The document discusses opportunities to grow the confectionery category in retail stores. It identifies a $10 billion growth opportunity by improving merchandising practices based on research. Key findings include that top performing retailers devote more space to confectionery, use best practices like blocking items into segments, and provide more points of purchase interruptions including perimeter and checkout displays. Seasonal merchandising and new product innovation are also opportunities.

1. Expanding the Dimensions of Confectionery A $10 Billion Opportunity Place Retailer’s Logo Here

2. A $10 Billion Opportunity For Growth Source: Dechert-Hampe & Co. Confectionery is already big business … but it could be much bigger! $10 Billion Opportunity

3. NCA enlisted major national retailers Food/Drug/Mass/Dollar outlets Representing over 20,000 stores Accounting for over 15% ACV NCA sponsored comprehensive research Consumer & category learning Benchmarks & Best Practices Opportunities & solutions for growth Partnership For Confectionery Growth

4. NCA Research Conducted Individual interviews with numerous retailers, manufacturers & brokers Audits of over 1000 stores across multiple channels In-store interviews with over 900 Confectionery shoppers In-depth interviews with Confectionery consumers Analysis of store sales data & planograms from major retailers Analysis of IRI syndicated data & secondary data

5. Confectionery Category Opportunity Dimensions of the Confectionery Category Huge category One of the largest Profitable Strong margins Frequently purchased Key to shopping trips Incremental Builds the shopping basket Promotable Responds to activity Expandable Consumption leads to growth Source: Dechert-Hampe & Co.

6. Confectionery Is A Huge & Growing Category Source: US Dept. Commerce Annual growth 4% Over $ 1 Billion added every year Confectionery Retail Sales ($ Billions)

7. Confectionery Sold In Many Different Outlets Source: IRI,NCA Estimates, 2005 Major measured outlets (Food/Drug/Mass/C-store) represent just over half of all Confectionery sales Confectionery Retail Sales $27.9 Billion

8. Potential For Improved Performance Projects To A $10 Billion Opportunity Confectionery Sales $ Billions Source: Dechert-Hampe & Co. +35% Potential growth based on top performing retailers A $10 Billion Opportunity

9. Confectionery Is Among Largest Food Categories In Store $ Billions Source: IRI, Food/Drug/Mass, 2005 In total, snacks represent the largest category of sales in many stores

10. Confectionery Delivers High Profitability Driven By High Gross Margin Confectionery margins are 3-5% points higher Source: DHC Analysis of Retailer Data % Gross Margin

11. Confectionery Is Among Most Frequently Purchased Categories In Stores Source: ACNielsen HomeScan Frequent purchases make it key to retailers Annual Purchases

12. Confectionery is Expandable – Not a Zero Sum Game Source: Dechert-Hampe & Co. Fixed Consumption Expandable Consumption Consumption weeks Purchasing Consumption weeks Purchasing Consumption at fixed rate Soap, Detergent, Toilet Paper Promotion Loads Pantry Consumption Driven by Purchase Candy, Snacks, Beverages Promotion Builds Consumption

13. Consumers Often Have A Special Relationship With Confectionery Source: Dechert-Hampe & Co. “ It makes me happy, when I’m feeling blue” “ It’s a little pick-me-up when I need some energy” “ I feel I’m a better person when I have my candy” “ I hide candy. I keep my own stash – the good stuff” “ The holidays wouldn’t be the same without the candy”

14. Consumers Today Buy Confectionery Everywhere They Shop Confectionery is important to build market baskets

15. Top Performing Retailers Sell Confectionery At A Higher Rate Top performers have a rate 35% greater than average Source: DHC Analysis of Retailer Data Confectionery Sales Index Per $MM ACV

16. Top Performing Retailers Generate Higher Growth In Confectionery Some of the top retailers are growing by double digits Confectionery % Sales Growth Source: DHC Analysis of Retailer Data

17. Top Performing Retailers Have Greater Confectionery Section Productivity Source: DHC Analysis of Retailer Data What is the secret of this performance advantage? Confectionery Sales Per Linear Foot

18. Confectionery Growth & Performance Solutions Are Consumer Driven Consumer Seasonal Merchandising Occasion-Based Marketing Impulse Merchandising New Product Innovation Shopping Interruption Best Practices in Aisle Management Source: Dechert-Hampe & Co.

19. Aisle Management

20. New Patterns Of Consumer Shopping Behavior Change the Game Consumer shopping patterns changed toward more shorter trips Retailers competing with multiple outlets for shopping occasions Majority of shopping trips today are convenience oriented Shoppers must be drawn into the aisle Perimeter displays must compensate for reduced traffic

21. Dairy Deli Meat Bakery Produce Confectionery is Located In Middle Of Most Shopping Trips Studies show middle of trip is least productive Consumers tend to buy more at beginning & end Confectionery

22. Locate Confectionery Section Earlier In Shopping Trip Top performing retailers locate Confectionery near beginning of trip Source: DHC Analysis of Retailer Data Confectionery Location In Store

23. Key Objective: Bring More Shoppers Down Confectionery Aisle Only 20-25% of shoppers go down Candy aisle on a shopping trip Conversion is high - when consumers shop candy aisle, they usually buy Over 35 % of shoppers pick up a candy or snack during shopping trip Locating candy in a higher traffic location results in significant improvements Source: DHC Shopper Observations

24. Confectionery Performs Best When Adjacent to Snacks Top performing retailers offer a total snack solution Source: DHC Analysis of Retailer Data 42% 64% Total Snacks 36% 23% Other 6 0 RTE Cereal 9 3 Bottled Juice/Water 7 9 Baking Needs 4 6 Snack Bars 6 12 Fruit Snacks 12 10 Cookies 8 18 Nuts 12% 18% Salty Snacks Others Top Performing Retailers Adjacent Category

25. Drive Sales By Allocating More Space To Confectionery Gondola Top performing retailers devote more space & generate more Candy sales Source: DHC Analysis of Retailer Data Gondola Candy Section Size In Feet

26. Confectionery Outperforms Many Other Food Categories In Store Categories that tend to be over-spaced relative to performance Baby Food Baking Mixes Cat Food Cookies Crackers Dog Food Packaged Desserts Pasta/Noodles Powdered Drink Mixes Rice/Beans Category performance must be evaluated at individual retailers Adjacencies must be considered

27. Provide More Variety to Maximize Sales Top performing retailers generate more sales with increased Candy assortments Candy is not often a need – consumers may walk away if their choice is unavailable Retailers risk lost sales & reduced consumer shopping satisfaction Sections must allow for new product introductions

28. Increased Item Assortment Can Drive Confectionery Sales Top performing retailers stock more items Source: DHC Analysis of Retailer Data Non-Seasonal Gondola Candy Grocery Dollar Sales Per MM ACV Index

29. Retailers Risk Lost Sales If They Don’t Stock Candy Items Consumers Want Source: DHC Consumer Interviews Consumers always have the options of buying nothing or going to another store If you were shopping & could not locate the particular product you wanted to buy, which would you do?

30. Many Consumers Are Unhappy With Retail Merchandising Of Confectionery Consumer interviews reveal some of the shopper frustration at the shelf “The candy section is confusing. It’s difficult to find what you want” “The products are all clumped up. They run into each other” “It would help if they stood them up so you see the packages” “They need to separate the different kinds of candy better” “It’s overwhelming. There’s no organization to help you shop” Source: Dechert-Hampe & Co.

31. Presentation of Candy Gondola Is Key to Shopping Behavior Shoppers spend only about 30 seconds shopping section Many consumers are overwhelmed by lack of organization at shelf 70% of purchase decisions made at shelf Source: Dechert-Hampe & Co.

32. Bring Attention To Candy Section Best Practice

33. Block Section Into Key Confectionery Segments Source: DHC Analysis of Retailer Data Top performing retailers make the section easier to shop by blocking out segments Best Practice

34. Double-Face Top Selling Items In Center Of Department Source: DHC Analysis of Retailer Data Top 25-50 items usually represent a third of all sales Double facing highlights these key items & eliminates out-of-stocks Best Practice

35. Merchandise Candy Peg Bags Spanning Across Section Source: DHC Analysis of Retailer Data Spanning presents more variety & consumers are more likely to make multiple purchases Set peg candy section to about 20% of total space to maximize productivity Best Practice

36. Make A Statement In Premium Candy Source: DHC Analysis of Retailer Data Carry an assortment of Premium Candy to build sales & image Devote 10% of space to Premium & merchandise it as a block Best Practice

37. Create A Section For Dark Chocolate Source: DHC Analysis of Retailer Data Dark Chocolate has high growth potential based on health benefits Carry at least 20 items or 5% of space Best Practice

38. Create A Section For Sugar-Free Candy Source: DHC Analysis of Retailer Data Diabetics & borderline consumers represent a huge potential growth opportunity Carry an assortment of Sugar-Free items to provide variety to this consumer group Best Practice

39. Stock An Assortment Of Children’s Candy Source: DHC Analysis of Retailer Data Children are a key consumption group Set the assortment to about 25 items or 7% of the space Merchandise children’s items on lower shelves Best Practice

40. Create A Section For Theater Boxes Source: DHC Analysis of Retailer Data Theatre Boxes represent another Candy purchase decision Stock an assortment of at least 12-20 items Merchandise as a block with signage calling out the occasion Best Practice

41. Create A Licorice Section Source: DHC Analysis of Retailer Data Licorice is a key growth segment Stock an assortment of brands & items Best Practice

42. Create A Section For Jelly Beans Source: DHC Analysis of Retailer Data Jelly Beans have a unique consumer appeal Carry an assortment of flavors to appeal to this loyal consumer group Best Practice

43. Use Best Practices in Aisle Management To Maximize Confectionery Sales Improve shopability & consumer satisfaction by blocking Confectionery section into key segments Double face top selling items to highlight most popular brands & eliminate potential out-of-stocks Organize peg bags spanning section to showcase variety & encourage multiple purchases Provide assortment of premium candy to build sales & enhance image of candy department Take advantage of health trends with an assortment of dark chocolate & functional candy/gum Source: Dechert-Hampe & Co. Best Practice

44. Use Best Practices in Aisle Management To Maximize Confectionery Sales Appeal to growing diabetic & weight conscious market with a selection of sugar-free items in key types Stock theater boxes of candy in a blocked section & use signage to highlight this key usage occasion Merchandise an assortment of kids candy products on a low shelf to appeal to this key consumption group Create a section for jelly beans & carry popular flavors to take advantage of their unique appeal Create a licorice section & carry popular brands to leverage this key growth opportunity Source: Dechert-Hampe & Co. Best Practice

45. NON-CHOCOLATE PEG BAGS NON-CHOCOLATE LAYDOWN BAGS KIDS NOVELTIES LICORICE FUN SIZE BAGS BOX CHOC PREM CHOC DARK CHOC CHOCOLATE LAYDOWN BAGS MULTI- PACKS BLOCK CHOC KING SIZE THEATER BOXES JELLY BEANS MINTS GUM SUGAR FREE CHOC PEG BAGS Confectionery Schematic With Segment Blocking Best Practice

46. Reinvent Confectionery Section To Increase Appeal to Consumers Utilize headers & signage to attract attention & create a fun atmosphere for shopping Provide better shelf organization by blocking defined segments Use shelf dividers & section breaks to improve appearance & shopability Enhance shelf presentation with more stand-up & facing products or colorful signage Use call-outs to highlight new items & bring attention to special offers Source: Dechert-Hampe & Co. Best Practice

47. Shopping Interruption

48. Dairy Deli Meat Bakery Produce Confectionery Perimeter Displays In-Aisle Display Impulse at Checkout Seasonal & Occasional Candy Sales Are Improved By More Points Of Shopping Interruption Best Practice

49. Increase Confectionery Display On Perimeter & High Traffic Locations Majority of shopping trips today are convenience Shopping is focused on the perimeter of the store Impulse buying is driven by more points of interruption in shopping trip Develop new merchandising vehicles to enable more perimeter display Source: Dechert-Hampe & Co. Best Practice

50. Candy Is The Most Responsive Category For Display Treatment Source: IRI, Food, 2005 % Increase On Display Only

51. Candy Is Under-Displayed Relative To Response It Generates Source: IRI, Food, 2005 % Grocery Store Displays

52. Top Performing Retailers Provide More Merchandising Support Source: IRI, Food, 2005 Top performers display much more 59 52 40 Any Merchandising 14 5 16 5 Low Performers Confectionery Gondola % Volume 17 7 20 8 Medium Performers 18 Price Reduction 7 Feature Only 24 Display Only 10 Feature & Display Top Performers

53. Make Confectionery Available At Key Shopping Locations What Areas Of The Store Did You Shop Today? Donuts Display Single Serve Frozen Novelties Restrooms Cigarettes Checkout Counter Confectionery King Size Candy Confectionery Sandwich Cooler Fountain Drinks Outdoor Display Outdoor Display Entrance Food Service 43% Source: DHC C-Store Shopper Observations 13% 14% 20% 40% 22% Juices Milk/Dairy Frozen Foods Frozen Ice Cream/ Novelties ATM Machine Potato Chip Rack 2 Liter Carbonated Beverages Nutrition Bars Sweet Goods Snacks Grocery Products Nuts Chips Water Bagged Candy Chips Chips Meat Snacks Salty Snacks Salty Snacks Chips Nuts Hot Dog Grill Chips Chips HBC Batteries/ Film Magazines/ Newspapers Coffee Bar Nutrition Bars Coffee Mugs Muffins Baked Goods Automotive Products Confectionery Baked Goods Drinks Candy Non-Grocery Household Products Pet Food Microwave/ Supply Station Candy/Gum Carbonated/Non Carbonated Drinks Waters Beverage Coolers Best Practice

54. Research Demonstrates Value Of Additional Candy Locations In Store Retailers should add more points of shopping interruption Source: DHC Analysis of Retailer Data Candy Store Sales Index By Number Of Permanent Locations

55. Product Innovation

56. Candy Is The Leading Category For New Product Introductions Source: ProductScan Together, Candy & Snacks represent nearly 30% of all new Food & Beverage SKUs New SKUs By Category

57. Nearly A Third Of Candy Sales Are Produced By New Items Source: IRI, FDMX, 2004 New products are truly the lifeblood of Confectionery % Category Sales

58. Product Innovation To Meet Emerging Consumer Needs Diabetes is growing 18 million in U.S. 1.3 million new cases per year Why is market not responding Sugar-free candy down in 2005 Declines primarily in chocolate Sugar-free Candy to show you care Grandma & Grandpa Expectant mothers

59. Premium & Dark Chocolate Offer Health & Profits Functional foods becoming a reality Antioxidants in chocolate Dark chocolate sales up 24% Premium candy products Similar to gourmet coffee, fine wines, artisan breads 18% of consumers buy Premium Candy Premium Candy sales $ 1.0 – 1.5 Billion Less than 50% in FDM outlets Source: IRI, Mintel, 2005

60. Bring Innovation To Category By Tapping Into Snacking Trends Adapt new flavor profiles from popular international cuisines to Confectionery Challenge existing definitions of snack categories with new combinations Expand the role of candy into more snacking need states Leverage health benefits of cocoa to challenge existing perception of candy Best Practice

61. Seasonal Merchandising

62. Seasonal Candy Represents About A Quarter Of All Confectionery Sales Source: NCA, 2005 Halloween & Easter are large Valentines Day the smallest Seasonal Candy $6.2 Billion

63. Confectionery Sales Are Heavily Influenced By Traditional Holidays $MM Valentine’s Easter Halloween Christmas 4 Week Period Ending Source: IRI, FDM, 2005

64. Top Performing Retailers Have A Greater Seasonal Candy Sales Rate The top performers have a rate 35% greater than average Source: DHC Analysis of Retailer Data Sales Index Per $MM ACV

65. There Are Top Retailers That Have Greater Sales Rates at Each Season The greatest variance is seen at Christmas Source: DHC Analysis of Retailer Data Top Performer % Advantage 27 % % % % 33 41 22 Halloween Valentines Easter Christmas

66. Most Consumers Buy Seasonal Candy at Traditional Holidays Increased buying at traditional holidays is still an opportunity Holidays/Occasions % Consumers Buying Candy Source: DHC Consumer Interviews

67. Manage Seasonal Candy To Meet Consumer Needs Recognize important role Seasonal Candy plays in consumer’s life Consumers often view Seasonal Candy as a planned purchase Retailers must stock extensive variety to appeal to specific consumer preferences Balance inventory cost against risk of lost sales opportunities

68. Christmas Candy Is An Important Feature In Holiday Celebrations Consumers include Christmas candy in their holiday celebrations in a variety of ways Source: DHC Consumer Interviews 86 Stocking Stuffer 71 Decorations 64 Baking 85 Guests/Party 90 Snacking 95 % Gifts Christmas Candy Usage 77% of consumers agree: “ Christmas candy is an important part of the holiday celebration”

69. Consumers Buy Christmas Candy On Multiple Shopping Occasions Source: DHC Consumer Interviews Consumers reported an average of 2.6 purchase occasions for Christmas Candy 37% Make a special trip to buy Christmas Candy 43% Buy Christmas Candy when I see it on display 53% Buy Christmas Candy during regular shopping trips % Agree

70. Consumers Buy Christmas Candy Over The Entire Season Some people make a first purchase before Thanksgiving A large number of people continue to buy after Christmas Source: DHC Consumer Interviews 7% 0% None 32% 1% After Christmas 34% 8% Christmas Week 45% 23% 1 Week Before Christmas 32% 47% 2-3 Weeks Before Christmas 9% 21% Before Thanksgiving Additional Purchase 1 st Purchase

71. Christmas Candy Segments Should Be Merchandised To Meet Seasonal Needs Decorating & snacking candy should be available early Gifts are concentrated in the 3 weeks before Christmas Stocking stuffers in the weeks just prior to the Holiday Continue to display snacking candy after Christmas Weeks prior to Christmas 6 5 4 3 2 1 Best Practice

72. Retailers Must Stock Christmas Candy Consumers Want Source: DHC Consumer Interviews Retailers risk lost purchases if they don’t carry a variety of Christmas Candy If Desired Christmas Candy Were Unavailable …

73. Stores Dressed For The Holidays Create A Candy Buying Environment

74. Seasonal Candy Is Highly Dependent Upon Merchandising Support Source: IRI, 2005 More than half sells on display Seasonal Candy % Volume

75. Top Performing Retailers Do More Feature & Display Of Seasonal Candy Source: IRI, 2005 Seasonal Candy responds to quality support 24 47 4 9 Low Performers Seasonal Candy % Volume 26 45 5 11 Medium Performers 20 Price Reduction 46 Display 6 Feature 16 Feature & Display Top Performers

76. Manage Holidays As Seasons Instead of Events Recognize the patterns of consumer buying for each of the seasons Celebration / Decoration Gift (Family, male/female, child) Snack / treat Consumer attitudes & buying patterns show the potential for increased seasonal purchases Develop new solutions to maximize seasonal growth opportunities

77. Occasion Based Marketing

78. Other Major Holidays & Seasons Represent Key Opportunity For Candy Growth Source: DHC Consumer Interviews Thanksgiving is the biggest food holiday of the year & Candy should be a part of it Holidays/Occasions % Consumers Buying Candy

79. Grow Confectionery With Additional Holiday Buying Occasions $MM Valentine’s Easter Halloween Christmas 4 Week Period Ending Super Bowl Mother’s Day School’s Out Summer Days Back-To- School Thanks- giving Source: Dechert-Hampe & Co.

80. Expanded Holiday Buying Occasions Source: Dechert-Hampe & Co. Bowl candy / dessert candy / dinner mints Family Food Holiday Thanksgiving Candy bars Lunchboxes Back to School Hard candy won’t melt Picnics/Ballgames Summer Days Piece candy for treats Kids Home School’s Out Gift candy near cards Every Family Mother’s Day Bowl candy for parties Major Social Event Super Bowl Merchandising Focus Rationale Holiday/Event

81. Other Potential Candy Buying Occasions Source: DHC Consumer Interviews Consumers also mention birthdays & going to the theater as candy buying occasions Occasions % Consumers Buying Candy

82. Create New Consumer Buying Occasions For Confectionery Need to address new occasions Birthdays/parties/anniversaries/graduations Alternative holidays (Thanksgiving, 4th of July) Events (Super Bowl, Academy Awards, etc.) Hallmark holidays (Sweetest Day, Mother’s Day, Father’s day, Grandparent’s day, etc.) Cross category solution sales Candy & greeting cards Cigarettes & mints Boxed chocolate & wine Best Practice

83. Leverage Holidays & Events With Cross Category Merchandising Merchandise gift candy with greeting cards as well as in the aisle Best Practice

84. Solutions For Confectionery Growth Recognize the importance of Confectionery to the store & the retail growth opportunity Drive shoppers to the section with better location, signage, & merchandising Increase shelf space & assortment for more sales & enhanced consumer satisfaction Reinvent the section with better shelf organization & a more appealing product presentation

85. Solutions for Confectionery Growth Drive sales with “points of shopping interruption” on perimeter & other high traffic locations Create demand by leveraging secondary holidays & developing new consumer buying occasions Embrace product innovation to meet new consumer needs Harness the total power of snacking to expand the role & sales of Confectionery