Potato Promotional Activity Evaluation

1. Potato Promotional Activity Evaluation Prepared by the United States Potato Board And The Perishables Group

2. Preface • Data contained in this promotional activity deck: • Reports what took place in 11 national chains, and 5 independent chains (3 East, 1 West and 1 Midwest) over a 104 week period evaluating 1,092 promotional activities. The activities may not represent the optimum ad schedule. We would recommend that you work with your accounts, review the data, but develop and test ad features to optimize volume. • Does not report profitability or contribution, it only reports dollar and volume (lb) results for the various promotional activities. • Reports discount rates off of suggested / posted retails, not fob’s, etc. • Should be reviewed and tailored to your specific account and geography. While a large sampling was used to produce this report an account specific tailored approach will help optimize results.

3. Potato Promotional Activity Evaluation • Purpose of this presentation deck is to help understand the relationship between potato promotional activity and volume, both dollars and pounds. And to provide data to shippers / suppliers to better enable them to develop and communicate to their retail partners / customers a promotional plan to support incremental dollar and pound potato volume.

4. Potato Promotional Activity EvaluationTable of Contents Section Pages • Introduction 4-5 • Tips to Understanding 6 • How to Read Report 7 • Report Methodology 8-10 • Baseline vs. Incremental 11-14 • Quick View (must read) 15 • Promotion Findings 16-35 • Definitions (in appendix) 37-38

5. Potato Promotions • Introduction: • The attached report was compiled over 104 weeks looking at over 1,092 potato promotional (ad features/promotions/TPR’s) activities with a geographically dispersed set of retailers utilizing retailer POS (point of sale) data. • The report does not necessarily demonstrate the optimum promotional activity in that it reports what has been done, but it does show what has been effective, and conversely what is not as effective. • Potatoes do react positively to promotions. • Promoted discount rates are reductions at retail, not necessarily reduced cost of goods. • All dollar data in this deck reflects retail (POS) sales.

6. Potato Promotions • Introduction: • Data would indicate that promotional activity has been reduced by most retailers over the time period. • Reasons as reported to us by retailers: • They were informed that supply would be tighter and prices would be higher, they communicated this to the retail ad departments which reduced support. • Increased competition from other products/categories within produce for ad space / features. • As a note ad features / promotions / support planned out well in advance of the activity.

7. How to Read the Report • Step 1: Review the Snapshot report • If you are only going to read one thing in this report, read the snapshot section beginning on page 15 to give you a general overview of the findings as they apply to the total US • Step 2: Read the main findings • This provides a more detailed view of both volume and dollar impact at the category level • These are still broad guidelines • Step 3: Review the sub-findings detail for each finding • This provides applications at the subcategory level (bargain, mainstream, premium, specialty, etc.) and segment and sub-segment levels (variety and bag/bulk). • Also notes quarterly or regional variations of the main finding.

8. Methodology Methodology • Step 1: Use Category Performance Data – Compiled data, e.g. weekly category and subcategory volume and dollars, department dollars, and promotional information from July 2004 through June 2006, 104 weeks. • Step 2: Select Retailers – Retailers were selected from the database. Retailers representing different regions of the country were chosen: • 11 “national” chain divisions representing all geographic regions • 5 independent retailers • 3 East • 1 West • 1 Midwest

9. Methodology Methodology • Step 3: promotional activities evaluated- • 556: 1 item promotional activities • 267: 2 item promotional activities • 214: 3 or 4 item promotional activities • 44: 5 to 7 item promotional activities Note: while the 5 to 7 item promotional activities performed very well, they are the exception and in that they represent only 4% of the total, and does include value-add products – degree of confidence is reduced. Total 1,092

10. West Central East South Regional Coverage New England West North Central Mountain East North Central Mid- Atlantic Pacific South Atlantic East South Central West South Central

11. Methodology • Step 4: Compute Results – Calculated promotion discounts, and coded data to reflect the segments and subcategories involved in each promotion. Analysis included the effect of promotions on category volume and dollars, and a breakdown of the various types of ads over subcategories, segments, sub-segments, and discounts. Subcategories, Segments, Sub-segments included in the analysis are as follows: SubcategorySegmentSub-Segments Bargain Russet Bulk Mainstream Red Bag Premium Purple Value-Added Specialty Organics Value-Added Yellow/Yukon Gold Other Value-Added White Fingerling Creamers

12. What is “Baseline and Incremental” • Baseline movement is: • A calculated fact that quantifies the expected sales for a product or category • Also commonly called “base sales” or “everyday sales” • It is calculated by: • A weighted moving average of weekly observations of normal non-promoted volume • Incremental is: • A calculated fact that quantifies the sales gained above the expected baseline sales • Also commonly called “lift sales” or “additional sales” • It is calculated by: • Difference between total volume and the calculated baseline volume • Both are estimated: • We can never know if a shopper decided to buy more of a product at the point of purchase or if they were always intending to buy that amount • Baseline/incremental is a way to quantify this occurrence based on observed data points and gain insight into additional movement

13. Measures: Baseline & Incremental • The goal of baseline and incremental measures are to assess additional sales gained during a period above expected sales • While both promoted/non-promoted and baseline/incremental measures are a way to breakdown total volume or dollars, they are not the same • Some promoted volume would have sold anyway (baseline) Incremental- New volume gained above the baseline Promoted- all sales a week where there was a promotion/price reduction Baseline- Expected, would have sold anyway Non-Promoted- all sales a week where there was no promotion/price reduction

14. Baseline Volume vs. Non-Promoted Volume • Do not mistakenly equate baseline volume with non-promoted volume • While both focus on everyday sales, it is important to distinguish between them: • Baseline Volume is the estimate of what “everyday” sales are expected to be, regardless of promo or other activity • Every week has baseline volume • Non-Promoted Volume is the actual volume sold on a week without a promotion • Not every week has non-promoted volume (i.e. a promo week) Rule of Thumb: • Total Volume = Promoted + Non-Promoted • OR • Total Volume = Baseline + Incremental • BUT • Promoted DOES NOT EQUALIncremental • Non-Promoted DOES NOT EQUALBaseline

15. Baseline and Incremental Sales by Region • While reviewing the activities, keep in mind that all regions show healthy baseline category volume and dollars • Potatoes are a staple item bought routinely • While the East tops the regions in terms of overall category volume and dollars, it appears that East & Central regions are similar in their baseline/incremental profiles • The same is true for West & South

16. Quick View of Key Findings To maximize category lift: • Promote potatoes at least 9 times per quarter; at least 3 times per month. • When running 5-8 promotions per quarter, the discount needs to be 41%+ to reach the volume impact of 9-12 promotions per quarter at a lower discount level. • Discount potatoes with special attention to quarterly variances. Discounts are of retail prices. • Q1: 21%-30% average discount • Q2: 31%-40% average discount, except for Easter holiday, where the discount should be 0%-20% • Q3: 41%-50% average discount • Q4: 0%-20% average discount • Regional variances do apply, as does depth of discount by category segment, i.e. heavy discounts off of EDLP’s/bargain bags are not recommended. • Include bagged potatoes in every promotion. • Feature multiple potato segments in the same promotion. • Include bargain potatoes for volume and category excitement, but do not deeply discount • Deeply discounting bargain potatoes erodes revenue and contribution • Feature up 3 to 4 items in the ad circular. • Promote up to three varieties in the ad circular. • When promoting organic potatoes, include a conventional potato.

17. Number of Promotions per Quarter Promotion Activity #1: On average, promote potatoes at least 9 times per quarter. • Running 9-12 promotions per quarter provides an average category volume impact of 64%, which is over twice as high as 2-8 promotions per quarter.

18. Number of Promotions per Quarterby Discount Range Promotion Activity #1: On average, promote potatoes at least 9 times per quarter. • Running 9-12 ads per quarter provides a higher average category volume and dollar impact at each discount range when compared to running 5-8 ads per quarter. • When running 5-8 ads per quarter, the discount needs to be 41%+ to reach the volume impact of 9-12 ads per quarter at a lower discount level.

19. Number of Promotions per Month • Promotion Activity #1: On average, promote potatoes at least 9 times per quarter. • Overall, a monthly frequency of 3 to 4 promotions is nearly twice as productive as 1 to 2.

20. Number of Promotions per Quarter Promotion Activity #1: On average, promote potatoes at least 9 times per quarter. • Recommendations by Month: • 3-4 promotions per month in Q1 (Jan-Mar) • 2-3 promotions per month in Q2 (Apr-Jun) • 3-4 promotions per month in Q3 (Jul-Sept) • 3-4 promotions per month in Q4 (Oct-Dec)

21. Discount Range Promotion Activity #2: On average, discount potatoes by 26% - 50% when on promotion. • 26% - 50% discounts are nearly twice as effective as 1% - 25% discounts • The discount range of 50%+ are made up of Buy One Get One Free ads, which, while effective, should be used sparingly. If Buy One Get One Free ads become the standard, their effectiveness would drop significantly.

22. Buy One Get One Free Ads*Effect On Following Weeks Sales • While Buy One Get One Free Ads have a large positive impact on item volume sales during the promotion, they have a negative impact on the item in both volume and dollar sales during the six weeks immediately following the promotion. • Note: the category is usually not impacted in the week(s) following as generally another ad is being run which lifts category baseline performance *Based on 52 promotions throughout the two year analysis timeframe

23. Discount Range (cont’d) Promotion Activity #2b: Vary discount level by quarter to reflect seasonal purchase patterns. • However, deep discounts are not necessary during the peak selling times and holiday weeks. • Recommendations by Quarter: • 21% - 30% discount during Q1 • 31% - 40% discount during Q2, except for Easter Holiday, in which discounts should be 0%-20% • 41% - 50% discount during Q3 slower potato period, higher end of crop prices • 0% - 20% discount during Q4 – this is when potatoes are on the shopping list

24. Ad Mix – Bag/Bulk/Value-Added Promotion Activity #3: Include Bagged potatoes in all promotions. • All promotions including Bagged potatoes outperformed those without Bagged potatoes in category volume and dollar impact. • On average, promotions containing Bagged items were discounted at the 1% - 20% range (except when combined with a value-added item).

25. Ad Mix – Subcategories Promotion Activity #4: Promoting Bargain potatoes creates excitement in the category. • All promotions that include Bargain potatoes outperformed those without Bargain potatoes in category volume impact. A “Bargain Bag” is typically a 10 lb. or larger bag of Russets or Whites depending on your retailers geographic location and carries a low retail cost per pound. While including Bargain bags is encouraged, deep discounting is not required. *All other below-average subcategory ad mixes located in Appendix

26. Ad Mix – SubcategoriesItem Dollar Impacts & Discount Range Promotion Activity #4: Promoting Bargain potatoes creates excitement in the category. • When promoting Bargain potatoes with other subcategories, pay close attention to discount levels, they do not have to be as deep, as they have a big effect on Bargain item dollar impacts.

27. Ad Mix – SubcategoriesItem Dollar Impacts & Discount Range Promotion Activity #4: Promoting Bargain potatoes creates excitement in the category. • When promoting Bargain potatoes with other subcategories, pay close attention to discount levels , they do not have to be as deep, as they have a big effect on Bargain item dollar impacts.

28. Ad Mix – Number of Items Promotion Activity #5: Feature multiple potato items in the same ad circular. • Having 3-6 items (including Temporary Price Reductions) in the promotional mix provides strong category volume and dollar impact. Ad Mix Examples (most common w/high performance ads) 3-4 Items 5-6 Items 10# Bargain Bag 10# Bargain Bag 15# Bargain Bag 15# Bargain Bag Mainstream Bag Mainstream Bag Premium Bag Mainstream Bulk Premium Bulk

29. Ad Mix – # of Varieties Promotion Activity #6: Promote up to 3 varieties in the same ad circular to gain maximum category volume and dollar impact. • Even when the discount slightly decreases, the category volume impact increases when up to three varieties are promoted in the same ad.

30. Ad Mix – VarietyTotal US Promotion Activity #6b: Including a Russet and/or White potato with another variety will increase exposure and encourage consumer trial of other varieties.

31. Ad Mix –VarietyCentral Region Promotion Activity #6-Central: Including a Russet potato with another variety will increase exposure and encourage consumer trial of other color/varieties.

32. Ad Mix –VarietyEast Region Promotion Activity #6-East: Including a Yellow/Yukon Gold and/or White potato with another variety will provide maximum category volume and dollar impacts.

33. Ad Mix –VarietySouth Region Promotion Activity #6-South: Including a Russet potato with another variety will provide higher category volume impacts.

34. Ad Mix –VarietyWest Region Promotion Activity #6-West: Including a Russet and/or White potato with another variety will increase exposure and encourage consumer trial of other varieties.

35. Ad Mix – Conventional/Organic Promotion Activity #7: When promoting Organic items, include Conventional potato items in the same ad. • All promotions including Conventional potato items outperformed those without Conventional potato items in category and dollar impact.

36. Ad Mix – Conventional/Organic Promotion Activity #7b: When promoting Organic items, include Conventional potato items in the same ad. • While an “All Organic” promotion may not have a huge category volume impact (+6%), this is due to Organic items not being a large percentage of sales within the potato category.

37. Appendix

38. Definitions • Measure Definitions: • Promotion – defined as any event associated with either a temporary price reduction or in-store or circular advertisement • Promotion Date – weekending date the promotion was executed • Chain ID – a marker identifying the retail chain with which each store is associated • PLU Code – item level code which enables analysis across multiple stores/chains • Promotion Period Description – a description of the time period of the promotion • Promotion Item Description – a description of the specific item(s) promoted during an event (an example would be $1.99/lb. or 3 for $2) • Promotion Price Description – the price and/or unit of measure for the item(s) during the promotion • Promotion Description – the type of event including but not limited to: ad location, type of event, type of ad • Subcategory name – a level in the category hierarchy that allows promoted items to be rolled up for analysis at a “higher” level (for potatoes this would be Bargain, Mainstream, Premium, Specialty)

39. Definitions • Measure Definitions: • Promoted Retail – the actual promotional price of the individual item • Baseline Retail – the everyday non-promoted price of the item • Promoted Dollars – the per store per week dollar sales generated by an item during a promotional event • Baseline Dollars - the per store per week dollar sales generated by an item during weeks when the item was not promoted during the period analyzed • Promoted Volume - the per store per week pound sales generated by an item during a promotional event • Lift – the difference between the baseline (what is normally generated during a week when no promotional activity occurs) and promoted volume and dollars (what is generated during a week in which a promotion occurs) • Negative lift is defined as the volume generated by the category during a promotional event/week that is lower than the normal volume generated by the category. • Baseline Volume - the per store per week pound sales generated by an item during weeks when the item was not promoted • Category Dollars - the per store per week dollar sales generated by the category • Category Volume - the per store per week pound sales generated by the category

40. Discount Range: 51%+ Promotion Activity #2: On average, discount potatoes by 26% - 50% when on promotion. • Promotions of 50%+ are Buy One Get One Free or Buy One Get Two Free promotions • Buy One Get One Free examples: 5# Mainstream bag, all varieties (except Yellow/Gold) • Buy One Get Two Free example: 5# White Potatoes (only item example)

41. Ad Mix – Bag/Bulk/Value-Added Promotion Activity #3b: Promote Value-Added items alone or with Bagged items • “All Value-Added” promotions do not deliver huge category volume lift (+10%), but this is due to Value-Added items being a small percentage of sales within the potato category.

42. Ad Mix – SubcategoriesBelow-Average Ad Mixes