Cheese in America Global Dairy Congress Warsaw 2018 - Jay Waldvogel • U.S. Market Overview • Key Trends • DFA Activities 2 Both Domestic Use and Export Have Contributed to Long Term Growth Commercial exports have grown in importance to total commercial sales of cheeses Domestic Use Export 14,000 60% 12,000 10,000 2% 8,000 10+% 6,000 4,000 6% 2,000 25% 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1 Commercial Sales = Domestic Use + Commercial Export Source: USDA ERS; USDA commercial disappearance; includes civilian and military purchases of milk and dairy products for domestic and foreign use, but excludes farm household use and USDA donations of dairy products 3 proxy for actual consumption as it does not account for product waste and thus, tends to overstate actual consumption overstate to tendsthus, and for waste accountproduct not for as does consumption it proxyactual plus populationresident U.S. theby dividing consumption by domestic disappearance“available” for calculatedis capita Per ERS;Source: USDA 10 15 20 25 30 35 40 0 5 1975 15.5 1976 1977 1978 U.S. Per Capita Cheese Consumption Continues to Grow to Continues Cheese Consumption Per Capita U.S. 1979 1980 1981 1982 1983 1984 1985 23.1 1986 1987 1988 1989 Per Capital Cheese Consumption 1990 annual pounds per person 1991 1992 1993 1994 . 1995 27.1 arm 1996 ed forces overseas. It is ais It overseas. forces ed 1997 1998 1999 2000 2001 2002 2003 2004 2005 32.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 36.3 4 2016 The Foodservice Channel is Growing as the Heaviest User of Cheese Since 2012, foodservice has gained share of cheese usage, mostly at the expense of retail 2016 Volume Share by Channel - 1 percentage point share Food vs. 2012 Processing 24% Foodservice 43% +4 percentage point share vs. 2012 Retail - 3 percentage point share 33% vs. 2012 Total volume = 12.4 billion pounds Sources: IRI Custom WMMB Database (MULO+C); WMMB Foodservice Cheese Tracker, 2017; 5 WMMB Cheese In Food Processing Study, 2017 Natural Cheese Continues Growth, Processed Cheese Shows Losses Retail Volume Trend NATURAL CHEESE PROCESSED CHEESE 2014 2015 2016 2017 Latest 52 WKs Ending 04-22-18 4.3% 4.0% 1.6% 0.8% 0.9% -4.2% -4.8% -4.6% -5.4% -6.6% Source: IRI Market Advantage, DMI Custom Cheese Database; Total US Multi Outlet + Convenience 6 TOTAL CHEESE CATEGORY [$ Billions] Loaf Cheese 0.1 Imitation Cheese Deli Cheese 0.5 2.0 Processed Cheese 2.0 11.0 Natural Cheese No Loaf 14.8 Imitation/ TOTAL Natural Processed Deli Loaf Non dairy $ Change [%] 0.3 1.0 -5.7 1.2 1.5 4.0 Cheddar Remains the Top Selling Cheese Variety While Other Cheese Blends, Cream Cheese and String Cheese Have Contributed the Largest Volume Growth in the Latest 52 Wks Latest 52 Week Vol. Share Vol. Chg vs. PY CHEDDAR 22.2% 255,999 CREAM CHEESE 10.6% 7,505,327 MOZZARELLA 8.7% 1,583,097 COLBY/JACK BLENDS 6.0% 3,414,286 OTHER CHEESE BLENDS 6.4% 7,986,561 STRING MOZZARELLA 4.6% 5,142,760 MONTEREY JACK 3.4% -1,698,698 PARMESAN 2.8% 1,178,234 RICOTTA 2.5% -907,988 SWISS 2.1% -3,101,354 CHEDDAR/JACK BLENDS 1.8% 1,895,748 QUESO FRESCO 1.5% 2,792,513 PROVOLONE 1.4% 248,893 ITALIAN BLENDS 1.3% 1,420,380 FRESH MOZZARELLA 1.2% 1,871,288 Source: IRI Market Advantage, DMI Custom Cheese Database; Total US Multi Outlet + Convenience 8 Almost All U.S. Households Purchase at Least Some Cheese During the Year PENETRATION 97.9% Households Buy Cheese VOLUME INDEX* BY GENERATION Millennial: HH born 1976+ 112 Gen X: HH born 1965-76 115 Yngr Boomer: HH born 1956-64 100 Older Boomer: HH born 1946-55 87 Retiree: HH born 1936-45 73 Senior: HH born b4 1936 57 Source: IRI Consumer & Shopper Insights Advantage Database, 52 WE July 9, 2017 9 MILLENNIALS ARE CHANGING THE LANDSCAPE OF FOOD CONSUMPTION FRESH, Whole, NATURAL Don’t want to Use SMARTPHONE and LOCAL foods. compromise on and SOCIAL MEDIA to LOCAL is super relevant CONVENIENCE… inform purchase decisions Buy more ORGANIC LOVE snacking PRODUCTS vs. other generations Want VARIETY Made DAIRY and diverse ALTERNATIVE FLAVORS products popular Top 20 Growing Cheese Varieties Latest 52 Wks. Ending 04-22-2018 Retail Volume % Change vs PY MEXICAN 6,079,536 304.1% MENONITA 71,723 47.0% BUTTERKASE 129,939 31.7% GOUDA 16,835,915 30.9% MANCHEGO 594,793 27.2% OAXACA 2,069,974 25.6% JARLSBERG 1,048,462 23.3% Over half of top 20 growing QUESO DE FREIR 2,717,611 23.0% COTIJA 5,142,405 21.0% cheese varieties PANELA 4,424,593 18.9% are Hispanic/Hispanic style FONTINA 1,268,267 16.8% cheeses QUESO QUESADILLA 6,540,368 15.2% QUESO BLANCO 3,893,166 14.1% HAVARTI 13,290,659 12.3% GOURNAY 3,738,953 11.3% QUARK 627,478 11.0% CHESHIRE 3,395 10.9% ASADERO 880,695 9.5% BABY SWISS 13,636,157 7.2% QUESO QUESADLA 2,093,094 6.8% 11 Source: IRI Market Advantage, DMI Custom Cheese Database; Total US Multi Outlet + Convenience VOLUME versus VALUE THE RETAIL LANDSCAPE IS ALSO CHANGING AS KEY RETAILERS CONTINUE TO DRIVE DIFFERENTIATION AND GROW SHARE BY BUILDING THEIR OWN BRANDS THE DAIRY AND REFRIGERATED CASE IS THE SWEET SPOT WHERE “FRESH” AND “CONVENIENCE” MEET REFRIGERATED PLANT-BASED “DAIRY” GUACAMOLE DIPS REFRIGERATED SNACKING BUNDLES HUMMUS SPREADS NO LONGER COMPETING WITH JUST OTHER DAIRY PRODUCTS! Key Retail Takeaways ▪ Consumers continue to be heavily engaged with cheese ▪ Consumer trends and preferences driving growth include: o Convenience or Snacking Hillshire Snacking Small plates meat and Sargento Sweet Trader Giottos cheese pairing Balanced Breaks Oven Baked Monterey Jack Cheese Bites Natural Cheese, Dried Cranberries, Milk Chocolate, Graham Crackers o Home Cooking, Taste & Culinary Exploration o Natural/Clean label Cheese on Restaurant Menus Cheese Category Insights 16 Key Restaurant Takeaways ▪ Key Themes are: ▪ Veggie Forward ▪ Blurring of AM and PM meals ▪ Globalization ▪ Authenticity = Regionality ▪ Optimizing Off Premise ▪ Portable and Snackable ▪ Balance Familiarity with Novelty 17 While Some Cheeses are Maturing at Foodservice, Many New Varieties are Emerging Cheese Flavor Lifecycle at Restaurants Mature Cheddar Mainstream Parmesan Blue Cheese Mozzarella Feta American Cheese Provolone White Cheddar Growth Swiss Cheese Brie Cream Cheese Introductory Cotija Monterey Jack Smoked Gouda Pepperjack Cheese Ranchero Ricotta Ricotta Salata Burrata Gouda Queso Muenster Pecorino Fontina Romano Boursin Parm. Reggiano Mascarpone Cottage Cheese Chihuahua Manchego Queso Fresco Fresh Mozzarella Cheese Curd Grana Padano Gruyère Goat Cheese Comte Danish Blue Havarti Asiago Roquefort Buffalo Mozz. Gorgonzola Fine-Dining Upscale & Fast -Casual Quick-Service Independent Concepts Contemporary CDRs Segments tend to adopt flavors from the preceding stage 18 Source: Technomic MenuMonitor, Q3-2017 19 BRAND INNOVATION IS A MAJOR PART OF OUR STRATEGY! INNOVATION IN THICK CUT SHREDS SNACK BARS Launched SEPTEMBER 2017 WHOLE MILK HISPANIC Launched Q1/Q2 2018 LAUNCHING A NEW BRAND L O C A L FA R M - TO- TABLE CHEESE ▪ It all starts with our eight select, local New York dairy farms, where our cows receive the ultimate in care and nutrition to ensure the highest quality milk. This pure, consistent milk source is what distinguishes Craigs Creamery cheese for wholesome, dairy goodness you can taste. ▪ Enjoy the difference of farm fresh goodness at your table. New York State Phase I plant • Eight farmer-partners ⎻ Average 1,500 cows • Phase 2: Cheese production • Anaerobic digester Phase II plant ⎻ Electricity powers the plant • Solar hot water heating • Nutrient recovery • Manure composting 23 INNOVATION IN AUTHENTIC CHEESES LAUNCHED IN DAIRY ISLE IN A CONVENIENT FORMAT Launch Q1 2018 Foodservice ProductGuide The History of La Vaquita Maria Castro — an immigrant from Mexico and the mother of three young daughters — began making queso fresco, “fresh cheese” for her family in her Houston home. The business continued to grow steadily. The Since then, DFA has maintained the La brand’s top seller, queso fresco, became a staple Vaquita artisan, handcrafted process while She based it on a recipe her for many who use the cheese to top o traditional grandmother had taught her while of their increasing its appeal among consumers not Hispanic dishes from enchiladas and tacos to familiar with Hispanic cheeses. family’s farm. soups and salads. 1971 19080s & 1990s Today 1977 2010 The growth of Houston’s Castro Cheese Co. Hispanic population drove Castro Cheese Co. was acquired by Dairy many people to look for was incorporated; Farmers of America. familiar products. Through her cheeses were word of mouth, Ms. branded Castro’s cheeses were “La Vaquita”, discovered, which forced Spanish for “The her to remodel her garage Little Cow”. and turn it into a mini cheese factory. Why La Vaquita? LatinAmerican • 60% of chefsconsider cuisine LatinAmerican istrending flavors a “hottrend”1 60% HOTTREND Mexican • 83% of families enjoy Mexican % % dishes are a food at leastoccasionally OCCASIONALLY 83 FREQUENTLY 63 big opportunity • 63% eat it frequently2 ServingLaVaquita • Cotija and queso fresco are among the fastest-growingcheeses brings out 3 authenticflavor in restaurants 1 2016 Culinary Forecast, National Restaurant Association. 2 Survey: Mexican food straddles foreign, US cuisines. Sept 4, 2015. Nation’s Restaurant News. 3 The Top Ten Food Trends, April 2015. IFT.org FoodServiceProductPortfolio “Artisanal Mexican cheese, hand-crafted by expert cheesemakers in Texas since1971.” C H E E S E C R E M A QUESO FRESCO OAXACA COTIJA PANELA CREMA CREMAMEXICANA CREMA Keh-so Fresco Wah-hak-uh Ko-tee-hah