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State of the Industry August 5, 2014 – version 1 Todd Hale

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1 State of the Industry August 5, 2014 – version 1 Todd Hale
SVP, Consumer & Shopper Insights August 5, 2014

2 Table of contents Retail Landscape & Performance What’s Selling
Retail Hot Buttons Closing Thoughts 2 2

3 Retail Landscape & Performance
How are overall sales in our cpg-industry? So which consumer-packages-goods retail channels drive the largest sales and greatest growth? What retail channels will experience the greatest growth out to 2017?

4 Is flat the best we can expect?
All Departments Dollar Trend +2 +4 +3 +1 Unit Trend -0 +0 Average U Price Trend Any Promo U Trend -2 Is slow or flat sales growth the best we can expect? Over the past five plus years, the only dollar growth we experienced came in 2011 (+4%) and 2012 (+3%) when inflationary pressures had retailers accepting manufacturer price increases as well as passing on increases on their products too. In an economic recovery, shouldn’t we expect more growth or is flat the best we can expect? These sales are from our new expanded view of retail performance including Walmart POS data, along with measurement in the club, dollar and military channels, plus our convenience/gas channel. Year-to-year FCMG dollar sales growth slips as inflation subsides, but unit sales remain soft. Periods: 52 weeks ending 12/26/2009 52 weeks ending 12/25/2010 52 weeks ending 12/24/2011 52 weeks ending 12/22/2012 52 weeks ending 12/21/2013 52 weeks ending 06/07/2014 Shouldn’t an economic recovery be delivering more growth? Source: Nielsen Strategic Planner; Total U.S. All Outlets Combined (plus Convenience), All Departments, All Brands (UPC), % Change, 52 week periods vs. year ago

5 Good news & bad news Good News: Rising Consumer Confidence
Bad News: $5 billion reduction in SNAP benefits Bad News: Natural gas prices rising Good News: Home heating oil prices falling Good News: Social security recipients receive 1.5% cost of living increase Good News: Minimum wage increased in 13 states on 01/01/14 Bad News: 1.3 million lost extended unemployment benefits on 12/28/13 Good news & bad news:  Rising consumer confidence; $5 billion cuts in SNAP benefits (commencing November 1, 2013) will impact ability to spend and manufacturer/retailer performance in the next year; natural gas prices expected to rise 13%; home heating oil prices falling; social security recipients will receive a 1.5% cost of living increase in 2014; minimum wage increased in 13 state on 1/1/14; 1.3 million individuals lost their extended unemployment benefits on 12/28/13 with an average monthly loss in payments of $1,166; 17% of home owners have mortgages which are under water (they owe more on their mortgage than their house is worth); stagnant pay raises for the past three years and situation expected to improve slightly in 2014; maybe most telling behind slowing FCMG growth is the fact that population growth in 2013 is at a rate below 1% - closer to 0.7%; and now, as they do every Spring, gas prices on the rise again. Bad News: “17% of homeowners deeply underwater”* Bad News: “Pay to rise with whimper, not a bang”* Bad News: 2013 U.S. population growth rate slowest since 1937 Bad News: Rising gas prices Sources: Nielsen; U.S. Government; *USA TODAY

6 Value & convenience winning
All Departments – Dollar Sales & Trend Supermarkets Value* C-Stores Across the complete retail channel universe captured by Nielsen, value and convenience channels are winning shoppers and capturing the strongest retail channel growth. The retail universe we measure at Nielsen reached $776.9 billion in category sales with a growth rate of 1.2%. Most of that growth from convenience and value-focused (i.e., club, dollar and mass-merchandisers) retail channels. Total All Departments for 52-Weeks Ending June 07, 2014: $776.9 billion; up 1.2% vs. year ago – All outlets combined (AOC) plus C-stores $315.6 billion; up 0.8% vs. year ago – Supermarkets – 40.6% share of total AOC plus C-stores $281.0 billion; up 1.2% vs. year ago – Value* measured channels representing some key value retailers (mass merchandisers, representation from warehouse clubs and dollar stores; military), but non-reportable retail channels – 36.2% share of total AOC plus C-stores $129.3 billion; up 2.0% vs. year ago – Convenience Stores % share of total AOC plus C-stores $ billion; up 0.9% vs. year ago – Drug Stores - 6.6% share of total AOC plus C-stores *Contractual agreements from cooperating retailers in these other channels prohibit Nielsen from reporting individual channel views. Note: These sales represent UPC-coded products across the universe of departments and categories coded by Nielsen. They exclude Rx (pharmacy) sales as well as gasoline sales. Drug Stores Low Growth High Growth Total measured channels: $777 Billion & up 1.2% Source: Nielsen Scantrack, Total U.S., 52 weeks ending 06/07/2014 (vs. year ago), UPC-coded; *Club Stores, Dollar Stores, Mass-Merchandisers, Military

7 Value & convenience drive store expansion
U.S. Store Counts 69% + of growth from niche formats Value & convenience are winning in the marketplace as evidenced by increased store count. Since December 2005, most store expansion (in terms of percentage increase in store count) has come from channels outside of traditional Food, Drug & Mass-Merchandise formats. Warehouse Clubs, Supercenters, Dollar Stores and C-stores continue expansion of store count. And since the end of 2012, we saw store count expansion in all channels but Mass Merchandisers – fueled by Walmart conversions to supercenters and Kmart store closings. Supermarkets have grown by 1,855 stores since However, as we will see, there has been a fair amount of store closings along with tear downs and re-builds in the channel and more than 68.9%* of the store growth has come from low- and high-end niche retailers such as Aldi, Save-A-Lot, Trader Joe’s, Fresh Market, Whole Foods, and Sprouts. Calculation does not include new deep-discount grocers from HEB, Giant Eagle, Delhaize, Kroger or Spartan) % of the niche store growth from Aldi & Save-A-Lot; 47.6% from the natural, organic and specialty retailers mentioned above. Note: Except for the Convenience channel, these represent TDLinx definitions of retail channels and may differ slightly from those by Nielsen retail measurement and Homescan. For the Convenience channel we used the NACS definition. vs. 2005 Expansion from all formats but Mass Merchandisers in 2013 vs. previous year Source: Nielsen TDLinx Value & Convenience

8 Retail 2018 – what’s in store?
Let’s now review our forecast on retail channels sales trends through 2018. Data: For all brick & mortar channels, 2001 to 2013 Nielsen Trade Dimensions data were used. We excluded gasoline sales in these estimates and the Supercenter data reflects grocery-equivalent departments and categories, so we are understating the full impact of sales in that channel. U.S. retail E-commerce sales (U.S. Census) were adjusted to Trade Dimensions levels. That is, we used U.S. Census data for projecting E-commerce, and Trade Dimensions data for other channels. However the scale of U.S. Census and Trade Dimensions are different (absolute dollars for similar channels). Since we used Trade Dimensions for all other channels we adjusted E-commerce scale to match Trade Dimensions scale.

9 E-commerce the big winner
CAGR 2013 to 2018 Winning Share Average Growth Losing Share E-Commerce will be the big winner, but pet, discount department, dollar, sporting goods, club, and Convenience/Gas will also drive strong CAGRs (compounded annual growth rates – dollar basis) between 2013 and 2018 – between 11.7% and 4.3%, respectively and experience share gains. Other channels will generate growth, but slower than average for the industry (+3.9%) and therefor lose share. Specialty retailers will be particularly challenged. As a retailer – do you know where your future competition is coming from? As a manufacturer, are you working with future growth channels today? As a manufacturer, how are you engaged with retail channels where growth will be the greatest? Note: Forecast as of 02/14/2014 Source: Nielsen TDLinx & Nielsen Analytics

10 E-Commerce coming to CPG, but @ what speed
E-Commerce steadily growing sales Amazon $13.4 Walmart $7.5 Kroger $1.6 Amazon sales growth very impressive Global annual sales growth versus prior year (in billions) Talk about convenient consumer solutions on steroids, just look at the growth curve in e-commerce sales. While share of total sales is just around 6.2%, $71.2 billion in the 1st quarter of 2014 is a huge number and the growth trajectory is very promising. And growth has accelerated this quarter compared to year ago, In the 1st quarter of 2013, sales grew 3.4% versus the prior quarter and 15.1% versus the year ago period. In the 1st quarter of 2014, sales grew 2.8% versus the prior quarter and 15.0% versus year ago. Sales: Walmart global fiscal 2014 sales reach $473.1 billion + $7.5 billion or a 1.6% increase from the prior year; Kroger 2013 sales reached $98.4 billion + $1.6 billion or a 3.9% (adjusted for 53rd week) increase from the prior year; Amazon 2013 sales reached $74.4 billion (60% from North America) + $13.4 billion or a 22% increase from the prior year The Same-Day War: Amazon, Google And Walmart Race To Bring Your Groceries 10:48AM 24,238 views – This story appears in the May 5, 2014 issue of Forbes. Same-day home delivery of groceries is to retailers what Mount Everest is to climbers: The lure is obvious, the logistics fearsome, and tackling either without the right plan is suicide. Nevertheless, 13 years after the spectacular collapse of Webvan made it a lasting symbol of dot-com-era hubris, similar services are cropping up in cities and suburbs across America. Operating them are the biggest names in tech and retail, along with a bevy of more specialized startups. AmazonFresh recently expanded from Seattle to Los Angeles and San Francisco, where it offers new customers free same-day delivery on orders over $35. In the Bay Area Google GOOG -0.69% is working with stores such as Walgreens to provide rapid delivery of food and other products through Google Shopping Express; a test with Google employees in Los Angeles is under way. Promising low prices and fees, Walmart to Go colonized its second market, Denver, in October after two years in San Francisco. Two-year-old Instacart is already live in six cities, providing superfast deliveries from Whole Foods, Costco and other chains. (Its home base: San Francisco, of course.) FULL STORY: AmazonFresh expanded from Seattle to Los Angeles & San Francisco Step on the gas! Who can get there faster? Source: U.S. Census Bureau; company reports & websites

11 What’s selling? Let’s now examine trends in buying behavior.

12 Demand shifts behind winners & losers
Absolute Dollar Loss/Gain versus four years ago Top 10 with increases vs. 4-years ago Snacks Fresh Produce Candy Coffee Vitamins Packaged Meat Beer Tobacco & Accessories Cheese Wine Top 10 with decreases vs. 4-years ago Computer/Electronic Prods Magazines Selected Title Film & Cameras Gum Cereal Detergents Disposable Diapers Office/School Supplies Vegetables-Canned Puddings/Desserts-Dairy For the 52-week period ending 06/07/2014 versus FOUR YEARS AGO, dollar volume increased by $71.6 billion (a 10.2% increase in sales). That growth was a function of absolute dollar volume growth in 97 mega-categories (generating $79.2 billion in gains), while dollar sales fell in 23 categories (generating $7.6 billion in losses). Over the past four years, snacks , fresh produce and candy generated the biggest gains in absolute dollar sales and demand shifts are behind these shifts in spending. Snacks tops the list as we have increased snacking occasions at the expense of main meals. Growth in fresh produce as we look to lead healthier lifestyles, but inflationary pressures at work here as well. Vitamins on the list as we age and consumers look to self-medicate and avoid a trip to the doctor’s office. In terms of categories with the biggest losses: Consumers are using their phone to take picture's, so look at what has happened to camera and film sales. We are reading more on-line, so a decline in magazine sales. The cereal category is still huge, but consumers are changing their breakfast eating habits and cereal is losing sales. The decline in diaper sales is because a significant percentage of brick and mortar sales are now taking place via the internet. Overall gains were $72 billion versus four years ago; 23 categories with decreases; 97 categories with increases Source: Nielsen Strategic Planner, Total U.S. – All Outlets Combined (plus Convenience, 52 weeks ending 06/07/2014 (vs. 4-years ago), UPC-coded, 120 major category groupings

13 Inflation & demand driving growth
All Outlets Combined (plus Convenience) – Dollar Trend Inflationary pressures from rising commodity prices has driven growth in some major departments, but consumer demand a driving force too – particularly in departments like alcoholic beverages, deli and fresh produce. Elevated prices and increased demand in some segments drive fresh meat dollar growth. We are also seeing an increase in fixed-weight/prepackaged fresh meat – products that used to be random-weigh using PLU codes rather than UPC’s. So growth is much less across total department. Center Store departments struggle Source: Nielsen Strategic Planner, Total U.S. – All Outlets Combined (plus Convenience), 52 weeks ending 06/07/2014 (vs. year ago), UPC-coded

14 CONSUMERS SHIFTING SPEND OR BUYING LESS
All Outlets Combined (plus Convenience) – Unit Trend Consumers continue to make trade-offs or buy less - particularly in center store categories. Shouldn’t an economic recovery be delivering more unit growth? We are also seeing an increase in fixed-weight/prepackaged fresh meat – products that used to be random-weigh using PLU codes rather than UPC’s. So growth is much less across total department Shouldn’t an economic recovery be delivering more unit growth? Source: Nielsen Strategic Planner, Total U.S. – All Outlets Combined (plus Convenience), 52 weeks ending 06/07/2014 (vs. year ago), UPC-coded

15 Sugar Dollar Sales drop with falling prices
Total Sugar & Sugar Substitutes Dollar Trend +5 -0 -7 -9 Unit Trend +1 -1 Average U Price Trend +4 -8 Any Promo U Trend +3 +22 +14 Unit sales fairly flat for last 4 + years Source: Nielsen Answers; Total U.S. All Outlets Combined (plus Convenience), All Departments, All Brands (UPC), % Change, 52 week periods vs. year ago

16 Key sugar ingredient categories generate a lot of retail revenue
Dollar sales (billions) in Sugar categories % Change YAGO + 2 + 2 - 1 + 3 And we see dollar sales growth in most categories where sugar is a key ingredient. Note: Carbonated Beverages – Regular (not diet) includes high-fructose corn syrup sweetened (approximately 92% of category sales) and sugar sweetened. Abbreviations: SS = shelf stable Ref = refrigerated Frz = frozen NC - 9 Sales up or flat in these categories * Includes HFCS sweetened & sugar sweetened Source: Nielsen Strategic Planner; Total U.S. All Outlets Combined (plus Convenience), All Brands (UPC), 52 weeks ending 7/5/2014

17 Retail Hot Buttons Price & Value Private Brands Right-Sized Box
Food Fight So here are the retail hot buttons we would suggest are driving retail innovation and focus. How to deliver on price and understand how value is not just about low prices. Private Brands continue to be viewed as a means for retailers to connect with shoppers and build margin and successful manufacturers embrace the change and will work with retailers to drive total store success that will drive branded success too. The evolution of the right-sized (large or small) retail format. Food Fight: the explosion of food offerings across retail formats. But retailers are also looking for ways to win with non-edible assortment. Connecting with Shoppers That Matter: from demographic groups driving growth opportunities today and in the future to retailers leveraging Big Data to segment their most valuable shoppers. While an area where many retailers are focusing attention, we will not be doing a deep dive on this hot button in today's session. Digital Shopping is here and pace of change is incredible and some, but not all consumers are shifting their search from print to digital too. Health & Wellness for retailers looking to appeal to shoppers seeking to live a healthier lifestyle and/or to shoppers with health issues. Sustainability: most if not all retailers have efforts in place to make their stores more efficient and some are leveraging that work to appeal to green-driven shoppers. And many manufacturers have responded with their own initiatives that save them and their retail partners too. And finally, experiential retailing is gaining increased focus as retailers look to differentiate themselves through how they engage shoppers in providing unique shopper experiences that open the doors to a number of indulgent categories. Winning with Non-Edibles Connecting with Shoppers That Matter Digital Shopping Health & Wellness Sustainability Experiential Retailing

18 Food Fight I continue to be amazed at the number of retailers who have added food to their product assortment to drive trips and build baskets. The battle lines have been extended across traditional retailers to restaurants and to e-commerce. For food manufacturers this is a great opportunity, but for non-food manufacturers, it is incumbent upon you to understand this trend and realize the need to work smarter to maintain and grow your retail presence.

19 Consumers Flock to Fresh
Thanks to the Nielsen Perishables Group, here is a view of the fresh meat, seafood, produce, bakery and deli volume and dollar sales from their Fresh Coverage Area, or FCA data universe.  The FCA includes key retailers from Food, Mass/Supercenter and Club chains, or more than 18,000 stores across the U.S.  It excludes the convenience, dollar, military and drug channels.  The point-of-sale data is aggregated from a store, item, weekly level.  Data is for all products sold in the fresh departments, both standard (UPC) and retailer-assigned (PLU and system 2). For the 52-week period ending 5/31/2014, inflationary pressures are driving dollar growth in most segments of the perimeter or fresh departments. Volume growth occurred in all but remained flat for fresh deli meat and fresh meat decreased slightly for fresh seafood (where prices were up 9.1%). Although prices are up in most fresh departments, strong dollar growth along with volume gains speaks to strong consumer demand driving the perimeter – particularly in deli prepared foods and bakery! Note: Miscellaneous Other Bakery is not included in the data pull, this super-category includes bakery ingredients, bread crumbs, stuffing, candles and non-specific bakery items. Dollar growth for all & volume gains in most; higher prices part of the mix too Source: Nielsen Perishables Group FreshFacts , Total U.S. – Fresh Coverage Area (grocery + WM, Sam’s Club and Target); 52 weeks ending 5/31/2014 (vs. year ago)

20 Deli prepared foods growing
Growth continues as shoppers choose meals & meal components over ingredients Total Store ** Unit Growth: +0.2% Nielsen Perishable Group illustrates the growth in deli-prepared foods and how growth continues as shoppers choose meals and meal components over ingredients. Prepared Foods from Retail Will Grow Twice As Much as Restaurant Visits Over the Next Decade, Reports NPD Chicago, July 16, 2013  — Home meal replacements or prepared foods from supermarkets, drug stores, and other retail outlets will continue to capture share of the meal/snacks market by stealing visits from restaurants, according to The NPD Group, a leading global information company.  NPD’s recent foodservice forecast through 2022 indicates that instances of prepared food purchased at retailers for at-home consumption will increase by ten percent over the next decade compared to a four percent increase forecast for restaurant traffic. Source: https://www.npd.com/wps/portal/npd/us/news/press-releases/prepared-foods-from-retail-will-grow-twice-as-much-as-restaurant-visits-over-the-next-decade-reports-npd/ Prepared food purchases from supermarkets, drug stores & other retail outlets will GROW 10% BY 2022*** Sources: *Nielsen Perishables Group FreshFacts , Total U.S. – Fresh Coverage Area (grocery + WM, Sam’s Club and Target); 52 weeks ending 5/31/2014 (vs. year ago); **Nielsen Scantrack, Total U.S. – All Outlets Combined, plus Convenience, 52 weeks ending 6/7/2014 (vs. year ago), UPC only; ***NPD Group

21 Total Store ** Unit Growth: +0.2%
Bakery department capturing growth in categories where sugar is key ingredient Growth continues as shoppers choose meals & meal components over ingredients Total Store ** Unit Growth: +0.2% Nielsen Perishable Group illustrates the growth in the bakery. Sources: *Nielsen Perishables Group FreshFacts , Total U.S. – Fresh Coverage Area (grocery + WM, Sam’s Club and Target); 52 weeks ending 5/31/2014 (vs. year ago); **Nielsen Scantrack, Total U.S. – All Outlets Combined, plus Convenience, 52 weeks ending 6/7/2014 (vs. year ago), UPC only; ***NPD Group

22 Food Lion debuts new store format
Daily dinner deals “Grab & Go” foods New garden cooler, which keeps fruits and vegetables fresher, longer Expanded gluten-free section $1 Deals New Food Lion-brand beef in sealed-fresh packaging Food Lion Announces Grand Re-Opening of Fully Redesigned, New Format Concord, N.C., Store Dec 4, 2013 – SALISBURY, N.C. – Food Lion will hold the grand re-opening of its store at 860 Union Street in Concord, N.C., on Wednesday, Dec. 4 at 8 a.m. The store launches Food Lion’s newest format and has been fully redesigned to make grocery shopping easy and convenient for customers. At this location, Food Lion customers will have access to thousands of new product varieties to make shopping easier, saving both time and money. Additions include easy “grab & go” foods, daily dinner deals offered from 4 p.m. to 7 p.m., an expanded gluten-free section, “$1 Deals” and new beef in sealed-fresh packaging. Food Lion has also transformed its produce section into a new garden cooler, which keeps fruits and vegetables fresher, longer. Additionally, the new store builds on Food Lion’s promise of ease and convenience for customers through a faster and easier checkout. Food Lion has installed new registers with easy-to-view screens, and it has added a new bagging system where store associates will bag customers’ cold and frozen items in easy-to-locate blue bags to make unpacking faster at home. Food Lion has also grouped all of its convenience services together in the front of the store, such as Coinstar, lottery and more. NEWS RELEASE: Food Lion Beef: New sealed fresh package locks in flavor and keeps our beef fresher longer -- Food Lion Debuts ‘Fresh’ Format Dec. 9, 2013 PICTURES & FULL STORY: PICTURE OF MEAL: Sources: Food Lion, Supermarket News & Salisbury Post (photos)

23 See how your Target's been refreshed
1,261 Target stores w/expanded food Competitive pricing, plus save 5% with your REDcard. And Target was very aggressive in direct mail and communications to promote their newly remodeled PFresh stores. Target Reports First Quarter 2014 Earnings 05/21/14 Number of stores as of May 3, 2014: General merchandise stores 271 Expanded food assortment stores 1,261 SuperTarget stores 249 CityTarget stores   8 FULL REPORT: Source: Target

24 Integrated campaign to revive established categories
“Cans get you cooking, a multi-year, fully-integrated campaign” Cans Get You Cooking Campaign Encourages Consumers To Unseal The Power Of Cans; Can Manufacturers Institute Partners with Major Brands and Retailers to Drive Center of Store Sales Nationwide WASHINGTON, Feb. 14, 2013 /PRNewswire/ -- The Can Manufacturers Institute (CMI) launched Cans Get You Cooking, a multi-year, fully-integrated campaign launching nationwide during National Canned Food Month this February. The campaign, funded by CMI members, Silgan Containers, Crown Holdings, Inc., and Ball Corporation, kicks off with an integration with ABC's The CHEW, a nationally televised daytime food and lifestyle series, as well as a robust consumer-facing public relations program, partnerships with in-store registered dieticians and a trade media advertising campaign. Cans Get You Cooking builds on the insights from a new, comprehensive values-based consumer research study revealing consumers' strong positive associations with canned food. The campaign is designed to remind consumers of the great benefits of cooking with cans, and showcase new and exciting ways to incorporate cans into everyday mealtime occasions. "Research shows that consumers already trust the ironclad technology of cans to deliver food that's fresh, flavorful, nutritious and convenient," said CMI President Robert Budway. "Through the Cans Get You Cooking program, we will team with the country's leading brands and grocery retailers to remind consumers of their love for canned food, drive center-store sales and encourage more usage occasions." Throughout the month of February, CMI will partner with ABC's The CHEW to help kick-off the campaign and highlight different ways to get cooking with cans. The partnership will include a significant online, digital and social media presence on ABC.com throughout National Canned Food Month, as well as a co-branded consumer contest that offers viewers the opportunity to share their favorite canned food recipes for the chance to attend a taping of The CHEW in New York City. The multi-year campaign also includes an ongoing national consumer public relations program comprised of traditional and online media engagement, as well as a robust social media initiative featuring a newly minted Facebook community, Pinterest page, YouTube channel video series and a number of Twitter parties, all meant to engage and inspire consumers with the benefits of cooking with cans. Additional elements of the campaign include consumer events and retail promotional support periods with customizable assets. To learn more and participate in the Cans Get You Cooking campaign, visit http://www.cancentral.com andhttp://www.facebook.com/cansgetyoucooking. NEWS RELEASE: 'Cans Get You Cooking' promotes canned foods' benefits Posted by Anne Marie Mohan February 14, 2013 Can Manufacturers Institute partners with major brands and retailers to drive center-of-store sales nationwide. The Can Manufacturers Institute (CMI) has introduced “Cans Get You Cooking,” a multi-year, fully integrated campaign launching nationwide during National Canned Food Month this February. The campaign, funded by CMI members, Silgan Containers, Crown Holdings, Inc., and Ball Corp., kicks off with a partnership with ABC’s “The CHEW,” a nationally televised daytime food and lifestyle series, as well as a consumer-facing public relations program, partnerships with in-store registered dieticians, and a trade media advertising campaign. FULL STORY: Source: Cans Get You Cooking

25 fish where the fish are! Secondary location with multi-media support
Coke/Walmart Goes Well With Client: Coca-Cola (in partnership with Walmart) Objective: Create a campaign speaking to Moms, highlighting EffortLess Meals as a solution to their busy family lives. Deliverables: A multimedia campaign, consisting of both television and radio Awards: -Gold Effie in Manufacturer: Single-Retailer Rollout Category -Bronze Effie in Manufacturer: Multi-Brand Shopper Solution Category -Silver Reggie in Retailer-Specific Program Category -Silver Reggie in Shopper Marketing Category SOURCE: COKE WM EFFORTLESS MEALS SHOPPER from Sam Crews Tuesday, January 28, :56 PM VIDEO in HD: from Sam Crews Wednesday, May 22, :20 PM VIDEO in HD: “new displays, menu boards & signage in Walmart’s gave Coke a level of branding never seen before” Source:

26 Shaking up the aisle Is it time to convert trade spend to capex spend?
Mega Foods, Eau Claire, Wis. This locally owned cooperative projects both a vintage and modern feel to a community-centric area By Carly Hagedon Posted April 26, 2013 What do you get when you combine nostalgia, modernity and groceries? After being stuck in a rundown building for the past several years, Mega Foods, the nation’s largest consumer-owned food co-op, was ready for some revamping. Harry Steen, Supervalu creative director, and his team heeded the call of renovation. FULL STORY: Source: Photography: Mark A. Steele Photography, Columbus, Ohio; Note: capex = capital expenditures

27 Long-term FOOD-away-from-home share at highest point ever
Share of total U.S. food expenditures: 50.5% 49.5% Note: Data is not adjusted for inflation. Table 1—Food: Total expenditures Source: Root directory: Last government updated: 11/13/2013 ERS Series--Food Expenditures Based on Actual Sales ERS's analysis of food expenditures provides valuable information on how consumers spend their food dollar and how their consumption patterns change over time. ERS derives its aggregate food expenditure series by estimating current sales or receipts by each type of store that sells food. Measurement of purchases of food for at-home use, meal and snack purchases for food-away-from-home consumption, and alcoholic beverages purchased by families, individuals, and institutions provides the most direct measurement of food expenditures. Source: Food expenditures based on actual sales Source: Calculated by the Economic Research Service, USDA, from various data sets from the U.S. Census Bureau and the Bureau of Labor Statistics.

28 performance index above 100 for the 15th consecutive month; highest in over 2 years
No matter what retail format you operate, you should expect more competition from quick serve restaurants. An improving U.S. economy is fueling expansion in store units and returning sales and traffic. Restaurant Performance Index Rose to its Highest Level in Over Two Years; Same-store sales and traffic levels continued to improve; Restaurant operators are more optimistic about sales growth June 30, 2014 Contact: Christin Fernandez (202) , Rachel Salabes (202) (Washington, D.C.)  Driven by stronger sales and traffic levels and an increasingly optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose to its highest level in more than two years.  The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at in May, up 0.4 percent over April and the third consecutive monthly gain and strongest reading since March 2012.  In addition, the RPI stood above 100 for the 15th consecutive month, which signifies expansion in the index of key industry indicators. “Positive sales results fueled the May increase in the RPI, as nearly two-thirds of restaurant operators said their same-store sales rose above year-ago levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association.  “In addition, restaurant operators are increasingly optimistic about continued sales gains in the months ahead, a sentiment that is also showing up in their capital expenditure plans.” The RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators. The Index consists of two components – the Current Situation Index and the Expectations Index. FULL NEWS RELEASE: hhttp://www.restaurant.org/Pressroom/Press-Releases/Restaurant-Performance-Index-Rose-to-its-Highest-L NRA NEWSLETTER RPI: WEBSITE: Updated: July 7, 2014 Source:

29 Private brands Let’s now examine private brands.

30 Just outpacing brand growth since 2012
All Departments Over the past five plus years private brand dollar share has grown from 16.2 to Share growth was best in 2010 and 2011 as private brand dollar sales growth in both of those years was considerably greater than growth observed by brands. However, since 2012, private brand dollar was comparable or slightly better as growth from brands. As a result, share growth slowed. Private Brands dollar sales in Total U.S. All Outlets Combined, plus Convenience: $95 billion in 2009 $100 billion in 2010 $107 billion in 2011 $110 billion in 2012 $112 billion in 2013 $113 billion during 52 weeks ending June 7, 2014 Branded dollar sales in Total U.S. All Outlets Combined, plus Convenience: $492 billion in 2009 $498 billion in 2010 $513 billion in 2011 $525 billion in 2012 $532 billion in 2013 $534 billion during 52 weeks ending June 7, 2014 Dollar Sales Trend Private Brand +5% +8% +2% Branded +1% +3% Source: Nielsen Strategic Planner, Total U.S. – All Outlets Combined (xAOC), Total All Departments, UPC-coded

31 Where are the growth opportunities?
Private Brands: Dollar Share Top 10 Milk Eggs-Fresh Sugar/Sugar Substitutes Wrapping Materials Bags Dessert/Fruit/Tops-Froz Unprep Meat/Seafood-Frz Fruit-Canned Pain Remedies Cheese First Aid Edibles Non-Edibles Average $ Share 17.5% Bottom 10 Computer/Electronic Prods Beer Deodorant Tobacco & Accessories Gum Canning/Freezing Supplies Wine Liquor Hair Care Insecticides Repellants So where are the growth opportunities within private brand categories? Are they in the low or high share private brand categories? While low share may seem like an opportunity, consider the marketing muscle of brands in categories like beer, deodorant and hair care? You should also factor in competitive arena (number of brands) and category essentials – market size, growth trend, production costs. Are they bigger in low or high share categories? What other considerations? Source: Nielsen Strategic Planner, Total U.S. – All Outlets Combined (xAOC), 52 weeks ending 06/07/2014 (vs. year ago), UPC-coded, 116 major category groupings

32 Supermarkets dominate best of breed
Store Brands $ Share of Total Store Average 24% 20% 18% Supermarkets Club Mass w/Supers Dollar Drug Fact: Store Brand $ Share of Total Store ($ IMPORTANCE) Here is the list of U.S. retailers with the largest overall store brands shares. There are a few smaller grocers who could have made this list, but we would have been splitting hairs and we wanted to show those who have larger scale either at a national, regional or market level. Because of their strong store brands position, we also decided to use the Hannaford banner and not a total Delhaize Corporate view. The average share for these retailers is 35% and you can see how each of them capture a greater store brands share than the level in the retail channel where they reside. The two limited assortment/deep discount formats (Aldi and Save-A-Lot) lead they way in driving high store brands shares, followed by Wegmans, H-E-B, and Kroger Corporate Grocery. Interesting to see Costco in the middle of the pack as well as Dollar General on the list of best of breed. So what is it about these ten retailers that make them best of breed? Is there some commonality in the successes for each on the list? PS Please note that Aldi & Costco do not provide their POS data for inclusion in retail measurement services. And, while H-E-B does provide POS data for brand sales in their stores, they do not share their store brands sales. As such, our view of retail performance via our Homescan panel is not totally precise as we will not have product definitions for all of their store brands items. Limited assortment/extreme discount formats lead the way Source: Nielsen Homescan, 52 weeks ending 12/28/2013, UPC-coded items

33 “Private-label foods often meet or beat the big brands”
Our expert tasters judged 33 of 57 store-brand foods as good as or better than the national brand. In categories such as ice cream, trail mix, mozzarella, mixed vegetables, and more, we found at least one store brand from the national grocers Costco, Kmart, Sam's Club, Target, Trader Joe's, Walmart, and Whole Foods that was equal in quality to the big name. Store brands to savor; Private-label foods often meet or beat the big brands Published: August 2013 It's one thing to save money by buying store-brand paper towels or trash bags, but do you dare replace a name-brand favorite—Heinz ketchup, say—with a store brand? Sure. Our expert tasters judged 33 of 57 store-brand foods as good as or better than the national brand. In categories such as ice cream, trail mix, mozzarella, mixed vegetables, and more, we found at least one store brand from the national grocers Costco, Kmart, Sam's Club, Target, Trader Joe's, Walmart, and Whole Foods that was equal in quality to the big name. Every store-brand jar of cashews was better than the national brand, for example; and among frozen shrimp, every store brand was at least as good. To be sure that our results weren't an anomaly, we tested two samples of each brand. (Note that products that are equal in quality don't necessarily taste the same: They may have different seasonings or a different mix of ingredients.) When we pitted store brands against Heinz ketchup and Hellmann's mayonnaise, we found at least one near-twin for each: Market Pantry (Target) ketchup and Market Pantry, Great Value (Walmart), and Kirkland Signature (Costco) mayos. All are more than one-third cheaper than the name brand. FULL STORY: Don't be afraid to buy store-brand food, Consumer Reports says Herb Weisbaum, NBC News contributor Aug. 29, 2013 at 12:05 PM ET Consumer Reports expert tasters found store-brand ketchup that was a "near-twin" to Heinz and cost more than a third less. Store-brand foods can save you a bundle at the supermarket—but are you trading quality for price if you substitute them for those name-brand favorites? Not according to Consumer Reports. In a blind taste test by expert tasters, the magazine compared 57 store-brand foods from five major retailers— Costco, Sam's Club, Walmart, Kmart, Target, Trader Joe's and Whole Foods—to iconic brands such as Heinz ketchup, Birds Eye mixed vegetables and Breyers ice cream. The result: 33 of the 57 store-brand food items tasted as good as or better than the national brand, the tasters found. Not only that, when the magazine had staffers who regularly purchased Heinz ketchup and Hellman's mayonnaise do a blind taste comparison with store-brand alternatives, more than 40 percent preferred the store brands. FULL STORY: Consumer Reports August 2013 Source: NBC News & Consumer Reports

34 Kroger Simple Truth expected to hit $1 Billion; H-E-B introduces Affordable Organic Options
Beef Teas Salads Carrots Café Ole Oatmeal & Cereals Introduction Of 'H-E-B Organics' Offers Texas Families More Affordable Options To Go Organic SAN ANTONIO, TX (March 12, 2014) - Strengthening its commitment to offering customers more food choices to fit their lifestyles, H-E-B is introducing H-E-B Organics™, the company's own line of organic products offered at everyday low prices. The company believes making organics more prevalent and affordable will create better access to a wide variety of food choices for all Texans. NEWS RELEASE: WEBSITE H-E-B Organics: Kroger's Simple Truth Brand Expected to Reach $1 Billion This Year March 11, 2014—The Kroger Co.’s Simple Truth natural and organic store brand is expected to hit $1 billion in sales this year after being on the market less than two years. The brand is growing very rapidly, Mark Ellis, president and COO said during a recent earnings conference call to discuss its fourth quarter and full year results. Simple Truth was launched in September 2012. “Simple Truth continues to grow at an astonishing pace, and we now expect it to reach $1 billion brand status by the end of fiscal year 2014,” he said. “Corporate brands continue to be leading differentiator for Kroger. We introduced 937 new products in fiscal 2013, including 100 new Simple Truth items. “ In 2012, Kroger consolidated two store brands – Naturally Preferred and Private Selection Organic – into the new Simple Truth brand. Both the Simple Truth and Simple Truth Organic lines have clean ingredient labels and non-organic products are free-from 101 ingredients identified a concern to customers, according to Kroger. “Corporate brands continue to gain market share during the fourth quarter, with corporate brands representing approximately 27.2 percent of total units sold and 24.4 percent of our sales dollars, including pharmacy and fuel,” Ellis said. FULL STORY: WEBSITE: Kroger Simple Truth: Kroger’s eye catching in-store merchandising; its own website & array of social media H-E-B- shelf tag Source: Todd Hale (in-store photo); Kroger, H-E-B

35 Walmart & Wild Oats To DRIVE Down Organic Food Prices
Nearly 100 organic products – no price premium Walmart and Wild Oats Launch Effort to Drive Down Organic Food Prices Nation’s Largest Grocer Works with Organics Pioneer to Relaunch Brand and Save Customers 25 Percent or More on Organic Groceries BENTONVILLE, Ark. – April 10, 2014 – Walmart, the nation’s largest grocer, announced today it will carry Wild Oats organic food items. Originally introduced in 1987, Wild Oats will relaunch at Walmart starting this month with a new, more affordable price point on quality products covering a broad variety of categories – from salsa and pasta sauce to quinoa and chicken broth. Customers will save 25 percent or more when comparing Wild Oats to national brand organic products.* Wild Oats, a trusted provider of organic groceries, will feature the following lines at Walmart:    Wild Oats Marketplace Organic™, which adheres to USDA guidelines for organic certification and includes everything from canned vegetables (15 oz) at $.88 to a full range of spices such as paprika, curry powder and ground cinnamon (2 oz) starting at $2.48. Organic items represent nearly 90 percent of the Wild Oats offering. Wild Oats Marketplace™, which includes products with simple and real ingredients such as ready-to-prepare skillet meals (5.8 oz) at $1.50. Wild Oats Marketplace Originals™, offering new and uniquely formulated items, will be available later this year. “We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more,” said Jack Sinclair, executive vice president of grocery at Walmart U.S. “We are changing that and creating a new price position for organic groceries that increases access. This is part of our ongoing effort to use our scale to deliver quality, affordable groceries to our customers.”   The Wild Oats brand meets customer demand for more affordable organic foods. In fact, internal research found that 91 percent of Walmart shoppers would consider purchasing products from an affordable organic brand at the retailer. FULL NEWS RELEASE: Source: Walmart

36 Walmart testing Extreme Value Brand
Back to the future Maybe pulling a page from Lowblaw’s success in Canada with their No Frills format and private brands, or a recognition that our economic times dictates a return to generic offerings. Walmart Tests Neo-Generic\Basic Private Brand: Price First By Christopher Durham November 3, 2013—In a surprise move that demonstrates an increasing emphasis on Private Brands, Walmart, the world’s largest retailer, has begun what appears to be a test of a new extreme value\basic brand. Price First is featured in a 2-page flyer introducing the brand and it’s stark blue and yellow neo-generic packaging with the headline, “Choose our lowest-priced brand for all your grocery staples. Look for it in your store today.” The products appear to be moving from existing unbranded or control brand SKUs. It appears that the brand is now being tested in numerous markets including: Opelousas, Louisiana; Richmond, Virginia; Mobile, Alabama; Greenville, SC and Jeffersonville, Kentucky. Combined with the recent redesign and expansion of Sam’s Choice, if successful, the new brand will dramatically expand the Walmart Private Brand portfolio. With its addition, Walmart will create a very traditional three-tier private label architecture similar to the strategy implemented by most mainstream grocers in the 1980’s. The grocery portfolio is then rounded out by the specialty and category Private Brands: Clear American, Lucky Duck, Oak Leaf, Prima Della, The Bakery and Walmart Deli. FULL STORY: PICTURES: https://www.facebook.com/Walmart1675 Walmart testing Extreme Value Brand Source: Facebook (Walmart-Lebanon); My Private Brand

37 FreshDirect launched TWO private brands
Cloud 9 is about high quality, effective products in the household and cleaning categories that our customers can count on to get the job right. JUST FreshDirect will include food products with a focus on simple, short ingredient statements, wholesome ingredients and transparency when it comes to what’s in each product. One of the key elements to our JUST FreshDirect brand is that we have a list of prohibited ingredients. We have plans to launch over 150 new private brand products in 2014… We also have more brands in the works so expect more exciting news over the next year. A Conversation with Fresh Direct’s Emma Fuerst Frelinghuysen Christopher Durham Dec 2, 2013 Fresh Direct, the online grocer that serves the New York City and Philadelphia metro areas, is launching two new Private Brands The move comes after they announced earlier this year a partnership with Daymon Worldwide to support the retailer’s Private Brand portfolio. While in Chicago for the annual PLMA trade show I had the opportunity to meet Emma Fuerst Frelinghuysen, senior director of Private Brands for Fresh Direct and learn more about the future of Private Brands at Fresh Direct. …Our two private brands, JUST FreshDirect and Cloud 9, will offer customers high-quality, high-value alternatives to national brands and take the guess-work out of grocery shopping. …Cloud 9 is about high quality, effective products in the household and cleaning categories that our customers can count on to get the job right. For our Cloud 9 products, we worked to provide value to consumers by offering more product at a lower price, through larger rolls and more units. Our tagline is “Top quality products with prices grounded in reality.” All Cloud 9 products offer the technology and features customers desire, at an approximately 20% lower price than the national equivalent. …JUST FreshDirect will include food products with a focus on simple, short ingredient statements, wholesome ingredients and transparency when it comes to what’s in each product. One of the key elements to our JUST FreshDirect brand is that we have a list of prohibited ingredients. …At FreshDirect we are always looking to innovate across all categories.  In fact, just this past year we opened our flower market, began selling pet products, and are now entering the private brand space in a major way. We have plans to launch over 150 new private brand products in 2014, so we will be busy. We also have more brands in the works so expect more exciting news over the next year. FULL STORY: FreshDirect Cloud 9: https://www.freshdirect.com/category.jsp?catId=picks_cloud_9&trk=dnav FreshDirect Feb 24 New Just FreshDirect Spring Water now available! 24pk, 16.9oz--$3.99/each! #JustFD pic.twitter.com/2vy8qdbHn3 Mypbrands.com Dec. 2, 2013 Source: mypbrand.com

38 Connecting with shoppers that matter
Connecting with Shoppers That Matter: from demographic groups driving growth opportunities today and in the future to retailers leveraging Big Data to segment their most valuable shoppers.

39 All groups have lost since 2000
But Blacks & Hispanics have suffered the most % Change vs. 2000: Non-Hispanic White: -6.3% Asian: -7.7% Hispanic: % Black: % While all multicultural groups have seen declines in median household income since 2000, it is alarming to see such a wide gap in income levels for Black and Hispanic households – two groups who are expected to drive significant population growth in this country. Adding to this is the fact that median income has declined the most for these two groups. Census: Household incomes holding steady Tim Mullaney, USA TODAY; 5:46 p.m. EDT September 17, 2013 Median household incomes after inflation, stopped falling last year following two straight years of declines. Americans' household incomes still haven't caught up to where they were before the recession, but they've stopped losing ground to inflation, the Census Bureau said Tuesday. Median household incomes after inflation stabilized in 2012, following two annual declines, the bureau reported. Adjusted for inflation, median household income was $51,017 last year, not statistically different from the 2011 median of $51,100. The median is the point where half are below and half are above. The report paints a picture of an economy that has absorbed the impact of the 2008 financial crisis, but has not yet recovered from the damage, said Sheldon Danziger, president of the Russell Sage Foundation. Inflation-adjusted household incomes are 8.3% below their cyclical peak in 2007, and even further below their all-time peak in 1999, according to the Census. "Poverty is higher today than it was in 2000, and household incomes are lower,'' Danziger said. "The 'lost decade' is likely to turn into 'two lost decades.'" Compared with recent annual reports from the Census, this year's reported few dramatic changes, said David Johnson, chief of the bureau's social, economic and housing statistics division. The sharpest change was in the percentage of Americans without health insurance, which dropped by 0.3 percentage points to 15.4%. The decline was almost entirely accounted for by broader Medicare coverage, with almost no change in Americans' coverage by private health insurance, the report said. Medicare's change is mostly a function of more Baby Boomers becoming eligible for Medicare as they turn 65, Johnson said. But the number of people without insurance coverage, 48.0 million, was not statistically different than in 2011 because of population growth, Johnson said. The official poverty rate showed no statistical difference, for the second year in a row, staying at 15%, representing 46.5 million Americans living below the poverty line. That's up 2.5 percentage points from 2007, before the recession. From 2009 through 2011,about 31.6% of the population lived in poverty for at least two months, while just 3.5% of Americans were poor for all 36 of those months. The report touched on a number of hot-button issues about incomes, insurance and poverty. Income inequality changed little during the year, Johnson said. Families needed to earn $191,200 to make it into the top 5% of top-earning households, and about $146,000 to enter the top 10%. Inequality has risen sharply over the last several years. A broad measure of income inequality used by the Census Bureau has risen 2% since 2009 and 3% in the last decade. The wage gap between men and women remained unchanged, with women earning 77% of what men do. The gaps were smaller among younger groups of workers, the Census Bureau said, "For women and their families, it's the same old story — another year of no improvement,'' said Linda Hallman, executive director of the American Association of University Women. "Women working full time in the United States are still paid only 77% of what men are paid, just as they were a decade ago.'' FULL STORY: Source: USA TODAY (story by Tim Mullaney; graphics by Frank Pampa & Anne R. Carey – 9/18/2013))

40 Diversity in sugar buying & in categories where sugar is key ingredient
Annual $ Per Household Among Category Buyers WHITE NON-HISPANIC AFRICAN AMERICAN ASIAN HISPANIC (any race) CANDY 94 67 70 72 JAMS/JELLIES/ SPREADS 28 20 24 SUGAR/SUGAR SUBSTITUTES 22 25 16 BREAD & BAKED GOODS 116 90 87 109 CEREAL 73 63 65 80 COOKIES/ICE CREAM CONES 43 39 40 CARBONATED BEVERAGES 126 82 97 JUICES-DRINKS-SHELF STABLE 54 50 JUICES-DRINKS-REFRIGERATED 34 44 ICE CREAM 30 31 Fact: Dollars per Buyer Slide update: 7/28/2014 Watch Out: a number of categories with low buying rates among multicultural Source: Nielsen Homescan, Total U.S. 52 weeks ending 12/28/2013, UPC-coded products; Note: Categories include sugar-free products

41 By 2020, Millennials will outnumber boomers by ten million
U.S. Population Projections Age Boomers 34 million 37 million Gen X 24 million 25 million 2012 National Population Projections: Downloadable Files https://www.census.gov/population/projections/files/filelayout/NP2012_D1.pdf Table 1. Projected Population by Single Year of Age, Sex, Race, and Hispanic Origin for the United States: 2012 to 2060 Data: https://www.census.gov/population/projections/files/downloadables/NP2012L_D1.csv Nielsen defines Greatest Generation: Prior to 1946; Boomers: , Gen X: , Millennials: Millennials 41 million 40 million Population (millions) Source: U.S. Census Bureau (2012 National Population Projections)

42 Will advances in medical technology alter the curve?
Gray power surge 100 Millions Percentage This graph provides a trend in the overall size and share of the U.S. population represented by those 65 years of age and older. By 2015, there will be nearly 48 million of them and they will represent 15% of the total population. They will grow by over 8 million by 2020 – reaching just under 56 million; and then swell to 65+ million in 2025 – adding another 17+ million to the ranks of those in 2015 and reaching almost one-fifth of the population. The projections have the 65+ population reaching 92 million by 2060 – accounting for 22% of the U.S. population. Technological advances over the past couple of centuries have intensified and the pace of advancement will likely accelerate even faster in the next couple of decades. I can see a world where advancements in medical technology could alter this curve whereby cures for afflictions that typically impact quality of life for the elderly could lead to less deaths and a swelling in the ranks, not the knees, of 65 year olds. 2012 National Population Projections: Summary Tables Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2015 to 2060 Middle Series [XLS - 27k] | [CSV - 5k] Table 3. Percent Distribution of the Projected Population by Selected Age Groups and Sex for the United States: 2015 to 2060 Source: Source: Will advances in medical technology alter the curve? Source: U.S. Census Bureau (2012 National Population Projections)

43 Older more trips; younger bigger baskets
Total Retail Channels We do see diverse shopping patterns across the generations. The older generations shop more often, but younger offset less trips with bigger baskets. The biggest annual spenders are the boomers and generation X consumers – those more likely to have larger families. Younger households, those who have felt the greatest pain during our soft economy are more mindful about buying on deal. Greatest Generation: Prior to 1946; Boomers: , Gen X: , Millennials: Millennials more deal prone Source: Nielsen Homescan, Total U.S. 52 weeks ending 12/28/2013, excludes gas only or Rx only trips; *UPC-coded products

44 Millennials less engaged in sugar & in key sugar ingredient categories
Annual $ Per Household Among Category Buyers GREATEST GENERATION BOOMERS GENERATION X MILLENNIALS CANDY 85 97 89 69 JAMS/JELLIES/ SPREADS 26 27 25 SUGAR/SUGAR SUBSTITUTES 23 24 22 18 BREAD & BAKED GOODS 112 118 117 93 CEREAL 61 67 84 81 COOKIES/ICE CREAM CONES 44 43 37 CARBONATED BEVERAGES 91 125 123 101 JUICES-DRINKS-SHELF STABLE 47 55 62 JUICES-DRINKS-REFRIGERATED 38 34 ICE CREAM 42 40 35 The generations also exhibit diverse category spending levels. Some of the differences are driven by diverse household composition (i.e., baby households within younger generations), while others are driven by diverse preferences. The older segments attract big spenders in some big & important categories (i.e., pet food, vitamins, ice cream and wine among oldest generation). Where is your category or brand driving sales? How can you help your retail partners create generational store sets. Read as: Greatest Generation wine buying households spend $132 annually on the wine category. Greatest Generation: Prior to 1946; Boomers: , Gen X: , Millennials: Fact: Dollars per Buyer Slide update: 7/28/2014 Source: Nielsen Homescan, Total U.S. 52 weeks ending 12/28/2013, UPC-coded products; Note: Categories include sugar-free products

45 Target tries to win hearts & clicks of Millennials & College Students
Replacing in-store registry kiosks with iPads; replacing scanning guns with the iPod Touch Target tries to win hearts and clicks of Gen Y Hadley Malcolm, USA TODAY 7:44 a.m. EDT June 6, 2014 Millennials aren't smitten with Target, and the company knows it. Last fall, Target learned that to Millennials, the company is nothing more than a big-box store. Buy from Target online? Who does that? Not Millennials, apparently. "Target has traditionally been a store where people want to go in and feel and touch the products," says Jim Porçarelli, chief strategy officer at Active International, a corporate trading company. "It's been a destination." But the Internet changed the way consumers shop. And Millennials have replaced suburban moms as the country's most powerful marketing influence. That's why Target is trying to win the hearts — and clicks — of Gen Y with a heavy hand on mobile and new digital initiatives, including an overhaul of the company's wedding and baby registry business, integrated shopping lists with live store maps, and tests of same-day delivery for some online orders. And in a first-ever ad campaign for Target's digital services launching this weekend, the brand will heavily market these new features as a convenience proposition to young couples and families. No time to shop after having your first child? Order everything online and pick it up the same day. Other new programs: • A new app feature in beta testing in 41 stores allows users to build shopping lists that tell them exactly where in a store to find each item. • Roughly 140 stores will start doubling as warehouses for online orders as Target launches a ship-from-store capability that will help deliver online orders more quickly. • Online shoppers will start to see more personalized product recommendations and offers with the roll-out of a personalization "engine" that Target has been building for the past nine months. • Target will replace all in-store registry kiosks, primarily used for weddings and baby showers, with iPads connected to Target.com. Old-school scanning guns will be replaced with iPod touches. …Nearly two-thirds of its online traffic comes through a mobile device… FULL STORY: College Checklist: Target Launches College Registry Program JUNE 6, 2014— …Launching in early June, students and their families can create, manage and share a registry at Target.com for all the campus necessities. So smart. So collegiate!... FULL STORY: Target overhauling their wedding & baby registry business, integrated shopping lists with live store maps, and testing same-day delivery for some online orders; and introduces first ever college registry Source: Target

46 Health & Beauty Care senior focus
Most of the focus is on health & beauty – what are food & beverage manufacturers waiting for? Updated: November 13, 2012 Sources: MultiAd Kwikee & company websites

47 Smaller portion sizes, but what else?
Here are some great examples of meals for two or one to serve the senior or smaller household population, but what else? How about larger font-size on package labels? Vitamin/Mineral fortified foods targeted against the older population? How about targeted coupon drops & trial packs in senior communities? Updated: March 14, 2014 Source: MultiAd Kwikee

48 Health & wellness enthusiasts w/strong buy rate in many key sugar categories
$ Buying Rate Index WELL BEING FOOD ACTIVES MAGIC BULLETS FENCE SITTERS EAT, DRINK & BE MERRIES CANDY 94 103 105 95 97 JAMS/JELLIES/ SPREADS 118 104 87 SUGAR/SWEETENERS 98 89 101 BREAD & BAKED GOODS 99 CEREAL 109 COOKIES 96 CARBONATED BEVERAGES 76 115 JUICES-DRINKS-SHELF STABLE 100 JUICES-DRINKS-REFRIGERATED 124 88 ICE CREAM $ Buying Rate Index calculation: annual dollars per household spent on category within an individual segment divided by the annual buying rate for all households times 100. Market: Total U.S. Product: All Modules Facts: $ Buying Rate Index calculation: annual dollars per household spent on category within an individual segment divided by the annual buying rate for all households times 100 Period: 12/30/ /28/13 Slide update: 7/28/2014 Source: NMI, Health & Wellness Segmentation, Total U.S. – 52 weeks ending 12/28/2013, UPC-coded; Note: Categories include sugar-free products

49 Digital Shopping Digital Shopping is here and pace of change is incredible and some, but not all consumers are shifting their search from print to digital too.

50 Amazon gets it AMAZON GOING AFTER REGULARLY SCHEDULED BUYS
COMPETITION HEATS UP W/AMAZON PRIME PANTRY Does Amazon get it or what? And take a look at what Amazon is bringing to the U.S. – allowing consumers to subscribe and save by agreeing to regular deliveries of CPG products and get up to a 15% discount. As a manufacturer, are you engaged with Amazon today? As a retailer, do you know how Amazon is impacting your business today and in the future? One of Amazon’s newest offerings is “Amazon Prime Pantry” where their prime users can have 45 pounds of fast-moving-consumer-goods products (found in most traditional retailer formats) boxed up and shipped to their home for a fee of $5.99. In markets supported by AmazonFresh home delivery service, a special device was been created to allow members to scan items in their home, or speak into a microphone, to build their shopping lists. Not going the route of creating a smartphone app, Amazon is demonstrating how they want to be unique from the competition. NEWS RELEASE: VIDEO: FULL STORY: “THE NEW WAY TO SHOP FROM HOME” Sources: https://www.amazon.com/gp/subscribe-and-save/details/index.html https://fresh.amazon.com/dash

51 “Target Expands Subscription Service Tenfold”
nearly 1,600 items… Everything from beauty products and pet supplies to home office supplies, are now available for regular delivery… free subscription program allows people to schedule shipments in four, six, eight, 10 and 12-week installments. For Retailers, E-Commerce Meets In-Store with Click-and-Collect Posted by Mark J. Miller on June 11, :01 PM …And in the US, Target is hoping to catch up to competitors by making big investments in digital, including Store Pickup, its own click-and-collect service that allows shoppers to order goods online and then pick them up in-store the same day. Target is also testing same-day delivery service in Boston, Miama [Miami] and its hometown of Minneapolis, and is expanding its subscription service that launched last fall to give consumers free, scheduled delivery of favorite essentials so consumers never run out of what they use most, and is pushing its coupon app Cartwheel, which it launched in beta last year. The big digital push will hopefully allow the big-box retailer to recover from the massive data breach it experienced over the holidays, regain consumer trust and get back in the game against Walmart, Google. Also helping matters on that front, Target just named its first chief information security officer: Brad Maiorino, who held a similar position at General Motors… FULL STORY: Target Expands Subscription Service Tenfold NEW YORK April 17, 2014 (AP) By ANNE D'INNOCENZIO AP Retail Writer Target is vastly expanding the goods available to order by subscription as it fends off its biggest non-traditional retail rival, Amazon.com. The nation's second-largest discounter first dabbled with subscriptions last September, trying to win over haggard parents by making available 150 baby care products. Target expanded that program more than tenfold this week to nearly 1,600 items across a much wider array of products. Everything from beauty products and pet supplies to home office supplies, are now available for regular delivery. The retailer's free subscription program allows people to schedule shipments in four, six, eight, 10 and 12-week installments. The discounter recently added a five percent discount on items ordered through the program. Customers using a Target branded card get another five percent discount. The subscriptions are part of a broader move online by Target. It's been a quick payoff, however. The pickup program now accounts for more than 10 percent of Target's online business, Goldberger said. Target is still determining how many products will be available by subscription, Goldberger said. "Our focus is how to serve the Target guests, not look at a competitor," Goldberger said. FULL STORY: WEBSITE: Associated Press Apr. 17, 2014 Source: Target

52 Online grocery sales to double in five key European markets by 2016
Britain, France, Germany, Switzerland and the Netherlands Joanne Denney-Finch, chief executive, IGD Reuters (Berlin), Oct. 23, 2013 Online retailing in food and consumer goods is growing at a phenomenal rate across Europe. Technology is empowering people, fundamentally changing the way they buy groceries Online grocery sales to double in key European markets by 2016: IGD BERLIN | Wed Oct 23, :02pm EDT(Reuters) - Online grocery sales will roughly double on average by 2016 in five key northern European markets - Britain, France, Germany, Switzerland and the Netherlands - the food and consumer goods research group IGD said on Thursday. IGD predicted that online grocery shopping in Britain would be worth 13.7 billion euros ($18.9 billion) by 2016, up from 7.1 billion in 2012, while the French market should grow to 10.6 billion euros from 5 billion last year. "Online retailing in food and consumer goods is growing at a phenomenal rate across Europe. Technology is empowering people, fundamentally changing the way they buy groceries," IGD chief executive Joanne Denney-Finch said in a statement. British retailers have been trailblazers in moving to sell food online, with the business growing 16 percent a year, although the delivery logistics for chilled products are much more complex and expensive than for non-perishables. FULL STORY: IGD NEWS RELEASE: Source: Reuters

53 high Interest in click & collect
GLOBAL AVERAGE NORTH AMERICA Order online for home delivery 37% 54% 20% 64% Order online pick-up inside of store 17% 65% 68% Order online pick-up via drive-thru 16% 66% 12% 68% While the conveniences of online shopping will likely not replace trips to the store for grocery shopping any time soon, digital is making significant strides in other ways. As the challenges of old age may inhibit driving and as more tech-savvy baby boomers become seniors, using the Internet to help with grocery shopping will only continue to grow. More than one-third (37%) of global online respondents say they are already ordering groceries online for home delivery, with more than half (54%) willing to give it a try if it becomes available. Only nine percent globally say they are not willing. While less than 20 percent of global respondents say they are presently ordering groceries online for pick up either inside the store (17%) or via a drive-thru window (16%), four times that many say they are definitely or somewhat willing to use them. While only one-in-five of North American survey respondents indicated they are currently ordering online for home delivery of traditional grocery trips, two-thirds indicated they are definitely or somewhat willing to use these services. For the brick & mortar retailers thinking that they compete with the likes of Amazon or Walmart, it is interesting to see how more North American respondents show an interest in ordering online and picking up either inside a store, via a drive-thru window or at curb-side. The challenge is figuring out what is right for your shoppers, creating the digital connections and in-store fulfillment processes to make this work; at the right fee for your shoppers which allows you to drive profitable trips. Order online pick-up curbside 13% 64% 11% 69% ALREADY USING DEFINITELY/SOMEWHAT WILLING Source: Nielsen Global Consumer Confidence Survey About Aging, Q (fielded 8/14/2013 – 9/6/2013)

54 Traditional retailers making an impact online
Peapod expands number of pick up locations “Ahold has a company-wide target to triple its online food sales by 2016” Harris Teeter debuts annual subscription Traditional retailers making an impact online. Ahold is already ahead of the curve in offering click & collect online ordering and fulfillment 120 pickup locations. I would assume that Kroger’s decision to acquire the Harris Teeter chain prompted them to see how far they can push the click & collect model and also include an annual service fee of $99.95 for unlimited orders. AHOLD : USA opens 120th pick-up point and digital innovation hub, underpinning its online growth ambitions 01/08/2014 – Carlisle, Pennsylvania, United States - Ahold USA, in partnership with its retail divisions and its online food retailer Peapod, reached a number of key milestones by the end of 2013 to grow its online business. By opening 120 pick-up points and a digital innovation hub in Chicago, Ahold USA continues to accelerate its online growth. Ahold has a company-wide target to triple its online food sales by An important part of reaching this target is the opening of pick-up points in the U.S. and Europe. Launched on both continents in 2012, the majority of pick-up points in the U.S. are located at Stop & Shop, Giant Landover and Giant Carlisle stores and offer a convenient way for customers to pick up their online orders without leaving the comfort of their vehicles. FULL STORY: Harris Teeter Celebrates 150th Express Lane Online Shopping Location with New Yearly Payment Option; Let Your Harris Teeter Handle the Shopping All Year COMPLETE NEWS RELEASE: $99.95 for the entire year, no limit to number of orders placed; curbside pick up Sources: Ahold; Peapod; Crain’s Chicago Business; Chicago Tribune; Harris Teeter

55 Walmart investing in drive through grocery pick up
“The 15,000 square-foot facility will house 10,000 fresh and dry grocery products – from cereal, chips and bread to fresh produce, meat and milk” The as-yet unnamed and unbuilt internet pick-up outlet will carry some 10,000 SKUs and be staffed by logistics employees at Walmart. They will assemble orders made online and deliver to cars in as many as 30 drive-up lanes. The concept is based on a similar offering at Walmart’s United Kingdom banner, Asda, said Judith McKenna, chief development officer at Walmart and a former Asda exec. Wal-Mart shareholders, employees hear about ‘customer-centric’ technology Submitted by The City Wire Staff on Fri, 06/06/ :45am | Story by Michael Tilley …Bill Simon, CEO of Walmart U.S., also announced during the year that the company would invest in pick-up depots that will allow shoppers to drive through and get their online grocery order that was  placed earlier in the day. The drive-through pick-up for online orders was tested in 11 stores in the Denver area and are yielding a 90% satisfaction rating with consumers. The test in the Denver market was first announced in October. Shoppers pull into the parking lot and a loader brings the items to the car. Wal-Mart also allows order pick-up through the drive-in pharmacy line. Wal-Mart has obtained approval to build to 15,000 square-foot retail warehouse facility in Bentonville with 52 parking places — 33 for customers driving through to pick up grocery orders and 19 for employee parking. The drive-in service is more about convenience, and those fill-in trips mid-week, an area that Wal-Mart has lost sales to in recent years from the rise of smaller format dollar stores and convenience stores. Simon said this quick-trip market is worth $415 billion annually and equals some 40% of the U.S. grocery spend. Wal-Mart’s share is just 10%, something the retailer thinks it can improve. FULL STORY: Wal-Mart gets green light to build its drive-in grocery center Submitted by The City Wire Staff on Wed, 05/07/ :52pm | Story by Kim Souza Wal-Mart then obtained approval to build to the 15,000 square-foot retail warehouse facility with 52 parking places — 33 for customers driving through to pick up grocery orders and 19 for employee parking. The company is also providing an onsite-storm water detention vault, according to the plan submission. The building will be brick and composite wood construction with steel and structural insulated panel, which required a waiver… According to the plan the consumers will drive up to the kiosk and get a parking slot number where they will park and wait on the delivery of their groceries. Early descriptions of the drive-in facility were Sonic-like, a closer examination of the plans look to be more like a cross between a Boomerang Car Wash and a Sonic. The consumer drives up to the kiosk similar to Boomerang and then instead of pulling through the carwash they drive into a parking space and wait on the delivery, said Jon Stanley, city planner… Wal-Mart has not yet disclosed the name of this drive-in initiative, city officials refer to it as “Project Drive”. The 15,000 square-foot facility will house 10,000 fresh and dry grocery products – from cereal, chips and bread to fresh produce, meat and milk, according to Deisha Barnett, corporate spokeswoman for Wal-Mart Stores Inc.  Barnett said the concept will allow consumers to shop online for their grocery items, schedule a pickup time at their convenience then drive up like they would at a Sonic drive-in, call to the associates who then bring their grocery order to car… Bill Simon, CEO of Walmart U.S., first announced plans for this type of new format earlier this year. He said these drive-in formats will give consumers the option of ordering online and picking up their groceries on their way from work. He said some of the pick-up centers would sell fuel. The plans for the concept facility in Bentonville do not include fuel… FULL STORY & DRAWING: ASDA PHOTO: The City Wire May 7, 2014 Sources: The City Wire & ASDA

56 Merchandising wide variety of categories
Major U.S. drug chains have been merchandising a wide variety of categories as they seek to fill their shopper’s baskets with front-of-store assortment. Here are feature ads from web sites of CVS, Rite-Aid & Walgreens which illustrates this point. Is also interesting to see how Walgreens now includes more pages in their online ads than those that appear in print addition. Walgreens.com “Savings & Deals” leads you to the page on the left and you if you click on “Weekly Online Deals” in the left sidebar, it leads you to the picture on the right. It’s interesting where you can hone in on “Walgreens Brand” by clicking on Walgreens Brand! Updated: March 24, 2014 Have you noticed Walgreens online ad includes more pages than their print edition? Source: Company websites

57 Walmart texting receipts to bring loyalty card capabilities to their offering
Walmart plans to analyze the large amounts of data it collects through e-receipts and use it as a marketing tool. It enables Walmart to track what its customers buy, where and when and send personalized offers to shoppers who want it. A Walmart executive said the retailer could send coupons to customers for their favorite brands or shopping lists of items they may want to buy during their next visit. Customers will be identified through their phone number. Photo Caption: “EASY: A QR code on a physical receipt can be scanned to create a digital version” Photo: Walmart turns digital receipts into shopping opportunities By Rian Boden  • 27 May 2014, 15:36 Retail giant Walmart is introducing a digital receipt service across its 4,200 US stores, enabling shoppers to store a digital version of their receipt in a mobile app by scanning a QR code shown on their paper receipt or by entering their mobile number at the point of sale. Customers will then be able to use the receipts to create a shopping list on their device, making their in-store experience “easier and more convenient”… “It is really part of our longer-term vision to leverage technology to enhance our in-store experience. Mobile is a top priority for the company. We know more than 50% of our customer have a mobile device and are looking for great digital experiences. “It is a gradual roll out over several weeks,” Bergh concluded. “It will be in 100% of the stores across the US.” FULL STORY: Wal-Mart will turn the electronic receipt into a sales tool April 22, 2014, 2:31 PM—…That will enable the big retail chain to accumulate large quantities of data about what a shopper buys and send personalized offers to shoppers who opt into the program, Gibu Thomas, Wal-Mart’s senior vice president of mobile and digital media, told attendees today at the Source14 conference organized by mobile analytics technology provider Flurry Inc. in San Francisco. Wal-Mart will mine the data to provide new services for shoppers, Thomas says. For example, it could analyze the items a Wal-Mart shopper buys each week and provide her with a shopping list of items she may want on her next trip to a Wal-Mart store. Or, if a consumer regularly buys cereal, Wal-Mart can send her a coupon for her favorite brand. “We view this as a platform,” Thomas says. “It will produce a fire hose of transactional data.” FULL STORY: Walmart rolling out text message receipts By Gitte Laasby of the Journal Sentinel April 23, 2014—Walmart will start offering text message receipts to its customers rather than printed receipts beginning next week, according to Internet Retailer. Walmart plans to analyze the large amounts of data it collects through e-receipts and use it as a marketing tool. It enables Walmart to track what its customers buy, where and when and send personalized offers to shoppers who want it. A Walmart executive said the retailer could send coupons to customers for their favorite brands or shopping lists of items they may want to buy during their next visit. Customers will be identified through their phone number. FULL STORY: Milwaukee Journal Sentinel Apr. 23, 2014 Source: Milwaukee Journal Sentinel & NFC World(photo)

58 Closing Thoughts Okay, so we have gone through a lot of material, let’s wrap this up and then address any questions.

59 Chasing The Customer … Not The Competition!
An interesting article on how winning retailers (today and tomorrow) are focused on the consumer – not the competition – and how they are leveraging consumer knowledge and Bid Data to make it all happen! Ron calls out Amazon, Kroger and Nordstrom has best of breed in chasing the customer. RONALD LUNDE

60 What would you do if you weren’t afraid?
― Spencer Johnson, Who Moved My Cheese? Source of quote: SPENCER JOHNSON

61

62 Stay Connected LinkedIn @ToddHaleNielsen Todd.Hale@nielsen.com


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