March 2017

Deb ArcoleoDirector, Product Transparency

The Changing Consumer and the Transparency Imperative

@debarc darcoleo@hersheys.com linkedin.com/in/deboraharcoleo

Consumer perspective

The trust issue in the food industry

The imperative for transparency

Implications

A little about Hershey

~ $7.4BNET SALES

18,000EMPLOYEES

PRODUCTS AVAILABLE IN

OVER 70COUNTRIES AROUND

THE WORLD

PRODUCTS MADE

IN 7 COUNTRIES

85% of products sold in the U.S. are manufactured in the U.S

We are a purpose-driven organization

We approach sustainability broadly

• Environmental sustainability• Engaging workplace• Responsible sourcing• Ethics and integrity • Global giving

• Volunteerism

• Education and nutrition for children

New goals announced in late 2015

We are working extensively to support

cacao farmers in West Africa

• Good farming practices, farm safety, labor practices and health information delivered to any farmer in Ghana and Côte d’Ivoire via mobile phone text

70% of the world’s cocoa is grown in West Africa, primarily on farms of 5-10 acres

https://youtu.be/koc3QW3jbsI

We are working extensively to support

cacao farmers in West Africa

• Farmer training started in 2012 on best practices in sustainable cocoa farming to improve farmer livelihoods and promote their incomes

• Touches 464 communities in Ghana, Cote D’Ivoire and Nigeria and 31,000 farmers enrolled (goal is 70,000)

• Leads to UTZ certification as a producer of sustainable cocoa, which means premium payments for their cocoa

We focus on childhood education and

hunger in Ghana and the U.S.

Consumer perspective

The trust issue in the food industry

The imperative for transparency

Implications

A little about Hershey

Mintel, Chocolate Confectionery – US, March 2016

Quiz: Who eats chocolate confection?

81% of adults in the U.S., and Millennials more than any other age group

Mintel, Chocolate Confectionery – US, March 2016

How is it changing?

Consumers are increasingly concerned

about what goes into their food and where

it comes from

ALLERGENSAND

CROSS-CONTAMINATION

GMOs

SUSTAINABILITYAND

RESPONSIBLE INGREDIENT

SOURCING

USE OF PESTICIDES

ANIMALWELFARE

FARMERS’AND FARM

WORKERS’FINANCIAL

WELL-BEING

Top drivers of demand for transparency

62% of consumers have recently

sought information on

sustainable products – they

increasingly read packaging labels on the products they purchase and

turn to the internet for more in-depth information

The Hartman Group, Transparency Report, 2015

Emerging Faith in Food Production, Sullivan Higdon Sink, March 2014

67%

65%

66%

These trends are not limited to the coasts,

but are mainstream

think it’s important to understand how their food is produced

want to know more about where their food comes from

would like to see the food industry take more action in educating people on how food is produced

Center for Food Integrity, 2016 Consumer Trust Research

Over a third of consumers say they do not

have access to all of the food-related

information they need

Yes65%

No15%

Unsure20%

Have Enough Access

Yes No Unsure

For decades, taste, convenience and price

have been the purchase drivers in food

Deloitte study:

Now, 50% of consumers make purchase

decisions beyond those traditional factors

Deloitte study:

Across all demographic groups, a majority

of people believe a product with fewer

ingredients is healthier

Mintel, Free-From Food Trends, US, May 2015

The top ten claims consumers would most

like to see

38%36%

33% 33%

19% 18% 18%15%

12% 10%

Mintel, Free-From Food Trends, US, May 2015

Free-From Foods Trends – US, Mintel, May 2015

Foods with free-from claims perceived to

be healthier, more natural, less processed

Trans fat-free

Preservative-free

Growth hormone-free

GMO-free

Sodium-free

Nitrate/nitrite-free

Cage-free/Free range

Lactose-free

Allergen-free

Reimagining Health and Wellness, Hartman Group, 2010

Top Ingredients SOUGHTTop Ingredients AVOIDED

Food companies must pay close attention

to consumers perceptions and desires

Food products are being reformulated in

response to consumer demands

■ Clean labels and shorter ingredient lists with simple, familiar ingredients are the new standard, coupled with a rise in “nothing artificial” and “free-from” claims.

■ Major brands and food service providers have announced or pledged to remove artificial ingredients, colors, flavors and/or preservatives from their products, including Kellogg, General Mills, Nestle, Hershey, and Kraft as well as McDonalds, Panera Bread and Chipotle.

■ In the US, 22% of food and drink product launches had a no additives or preservatives claim, a 31% increase since 2011

Ingredients & Additives Global Annual Review, Mintel, January 2016

• Removal of artificial flavors and reduction in sodium in frozen pizza and snacks

• Whittled down ingredient list in Stouffer’s Lasagna from 19 to 15

http://www.foodbusinessnews.net/articles/news_home/Business_News/2016/09/Why_Nestle_changed_its_lasagna.aspx?ID=%7BF2DC6A8B-E273-49D1-9BB7-D79EA09A11FD%7D

http://www.foodbusinessnews.net/articles/news_home/Business_News/2016/08/McDonalds_announces_major_menu.aspx?ID={65036C03-35E3-4A24-AA6F-6D5929E547FC}

• Commitment to source cage-free eggs by 2025

• Removal of artificial preservatives from Chicken McNuggets

• Debuting new buns without high-fructose corn syrup

http://www.foodbusinessnews.net/articles/news_home/Business_News/2016/07/Four_trends_translate_to_growt.aspx?ID={C4BE5CCF-6316-4E1C-8EC6-3A594784D84B}

• New Old El Paso taco shells made with three simple ingredients

• Lärabar uses only fruit, nuts, and spices

• Häagen-Dazs uses only fresh cream and other high-quality natural ingredients

• Synthetic dyes removed from Trix cereal

http://www.foodbusinessnews.net/articles/news_home/New-Product-Launches/2016/07/ConAgra_innovation_touting_org.aspx?ID={8C5FDC6A-A1E4-4373-B03A-4C106BA36BB0}

• David Simply Seeds with reduced sodium and no artificial flavors or preservatives

• Snack Pack Naturals made with simple ingredients and no artificial flavors or colors

• Since 2015, we have transitioned more than 500 product SKUs to simple ingredients, including the iconic Hershey’s Kisses Milk Chocolates and Hershey’s Milk Chocolate Bars

• Introduced new Hershey’s Simply 5 Syrup made with five simple ingredients and no high-fructose corn syrup or artificial preservatives and flavors

• Reformulated all varieties of chocolate baking chips to contain no artificial colors, no artificial flavors and no artificial preservatives

Too far??

PURCHASE, N.Y. — G Organic, a

line of U.S.D.A. certified organic

Gatorade brand sports drinks, is

debuting this fall from PepsiCo, Inc.

Available in lemon, strawberry and

mixed berry varieties, the

beverages contain seven

ingredients, which include water,

organic cane sugar, citric acid,

organic natural flavor, sea salt,

sodium citrate and potassium

chloride.

http://www.foodbusinessnews.net/articles/news_home/New-Product-Launches/2016/08/Gatorade_launches_organic_vari.aspx?ID={571269D2-B630-45F1-8622-65A85EF931CA}

Consumer perspective

The trust issue in the food industry

The imperative for transparency

Implications

A little about Hershey

Respondentsallocated 10 0 pointsacrossthe groupsresponsible for providing information in each transparency

topic.The numbersshown are the average number of pointsallocated to each group,acrossall respondents.

Consumers primarily hold food companies

responsible for transparency across all

food topics

Center for Food Integrity, Consumer Trust Research, 2015

FoodCompanies GroceryStores Restaurants

Impact of Food on Health

Food Safety

Environmental Impact

Labor & Human Rights

Animal Well-Being

BusinessEthics

Farmers

Impact of food on health

Food safety

Environmental impact

Labor & human rights

Animal well-being

Groups morelikely to trust:

Age 50-80,Women

Age 50-80, Higher income, Higher BMI

Men

Age 18-49

Age 18-34, Lower income

Age 18-34

Registered Dietitian/Nutritionist

Your personal healthcare professional

US government agencies

Health-focused Website, such as WebMD

A friend or family member

Fitness professional

Farmer

A food expert on TV

Health, food and nutrition bloggers

Food company or manufacturer

70%

57%

52%

31%

19%

17%

18%

11%

14%

10%

70%

65%

37%

31%

24%

23%

16%

13%

13%

8%

Groups morelikely to trust:

Age 50-80

Age 18-49

Age 18-49

Men

Food safetyTypes of food you should be eating

2016 n=1,003

Food companies are at the bottom as

trusted sources of info on food safety and

types of food to eat

International Food Information Council Foundation, 2016 Food and Health Survey

A “big is bad” bias among consumers is

creating trust issues

Likely to Put Their Interests Ahead of Consumers’ Interests

Center for Food Integrity, Consumer Trust Research, 2015

Large Food Companies

Small Food Companies

57%

29%

Large Commercial Farms

Family Farms

47%

27%

Emerging Faith in Food Production, Sullivan Higdon Sink, March 2014

The agriculture industry would benefit by

being more transparent

Likewise, food companies need to focus

on transparency

Emerging Faith in Food Production, Sullivan Higdon Sink, March 2014

For one-third of consumers, “healthy” defined by what food does NOT contain

2016 n=1,003

Coded for multiple responses

35%

18%

17%

14%

10%

10%

7%

7%

6%

5%

17%

8%

Does not contain (or has lowlevels of) certain components

Good for you

Contains certainfoods/components

No artificial ingredientsor additives

Natural

Unprocessed/unadulturated

Simple/fewingredients

Organic

Fresh

Nutritious

Other

Don't know/Refused

How do you define a healthy food? (Open-ended response)

DOES NOT CONTAIN CERTAIN COMPONENTS

19%

13%

9%

8%

2%

1%

3%

Low/no fat

Low/no sugar

Low/no calories

Low/no sodium

Low/no carbs

Low/no cholesterol

Other

International Food Information Council Foundation, 2016 Food and Health Survey

23%

11%

17%

11%

5%

8%

9%

5%

4%

51%

41%

37%

36%

26%

25%

23%

17%

17%

16%

4%

The right mix of different foods

Limited or no artificial ingredients or preservatives

Natural foods

Can easily be incorporated into my daily routine

Flexible and easy to maintain over time

Organic foods

Eating only foods I define as healthy

Can include higher calorie treats in moderation

Everything you eat over a long period of time

Non-"GMO" foods

None of the above

Ranked #1 Ranked #1-3

International Food Information Council Foundation, 2016 Food and Health Survey

Nearly one quarter of consumers have their own definition of “healthy eating”

The perfect storm in the food industry

Consumer perspective

The trust issue in the food industry

The imperative for transparency

Implications

A little about Hershey

Hershey began transparency work in late

2013

We launched an internal effort to develop a

better transparency tool in 2014

Lead/catalyze the development of an alignedindustry solution for product transparency, leveragingmobile and web technology

PACKAGING ISCONFUSING

AND HARD TO READ

Normally whenI look at apackage,the first thing I jump to is always

thenutrition label, but allergen information isn’t alwayseasy to find.

SHAYLA

CONSUMERS WANT FULL

DISCLOSURE–THE GOOD

AND THE BAD

I want more.Theyare just putting forward thegood stuff.

I want to knowthebadstuff too.

KAT

CURRENTMOBILE APPS

AREDISAPPOINTING

Anyonecanwriteanappif they want to.Tocitewhere this

information is coming from would bolster my confidence.

AMANDA

We started by exploring with consumers

SIZELIMITATIONS

Packaging is the most common way to

deliver transparency information, but it

has significant limitations

EXPENSIVE AND TIME CONSUMINGTO CHANGE

LABELSARE ALREADY CROWDED,DIFFICULTTO READ AND CONFUSING

% consumer saying they must know the information

CURRENT REQUIREMENT

NEW INFORMATION

Consumers have clear opinions on what

they want to know

We began developing, evolving and

consumer-testing prototypes

Final prototype shared with the Grocery

Manufacturers Association (GMA) in 2014

325 people from 90 organizations

1WorldSync Cargill General Mills IFRA Nestle RQA Tate&Lyle

Abbott Clorox FONA JM Smucker Ocean Spray SCI Topco

Accenture Coca-Cola Georgia Pacific Kellogg P&G Seventh Generation TraceOne

ACI Colgate-Palmolive Givaudan Kraft PCPC ShopWell TROY Group

Action Company ConAgra Gravity Tank Kroger Pepsi Co SNET Tyson Foods

Ahold CSPA GMA Kiwikee Pharmavite Stibo Underwriter Labs

Amazon.com Deloitte GS1 LandO’Lakes Phoenix Brands Sun Products Unilever

Amway Corporation DuPont Harris Teeter L’Oreal Post Foods Sunny Delight Bev. Wakefern

Arylessence ES3 Hershey Mars Reckitt-Benckiser Sustainability Cons. Walgreens

Big Heart Pet Brands FCPC Hormel McCormick Reily Foods Symbology Walmart

Bimbo Bakeries Ferrero House-Autry Meijer Revlon Syngenta WhiteWave

Bumble Bee Foods Firmenich Idahoan Mondelez RILA Target Wrigley

Campbell‘s FMI IFF Monsanto

A cross-company consortium under the

GMA and FMI designed the program in 2015

210 4.5 150 21

SmartLabel™ was announced in December

2015

• Hershey was first to go live with our Holiday KISSES

• We developed the HTML and CSS solution and gave it away to GMA to give to any other company

Consumers get to a web landing page by

scanning a QR code on the package

Consumers can also use search and/or

links on company/brand sites to reach the

landing pages

There is also a product search tool on

www.smartlabel.org

Five tabs deliver a full suite of information

Nutrition Ingredients Allergens Company/BrandOther Info

Food attributes: 52 required, 189 voluntaryNon-Food attributes: 51 required, 57 voluntary

The SmartLabel™ program ensures

consistency and accuracy of data

■ Data directly from brand owners hosted on their own web sites; updated immediately with any changes

■ SmartLabel™ information subject to the same regulatory oversight as on-pack labels

■ Strict governance rules for participating companies to provide consistent user experience

■ No marketing, advertising or pop-ups allowed

Dozens of CPG companies and retailers

committed to participating

26 companies are live now, over 5,000 items 34,000 predicted by the end of 2017

Consumer use of our landing pages is high with no awareness-building or marketing to date

59

LATEST THREE MONTHS (Dec 1 – Feb 28)

Number of Hershey products in market 2/28/17 with QR codes and live landing pages: ~500

Mobile Tablet Desktop TOTAL

Sessions 17,436 1,467 1,337 20,240

Pages viewed per session 1.27 1.39 1.83 1.32

Avg. session duration (sec) 0:41 1:17 2:59 0:53

Note: All Hershey IP addresses are filtered out

Mobile traffic almost all via scanning QR codes

Sourcemap is the next step in transparency for Hershey

https://www.thehersheycompany.com/en_us/food-philosophy/sharing-whats-inside.html

Consumer perspective

The trust issue in the food industry

The imperative for transparency

Implications

A little about Hershey

Implications for those in the food business

• Consumer education about nutrition and health needs to continue

− FDA is helping by re-defining “healthy” and defining “natural”

• Food companies and farmers can do a better job de-mystifying our food supply chain

• Transparency builds trust, but it has to be the FULL story, not just the positive stories

Thank you!

@debarc darcoleo@hersheys.com linkedin.com/in/deboraharcoleo