Transparency Imperative March 2017 Deb Arcoleo Director, Product - - PowerPoint PPT Presentation

March 2017

Deb Arcoleo Director, 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

~ $7.4B

NET SALES

18,000

EMPLOYEES PRODUCTS AVAILABLE IN

OVER 70

COUNTRIES 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

• n 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

Yes 65% No 15% Unsure 20%

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

• f 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 SOUGHT Top 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,

• rganic cane sugar, citric acid,
• rganic 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 1 0 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 R es taurants

Impact of Food on Health

Food Safety Environmental Impact Labor & Human R ights Animal Well-Being BusinessEthics Farmers

Impact of food on health Food safety Environmental impact Labor & human rights Animal well-being

Groups more likely 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 more likely to trust:

Age 50-80 Age 18-49 Age 18-49 Men

Food safety Types 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

• n 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 low levels of) certain components Good for you Contains certain foods/components No artificial ingredients

• r additives

Natural Unprocessed/ unadulturated Simple/few ingredients 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 aligned industry solution for product transparency, leveraging mobile and web technology

PACKAGING ISCONFUSING AND HARD TO READ

Normally whenI look at apackage,thefirst thing I jumptoisalw ays thenutrition label, but allergeninformationisn’t alw ayseasytofind.

SHAYLA

CONSUMERSWANTFULL DISCLOSURE– THE GOOD AND THE BAD

I want more.Theyarejust putting forwardthegoodstuff. I want toknowthebadstuff too.

KAT

CURRENTMOBILE APPS AREDISAPPOINTING

Anyonecanwriteanappif theywant to.T

• citewherethis

information iscomingfromwould 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

EXPENSIVEAND TIME CONSUMINGTOCHANGE LABELSAREALREADYCROWDED, DIFFICULTTOREAD AND CONFUSING

% consumer saying they must know the information

CURRENTREQUIREMENT 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

325people 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 Land O’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/Brand Other Info Food attributes: 52 required, 189 voluntary Non-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

• versight 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