Farmer Cooperatives 2001 Positioning for Performance October 30, 2001 Steve Dunphy, VP Sales Land O’Lakes Dairy Foods “Meeting the Needs of our Food Customers”

2 Introduction My background  New to Land O’Lakes –V.P. of Sales  20 years consumer products experience –Kellogg, Pillsbury, Procter & Gamble  6 years grocery retail experience

3 Introduction  Very exciting time to be in the Food Industry There will be clear winners and losers in the near future based on decisions we make as leaders in the food industry. Not a “business as usual” industry

4 Introduction  Consolidating Industry –Fragmented/Inefficient  Efficient  What Should That Mean to Us? –Many familiar food companies will cease to exist Autos, brewing, retailing, etc. “Whatever happened to Strohs, Nabisco, Quaker, Pillsbury?” –Superior financial performance is an imperative  Tremendous opportunity or tremendous threat

5 (Source: 2000 Supermarket News) Retailer Consolidation

6 Drug (60+% ACV)  CVS  Walgreen’s  Rite Aid  Eckerd Mass (70+% ACV)  Wal*Mart  Kmart  Target Clubs (99% ACV)  Sam’s  Costco  BJ’s

7 Retailer Consolidation Acquisition 1.Unilever/Bestfoods 2.Kraft/Nabisco 3.General Mills/Pillsbury 4.Pepsi/Quaker 5.Kellogg’s/Keebler 6.Campbell’s/? 7.Heinz/? 8.Hershey/? Combined Sales $8 B/$8 B $31 B/$8 B $6 B/$6 B $12 B/$ 4 B $6 B/$ 3 B $7 B/ ? $9 B/ ? $4 B/ ?  Is Driving Dramatic Manufacturer Consolidation

8 Retailer Consolidation  Is driving dramatic food broker consolidation –3 National Brokers Acosta Advantage Crossmark  But why is this important? Source:ASMC

9 Source: Sandford C. Bernstein & Co. It’s Important because...  Retailer Consolidation is resulting in lower returns for food manufacturers/marketers –Cost of doing business is up –Pricing power is down

10 “I think there needs to be more consolidation among the mid-tier in order to do a better job of competing with the big boys” -- Ellen Baras, Analyst Biard and Company It’s Important Because...  Manufacturer Consolidation will continue into the “Mid Cap” arena

11 How to Survive and Prosper?  Low cost supplier  Value Added brands  Customer relevance

12 Source: Swander Pace & Co. Study; GMA data base Brands  Why Are Brands Important? –Brands Provide Superior Returns & Profit Growth

13 Brands  “Leading” brands are of the most value #1 brand earns 20% ROS #2 brand approximately 5% Source: PIMS Study

14 Customer Relevance Ultimate Question  Can you help a retailer increase some store sales and profits?

15 Customer Relevance Sales Force Capability: Partner with top customer toward a common goal  Best Practice Sales Organization - P&G –High performance multi-functional teams Relationships at all levels Close to customer Shared risks/commitment Fully integrated plans Which Manufacturer Has the Best Sales Force/Customer Team? Pt.Change vs YAG Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

16 Customer Relevance Sales Force Capability: Understanding and utilizing joint profitability models  Best Practice Sales Organization - Kraft: offered best combination of growth and profitability –Basic profitability models to include: Promotion analysis Pricing Product mix Which Manufacturers offer the best combination of growth and profitability? Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

17 Customer Relevance Sales Force Capability: Ability to understand and sell value added supply services and link business and customers strategies  Best Practice Sales Organization - General Mills & Kraft –Top customers are demanding value added services, I.e. Supply Chain Management Which Manufacturer Has the Best Supply Chain Management? Pt.Chg vs YAG Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

18 Customer Relevance Sales Force Capability: Ability to analyze and interpret data and translate into actual customer strategies  Best Practice Sales Organization - Kraft –Understand how consumers shop, translates into winning strategies for customers (Kraft Plus program). Understand data linkages innovation and approach Which Manufacturer Has the Most Innovative Programs and Approach? Pt.Chg, vs YAG Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

19 Customer Relevance Sales Force Capability: Knowledge of customers and local markets that translates back to consumer insights and new products  Best Practice Sales Organization - P&G and Kraft –Collaborative customer/manufacturer new product development and insight development (consumer info) Which Manufacturer Has the Best Customer Information and Insights? Pt.Chg, vs YAG Note: Scores based on % of retailers ranking in top 3 Source: Cannondale Survey 2000 and 2001 Power Ranking

20 Customer Relevance Key Indicators  Do your brands draw consumers into my store?  Are your business systems and structures aligned with me?  Can you help me differentiate myself from the store across the street? Can you build my brand equity?  Do you provide “intellectual capital?” –Consumer/shopper insights –Profitability analytics –Value chain best practices  Do you have scale?

21 Customer Focus  WAS:Buy well  IS:Merchandise well  BECOMING:Market well

22 Summary  Consumers  Customers  Competitors DO NOT CARE THAT WE ARE CO-OPS

23 Summary  Low-cost supplier  Value Added brands  Customer relevance