1. Opportunities in the Canadian Grocery Business John Teklenburg President & CEO JTI Group of Companies (Canada, USA, Australia, Europe) Lead, follow or get out of the way: This is a very competitive market! Cowards will fail – Team players can win

2. A glance of Canada Second largest country in the world $1.8 Trillion GDP Economy based on natural resources (oil & mining), technology and service industry Most of population and big cities all near US border: Toronto 5.4 million; Montreal 3.8 million; Vancouver 2.2 million; OTTAWA (capital) 1.2million; Calgary 1.2 million (2009) 35 Million people –- ethnically very diverse 80% urban population (!) – etnically diverse (20% immigrant households) $36,000 GDP / capita at parity (8 th in world) with increasing difference between high / low income families Conclusion: Food export opportunities in prosperous markets with diversified consumer profiles /costly distribution systems

3. Food in Canada Households reported spending an average of $7,443 on food in 2010. This included $5,377 on average spent on food from stores and the remaining $2,066 on restaurant meals. The grocery business in Canada: $83,000,000,000 per year (about 5% of GDP) – Approx 60% through chain stores. Employs approx 550,000 people (3.7% of total national employment), some part-time 22,402 stores Additional opportunities: Food service and supply of products for food industry

4. The big boys The largest chains have nearly 50% of the market: Loblaws = 20% market share Sobey’s = 13% market share Metro Inc. = 9% market share Walmart = 6% market share ($5 Bln / 167 SC’s) They do not only operate supermarkets!

5. Competition between the big boys is fierce

6. Loblaws - More than 25 “banners”: Loblaws, Fortinos, No Frills, Zehrs, RCSS, Provigo. Some regional, some specialized, well “targeted” -Started in Ontario – now nationwide -14 Million weekly shoppers -136,000 employees -$30,000,000,000 sales (40 th retailer worldwide) – not only groceries -1,000 corporate / franchise stores -400 associate stores -Sells to 4,700 independent stores -Low price strategy is important -1/3 of store space = non grocery -Recognized as Private Label leader: PC, No Name -Big on product R&D / innovators

7. Loblaws

8. Sobey’s - Started in Atlantic Canada -Bought IGA in 1998 – which made it national -Owned by “Empire Corporation”(bought in 2007) -90,000 employees -$ 15,000,000,000 sales -12 banners incl Sobey’s, Price Chopper, Thrifty, Target Grocery -1,334 stores -Private Label: Sensations, Compliments -Concentrated on groceries

9. Metro - Started in Quebec -Bought A&P in 2005 -65,000 employees -$ 11,000,000,000 sales -6 banners incl Metro, Food Basics, Super C, Richelieu -“only” 564 stores -Private Label: Irrisistables -Concentrated on groceries

10. Metro (Example of JTI product line)

11. Walmart Canada (Example of JTI product line)

12. Other markets: PL (Examples of JTI product lines Mexico and Australia)

13. The other 50%: NOT only little boys fighting – most very competitive! The food sector is very diverse, competitive and with many segments – strong competition in each segment

14. The other 50% - Consumer club stores, e.g. Costco (approx 75 warehouses with big volumes. -Regional supermarket chains -Smaller chains and over 900 independently owned small supermarkets. -Over 10,000 convenience stores – some connected with gas stations -Approx 650 independent delicatessen stores -Frozen food products are a big trend in large chain stores but there are also over 200 independent frozen product stores (excluding those specialized in meat products) -Food items in drug stores (!): Shoppers Drugmart

15. Brands for the other 50% (We have our house labels and supply to major brands)

16. Consumer trends 1.Consumers demand “better” products: Health consciousness, Non-processed items, Product Safety (trend to local products – away from processed products). They read labels! 2.Consumers increasingly demand sustainable agriculture 3.Consumers seek convenience 4.Consumers demand VALUE (globalization, recession): Price shopping versus value shopping 5.Still a large demand for “lowest price” when it comes to staples and junk products.

17. How are stores responding? Segmentation led to Polarization 1.Discount trending: Traditional supermarkets are still important but their market share declined from 67 to 62% in past 3 years. The big chains are going towards – Hypermarkets (mostly low cost – not only groceries) now about 11% market share (!), and – More discount stores: Large, medium and small 2.Premium trending: Format / Channel diversification (specialization) not only smaller stores. Part of the mass market is going upscale. Room for exclusives, premium fresh items, specialty items (etnic, gluten- free, organic, diabetic, health food, etc.). In high-end items of chain stores you will find lots of “ins and outs”. USP’s critical.

18. Trends in grocery retail Price pressure to be competitive: Possible through globalization. Diversification of sourcing: Openness to buy from a variety of sources (NOT only China!) Sharper focus on category management Market segmentation

19. Canada imports lots of food products - 24% of food products are imported (15% from the USA alone) -Fresh foods and vegetables / fish are biggest imports -For commodities: It’s price! -For specialties: It’s a USP -Less supplier loyalty although one has to be part of the club to be a supplier

20. Whatever your business is: Even a small % of the $80 Billion is business If you cannot compete in global markets, Canada is NOT the place for you. To be successful: -Know and understand your market and your place in it -Have a solid plan -Carefully select penetration and distribution -Understand volatility: Be fast and flexible

21. Strengths -Climate -Proximity (ocean freight) -Excellent professionals -New in market -Internal market with interesting products Weakness -Home market focus/small size companies (few huge) -Internal Logistics -Sometimes: Lack of marketing & export experience -Lack of certifications: BRC, etc. Opportunities -Free Trade Agreement -“Tropical” items -Organic Markets -Good reputation (coffee) -Market more open-minded Threats -International Competition -Late market entry - New in market Positive Negative A SWOT ANALYSIS FOR THE COLOMBIAN FOOD EXPORT SECTOR

22. Additional focus on Opportunities and Threats Opportunities: -Fresh Produce vegetables and fruits. We cannot even grow lettuce because of our (lack of) climate. Canada has two seasons only: “Construction” and “Winter” -Consider cultivating items we need because of climate and high Canadian labor cost -Prosperous market / some of your specialties may have potential Threats: - High Canadian distribution cost -Lots of competition -Requirements of factory / productoon certification: HACCP, ISO, BRC -Finding a good distribution network is not simple (You may need several distributors to serve several geographic areas and distribution channels).

23. Private initiative: The Danper Farms – A unique venture It commenced in 2004: Danper started with converting 445 ha of desert lands in Northern Peru with an ideal eternal spring climate. It rapidly went from this..

24. To this: A leading agro-industrial complex In the North: 2,000 ha highly productive asparagus fields. Plus: In 17 valleys spread across Peru, 2,200 ha of “black land” to cultivate artichokes and much more…. The industry created jobs - 100’s of thousands found work..

25. (Preserved) Food Products -Do you know your potential place in the market: Market size, target markets and do you know your competition? -Pushing your own brand is nearly impossible: Listing fees -CFIA requirements and certifications required by Grocery chains: Food safety, QA, Social Responsibility, BRC -Understand packaging and shipping requirements (distributors know and can package your bulk items in Canada). -Logistics: The need of Just-on-time deliveries. Constraints within Colombia, transport issues, CHEP pallets, best freight routes -How does Canada fit in your general portfolio? -Can you produce year round? What is your production window and how does it compare with the competition from other countries? -Your sustainability?

26. ANALYSIS RESEARCH IS KEY Three dimensional: -What can you offer to each market? -What does each market seek? -How will you sell / distribute? Don’t even try to make a long term entry before doing your homework.

27. An example of teamwork – vertical integration to build a private label product line

28. STRATEGIC PARTNERS ARE KEY Apart from finding some short term opportunities, in this global environment you have only a few choices: -Don’t play -Be a minor player -Efficiently organize your optimum vertically integrated supply system by creating strong partnerships: In Colombia (agricultural crop, packaging, logistics) and in Canada (distributors).

29. WHAT CAN WE DO FOR YOU IN CANADA? 1.Assess the possibilities for your product(s) in Canada. 2.Be your (master-) distributor if your product fits in our product portfolio. 3.If your product(s) do not fit in our portfolio: Identify one or more distributors for your product(s).

30. Build Alliances ….to solve the SUCCESS puzzle Vertical integration of the supply chain is key. Efficient, professional, fine-tuned team work is essential.

32. JTI Inc. (Canada) JTI Foods Inc. (USA) JTI Foods Pty Ltd. (Australia) Agrosol International Inc. (Europe) John Teklenburg JohnT@JTIFoods.com Call me directly HQ near Toronto +1 (905) 681-2555, ext 211