christmas confectionery sales grew at a 4.3% rate. Drug stores sales grew by 6.7%, supermarket sales grew 4.4% and Mass merchant sales grew 0.8%. Christmas seasonal candy used for gifts, stocking stuffers and Holiday parties contribute 54 percent of candy sales in November and December Chocolate seasonal candy sales grew 5.4% while non- chocolate seasonal confections declines by -7.0%. Continuing a trend that has developed over the past 5 years, seasonal Christmas confections grew at a 3.9% pace during the month of December. Sales on Christmas confections also grew in November and Seasonal Christmas Chocolate grew in October by +3% pointing to Retailers capitalizing on early season sales. Aggressive pricing kicked off strong December sales performance Key Takeaways Mass and Drug staked claim in 2010, and won the season – Promoted broad range price points for all shoppers – drove price image to win the season – More Feature Advertising across brands lifted category for all – Non-branded Seasonal Thematic ads branded retailer as Holiday solution

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Executive Summary - Opportunity Retail support was mixed While % of Merchandised Volume increased for Christmas Seasonal Chocolate and Non-chocolate candy, incremental volume declined While Candy ads increased in Drug, +10%, and Mass, +39%, they declined in Grocery (8%) F & D support lagged 2009 levels and Prominent feature ad placement declined in 2010 for candy Drug and Mass did a better job than Grocery of promoted a variety of different price points to address all types of shoppers. Halloween candy drove November sales raising the question: “Did leftover Halloween candy impede on Christmas candy incremental sales? Christmas Seasonal items per store trending down pointing to opportunity for innovation Key Insights Recommend more F&D supporting a broad range of price point, particularly at the lower range to drive incremental sales focusing on December where efficiencies run higher Effectively managing retail execution the entire Halloween AND Christmas Holiday period is critical ‘right’ product being on floor, minimizing risk and maximizing incremental volume throughout the season

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Contents Executive Summary Christmas Season and Candy Christmas Candy Sales Results Christmas Candy Support Opportunities 2010 Key Takeaways

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Consumers Entered Holiday Season Concerned About the Economy, But Ultimately Spent Initial reports on Consumer Confidence were conservative for December …with 3 in 10 Americans expected “more” layoffs over next six months Source: BIGresearch® U.S. retail sales rose the week before Christmas, putting Holiday sales on track to hit the high end of estimates. Retail sales rose 4.8 percent for the week ended December 25 compared with the year-earlier period. Optimism about the economy has grown…and consumer spending suggested the economy perked up in the 4th quarter and appears to be entering the New Year with some momentum. Source: International Council of Shopping Centers and Goldman Sachs

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Consumers Took Advantage of Holiday Deals and Spent More On-line Than Ever Approximately two third of American shopped on Black Friday weekend, spending an average of $ on gifts and other discounted merchandise, up $22.03 from last year. Source: National Retail Federation Online sales for November and December rose 13% from There was a +17% year-over-year surge Christmas week*. Source: comScore – On Cyber Monday* shoppers spent $1.03 billion, the first ever billion dollar internet sales day on record. That was followed by $911 million on Tuesday, $868 million on Wednesday and $850 million on Thursday. Source: comScore – 88.2% of retailers had special promotions on Cyber Monday this year, up from 72.2% in Source: National Retail Federation – Approximately seven million shoppers were reported to use their mobile device to shop for gifts or research products and promotions, up from the estimated four million in Source: National Retail Federation Christmas Week* = Week Ending December 26 Cyber Monday* = The Monday after Black Friday, November 29, 2010

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Food & Candy Sales Trended Positively For Christmas Holiday Dec Grocery Store sales were down (.5%) from Nov and up 2.7% from Dec 2009…Oct thru Dec Grocery Store sales were up 2.7% from the previous year. U.S. Census Bureau 1/14/2011 *Adjusted for seasonal variation Sugar & Sweets Expenditure was up +2.2% for Dec 2010 vs. Dec 2009; +3.8% for Oct-Dec 2010 vs Yago. Bureau of Labor Statistics By mid- December, 20% of consumers say they purchased food or candy as gifts. National Retail Federation Baking homemade Christmas cookies (81.6%) topped the list of December activities. BIGresearch.com

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Candy & Gum Continues To Be a Key Category To Retailers In Terms Of Size and Growth! ©2010 Symphony IRI Group Candy & Gum Racks up over $9 Billion in sales annually in FDMx alone Is the 5 th largest food category. Is growing faster than the top 4 at +3.8% vs. a year ago. +3.8% (3.0%) +2,7 +0.8%+1.5%

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Candy Sales During Christmas Season Represents 19% Of Annual Sales ©2010 Symphony IRI Group 20% 11%8% 19% Close to 40% of annual Candy $ sales occur during the eight weeks that make up the Halloween and Christmas seasons

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Contents Executive Summary Christmas Season and Candy Christmas Candy Sales Results Christmas Candy Support Opportunities 2010 Key Takeaways

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Christmas 2010 Sales Summary According to IRI, overall Christmas confectionery sales grew at a 4.3% rate. Drug stores sales grew by 6.7%, supermarket sales grew 4.4% and Mass merchant sales grew 0.8%. Chocolate seasonal candy sales grew 5.4% while non-chocolate seasonal confections declines by -7.0%. Continuing a trend that has developed over the past five years, seasonal Christmas confections grew at a 3.9% pace during the month of December. Sales on Christmas confections also grew in November and Seasonal Christmas Chocolate grew in October by +3% pointing to Retailers capitalizing on early season sales.

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Chocolate Contributed 64% Of Candy Sales In FDMx For Christmas…and Growing. ©2010 Symphony IRI Group +4.1% +1.1%

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Christmas Chocolate Dominate November and December Candy Sales ©2010 Symphony IRI Group Christmas seasonal chocolate used for gifts, stocking stuffers and Holiday parties contribute 54 percent of candy sales in November and December Seasonal Non- Chocolate accounts for 6%

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Christmas Confectionery Sales Grew At +4.3% Vs Led By Drug Sales Which Grew By 6.7% ©2010 Symphony IRI Group Drug led total category and in all segments Food sales grew 4.4% and Mass merchant sales grew 0.8%. Chocolate seasonal candy sales grew 5.4% while non-chocolate seasonal confections declines by -7.0%. TTL Christmas Candy Chocolate Christmas Candy Box/Bag/Bar > 3.5oz Seasonal Christmas Choc Gift Boxes Seas. Christmas N-C

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Food Drug & Mass Channels Vie For Seasonal Christmas Candy Sales Drug Channel accounts for 60% of Gift Box sales

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Two Leading Brands Drove November/ December Christmas Chocolate Sales

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. …While Other Candy Brands Contributed More Than Half Non-Chocolate Christmas Candy Sales

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Contents Executive Summary Christmas Season and Candy Christmas Candy Sales Results Christmas Candy Support Opportunities 2010 Key Takeaways

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Merchandising Lifts Strong, But Down From 2009 ©2010 Symphony IRI Group Merchandising drives lifts of 150% to 250% for seasonal Christmas Candy. But, these lifts declined from a year ago. CHOC GIFT CHRISTMAS CHRISTMAS BOX/BAG/BAR BOX SEASONAL SEASONAL > 3.5OZ CHOC NON-CHOC (6%) (13%) (24%) (15%)

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Base Sales Show Solid Growth…But Merchandising Was Less Impactful Than 2009 ©2010 Symphony IRI Group % Volume sold on Merch increased for Christmas Seasonal Chocolate and Non- chocolate candy But, incremental volume declined pointing to merchandising having less impact on incremental consumption % Vol, Any Merch Chg Yago Incr Vol % Chg YAgo Base Vol % Chg YAgo

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Vast Majority Of Sales Come On Promotion With Display Having Largest Contribution ©2010 Symphony IRI Group

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Aggressive Pricing Kicked Off Strong December Sales Performance Price reductions in early November may be premature and drive limited incremental Pulling back on merch Christmas week may have left incremental sales on the table

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Seasonal Christmas Chocolate Had the Strongest Promotion Efficiency* ©2010 Symphony IRI Group With Exception of Seasonal Chocolates, Roughly 45% of November Merchandising Investments May Have Unnecessarily Subsidized Volume…. Merchandising Efficiency For ALL Segments Climbed Beginning of December Seasonal Chocolates Merchandising was Very Efficient Season-Long November Merchandising Subsidized Nearly Half of Volume Proving Less Than Efficient *Promotion Efficiency = % of Promoted Volume That is Incremental

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers Gift Box Merchandising Lagged Behind 2009 Levels, Eclipsing 50% ACV F&D Only Once In Dec ©2010 Symphony IRI Group In 2009, Gift Boxes had 4 of 8 weeks above 50% ACV pointing to a significant pull back in 2010

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Feature &Display Levels For Seasonal Christmas Chocolates Trailed 2009 ©2010 Symphony IRI Group In 2009, Seasonal Christmas Chocolate stayed above 40% beginning Thanksgiving week…in 2010 F&D levels dipped in mid-December.

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Seasonal Christmas Non-choc Merchandising Levels Matched 2009 Only Twice During Season ©2010 Symphony IRI Group …and had only one week above 40% ACV, compared to three weeks in 2009

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Despite Promoting a Week Later, 2010 Drug & Mass Ads Increased…Thanksgiving Thru New Year’s Grocery candy promotions actually decreased (8%). Drug continued to promote candy the most +10% vs Mass saw the largest increase over the prior year, +39%. © 2010 Market Track. Private and Confidential

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. 29 © 2010 Market Track. Private and Confidential Holiday Snack Ads Grew and Candy’s Share Of Snack Ads Grew In Proportion To Other Snacks WE Nov 7, 2010 WE Nov 14, 2010 WE Nov 21, 2010 WE Nov 28, 2010 WE Dec 5, 2010 WE Dec 12, 2010 WE Dec 19, 2010 WE Dec 26, 2010 WE Jan 2, 2011

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Prominent Feature Ad Placement Declined In 2010 For Candy Newspaper Wrap/ROP Ad placement all but disappeared, while some front page share shifted to other pages. Although there was an increase in features, overall quality has declined over the past three years. © 2010 Market Track. Private and Confidential

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. 31 © 2010 Market Track. Private and Confidential Drug Addressed all shopper segments with The Lowest Overall Price Perception, As Well As Largest Share Of Candy Under $1.00 For Much of the Season, Drug and Mass ‘owned’ the lower and middle tier seasonal price points ($2.50-$5.00 and lower) and promoted a variety of different price points to address all types of shoppers WE Nov 7, 2010 WE Nov 14, 2010 WE Nov 21, 2010 WE Nov 28, 2010 WE Dec 5, 2010 WE Dec 12, 2010 WE Dec 19, 2010 WE Dec 26, 2010 WE Jan 2, 2011 Price Perception by Trade Class Grocery started the season with a low price perception, but focused on Higher Price point items after week 12/12

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. 32 © 2010 Market Track. Private and Confidential Confectionery and Snacks Share of Holiday Snacking by Trade Channel All trade classes delayed Candy promotions by one week and increased Candy’s share of Category. Drug and Mass gave the most share to Candy consistently weeks 48-51, while Grocery delivered only 1/5 th to 1/3 rd of the holiday snacking features to confectionery. All trade classes delayed Candy promotions by one week and increased Candy’s share of Category. Drug and Mass gave the most share to Candy consistently weeks 48-51, while Grocery delivered only 1/5 th to 1/3 rd of the holiday snacking features to confectionery.

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Drug & Grocery showed increases in promotions that did not specify a manufacturer (“Other”); Grocery delivered less ads overall 33 © 2010 Market Track. Private and Confidential Overall Drug and Mass added Ad support for most manufactures while Grocery reduced for most Overall Drug and Mass added Ad support for most manufactures while Grocery reduced for most Both Drug and Grocery channels promoted more ‘Other’ manufacturer, indicating a shift to less product-or manufacturer-specific advertisements and towards seasonal themed ads Both Drug and Grocery channels promoted more ‘Other’ manufacturer, indicating a shift to less product-or manufacturer-specific advertisements and towards seasonal themed ads 17,627,400,000

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Examples of ‘Other Manufacturer’ 34 © 2010 Market Track. Private and Confidential Walgreens, Los Angeles 11/07/2010 Other Manufacturer refers to ads in which a specific manufacturer is not called out, and in some cases, an uncommonly advertised manufacturer, such as in the examples below. Walmart, Atlanta 12/26/2010 Rite Aid, San Diego 12/24/2010 Kmart, Baltimore 12/19/2010 Target, Buffalo 12/19/2010 Walgreens, Kansas City 12/12/2010 In this ad, Ashbury and Merci are both considered “Other Manufacturer”

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Contents Executive Summary Christmas Season and Candy Christmas Candy Sales Results Christmas Candy Support Opportunities 2010 Summary

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Although December Is Dominant Candy Month For Christmas, November Sales Growing ©2010 Symphony IRI Group +14.0% +5.8% +7.8% +7.9% (3.5%)+2.7% +2.0% (7.3%) +3.9% +10.8% (0.7%) (18.9%)

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Snack Size And Box/ Bag/ Bar Drove Chocolate Sales Growth In November/ December ©2010 Symphony IRI Group Halloween candy drove November sales growth raising the question: “Did leftover Halloween candy impede on Christmas candy incremental sales? TTL Choc Box/Bag/Bar > 3.5oz Seasonal Christmas Choc Gift Boxes Box/Bag/Bar < 3.5oz Snack Size Seasonal Halloween Choc

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Seasonal Christmas Non-chocolate Declined Vs ©2010 Symphony IRI Group Lower merchandising in both months (25%-50% ACV)* for overall Non- Choc drove declines in across all segments except Chewy & Hard/Roll Candies Yet, as with Chocolate, Halloween candy drove November sales growth Early Christmas seasonal trends were especially impacted by Halloween gains TTL Non-Choc Seas. Christmas Non-Choc Chewy Candy Novelty Candy Hard Sugar/PKG & Roll Cndy Seas. Halloween Non-Choc

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Christmas Seasonal Items Per Store Trending Down Pointing To Opportunity For Innovation

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Contents Executive Summary Christmas Season and Candy Christmas Candy Sales Results Christmas Candy Support Opportunities 2010 Key Takeaways

The NCA fosters industry growth by advancing and promoting the interests of the confectionery industry and its consumers. Key Takeaways Category is big, highly relevant, and critical to winning Holiday shoppers for season Mass and Drug staked claim in 2010, and won the season – Promoted broad range price points for all shoppers – drove price image to win the season – More Feature Advertising across brands lifted category for all – Non-branded Seasonal Thematic ads branded retailer as Holiday solution Opportunity for improvements in Grocery – A higher share of Feature and Displays for Candy supporting consumer holiday snacking behavior is warranted – Broader range of price points, particularly at the lower range for price impact – Improved Execution, especially in December where efficiencies run higher – Improve Halloween execution as residual inventories adversely impacted merchandising efficiencies with November promotional discounts – Effectively managing plans and retail execution the entire Halloween AND Christmas Holiday period is critical to maximize incremental opportunities during highest seasonal volume periods – Ensuring ‘right’ product mix is merchandised on the floor will minimize risk and maximize incremental volume throughout the season