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Efficient handling of agents and distributors in the USSeptember 3, 2008

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Purpose of today’s presentation

What I would like to accomplish today ….

• Tell the Toms Group history in the US – and our strategy going forward -successes and challenges

• Elucidate do’s and don'ts when doing business in the US

• Discuss how to effectively handle distributors and agents in the US

• Answer a lot of questions

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Agenda

1) Introduce Toms Group / Anthon Berg

2) Present Toms Group’s strategy for the US

3) Illustrate the complexities in setting up a US operation

4) Discuss key factors for success in the US

Agenda

1) Introduce Toms Group / Anthon Berg

2) Present Toms Group’s strategy for the US

3) Illustrate the complexities in setting up a US operation

4) Discuss key factors for success in the US

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5

Setting the scene

Toms Group …

• … develops, manufactures and sells high quality confectionery products

• … has a broad product assortment covering all confectionery categories, i.e. markets chocolate, licorice and sugar confectionery products

• … is the market leader in Denmark and has a ‘stronghold’ position in the Nordic area

• … is owned by Gerda and Victor B. Strands Foundation (Toms Gruppen Foundation)

• … has an annual turnover of approximately DKK 1,5 billion

• … produces an annual chocolate and sugar confectionery tonnage ofapproximately 30,000 MT

• … employs approximately 900, seasonal dependent

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Strategizing for the future

Gold in 2012 Decomposing the strategy

Clear financial goals:• Turnover: DKK 2 billion• EBIT % ≥ 10

Values – we believe in:• Change • Simplification• Openness• Value-adding as well as responsible behavior!

Five strategic themes:• Consumer Insight• Innovation• Effective Supply Chain• Partnerships• Cooperation and personal development

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Proactively taking a CSR role

Global compact

World Cocoa Foundation

Fair TradeEducation project

GhanaFermentation

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Strategizing for Anthon Berg

Anthon Berg wants to be one of the world’s leading brands within ‘High End

Chocolate’

By utilizing our core competence in treating cocoa beans to make

sophisticated chocolates, it is the aim to manifest Anthon Berg as being a chocolate mentor who excites the modern life

indulgers

‘Brand Essence’

Anthon Berg is the Brand that is ..”Always a surprisingly special experience for

your senses”

Anthon Berg represents the unexpected …

Anthon Berg is… more than meets the eye… more than the tongue tastes… more the nose smells… more than the fingers sense… more than you expected

The small unexpected detail in the product, the packaging or the marketing that takes you by subtle surprise

Uncompromising, Aesthetic, Surprisingly special

• Our consumers are modern life indulgers

• Our consumers are open-minded often travelling people with an interest in what's aesthetic, interior decorating, fine dining, travels, wine and design

Target GroupVision

Mission

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Agenda

1) Introduce Toms Group / Anthon Berg

2) Present Toms Group’s strategy for the US

3) Illustrate the complexities in setting up a US operation

4) Discuss key factors for success in the US

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USA – #1 confectionery market globally

Global confectionery market – 2005100% = USD 126.2 bill.

20.5% US

US confectionery market – 2005100% = USD 25.9 bill.

54.9% Chocolate31.6%

Sugar

Gum

13.5%

Share of global market:•Chocolate: 20.9%•Sugar: 19.9%•Gum: 20.6%

20 times larger than Denmark

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2007

Our history and strategies in the US

2006

2005

2004

2003

2002

• The US business is build on cooperation agreements with five regional importers• A Costco deal is settled ‘on the side’. A new agent approached us.

2001

2000

<2000

• The regional importers could not purchase full containers of products (lacked scale) and sales were not impressive – we decided to make a strategic partnership with a new importer to focus our effort. Euro-American Brands was chosen. The five regional distributors, however, kept exclusive regional deals

• The strategy of Toms Group changes to focus more on the Scandinavian and British markets. As a result, the export department in

Toms Group sees huge changes. The US remains a focus market, though.• The business with EAB is institutionalized

• We are not satisfied with EAB’s performance. It is decided that EAB employs a ‘Toms Group exclusive’ sales person to be a brand champion and increase sales. The salary of this person is split 50/50

• The exclusivity deal with the five regional distributors are cancelled

• The 50/50 set-up proves not to be ideal and Toms recruit the sales person as a consultant working 100% for Toms Group. She handles the Clubs and works with EAB to optimize distributor business

• We attend the exhibition, ECRM, to gain contact to national accounts. Succeeds to contact Target. We wants volume sales, and best way to get that fast is with national accounts

• We continue to court national accounts direct and cut out our importers role in these cases • The exchange rate is a challenge

• We develop a clear US strategy and decide to establish Anthon Berg Inc in New York through DI• Our sales person starts her own business, Just Clubs Consulting, and represent us at club level

• Anthon Berg Inc is established. Henning Kallesen is placed in New York from 01022008.• Wins the largest US drugstore, Walgreens, as a new customer.

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The US foundation – six strategy pillars

Ensure long-term availability of core and associated products facilitating the US expansion

Broaden the product portfolio – but remain a niche Anthon Berg chocolate player offering unique products

Go-to-market directly targeting national/regional chains and indirectly (with importer) targeting the distributors

Keep current two-hub distribution set-up allowing for flexibility, while pursuing cost-efficient improvements

Products

Go-to-market model

Distribution and logistics

Productionand

capacity

Enhance execution power by scaling up moderately with sales and marketing resources (customer proximity)

Organizational execution

Intensify the brand building via an augmented – yet focused and targeted –marketing effort

Brands and marketing

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A product profile adjusted to the US

Inside

(core product)

Outside

(packaging)

European appeal

US appeal

US appeal

European appeal

Main challenge!

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A broader – but still focused – product portfolio

Special,

unique

products

‘Mass’products

2006B 2010S

Today

Going

forward

Illustrative product

direction

Existing

products

Loafs

Creamy

Coffee

Liqueurs

Finished

concept

Mint sachet

Royal Tin

Ganache

Origins

New liqueurs

Examples

New ideas

Cocktails

Non-alcoholic

Chocolate

Therapy

Health

Raw marzipan

Private label

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A regional approach

Washington

Oregon

California

Nevada

Idaho

Montana North Dakota

ArizonaNew Mexico

Texas

Oklahoma

Louisiana

South Dakota

Nebraska

Utah

Wyoming

Colorado Kansas Missouri

Arkansas

Missis-

sippi Alabama Georgia

Tennessee

KentuckyVirginia

West

Virginia

Illinois Indiana

Ohio

Iowa

Minnesota

Michigan

Wisconsin

Pennsylvania

New York

Maine

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8

North Carolina

South

Carolina

Florida

3

Alaska

Hawaii

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1. Maryland

2. Delaware

3. New Jersey

4. New York

5. Connecticut

6. Rhode Island

7. Massachusetts

8. New Hampshire

9. Vermont

Focus onspecific regions

Focus onnational chains

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1 2

Where the consumers of high-end chocolate live

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A number of channel alternatives exist

Low

High

Low High

Illustrative channel

opportunity

Fit with Anthon Berg image/positioning

Opportunity for

scale/volume

1

2a2b

3

4

5

6

8

Independent/specialty stores

Clubs / mass merchandisers

Walmart

Drugstores

Supermarkets

Department stores

Dollar discounters

Convenience

Internet

1

2a

2b

3

4

5

6

7

8

7?

Strategic channel alternative

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Three channels are prioritized

Mass merchandisers and clubs

• Access to volume (strong Q4 sales) and they represent the least complicated business model:– Full truck loads– ‘Easy’ shipments– No listing fees/slotting fees

• We have proven that we can handle them• We get good product display and have full control over initial

product penetration

Rationale

Drugstores

• Access to volume business• Drugstores sell a lot of candy• Simple distribution• We get broad distribution leading to increase in brand

recognition• Drugstores have good image in consumers mind

Supermarkets

• Nationally large volumes• Longer listings• More brand recognition• We can get other products listed (more SKUs)

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Key factors for success

• Right packaging• Right pricing• Ability to create for one region at

a time

• Ability to create power-wings• Right packaging and sell unit

sizes• Right pricing• Advertising money

• Ability to create a set of products (3 to 6 skus) to go into the confectionery set that will sell

• Slotting money• Advertising money

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Mapping of potential customers

Other retailers

Existing

customer

Department

stores

• -

National

Existing

relations

Good fit – but

no contact (yet)

Mass

merchandisers

and clubs

Drug stores

Supermarkets

Existing

customer

• -

• -

Regional

Existing

relations

Good fit – but

no contact (yet)

• -

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Agenda

1) Introduce Toms Group / Anthon Berg

2) Present Toms Group’s strategy for the US

3) Illustrate the complexities in setting up a US operation

4) Discuss key factors for success in the US

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Our co-packing and distribution set-up

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Comment

• Our two hubs are in principle located rightly to cater for customer requirements

• Besides our two hubs, we capitalize on the customers individual distribution centers

• We must continuously ensure that the transport costs represent best buy

US

Washington

Oregon

California

Nevada

Idaho

Montana North Dakota

ArizonaNew Mexico

Texas

Oklahoma

South Dakota

Utah

Wyoming

Colorado Kansas

Alaska

Hawaii

Nebraska

Georgia

Indiana

Michigan

Wisconsin

Florida

South

Carolina

Maine

Virginia

North Carolina

Louisiana

Missouri

Arkansas

Alabama

Iowa

Minnesota

Missis

-sippi

Kentucky

Illinois

Tennessee

Ohio

New York

Pennsylvania

West

Virginia

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8

9

2

5 6

1. Maryland; 2. Delaware; 3. New Jersey; 4. New York; 5. Connecticut;

6. Rhode Island; 7. Massachusetts; 8 New Hampshire; 9. Vermont

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Co-Packing in the US

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Sales set-up prior to strategy

Set-up

EAB

Focus

Our exclusive importer

Just Clubs Consulting

Toms Group broker for Clubs

Club Store Link

Our ‘background’ consultant

Opportunity

Military, Ethnic distributors, major distributors, Cost Plus, every day distribution at national accounts

Costco, Sam’s Club & BJ’s

Costco

Rationale:

We saw a big potential for Anthon Berg which our distributor did not pursue

Considered changing distributor but the choice is limited due to a very small ratio of imported confectionery

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Go-to-market sales strategies

Go-to-market sales strategies

Direct

• Broker/Agent

• Own subsidiary

• Direct from sales team in Denmark

• Joint venture/partner alliance with own staff locally

Indirect

• Importer/market distributor

• Channel distributor

• Regional distributor

• Distributor with product focus

Past preferred model

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A two-facetted go-to-market strategy

Go-to-

market

model

Indirectly

Directly

Using EAB as an importer handling

regional distributors and smaller specialty customers

Handling selected national and regional accounts on our own or through a broker

Cooperation

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Our focus

Direct Store Delivery (DSD)

Manufacturer

3rd Party DistributorDirect to Chain DC Delivery

Note: Many players distribute directory to the wholesale club store, as it is similar to a DC

We focus on two distribution models -but it is complex!

Manufacturer

Retailer DCs

Manufacturer

Importer

Internet

Internet

Channels:GrocerySpecialty StoresTheatres

GroceryMass MerchantsChain DrugWholesale Club

Convenience (C-store distributors)

Chain Drug, Mass, Traditional (Candy and Tobacco distributors)

Grocery (Wholesale Grocers)

Vending, Specialty Food, Foodservice (Specialty distributors)

Hub Hub

Retailer DCs

Regional distributor

More value-add activities in the US

More marketers ‘on the ground’ to handle customer requirements (e.g. packaging) and monitor operations

Show commitment to customers

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Two different pricing/costing models

Go-to-

market

model

Indirectly

Directly

1,00

0,30

0,39

0,51

2,20

0,00

0,50

1,00

1,50

2,00

2,50

Toms Group price

Distributor/ importer

fee

Brokerfee

Retailer fee

Consumer price

0%

30%

30%

30%

1,00

0,00 0,15

0,69

1,84

0,00

0,50

1,00

1,50

2,00

Max

15%

Max

60%

Example in USD

Example in USD

Difference

0.36

Illustrative example

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New set-up

Set-up

EAB

Focus

Our exclusive importer

Just ClubsConsulting

Toms Group broker for Clubs

Club Store Link Our ‘background’ consultant

Hanson & FasoToms Group broker for

Walgreens

Opportunity

Military, Ethnic distributors, major distributors, Cost Plus, every day distribution at national accounts

Costco, Sam’s Club & BJ’s

Costco

Walgreens

Anthon BergInc.

Direct business with national accounts

CVS, Rite Aid, Target, Whole Foods, Trader Joe’s, Starbucks etc.

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Getting a clear distribution of responsibility in place

Mass merchandisers and clubs

Channel

Drugstores

Supermarkets

Department stores

Convenience

Regional distributors

Toms Group EAB

On certain accounts, we will work with EAB on a situation-by situation basis

Owns and is responsible

2007/08 2007/08

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Consider forward

integration (acquisition of partner – own subsidiary)

Grow partner

Switch ‘entry mode’ into

own subsidiary (new

management is necessary)

Our partners are key for success –continuous evaluation is needed

Market Potential

LowPartner

performanceHigh

Market potential

Low

High

Maintain position

Grow Partner

Maintain

Get new partner

Maintain position

Consider ‘Low cost’mode

Exit

Partner evaluation model

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Some advise on set-up

Set - up

• Investigate the right distribution set-up thoroughly – it is complex!

• Choose your partners with care – you must be able to trust them, but DO get a contract in place quickly

• Find the right partners – and pay them well! Incentive programs work

• Make sure your business is important to your partner

• Invest in training the key people at your partner

• Create strong relationships with your partners at all levels

• Do not give market exclusivity. Nobody can cover the whole market

• Evaluate your partners and distributors on a regular basis

• Commit to annual business plans and review them

• Choose partners who are specialists on the major retailers

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Agenda

1) Introduce Toms Group / Anthon Berg

2) Present Toms Group’s strategy for the US

3) Illustrate the complexities in setting up a US operation

4) Discuss key factors for success in the US

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What does it take?

KFS’s

• Be competitive – Optimize the value chain

• Find your niche – you can not compete with the multinationals on price! (Tailor made premium products)

• High quality and service level – remember long lead time

• Get commitment at executive level (capacity issues & production before PO’s)

• Be willing to take a risk – big volume

• Travel to the market often and build a strong network

• Invest in market research and understanding of the market

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What does it take?

KFS’s

• Be patient & persistent – it takes time

• Don’t underestimate the cultural difference

• Understand what motivates people – ‘Money makes the world go around’

• Make sure to have the right legal advise (Contracts, product liability etc.)

• Remember, you are a very small player (you must do everything better than the multinationals)

• Be very well prepared

• Be reliable

The sky is the limit!