Cascadian Farm Situation Analysis

August 4, 2008

We are Cascadian Farm.

Overview

Cascadian Farm Topline

• Organic food company• Manufactures products across several categories

• Frozen fruits and vegetables• Ready-to-eat cereals• Snack bars• Fruit spreads

• Founded in 1972 by Gene Kahn• Based in Sedro-Woolley, WA• Is a part of Small Planet Foods

• Small Planet Foods is General Mill’s organic division• Small Planet Foods grew 6% in 2008 and 21% in 2007

“Behind the Organic-Industrial Complex,” The New York Times, 5.13.2001

Cascadian Farm has a long history in the organic industry. • 1972: Founded by Gene Kahn• Late 1970’s: Kahn begins to process food • 1989: Alar scare; “Panic for Organic”• 1990: Congress passes the Organic Food Production Act• 1990: Alar bubble bursts; Kahn sells a majority share to Welch’s• 1998: Cascadian Farm acquires Muir Glen and becomes Small

Planet Foods• 2000: General Mills buys Small Planet Foods

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quotes.nasdaq.com - GIS 5 year report

Cascadian Farm is a part of General Mills.

• Based in Minneapolis• 214 on the 2008 Fortune 500 • $12.4B in 2007 revenue• 10% growth in net sales in 2008• General Mills Mission

• “Nourishing Lives – innovating to make lives healthier, easier, and richer.”

Cascadian Farm is General Mills’ organic branch, but what does organic mean?

NO:• Pesticides• Artificial Fertilizers• Human Waste• Ionizing Radiation• Additives• Antibiotics • Growth Hormones

There are different kinds of organic.

And is projected to grow by an annual rate of 7.1% through 2012.

Organic sales are on the rise.

Billion

"Be It Ever So Homespun, There's Nothing Like Spin," New York Times, 1.3.07; "Organic Foods - US - October 2007," Mintel

Organic Category Topline

• $19B industry in 2008• Industry grew 9.3% in 2007• 52% of people purchased an organic product in the last year• Major players in the organic industry include:

“Claudia: A Mini Recent History of Organic Food, OrganicFoodee.com,” 2008

Consumer anxieties are being played out in food trends.

“I’m not obsessional about it for myself… I think the harm has already been done! But for my children it’s worth it.”

"Organic Foods - US - October 2007," MINTEL

So, people are turning to organic.

• What health/wellness benefits do consumers perceive? • 56% are concerned with GMOs• 48% agree that organic products are “better for me” than non-organic•Which of the following do you look for when shopping for organic food

• 71% say no artificial ingredients• 70% look for “100% organic”• 66% look for no preservatives• 46% look for USDA seal

Cascadian Farm operates in two organic sub-categories: grain products and frozen/fruits and

vegetables.

Cascadian Farm’s Grain Products

• Cereal •Cinnamon Raisin Granola•Clifford Crunch•Great Measure•Hearty Morning•Honey Nut O’s•Maple Brown Sugar Granola•Multi Grain Squares•Oats & Honey Granola•Purely O’s•Raisin Bran•Vanilla Almond Crunch

• Granola Bars•Chocolate Chip Granola Bars•Fruit & Nut Granola Bars•Harvest Berry Chewy Granola Bars•Multi Grain Chewy Granola Bars•Peanut Butter Chip Chewy Granola Bars•Vanilla Chip Chewy Granola Bars

Cascadian Farm’s Frozen Fruits and Vegetables

Fruit•Blackberries•Strawberries•Raspberries•Sliced Peaches•Cherries•Harvest Berries•Blueberries

Vegetables• Gourmet Boxed:

• French-Cut Green Beans with Toasted Almonds

• Premium Bag:• Cut Green Beans

• Premium Blends:• Chinese-Style Stir-fry

Blend

"Product Review: Cascadian Farm Organic Vanilla Almond Crunch Cereal, associatedcontent.com" 2007. "Money Saving Mom www.moneysavingmom.com" 2008.

And, there have been recent additions to the family.

• Recently expanded organic granola bar line• Peanut Butter Chip and Vanilla Chip

• Recently expanded organic cereal category• Maple Brown Sugar Granola

“Cascadian Farm is well-known for it's delicious and nutritious organic products.When it comes to making food taste goodwithout adding chemicals and artificial sweeteners, Cascadian Farm is a cut above the rest.”

• Introduced Purely Steam Organic Vegetables“I have been buying the Cascadian Farms Organic Purely Steam packages…They make an excellent lunch and a yummy side dish.”

"Organic Foods - US - October 2007," Mintel, 10.07

The organic category affects most food segments.

So what does all this mean?

"Turning Over a New Leaf? Americans Changing Attitudes to Food & Diet,” GfK Roper Reports, 9.27.2007

The market has become extremely cluttered, not only with products, but also with messages.

• VIDEO-WHAT’S THE DIFF. BETWEEN NATURAL/ORGANIC

"Expect food prices to keep rising, industry says," USAToday.com, 2.28.08; "Organic Foods - US - October 2007: Executive Summary," Mintel 10.07; "In Lean Times, Whole Foods Tries for a Fresh Image," New York Times, 8.2.08

With food prices rising, consumers are more resistant to make the organic leap

• Overall retail food prices for 2008 to 2010 are expected to rise faster than the general inflation rate

• Core consumers for organic goods, about 15% of the population, are becoming even more committed

• Less committed consumers are still buying organic dairy products, produce and meat but fewer organic packaged goods

• Price is an issue for consumers: 67% would buy organic more often if it were less expensive

Even for the committed, organic may not be enough.

• Footnote: “The Changing Organic Consumer.” www.ift.org. 4.03.08

Who is the traditional organic consumer?

• May be stereotyped as a ‘Tree-Hugger’

• Dedicated eco-consumer • Passionate about organic and its

ideals• Knowledgeable about organic

products and standards• Willing to change lifestyle to

remain organic• Support small and locally owned

farms• Do not agree with industrial

agriculture

Also known as this guy: VIDEO OF GUY WHO HADN’T DRIVEN HIS CAR FOR MONTHS.

“Behind the Organic-Industrial Complex,” The New York Times, 5.13.2001

The traditional consumer is skeptical of organic food coming from large corporations.

[Gene] Kahn seems to have no doubt that his path is the right path, not only for him but for the organic movement as a whole: "You have a choice of getting sad about all that or moving on. We tried hard to build a cooperative community and a local food system, but at the end of the day it wasn't successful. This is just lunch for most people. Just lunch. We can call it sacred, we can talk about communion, but it's just lunch.

...Organic is not the last word, and it's not just lunch.”-Michael Pollan

The mainstream doesn’t know them.

The traditional organic consumer doesn’t trust Cascadian Farm.

VIDEO OF PPL NOT KNOWING CF

Cascadian Farm’s problem is that it lacks a strong brand identity in the

mainstream market.

Their advertising is focused on print.

There are some changes afoot.

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Cascadian Media Spend: $16.9MM

They don’t stand out among the competition.

Share of Voice 2007Total Media Spend: $134.7MM

Kashi

Category: Natural grain productsProducts: Hot and cold cereal, snacks and bars, frozen meals,

wafflesPositioning: Natural food products designed to enhance the

overall wellness of the body and spiritExecutional Focus: Go-Lean Crunch, brand Target: Individuals, strivers, go-getters, crunchy corporate-typesTonality: Health-conscious, supportive network, driven to help you

succeedTagline: “Seven Whole Grains on a Mission”

Kashi is outsmarting.

• INSERT CREATIVE

Kashi is outspending: $100.1MM in 2007

Meet the rest of the competition.

Category: Organic grain productsProducts: Cereal, bars, bread, waffles, and baking mixesPositioning: Organic products as an ethical choiceExecutional Focus: Cereals, Organickidz Target: Dedicated Organic Consumers, FamiliesTonality: Dependable, Green, HealthyTagline: “Nurturing People, Nature & Spirit”

Nature’s Path 2007 Media Spend: $17.7MM

Category: Whole grain foodsProducts: Breads, buns, english muffins, pocket breads, cereals,

tortillas,pastas

Positioning: Whole grain, kosher-certified, gluten-free, yeast-free, high fiber, diabetic-friendly

Executional Focus: Whole grain breadsTarget: Religious, health-conscious consumersTonality: Natural, clean, faithful, trustworthy Tagline: “Organic Sprouted Whole Grain Bread and Foods!”

Food For Life 2007 Media Spend: $0.09MM

Upscale Private Label

• Stores such as Wal-Mart, Kroger, Costco, Safeway and Supervalu are increasing the amount of private labels they carry

• Brands either exist independently of parent store (Archer Farms) or are from trusted stores (Trader Joe’s).

• Stealing shelf space• Convenient, less expensive alternative to branded organic

products• May be priced up to 10-20% lower than branded products

Owned by Target CorporationCategory: Premium foodsProducts: Cereal, beverages, snacks, frozen foods, deli, bakery,

pantry, organicPositioning: Convenient products that will bring everyday

happiness for every occasionTarget: Target store customers who are looking for superior

products and trust Target to be that outlet Tonality: Quality, top-notch products Tagline: “Tasty Food, Tasty Price”

"Are Wal-Marts 'Organics' Organic?"January 2007. Businessweek

Wal-Mart

• Wal-Mart accounts for 35% of the organic food sales in the U.S.

• Over 2,000 locations and offers up to 200 organic products

• Wal-Mart doubled the amount of organics they carry in 2006, promising to make organics affordable to more consumers by offering what executives called "the Wal-Mart price.”

• Launched an ad campaign on The Food Network, HGTV, and parenting and women's magazines, with tag lines like: "Know what goes well with organic milk? Organic cereal and knock-knock jokes.”

• Has recently been under scrutiny for misleading consumers into thinking certain products are organic.

But Cascadian Farm has some advantages the others don’t.

"One-Handed Health Food? December 2007," GfK Roper

General Mills is a great strength.

• Power of distribution = convenience•82% say convenience is a factor

• Stayed profitable amongst rising food prices•Cascadian Farm grew 6% in 2008 and 21% in 2007•General Mills has been fighting rising costs by taking-cost reducing measures, such as increasing box size and decreasing the amount of cereal in it

Cascadian Farm isn’t a household name yet, but they’re close.

"The Organic-Industrial Complex," The New York Times, 5.13.01

Cascadian Farm has been organic since before organic was trendy.

Established in 1972• Organic food was fairly new and didn’t become established

as a separate identity in the public’s mind until the late 1960’s/early 1970’s

• By the 1980’s, demand for organic food had grown so much Cascadian Farm had to team up with other organic farmers in the Pacific Northwest

• Cascadian Farm endured through the farm crisis of the 1980’s

• In 1998, Cascadian Farm and Muir Glen become part of Small Planet Foods

• In 2000, Cascadian Farm is bought by General Mills, giving Cascadian Farm the power of mass distribution.

• Today, the organic food is a $19B industry.

Executive Summary

While Cascadian Farm has failed to make its mark as of yet, they have a promising future. Cascadian Farm has a strong history that the consumer trusts, and the powerhouse that is General Mills has enabled them to have mass distribution power. While ongoing threats from immediate competitors continue, Cascadian Farm has found a new consumer on which to focus.

The organic industry is growing, and the face of the consumer is changing.

We’ve identified a new organic consumer.

“The Changing Organic Consumer.” www.ift.org. 4.03.08

The New Organic Consumer

Wants:• Control• Deeper Value Experience• Simplicity• Innovation

“The Changing Organic Consumer.” www.ift.org. 4.03.08

Organic Consumer Segments

“Choices Report – US – May 2006-June 2007,” Simmons

It’s about the simple things.

Cascadian Farm is connecting with “sustenance seekers.”

Sus·tain –verb (used with object) To support, hold; to supply with food, drink, and other

necessities of life.

Sustainability: Cascadian Farm’s practices

Sustained: Cascadian Farm’s legacy

Sustenance: Cascadian Farm’s products

Sustenance seekers want to sustain their families, their bodies, and the environment.

PICTURES

”Product Development: The New Organic Ethos,” refrigeratedfrozenfood.com. 4.03.07

We’d suggest three lenses through which we can make an emotional connection.

• Locality• Health • Nostalgia

“Local isn’t just about geographically local — it’s about coming from a certain place — even if that product is coming from far away. It’s about coming from a certain community or locale that the consumer can think about or believe there are quality attributions because it’s being grown in a certain place or made in a certain way that can embody that local or community aspect. “

Sustain the body.

Fight childhood obesity• Healthy eating programs in schools

Online recipes, coupons, and tips• Widgets on social media sites and blogging sites to generate

ideas for busy moms• Inspire the consumer: she loves innovation

Sustain the community.

Sponsor community gardens

Volunteer programs

Box Tops for Education• General Mills’ program

Sustain the earth.

Redesign packaging to use fewer materials• Less plastic• Less paper (already use recycled)• Feels innovative

Brand home compost bins• Compostable plastic bags