Is organic food the next big thing in us retail by Sutherland Global Services

Is Organic Food the next big thing in US Retail ? April, 2014

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What is Organic?

Definition as per USDA National Organic Program (NOP): Organic food is produced by farmers who emphasize the use of renewable resources and the conservation of soil and water to enhance environmental quality for future generations. Organic meat, poultry, eggs, and dairy products come from animals that are given no antibiotics or growth hormones. Organic food is produced without using most conventional pesticides; fertilizers made with synthetic ingredients or sewage sludge; bioengineering; or ionizing radiation

Source: USDA

Before a product can be labeled â&#x20AC;&#x2DC;organicâ&#x20AC;&#x2122;, a Governmentapproved certifier inspects the farm where the food is grown to make sure the farmer is following all the rules necessary to meet USDA organic standards. Companies that handle or process organic food before it gets to the local supermarket or restaurant must be certified, too

Source: USDA, Secondary Research, Sutherland Research and Analysis ÂŠ 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Quick Statistics on the spread of Organic Retail in US

USA is home to about 18500 certified farms and businesses as of 2014

Between 2002 and 2011, the country’s domestic organic food production increased to about 240%

Key Market Players • Whole Food Market • The Fresh Market • Natural Grocers by Vitamin Cottage • Sprouts Farmers Market

Key segments: • Organic fruits & vegetables • Organic dairy products • Organic packaged food

Organic food’s contribution to the overall food market in USA in terms of revenues is about 4% as of 2010

As of 2013, Global organic sales accounted to USD 63 Bn with US amounting to almost 50% of that

Key Growth Drivers: • Increased consumer awareness • Increasing consumer expenditure per capita on food

c.81% families have begun purchasing organic food once in a while as per surveys conducted by independent bodies with research focus on natural and organic food consumption

In US, Organic food market revenues are projected to grow at the CAGR of c.14% during 2013-18

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U.S. Organic Food Sales have been registering a high growth 40

35-40

31-35

21%

31 29

18% 17% 25

25 23 15%

15%

20 20

17 14

2004

2005

2006

2007

2008

U.S. Sales ($ billion)

2009

2010

2011

2012

2013*

2014*

Annual Growth (percent)

*Estimated. Source: USDA, Economic Research Service using data from Nutrition Business Journal, 2013. ÂŠ 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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All product categories have been registering +ve growth

16%

14% 13%

13%

13% 12%

13%

12%

2012

2013

2014

Dairy

2012

2013

2014

Fruits and Vegetables

2012

2013

2014

Breads and Grains

2012

2013

2014

Meat, Poultry and Fish

2012

2013

2014

Snack Foods

Note: 2013 and 2014 percentages are estimates

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Experts suggest that the market is conducive for further growth and acceptance of Organic food

Tom Vilsack Agricultural Secretary

“ … consumer demand for organic products has grown exponentially over the past decade. With retail sales valued at $35 billion last year, the organic industry represents a tremendous economic opportunity for farmers, ranchers and rural communities… “

Karan Chechi Research Director, TechSci Research

“ … the organic food market contributed about 4% to the country’s overall food market in terms of revenues during 2010. Furthermore, the retail organic food market is an emerging trend in the country. Therefore, with the increased consumer food expenditure of about 7.67% during 2010-12 the demand for organic food through retail sales medium is anticipated to increase …”

Diane Dempster Organic specialist, Charlie’s Produce

“ … it (organic food) used to be a fad … but now it’s mainstream. And it just keeps growing. I don’t see that changing … People are interested in health … They want to know where their food is coming from, who’s growing it, and that it’s safe. And they’re willing to pay more for it … ”

Jack Sinclair Executive VP, Grocery, Walmart

“ ... we know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more … we are changing that ...”

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com April 22, 2014

Key Market Participants (1/2)

Logo and Company name

Business Description

Financial Stats

• Revenues: USD 19.757 Bn • Operating Income: USD 0.44 Bn • Employees: >60,000

Whole Foods Market

• American foods supermarket chain specializing in natural and organic foods • Headquartered in Austin, Texas in 1980 • Runs stores in USA, Canada, and the UK • Locations: 365 (as of October 2013) • Area covered: multiple states in USA, Canada, and the UK

• Chain of gourmet supermarkets • Headquartered in Greensboro, North Carolina in 1982 • Locations: 131 (all in US) • Area covered: Southeastern U.S., Mid Atlantic U.S., Midwest, Western U.S.

• Revenues: USD 1.33 Bn • Operating Income: USD 0.10 Bn • Employees: >6250

The Fresh Market

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Key Market Participants (2/2)

Logo and Company name

Business Description

Financial Stats

• Family-operated specialty retailer of natural and organic foods and dietary supplements • Headquartered in Colorado in 1955 • Runs stores in Midwest, Mountain States, and West US • Locations: 70 (as of 2013)

• Revenues: USD 0.43 Bn • Operating Income: 0.03 Bn • Employees: N/A

• Retailer of natural and organic foods, also selling supplements • Headquartered in Phoenix, Arizona in 2001 • Locations: >150 (all in US) • Area covered: Arizona, California, Colorado, Nevada, New Mexico, Oklahoma, Texas, Utah, Kansas, Georgia

• Revenues: USD 2.4 4 Bn • Operating Income: 0.19 Bn • Employees: > 50,000

Natural Grocers by Vitamin Cottage

Sprouts Farmers Market

www.sutherlandglobal.com April 22, 2014

End of Presentation