Part May Discovering Pockets of Demand 7 2021 REVENUE GROWTH IN AN INFLATIONARY ENVIRONMENT EXECUTIVE SUMMARY The post-pandemic CPG industry has seen significant price inflation, driven by increased demand, out-of-stocks, reduction in promotion, and premiumization. As the economy rebounds, significant input price inflation and increased logistics costs are pressuring manufacturers to raise prices even as increased mobility is likely to moderate demand for in-home consumption categories. To win the market share battle in this unchartered environment, traditional pricing practices alone will not be sufficient. Managers will need to be agile and leverage technology, advanced analytics and newer, granular near real-time datasets to discover and capture profitable revenue growth opportunities. PRICING CHALLENGES • Vaccination-enabled increased mobility, including return to schools, restaurants, entertainment, travel, etc., is expected to decrease in-home consumption for several categories, but the rate of decline is uncertain and uneven across categories. • In step with easing demand is an increase in consumer price sensitivity and grocery shoppers will be more mindful of the prices even as many other goods and services begin to compete for their wallet. • Manufacturers and retailers are fighting to retain new buyers acquired during the pandemic surge and will be eager to improve their share position as supply and demand reverts to a new equilibrium. • Managing pricing in this challenging environment calls for innovative, agile growth strategies, leveraging the full spectrum of revenue growth levers to spot and execute on profitable revenue opportunities. BEST PRACTICES IN REVENUE GROWTH MANAGEMENT • Growth leaders typically capture 3-5 points of topline growth and 5-10 points in ROI improvement from pricing & trade investments. • Leaders in revenue growth have a strong understanding of which brands and categories are less price sensitive and take pricing action accordingly. • Successful companies measure and monitor price elasticity changes closely and benchmark vs. category to understand other levers they need to pull besides pricing and promotion. • Innovators leverage machine learning to quickly identify pricing opportunities and to ensure planned pricing moves are executed. • Leading companies also monitor promotion execution to weed out underperforming promotions, e.g., feature and display conversion, deviations in promo event lift, and spotting and acting on unusual competitor promotions. • Leaders leverage a full range of price-pack architecture moves by understanding which consumers will pay what in which channels (e.g., convenience, club, dollar, grocery); they also consider differentiated pricing and promotions online vs. in-store. • They strengthen their brand value proposition by precisely delivering what consumers value and premiumize smartly. • Winning brands match their products to unique occasions and price innovations to realize value. © 2021 Information Resources Inc. (IRI). Confidential and Proprietary. 2 CONTEXT CPG Demand Surged in 2020 As In-Home Consumption Gained Share Due to Dramatic Drop in Out-of-Home Consumption Omnichannel Food-at-Home, Food Away-from-Home Estimated Volume & $ Sales % Change Share of $ Spend Food-at-home Food Away-from-home (incl. takeout & delivery) Edible (Including Perishables) +9.2 70 66 61 20 10.3% 60 60 56 57 1.1% 55 55 52 53 53 53 0 49 48 2016-2018 CAGR 2020 vs. YA 50 45 47 47 47 45 44 43 $ Sales % Change 1.9% 13.9% 39 40 40 34 Nonedible 20 +5.1 30 7.5% 2.4% 0 2016-2018 CAGR 2020 vs. YA 0 $ Sales % Jan Feb Mar April May June July Aug Sep Oct Nov Dec Change 3.9% 12.2% Total Food 132 131 133 104 123 129 135 136 131 137 131 138 ($B) 4% 7% -4% -23% -15% -8% -4% -6% -2% -1% -5% -5% Source: USDA Monthly Sales of Food with taxes & tips; Includes food sales across store types. IRI Omnichannel Model, data ending 12/27/20, Omnichannel is MULOC+Costco+ eCommerce, Volume is estimated based on MULOC weighted price/mix growth. IRI analysis. © 2021 Information Resources Inc. (IRI). Confidential and Proprietary. 3 CONTEXT Demand Outpaced Supply in Many Categories and Consumers Were COVID-19 demand drove high growth Willing to Pay for Convenience, Trusted Brands and Premium Products of leading brands in cleaning, OTC, Momentum Growth / Aisle % Volume CAGR (‘16-’19) vs. Volume Acceleration in 2020 paper products, self-care, 2020 CPG Average 6% at-home food, ’19) - Alcohol Fresh General Food comfort and 5% Water Rfg. Meals Beverages Frozen Refrigerated indulgence. Price Household Plastics/Storage 4% Beauty Home Care Tobacco sensitivity and Health General Merchandise promotions 3% dropped in these Sports/Energy Drinks categories. Volume CAGR (’16 CAGR Volume 2% Snacks Personal Cleansing Skin Care Nutrition/Weight Loss FZ Fruit & Veg Floral 1% Cookies & Crackers FZ Meals Shoppers were Ethnic Health Remedies Liquor FZ Meat Dairy Condiments & Sauces SS Meals willing to pay 0% Laundry Deli Meat Candy Produce Baking premium prices, Pet Care Coffee & Tea Baby Food Meat Paper Products Household Cleaning delivery fees, and -1% Baby Care Disposable Tableware Mouth Care FZ Desserts Rfg. Beverages Ss Vegetables Seafood membership fees Bakery CSD -2% Breakfast Ss Fruit Cosmetics Hair Care for added Foils, Wraps, & Bags convenience and to -3% Tobacco Juices consolidate trips -4% on platforms like -15% 0% 5% 10% 15% 20% 25% Instacart and 2020 Volume Growth Acceleration (Ppt. Difference 2020 Growth Rate - 2016-2019 CAGR) DoorDash. Negative Positive Note: Includes top 50 aisles by size. Source: IRI data for MULO+C (multi-outlet and convenience) / IRI analysis. © 2021 Information Resources Inc. (IRI). Confidential and Proprietary. 4 CONTEXT Price Inflation Occurred Through Reduction in Promotions and Increased Premiumization Decomposition oF Price per Volume % ChAnge vs. YA / Grocery ChAnnel / 12 WE 3/21/21 – Example CAtegories Δ vs. 16 WE 12/27/20 Edible Increased Reduction in Mix Shift / Tot Price / Mix Shift/ Nonedible Everyday Price Promotion Premiumization Volume Change Premiumization Spices / Seasonings 0.3% 1.5% 12.7% 14.4% +8.2 Dish Detergent -1.3% 4.8% 8.2% 11.8% +1.3 Sugar 1.9% 4.2% 2.7% 8.8% +2.0 Cups & Plates 0.2% 5.1% 2.9% 8.3% +2.9 CSD 1.5% 3.5% 2.0% 7.0% +0.4 Fz Novelties -1.0% 3.5% 4.3% 6.8% +2.4 Pet Food -0.4% 1.5% 5.7% 6.8% +1.0 Bread -0.7% 2.8% 4.3% 6.4% +1.2 Soap -2.4% 4.3% 4.0% 5.9% -0.8 Bottled Water 0.9% 0.6% 4.3% 5.8% +2.5 Salty Snacks -1.4% 4.7% 1.5% 4.8% +0.8 Energy Drinks -0.2% -0.1% 5.1% 4.8% +3.6 Laundry Detergent 0.3% 1.1% 3.1% 4.4% +0.1 Beer 0.8% 1.0% 2.3% 4.1% +0.9 Ice Cream 0.0% 1.0% 2.8% 3.9% -0.4 Pasta -0.4% 1.3% 2.4% 3.3% +0.5 Frozen Pizza -0.7% 2.1% 1.7% 3.0% +0.4 Chocolate Candy -0.5% 2.0% 1.2% 2.8% -0.5 To learn more about premiumization , read The Premium Opportunity report. Note: Everyday price at item level. Promotions includes promotion frequency and depth (driven by frequency). Mix shift refers to difference in product mix vs. YA, driven by shifts to more premium brands (positive effect) countering shift to larger pack sizes (negative effect). Source: IRI POS 12 WE 3/21/21, 16 WE 12/27/20, Grocery channel. IRI Strategic Analytics.. © 2021 Information Resources Inc. (IRI). Confidential and Proprietary. 5 CONTEXT Premium Brands Grew in Many Categories as Shoppers Traded Up CAtegory Price Tiers And Brands – RepresentAtive CAtegories Chocolate Candy Frozen Entrées Private Label Value Mainstream Premium Private Label Value Mainstream Premium 1.7% 4.0% Pre- Pre- 13.8% 65.1% 19.4% $14.6B 12.5% 55.7% 27.7% $9.4B COV COV L52 13.3% 64.0% 20.8% $15.5B L52 12.1% 54.2% 29.6% $10.6B 1.9% 4.1% +0.2 -0.5 -1.1 +1.4 +0.1 -0.5 -1.5 +1.9 Premium small Health and comfort indulgences grow brands contribute most to premium growth Baking Mixes Soap Private Label Value Mainstream Premium Private Label Value Mainstream Premium 3.6% 8.9% Pre- Pre- 8.6% 62.0% 25.8% $1.3B 9.9% 60.4% 20.9% $5.3B COV COV L52 8.8% 60.6% 27.5% $1.6B L52 11.5% 54.5% 27.7% $7.5B 3.1% 6.2% -0.5 +0.2 -1.4 +1.7 -2.6 +1.6 -5.8 +6.8 Premium brands with alternatives for allergies and Smaller premium dietary restrictions gain share brands grew share Note: Price Tiers calculated at Major Brand Level from Subcategory Price/Vol as Premium > 1.25*Avg, Value < .75*Avg Source: IRI POS; Pre-COVID-19 52 WE 2/23/20, L52 WE 3/21/21 © 2021 Information Resources Inc. (IRI). Confidential and Proprietary. 6 PRICING CHALLENGES Demand for In-Home Consumption Is Expected to Decline vs. Last Year as Consumers Begin to Resume Pre-Pandemic Behaviors U.S. Consumer Mobility vs. F&B At-Home Volume % chg. from pre-COVID-19 (Jan mid-Feb ’20) base, 4 wk rolling avg – est. total Omnichannel Full-Service Restaurants Performance All Restaurants (including closed) 40 $ sales % chg. vs. pre-COVID-19 2020 F&B volume For restaurants that remain open, 30 ~+8% ~+10-12% vs. vs. Jan- +6% sales are near pre-COVID-19 levels Jan-Feb 2020 Feb 2020 vs. Jan- 20 Feb 2020 +3% +3% March -55 vs. Jan- Median vs. Jan- April -83 10 Feb 2020 Feb 2020 Forecast F&B May -69 Volume June -53 0 Mobility 2020 vs.