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A SPECIAL SUPPLEMENT TO CANADIAN GROCER WITH THE SUPPORT OF KRAFT CANADA INC.

CANADIAN

GROCER

2003 EXECUTIVE REPORT 2004 Kraft Canada Inc.

L E A D E R S H I P

CANADIAN G ROC E RY INDUSTRY T H R O U G H

I N N O V A T I O N

A SPECIAL SUPPLEMENT TO CANADIAN GROCER WITH THE SUPPORT OF KRAFT CANADA INC.

CANADIAN

GROCER

2003 EXECUTIVE REPORT 2004 Kraft Canada Inc.

L E A D E R S H I P

CANADIAN G ROC E RY INDUSTRY T H R O U G H

I N N O V A T I O N

Canadian Grocer Executive Report Price $150 per copy Published as a supplement to Canadian Grocer Rogers Media Publishing One Mount Pleasant Rd. Toronto, ON M4Y 2Y5

PUBLISHER Karen A. James EDITORS George H. Condon Shellee Fitzgerald PRODUCTION MANAGER Karen Richards GRAPHIC DESIGN Pino G. Sottile

RESEARCH SOURCES ACNielsen Advantage Group Canadian Council of Grocery Distributors (CCGD) Canadian Grocer

Contents

Chatelaine CIBC World Markets The Financial Post Food and Consumer Products Manufacturers of Canada (FCPMC) Food Marketing Institute (FMI)

3 Introduction 4 National 10 Consumer 20 Retail

HealthCom Ipso-Reid Corporation

30 Manufacturing

Leslie Beck Nutrition Consulting National Institute of Nutrition NPD Group Canada Inc. (NPD Canada) Statistics Canada J.C. Williams Group

Copyright: © 2003, Rogers Media Publishing All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written permission of the publisher. Data contained herein is for the sole use of purchasers of the Canadian Grocer Executive Report. Resale in any way of the data is strictly prohibited. Entering the data onto any system, electronic or otherwise, for use in distributing any kind of periodical or promotional material, is strictly prohibited.

Kraft Canada Inc.

Dear Colleagues: Kraft Canada is pleased to once again sponsor the Canadian Grocer Executive Report. This publication, which has been a critical source of information for the grocery industry during the past decade, highlights the trends and key indicators driving the grocery business within the Canadian marketplace. Over the past few years, we have seen a dramatic shift in the Canadian demographic that has impacted our industry. Family size and eating preferences have been altered as aging baby boomers and a decreasing child population drive new trends in the marketplace. Today’s consumers are increasingly aware of health and wellness issues and are seeking foods that fit within their busy lifestyles. The continued need for convenience has also led to new and emerging distribution channels offering time-starved Canadians the opportunity to purchase groceries, meals and snacks in non-traditional locations. As an industry, our mutual success depends on understanding and addressing these evolving consumer needs and preferences. At Kraft, the consumer has always been the cornerstone of our success. As we celebrate our 100th anniversary this year, we continue to build on our strong tradition of focusing on the consumer. We work hard to create strong demand through consumer relationships, product innovations, unique in-store initiatives and strong integrated marketing programs that drive traffic to retail stores. This report illustrates that our focus needs to remain on satisfying our consumers. I believe that by continuing to anticipate Canadians’ needs and exceeding their expectations, we will continue to grow and succeed together. We look forward to a successful 2003. Yours truly,

Fred Schaeffer Chief Operating Officer Fred Schaeffer

N AT I O N A L • Canada is the second largest country in the world • Canada spans six time zones • Approximately 33% of the total area is developed

Canada

Area Land: 9,093,507 km2 Fresh Water: 891,163 km2 Total:

9,984,670 km2

0.3% 13.2% 9.9% 3.2% 3.7%

23.7% 38.4%

Atlantic 7.6%

Total Population: 31,414.0 (000's)

Total Canadian Market 2002

(+1%) (July 1, 2002—Estimation)* Source: Statistics Canada

* Based on the 1996 Census

Grocery System-wide Sales

Canadian Population Age Composition by Gender As of July 1, 2002 (Estimation) 12.2

11.4

13.9

12.9 0-9

14.0

10-19

13.3

20-29

15.8

15.2 30-39 40-49

16.5

16.2

50-59 60+

12.4

12.3 18.7

15.2

Statistics Canada Supermarket Sales

$58,191

Grocery Products in Other Channels

16,409

22.0%

TOTAL

74,600

100.0%

Loblaw

23,894

32.0%

Sobeys

10,960

14.7%

Safeway

5,492

7.4%

Metro

5,201

7.0%

Overwaitea

2,380

3.2%

4,400

5.9%

C-Store

3,250

4.4%

Costco Food

3,550

4.8%

Drug

2,659

3.6%

Wal-Mart

2,758

3.7%

Co-Op

2,667

3.6%

Other Mass Merchandisers

494

0.7%

Commisso Wholesale

757

1.0%

Hy Louie

595

0.8%

North West Co.

333

0.4%

Commisso's Food Markets

466

0.6%

Thrifty Foods

374

0.5%

T&T Foods

170

0.2%

4,200

5.6%

Females 15,861.3 Source: CIBC World Markets Estimates

Source: Statistics Canada

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78.0%

A&P

Others/Independents

Males 15,552.6

Market Share

N AT I O N A L

Canadian Total Grocery Sales 2002 ($000's) British Columbia 12.8% (+5.8%)

Man./Sask. 7.4% (+3.1%)

Alberta 12.2% (+8.5%)

Ontario 35.4% (+5.8%)

Quebec 24.6% (+7.2%)

Maritimes 7.6% (+6.3%)

Total Canada: $64,447,251 (+6.3% vs 2001)* Source: ACNielsen Measurement Science, MarketTrack Total Grocery

* Excludes Newfoundland & Labrador, Yukon and Northwest Territories

Total Grocery Dollar Sales at Retail ACV ($000's)—Total Canada* 52 Weeks Ending December 28, 2002 1999 National Maritimes

2000

2001

2002

53,838,115 56,545,964 60,616,269 64,447,251 4,122,797

4,256,883

4,582,057

Per cent of Regional Importance to Total Grocery Sales Dollars 52 Weeks Ending December 28, 2002

4,869,848

Quebec

13,711,697 13,992,445 14,761,759 15,827,745

Ontario

18,661,331 19,898,969 21,583,211 22,845,722

Man./Sask.

4,324,887

4,373,205

4,643,827

4,785,600

Alberta

6,210,942

6,748,398

7,241,609

7,858,609

B.C.

6,806,461

7,276,064

7,803,806

8,259,727

* Excludes Newfoundland & Labrador, Yukon and Northwest Territories Source: ACNielsen Measurement Science; MarketTrack Total Grocery

1999

2000

2001

2002

7.7

7.5

7.5

7.6

Quebec

25.5

24.7

24.4

24.6

Ontario

34.7

35.2

35.6

35.4

8.0

7.7

7.7

7.4

Alberta

11.5

11.9

11.9

12.2

B.C.

12.6

12.9

12.9

12.8

Maritimes

Man./Sask.

Excludes Newfoundland & Labrador, Yukon and Northwest Territories

Source: ACNielsen Measurement Science; MarketTrack Total Grocery

CANADIAN

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5

N AT I O N A L

Canadian Food Store Sales, 2002 Canadian Grocer Estimates Based on First Nine-Month Figures for Grocery and Combination Stores, and Canadian Grocer’s 2002 Survey of Chains and Groups ($000s)

CHAINS Supermarkets

INDEPENDENTS Convenience

Voluntary Groups

Unaffiliated

Total Indep.

Total Stores

1,599

165 938,029 16.2%

1,503 425,051 7.4%

1,668 1,363,080 23.6%

3,460 5,774,808 100%

2,241

1,554 8,988,547 59.6%

3,121 693,445 4.6%

4,675 9,681,992 64.2%

7,301 15,074,706 100%

2,116

1,029 5,806,960 30.3%

3,012 1,091,012 5.7%

4,041 6,897,972 36.0%

6,697 19,164,890 100%

492

605 1,105,699 24.4%

1,002 228,605 5.0%

1,607 1,334,304 29.4%

2,265 4,531,525 100%

1,055

320 1,853,990 23.7%

657 281,306 3.6%

977 2,135,296 27.3%

2,213 7,829,915 100%

ATLANTIC PROVINCES No. of Stores Dollar Sales % of Total

193 4,471,728 76.4%

QUEBEC No. of Stores Dollar Sales % of Total

385 5,392,714 35.8%

ONTARIO No. of Stores Dollar Sales % of Total

540 12,266,918 64.0%

MANITOBA AND SASKATCHEWAN No. of Stores Dollar Sales % of Total

166 3,197,221 70.6%

ALBERTA No. of Stores Dollar Sales % of Total

181 5,694,619 72.7%

BRITISH COLUMBIA (includes Yukon, Northwest Territories and Nunavut) No. of Stores Dollar Sales % of Total

326

839

233 2,539,690 27.2%

814 311,500 3.3%

1,047 2,851,190 30.5%

2,212 9,347,482 100%

8,342

3,906 21,232,915 34.4%

10,109 3,030,919 4.9%

14,015 24,263,834 39.3%

24,148 61,723,326 100%

6,496,292 69.5%

CANADA No. of Stores Dollar Sales % of Total

1,791 37,459,492 60.7%

EXPLANATIONS Chain Stores:

Four or more stores under single ownership. Sales figures are from Statistics Canada and include convenience chain stores. Store numbers from Canadian Grocer’s 2002 Who's Who directory, and later information supplied. Voluntary Groups: Independents operating in major or secondary wholesale-sponsored group programs. Store numbers from Canadian Grocer’s 2002 Who's Who directory. Sales and market share data estimated by Canadian Grocer. Not included: Food sales through department stores or specialty stores (bakeries, butchers, etc.).

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N AT I O N A L Gains for Drug and Mass Are Being Driven by an Increase in Basket Size As Opposed to More Households Shopping the Channel Dollars Spent per Trip—National—Average Dollars per Trip $37.73 (+4%) Change vs. YAG—Total Expenditures

$39.17

+2%

$26.40

Grocery

+6%

$46.50

Drug

+8%

$105.03

Mass Merch.

+4%

$12.41

Warehouse

+8%

Convenience

Source: ACNielsen, Homescan Retailer Channel Watch, 52 Weeks to December 14, 2002, National

Slight Gains Are Being Made By Drug and Mass Merchandisers $ Share by Channel

45

Alternative Channels Are Outpacing Traditional Grocery

Total Expenditures (+5%)

45.1 44.8

2001

40 Dollar % Change

2002

35 30

Total Channels

25

Drug

5

8

6.5

6.4

6.3

5

6.5

0

Penetration

8

10.5 10.9

10

Grocery +5% 99.9

100.0

Drug +8% 96.0

96.2

Mass Merch. +10% 93.5

93.0

Drug Composite

6

5 5 5

15

Grocery Composite

5

Grocery

20

$ % Chg.

Total Expenditures

Warehouse +5% 49.4

9

48.0

N.B. % figure represents annual change in actual dollars

10

Mass Merchandise

17 15 5

Warehouse

7 8

Source: Homescan 52 Weeks Ending December 14, 2002, National

Source: ACNielsen Homescan 52 Weeks Ending December 14, 2002, National

CANADIAN

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2003-2004

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7

N AT I O N A L

Share of All-Commodity Grocery Spending Regional—Annual to December 28, 2002 National

Maritimes

Quebec

Ontario

Grocery Banners

76.3

76.2

75.9

73.9

72.0

71.2

69.7

69.5

69.4

78.7

78.9

79.1

Remaining Grocery

23.7

23.8

24.1

26.1

28.0

28.8

30.3

30.5

30.6

21.3

21.1

20.9

’00

’01

’02

’00

’01

’02

’00

’01

’02

’00

’01

’02

Man./Sask.

Alberta

British Columbia

Grocery Banners

72.1

71.3

70.6

80.2

80.7

79.7

82.8

82.8

81.8

Remaining Grocery

27.9

28.7

29.4

19.8

19.3

20.3

17.2

17.2

18.2

’00

’01

’02

’00

’01

’02

’00

’01

’02

Excludes Newfoundland & Labrador, Yukon & Northwest Territories Grocery banners are defined as chain stores and banners that have sales of $150M per year per banner. Remaining grocery stores are defined to include grocery shipments from co-operating warehouses not previously defined as grocery banners.

The Bottom Line—Canadians Cross Shop As a Way of Life Annual % of Households Cross-Shopping Across Grocery, Drug, Mass and Club

Source: ACNielsen Measurement Science

Shoppers Taking Advantage of Alternative Channels Share of Total Consumer Spending All UPC-Coded Products (Total ACV)

48%

50

46%

45 40

Mass Rem. Merch. Warehouse Channels

35

Grocery

Drug

Conven.

National

44.8

6.4

1.4

10.9

6.5

30.0

Maritimes

50.8

6.1

1.5

12.4

2.4

26.8

Quebec

45.3

8.2

2.1

9.5

6.5

28.4

Ontario

42.5

6.1

1.6

12.0

5.4

32.4

Man./Sask.

48.3

4.4

0.5

14.2

6.0

26.6

15 10

Alberta

46.2

4.9

0.5

10.9

8.4

29.1

B.C.

45.1

6.4

0.6

8.2

10.3

29.4

30 25 20

6%

5

1%

Source: ACNielsen, Homescan; Retailer Channel Watch, Total ACV; 52 Weeks Ending December 14, 2002

1 Channel Source: ACNielsen

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2 Channels

3 Channels

4 Channels

N AT I O N A L

The Bulk of Canada's Immigration Is from Asia 70

70 60

% of Immigrants by Country of Origin

61.3 62.1 62.1

60.5

60

58.0

97/98

98/99

99/00

00/01

01/02

50

50

40

40

30

30 20.6

20

21.9 19.4 18.1

20

16.8 10.9 10.9 10.3 9.9 10.8

10

9.2 9.4 6.9 8.3 8.2

10 0

0

Asia

Europe

The Americas

Africa

Source: Statistics Canada

Canada's Population is Aging Rapidly Median Age of Canadians 60

60

Impact on the Workforce

16% of population will be over age 65 in 2010

Ratio: Active Workers to Retirees (Canada) 41.0

40

40

37.6 33.5 27.0 22.7

26.3

29.6

3

23.9 12% of Canadians were over the age of 65 in 1994

20

3.5 2.9

20 2

1.6

1

0

1901

1921

1941

1961

1981

1991

2001

2011

0

Median Age of the Total Canadian Population (1901-2011)

1970

2000

2030

Source: Statistics Canada Source: Statistics Canada, 2002

CANADIAN

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2003-2004

EXECUTIVE

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9

CONSUMER

Canadian Households Make Fewer Shopping Trips Overall, But Are Going to the Grocery Store Slightly More Often (+0.5) Trips per Household—National—Total Number of Trips = 224.9 (-1.3 Point Change) Total Expenditures

Trip Point Change vs. YAG

Share of Trips

+0.5

43.1

-0.1

9.5

0.0

9.6

+0.2

4.9

97.0%

Grocery

21.4%

Drug

Mass Merchandiser

The Decrease in Trips Is Fuelled By Convenience (-0.8) and By Alternative Channels Not Reported Here.

21.5%

Warehouse Clubs

11.0%

0

10

20

30

40

50

60

70

80

90

Source: ACNielsen Homescan Retailer Channel Watch; 52 Weeks to December 14, 2002, National

Shopper Dynamics—National Shopping Basket Includes All UPC-Coded Products (Total ACV) % HHLD Penetration

# of Trips per HHLD

2002 Pt. Chg.

2002 Pt. Chg.

All Channels

100.0

Grocery Banners

224.9

Avg. Dollars Spent per Trip

Dollars Spent per HHLD 2002 Pt. Chg.

Channel Share Dollar Basis

2002

Pt. Chg.

2002

-1.3

$37.73

4%

$8,483.82

3%

100.0%

Pt. Chg.

100.0

0.1

97.0

0.5

$39.17

2%

$3,801.04

2%

44.8%

-0.3%

Drug Stores

96.2

0.2

21.4

-0.1

$26.40

6%

$563.91

5%

6.4%

0.1%

Mass Merch.

93.0

-0.5

21.5

0.0

$46.50

8%

$999.21

8%

10.9%

0.4%

Convenience Stores

56.5

-1.4

16.8

-0.8

$12.41

8%

$207.81

3%

1.4%

0.0%

Warehouse Clubs

48.0

-1.4

11.0

0.2

$105.03

4%

$1,155.74

6%

6.5%

0.0%

All Other Food

40.1

-1.0

7.0

0.2

$25.86

12%

$180.46

15%

0.8%

0.0%

Remaining Channels

29.2%

Source: ACNielsen Homescan; Retailer Channel Watch, Total ACV; 52 Weeks Ending December 14, 2002

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CONSUMER

Types of Diets Are Changing

Household Expenditures Per Shopping Trip*

% of Individuals—by Diet Type 1999

2000

2001

2002

Grocery Composite/Total Canada—December 2002 2000

2001

52 53 52 53

2002

Low Cholesterol $11.68 $13.88 $14.79

Department Stores

Low Calorie/Fat

$7.13 $7.53 $7.39 $8.06 $8.17 $8.61

Hardware Stores

$14.59 $15.61 $17.06

Pet Stores

U.S. Stores

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

General Merchandiser

$7.10 $8.08 $8.65

* UPC-Coded Products

Source: ACNielsen Retailer Grocery Watch, Grocery Composite

Household Shopping Trips Per Year* 2001

19 18 18 18

Low Sugar

How to Read This Chart: 18% of Diets Are Low Sugar Diets.

9 7 8 7

Low Salt/Sodium

29 36

Other Diet Type

27 32

Household Expenditures Per Shopping Trip*

Grocery Composite/Total Canada—December 2002 2000

38 35 34 33

Grocery Composite/Total Canada—December 2002

2002

2000 Department Stores

2.7 2.7 2.7 8.5 8.7 9.1

Pet Stores

U.S. Stores

$13.14 $14.29 $15.96

Mass Merchandiser

2.3 2.4 2.3

$11.14 $11.78 $12.26

Drug 4.7 5.0 4.8

Convenience

4.7 4.3 4.3

2002 $24.07 $24.55 $25.06

Grocery

General Merchandiser

Hardware Stores

2001

$4.36 $4.54 $4.76 $39.51 $40.82 $42.81

Warehouse Clubs

* UPC-Coded Products * UPC-Coded Products Source: ACNielsen Retailer Grocery Watch, Grocery Composite Source: ACNielsen Retailer Grocery Watch, Grocery Composite

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

11

CONSUMER 48% Believe There Should Be Taxes on High Fat Foods

Credibility of the Food Industry

Asked: Should High-Fat Foods Such as Chips, Soft Drinks and Snack Cakes Be Taxed at a Higher Rate Than Nutritious Foods?

Three-quarters of Canadians Say the Food Industry Is Well Regulated for the Protection of Human Health 100

Strongly/Somewhat

35 90

30% 30

28%

74%

80

27

70

24

60

21%

20%

21

48%

50

18

40

15

30

12

19%

20

9

10

7%

26%

6 3

12% Agree Strongly Agree

Somewhat Agree

Somewhat Disagree

Disagree

Strongly Disagree Source: Ipsos-Reid Corporation

Source: Ipsos-Reid Corporation

Who's to Blame for Rising Obesity? Half Say the Food Industry

What People Are Eating More of These Days Asked: Which, If Any, of the Following Foods Are You Personally Trying to Eat More of These Days?

80

Strongly/Somewhat 70

86%

Fresh Vegetables

60

57%

Fish

Dairy Products

37%

Non-Animal Proteins Like Legumes or Soy Protein

36%

51%

50

40%

40 30

26%

20

Carbohydrates Such as Pasta or Potatoes

32%

25%

29%

Organic Foods

22%

10

18% 20%

Red Meat

Agree 0

15

30

45

60

75

90

Source: Ipsos-Reid Corporation

12

CANADIAN

GROCER

Source: Ipsos-Reid Corporation

2003-2004

EXECUTIVE

REPORT

Disagree

CONSUMER Often Buy Private Label/Store Brand Age Groups

What's On Canadians' Minds

30

% Buy Often 27

Top Five Nutrition Concerns

24

"VERY" CONCERNED

26.6%

21

Fat

46%

Saturated Fat

46%

27.2% 25.9%

26.5%

25.7%

25.3% 22.8%

18 15 12 9

44%

Cholesterol

6 3

43%

Vitamins

Age Range

Calcium

12-17 yrs.

41%

18-24 yrs.

25-34 yrs.

35-49 yrs.

50-64 yrs.

65+ yrs.

National

Source: J.C. Williams Group

10

20

30

40

50

Source: National Institute of Nutrition

Consumer Concerns About Food Safety 2001

2002

Since 1998, There Is a Steady Shift from Processing to Outlets 1998 37%

During the Processing of Foods

44% 52%

Amount Spent On Groceries

29%

In Restaurants or Other Foodservice Outlets

19% 19% 12% 12% 10%

At the Retail Level (In Grocery Stores)

12% 19%

At the Farm Level

14% 9% In the Home

5% 4%

Language English French Italian Chinese

Average Spent per Week $118 $114 $115 $126

Regional Atlantic Quebec Ontario Prairies B.C. National

$122 $114 $116 $123 $117 $117

Source: Ipsos-Reid Corporation

Source: J.C. Williams Group

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

13

CONSUMER In the Past Year, Two-thirds Say They've Made Changes to Improve Their Eating Habits

In-Home Lunch Is a Full Meal to Some—2002

Asked: Have You Made Any Changes Over the Past Year to Improve Your Eating Habits? Total

36%

35

34%

Men

% of Meal Occasions Meal Component—In-Home Lunch

If Yes,...

Women

33%

27%

26%

25

73%

No 38%

30

Yes 62%

24%

How to Read This Chart: 73% of In-Home Lunch Meal Occasions include a Main Dish.

20 15

14% 14%

13% 11%

10%

10

9% 9% 9% 8%

7%

8%

7% 7%

6%

6%

5 0 Consume Less Fat

Eat More Veg./Fruit

Reduce Sugar Intake

Eat Less Red Meat

Reduce Restrict Calorie Intake Carbs Intake

Less Snacking

21%

19%

Source: Ipsos-Reid Corporation

For Those Who Eat Poorly, 41% Blame It on That Time Crunch

2% Appetizer

Main Dish

Side Dish

Dessert

19% 16%

Busy Lifestyle

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

23% 12%

I Eat Take-Out/ Fast Food

Importance Ranking for Food Purchases

16% 6% 10% 8% 11%

I Don't Eat Regularly/ Skip Meals

High Importance (ranked 1st or 2nd)

80 Low Importance (ranked 4th or 5th)

9% 9% 9%

Don't Always Watch What I Eat

9% 8% 9%

I Eat What I Want

7% 11%

I Eat Fat

70

Total

50

Men

40

Women

3%

I Eat Junk Food

68%

66%

60

39%

30 20

7% 6%

20%

0

4% Freshness

13%

2% Taste

Price

Low Calorie/ Low Fat

Ease of Preparation

As previously seen, consumers will pay more for convenience and healthier alternatives— but only if taste requirements are first met.

Source: Ipsos-Reid Corporation

Source: Chatelaine Feedback Panel, January 2003

CANADIAN

19%

10 9%

14

34%

33%

GROCER

2003-2004

EXECUTIVE

REPORT

CONSUMER 35% of Individuals Carry Their Lunch from Home at Least Once Within an Average Week

Food Expenditures Remain Flat While Personal Care Items Grow

Individual Penetration by Lunch Venue In-Home Lunch

89%

25

25

$21.16 Skipped Lunch Carried from Home Lunch

35%

Away from Home Restaurant Lunch

35%

How to Read This Chart: In an Average Week, 35% of Individuals Carry Their Lunch from Home at Least Once.

$19.23

$19.02

20

40%

15

A Breakdown of $100

$13.16

10

32%

10

20

30

$4.15

0

40

50

60

70

80

10

$8.01

es

Tax

0

15

$11.15

5

Away from Home All Other Lunch

20

90

er

rt po

ing ad n Re tio cr. ca Re Edu &

od

Fo

s

n Tra

5

0

on

ati

elt

Sh

$4.12

r

g

al on ers Rx) & P re ( lth Ca

hin

t Clo

the

O All

a

He

Change VYA

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

-2%

+1%

-3%

+- 0%

+5%

-1%

+- 0%

+10%

Source: Statistics Canada, 2001

Annual Canadian and Regional Unemployment Rate 15

15

11.2

11.4 10.4 9.4

10

5

9.6

9.1

8.3

7.6

6.8

7.2

7.7

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

15.0 12.8 10.8 8.9 9.5 10.4

15.5 13.1 10.6 8.6 9.6 9.7

14.9 12.2 9.6 8.1 8.6 9.4

13.6 11.3 8.5 7.5 7.8 9.2

15.4 12.1 9.1 6.7 6.3 8.8

13.3 10.4 7.8 5.6 5.6 8.6

12.9 10.7 6.9 6.1 5.7 8.2

11.7 9.3 6.3 5.8 5.7 8.3

11.2 8.4 5.7 5.1 5.0 7.2

11.7 8.7 6.3 5.4 4.6 7.7

10.2 8.6 7.1 5.4 5.3 8.5

10

5

BY REGION Maritimes Quebec Ontario Man./Sask. Alberta B.C.

Source: Statistics Canada

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

15

CONSUMER 9% of In-Home Dinners Are Actually Cooked by Someone Else

Maximum Price Willing to Pay for Convenience Products

% of Dinner Meal Occasions by Venue In-Home from Restaurant 4%

How to Read This Chart: 70% of All Dinner Meal Occasions Were Prepared and Eaten In-Home.

Prepared & Eaten at Home 70% Skipped 3% Carried All Other from Home Away from Home 2% 6%

In-Home HMR Restaurant 5% 10%

}

84%

9%

Over one-third of respondents (weighed by income) are willing to pay up to 20% more for a product that offers greater convenience.

36%

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

16%

Maximum Price Willing to Pay for Products Considered to Be Healthier

7% 1%

85% 0%

Almost one-half of respondents (weighed by income) are willing to pay up to 20% more for a product that offers a healthier alternative.

Up to 10%

Up to 20%

Up to 30%

More than 30%

Source: Chatelaine Feedback Panel, January 2003, income weighted to Canadian population

Today's Consumer: Time Compression Coping with Everyday Living

45%

➤ Ever-increasing demand for products and services that save time from the more mundane tasks in life.

Ramifications for the Food Industry 15%

➤ Meal assembly replacing meal preparation.

11%

➤ Average meal prep time = 15 to 30 minutes vs. 45 minutes 10 years ago

4%

➤ 30% decide on dinner meal after 4:00 p.m. Source: Chatelaine Feedback Panel, February 2003

0%

Up to 10%

Up to 20%

Up to 30%

More than 30%

Source: Chatelaine Feedback Panel, January 2003, income weighted to Canadian population

16

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

CONSUMER The Dinner Meal is Usually Prepared in 15 to 45 Minutes

Canadians Are TimeChallenged and Tired!

"Of the Last 10 Dinner Meals You Prepared and Ate In-Home, What is the Amount of Time Spent Preparing?"

How to Read This Chart: 29% of the Last 10 Dinner Meals Prepared and Eaten In-Home Required 15 to 30 Minutes Preparation.

41.5% Canadians Shop the Same Day for the Evening Meal

35 32

32

33 2000

31

2001

2002

48%

29 29

30

"Frequently" Short of Time

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

25

70% 20

Canadians Plan Dinner the Same Day

18

(10% On Way Home; 17% Last Minute)

16 16 15

14 11

27%

12

10

9

8

10

Do Not Have the Energy to Prepare a Main Meal 0

5

10

20

30

40

50

60

70

Source: Consumerline Survey FCPMC/CCGD

0 Less Than 15 Minutes

15 to 30 Minutes

31 to 45 Minutes

46 to 60 Minutes

More Than 1 Hour

How a Healthy Diet Is Defined High Importance (ranked 1st or 2nd)

90

91%

Low Importance (ranked 4th or 5th)

80 70

71%

60 50

43%

43%

40

35%

30

38% 40%

24%

20 10

9%

4%

0 Variety of Food Groups

Vitamin/Nutrient Content Food Groups

Calorie/Fat Reduction

3 Meals/Day

Organic

Consumers recognized the importance of a balanced diet in the pursuit of better health. A high familiarity and respect for Canada's Food Guide by consumers supports this finding. Source: Chatelaine Feedback Panel, January 2003

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

17

A

t Kraft, we are dedicated to staying

evolving consumer needs. So, when you stock

connected with the consumer. We do this

your stores with Kraft products, your shoppers

in many ways—continuous dialogue, innovative

will thank you for delivering the tradition and

products and exciting promotions that satisfy

excellence they have come to know from Kraft.

At Kraft, we are committed to understanding our consumers and delivering leading product innovations that satisfy their needs and drive our mutual growth. Post Selects creates a unique wholesome great-tasting cereal that consumers will enjoy. Kool-Aid Jammers—an exciting allnew ready-to-drink pouch beverage capitalizing on consumers’ needs for convenience and portability.

A new twist on some traditional favourites—kids and adults will love new Double Delight Oreo Peanut Butter n’Chocolate Cream, Double Delight Oreo Mint n’Cream and Chips Ahoy! Cremewiches cookies.

We develop high-impact, flexible merchandising tools and promotions that create in-store excitement, drive impulse purchases and deliver incremental sales. Leverage the flexibility of the Festive POS to create one-stop snacking solution displays.

Consumers enjoy summertime fun with a Summer Activity Calendar and a chance to win a kitchen makeover. It’s time for one lucky consumer to get out the hockey stick for a chance to score up to $1 million!

We leverage multiple channels to connect with our consumers, listen to their feedback and develop quick and easy food solutions that meet their everyday needs. Our Call Centre offers timely and personal service to over 300,000 consumers annually.

With over 900,000 readers per issue, our what’s cooking magazine offers consumers great food ideas, nutritional information and healthy tips to satisfy their everyday meal and snacking needs.

kraftcanada.com

Our Kraft Kitchens website, www.kraftcanada.com, receives over 1 million page hits per month.

R ETAIL

Data on Canadian Supermarkets

Supermarket, Grocery and C-Store Sales in Canada QUEBEC:

Canadian Independent Stores 2002 Median

$15,074,706,000 Loblaw Metro Sobeys C-Stores Independent

WEST: $21,708,922,000 Loblaw Safeway Sobeys Overwaitea Co-op C-Stores

34% 25% 12% 11% 9% 4%

36% 31% 19% 5% 9%

SALES DATA Per cent Change from Previous Year Average Transaction Size Store Sales per Hour of Operation

3.9% $22.82 $1,712.00

ONTARIO: $19,164,890,000 Loblaw A&P Sobeys C-Stores Metro Commisso

Distribution of Sales:

44% 23% 17% 5% 2.5% 2.5%

Grocery

Total Share of Market for 2002: $61,723,326,000 Source: Canadian Grocer Estimates

Average 53.9%

Meat

14.8%

Produce

11.1%

General Merchandise/HBC

0.9%

Beer/Wine

0.5%

Service Deli

3.3%

Scratch/Bake-Off Bakery

3.5%

ATLANTIC: $5,774,808,000

Frozen Food

0.9%

Dairy

3.7%

Loblaw Sobeys Co-op C-Stores Independent

Pharmacy

0.3%

Other

7.1%

39% 35% 12% 6% 8%

Total

100.0%

INCOME STATEMENT DATA Grocery

Store Brands Share vs. National Brands Rolling 52 Weeks

23.6

18.1%

Produce

11.1%

Total Sales

100.0%

Share of All Measured Categories—Total Grocery Canada

Units 2000

70.9%

Meat

2001

23.8 +4

Dollars 2002

23.8 +3

2000

23.8

2001

24.0 +7

Gross Margins:

2002

24.0 +4

Grocery

22.9%

Meat

26.4%

Produce

30.8%

Total Gross Margin

24.8%

Operating Expenses: Store Labour:

76.4

76.2 +4

76.2 +3

76.2

76.0 +6

76.0 +5

Regular Benefits Total Store Labour Expense Advertising & Promotion

National Brands

Store Brands

1.1% 10.7% 0.9%

Occupancy (Excluding Utilities)

2.6%

Utilities

1.0%

Maintenance

0.8%

Store Supplies

1.0%

Interest

0.4%

Other

N.B. % figure represents annual change in actual units and dollars

9.6%

Total Operating Expenses

3.1% 20.4%

Source: ACNielsen MarketTrack Total Grocery; 52 Weeks Ending December 28, 2002

Profit Before Tax

Source: Food Marketing Institute

20

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

4.4%

R ETAIL Store Brands Share/Growth of Grouping National Total Grocery—Units—52 Weeks to December 28, 2002

Store Brands Share/Growth of Grouping National Total Grocery—Dollars—52 Weeks to December 28, 2002

53.5 50

Units

45

50

Dollars

45

40

45.7

37.8 35

40

30

29.0

30.0

28.9

35

31.1

26.5

25

36.2

30

28.8 21.7

20

21.6

20.8

25

15

24.5 22.3

20

12.6

10 5

10

0

5

18.2

17.7

17.3

15

9.7

9.4

27.0

26.8

25.0

15.2

s

es

ge

uc

ra

s

es

ge ra

uc

.&

ve

Sa

ki Ba

t& er

nd

Be

.

ng

s

od

od

Pr

Fo

ry

ed ep

/D

ar

ai

e

l

e

d.

.

ss De

Co

Store Brand Growth

0

2

1

7

-3

16

7

8

3

6

13

5

-1

Groupings include all categories, including categories without Store Brand entry

Total Grouping Growth

5

1

1

8

5

-4

1

7

4

7

5

5

1

Source: ACNielsen, Food Store Universe

Groupings include all categories, including categories without store brand entry

fri

OT C

/H

Pr

Re

g.

W

&

& er

ks ac Sn

Pa p

fri

/H

od

2

Fo

2

en

5

oz

6

ar

1

Fr

1

ar

0

eC

-6

tC

5

m

4

fa n

-4

Ho

-2

In

4

ro

Total Grouping Growth

tP

4

ea

2

M

8

ica

2

od

2

Pr

6

M

3

Pe t

7

AB

-3

ed

.

5

ra

nf

-5

Co

2

C/

Be

.& Co

-3

OT C

0 p

Sa

ki Ba

t& er

nd

ss De

Store Brand Growth

Pr

Re

g.

ve

.

ng

s

od

od

Pr

Fo

ry

ed

/D

ar

ai

e

od Fo en

oz Fr

ep

e

ar

ar

eC

tC fa n

m

l M

ea

tP

ro

ica

AB

In

Ho

. od

ed C/

M

Pe t

Pr

.

p

nf

ra W

Co &

& er

ks ac

Pa p

Sn

d.

8.8

Source: ACNielsen, Food Store Universe

Store Brands—Regional Growth & Share 52 Weeks Ending December 28, 2002 All Measured Categories—Total Grocery Growth Rates

Dollars

Units

Store Brand Share by Region 24.0 23.8

7

National Maritimes

Store Brand Penetration

4 2

24.4 26.6

-2 7

Quebec

18.1 18.7

5 4 4

Ontario

23.7 22.7

2

Man./Sask.

26.5 28.3

0 6

Alberta

24.2 25.4

2 4

British Columbia

Based on Value Share U.K.

39.0%

Belgium

26.9%

Canada

25.0%

Germany

24.0%

France

20.8%

Netherlands

18.6%

Spain

17.6%

Italy

11.1%

U.S.A.

11.0%

22.9 23.5

1

0%

0

2

4

6

8

10%

20%

30%

40%

Source: ACNielsen, CIBC WM Estimates

Source: ACNielsen MarketTrack Total Grocery

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

21

R ETAIL

Total Market 2002 Ontario Statistics Canada Supermarket Sales

Market Share

$18,044

78.2%

5,030

21.8%

TOTAL

23,074

100.0%

Loblaw

8,560

37.1%

A&P

4,400

19.1%

Sobeys

3,342

14.5%

C-Store

1,030

4.5%

Costco Food

977

4.2%

Drug

881

3.8%

Commisso Wholesale

757

3.3%

Wal-Mart

810

3.5%

Metro

468

2.0%

Other Mass Merchandisers

192

0.8%

46

0.2%

466

2.0%

30

0.1%

1,116

4.8%

Grocery Products in Other Channels

North West Co. Commisso's Food Markets T&T Foods Others

Grocery System-wide Sales Statistics Canada Supermarket Sales

76.7%

4,312

23.3%

TOTAL

18,541

100.0%

Loblaw

5,707

30.8%

Metro

4,733

25.5%

Sobeys

2,982

16.1%

Costco Food

1,002

5.4%

850

4.6%

C-Store Drug

703

3.8%

Wal-Mart

701

3.8%

Other Mass Merchandisers

136

0.7%

North West Co. Others/Independents

50

0.3%

1,676

9.0%

Total Market 2002 West

Source: CIBC World Markets Estimates

Grocery System-wide Sales Statistics Canada Supermarket Sales

Total Market 2002 Maritimes

Grocery Products in Other Channels

Grocery System-wide Sales

$20,464.40

Market Share 77.8%

5,837

22.2%

TOTAL

26,301

100.0%

Loblaw

7,302

27.8%

Market Share

Safeway

5,492

20.9%

2,380

9.0%

Statistics Canada Supermarket Sales

$5,454

81.6%

Overwaitea

Grocery Products in Other Channels

1,231

18.4%

Sobeys

2,547

9.7%

Costco Food

1,498

5.7%

999

3.8%

1,999

7.6%

902

3.4%

TOTAL

6,684

100.0%

Loblaw

2,325

34.8%

C-Store

Sobeys

2,089

31.3%

Co-Op Drug

Co-Op

668

10.0%

C-Store

371

5.6%

Wal-Mart

1,013

3.9%

2.6%

Hy Louie

595

2.3%

234

3.5%

North West Co.

237

0.9%

73

1.1%

Thrifty Foods

374

1.4%

31

0.5%

T&T Foods

140

0.5%

721

10.8%

Drug

173

Wal-Mart Costco Food Other Mass Merchandisers Others/Independents

Other Mass Merchandisers

136

0.5%

Others/Independents

687

2.6%

Source: CIBC World Markets Estimates Source: CIBC World Markets Estimates

22

Market Share

$14,228

Grocery Products in Other Channels

Source: CIBC World Markets Estimates

Grocery System-wide Sales

Total Market 2002 Quebec

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

R ETAIL Productivity of Canadian Supermarkets

World's Top Grocery Retailers

Independent Stores 2002 Country

1

Carrefour

France

8,926

61,398

2

Ahold

The Netherlands

8,062

58,842

$125.79

3

Metro

Germany

2,169

43,758

$29.48

4

Kroger Co.

U.S.A.

2,354

37,900 37,900

Median

Gross Margin per Labour Hour Profit Before Tax per Labour Hour Sales per Labour Dollar Gross Margin per Labour Dollar Transactions per Labour Hour

(in $US Billions)

$4.14

5

Albertson's

U.S.A.

2,533

$17.18

6

Wal-Mart (food sales)

U.S.A.

4,190

36,865

$4.17

7

Safeway

U.S.A.

1,688

34,300

5.3

8

Tesco

United Kingdom

$11.34

9

Rewe Zentrale

Germany

Benefits per Labour Hour

$1.41

10

Aldi

Germany

4,388

26,480

Payroll to Total Expenses

46.4%

11

Edeka/AVA

France

12,000

26,450

6.2%

12

ITM Enterprises

France

8,545

26,140

$182.46

13

J. Sainsbury

United Kingdom

626

26,130

14

It-Yokado

Japan

35,600

25,850

15

Groupe Casino

France

6,650

24,940

Payroll per Labour Hour

Benefits to Total Expenses Payroll per Hour of Operation

SALES PRODUCTIVITY Total Store Area: Average Square Footage Weekly Sales per Square Foot

907

32,380

11,788

31,880

16

Daiei

Japan

7,800

23,740

13,300

17

Tengelmann

Germany

6,689

23,120

$8.61

18

Supervalu

U.S.A.

1,194

21,300

19

Jusco

Japan

1,780

21,020 20,130

Selling Area: Average Square Footage

11,792

20

Auchan

France

243

Weekly Sales per Square Foot

$11.87

21

E. Leclerc

France

555

17,940

22

Fleming Cos

U.S.A.

250

15,600

$138,445

23

Delhaize "Le Lion" Group

Belgium

2,310

15,550

78,269

24

Loblaw

Canada

606

15,100

25

Winn-Dixie Stores

U.S.A.

1,079

13,000

Average Weekly Store Sales Average Number Items Sold/Week

Source: Food Marketing Institute

Sales

Company

PERSONAL PRODUCTIVITY Sales per Labour Hour

Stores Owned

Ranking

OTHER PRODUCTIVITY MEASURES Occupancy Cost (Incl. Utilities)/Square Foot

$16.82

Occupancy Cost to Total Expenses

18.3%

Inventory Dollars/Square Foot Selling Area

$30.33

Overall Inventory Turns

Source: Supermarket News, CIBC World Markets Estimates

Discount Grocery Sales in Canada

16.2X

(in Millions)

Growth and Inflation Selected Category Groupings

Corporation Loblaw

Banners

# Stores

2002 Estimated Total Sales

Extra

88

$1,000

Dollar Growth

Unit Growth

Inflation

Maxi

84

2,120

Beverages

+1

+2

-1

No Frills

103

1,875

Homecare Products

+1

+- 0

+1

4,415

RCSS

54

Price Chopper

57

916

Super-C

43

1,170

Save-On-Foods

44

0

Food Basics

77

1,355

Commisso

10

195

Frozen Foods

+7

+1

+6

Sobeys

Dairy + Refrigerated Products

+7

+6

+1

Metro

Pet Foods

+1

-4

+5

Overwaitea

Confectionery/Snack

+5

+4

+1

A&P

Prepared Foods

+4

+1

+3

Commisso

Paper Products

+1

-2

+3

OTC/HABC/Medical

+8

+4

+4

Total Discount Grocery Sales

13,045

Infant Products

-4

-6

+2

Total Estimated Grocery Sales Through All Formats

74,600

Size of Discount Grocery Channel

17.5%

Source: ACNielsen MarketTrack Total Grocery; 52 Weeks Ending December 28, 2002

Source: CIBC World Markets Estimates, Company Reports

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

23

R ETAIL

Top 20 Categories Total Grocery Dollars (000,000's) Dollar Volume Milk*

1,654.5

Flavoured Soft Drinks

1,477.1

Frozen Dinners/Entrees/Meat Pies/Egg & Spring Rolls

1,094.7

Fastest Growing Categories in Grocery Stores Dollar Sales (000's)** Annual Growth

Annual $ Sales

70%

25,525

Pre-Packaged Bread*

869.3

Energy Bars & Drinks

Shelf Stable Juice/Drinks/Nectars/Iced Tea (excl. Cans)

818.0

Diet Meal Replacements/Dietary Aids

61%

18,959

RTE Cereals

801.9

Anti-Smoking Products

56%

21,894

Snack Foods*

720.4

RTE Gelatin

47%

11,124

Refrigerated Yogurt & Yogurt Type Products

612.1

Refrigerated Entrees

41%

34,056

Cookies/Grahams

560.9

Licorice*

37%

33,193

Chilled Juice/Drinks/Nectars/Iced Tea (excl. Cans)

546.4

Meat Sticks

35%

26,093

Pre-Packaged Cheddar Cheese

521.8

Soya Drinks*

34%

76,953

Pre-Packaged Fresh Baked Desserts

445.5

Electric/Battery Toothbrushes

33%

10,967

Eggs*

445.0

Baking & Cooking Sauces

26%

37,405

Ice Cream & Related Products

443.5

Rice/Corn Potato Snacks

25%

68,112

Pre-Packaged Specialty Cheese

440.5

Pre-Packaged Broad Leaf Vegetables

24%

43,301

Bathroom Tissue

434.3

Medical Nutritional Supplements

24%

20,425

Canned Soup

419.8

Pre-Packaged Bagged Salads

23%

179,161

Pre-Packaged Rolls*

378.8

Disposable Plates/Bowls/Cups

22%

63,179

Laundry Detergents

371.5

Frozen Seafood (incl. Shellfish)

368.1

* Excludes Direct-to-Store Shipments

* Excludes Direct to Store Shipments ** Based on Categories with > 10 million in dollar sales Source: ACNielsen MarketTrack Marketplace Performance Report 52 Weeks Ending December 28, 2002; Total Grocery

Source: ACNielsen MarketTrack Marketplace Performance Report; 52 Weeks Ending December 28, 2002

Importance Ranking for Choice of Recipe

Declining Categories in Grocery Stores Annual Dollar Sales Decline* Candles

-12%

Apple Sauce

-10%

Very Important/Somewhat Important

Ingredients On Hand

92%

Low-Fat

80%

Can Be Frozen

72%

Pre-Tested

68% 57%

-10%

Easy to Re-Size Measurements

Canned Salmon

-9%

Prepared in < 10 minutes

49%

Toaster Pastries

-9%

Instant Coffee

-7%

< 5 ingredients

40%

Roast & Ground Coffee

-6%

Kid-Friendly

34%

Infant Feeding Products

-6%

Toothbrushes

-6%

Disposable Diapers/Training Pants

-5%

Processed Cheese Loaf

Not Very Important/Not at All Important

8% 20% 28% 32% 43% 51% 60% 66%

Meal preparers are willing to spend more time in the kitchen to batch cook, but the convenience of having the ingredients on hand is paramount in selecting a recipe.

* Based on Categories with > 10 million in dollar sales Source: Chatelaine Feedback Panel, January 2003

Source: ACNielsen MarketTrack Marketplace Performance Report 52 Weeks Ending December 28, 2002; Total Grocery

24

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

R ETAIL

Data on Supermarket Departments Canadian Independent Stores 2002 Median

Data on Supermarket Departments Canadian Independent Stores 2002 Median

GROCERY DEPARTMENT Total Sales

100.0%

Gross Margin % Total Sales

22.8%

Total Payroll % Total Sales

3.9%

Margin After Net Landed Cost [Sales–(1-GM)–Labour Costs] % Total Sales Inventory Turns

17.6% 13.3X

Gross Margin Return on Inventory (GMROI)

345.0%

Sales per Labour Hour

$142.00

PRODUCE DEPARTMENT Total Sales

100.0%

Gross Margin % Total Sales

28.5%

Total Payroll % Total Sales

6.7%

Margin After Net Landed Cost [Sales–(1-GM)–Labour Costs] % Total Sales Inventory Turns

23.6% 52.4X

Gross Margin Return on Inventory (GMROI)

2348.9%

Gross Margin per Labour Hour

$33.85

Sales per Labour Hour

Average Wage Rate per Labour Hour

$11.12

Gross Margin per Labour Hour

$45.22

Average Wage Rate per Labour Hour

$10.86

Department Sales % of Total Store Sales

58.8%

Department Payroll % of Total Store Payroll

35.5%

Department Sales % of Total Store Sales

11.4%

Department Payroll % of Total Store Payroll

10.5%

$154.27

MEAT DEPARTMENT Total Sales

100.0%

Gross Margin % Total Sales

23.2%

Total Payroll % Total Sales

7.2%

Margin After Net Landed Cost [Sales–(1-GM)–Labour Costs] % Total Sales Inventory Turns Gross Margin Return on Inventory (GMROI)

15.8% 35.6X 1088.7%

SERVICE DELI DEPARTMENT Total Sales

100.0%

Gross Margin % Total Sales

40.2%

Total Payroll % Total Sales

17.1%

Margin After Net Landed Cost [Sales–(1-GM)–Labour Costs] % Total Sales Inventory Turns

32.4X

Gross Margin Return on Inventory (GMROI) Sales per Labour Hour

23.8%

1933.20%

$155.77

Gross Margin per Labour Hour

$38.76

Sales per Labour Hour

$55.87

Average Wage Rate per Labour Hour

$12.55

Gross Margin per Labour Hour

$21.33

Department Sales % of Total Store Sales

15.1%

Department Payroll % of Total Store Payroll

15.7%

Average Wage Rate per Labour Hour

Department Sales % of Total Store Sales Department Payroll % of Total Store Payroll

$9.84

3.9% 11.3%

Source: Food Marketing Institute Source: Food Marketing Institute

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

25

R ETAIL

Grocery Square Footage Square Footage in Millions in Canada

Grocery Supermarket Scanning Penetration by Region—2002

1999

2000

2001

2002e

33.3

33.7

35.9

37.8

3.4

3.8

3.7

4.1

Substractions

(3.0)

(1.6)

(1.8)

(1.5)

End of Year Sq. Ft.

33.7

35.9

37.8

40.4

LOBLAWS

% of All Commodity

Beginning of Year Sq. Ft. Additions

100 97.4%

90

96.9%

99.8%

99.6%

94.6%

91.9%

99.4%

98.8%

80

Net Sq. Ft. Growth (%)

1%

7%

5%

7%

70

Net Sales Growth (%)

50%

8%

6%

7%

Sales/Sq. Ft. Growth Index

41.9

1.2

1.2

1.1

Beginning of Year Sq. Ft.

4.3

14.1

14.5

15.1

Net Additions

9.8

0.4

0.6

0.6

14.1

14.5

15.1

15.7

60 SOBEYS

50 40 30

End of Year Sq. Ft.

20 Net Sq. Ft. Growth (%)

10 0 # of Stores

National

Nfld.

2,840

74

Maritimes Quebec

270

681

Ontario Man./Sask. Alberta

953

236

303

228%

3%

4%

4%

Net Sales Growth (%) (excl. SERCA)

5%

3%

6%

7%

Sales/Sq. Ft. Growth Index

0.0

0.9

1.6

1.8

B.C.

323

Source: ACNielsen Measurement Science

METRO* Beginning of Year Sq. Ft.

7.4

8.7

8.8

9.1

Additions

1.3

0.1

0.3

0.3

End of Year Sq. Ft.

8.7

8.8

9.1

9.4

Net Sq. Ft. Growth (%)

17%

1%

3%

3%

Net Sales Growth (%)

9%

17%

5%

6%

Sales/Sq. Ft. Growth Index

0.5

16.0

1.3

1.7

Includes both corporate and franchise stores Note: Sobeys fiscals 2000-2003 have been categorized as 1999-2002e, respectively * Excludes drug store banners

Source: Company Report and CIBC WM Estimates

Amount Spent On Groceries Age of Children in Household Age Range of Children Up to 5 years 6 to 11 years 12 to 17 years

Average Spent per Week $135 $138 $144

Source: J.C. Williams Group

26

CANADIAN

GROCER

2003-2004

Amount Spent On Groceries Size of Household # of People in Household 1 2 to 3 4 5+

Average Spent per Week $89 $114 $143 $154

EXECUTIVE

REPORT

R ETAIL Canadian Drug Stores Sales 2002 ($000's) British Columbia 13.6% (+9.6%) Man./Sask. 4.8% (+7.0%)

Reaction to Time Challenges

Alberta 9.1% (+10.2%)

Portable Convenience Foods for Busy People On the Go... • • • • • • • •

Ontario 41.1% (+8.7%)

Quebec 24.5% (+7.8%)

Energy Bars Meal Replacement Drinks Yogurt In a Tube Cereal Bars Instant Hot Cereals "Lunchables" and "Lunchmates" Refrigerated/Frozen Entrees Disposable Containers

Maritimes 6.9% (+7.5%)

Total Canada: $15,185,300 (+8.5% vs 2001)* Source: ACNielsen Measurement Science, MarketTrack Drug

Source: Leslie Beck Nutrition Consulting

Fastest Growing Categories in Canadian Drug Stores Energy Bars & Drinks

* Excludes Newfoundland & Labrador, Yukon and Northwest Territories

Dollar Volume +19

Top 20 Selling Categories in Drug Stores

+59

Vitamin B

Depilatory Products excludes Wax

+42

Diet Meal Relacements/Dietary Aids

+16

Anti-Smoking Products

+39

Seasonal & Children's Candy Confections

+15

Anti-Oxidant Vitamins

+32

Men's Colognes & Lotions

+14

Cosmetics (Eye, Lip, Face & Nail)

Facial Scrubbers

+28

Liquid Cold Remedies

+14

Face Care Products

Children's Electrolytes

+27

Insect Repellents

+14

Headache Remedies

227.9

Electric/Battery Toothbrushes

+22

Elastic Bandages

+14

Hair Colouring

135.4

Glucosamine

+20

Insecticides

+14

Sanitary Protection

134.0

Shampoo

113.7

Source: ACNielsen MarketTrack Drug; Marketplace Performance Report; 52 Weeks Ending December 28, 2002

Fastest Growing Categories in Canadian Drug Stores

Unit Volume

Dollar Volume ($ Millions) $338.3 258.8

Chocolate Bars (Expanded Market)

108.7

Blades & Razors

107.2

Women's Fragrances

95.5

Personal Deodorants

93.1

Cold Remedies (Tablets & Powder)

91.2

Disposable Diapers (includes Training Pants)

89.8

Cold Remedies (Tablets & Powders)

+78%

Cover & Tape Products

+17%

Bathroom Tissue

86.8

Male Hair Colouring

+48%

Selected Insoles

+16%

Boxed Chocolates

85.3 83.0

Face Care Products

+40%

Upset Stomach Remedies

+16%

Antihistamines

Menstrual Pain Relief

+34%

Feminine Douches

+16%

Anti-Smoking Products

68.9

Hair Colouring

+32%

Single Use Cameras

+15%

Film

68.6

Repositionable Notes

+29%

Infant Cereals

+15%

Hair Conditioners & Rinses

68.2

Baby Feeding Cups

+21%

Incontinent Products

+14%

Dentifrice (includes Toothpolish & Whiteners)

67.5

Upset Stomach Remedies

66.5

Wart Removers

+18%

Soft Chewable Candy

+14%

Packaged Chocolate Bars >200 grams

+18%

Milk Intolerant Products

+14% Source: ACNielsen MarketTrack Drug; Marketplace Performance Report 52 Weeks Ending December 28, 2002

Source: ACNielsen MarketTrack Drug; Marketplace Performance Report; 52 Weeks Ending December 28, 2002

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

27

R ETAIL Drug Dollar Growth by Segment Source: ACNielsen MarketTrack Drug; 52 Weeks Ending December 28, 2002; Based on sales as tracked in 143 categories in drug stores

2002 Dollar Sales

Drug Store Dollar Sales at Retail ACV—Total Canada*

$ Millions Paper Products

165.4

3

Confectionery

371.6

5

Infant Care

52 Weeks to December 28, 2002 ($000's)

205.0

-8

Oral Care Personal Hygiene

0

Internal OTC

2

Cough/Cold

-1

Skin Care

9

Home Diagnostics

3

External OTC

15

Sundries

2

0%

5%

10%

2002 15,185,300

834,050

1,046,571

Maritimes

67.2

9

Hair Care

National

508.6

2

Diet Products

1997 11,561,974

219.9

14

423.2

Quebec

2,825,456

3,714,165

686.4

Ontario

4,704,603

6,241,318

289.4

Man./Sask.

605,463

726,491

459.0

Alberta

1,072,708

1,384,802

238.5

B.C.

1,519,694

2,071,953

226.2

* Excludes Newfoundland & Labrador, Yukon and Northwest Territories

180.0

Source: ACNielsen Measurement Science; MarketTrack Drug

15%

Drug Store Dollar Sales Trends, Canada* 52 Weeks to December 28, 2002 15,185

$000,000's 13,990

14 12,375

12

12,955

11,934

11,512

11,628

’93

’94

’95

’96

’97

’98

’99

’00

’01

’02

+4

+2

+1

N/A

+3

+3

+4

+5

+8

+9

10,763

11,230

’92 +5

11,562 11,188

10 8 6 4 2 0

% Chg. vs YAG

1992-1995 is sourced from ACNielsen Store Audit Drug Store data. 1996-2002 is sourced from ACNielsen MarketTrack Drug data * Excludes Newfoundland & Labrador, Yukon and Northwest Territories

Source: ACNielsen Measurement Science, MarketTrack Drug

28

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

R ETAIL Organic Foods Have Not Yet Reached the Mainstream

The Importance of Nutrition

% of People Responding to... "I Prefer to Buy Organic Foods When They Are Available"

➤ 24% of respondents indicate that nutritional content is the most important factor when shopping for foods.

70

➤ 19% have households with at least one member that has special dietary needs.

60

➤ 70% read nutritional labels frequently; 24% always. ➤ What they're looking for: (base: read labels) Fat Content Use of Artificial Sweetener Calorie Content Use of Preservatives Sodium Content Interest in Vitamin Content specific nutrients Calcium Content less common Potassium Content

}

63

50 40

25

30

32% 20% 19% 15% 6% 6% 4% 1%

20

12

10 0

Agree Completely/ Mostly

Neutral*

Disagree Completely/ Mostly

% of People Responding to... "It Is Worth Paying a Higher Price for Organic Foods" 70 60

Source: Chatelaine Feedback Panel, February 2003 (444 respondents)

65

50 40

Estimated Sales of Kosher Foods in Canada

24

30 20

1999-2002*

11

10 0

$575 Million

Agree Completely/ Mostly

$617 Million

$458 Million

Disagree Completely/ Mostly

* Agree or Disagree Somewhat + Neither Agree nor Disagree

+7.3% $480 Million

Neutral*

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

+19.7%

Who Buys Kosher Food? % Total Kosher Sales

+4.8%

Population Group:

Jews

Non-Jews

Reason: Religiosity, Food Safety

25%

Think Kosher is Safer/Better

45% Muslim

20% 1999

2000

*May Include Sales of Kosherized Major Brands

2001

2002

Food Allergies, Vegetarian/Vegan, Seventh Day Adventist Jehovah's Witness

10%

}

Various

55%

Source: HealthComm Inc.

Source: HealthComm Inc.

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

29

M ANUFACTURING

What’s Hot and What’s Not CATEGORY

DECLINING -15 to -8% -7 to -4%

STATIC -3 to +3%

+4 to +7%

GROWING +8 to +15%

Canned and Bottled Edibles

Apple Sauce Rem. Canned Meat Baby Food

Wet Packed Carrots Canned Meat Spreads

Canned Pasta Canned Peas Wet Packed Corn Salad and Cooking Oil Canned Seafood Spaghetti Sauce Pizza & Lasagna Sauce Maraschino Cherries Canned Fruit

Canned Soup Canned Milk Vinegar Baked Beans Canned Meat Canned Beans C & B Stews/Meatballs Canned Beets

Canned Salmon Canned Kidney Beans Selected Beans/Peas Vegetable Oil Spray Canned Asparagus

Chili Con Carne Remaining Canned Beans Wet Packed Potatoes Rem. Canned Vegetables Canned Corn on the Cob

Beverages

Cocktail Mixes

Powdered Skim Milk

Coffee Substitutes Malt Beverages Tomato Juice R & G Coffee Carbonated Beverages Tea Bags

Flavoured Soft Drinks S.S Drinks/Juices/Nectars/ Iced Tea (Excl. Cans) Low Alcohol Wine (Coolers and Cider)

Vegetable Juice Iced Tea Mixes Instant Breakfasts Flav. Drink Powders—Cold Chilled Drinks/Juices/Nectars/ Iced Tea (Excl. Cans) Hot Chocolate Cordials/Squash/Syrups

Rice Drinks RTD Iced Tea Cans Powdered Breakfast Fruit Drinks Soya Drinks Flat Water

Maple Syrup Sandwich Spreads Pickling Salt

Sauerkraut Jams/Jelly/Marmalades Molasses Mayo/Sp. Salad Dressing Honey Relish Prepared Mustard Dry Salad Dressing Gravy Makers & Enhancers Ketchup

Chutney Dry Sauce/Gravy Mix Mexican Seasonings Pickles

Table Syrups Seasonings/Liquid Seasonings Chili/Meat/BBQ/Oriental/ Seafood Sauces Pourable Salad Dressing Olives/Peppers Cooking Wine & Sherry Peanut Butter/Sweet Spreads Dry Mustard Remaining Pickled Vegetables

Spices Oriental Fondue and Bouillon Products Sundae Toppings Mexican Salsa, Dips and Garnishes

Frozen Breakfasts Pie Tart/Patty Shells Ice Cream Frozen Vegetables Meat Patties/Steakettes

Pizza Snacks Frozen Baked Desserts Frozen Fruit Beverages Frozen Bread Dough

Frozen Seafood Frozen Dinners & Entrees (Incl. Meat Pies) Remaining Frozen Meat Pizza, French Bread & Subs

Confections

Hot Cereals Dry Soup Mix Prepackaged Bread Instant Potatoes Bouillon Products Croutons

Specialty Rice Oriental Noodles Coconut Wheat Germ Pancake/Waffle Mix Regular Packaged Rice Mexican Dinner Kits & Shells

Seafood Batter Dried Breads Bread Crumbs

Condiments and Sauces

Frozen Foods

Dry Grocery

Fruit Preservatives Boxed Salad MIxes

Dry Packaged Dinners Dry Pizza Mix

RTE Cereals Ice Cream Cones Infant Cereal Prepackaged Rolls Coating Mixes Dry Pasta

Dairy Case

Processed Cheese Loaf

Lard and Shortening Processed Cheese Spreads

Sour Cream Milk Eggs Butter

Prepackaged Cheddar Cream Specialty Cheese Whipping Cream Cream Cheese

Yogurt Vegetable/Chip Dip Refrigerated Pasta Refr. Imitation Seafood Refrigerated Entrees

Margarine Milkshakes/Egg Nog Powdered Toppings Grated Cheese Cottage Cheese

Whipped Toppings

Tofu Refrigerated Dough Refrigerated Pasta Sauce Fresh Tortilla Shells Salad

Refrigerated Products

Source: ACNielsen, MarketTrack, 52 Weeks to December 28, 2002

30

Physical Growth 2002

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

M ANUFACTURING

Top Food Manufacturers in Canada (Sales in '000s) Company

Rank FP 500

Sales

McCain Foods Limited

50

$5,302,979

Maple Leaf Foods Inc.

60

$4,775,358

4

$3,175,000

Saputo Inc.

114

$2,161,671

Kraft Canada Inc.

120

$2,082,000

Molson Inc.

132

$1,857,100

Cott Corporation

151

$1,687,475

Nestlé Canada Inc.

154

$1,645,148

George Weston Ltd. (Excl. Loblaw)

OLYMEL, société en commandite

$1,618,000

Agropur Coopérative

170

$1,542,123

Pepsi-Cola Canada Ltd.

175

$1,465,000

Source: Financial Post 500, 2002

Priorities for Supplier Support As Identified by Inventory/Logistics Management PRIORITIES

PER CENT OF RESPONSE(1)

Meeting Scheduled Delivery Windows More Consistently

89%

Reducing Order Cycle Times to Decrease Inventory Levels

67%

Increasing Shipment Accuracy

63%

Improving Shipment Completeness

60%

Improving Communication Processes About Delivery Status

50%

Having Accessible, Responsive Customer Support

48%

Implementing Improved Supply Chain Practices

43%

Having Capable/Empowered Account Personnel

30%

Using Durable Packaging That Remains Damage-Free

23%

Making Staff Support Resources Available to Us

15%

Resolving Deduction Issues Fairly and Efficiently

5%

0%

20%

40%

60%

80%

100%

(1) Per cent of Inventory/Logistics Management Respondents Identifying Each Action As a Priority for Supplier Support

Source: Advantage Group

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

31

M ANUFACTURING

Weekday Dinners in Canada Include Sandwiches in the Top 10 Top Foods Canada—In-Home Dinner—Weekdays % of Eating Occasions

1999

2000

2001

% of Meal Occasions by Daypart Total Dinner 27%

Total Lunch 26%

17 18 16 17

Vegetables

6 6

Salads 5

Boiled/Mashed Potatoes

5 4 4

Chicken (Excl. Wings/Nuggets)

4 4 4

Rice

4 3

Italian Pasta

3

Casseroles/ One Dish Meal

3 3

Fruit 3

6 6

7 7

How to Read This Chart: Vegetables Are Consumed in 17% of In-Home Dinner Weekday Food Occasions.

5

5

2

Total Snacks 21%

Total Breakfast 26%

How to Read This Chart: 26% of All Meal Occasions Were at Breakfast.

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

Priorities for Supplier Support As Identified by Senior and Category Management

4 PRIORITIES

4 4 4 4

PER CENT OF RESPONSE(1)

Providing Effective Category/Business Plans

70%

Having Capable/Empowered Account Personnel

62%

Providing Sound Market/Consumer Information

4 4

57%

Working Collaboratively to Develop Joint Plans/Initiatives

51%

Tailoring Its Initiatives to Differentiate Our Company

3 3 3 3

Soup

Sandwiches*

2002

Breakfast Represents 26% of All Meal Occasions in Canada

43%

Providing Well Organized Product Introductions

30%

Simplifying Consumer Choices/Efficient Assortment Planning

29%

Managing Promotions Effectively

28%

3 3

Making Staff Support Resources Available to Us

3

Providing Support for Our Consumer Marketing Strategies

24% 24%

Providing Sufficient Store Level Support/Follow Through

21%

Providing Meaningful Product/Package Innovation

20%

Supporting Us with Creative In-Store Mdsg. Programs

19%

* Excludes Burgers, Hot Dogs, Mexican Sandwich Source: NPD Group Eating Patterns in Canada Report, March 2002 Release

Providing Effective Brand Marketing Support

14%

0%

20%

40%

60%

(1) Per cent of Senior and Category Management Respondents Identifying Each Action As a Priority for Supplier Support

Source: Advantage Group

32

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

80%

M ANUFACTURING

Soup Is a Top Lunch Item in Canada

The Frequency of Skipping Breakfast Is Slowly Increasing

Top In-Home Weekday Lunch Foods—% of Eating Occasions 1999

2000

2001

2002 10 10

Soup

7 7 7

Vegetables 4

Salads

3 3

Cookies 3

2

4 4 4

5

2 2 2

2.7

How to Read This Chart: 3% of Food Eatings for Weekday In-Home Lunch in Canada Are Crackers.

2.6

1999

2000

2.9

2.7

2001

2002

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

Top HMR Items Eaten at Dinner Include Salad, Chicken and Potatoes

3 3 3 3 3 3

Bread

Boiled/Mashed Potatoes

12

8

3 3 3 3

Ham Sandwich

Crackers

How to Read This Chart: For Breakfast Meal Skippers, the Average Number of Breakfasts Skipped Is 2.9.

9 9 9 9

Fruit

Cheese/Cream Cheese Sandwich

11

Weekly Frequency of Skipping Breakfasts

4

% of In-Home Dinner HMR Eating Occasions

35

Salads

3

10 11

Chicken

2 2 2 2

(Excl. Wings/Nuggets)

Boiled/Mashed Potatoes

3 3

Ham

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

Beef Steaks

3 3

Pizza (Excl. Novelties)

14 13

1999 2000

4 5

2001

4 4 4 4

2002

5 5

2 2 2 3

40 41 43

How to Read This Chart: 5% of HMR Eatings Are Boiled or Mashed Potatoes. HMR: Main/Side Dish Items with No Preparation Required to Eat, Not from Restaurant or Frozen.

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

33

M ANUFACTURING Almost Half of Carried from Home Lunches Have Three or More Dishes, Whereas Only One-quarter of In-Home Lunches Have Three or More % of Carried from Home Lunch Meal Occasions (# of Dishes—Excl. Beverage)

When You Eat Out of Home, One-third of Breakfasts Are Sit Down Hot Breakfasts Consisting of Pancakes or Eggs

Carried from Home 4 Dishes per Meal 13%

3 Dishes per Meal 27%

% of Breakfast Meals—Away from Home Only Breakfast Sandwich 13%

Hot 34% 2 Dishes per Meal 27%

5+ Dishes 9% How to Read This Chart: In 24% of Carried from Home Lunch Meals, There is Only One Food Item.

Other 9%

1 Dish per Meal 24%

Beverage 17%

4 Dishes per Meal 6%

In-Home 3 Dishes per Meal 16%

Cold 27% 5+ Dishes 3%

All In-Home, Carried or Skipped

How to Read This Chart: Out of Breakfasts Eaten Away from Home, 27% of Breakfast Meals Were Cold.

All Away from Home 5% 2 Dishes per Meal 32%

Cold includes meals with all baked goods, yogurt, toast, bagels and RTE cereal. Hot includes meals with eggs, pancakes, hot cereal and waffles. Beverage includes beverage only meals. Breakfast sandwich includes meals with hot egg/bacon or other sandwiches. Other includes non-traditional breakfast foods.

1 Dish per Meal 44%

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

Source: NPD Group Eating Patterns in Canada Report, October 2002 Release

Significant Declines Seen in Many Categories Greatest Annual Dollars Sales Decline in Drug Stores Shaving Lather

-29%

Denture Brushes & Kits

-12%

Migraine Prevention Products

-26%

Herbal Remedies

-12%

Baby Bibs

-16%

Disposable Diapers/Training Pants

-11%

Baby Utensils, Bowls

-14%

Mini Mints

-11%

Breath Fresheners & Purifiers

-12%

Infant Feeding Products

-10%

Hair Permanents

-12%

Shaker Top Adult Talcum Powder

-9%

Disposable Bottle Liners

-12%

Baby Nursers & Accessories

-9%

Cough & Cold Relief Gum

-12%

Source: ACNielsen MarketTrack Drug; Marketplace Performance Report. 52 Weeks Ending December 28, 2002; Based on 143 Categories

34

CANADIAN

GROCER

2003-2004

EXECUTIVE

REPORT

THEN

NOW

SOON

FOREVER

100 YEARS

OF TRADITION AND EXCELLENCE

Thank you for your continuing support. EXECUTIVE REPORT A SPECIAL SUPPLEMENT TO CANADIAN GROCER ONE MOUNT PLEASANT RD., TORONTO, ONTARIO, CANADA PRINTED IN CANADA

M4Y 2Y5

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