picking winners in food & nutrition...

April 2014

Picking Winners in Food & Nutrition Investments

This document was created before Parthenon joined Ernst & Young LLP on August 29, 2014, and has not been updated to reflect the combination.

2

the environment is improving, but with headwinds

from the shift back to restaurants

0

200

400

600

800

1,000

1,200

$1,400B

2006 2007 2008 2009 2010 2011 2012 2013E 2014F 2015F 2016F 2017F 2018F

Food Away from Home

Food at Home

7% 5% 3% -1% 3% 6% 7% 5% 3% 4% 4% 5% 5%Away from Home

3% 5% 5% 0% 3% 5% 3% 2% 3% 2% 2% 3% 4%Food at Home

Retail Food Sales in the U.S. at Home and Away from Home, 1992-2012

YoY Growth

Source: USDA Economic Research Service Food Expenditure Series

H F

3

fresh format, dollar, and club continue to lead food &

beverage retail growth

Source: Willard Bishop: The Future of Food Retailing (June 2013)

Total U.S. Food and Beverage Sales and Growth by Retail Channel, 2011-2012

0

5

10

15

20

25%

Retail Sales ($1.1T Total)

Yo

YG

row

th

Fres

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mat

Dollar S

tore

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Club

Limite

d-As

sortm

ent

Super

cent

er/

Mas

s

Drug

Store

s

Trad

itiona

l

Super

mar

kets

Con

venien

ce

4

where is the volume moving in traditional grocery?

Bre

ad

Chain Grocery Store*

Alcohol Produce

*Supermarket 2 Year VOLUME Growth, LTM Jan ‘12 vs. LTM Jan ‘14

Dairy and Eggs Meat and Deli

Frozen

Foods

Ca

nn

ed

Go

od

s a

nd

Pa

sta

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5

Bre

ad

Alcohol Produce


Frozen

Foods

Ca

nn

ed

Go

od

s a

nd

Pa

sta

Infa

nt

Ca

re

Pe

rso

na

l C

are

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categories with large declining volumes

Frozen

Prepared

Foods

Milk

Soup


>3.0%

2011-2013 CAGR

1.0 to 3.0%

-1.0 to 1.0%

-3.0 to -1.0%

<-3.0%

Butter &

Margar-

ine

Source: Nielsen Scantrack

Carbon-

ated

Beverages

Paper

Products

Pain

Remedies

Canned

Veg.

Frozen

Meat &

Seafood

House

Ware

Office

Supplies

Frozen

Novelties Diapers

Laundry

Supplies

Batteries

Frozen

Baked

Goods

Dessert

Syrups

House-

hold

Supplies

Canned

Seafood

Baking

Mixes

Gum

Canned

Fruit Non-

Carbon-

ated Soft

Drinks

Baby

Needs

Magazines


6

Bre

ad

Alcohol Produce


Frozen

Foods

Ca

nn

ed

Go

od

s a

nd

Pa

sta

Infa

nt

Ca

re

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all categories with declining volumes

Frozen

Prepared

Foods

Milk Eggs

Bread and

Baked

Goods

Cereals

Soup


>3.0%

2011-2013 CAGR

1.0 to 3.0%

-1.0 to 1.0%

-3.0 to -1.0%

<-3.0%

Butter &

Margar-

ine


Carbon-

ated

Beverages

Juices

Paper

Products

Pet Food

Hair Care

Deter-

gents

Pain

Remedies

Condi-

ments /

Sauces

Candy

Dry Mixes

Frozen

Pizza

Frozen

Veg.

Canned

Veg.

Baby

Food

Frozen

Meat &

Seafood

House

Ware

Office

Supplies

Dressings

and

Toppings

Frozen

Novelties

Cottage

Cheese &

Sour

Cream

Oral

Hygiene

Shortening

/ Oil

Diapers

Shaving

Needs

Baking

Supplies

Pet Care First Aid

Laundry

Supplies

Sugar and

Sweet-

eners

House-

hold

Cleaners

Pasta

Batteries

Pickles /

Olives /

Relishes

Sanitary

Protection

Frozen

Baked

Goods

Dessert

Syrups

House-

hold

Supplies

Canned

Seafood

Baking

Mixes

Refriger-

ated

Dough

Deod-

orant

Grooming

Aids

Gum

Canned

Fruit

Dried Fruit

Non-

Carbon-

ated Soft

Drinks

Baby

Needs

Dry Grains

Freshen-

ers

Tobacco Magazines


7

Bre

ad

Alcohol Produce


Frozen

Foods

Ca

nn

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Go

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s a

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Pa

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categories with large increasing volumes

Fresh Meat


>3.0%

2011-2013 CAGR

1.0 to 3.0%

-1.0 to 1.0%

-3.0 to -1.0%

<-3.0%

Coffee


Bottled

Water

Vitamins

Refrig.

Dips and

Spreads

Liquor


8

Bre

ad

Alcohol Produce


Frozen

Foods

Ca

nn

ed

Go

od

s a

nd

Pa

sta

Infa

nt

Ca

re

Pe

rso

na

l C

are

OTC

Cle

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ers

Ho

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res

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ve

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es

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od

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all categories with increasing volumes

Fresh

Produce

Fresh Meat


>3.0%

2011-2013 CAGR

1.0 to 3.0%

-1.0 to 1.0%

-3.0 to -1.0%

<-3.0%

Coffee

Yogurt


Bottled

Water

Snacks

Cookies

Vitamins

Breakfast

Foods

Cosmetics

Tea

Frozen

Breakfast

Refrig.

Dips and

Spreads

Wine

Liquor


9

growth is found in pockets around the

grocery store

Fresh

Produce

Packaged Meat Fresh Meat Deli

Frozen

Prepared

Foods

Milk Eggs

Bread and

Baked

Goods

Cereals

Soup


>3.0%

2011-2013 CAGR

1.0 to 3.0%

-1.0 to 1.0%

-3.0 to -1.0%

<-3.0%

Coffee

Cheese Yogurt

Butter &

Margar-

ine


Carbon-

ated

Beverages

Juices

Refriger-

ated

Juices

Bottled

Water

Snacks

Cookies

Crackers

Nuts

Paper

Products

Pet Food

Hair Care

Deter-

gents

Cough

and Cold

Pain

Remedies

Vitamins

Medicat-

ions /

Remedies

Ice

Cream

Breakfast

Foods

Condi-

ments /

Sauces

Candy

Dry Mixes

Frozen

Pizza

Frozen

Veg.

Canned

Veg.

Cosmetics

Skin Care

Baby

Food

Frozen

Meat &

Seafood

House

Ware

Tea

Office

Supplies

Dressings

and

Toppings

Frozen

Novelties

Jams /

Jellies /

Spreads

Packaged

Milks &

Modifiers

Cottage

Cheese &

Sour

Cream

Oral

Hygiene

Spices &

Seasoning

Shortening

/ Oil

Soap &

Bath

Needs

Diapers

Shaving

Needs

Baking

Supplies

Pet Care First Aid

Laundry

Supplies

Kitchen

Gadgets

Frozen

Breakfast

Sugar and

Sweet-

eners

House-

hold

Cleaners

Pasta

Batteries

Pickles /

Olives /

Relishes

Sanitary

Protection

Frozen

Baked

Goods

Dessert

Syrups

House-

hold

Supplies

Canned

Seafood

Baking

Mixes

Refriger-

ated

Dough

Refrig.

Dips and

Spreads

Deod-

orant

Grooming

Aids

Gum

Canned

Fruit

Dried Fruit

Non-

Carbon-

ated Soft

Drinks

Baby

Needs

Dry Grains

Freshen-

ers

Frozen

Fruits

Beer Wine

Tobacco Liquor Magazines


10

we are also in the midst of significant demographic

shifts in the consumer base

Source: U.S. Census

Share of U.S. Adult Population, Millenials vs. Baby Boomers

0

10

20

30

40%

Baby Boomers

Millenials

2010

2015

2020

2025

2030

2035

2040

2045

Hispanic Share of U.S. Adult Population

0

10

20

30%

Hispanics

2010

2015

2020

2025

2030

2035

2040

2045

17% of the adult population by 2020

13% more Millenials than Boomers in 2020

11

• millenials represent one-third of the adult

Hispanic population

• vs. one-fifth of the non-Hispanic

population (the Boomer proportions are

inversed)

Targeting trends that are resonant

with Millenials will generally carry

weight with Hispanics

12

In 1985 there was no state with an obesity level

greater than 14%...

0-9%

10-14%

15-19%

20-24%

25-29%

30+%

1985

Percentage of Americans that are Obese (BMI>30), by State

% Obese

Source: Behavioral Risk Factor Surveillance System, CDC; Note: States with no data available are colored 0-9%

13

0-9%

10-14%

15-19%

20-24%

25-29%

30+%

Source: Behavioral Risk Factor Surveillance System, CDC; Note: States with no data available are colored 0-9%

…

% Obese


1990

14

0-9%

10-14%

15-19%

20-24%

25-29%

30+%

Source: Behavioral Risk Factor Surveillance System, CDC

…

% Obese


1995

15

0-9%

10-14%

15-19%

20-24%

25-29%

30+%


…

% Obese


2000

16

0-9%

10-14%

15-19%

20-24%

25-29%

30+%


…

% Obese


2005

17

0-9%

10-14%

15-19%

20-24%

25-29%

30+%


…by 2010 there was no state with an obesity level less

than 20%!

% Obese


2010

18

fortunately, recent studies show obesity stabilizing;

consumers are shopping with health in mind

Obesity in the United States by Age Group, 1960-2012

0

5

10

15

20

25

30

35

40%

Children

Adults

196

0

196

2

196

4

196

6

196

8

197

0

197

2

197

4

197

6

197

8

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

Source: JAMA; CDC; NIH

19

How should we think

about picking winners

in this environment?

Not surprisingly, everyone is thinking

about investments in this area. So…

20

picking winners in Food & Nutrition:

It’s hard to pick whether a niche is a trend or a

fad…so look for underlying macro trends

Value is being redefined by consumers; they

view value as the ratio of quality to price

Leverage macro trends to create new

segments of established stagnant categories

Distribution will make-or-break the success of a

growing product

Packaging/Labeling is often an overlooked

opportunity that can lead to profitable growth

1

2

3

4

5

21



fad…so look for underlying macro trends 1

22

trend or fad?

0

5,000

10,000

15,000

20,000

25,000

30,000

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

Atkins

Gluten-Free

Fat-free

Low Sodium

News Reports by Topic (1980-2013)

Indexed at 2013 Media Levels

Source: Factiva

Note: Data was collected by counting news reports mentioning specific search terms: “Atkins,” “Gluten-Free AND food NOT pet,” “Low Sodium,” and “Fat free”; Gluten-free

news reports exclude coverage of pet food contamination; Data has been re-indexed to correct for any reduction in database coverage for historical time periods

Fat-free peak

Low Sodium

peak

Atkins peak

Gluten-free

peak?

23

“hot” trends in Food & Nutrition investing are all

around us

Is the brand identity… convenience

gluten-free

single serve

reduced packaging

natural

locally sourced

nut-free

no preservatives

organic

low/no fat nutraceuticals

non-GMO

ADA

fortified

raw

24

• Do I know who made the product?

• Where did the food come from?

• Were the ingredients sustainably sourced?

• How was it manufactured/cooked?

• Is it highly processed?

• How was the food grown/ produced/raised?

• “Negatives” in the product?

• Inherent positives in the product?

• Do I know the ingredients?

long-term macro trend: return to the basics

lists only nine ingredients and is gluten-free, dairy free, kosher, and soy free

granola and granola bars are made from scratch in small batches using homemade recipes

helps you find the Brewmaster who made your beer

What’s In It How It Was Made Who Made It

LaraBar 18 Rabbits Budweiser

25

continued growth in select restaurant concepts

illustrates this “return to basics” mentality

Prepared in Front of You

Knowing Who Made Your Food

and Where It Came From

26






1

2

27

private brand penetration has been reset to a new

post-recession level…

U.S. Private Brand Unit Share, Mar 2005-Mar 2012

19

20

21

22

23

24%

2006 2007 2008 2009 2010 2011 2012 2013 2014

PL Penetration

Source: Nielsen Scantrack Note: Private Brand unit share is for the U.S. Food, Drug, and Mass channel, excluding Walmart

28

…and store brands don’t look like they used to!

Target Costco

Archer Farms Kirkland Signature

Safeway Stop & Shop

Safeway Select

Open Nature

Nature’s Promise

Simply Enjoy

29








1

2

3

30

new segments case studies

Yoplait

2010 Share 2013 Share Change

32% 22% -10%

Chobani


6% 19% +13%

vs.

Yogurt

Kraft


82% 78% -4%

Annie’s Homegrown


5% 7% +2%

vs.

Macaroni & Cheese

31









growing product

1

2

3

4

32

Sabra

2007: PepsiCo and Israeli-based

Strauss Group form a 50-50 joint

venture to operate the Sabra brand of

hummus, dips, and spreads in North

America

PepsiCo’s clout with retailers and

product sampling tactics helped

propel the Sabra brand from #4 in the

category in 2006 to the dominant

leader with 60% share today

distribution case study: Sabra

0

20

40

60

80

100%

Other

Sabra

Cedar's

Tribe

Athenos (Kraft)

~$200M

Other

Next 3 Brands

Sabra

~$530M

2006 2013

10% 60%SabraShare

Hummus Category Share by Select Brands,

2006 vs. 2013

Source: Bloomberg BusinessWeek; IRI

33

KIND Bars

KIND has used the growth in its

bars to extend into multi-packs,

granolas, and other bar products

distribution case study: KIND Bars

0

20

40

60

80

$100M

2009

$8M

2010

$13M

2011

$22M

2012

$45M

2013

$89M

14% 17% 18% 21% 26%Avg% ACV

49% 75% 103% 98%YoYGrowth

KIND Bar FDMx Sales, 2009-2013


34









growing product



1

2

3

4

5

35

packaging case studies:

• Dough-shaped ‘B’ logo changed

to lowercase with a loaf of bread

drawn into the hole of the letter

• “Warmer” red used to attract

shoppers

• Paper bags that cover the bread

are similar in texture and color to

brown deli paper

• Variety of bread and slogan

printed horizontally around the

package, evoking the feel of

being individually wrapped by a

baker

Source: Wall Street Journal

La Brea Bakery

• Frito-Lay needed a potato chip

product for the Foodservice

channel

• Frito took Miss Vickie’s and

repackaged it into a new, non-

shiny package

• The non-shiny packaging and

the heritage feel set the brand

apart (and was the entire

marketing budget!)

Miss Vickie’s

36

Ingredients Not Allowed in Simply Balanced Foods

Simply Balanced

private brands capitalizing on labeling trends: Target

Source: Target Website; Company 10-K; Parthenon Interview

“at the heart of the Simply Balanced brand

is giving guests more of the ingredients

they know and want – like great-tasting,

wholesome food that’s free of artificial

flavors, colors, and preservatives”

• acesulfame-K • acetylated

esters of mono-and diglycerides

• ammonium chloride

• ammonium bicarbonate

• artificial colors, flavors

• aspartame • ADA • benzoates in

food • Benzoyl

peroxide • BHA

• BHT • brominated

vegetable oil • flour, bromated • flour, bleached • fumaric acid • calcium

bromate • calcium

disodium EDTA • calcium

peroxide • calcium

propionate • calcium

saccharin • calcium

sorbate • calcium

stearoyl-2-lactylate

• calcium sulfate

• caprocaprylo-behenin

• chicory root extract

• cochineal • colors-

synthetic, certified, FD&C cyclamates

• cysteine (l-cysteine), as an additive for bread products

• DATEM (Diacetyl tartaric and fatty acid

esters of mono and diglycerides)

• dimethylpolys-iloxane

• dioctyl sodium sulfosuccinate (DSS)

• disodium calcium EDTA

• disodium dihydrogen EDT

• disodium dihydrogen pyrophosphate

• disodium guanylate

• disodium inosinate

• disodium phosphate

• EDTA

• ethyl vanillin • ethylene oxide • ethyoxyquin • food starch,

modified • Glycerol ester

of wood rosin (ester gum)

• hexa-, hepta- and octa-esters of sucrose

• high fructose corn syrup

• hydrogenated fats

• inulin • invert sugar

• irradiated foods

• lactylated esters of mono-and diglycerides

• lead soldered cans

• methylene chloride

• methyl silicon • methylpara-

ben • Microparticu-

larized whey protein

• derived fat substitute

• modified cellulose

• monosodium glutamate (MSG)

• natamyacin • neotame • nitrates/nitrites • partially

hydrogenated oil

• polydextrose • polypropylene

glycol • potassium

benzoate • potassium

bisulfite • potassium

bromate • potassium

carbonate • potassium

metabisulfite • potassium

nitrate or nitrite • potassium

sorbate • propionates • propyl gallate • propylene

glycol • propylene

oxide • propylparaben • saccharin • silicon dioxide • sodium

aluminum phosphate

• sodium aluminum sulfate

• sodium benzoate

• sodium bisulfite

• sodium diacetate

• sodium erythorbate

• sodium glutamate

• sodium metabisulfite

• sodium nitrate/nitrite

• sodium propionate

• sodium stearoyl-2-lactylate

• sodium sulfite • sodium

tripolyphosph-

ate • sorbic acid • sucralose • sucroglycer-

ides • sucrose

acetate isobutyrate

• sucrose polyester

• Sulfur dioxide • TBHQ (tertiary

butylhydroqui-none

• Tetrasodium EDTA

• trans fatty acids

• tripolyphosph-ate

• vanillin

37

eating right will continue to be a priority…








growing product



1

2

3

4

5

38

About The Parthenon Group About The Parthenon Group The Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, London, Mumbai, San Francisco, and

Shanghai. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory services built on long-term client relationships,

a willingness to share risk, an entrepreneurial spirit, and customized insights. This unique approach has established the firm as the strategic advisor of

choice for CEOs and business leaders of Global 1000 corporations, high-potential growth companies, private equity firms, educational institutions,

and healthcare organizations.

About Parthenon’s Consumer Growth Practice Over the past few decades Parthenon has developed an extraordinary consumer practice, consulting to large and mid-cap corporations, private

equity firms, and portfolio companies. In the simplest sense our toolkit is organized to give answers to the key growth questions facing executives

today. Parthenon distinguishes itself by:

– Putting senior executives and industry leaders on the job: ex-CEO’s and CMO’s from major consumer companies

– Embedding econometric insight from a world-class economic team

– Deploying extraordinary, rapid market research capabilities with a strategic twist

– Leveraging a private equity mentality gained from hundreds of diligences by our consumer private equity practice

About Parthenon’s Private Equity Practice The Parthenon Group’s Private Equity Practice advises clients in all stages of investment, including target identification and screening, strategic due

diligence, portfolio company strategy and operational improvement, and sell-side support. In addition to the firm’s advisory work in consumer,

retail and restaurants, Parthenon serves clients in a wide range of sectors including education, industrial, information and media, and healthcare.

The combination of Parthenon’s Private Equity Practice, which has advised clients on over 1,300 transactions, and our deep roots in Consumer,

Retail and Restaurants – with senior team members with long advisory and operating positions – makes The Parthenon Group the advisor of choice

for private equity firms considering investments in the industry.

For further information, please contact:

Andres Saenz

Partner

The Parthenon Group

Private Equity Practice

Boston

1 617 478 4619

[email protected]

Greg Miller

Partner

The Parthenon Group

Consumer Growth Practice

Boston

1 617 478 4668

[email protected]

picking winners in food & nutrition...

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