1. Presented by: John Rand, Senior Vice President Mike Paglia, Director of Retail Insights Alida Destrempe, Senior Analyst July 16, 2014 US Channel: Grocery Retailing Webinar Change - Inside, Outside, and All Around

2. © Copyright 2014 Kantar Retail AGENDA The Who’s Who of Grocery The Changing Perimeter 2 ?

3. © Copyright 2014 Kantar Retail Leaders Dominant But Scale Not a Growth Driver Source: Kantar Retail analysis; company reports 3 Top 20 supermarket retailers account for 92.8% of sales added from 2014E-2019E Ranks: % Sales Added (US Supermarket Sales – Supermarket Formats Only) Kantar tracks 72% of the US supermarket channel Data as of 5/28/2014

4. © Copyright 2014 Kantar Retail Multiple Layers of Polarization >8% of total supermarket sales growth will come from natural / organic formats 65% of the growth in the channel will come from value oriented operators – ~20% will come from retailers who position themselves as premium 8 of the top 15 supermarket retailers run multiple formats 4 ‘19E % to Channel ‘14E-’19E CAGR Natural/Organic5.0%8.1% Value47.2%6.0% Premium (ex. Nat/org) 20.8%2.9% Mainstream26.1%1.5% Total Channel*N/A4.1% Source: Kantar Retail analysis *Channel includes supermarket sales only (supermarket format only) and also includes Walmart (supermarket formats only) as well as Meijer (edible grocery sales only) Updated 7/14/14

5. © Copyright 2014 Kantar Retail What Drives Growth? Premium positioning or Value positioning –What usually doesn’t work? “Mushy middle” traditional supermarket Natural / Organic – the “pure plays” report 8.1% CAGR but natural offers within the regular grocery store often top 10% Reliable Pricing – both hybrid EDLP and pure EDLP significantly out perform high-low promotional strategies Localization – both store variation and product variation to create more effective offers that target shopper needs Experiential – good stores increasingly leverage the physical, visual and tactile environment – if only because online is a top-of- mind threat Source: Kantar Retail analysis 5

6. © Copyright 2014 Kantar Retail For Consideration, Some Examples: Retailers Succeed in Different Ways Source: Kantar Retail analysis 6 Price / Value Walmart N.Mkt. HEB Kroger Wakefern Winco Grocery Outlet Price / Value Walmart N.Mkt. HEB Kroger Wakefern Winco Grocery Outlet Service / Premium Publix Wegmans Harris Teeter Mariano’s Lund’s/Byerly Service / Premium Publix Wegmans Harris Teeter Mariano’s Lund’s/Byerly Product / Offer Whole Foods Sprouts Meijer Fresh Market Chedraui Product / Offer Whole Foods Sprouts Meijer Fresh Market Chedraui Local/Proximity Ahold Hy-Vee Giant Eagle Roundy’s Local/Proximity Ahold Hy-Vee Giant Eagle Roundy’s Undifferentiated Delhaize BiLo Undifferentiated Delhaize BiLo Where Does Your Customer Fit?

7. © Copyright 2014 Kantar Retail 7 Sources: Kantar Retail analysis HILO Convenient Experiential (Limited) An Emerging Framework for the Future Store Where does your customer go? HI

8. © Copyright 2014 Kantar Retail The Experience: Understanding the “Lo” and “High” Axis Differences in Experience, Yet All Effective Source: Kantar Retail analysis; store visits 8 The Experience: “Oh this is different” “You feel you are getting| a good deal”

9. © Copyright 2014 Kantar Retail Chances for Success are Slim in the Middle Either focused on price or premium (or something different) Source: Kantar Retail analysis; store visits 9 Getting squeezed

10. © Copyright 2014 Kantar Retail Grocery Outlook Advanced, stable, pre-transitional Source: Kantar Retail analysis 10 Advanced Stable Pre- Transitional Retailers that are not at immediate risk, but there are gaps in both execution and strategy. Competent retailers that are relevant, but have a less clear shopper base. Steady outlook for growth. Example: Ahold, Giant Eagle Retailers that are troubled and are expected to have difficulty sustaining growth without significant change. (minimal to low growth) Execute inconsistent strategies and lack shopper understanding. Example: Safeway, Delhaize US Expected to experience financial growth within the industry. Retailers that have a clear brand message and strong understanding of its shoppers. Thought leaders and strong execution of strategies. Example: Kroger, H-E-B

11. © Copyright 2014 Kantar Retail Money $ and Time  Critical calculations the RETAILER makes about SUPPLIERS are similar Source: Kantar Retail analysis 11 $ *  F   Cost to Serve  Turns and Terms  Disruption at shelf  RISK  Execution  Predictability  Reliability as trade partner  Responsive  Fast  Effort  RISK  Creative  Aligned  Contextual  Strategic  Transparency Are you functional to your customer? What is the Time and Money equation for you compared to others? Are you able to move past “F” to “ E ”

12. © Copyright 2014 Kantar Retail Money $ and Time  From the Other side: the Critical calculations the SUPPLIER makes about RETAILERS Source: Kantar Retail analysis 12 $ *  F   Cost : Absolute  Cost: Relative  Turns and Terms  Disruption at shelf  RISK  Service level  Quality of product  Consistency as a trade partner  Responsive  Fast  Effort  RISK  Aligned  Strategic  Collaborative  Transparency

13. © Copyright 2014 Kantar Retail A format that is easy to navigate and access that makes shoppers feel smart by shopping Focus on shopper satisfaction Aligning Beyond the Desk to a Mutual Shopper The Supplier- Retailer Action Matrix Source: Kantar Retail analysis 13 CapabilityRetailer ActionSupplier Action Retailer’s strategic focus on in-store experience that delights shoppers Focus on the presentation in the store A store environment that enables immediate fulfillment and saves time Focus on shoppers’ efficiency of decision Retailers who create convenience via a relevant assortment for a well- understood shopper Focus on assortment and trend $ *  F  $ *  F  $ *  F  $ *  F 

14. © Copyright 2014 Kantar Retail The Changing Perimeter 14 Source: Kantar Retail analysis

15. © Copyright 2014 Kantar Retail Center Store Perimeter Increasingly Popular Destination Source: Kantar Retail ShopperScape ®, February 2012 and 2014 15 How Shoppers Typically Shop Supermarket: Perimeter vs. Center Store (past four-week supermarket shoppers) How Shoppers Typically Shop Supermarket: Perimeter vs. Center Store (past four-week supermarket shoppers) Exclusively/primarily shop center store 2012 15% 2014 15% Note: Arrows indicate significant year-to-year difference (95% confidence level) Shop perimeter and center store equally 2012 46% 2014 43% Exclusively/ primarily shop perimeter 2012 33% 2014 36%

16. © Copyright 2014 Kantar Retail Let’s Walk Through… Source: Kantar Retail analysis; store visits 16 ProducePreparedPeoplePrice

17. © Copyright 2014 Kantar Retail Highlights of Produce Strongly executed and well merchandised Source: Kantar Retail analysis; store visits 17 Produce

18. © Copyright 2014 Kantar Retail Innovative Produce Execution Source: Kantar Retail analysis, RockTenn store visits 18 The produce department is now a walk-in "garden cooler," designed to keep food fresher for longer. Produce

19. © Copyright 2014 Kantar Retail It’s The Trip Driver Being competitive here is a must Source: Kantar Retail analysis; store visits 19 Large selection of nat/org produce items leaders Produce

20. © Copyright 2014 Kantar Retail Hannaford Discounts Produce Source: Kantar Retail analysis, Hannaford.com 20 Launched March, 2014 A cross-department promotion with produce not only builds awareness, but ties back to an overall H&W theme. Through the month of March, Hannaford was offering USD10 off produce if shoppers signed up for its Healthy Saver Plus program. Produce

21. © Copyright 2014 Kantar Retail Fresh & Local Work Together Source: Kantar Retail ShopperScape ®, February and April 21 Read as: Among shoppers who say that a regional grocer is their primary grocery store, 21% said they had purchased a local food product at that store. Note: Arrows indicate significant difference between regional grocers and national grocers (90% confidence level) Produce

22. © Copyright 2014 Kantar Retail Bringing Fresh into Dry Grocery (or vice versa) Source: Kantar Retail analysis; store visits 22 Produce

23. © Copyright 2014 Kantar Retail Speaking of Solutions… Meal solutions & services from the perimeter department Source: Kantar Retail analysis; store visits 23 Leveraging catering department Also highlighting online and in-store pick up Prepared

24. © Copyright 2014 Kantar Retail Ramp Up in Deli & Catering Orders A convenient offering Source: Kantar Retail analysis; store visits 24 to-go eat in Prepared

25. © Copyright 2014 Kantar Retail In-Store Restaurants Becoming the Next “Thing” Source: Kantar Retail analysis, wegmanspub.com, hyveemarketgrill.com, company materials 25 Enhancements include: Linen napkins Curtains (to separate restaurant from store) Low tables for families New menu items Servers can now accept tips A social event & opportunity People

26. © Copyright 2014 Kantar Retail More Social with Service Borrowing tactics from the warehouse club playbook Source: Kantar Retail analysis; store visits 26 Demos throughout the store ranging from simple to elaborate (almost theatrical). Brings promotion campaign to life. People

27. © Copyright 2014 Kantar Retail Stores as More Than Distribution Point for Goods Source: Kantar Retail analysis; store visits 27 In store events serve multiple functions: 1.Create a new kind of trip driver 2.Change the fundamental role of store for the shopper 3.Community gathering space Targeted Scaled Cooking Connection & H-E-B Showtime Cooking Connection & H-E-B Showtime People

28. © Copyright 2014 Kantar Retail Where Does Price Come into Play Think Wegmans! A Balancing Act Source: Kantar Retail analysis; store visits 28 Price

29. © Copyright 2014 Kantar Retail What Are Other Retailer’s Doing? Perimeter reflects center store Source: Kantar Retail analysis; store visits 29 Price 24.1% (CAGR 3.8%) 10.0% (CAGR 1.5%) 65.0% (CAGR 6.0%) Projected dollar growth 2014E-2019:

30. © Copyright 2014 Kantar Retail So Remember, The Next Time You Walk The Perimeter.. Stop! And Look! Source: Kantar Retail analysis; store visits 30

31. © Copyright 2014 Kantar Retail Implications Source: Kantar Retail analysis 31 Produce: Elements of the New Fresh –Time and effort into displays, how can that be applied to center store? –An increasingly aggressive position on product recalls, quality control, and ingredient issues has helped drive local sourcing for transparency –More cross merchandising will become popular where floor space allows as a way to overcome the margin and assortment challenges. We are seeing more targeted off-shelf merchandising– solution oriented groupings beyond the traditional temporary display. Prepared: Making the Solution Easy –Integrating digital as a component of the larger convenience theme will become more important going forward –Shoppers will increasingly demand time saving solutions that are also customizable to their specific needs –Suppliers need to become more fluent in the new language of convenience People: Highlighting the Human Element –Shoppers remember great service! –Smart suppliers will figure out how to invest in exceptional service and tie it back to their brands –As stores become community gathering spaces, their fundamental role in the shopper’s mind will change Price: The Bedrock –Price will always be foundational, but it must be aligned to the store’s larger value proposition –The common thread running through the perimeter and the center store –A clear pricing message (either value- or premium- oriented) must be crystal clear in an age where everyone claims some sort of price position

32. © Copyright 2014 Kantar Retail

33. Contact: John Rand Senior Vice President john.rand@kantarretail.com T:+1 617-912-2860 M:+1 508-667-3321 www.kantarretail.com Alida Destrempe Senior Analyst – US Grocery alida.destrempe@kantarretail.com T:+1 614-355-4030 www.kantarretail.com Mike Paglia Director, Retail Insights mike.paglia@kantarretail.com T:+1 617-912-2855 www.kantarretail.com