January 2009

United States Confectionery Market

U.S. Confectionery Market

Overview

2008-2009 USA Economic Trends •U.S. and world economies in recession

•Stock market declines 30%+

•Retail sales decline in second half of 2008

•Unemployment ends year over 7%

•Up from 4.6% at year-end 2006

•Housing market bubble burst

•Unstable oil prices

•Year ends with historically low interest rates

•Difficult to borrow – credit crunch

•Consumer spending declines

•Commodity prices higher

2008-2009 USA Retail Trends

•Shopping trips declined

•Spending shift to value channels

•Increased coupon usage

•Confectionery seen as a recession proof category

•Organic sales decline

•2008 Holiday retail sales declined

•Other than gasoline purchases retail sales declined

1.5% in December vs 2.4% growth in 2007

Credit crunch and lost investments impacting consumer spending

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2003 20052004 20072006 2008

Cocoa Prices at Historic HighsCocoa price per ton

0

5

10

15

20

25

30

35

40

45

Sugar Prices near Historic HighsU.S. Cents per pound

Refined beet sugar f.o.b. Midwest

2003 20052004 20072006 2008

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Corn Sweetener Prices near Historic Highs

U.S. $ per pound

2003 20052004 20072006 2008

Commodities Pricing

Milk

Corn Syrup

Peanuts

Walnuts

Pistachios

Almonds

The 2008 U.S. Confectionery Market

% $ Change

Retail Sales $28.0 +2.2%

Manufacturers Shipments $18.3 +1.0%

Domestic Manufacturer Shipments $17.5 +1.0%

Imports $2.0 +0.2%

Exports $1.2 +21.6%

The profit margin is approximately 35% for the confectionery category.

The U.S. Retail Confectionery Category generates approximately $28 billion in retail sales

Estimated sales in billionsEstimates based on NCA Shipment Data and Global Trade Atlas Import/Export Data

Category Retail Sales Manf. Sales % Lb. Sales %

Total $28.0 Billion $18.3 billion +1.0% 6.9 Billion -4.0%

Chocolate $15.9 Billion $10.3 billion +2.9% 3.4 Billion -1.9%

Non-Choc. $8.6 Billion $5.7 billion +3.8% 2.9 Billion -7.9%

Gum $3.5 Billion $2.2 billion +4.1% 0.6 Billion +0.1%

2008 Confectionery SalesManufacturers $ sales grew 1% in 2008

NCA Estimates base on U.S. Dept. Of Commerce MA311D Report and NCA Monthly Shipment Reports

2008US Department of Commerce 311D Confectionery Report

2008 NCA Monthly Shipment Reports through November 2008

Trade Total Sales % Growth Chocolate % Growth Non-Chocolate % Growth Gum % Growth

Measured Confections vs. 2007 Confections vs. 2007 Confections vs. 2007 vs. 2007

FDMx $8.8 billion +2.0% $5.0 billion +1.9% $2.5 billion +0.2% $1.3 billion +6.1%

FDMW $12.4 billion +1.4% $6.9 billion +1.2% $3.6 billion -1.2% $2.0 billion +6.2%

FDMWC $16.8 billion +2.2% $8.6 billion +2.3% $4.9 billion +0.1% $3.2 billion +4.9%

All Others $11.4 billion * $7.3 billion * $3.7 billion * $0.3 billion *

Total Sales $28.0 billion +2.2% $15.9 billion +2.3% $8.6 billion +0.1% $3.5 billion +4.9%

2008 Confectionery SalesRetail Sales Summary

NCA Estimates base on U.S. Dept. Of Commerce MA311D Report and Information Resources, Inc.

2008 US Department of Commerce 311D Confectionery Report

2008 IRI Reports through 12/28/08

Trade Channels:F – SupermarketsD – Drug StoresM – Mass MerchantsW – Wal-MartC – Convenience Stores

Total Chocolate Non Chocolate Gum

$90.73

$51.32

$28.95

$7.97

$0

$20

$40

$60

$80

$100

The average U.S. Consumer spent $91 on confectionery products in 2007

2008 US Department of Commerce 311D Confectionery Report

2007 Per Capita Retail Sales

Department of Commerce Data is released in late summer. Please return in August for actual 2008 data.

This analysis shows figures for 2007 shipments and retail sales. The chart will be updated in August.

Chocolate Candy represents approximately 58% of total confectionery dollar sales.

Category Retail Sales

$ Billions

Domestic Shipments

$ billions

Shipment % Growth

Vs. 2006

Imports

$ billions

Import % Growth

Vs. 2006

Exports

$ billions

Export % Growth

Vs. 2006

Total

Confections

$27.4 $16.5 +3.0% $2.2 -0.8% $0.9 +15.0%

Chocolate $15.5 $9.9 -0.3% $0.8 +4.6% $0.6 +18.9%

Non-Chocolate $8.7 $4.7 -0.8% $1.2 -4.9% $0.3 +12.9%

Gum $2.4 $1.5 +4.1% $0.1 +8.1% $0.1 -15.4%

2007 Confectionery Categories Analysis

NCA estimates based on Source: 2008 US Department of Commerce,Census Bureau 311D, Confectionery Report andNCA Manufacturer Shipment Reports

The Confectionery Market is Very Diverse

Private Label2%

Next 11 -308%

Top 564%

Next 6-107%

All Other19%

• The confectionery category is much more diverse than other similar sized food categories.

• There are 300+ suppliers competing for the remaining 30% of confectionery sales.

• The uniqueness of the confectionery category is that each suppliers makes distinctly different items catering to the diverse tastes and demands of the consumer.

Manufacturer Market Share Concentration

52 Week Sales December 30, 2008 Euromonitor

There are more than 300

domestic confectionery manufacturers

U.S. Confectionery

The Retail Market

Retail Confectionery

Mass X Wal-Mart4.8%

Others22.7%

Vending3.6% Dollar Stores*

3.0%

Supermarkets16.2%

Convenience Stores15.2%

Wal-Mart12.8%

Drug Stores9.3%

Warehouse Clubs*7.6%

Bulk4.8%

* * Others include: department stores, food service and ingredient sales, fundraising, give-aways, independent grocers, mail order/internet, military, specialty/candy stores, theaters and concessions

*estimates

NCA 2008 estimates based on IRI, U.S.Department of Commerce, MSA Vending Data, NCA Shipment Report and other industry sources.

Market Share by Trade Channel

2008 Retail Channel Performance

Channel 2008 $ Sales 2008 % GrowthSupermarkets $4.7 +1.6%Wal-Mart $3.7 -0.1% Mass X Wal-Mart $1.4 +0.1%Convenience Stores $4.4 +4.3%Drug Stores $2.7 +3.7%*Warehouse Clubs $2.3 +3.0%*Dollar Stores $.9 +2.1%Vending $1.1 -1.5%*Bulk $1.4 -0.5%

Based on 52 Week Sales – January - December 2008

•Source: NCA estimates based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce. •Sales Figures in billions

The confectionery retail market has grown across all trade channels but convenience stores, club stores, dollar stores and chain drug stores have outpaced the overall retail market.

* Indicates NCA estimate

Total Chocolate/Non-Chocolate/Gum Dollar Share

U.S. Department of Commerce Census Bureau 2008 MA 311D Report

CHOCOLATE CANDY

58%

GUM9%

NON-CHOCOLATE CANDY

33%

Candy and Gum Ranked 3rdAmong 2008 Food Categories

$12.80

$8.80

$8.50

$6.60

$4.50

$4.30

$4.00

$3.80

$13.50

$0.0 $3.0 $6.0 $9.0 $12.0 $15.0

Carbonated Beverages

Milk

Candy& Gum

Salty Snacks

Cereal

Ice Cream

Soup

Cookies

Bottled Juice

Pro

duct

Cat

egor

ies

$ Billions

-0.1%

+2.6%

+2.0%

+7.2%

+2.9%

+0.9%

+0.1%

+4.5%

+0.8%

IRI Food, Drug & MassExcluding Wal-Mart 12/28/2008

Candy and Gum Ranked 3rd among 2008 Food Categories in Food, Drug and Mass Outlets

Candy and Gum is the Largest Snack Category

$8.50

$4.50

$4.00

$2.30

$1.00

$0.50

$0.30

$8.80

$0.0 $2.0 $4.0 $6.0 $8.0 $10.0

Candy& Gum

Salty Snacks

Ice Cream

Cookies

Snack/Granola Bars

Bakery Snacks

Dry Fruit

Misc. Snacks

Pro

duct

Cat

egor

ies

$ Billions

-3.6%

+25.6%

+2.0%

+7.2%

+2.1%

+0.9%

+0.1%

-0.3% IRI Food, Drug & MassExcluding Wal-Mart 12/28/2008

Confectionery

Seasonal Merchandising

What Affects Seasonal Sales?

•Date/Day of Holiday

•The Economy

•Consumer Confidence

•Merchandising Strength/Visibility

2005 2006 2007 2008 2009 projections

Valentine’s Day - $970 $971 $1,036 $1,024 $1,000*

Easter - $1,761 $1,884 $1,987 $1,846 $1,990*

Halloween - $2,088 $2,146 $2,202 $2,209 $2,225*

Christmas - $1,375 $1,389 $1,420 $1,376 $1,400*

Results and Projection as of January 2009Source: Sales figures are compiled by National Confectioners Association based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce

Confectionery Seasonal Sales(** in millions of dollars)(** in millions of dollars)

• NCA estimates based on December 28, 2008 IRI Data, NCA Manufacturers Shipment Reports and U.S. Department of Commerce MA311D Report

• Syndicated IRI data understates actual seasonal sales. It only includes packages with seasonal graphics, and does not count regular packs sold during the season

Total Confectionery Seasonal Shares

Christmas21%

Valentine's Day16%

Halloween34%

Easter29%

Seasonal Confectionery Trends

2008 2007 2006 2005 2004 2003

VALENTINE’S -0.2% +6.7% +0.1% -4.0% -3.0% -7.6%

EASTER -7.1% +5.4% +7.0% -7.6% +5.5% +2.2%

HALLOWEEN +0.1% +2.6% +2.8% +2.3% +2.4% +0.7%

CHRISTMAS -3.1% +2.2% +1.0% +2.4% -3.5% -1.4%

* IRI FD&M

NCA projects a 2.0% increase in 2009

Holiday 2009 2010 2011 2012 2013

Valentine’s Sat. Sunday Monday Tuesday Thursday

Easter 4/12 4/4 4/24 4/8 3/31

Halloween Sat. Sunday Monday Wed. Thursday

Christmas Friday Sat. Sunday Tuesday Wed

Thanksgiving 11/26 11/25 11/24 11/22 11/28

Shopping Days 29 30 31 33 27

Holiday Dates/Days

Indicates positive date for holiday sales Indicates neutral date for holiday sales Indicates negative date for holiday sales

U.S. Confectionery Trends

Trends - for 2008/2009

•Everyday gourmet chocolate sales rose 28% in 2008•Growth slowed in second half of 2008

•Dark chocolate sales continue to grow but at a slower pace•Dark chocolate sales increased 12%

•Core mass brands grew in units and dollars

•Emerging trends•Exotic chocolate flavorings: citrus, spice, salt, fruits

•High cocoa content chocolates

•Gourmet packaging for chocolates

•Single origin chocolates

•Increased offering of “Everyday Gourmet” chocolate items

•Consumers want gourmet product at a value price

Trends - for 2008/09•Sugar Free gum - +11.0% sales

•Exotic fusion flavors

•Fortified products

•Value products grew significantly•Theater Box candies

•Licorice grew 9.4%

•Gummies and chewy candy grew 7.6%

•Seasonal candy declines•Reflection of difficult economy and unfavorable dates

•Seasonal confectionery down 2.9%

•More favorable dates in 2009

•Increased sugar-free product offerings

•Increase lower calorie products offered