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© Kantar Retail 2015

REconfigure REtailStrategies to Drive Competitive Advantage


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‒ Disruption abounds. Adapting to and capitalizing on these disruptions is a formidable challenge for both manufacturers and retailers.

‒ Previous competitive advantage was achieved by investing billions in factories, distribution centers, and stores to achieve scale and efficiencies.

‒ As digital disintermediates retail, you must reconfigure your retail strategies to adapt to 21st century retailing.

‒ Only those retailers and suppliers who REengage shoppers, REimagine value, REinvent formats, and REtool commerce will thrive.



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‒ Disruptive technologies are fragmenting shoppers’ relationships with retailers and brands.

‒ Competition for shopper mindshare is chaotic and intensifying— messaging and content must cut through the clutter of communication driven by constant connectivity.

‒ REengaging shoppers means driving personalization without sacrificing scalable operations.

‒ Retailers and suppliers must develop a robust understanding of their targeted shoppers across all touch points to drive distinctive offers, curated shopper experiences, and contextual engagement.

Pillar I: REengage Shoppers


The Major Polarizers

Geography: Countries and

Cities…

Income: Haves vs. Have Nots

Ethnicity: Non-majority populations

Generations: Diversity & Technology

Interests

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Polarized by:

Source: Kantar Retail analysis


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Where Spend the Most on Groceries/HH Essentials: Gen Y vs. Boomers

Source: Kantar Retail ShopperScape®, January–September 2014

Already Have a Different Store Choice ProfileGen Y more likely to choose Walmart and specialty supermarkets


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36% Growth

17% Growth

• Gen Y cohort had historically lagged all shoppers—especially Boomers, who have been most active buyers—in terms of conversion

• Seniors also increasingly converting to buyers

Source: Kantar Retail ShopperScape®, July 2013 and July 2014

Average Conversion Rate*(across 30 categories)

* Conversion calculated as % have purchased category online/% have shopped for category online

Gen Y Getting Serious about Buying Online


Case Study: Save-A-Lot vs. ALDIHabit vs. Whole Package

Source: Kantar Retail analysis, retailer web sites 7

Save-A-Lot ALDI

vs.


Source: U.S. Census Bureau, Current Population Survey, 2013 and Population Projections report NP2012-T4

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Projections of the U.S. Population by Hispanic Origin: 2015 to 2030

Age of U.S. Population by Hispanic Origin: 2013

Hispanic Shopper Population Set to GrowNearly half of Hispanic population currently younger than 25


Source: Kantar Retail ShopperScape®, May 2013–July 2014 9

Arrows indicate that Hispanic shoppers are significantly more likely to shop retailers than the average shopper (95% confidence level)

51% of Hispanic shoppers shop Amazon—about on-par with the

average U.S. primary HH shopper

Where Do Hispanics Shop?

63%

42%

35%

34%

29%

Mass/Dollar/Club/Drug

22%

17%

14%

13%

12%

Supermarket

Hispanics More Likely to Shop Many Top Consumables Retailers

51%


Engagement Can Mean Partners…

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Sometimes You Just Gotta Dance…Lowe’s Foods

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Defining The Elusive Notion of Omnichannel RetailingA consumer experience of perfect retailing execution

TRADITIONAL MULTI

ADDRESSABLE

Low

High

MultiBricks & Mortar

OMINICHANNEL RETAILING

HO

W W

E M

AR

KE

T

HOW WE SELL

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Source: Kantar Retail analysis


RE-ENGAGE SHOPPERS: 3 KEY POINTS

• More Specific – “Addressable Marketing”– The facilities should be the heart of the base, and a “mirror” of the

culture of that environment – use the “Address” you’ve got

• More Personal– Digital communication platforms allow a more personal

relationship in terms of shopping aids and value

• More Fun!– Millennial Shoppers don’t view it as a chore yet

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‒ As the mechanics of value become more personal, dynamic, contextual, and volatile, retailers and suppliers need to reimagine value as previous sources of differentiation are increasingly commoditized.

‒ Rather than a definition based almost solely on price, shopper value in the future will be defined by those who master the artful science of REimagining value by also delivering quality and service throughout the shopper’s brand journey.

Pillar II: REimagine Value


Generally Positive, Generally Improving Spending Intentions

Fewer than three in 10 shoppers consciously planning to spend less

Spend about the Same

Spend Somewhat/Much Less

Spend Somewhat/Much More

Spending Intentions in Coming Month Compared with Same Period Last Year(three-month moving average among all primary household shoppers)

Source: Kantar Retail ShopperScape®, December 2009–December 2014

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More Shoppers Considering More than PriceGen Y, Seniors lead the shift; True for both Haves and Have Nots

All Shop-pers

Gen Y Gen X Boomers Seniors Have Nots Haves Hispanic

59%

70%65%

55%

46%

56%

64% 64%63%

75%

67%

57%55%

60%

67% 70%

Oct-13 Oct-14

Now More Willing to Consider Factors Other than Price When Deciding Where to Shop(share of shoppers who say this statement describes them “perfectly”/”quiet well” or “somewhat”)

Arrows indicate significant difference vs. 2013 (95% confidence level)

Source: Kantar Retail ShopperScape®, October 2013 and 2014

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Shopper Buzzword for 2015: “Stress Free”Motivation likely differs by cohort, but all increasingly interested

All Shoppers Gen Y Gen X Boomers Seniors

53% 55%52% 54% 53%

58% 57% 56%59%

63%

Jan-14 Jan-15

Share of Shoppers Who Rate “Having a Stress-Free Shopping Experience” Among Top Four Most Important Aspects of Shopping

Arrows indicate significant difference vs. 2014 (95% confidence level)

Source: Kantar Retail ShopperScape®, January 2014 and January 2015

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The Adaption of Pricing Strategies has Created an New Industry View: “The Hourglass”

Source: Kantar Retail analysis; company reports 18

Of the top 69 supermarket retailers in the KR database, there are roughly as many characterized as:

• Value (22)

• Premium (21)

• Mainstream (26)*

“Hav

e-N

ots

”“H

aves

”

26.8% (CAGR 4.2%)

12.0% (CAGR 1.9%)

60.7% (CAGR 5.6%)

Projected dollar growth 2014E-2019E is:

*Data as of 12/01/2014


Walmart’s Savings Catcher tool is well positioned to address both sides of the value equation: spending as little as possible, and giving the

feeling of getting a good deal.

Source: Kantar Retail analysis; company Web site

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Feeling Like I Got a Good Deal

Spending as Little as Possible

“Our customers didn't ask for Savings Catcher but they are

loving it ... And customers now have a real incentive to become

digitally engaged”

—Neil Ashe, Walmart’s Global.com CEO, Oct 2014


REIMAGINE VALUE: 3 KEY POINTS

• More Specific– Mid-tier positioning confuses shoppers more than helps them –

make ic clear what we stand for

• More Personal– More and more retailers will be delivering more and more

promotions and price to individuals out of the public domain

• More Fun– Shoppers willing to consider other factors than price, in particular

things that make shopping more stress-free!

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‒ The physical and virtual space in which the retailer engages the shopper is in flux.

‒ We are witness to a tremendous reallocation of capital deployment, a revenge of physical retail space, and a complete reboot of how store formats serve a more convenience-oriented, efficiency-motivated, and experience-craving shopper.

‒ Categories that were once bought in stores are now often not, and the nature of sales and service in-store has been permanently altered.

‒ The confluence of these changes demands a baseline REinvention of store formats and their purpose.

Pillar III: REinvent Format


Small Format Strategy Is Long-Term Growth

Testing:

“5K” Convenience

Testing:

“12K” Neighborhood Market

Optimizing:

“43K,” Neighborhood Market

Source: Kantar Retail research and analysis 22

Meeting diverse and changing customer needs


Neighborhood Market Growth Holds Steady

Source: Company reports, KRIQ, Kantar Retail analysis 23

“I want us to be judicious about how many we grow next year because I’d like to give this team a chance to put their fingerprints on it.”

–Doug McMillon, October 2014

Sales (USD Millions)Store Count

Half of Walmart’s sales added in 2015 will be from small format


(Ranked by 2014E Edible Grocery Sales)

2009 2014E 2019E

1 1 Walmart $ 118,334 $ 148,784 $ 183,504 23.5% 4.7% 4.3%

2 2 Kroger $ 56,292 $ 76,446 $ 91,702 12.1% 6.3% 3.7%

3 3 Costco $ 22,424 $ 32,434 $ 45,510 5.1% 7.7% 7.0%

5 4 Down Safeway $ 27,848 $ 27,015 $ 27,541 4.3% -0.6% 0.4%

4 5 Up Publix $ 20,069 $ 24,944 $ 31,648 3.9% 4.4% 4.9%

6 6 Ahold $ 18,450 $ 21,673 $ 24,142 3.4% 3.3% 2.2%

11 7 Down Albertsons Market (LLC) $ 3,643 $ 15,865 $ 15,009 2.5% 34.2% -1.1%

7 8 Up H-E-B $ 10,679 $ 15,049 $ 20,080 2.4% 7.1% 5.9%

10 9 Down Target $ 15,523 $ 14,507 $ 15,542 2.3% -1.3% 1.4%

9 10 Up Delhaize USA $ 7,977 $ 14,429 $ 16,150 2.3% 12.6% 2.3%

Top 10 (Edible Grocery Only) 301,240 391,146 470,827 61.9% 5.4% 3.8%

12 11 Down Wakefern $ 10,040 $ 12,725 $ 14,905 2.0% 4.9% 3.2%

8 12 Up Whole Foods $ 6,323 $ 11,158 $ 16,880 1.8% 12.0% 8.6%

Rank 2019E

Rank 2014E

Expected Movement

RetailerEdible Grocery Sales (USD Millions) CAGR

'09-'14ECAGR

'14E-'19E% of US Total

('14E)

The Top 10 “Grocers”Top 3 all have fundamentally different business models

Source: Kantar Retail analysis; company reports 24

Edible Grocery Sales (ranked by 2013E edible grocery sales)

club

mass

mass

How long until Amazon falls on this list? *Data as of 12/01/2014

© Copyright 2014 Kantar Retail

Food Service Trend Has Limits:Expect meal planning initiatives to increase

Source: Kantar Retail ShopperScape®, November 2013 25


Quality & Fresh Come After Price

Source: Kantar Retail ShopperScape®, February/May/August 2014 26

Perimeter: Fresh

Spend Most on Food/Groceries at Retailer

All

shoppersAhold

(all banners)Delhaize

(all banners)HEB Publix Wegmans Meijer

Sample size 11617 327 224 259 449 116 288

Price 74% 66% 77% 75% 68% 60% 72%

High-quality fresh foods 45% 50% 36% 54% 55% 61% 47%

Items I need are in-stock 38% 35% 42% 38% 38% 40% 37%

Convenience 28% 34% 29% 27% 31% 26% 27%

Broad selection of foods I like to cook/eat 27% 27% 24% 31% 31% 37% 23%

Top 5 Important Factors When Shopping for Food/Groceries

Shading indicates significantly greater percentage vs. all shoppers; border indicates significantly lower percentage (95% confidence level)

Bet

ter

Mer

chan

dis

ing

Food Lion’s “Garden Cooler”

Bet

ter

Mar

keti

ng

Winn-Dixie Produce Hunt


How Conventional Retailers Play in This Space

Source: Kantar Retail analysis; store visits 27

Execution in this category

Designated refrigeration unit for nat/org frozen foods.

Bulk Items: Typically natural/organic snack items (serve yourself).

Curved shelves and signage to call out organic/natural products.

SWAS


Space Evolving to Drive More Experiences

Source: Kantar Retail research and analysis (Costco organic images courtesy of a client); Costco.com (Sept. 2013) 28

Costco’s Organic “Event” Roll-Out

Extends to online…

…And Coupons


THERE IS ALWAYS A PLACE FOR GREAT MERCHANDISING!

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Two Key Types of Online Grocery Shoppers

Source: Millward Brown Digital Online Intelligence Survey, Spring 2012 and Summer 2013 30

Dedicated Online Grocery Shopper

• Shops “true” online grocers (Amazon Fresh, Fresh Direct, and/or Peapod)

• Favors online for “core” grocery trips (stock-up, fill-in)

• Overall, grocery shops more often

• Shops online b/c it’s convenient

Casual Online Grocery Shopper

• Shops Amazon (and often only Amazon)

• Favors online for “long tail” purchases and browsing

• Spends less on online orders

• Shops online to save money


© MWG 2014. CONFIDENTIAL

For Brick and Mortar Retailers, Online Grocery Baskets are Big and the Ring is High

The Average Online Basket Value is

$147.25

55 Items on Average

Source: MWG ecommerce sales Jan to August 2014


OUR EXPECTATION IS THAT RETAIL WILL BE A COMPONENT OF WHEREVER “GATHERING”

TAKES PLACE

• Entertainment

• Education

• Healthcare

• Travel

• Worship

• Work

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REINVENT FORMAT: 3 KEY POINTS

• More Specific– Stores need to reflect specific shopper insights and specific trips –

more formats will meet more specific needs

• More Personal– Great in-store service (fueled by technology) will be a critical

differentiator

• More Fun– Shoppers willing to consider other factors than price, in particular

things that make shopping more stress-free!

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‒ Shoppers demand a seamless omni-channel experience, and most retailers and suppliers are underprepared to deliver truly multichannel commerce.

‒ There is enormous pressure at the intersection of retailer and supplier commerce models that is based on item at a price margins.

‒ Suppliers must fight to maintain mindshare in this more holistic profit equation.

‒ Only those retailers and suppliers who REtool their commerce models will thrive

Pillar IV: REtool Commerce


Penetration of Amazon Prime Membership(among all U.S, primary household shoppers)

Prime Penetration Now Nearly One in Four HouseholdsMore than 26 million households

21.5M

15.6M

11.2M

Estimated number of

households26.2M

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Source: Kantar Retail ShopperScape®, December 2011–2014, Kantar Retail estimates


‒ If the plan is to gain store distribution need clear visibility on how this product will change the economics of the shelf

‒ Primarily brick and mortar retailers desperately need help with two things

• Avoiding the speed to price compression of frequently comped items

• Building better definitions of omni-channel profitability

‒ GMROI seems like a good place to start! But physical assortments will need “return on capital” style measures in order for complex asset bases to survive

TODAY, ASSESSING “SHELF LEVEL” INNOVATION REQUIRES UNDERSTANDING THAT INNOVATION’S ECONOMIC ROLE AT RETAIL

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RETOOL COMMERCE: 3 KEY POINTS

• More Specific– I have to make the most of every square foot and linear inch –

unleash the power of category management and the partnership of suppliers to get there!

• More Personal– Shoppers will configure their own relationship to pricing –

remember for Amazon price is an outcome, not a strategy…

• More Fun– What else do shoppers buy that makes them happy?

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‒ Disruption abounds. Adapting to and capitalizing on these disruptions is a formidable challenge for both manufacturers and retailers.

‒ Previous competitive advantage was achieved by investing billions in factories, distribution centers, and stores to achieve scale and efficiencies.

‒ As digital disintermediates retail, you must reconfigure your retail strategies to adapt to 21st century retailing.

‒ Only those retailers and suppliers who REengage shoppers, REimagine value, REinvent formats, and REtool commerce will thrive.


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