Food Bites Dessert Sauces and Creams

1. Food Bites Dessert Sauces and Creams • Annual Market Quantification • June 2011

2. Market context • Canned milk category is comprised primarily of condensed milk and, to a lesser extent, evaporated milk and caramel treat tins. These products have a strong presence within the retail trade, with the application being primarily for baking within private households. The category is well-established and is dominated by Nestlé, with smaller producers forming the second tier of the market. Overall, this is a relatively small market in volume terms and is fairly consistent in production levels year on year. • The dessert sauces category is very limited in volume terms. Given this, the market volumes are prone to volatility as the entry or exit of a player or any product variations result in substantial market changes. The category is quite seasonal due to the close link to ice cream, with sales seen primarily within summer. • The dessert sauces market may be divided into two – those products destined for retail production versus those designed for foodservice usage, with pack sizes designed for this. • Dairy creams comprise larger established players right through to the smaller dairies that make up the balance of the market. The dairy cream category is closely related to the butter market as both compete for the same raw materials. However, dairy cream is generally more profitable and thus is often favoured over butter. Overall, there is a steady demand for dairy cream with usage firmly established within dessert and baking. 2

3. Market context (Cont.) • Non-dairy cream is based on palm oil and is marketed as an alternative to dairy cream. It is used almost exclusively in the industrial baking sector with Rich Food Products and Unilever being key suppliers to this portion of the market. The category has a limited presence in retail through the likes of Unilever and Orley Foods. • Non-dairy cream offers the benefit of longer shelf life compared to dairy cream. And, given the usage of the category in industrial baking, it extends the shelf life of baked goods too. • A challenge currently faced by the category is the need to rename the category. As the category is essentially not cream, the new labeling laws demand an alternative name. It remains to be seen the direction that the industry will take in the renaming exercise. 3

4. 2010 Category Volume Shares 4

5. Annual Growth Rates Dessert Sauces Canned Milk Dairy Cream Non-Dairy Cream 5

6. Canned milk growth short lived • The canned milk market saw a spate of declines running from 2007 through to 2009. The good growth seen in 2010 (11.7%) represents a partial recovery of these volumes but is not growth in real terms. • The canned milk category is often regarded as secondary to other dairy products, such as milk powders or ice cream, that compete for the same supply of raw materials. As a result, the category volumes often show a volatility that is not indicative of end-user demand, but rather of the supply situation for the category. With milk supply being variable in itself, producers often play a balancing game between these competing categories. • Canned milk is retail focused and usually performs well in better economic conditions. However, the retail demand for the product has been waning, possibly as consumers become more health conscious and try to avoid the likes of sweetened, concentrated, dairy products. In addition, with the trend to convenience, consumers appear to be baking less, and thus hampering the demand for canned milk products. • The category is expected to see a decline in volumes during 2011 but make a recovery again in 2012. 6

7. Dairy cream sees innovation • Dairy cream makes profitable use of the available raw materials and has shown average annual growth of 2.6% over the last decade despite some periods of volume contraction. Dairy cream has generally shown good growth historically with the foodservice usage of the category being slightly more resilient than that of the overall market. • More recently, some of the medium-sized dairies have placed greater emphasis on dairy cream sales. It is believed that line extensions into sour cream, low fat and double thick cream have sparked renewed interest in the category. In addition, rebranding exercises with more sophisticated, resealable packaging options have bolstered sales. These market activities have served to grow the fresh cream portion of the market but canned or long life creams have had little focus and have merely held their position. • Overall, dairy cream is expected to show limited but consistent growth in the medium term. Increases of 3.5% and 3.8% are anticipated for 2011 and 2012 respectively. 7

8. Little focus on dessert sauces • Dessert sauces is a small category in volume terms and currently comprises only 2.5% of the dessert sauces and creams market. Given this, if a player changes focuses or exits the market it impacts on the category growth rate quite substantially. As a result, dessert sauces has traditionally seen a fair amount of volatility. • The category is generally not a core product for many of the players, and thus there is little or no advertising focus or spend. There has been some innovation in the form of syrups being extended into dessert sauces but otherwise there has been little activity within the category. • Foodservices maintains nearly a half share of the total market volumes. This sector has not shown much growth with catering usage remaining fairly static. • The growth in dessert sauces is expected to taper off somewhat in the medium term. Following the 7.9% increase expected for 2011, only a limited 1.3% growth is anticipated for 2012. 8

9. Limited growth in non-dairy cream • The non-dairy cream category has stabilised somewhat, showing a small volume increase (1.0%) after two consecutive years of volume declines. Further volume growth is expected in the short term returning the expected volume of the market to 2005/2007 levels by 2012. • In terms of focus, non-dairy cream still maintains a strong presence within the industrial and foodservice sectors. Retail offerings offer better margins but consumer demand for these remains limited and thus they form only a limited proportion of production. • Within foodservices, dairy and non-dairy cream consumption are at almost equal volumes with usage for both focused on the commercial sector. The foodservice and industrial trade is supplied by a few key players and these sales are heavily dependent upon the Rand/Dollar exchange as most of the required raw materials are imported. There were a number of supply problems a few years ago due to fires in international palm plantations but supply has since stabilised, albeit at a higher input cost. • Growth of around 5.0% is expected per annum for the category in the short term 9

10. Food Bites Dessert Sauces and Creams For more information, contact: Jan Wegelin Research Manager Tel: (011) 615 7000 Mobile: 082 938 0744 www.bmi.co.za