KEY CONSUMER TRENDS IN FOOD & AGRICULTURE · KEY CONSUMER TRENDS IN WINTER 2019 \ LOOKING AHEAD INTO 2019 ... BIS Research: Global Food Tech Market, 2016 2. Deloitte 2019 Consumer

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FOOD & AGRICULTUREKEY CONSUMER TRENDS IN

WINTER 2019

\ LOOKING AHEAD INTO 2019

DISRUPTIVE CHANGE: THE NEW NORM

In our ongoing series, we have been exploring key consumer trends in food & agriculture and assessing what they mean to the foods industry value chain with Origin Merchant Partners Senior Advisor, Steve Bromley. Mr. Bromley has over 30 years of food, beverage and general business experience in private and public companies at both executive management and board levels.

We have noted that from a macro perspective today’s consumers are making more informed decisions

than ever before when it comes to their food choices, driving significant demand for perceived healthier foods including non-GMO, organic, clean label options and “free from” foods to name a few. Consumers are also focused on foods that align with their values and beliefs, and technological advances are significantly changing food processing, delivery and how food companies interact with their customers. The food & agriculture industry is responding rapidly to these changing consumer preferences and the impact has been substantial. Are the changes here to stay and what lies ahead?

In our past Insights reports we have discussed the organic, clean label, transparency and traceability and plant-based foods trends. So, what should we expect as we look to 2019? Simply put - we believe 'disruptive change' will be the new norm, driving continued rapid change and impacting all points in the foods industry value chain.

In this report we will assess what is driving these disruptive forces, how the foods value chain is being impacted, and how companies are and will need to respond to these forces.

INSIGHT FROM ORIGIN MERCHANT PARTNERS SENIOR ADVISOR, STEVE BROMLEY

"Business as usual does not exist"CEO - Fortune 500 Company”

2

M&A SPOTLIGHT: FOOD & AGRICULTURE WINTER 2019

Disruptive Change What’s Driving This Marketplace Overhaul?

• "Self-care" and "self-health" is on the rise as social awareness of the societal and health and wellness impacts of foods continues to grow. This self awareness is driving significant shifts in consumer expectations for the foods industy.

• Demands for foods 'on the consumers terms' is driving convenience expectations and alternative routes to market, putting significant pressure on legacy methods of bringing foods to the marketplace.

• These generations now have significant spending power with extremely differrent values, beliefs and behaviours than previous generations, driving a massive shift in long-established food industry norms.

• New technologies are having dramatic impacts on all points in the food industry value chain from advanced growing and processing techniques through procurement, delivery and consumer engagement, driving rapid changes in historic industry practices.

Key Factors Driving Disruptive Marketplace Changes

Growing Power of Millenials & Gen Z

The Rise of "Self-Care"

Rapid Technological Change

Demand for Convenience and Growth in Alternative Routes to Market

3


Market Capitalization Under Pressure1

DISRUPTIVE CHANGE

Source: 1. Cap IQ 2. Market Capitlization Loss Charts date range for % change is from January 22, 2019 back to: Kelloggs (July 19, 2016), Campbell’s (July 6, 2016), Mondelez (June 2, 2017), ConAgra (November 8, 2016), KraftHeinz (February 17, 2017), General Mills (July 19, 2016), Aggregate (July 8, 2016) 3. IRI Market Advantage

"Extra small brands" with < $100m sales are fastest growing CPG segment, growing at 4.9% last year3, thanks to e-com-

merce breaking down entry barriers.

Activist Shareholders Pushing For

Change1

Legacy Brands Are Under Pressure

How is This Impacting Big Food?

45%

55%

65%

75%

85%

95%

105%

115%

125%

135%

Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19

Kelloggs Campbell Mondelez

ConAgra KraftHeinz General Mills

Market Cap Loss2

(US$bn)% Change

10.1 33%

10.2 49%

8.9 12%

10.9 51%

60.0 51%

17.6 41%

Total 117.7 39%

4


DISRUPTIVE CHANGEHow is This Impacting Big Food?

Source: 1. GlobalData consumer research, May 2018 2. How Can Big CPG Firms Fight Back Against Small Brands? by GlobalData 3. IRI Market Research 4. FMI U.S. Grocer Shopper Trends 2018

Growth Has Become Elusive

Big Food Losing Share

"Over the past year the sales of small CPG firms grew at about 5.8%, far faster than the .9% growth rate of the largest CPG brands."2

"$17 billion in U.S. CPG industry sales have shifted from large

players to small ones since 2013"3

A Decade of Decline For Traditional Supermarkets

Primary Store For Groceries, Historical Trend 4

8.9

8.3

Small CPG Brands Big CPG Brands

Trust Ratings of big and small brands 1

Smaller Brands Now Trusted More Than Big Brands

67%

22%

7%2% 1% 1% 0%

56%

27%

6%2%

7%2% 0%

52%

23%

6%2% 4% 3%

0%

9%

49%

25%

5%2%

7%3% 2%

7%

47%

24%

6%3% 5%

2%5%

8%

49%

24%

6%3% 5% 3% 4% 6%

Supermarket Supercenter Warehouse Discount LimitedAssortment

Organic &Specialty

Other Channels No Primary Store

2005 2010 2015 2016 2017 2018

5


So What About These Millennials and Gen Z'ers?

MILLENNIALS MUCH LESS TRUSTING OF ‘BIG FOOD’

• 43 percent of Millennials agree they do not trust large food manufacturers2

Source: 1. BI Intelligence Consumers @ 250 Report, A.T Kearney 2017 2. McKinsey, April 2018 3. FMI U.S. Grocery Shopper Trends, 2018

“They want to know what is in their food, who made it, what kind of company it is, are they ethical and

how they treat animals.” - Fortune 500 CEO

Percentage saying that, generally speaking, most people can be trusted 2

DIFFERENT VALUES ELICITING DIFFERENT BUYING BEHAVIOURS

• Desire more natural and organic, rejecting processed food, higher spend on food and bev, fewer and later marriages, technologically connected

VIEW FOOD AS MORE THAN SUSTENANCE

• Food ethics and food integrity concerns often override purchase decisions

• For Gen Z, food is a symbol of personal values and a form of self expression

Dramatically Different Values and Beliefs - Soon to be Largest Demographic

Frequency of Shopping Online-Only/Online-Primarily Retailers, Historical Trend, By Age Cohort 5

LEADING THE WAY IN ONLINE SHOPPING

14

66 65

80 82

43

SilentGeneration

BabyBoomers

Gen X Millennials Gen Z Gen Alpha

Estimated US Consumer Population 2026 1

28%

22%

16%

10%

24%

17%12%

5%

43%

24%

12%9%

43%

29%

14% 15%

Millennials Gen X Boomers Mature

2016 2015 2017 2018

(1928-1945) (1946-1964) (1965-1980) (1981-1997) (1998-2016) (2017-?)

6


The Rise of Self-Care:Driven By Awareness Of Health & Wellness

SELF-HEALTH ON THE RISE • Healthcare costs are skyrocketing and

consumers are having to accept the notion of self-health

• No longer are the possible higher costs of food considered a detriment to consumers focussed on health and wellness

• Since 1960, food costs have gone up 20x while healthcare has gone up 118x in the USA

Source: 1. CDC's Behavioral Risk Factor Surveillance System (BRFSS) 2. Havard School of Public Health

Food Costs vs. Healthcare1

EATING WELL IS A KEY COMPONENT OFHEALTH AND WELLNESS DRIVING SELF-CAREShopper comments from FMI U.S. Grocery ShoppingTrends 2018 survey, "What does "eating well" meanto you? "Eating Well Means...":• "A balanced diet. Something non-restrictive but

containing an awareness of the healthy versus non-healthy food items" - Female, 23

• "Having enough money to eat and not eating junk" - Female, 31

• "That I am eating fresh vegetables and fruits, drinking plenty of filtered water and eating lean meats that have not been treated with hormones and antibiotics." - Female, 39

• "Consuming a balanced meal that leaves me feeling content, having spent time with my family and supported local producers of my food" - Male, 44

• "Tastes good and filling, but not overeating" - Male, 73

OBESITY CONTINUES GROWING AT ALARMING RATES• The Institute for Health Metrics and Evaluation

(IHME) at the University of Washington found in an analysis of trend data that 2.1bn people across 188 countries are currently obese or overweight.

• The culture of food is evolving as consumers awareness of 'self-health' drives significant shifts in consumption patterns to address significant health and financial concerns

74.0 B

1.5 T27.0 B

3.2 T

1960 2017

Food Healthcare

1

US Food Spending VS. Healthcare Spending 1960 and 2017 2

7


Technology Impacting All Points in the Food Chain

Source: Images: Top Right: John Deere / Bottom Right: Whirlpool. 1. BIS Research: Global Food Tech Market, 2016 2. Deloitte 2019 Consumer Products Outlook

Significant technological advancements across the value chain are driving new and innovative practices and shifting conventional wisdom.

Precision agriculture

Alternative growing technologies

Bio-engineered food applications

Alternative proteins

Food waste solutions

Ag-Tech Expands Accuracy & Efficiency of Farming

Disruptive Technologies in Food & Agriculture Tech Are Changing

Traditional Practice

The global food tech market is expected to grow over $250 billion by 2022, a CAGR

of 5.8% through 2015 to 2022.1

• Flexibility and Adapability• Reduced Waste Processing• Food Safety• Reduced Costs / Improved Efficiencies• Product Innovation• Supply Chain Visibliity

New Processing Technologies Are Driving:

"In the past, consumer products companies haven't generally been associated with being at the forefront of implementation of cutting-edge technology, But consider this: As a a

growing number of consumers research, purchase and engage with brands digitally, it is likely imperative for CP companies to adopt newer technologies or be outdated." 2

8


GROWTH IN CONVENIENCE & ALTERNATIVE ROUTES TO MARKET

Source: 1. Lux Research 2. (Chart 93) Business Insider Markets Chart of the Day - Source: USDA Photo bottom right: HelloFresh

• E-Commerce• Meal Kits• Delivery On Demand• Click & Collect• Food Outside The Home• Pop Up Retail Platforms• Ease of Trial Solutions

Consumers Now Relying On Various Convenience and Alternative Routes

to Market Options For Food & Beverage

Large Grocers Rapidly Adapting To Consumers Preference For

Convenience• Large retailers like Walmart and Loblaws are stepping up their convenience factor by implementing click & collect programs for their customers. This allows consumers to choose between home delivery, in-store pick up, or in-store shopping. • The meal kit industry (ready-to-prepare meals) is estimated to be worth $120m in Canada, having doubled since 2014 according to research by The NPD Group.

Consumers are willing to pay a premium for convenience. Globally, on average consumers are willing to pay 14% more for online grocery de-livery, 25% more for meal kits, 30% more for prepared meals and 55%

more for restaurant take-outs1

Desire For Convenience Impacting Americans Food Spend

9


Historical Advantages Are Now The Problem

Source: 1. GlobalData consumer research, May 2018 Pyramid image bottom right: U.S. Grocery Shopper Trends 2018, Hartman Group

DISRUPTIVE CHANGEFood For Thought

What Does This Mean For Big Food Manufacturers & Retailers?

• Large inflexible asset bases• Historic brands becoming obsolete• Defensive barriers eroding quickly• Legacy approaches to innovation not applicable• Corporate cultures not appealing• Relationships with retailers in decline• Old technology

Shift Must Continue to Better Understand the Ever Changing Dynamics of Food Consumption Trust Ratings of big and small brands 1

How good of a job do big consumer brands do of creating new and interesting products for you to buy?1

(percentage of consumers giving each response)

5.7%

17.4%

38.1%

28.3%

10.5%

Very Good Good Ok Poor Very Poor

“What worked yesterday may not work today”

- Steve Bromley, Origin Merchant Partner's Senior Advisor

Innovation Not Meeting Expectation

10


Source: 1. "US Food Sales and the Changing American Consumer" study, Nielsen 2016 2. OC&C Strategy Consultants’ annual Global 50 report

WHAT DOES THE FUTURE HOLD?DISRUPTIVE CHANGE

Traditional CPG and retailers are struggling for growth in today's new world. While efforts to improve innovations, agility, transparency and efficiency are ongoing, M&A is also play-

ing a big role in strategy for these businesses. As a result, smaller, disruptive and fast grow-ing businesses are now more appealing than ever!

Smaller, disruptive, and fast growing brands are more appealing than ever.

M&A activity among the top 50 consumer goods companies, including P&G, L’Oréal, Nestle and Unilever, jumped 45% to a 15-year high of 60 deals in 2017, while simultaneously

they saw their combined 2017 revenue jump 5.7%, the high-est since 2011, compared with

a meager 0.5% rate in 2016. The increase was driven by

acquisitions.2

Playing it Safe is no Longer Safe1

% Category Growth % Annual Growth

11


PRECEDENT TRANSACTIONSSmaller Branded Food and Beverage

Source: Capital IQ, Company Press Releases

CASE STUDYKraft Heinz Acquires Ethical Bean Coffee

• Kraft Heinz Canada, a subsidiary of The Kraft Heinz Company (NASDAQ:KHC), recently completed the acquisition of Ethical Bean Coffee based in Vancouver, British Columbia.• Origin Merchant Partners acted as exclusive financial advisor to Kraft Heinz Can-ada with respect to this transaction.• Ethical Bean Coffee is a high growth, local brand with strong values around ethi-cal sourcing and fair trade and a deeply loyal customer base. Kraft Heinz Canada saw an opportunity to grow the Ethical Bean Coffee brand rapidly across Canada while maintain-ing the core values and product integrity associated with the brand. • Kraft Heinz Canada (“Kraft Heinz”) is a subsidiary of The Kraft Heinz Company (NASDAQ:KHC), the fifth largest food and beverage company in the world. A globally trusted producer of delicious food, its portfolio is composed of iconic brands including Kraft, Heinz, ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Smart Ones and Velveeta. Kraft Heinz is the #1 food and beverage and the #1 foodservice company in Canada and its products are found in more than 90% of Canadian households. Kraft Heinz is dedicated to the sustainable health of its people, its planet and its Company.• Ethical Bean Coffee is a leading roaster of 100% Fairtrade, certified organic cof-fee. Founded in 2003, and based in Vancouver, British Columbia, Ethical Bean is commit-ted to social responsibility, global awareness and environmental accountability.

Exclusive Financial Advisor on its Acquisition of

September 2018

Announce Date Target Acquirer TEV

(US$ MM)TEV / LTM Revenue TEV / LTM Revenue

29-Nov-19 Primal Kitchen Kraft Heinz 200 4.0x

31-Aug-18 Costa Coca-Cola 5,100 3.0x

25-May-18 Bare Foods Co. Pepsico 175 4.5x

23-Feb-18 Blue Buffalo Pet Products General Mills 8,000 6.2x

18-Dec-17 Amplify Snack Brands Hershey Company 1,600 4.3x

18-Dec-17 Snyders-Lance Campbell Soup 6,100 2.8x

6-Oct-17 RXBar Kellogg 600 5.0x

29-Nov-17 Kind LLC Mars 4,000 5.6x

29-Jan-15 KRAVE Pure Foods Hershey Company 220 6.3x

4.0x

3.0x

4.5x

6.2x

4.3x

2.8x

5.0x

5.6x

6.3x

Average TEV/LTM Revenue:

4.6x

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SELECTED FOOD & AG TRANSACTIONSOrigin Merchant Partners - Extensive Food and Agriculture Expertise

Other Recent Food & Agriculture Transactions

1 2 3 4

1. Hensall DIstrict Co-operative Inc., is 8th largest non-financial co-operative in Canada with over 6,000 member-owners and 30 owned locations in Ontario and Manitoba. Hensall has customers in more than 40 countries and operations in Com-modity Handling and Storage, Food Products (Dry Beans and Food Grade Soybeans), Grain and Ingredient Marketing, Energy (Fuel and Propane), Animal Nutrition, Crop Inputs and Global Freight Forwarding and Logistics. Origin Merchant Partners acted as exclusive financial advisor on the acquisition of ILTA Grain Inc.’s edible bean processing plant, located in Bloom, Manitoba and the satellite receiving location in Miami, Manitoba.2. Gardiner Dam Terminal Ltd. ("GDT") is a producer-owned company that jointly owns and operates an inland grain termi-nal located near Strongfield, Saskatchewan, together with Viterra Inc. GDT AgServices Ltd., a wholly-owned subsidiary of Gar-diner Dam Terminal Ltd., owns and operates crop input supply businesses near Strongfield, Broderick, and Tullis, Saskatche-wan. Origin Merchant Partners advised Gardiner Dam Terminal Ltd. on the sale of substantially all of its assets to Viterra Inc. in a transaction valued at approximately $30 million.3. Kraft Heinz Canada ("Kraft Heinz Canada") is a subsidiary of The Kraft Heinz Company (NASDAQ:KHC), the fifth largest food and beverage company in the world. A globally trusted producer of delicious food, its portfolio is composed of icon-ic brands including Kraft, Heinz, Cracker Barrel, Classico, Philadelphia, Renée’s Gourmet, Maxwell House and Nabob. Kraft Heinz is the #1 food and beverage and the #1 foodservice company in Canada and its products are found in more than 90% of Canadian households. Kraft Heinz is dedicated to the sustainable health of its people, its planet and its Company. Origin Merchant Partners advised Kraft Heinz Canada on it's acquisition of Ethical Bean Coffee.4. Avena Foods Limited (“Avena”) is a leading supplier of pure, organic certified, gluten-free oats to the North American mar-ket. Avena has an established network of gluten-free and organic oat growers across the Canadian prairies and a dedicated gluten-free and allergen-free milling facility in Regina, SK. Origin Merchant Partners advised Avena on its sale to Ironbridge Equity Partners.

Exclusive Financial Advisor on its Acquisition

of

September 2018

$30 million

Exclusive Financial Advisor on its Sale to

December 2018

Exclusive Financial Advisor on its Acquisition of the Edible Bean Processing

Assets from

January 2019

Exclusive Financial Advisor on its Sale to

June 2017

Financial Advisor on Sale of Dexter, New Mexico

Processing Facility

May 2014

Exclusive Financial Advisor on Acquisition

of Special Crops Division of

November 2015

Financial Advisor on Recapitalization

with an Investment from

January 2013

Financial Advisor on Acquisition of

Farm Fresh Poultry Co-operative Inc.

September 2016

Exclusive Financial Advisor on Sale to

September 2016

13


Steve BromleySenior Advisor

[email protected]: 416-775-3697

Andrew MuirheadPrincipal


Jim OslerPrincipal


FOR MORE INFORMATION on our insights into the food & agriculture sector or to discuss this report further,PLEASE CONTACT OUR ADVISORY TEAM

\

Matt RomeDirector


Annie SunAnalyst


Roxanne SwatogorBusiness Development Manager


Documents

KEY CONSUMER TRENDS IN FOOD & AGRICULTURE · KEY CONSUMER TRENDS IN WINTER 2019 \ LOOKING AHEAD INTO 2019 ... BIS Research: Global Food Tech Market, 2016 2. Deloitte 2019 Consumer