Processed Pork Trends Patrick Fleming Director Of Market Intelligence National Pork Board Processed pork definition • Meat Department • Pork: Bacon, Cold Cuts, Ham, Sausage • Other Processed • Cold Cuts: Bologna, Pepperoni, Salami • Sausage: ALL x/ Turkey Sausages • Deli Department • Deli Meat • Bulk Meat: Bologna, Canadian Bacon, Ham, Italian Specialty, Pepperoni, Salami, Sausage • Pre-Sliced Meat: Bologna, Ham, Italian Specialty, Pepperoni, Salami, Sausage • Specialty: Chorizo, Pepperoni, Salami, Sausage • Deli Entrees: Franks and Dinner Sausages, Ham 2 Processed pork is relatively stable Total Processed Pork Trends Dollars Volume Price $12.9B 3.29B $3.94 $12.6B 3.24B $3.89 YA Latest 52 YA Latest 52 YA Latest 52 -2.6% -1.5% -1.1% Total Meat and Deli Department Trends -3.1% +1.5% -4.5% 3 Sourced from Nielsen – 4 week ending 11/26/16 Processed pork is split between two depts. Total Processed Meat Department $ Share Department* $ Share Deli Pork At A Glance Processed Pork 19% Processed Pork $12.6 BILLION 23% Share = Steady Other Other 81% 77% 10% Price Premium (+45% vs YAGO) *Deli Dept ex/ Cheese 4 Sourced from Nielsen – 4 week ending 11/26/16 Most processed pork comes from the meat dept. Meat Department $ Share Deli Department* $ Share $6.7B $3.3B $1.7B $160M $353M $199M Beef Pork Chicken Other Other Meat Deli Bulk Deli Prepared Deli Entrees Deli Pre- Specialty Deli Processed Meat Chicken Sliced Meat Meat Sourced from Nielsen – 4 week ending 11/26/16 5 *Deli Dept ex/ Cheese Growth opportunity in bacon and sausage Product % $ Dol v YA Vol v YA ARP v YA Bacon 46% 2.3% -0.8% 3.1% Meat Department $ Share Sausage 36% -4.4% 1.5% -5.8% Ham 18% -9.4% -1.7% -7.8% $6.7B Product % $ Dol v YA Vol v YA ARP v YA Franks 42% -8.7% -9.4% 0.7% Smkd Ssg. 20% -1.6% 3.7% -5.2% Pepp. 11% -9.6% -7.5% -2.3% $3.3B Kielbasa 7% -5.3% 1.9% -7.0% Salami 7% 0.8% 0.1% 0.8% Brk Ssg. 6% 1.2% -3.0% 4.4% Beef Pork Chicken Other Other Meat Processed Bologna 5% -5.8% -6.4% 0.6% 6 Sourced from Nielsen – 4 week ending 11/26/16 Deli bulk ham is largest, up in volume Product % $ Dol v YA Vol v YA ARP v YA Product % $ Dol v YA Vol v YA ARP v YA Ham 73% -1.1% 0.8% -1.9% Frnk/Ssg 87% 2.2% 2.4% -0.2% Salami 14% 0.3% 4.1% -3.6% Ham 13% 10.9% 24.7% -11.1% Bologna 9% -4.2% -3.6% -0.6% Product % $ Dol v YA Vol v YA ARP v YA Ham 38% -3.2% -7.5% 4.6% Salami 33% 12.9% 17.1% -3.6% Deli Department* $ Share Ital. Spc. 24% 2.7% 3.6% -0.8% $1.7B Product % $ Dol v YA Vol v YA ARP v YA $160M Sausage 51% 3.2% 1.7% 1.4% $353M $199M Pepp. 26% 7.7% 9.6% -1.7% Deli Bulk Deli Prepared Deli Entrees Deli Pre- Specialty Deli Meat Chicken Sliced Meat Meat Salami 20% 5.7% 4.6% 1.1% 7 Sourced from Nielsen – 4 week ending 11/26/16 Pound Sales Trend Forecast by Sub-Category 195 Total Bacon – Pound Sales Forecast Bologna – Pound Sales Forecast 185 42 175 165 38 155 34 Millions 145 Millions 30 26 Salami - Pound Sales Forecast Total Hot Dogs - Pound Sales Forecast 15 180 160 14 140 13 120 Millions Millions 100 12 80 Total Lunchmeat - Pound Sales Forecast Total Sausage - Pound Sales Forecast 120 270 115 110 260 Millions 105 250 100 95 Millions 240 90 85 230 80 220 Pound sales forecasts vary across the sub-categories: • Positive forecast (increase): Bacon and Sausage • Negative (decrease): Bologna and Lunchmeat; less severe for Salami and Hot Dogs Data Source: Nielsen ScanTrack Food Store Data – September 2013 to August 2016 8 South Atlantic is critical to processed pork WN Central EN Central Mountain New England % Pop. 7% % Pop. 15% % Pop. 7% % Pop. 5% % Dol 5% % Dol 16% % Dol 8% % Dol 5% Dol v YA -2.2% Dol v YA -3.0% Dol v YA -0.8% Dol v YA -4.1% Pacific Mid Atlantic % Pop. 16% % Pop. 13% % Dol 11% % Dol 12% Dol v YA -1.1% Dol v YA -5.7% WS Central South Atlantic % Pop. 12% % Pop. 19% % Dol 11% ES Central % Dol 24% Dol v YA -1.5% % Pop. 6% Dol v YA -2.0% % Dol 7% Dol v YA -3.2% 5 Sourced from Nielsen – 4 week ending 11/26/16 Label claims are changing • No claims –Added Hormones, –Gluten / GMO –Artificial Ingredients –Colors • Uncured –Nitrate/Nitrite free • Less Salt –Less Sodium –Sea Salt Nitrate Free Trend at Foodservice Source Datassential Growth rate (relative % change) Historic Penetration Growth 0.4% 149.7% MenuTrends 5.2% vs. 2015 vs. 2012 PENETRATION 1 year 4 year 0.4% 0.4% 0.4% 2.8% 0.3% 0.6% 0.4% 0.4% Restaurant Type 0.2% 0.1% 0.0% 0.0% QSRFast CasualMidscale CasualFine Dining NationalRegional Chains ChainsIndep. 0.2% 0.1% 0.1% 0.1% 0.5% Midwest Northeast 0.1% 0.1% 0.1% 0.1% 0.5% West 0.0% Region 0.2% South 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 US Chains & Independents (2016)| n=946,930 menu items Health claims are not consistently driving growth Dol v Vol v ARP v Deli Bulk Dol v Vol v ARP v Bacon % $ % $ YA YA YA Ham YA YA YA No Claim 94% 3.0% -0.1% 3.1% No Claim 91% -0.1% 1.8% -1.8% Claim 6% -7.8% -9.6% 2.1% Claim 9% -10.2% -8.1% -2.3% Dol v Vol v ARP v Dol v Vol v ARP v Franks % $ Ham % $ YA YA YA (Meat Dept.) YA YA YA No Claim 97% -8.5% -9.3% 0.9% No Claim 92% -10.2% -2.0% -8.3% Claim 3% -16.3% -10.3% -6.7% Claim 8% 0.2% 4.3% -4.0% *Claims include Low Salt, Low Sodium, 97% Fat Free, Lean, Less Salt, etc. 12 Sourced from Nielsen – 4 week ending 11/26/16 Summary • Processed pork drives a lot of dollars - $12.6 B • Strength can be found in certain categories - Breakfast meat, deli salami, reduced salt/fat hams • Different markets are home to different trends - South Atlantic performs well, NE and Pacific do not • Consumers looking for new label claims • Category is still popular for taste, value and convenience 13.