What’s In Store: Canada

What’s In Store: 2012 - Canada
Carman Allison Director of Consumer Insights January 2012 The world is changing……. As a result of these unprecedented economic times, much of the consumer landscape today is rapidly changing, forcing companies of all kinds to reconsider even their most abiding assumptions about how they do business. While some forces are tied to economic conditions most have been in place for some time and like a perfect storm these forces are coming together to create a unique set of challenges and opportunities And as you’ll hear throughout this presentation, Nielsen is uniquely positioned to help guide you through the process of understand what consumers watch and what they buy.

Understanding African American Consumer Power – February 21st
Digital Shopping: Topline on Online – February 28th Hispanic Insights – TBD Upcoming Webinars

Today’s presenter Carman Allison Director of Consumer Insights, Canada
Carman Allison serves as Director of Consumer Insights for Nielsen in Canada. Carman is responsible for creating thought leadership reports and delivering client and industry presentations. Carman shares his insights on consumer shopping, buying and media consumption behaviours and attitudes to provide CPG manufacturers and retailers with strategic visions to facilitate brand, category and retail sales growth. Carman is often quoted in the Canadian press on consumer trends including a monthly column in Canadian Grocer. Carman has more than 20 years of experience in the consumer research industry with The Nielsen Company, where he held various account management and analysis roles. First off….Happy New Year Everyone! It didn’t seem that long ago that I was counting down the clock to welcome in the new year Like the year, much of the consumer landscape today is rapidly changing, forcing companies to think differently about the future. But with this economic uncertainty comes an unique set of challenges and opportunities. But you’re not alone – Nielsen is uniquely positioned to help guide you through the process – understanding what consumers watch and what consumers buy

2011… A Year of Extremes! Out with the old and in with…
the new or more of the same? Ah…2011 It was definitely a year of extremes. From the tragedy of Japan’s devastating earthquake and tsunami, to the pageantry of a British Royal Wedding How can we forget the wave of revolutionary change in Egypt, Tunisia and Libya and the assassination of Bin Laden In Canada…when it came to our federal election, it was a sea of blue and orange with blue tipping the scales to a Conservative win with 40% of the vote And how can we forget the Walmart consumer who tried to pay with a $1 million dollar bill – did he not know there was no such bill and really, the cashier would be in a position to give change? But one thing was for sure…

The voice of the consumer is getting louder
The voice of the consumer is getting loader. Even Time Magazine announced the person of the year was the protester. Now matter how big or how small, people around the world are connecting, like never before. So how are consumers feeling?

Consumer Confidence: Still a Global Concern
At Nielsen we measure consumer confidence on a quarterly basis across 56 countries – getting a true pulse on the global consumer. What we se moving into 2012 is that Consumer Confidence is a still a concern.

Global consumer confidence is still struggling to recover to pre-recession levels
Currently consumer confidence is sitting at 88 – think of 100 as being neutral. If I was to stop you on the street and ask you ‘how are you doing?’ You may say ‘fine thanks’ - well that’s a neutral response. Today’s global consumer is still struggling to return to the levels before the recession took a foothold in 2009 Consumer Confidence Index Source: Nielsen Global Online Consumer Confidence Survey September 2011 7

Asia and Latin America Lead Global Confidence
AP 97 LA 97 MEA 86 88 NA 79 EU 74 Results vary by region. What we see is the a Asia Pacific and Latin American lead global confidence as emerging markets continue to recover at a faster rate. Middle East and Africa mirror global confidence levels whereas Europe and North America report the lowest levels. We’re all aware of the issues in Europe relating to the European debt crisis with Greece, Spain and Italy. Source: Nielsen Global Confidence Survey 3Q2011

Economic power is shifting
1.7% West Europe 2.4% North America 3.8% East Europe 6.5% Asia Pacific 3.5% MEA 4.3% LATAM This level of optimism is also reflective in the forecasted GDP growth over the next 5 years - with emerging markets expected to perform 50% higher than developed markets. So what we are witnessing is the shift in global economic power. So with so many North American companies searching for growth, its no wonder they are shifting their focus to the east and to the south. Hopefully the video you just saw, makes you stop and think of a changing world A world where economic power and influence is moving. Last month the IMF released their Sept 2011, World Economic Outlook Report. When classifying the 56 countries in the Nielsen global study into developed noted here in orange and emerging noted here in yellow, you can see the Average annual GDP growth rates in emerging markets from 2011 to 2016 is 50% higher than developed markets The point is…this time it is different Emerging markets account for over half of world output measured by purchasing power During the rise of both the Asian Tigers and Eastern European countries, the U.S. and Western Europe were the centers of gravity for the global economy. Most business models were fairly consistent. But the center of economic gravity is moving east and new business models are needed. For example, consumption in the industrialized nations – principally the U.S. – was the major driver of the world economy. But the current economic crisis, and growth of BRIC nations – is challenging the U.S. role as the consumer of last resort. China, in particular, will contribute almost 30% of global consumption growth. China's auto market overtook the United States as the world's largest earlier this year. Morgan Stanley estimates that, using conservative projections, China's total consumer spending will surpass that of the United States by 2018 Average annual GDP growth rates in emerging markets from 2011 to 2016 is 50% higher than developed markets Source: IMF Sept 2011, World Economic Outlook Report

Canadians more optimistic than Americans
Canada 97 88 NA 79 U.S. 77 When we look at the NA results, it really is a tale of 2 economies. The US continues to struggle reporting the lowest consumer confidence since Nielsen starting tracking 5 years ago – lower than 2009 when the recession peaked. The US is plagued with continued high levels of unemployment – hovering around 9% - real estate values continue to be deflated with almost ¼ of current mortgage holders owing more than their house is worth. And if you have any investments, you know the impact of the stock market volatility. At this point consumer fatigue is setting in where they just can’t see the light at the end of the tunnel. Bringing it closer to home, Canadians have been more optimistic overall but we too are struggling to return the optimism before the recession. So how are Canadians feeling? We are ‘fine’ with a score of 97 but the concern is we have lost some of the momentum we reported earlier in the year. Source: Nielsen Global Confidence Survey 3Q2011

Top concerns for North American consumers
CANADA U.S. ECONOMY ECONOMY DEBT JOB SECURITY HEALTH DEBT JOB SECURITY FOOD PRICES So what are Canadians concerned about? Here are our top 5. Economy rises back to the top after dropping to #3 6 months ago -- followed by debt, health, job security and rising food prices. As for Americans…. they share similar concerns as Canadians. So we know Canada is not a island to our self and more than ever we are impacted by global trends – especially from the US since they are the world’s largest economy and our largest exporter. So we really need to see Americans return to work before we will truly benefit. So lets explore Canada’s performance a bit more FOOD PRICES FUEL PRICES Source: Nielsen Global Confidence Survey, 3Q2011

54% Employment is up – yet so is pessimism about jobs Positive
Job Prospects? 54% Positive First off – jobs. Good news is that we have had job creation in Canada with unemployment levels dropping a full point over the past 2 years – but despite the gain in jobs the level of optimism has changed in the second half of last year. Even though 54% see our job prospects as 54% -- that’s a 4 point drop from earlier in the year. -4 points from 2Q2011 Source: Statistics Canada Nielsen Global Confidence Survey 3Q2011- Canada

State of personal finances continue to plague Canadians
Debt plagues all levels of government Canadian consumer debt at an all time high ($100k+ / household) Loans vulnerable to rising interests rates 40% Negative How does Personal Finances rate? Well, another area of concern. When asked, 40% of Canadians see they finances as being negative – a 4 point increase since Q2 of 2011. But the consumer is not alone, debt and balancing of the books continues to plague all levels of governments – meaning, higher taxes, user fees or fewer services – hitting the consumer wallet. As a resident of Toronto, I’m getting reading for a +2.5% increase in property taxes and my water bill had a nice notice announcing a +9% increase. Debt is one the major issues threatening Canadians – household debt is at an all time hight with an average of $100k – Canadians owe $1.54 for every dollar they earn. We have it good now because of low interest rates at record lows but what comes down…eventually will go back up. Once interests rates start to rise, consumers will have to dig deeper into their pockets to stay afloat. +4 points from 2Q2011 Source: Nielsen Global Confidence Survey 3Q Canada

Despite the increase in earnings, the cost of goods are increasing at a faster rate
Average Hourly Earnings vs. Consumer Price Index Inflation…or Consumer Price Index is also a recent threat. Despite the fact we have more Canadians working and earning levels are still positive, the rate of inflation is increasing at a faster rate – I may be earning more…but I’m spending more which means consumer purchasing power is depleted – we are all doing more with less – stretching the dollar further. Source: Statistics Canada Source: Statistics Canada * % Change vs 2002

Consumer spending remains flat
Good time to buy? Spare cash… 37% paying off debt 30% put in savings 23% have no spare cash 65% No! So is it a good time to buy? Two thirds of us say ‘no’ – a dramatic change since July 2011. At the moment Canadians are focused on their balance sheets – using spare cash to pay off debt or put into savings. But what is most alarming…almost one quarter of us do not have any spare cash – living pay check to pay check. So for these consumers…rising prices means they will have to make drastic changes in order to make ends meet…either trading down or trading out. What’s the impact? It’s about making trade-offs as 2/3rds of us are trying to reduce our household expenses – so it’s still about bang for the buck. The impact… 64% are trying to reduce household expenses +9 points from 2Q2011 Source: Nielsen Global Confidence Survey 3Q Canada

Slow growth in CPG retail sales, driven by modest inflationary gains
So how did consumer packaged good perform in 2011. Well, for many of you it’s no surprise that 2011 was a tough year for growth – we typically see 4-5% increase in dollars fuelled primarily by rising prices and increased consumption. But for 2011, dollars only increased +2% and units were flat – similar to the unit performance in 2009 when the recession hit. As prices rose, consumption declined. CPG Inflation Source: Nielsen MarketTrack, Canada National All Channels – 52 weeks to December 17, 2011 Total Tracked Sales excluding Fresh Random Weight

Unit consumption flat heading into 2012
When we divide the last year into quarters, it’s clear to see the impact – as dollars are starting to rise due to higher prices, now at +3% -- units have been flat for the past 3 quarters. So consumers may be spending more but they have put the brakes on consumption – if you consider that Canada’s population increases about +1% per year…we’re actually putting less items in the shopping basket. Source: Nielsen MarketTrack, Canada National All Channels – 12 weeks to December 17, 2011 Total Tracked Sales excluding Fresh Random Weight

WHAT’S Economic Outlook NEXT? So What’s Next? 18

As we turn the corner… 2012 will be unpredictable
But one thing is for sure, the consumer will remain cautious

Canada’s future GDP rate of growth is forecasted to slow – similar to U.S.
United States GDP % Growth This cautious consumer will fuel growth projections. It is estimated that Canada will finish the year reporting a +2.3% increase in GDP – behind initial estimate earlier in the year. For 2012, economists are forecasting a lower rate of growth of 1.8 – the 2 year forecast for Canada is similar to the US – where as the past few years, Canada has outperformed the US. Source: US: IMF World Economic Outlook, September 2011 Update; TCG Analysis Canada: Scotiabank Group – Global Forecast Update: January 2012

Poll #1 Do you think the recession is over in Canada Yes No Not Sure

Is the recession over in Canada?
Economist Consumer Yes ? So if we asked the same question to an economist, they will say ‘yes’ – we’ve officially been out of the recession since mid 2009.

Almost half of Canadians think we are still in a recession
% who think we are still in a recession 92% 62% 44% Ask a consumer and it’s a different perspective. Despite the official rule of defining a recession, consumer perception is our reality. For Canada almost half of us think we are still in the recession – compare that to the US where 9 out of 10 consumers think we are still knee deep in the recession – it’s no wonder we see such drastic variances in consumer confidence between our 2 countries. Global Canada U.S.

Succeeding in 2012 is about PRECISION

KEYS IN 2012 GROWTH TO REACH: An increasingly polarized consumer
Since growth will be more challenging in 2012, it’s more important than ever to capitalize on those opportunities that will benefit you now and into the future. Nielsen would like to share with you our 5 keys to growth in 2012. 1. Reach an increasingly polarized consumer REACH: An increasingly polarized consumer LEVERAGE: Redefinition of value ALIGN: Innovation for long term growth ENGAGE: The connected consumer in ways they trust TARGET: Economically powerful consumer segments 25

Higher income homes, now account for almost half of CPG sales
$70K+ Household Importance $$$$ and they spend 20% more than average What we see in Canada is a polarization as it relates to household incomes. Households who make more than $70k per year are gaining in importance. Over the past 5 they increased additional 9.2% to now account for almost 42% of households. But they are also gaining in retail spend, accounting for almost half of CPG sales in Canada. In addition to gaining in importance, they spend 20% more than average. So when you do reach them, it will be more rewarding. Source: Nielsen Homescan – Canada – 52 wks to October 1, 2011

A greater portion of households with lower incomes are worse off financially than a year ago
Compared to a year ago are Canadians financially… Worse Off As we know not households are equal What we are starting to see is the polarization of Canadian households similar to the US – where the rich are getting richer and the poor are getting poorer. We asked Canadians about the state of the personal finances - 31% told us they are worse off versus year ago. When you scan across the income ranges, you start to see a pattern – lower income households are being squeezed the most. For those making more than $100k per year, 29% are better-off financially. So if you are going to get consumers to spend more, higher income are in a better position. About Same Better Off Source: Nielsen PanelViews Survey – Canada - May 2011

Consumers are becoming more polarized
$ $$$ Driving consumer behaviour and choice Value focused Value vs. Premium Brand Expanded Premium Private Label Discount vs. Conventional Retail Formats This polarization of Canadians are defining consumer behaviour and choice. First off, consumers are more focused on value – and for some, it is out of necessity. Naturally value brands and retailers will benefit but so too will the top tier. Over the past year we have seen even private label launch more premium segments – for example, Loblaws Black Label. Even value retailers see opportunities with Premium – Walmart Canada announced it will launch a line of premium private label products. The polarization is also defining retail segments such as Discount versus Conventional.

Discount Share Projections:
Discount retailers continue to gain consumers share of wallet – and expected to grow Discount Share Projections: Conventional 61.9% (-1) 2012: 39.2% 2013: 41.4% Discount 38.1% (+5) Discount retailers, such as mass merchandisers and hard discount grocers continue to gain consumer share of wallet. Discounters now account for 38% of Grocery sales increasing +5% in retail dollars. And it’s expected to grow as more retailers continue to expand this format. We are projecting continued share growth in 2012 and excellerating in 2013 as Target begins to open their first stores. Source: Homescan Grocery Watch, Canada National All Channels 52 Weeks to October 1, 2011 – Grocery Composite

You can no longer afford to be ‘middle of the road’
Conventional Retailers can no longer be …conventional They need to differentiate themselves more than ever – to get beyond price Source: Nielsen MarketTrack, Grcoery+Drug+Mass – 52 wks to September 24, 2011 Total Tracked Sales excluding Fresh Random Weight

Premium retailers are alive and well in Canada…and expanding
3 examples: There seems to be a return to the urban grocery store – connecting to Canada’s real estate boom - especially condo dwellers The recent opening of Loblaws in Maple Leaf Gardens – hoping that if the Leafs can’t win there, maybe they will. If you haven’t been, it’s worth the visit – appealing to multiple senses. For some reason, when I’m there, I feel motivated to cook and explore – spending more than I had initially had planned. Longos, concentrated in the Greater Toronto area, continues to expand. They now have 24 stores, an increase of 10 since 2008. Whole Foods, a US import are also expanding – currently 7 stores with 3 in development in Toronto, Markham and Ottawa.

High income households are more likely to shop the store and take advantage of services such as:
% of $70k+ Shoppers Who Shopped Pt Chg vs All Shoppers Bakery 78% +5 Butcher 44% +3 Ready to Eat Meals 39% +1 Liquor/Wine Stores 27% +4 Garden Centre 24% +5 Florist 23% +5 We know that higher income households spend 20% more than average, - part of the reason is that they are more likely to shop specialty areas of the store more than average -- such as Bakery, Butcher and RTE meals Source: Nielsen PanelViews – Shopper Opinions Survey – May 2011 – Canada

How do I get high income households to spend more?
Offer larger sizes Carry quality products Offer free in store samples Build an in-store relationship Think meal solutions Offer value not the lowest price Offer larger size - they see value in larger sizes (larger households) Carry quality products - less likely to ‘trade-down’ to lower priced brands - they shop specialty stores as part of their routine - consider themselves connoisseurs of food Offer free in store samples - less like to have a grocery list (impulsive) Build a relationship - most likely to browse the store make most of their decisions in store Think Meal Solutions - they want stores and manufactures to provide meal solutions and ideas - most likely to pack lunches and shop for dinner on the way home from work Offer Value not the Lowest Price - will stock-up when their favorite brand is on sale - motivated by on-shelf coupons - least likely to be concerned about the grocery bill

KEYS IN 2012 GROWTH TO LEVERAGE: Redefinition of value
REACH: An increasingly polarized consumer LEVERAGE: Redefinition of value ALIGN: Innovation for long term growth ENGAGE: The connected consumer in ways they trust TARGET: Economically powerful consumer segments 34

Redefinition of Value:
Balance how you connect with consumers on Value & Emotion So what we are advocating is a need for balance in terms of how you connect with consumers on value and emotion. While focus on value is important, we think the volume knob needs to be turned down or focused in a way to bring the most bang for your investment in terms of ad spending, promotional support and innovation around the emotional connection between stores, brands and consumers.

Value is not about price, it’s about the balance between price & benefits
Value Consumer = Price Value Consumer = Benefits/Price Mid-Tier Toothpaste Super Premium Toothpaste Avg Price +80% higher Dollar Sales 13% Unit Sales 11% Dollar Sales -8% Unit Sales -6% Source: Nielsen MarketTrack, Canada National GB+DR+MM, 52 weeks ending November 22, 2011

Value Consumer = Price Value Consumer = Benefits/Price Mainstream Coffee Premium Coffee Pod Coffee Dollar Sales +13% Unit Sales % Avg Price % higher Dollar Sales +4% Unit Sales 0% Avg Price % higher Dollar Sales +140% Unit Sales +99% Source: Nielsen MarketTrack, Caanda National GB+DR+MM, 52 weeks ending November 22, 2011

Value Consumer = Price Value Consumer = Benefits/Price Non Greek Yogurt Total Greek Yogurt Dollar Sales -1% Unit Sales 0% Avg Price +71% higher Dollar Sales 827% Unit Sales 1,336% Source: Nielsen MarketTrack, National GB+DR+MM, 52 weeks ending November 22, 2011

Product Variety and Solution Motivators
Source: Nielsen, Global Online Survey, Q Canada

Poll #2 What do you do when the product you want is not in stock?
Purchase another size or flavour Purchase another brand Postpone purchase Leave the store and buy it elsewhere

The risk of ‘out of stocks’
34% - Postpone purchase 26% - Leave the store and buy it elsewhere 23% - Purchase another brand 12% - Purchase another size or flavour 60% of the time you lose the sale! Source: Nielsen PanelViews – Shopper Opinions Survey – May 2011 – Canada

KEYS IN 2012 GROWTH TO ALIGN: Innovation for long term growth

New items are a key driver of sales
Billions $ $62.1 $62.6 +1 +6 New Items 5.6% ($3.5) 5.9% ($3.7) # of New Items k k 94.4% ($58.6) 94.1% ($58.9) Existing Items 2009 2010 Source: Nielsen MarketTrack, National All Channels – 52 wks calendar year

The reality is, the majority of new items fail
After a year… 30% Are No Longer Available After 1 year almost 80% of new items are gone or vulnerable to delist 2nd year… 70% Are Still Active in 47% < $50k 23% > $50k Nielsen MarketTrack tracked sales: Period ending November 25, 2006

Innovation needs to be about
Quality Quantity NOT

‘Quality, not Quantity‘ is also less at risk to the ‘One In - One Out’ challenge
Previous notion (“More is Better”) “More Stuff” = “More Shelf Visibility” The Retail reality today Years of sku proliferation Private Label increasing share of shelf Less shelf space available for new listings “More Stuff” = “More De-listings” of the manufacturer’s own sku’s

More Stuff just spreads volume across more sku’s – putting them at risk
Fewer Bigger More Stuff Volume Per sku Delisting Risk Outstanding Ready Risky Failure

KEYS TO GROWTH IN 2012 REACH: An increasingly polarized consumer LEVERAGE: Redefinition of value ALIGN: Innovation for long term growth ENGAGE: The connected consumer in ways they trust TARGET: Economically powerful consumer segments 48

How we connect with consumers is evolving

New and traditional ways
DEVELOPED 3.5 Hours 22% of Canadians own TV’s with internet connection + DEVELOPED 74% Internet penetration Source: Nielsen Global Survey Q3 2011

Social Media has powerful reach
60% Of Canadians visit social media sites 26% Spend 6+ hours weekly Source: June 2011 Nielsen PanelViews Media Survey - Individual responses Time spent – 2010 survey

Focused on information sharing and getting value
For our industry…What are consumers currently doing on social media? Focused on information sharing and getting value Source: 2011 Nielsen PanelViews Media Survey - Individual responses 52

Consumers are willing to get more involved
For our industry…What are consumers willing to do on social media? Consumers are willing to get more involved Source: 2011 Nielsen PanelViews Media Survey - Individual responses 53

KEYS IN 2012 GROWTH TO ALIGN: Innovation for long term growth

One consumer group has the…
+ clout control

By 2030, 65+ will account for 25% of Canada’s population
% of the population 25% 18% 14% 2010 2020 2030 Source: Statistics Canada

By 2021, close to 70% of Canada’s wealth will belong to those over the age of 55
Estimated based on median net worth from Statistics Canada

Boomers now capture 46% of CPG sales …and growing
Trips/HH $ Per Trip $48 $48 $43 $38 $30 Source: Nielsen Homescan – All Channels weeks to July 2, 2011

It’s an age AND it’s an attitude
You need to adjust to accommodate different shopping and product preferences It’s an age AND it’s an attitude This Not this

Know the difference between age groups and generations
Seniors Today Seniors Tomorrow More traditional Less technological savvy Conservative values Conservative tastes Requirements, conditions & ailments related to age Less traditional More technological savvy Less conservative values Willing to experiment Requirements, conditions & ailments related to age Different People Same needs Consumer Patient

“Traditional” health care model Emerging health care model
Changing the health care model “Traditional” health care model Emerging health care model PATIENT Passive or reactive Cedes authority to doctor and health care system May complain but accepts treatments, outcomes Rarely seeks alternatives CONSUMER Proactive Respects doctor but sees self as director of own health Unwilling to accept bad outcomes Actively seeks alternatives Presentation to Nielsen Canada David Cravit, VP, ZoomerMedia Ltd.

Implications for the aging consumer
Don’t bank on consumer loyalty for growth. Today’s seniors may be loyal but tomorrow’s less so. Key categories and segments are posed for growth: Health and wellness, portion control, smaller sizes etc. Don’t underestimate the use of new technology in reaching seniors Appeal to their needs and lifestyle, not life-stage

The power has shifted Brands Retailers Consumer

Succeeding in 2012 is about PRECISION
So even though the outlook for 2012 looks like another challenging year, with the right amount precision, I hope we have given you some opportunities for growth So remember to… REACH: An increasingly polarized consumer LEVERAGE: Redefinition of value ALIGN: Innovation for long term growth ENGAGE: The connected consumer in ways they trust TARGET: Economically powerful consumer segments

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