A STUDY OF CONSUMERS AND SHOPPER EXPERIENCE

Nielsen and Ainsworth Pet GMA Leadership Forum August 2015

REVITALIZE, RE-ENGAGE AND GROW

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MEET YOUR SPEAKERS

KAREN FICHUK President, North America

Nielsen

JEFF WATTERS President & CEO

Ainsworth Pet Nutrition

WALT WODIAK Director, New Product

Development & Marketing Insights

Ainsworth Pet Nutrition

TODAY’S DISCUSSION:

1

2

GROCERY COMPRESSION – BUT GROWTH OPPORTUNITIES ARE OUT THERE Growth challenged, but opportunities below the macro

PRECISION, FOCUS AND AGILITY TO GROW One manufacturer’s strategy for staying relevant and competitive

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BELOW AVERAGE PERFORMANCE BUT CLOSING THE GAP CAGR 2014 to 2019

Sources: Nielsen TDLinx & Nielsen Analytics; CAGRs ( dollar basis); Nielsen Answers, Total U.S., 52 weeks ending 06/27/2015 (vs. year ago) in Nielsen measured channels

-3.0% -2.8%

2.4%

3.6% 4.0% 4.1% 4.3% 5.4% 5.6%

12.3%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14% DEPARTMENT

MASS

DRUG

SUPERMARKETS

SUPERCENTERS

CLUB

CONVENIENCE/GAS

DOLLAR

PET

E-COMMERCE

AVG 4.1%

1.8% SALES GROWTH PAST 52-WEEKS vs 2.5% for all measured channels

DOLLAR SHARE -10.2 (2001-14) – FORECASTED TO BE -0.6 (2014-19)

5

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WINNING RETAILERS PROVE OPPORTUNITY EXISTS

Source: Company press releases; monthly or quarterly news releases – excluding gas

10

5.4 5.3 5.3

4.2 4.0

2.9

SPROUTS PUBLIX SAVE-A-LOT KROGER DELHAIZE WHOLE FOODS FRESH MARKET

% Same-Store-Sales Growth (average latest 52 weeks)

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GROWTH IS OUT THERE, FOR THOSE WILLING TO WORK FOR IT

FOCUS ON RETAILERS AND LOCALIZATION

GET GRANULAR TO CAPITALIZE ON

CONSUMER FRAGMENTATION

DRIVE THE CATEGORY

TRENDS

BRING IT ALL TOGETHER IN-STORE

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EXAMINE WINNING CATEGORIES Fastest Growing Supermarket Categories* (Dollar Trend)

8.9

13.1

13.9

16.8

10.2

16.6

16.6

23.1

47.1

11.5

11.7

15.1

15.2

15.3

15.8

16.6

19.5

25.1

33.7

FRESH POULTRY

REFRIGERATED LIQUID TEA

LIQUID COFFEE

BUTTER

SUSHI

PET MEDICINE

FRESH MEAT

LIQUID TEA

REFRIGERATED APPETIZER

ALCOHOLIC CIDER

SUPERMARKETS

ALL OUTLETS COMBINED, INCLUDING CONV/GAS

Source: Nielsen Answers, Total U.S. All Outlets Combined plus Conv, 52 weeks ending 06/27/2015 (vs. year ago), categories w/ sales of $50 million+ in Food $2MM+ Channel; UPC coded items

Supermarkets driving faster growth in many categories

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AND UNCOVER LOCAL VARIATIONS IN DEMAND Pockets of growth for even saturated categories exist

Source: Nielsen ScanTrack 104 weeks ending 3/28/2015

Sales per MM Growth

High Growth

High Decline

Pizza Category Sales Growth Index

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CONVERGING TRENDS UNVEIL NEW OPPORTUNITIES Unlock the consumer trend and you’ll uncover new opportunity

HEALTH & WELLNESS PREMIUMIZATION

= NEW GROWTH OPPORTUNITIES

AGE & ETHNICITY NEW CONSUMER UNDERSTANDING

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WELLNESS HELPING MAINSTREAM WIN THE SPECIALTY TRIP

*Forecasted, **Whole Foods, Trader Joe’s, Fresh Market & Sprouts

3.5%

8.0%

10.5%

2006 2014 2019*

NATURAL/GOURMET** CHANNEL DOLLAR SHARE

"Kroger is expected to surpass Whole Foods Market within two years and become the nation's top seller of organic and natural food, according to a recent report by JPMorgan Chase.“

—businessinsider.com (3/5/2015)

KROGER SIMPLE TRUTH EXPECTED TO HIT $1 BILLION

$1B

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CONSUMERS’ CHANGING DEFINITION OF H&W 2012 – 2015 CAGR FOR WELLNESS TRENDS POPULAR THEN VS. NOW

-2%

-3%

-5%

-7%

-17%

15%

16%

25%

48%

93% QUINOA GRAIN FREE CAGE FREE GMO FREE GLUTEN FREE

BRAN

GOOD SOURCE OF CALCIUM

LOW CALORIE

LESS SUGAR

FAT FREE

20TH CENTURY CHARACTERISTICS VS. 21ST CENTURY CHARACTERISTICS

+5.8% CAGR

Center store products with at

least one 21st Century wellness value show a

+5.8% CAGR

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CAN INCOME DRIVE GROWTH VIA PREMIUMIZATION? Center store spending among more affluent households experienced a significant increase

Source: Nielsen xAOC

11%

-6%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

HH INC $70,000+ HH INC LESS THAN $70,000

Center store dollar trend percent change 2012 – 2015

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PREMIUM BRANDS OUTPACING TOTAL GROWTH Consumers are flocking to some premium products

Source: Nielsen Answers, Total U.S. – All Outlets Combined, 07/25/2015 vs year ago dollar sales

3%

7%

11%

10%

19%

14%

SHAMPOO

COFFEE

EGGS

PREMIUM GROWTH TOTAL GROWTH

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FRAGMENTATION IN CURRENT AND FUTURE BUYING POWER

Source: Nielsen Pop-Facts, Homescan Panel total U.S. 52-weeks

MILLENNIAL MOVEMENT spend 82% of their income; buying power today and tomorrow

BANKING ON BOOMERS make up almost 50% of all FMCG sales, massive buying power now

MULTICULTURAL

39 SHOPPING TRIPS PER HH

HEAVY PERIMETER SHOPPERS

58 SHOPPING TRIPS PER HH

MOSTLY WHITE

PRICE DRIVES STORE-SWITCHING

2X MORE LIKELY TO READ THE NEWSPAPER

73% OF SHOPPING IS MOBILE

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THE STORE IS WHERE IT ALL COMES TOGETHER

Source: Nielsen in-store tracking studies; Nielsen Homescan Panel

>50% of purchase decisions

are made in-store

At the point of purchase, you often have less than 2 seconds to influence decisions

44%

56%

Source: Nielsen Retail Measurement Data, includes manufactures represented in Nielsen/BCG article plus manufactures with +$3B in sales for the 52-week period ending 2/14/14; CAGR ’09-’14

28%

72%

GROWING Rate: 2.3%

FLAT/DECLINING

GROWING Rate: 9%

FLAT/ DECLINING

MID-SIZE MANUFACTURERS

LARGE MANUFACTURERS

Mid-size manufacturers a predominant growth engine in challenging conditions

WHAT DOES SIZE HAVE TO DO WITH IT A Nielsen study reveals that small can be big – percent growing vs. flat or declining

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MID-SIZE COMPANIES USE THEIR ATTRIBUTES TO THEIR ADVANTAGE But any size company can take a page from their book

FOCUSED: Get the most important things right

ENGAGED: Digital, social, and local are the big equalizers

NIMBLE: Act fast and deliberate in the face of change

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GETTING A FEW THINGS RIGHT CAN DRIVE BIG OUTCOMES ‘Growers’ focus budget & resources on strategies that will drive the biggest outcomes

CONSUMER INSIGHT

INNOVATION MARKETING

EFFECTIVENESS SALES

EFFECTIVENESS RETAILER

COLLABORATION

PRECISION, FOCUS and AGILITY to GROW

LEADING THE GROWTH OF MAINSTREAM

SUPER PREMIUM PET FOOD

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Ainsworth Company Background

America’s oldest family-owned pet food company: 5th

generation owned and operated in Meadville, PA

From 1933 to 2000 sold one ‘value’ brand

(DAD’S) in roughly an 8-hour radius around corporate

headquarters

A differentiating reputation as a mainstream channel Pet

Category ‘problem solver’

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Fast Forward to Circa 2007:

A Company And Channel At A Crossroads

DAD'S is the family-owned, wholesome, pet food brand made

with ingredients sourced from small, local farms.

While big, the brand competes in the value segment - a

rapidly declining segment of pet food

At the core of today’s narrative: the successful re-positioning

of Ainsworth against emerging consumer trends to

Drive growth for the company

Help our mainstream channel partners compete more

effectively for the valuable pet consumer

Extend Ainsworth’s category problem solver ‘Brand’

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Humanization of Pets

Some 62% of pet parents agree their pets

contribute more than just companionship

49% wouldn’t give up their pets if someone in

their household developed an allergy

45% feel safe and less lonely with

their pets around

This mindset shift accounts for the rise in pet

expenditures, with owners increasingly treating

their pets as they would themselves, with special

food and treats

Statements by pet owners, March 2014

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Mainstream Channels Underdeveloped in the Most Attractive

Sub-Category of Pet: Super Premium Dry Dog Food

1.3B 1.4B 1.2B 1.2B

2.8B 2.8B 2.8B 2.6B

3.5B 3.9B 4.2B 4.5B

2011 2012 2013 2014

Value

Premium

Super Premium

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

$7.6B $8.1B $8.3 B $8.3B

All Outlet Dry Dog Food Dollar Volumes 2011-2014 CAGR (%)

-4.2%

+9.0%

-2.2%

Va

lue

P

rem

ium

Su

per

Pre

miu

m

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Mainstream Channels (and Their Manufacturer Partners) Failed to

Take the All Outlet Battle with Pet Specialty Seriously for Years

SUPER

PREMIUM

BRANDS

RETAILERS

SUPER

PREMIUM

BRANDS

RETAILERS

OPPORTUNITY

ENGAGED

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Ainsworth Pet Nutrition Saw An Opportunity to Address This Gap

FOCUS

NIMBLE

‘Big Bets’ Courage

Differentiating Vision

Organizationally Aligned

On Trend Brand

First Moving

Flexibility

Differentiating Investment

Insight-Driven

Social Media Centric

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Ainsworth Led the Charge to Break

Down the Super Premium Wall

Rachael Ray Nutrish Launched July 2008

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

We Overcame our Position as a Small Manufacturer

Competing Against National Brands

HURDLES

IN THE WAY

LIMITED

RESOURCES

BUDGET

CONSTRAINTS

REGIONAL TO

NATIONAL

CONVERSION

COMPANY

CULTURE

THIRST FOR

KNOWLEDGE SIGNIFICANT

COMPETITION

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

… with an Investment in Resources and Insights to

Overcome the Challenges

FOCUS

Flexibility

Relationships

Nielsen Partnership

Shopper Immersion

Innovation + Insights

Strategic Priorities

Top to Top

Retailer

Partnership

Virtual Simulator

Store Mapping

Quantitative

Validation

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

How We Continue to Win? Collaborating with Nielsen on an Aisle Management Strategy

Qualitative

Execution and

Implementation

Engage Customers, on

Shopper Research

Conduct Shop Along,

In Home & Survey

Research

Develop visual stimuli

and 3D Aisle scenarios

Conduct Customer

Immersion sessions

Develop redesigned

Aisle scenarios

Quantify size of the

opportunity

Develop Retailer and

brand choice models

Align on Expansion

In Market Execution

Implement Aisle

Assortment

Create winning outcomes

for Retailer and Ainsworth

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Retail Collaboration was Critical for Our Success

Shopper Immersion

Assortment Optimization

Consumer Need State Segmentation

Channel and Shopper Shift

Competitive Landscape

Path to Purchase

AINSWORTH

+ NIELSEN

+ RETAILERS

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

…in Addition to Other Initiatives, Partnerships and

Insights that Lead to Market Success!

Category and consumer

need gap analysis and

trend mapping

Leading edge Consumer

Qualitative Immersion

programs

Partnerships

with global leading New

Product Development firms

and Nielsen Qualitative

Immersion

Innovative online and

digital target marketing

investments

Established nimble

and flexible New Products

Stage Gate Process

with discipline

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Nutrish is Now The Fastest Growing Brand in Mainstream

(+44% Five Year CAGR)

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

Our Efforts have Resulted in a Dramatic Portfolio Mix Shift

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Most Importantly, Our Collaborative Efforts Have Helped

Mainstream Channels Outperform Pet Specialty in Super Premium

L E A D I N G T H E G R O W T H O F M A I N S T R E A M S U P E R P R E M I U M

P E T F O O D

8.1% +6.9%

+9.7%

+12.9%

+8.9%

+6.4%

2012 2013 2014

Dry Dog Super Premium Dollar % Change

Mainstream Pet Specialty

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MID-SIZE MANUFACTURERS A GROWTH ENGINE But still only make up a small piece of the pie

Source: Nielsen POS; 52-week sales ending 1/2015

1.4

5.3

3.4

0.3

LESS THAN $10MM

$10MM - $100MM

$100MM - $1B

$1B+

Center store food CAGR 2012 – 2015

68%

21%

8% 3%

$1B+ $100MM - $1B

$10MM - $100MM LESS THAN $10MM

Percent of center store food sales