1. Presented by: Rachel McGuire, Senior Analyst Kate Senzamici, Senior Analyst Mary Brett Whitfield, Senior Vice President FDM Shopper Webinar Series July 18, 2014 A Tour of Shopper Bright Spots and Watch-Outs

2. © Copyright 2014 Kantar Retail Copyright © 2014 Kantar Retail. All Rights Reserved. 501 Boylston Street, Suite 6101, Boston, MA 02116 (617) 912- 2828 howard.zimmerman@kantarretail.com No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photography, recording, or any information storage and retrieval system now known or to be invented, without the express written permission of Kantar Retail. The printing of any copies for back up is also strictly prohibited. Disclaimers The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion. This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides.

3. © Copyright 2014 Kantar Retail Agenda Watch-Outs –Retailer Rationalization Continues –Shopping Frequency: More Shopping Less –Data Dangers Bright Spots –Shopper Still Signal Positive Spending Intentions –Quick Case Studies: Retailers on a Winning Streak CVS H-E-B 3

4. © Copyright 2014 Kantar Retail Watch-Outs Retailer Rationalization 4

5. © Copyright 2014 Kantar Retail Average Number of Retailers Shopped in Past Four Weeks* (among all primary household shoppers) Average Number of Retailers Shopped in Past Four Weeks* (among all primary household shoppers) Retailer Rationalization Continues in 2014 Source: Kantar Retail ShopperScape ®, January 2007–June 2014 5 12.4 *Inclusive of visits to stores and websites; averages are for Q1–Q3 of each year. Who will earn continued listing in shoppers’ portfolios? 2007 2008 2009 2010 20112012 2013 12.4 10.7 11.2 11.1 2014 YTD: 9.7

6. © Copyright 2014 Kantar Retail Shopper Portfolio: A Simple Illustration Source: Kantar Retail analysis 6 Total Portfolio Core Portfolio

7. © Copyright 2014 Kantar Retail 5.85.0 The Core Portfolio Is Shrinking, Too Source: Kantar Retail ShopperScape®, January-September 2007 and 2013 7 12.4 10.7 Average Number of Retailers in Shoppers’ Portfolio Blue-Total Retailer Portfolio Yellow-Core Retailer Portfolio

8. © Copyright 2014 Kantar Retail Reasons for Shrinking Store Set Vary, but a Few Commonalities across Income Groups Source: Kantar Retail ShopperScape®, June 2014 8 Reasons for Shopping Fewer Retailers More important for Have Nots More important for Haves Equally important

9. © Copyright 2014 Kantar Retail Watch-Outs Shopping Frequency: More Shopping Less 9

10. © Copyright 2014 Kantar Retail Shoppers More Likely to Cut Back on Trips to Retailers Further evidence of shoppers’ efforts to streamline, simplify 10 Retailers Shoppers Report Shopping More Often, Less Often vs. Year Ago Source: Kantar Retail ShopperScape ®, May 2014

11. © Copyright 2014 Kantar Retail “Non-Essentials” Retailers Among Top Five Shopped Less 11 Top Retailers Shoppers Report Shopping Less vs. YA 20132014 Best Buy25%26% JCPenney26%24% Home improvement/hardware retailer21%22% Kohl's21%22% Target or SuperTarget21% Walgreens19% Macy's18%19% Walmart or Walmart Supercenter17%18% CVS/pharmacy16% Amazon.com14% More discretionary vs. essential Source: Kantar Retail ShopperScape ®, May 2013 and May 2014

12. © Copyright 2014 Kantar Retail Walmart, Target Shopper Shopping Less Overall 12 Shopping less in general44% More pleasant at other retailers21% Doing more shopping at supermarkets20% Shopping retailers that are more convenient20% Better value at other retailers18% Shopping less in general43% Shopping more at Walmart26% Shopping retailers that are more convenient23% Better value at other retailers23% Doing more shopping at supermarkets19% Top 5 Reasons for Shopping Walmart Less Often vs. Last Year Top 5 Reasons for Shopping Target Less Often vs. Last Year WMT loses shoppers to more “pleasant” retailers, supermarkets, more convenient retailers TGT loses shoppers to Walmart, more convenient retailers, better value Source: Kantar Retail ShopperScape ®, May 2014

13. © Copyright 2014 Kantar Retail Shoppers Engaging in Limiting Behavior And store sets are contracting: one in 10 report shopping fewer retailers vs. a year ago 13 Key Limiting/Streamlining Behaviors Engaged in Over Past Year Walmart/WMSC 67% Amazon.com 57% Target/SuperTarget 33% The Home Depot 32% Walgreens 31% Dollar Tree 31% CVS/pharmacy 30% Kohl's 27% Lowe's 27% Dollar General 24% Shoppers Most Likely to Report Shopping Fewer Retailers Source: Kantar Retail ShopperScape ®, May 2014

14. © Copyright 2014 Kantar Retail Where Are Shoppers Shopping Less? 14 Source: Kantar Retail Analysis and ShopperScape ®, June 2014

15. © Copyright 2014 Kantar Retail Shoppers Need Extra Incentive to Keep Retailer in Store Set 15 We absolutely positively have shopped shopping retailers that have no sales, no coupons … because of the current economic conditions. I do not shop at Publix as much because the closest one is 30 minutes away, and gas is too expensive. We’re just cutting down on shopping physical stores in general. Source: Kantar Retail Analysis and ShopperScape ®, June 2014

16. © Copyright 2014 Kantar Retail Watch-Outs Data Dangers 16

17. © Copyright 2014 Kantar Retail Shoppers Are Wary: Data Security and Theft 17 … and they have reason to be Source: Kantar Retail ShopperScape ®, February 2014 Shoppers’ Thoughts about Data Security (% who strongly agree/agree)

18. © Copyright 2014 Kantar Retail High Awareness of Target Data Breach; Affect on Shopping Behavior More Moderate Source: Kantar Retail ShopperScape ®, January 2014, 18 5% Stopped shopping at Target altogether 53% of those aware had not been affected and/or had not changed behavior because of data breach … 3% Shopped Target to receive the 10% discount on 12/21-22 10% Less likely to shop going forward 92% of all shoppers aware of the data breach Shopper Awareness and Reaction to Target Data Breach

19. © Copyright 2014 Kantar Retail Breach Exacerbated Trend in Penetration Decline Though Target now reporting improved traffic and sales trends 19 Source: Kantar Retail ShopperScape ®, January 2008–May 2014 Corporate press releases When we survey consumers, we increasingly hear they have put the breach behind them and are resuming their Target shopping habits. John Mulligan, Q1 Sales Release Call, May 2014 Target Shopper Penetration: Past 4-Week Shoppers

20. © Copyright 2014 Kantar Retail Not Even Half of Shoppers Trust Retailers 20 Distrust relatively consistent across shopper segments Source: Kantar Retail ShopperScape ®, February 2014 Trust That Retailers Are Taking the Necessary Steps to Keep My Information Safe Financial Information Non-Financial Information (e.g., sales history, personal info) Strongly agree/agreeNeither agree nor disagreeStrongly disagree/disagree

21. © Copyright 2014 Kantar Retail Retailer rationalization is crystallizing winners and losers at retail.  Where to play is increasingly important, and more imperative than ever for suppliers to help retailers try to figure out how to win (or win back) their shoppers Shoppers are not afraid to eliminate retailers from their store sets, and everyone is vulnerable. The need is greater than ever for retailers/suppliers to demonstrate value and provide shoppers with the incentive to shop. A wary shopper population makes an environment characterized by rationalizing and limiting even more perilous. Key Takeaways: Watch-Outs Source; Kantar Retail analysis 21

22. © Copyright 2014 Kantar Retail Bright Spot: Spending Intentions 22

23. © Copyright 2014 Kantar Retail Two consecutive months hitting all- time lows (March and April 2014), before slight uptick in May, then leveling off in June Spending Intentions Continue Positive Trend Lowest “Spend Less” levels on record in March and April Source: Kantar Retail ShopperScape ®, June 2008–June 2014 23 Spend About the Same Spend Less Spend More Retail Spending Intentions in Coming Month (three-month moving average)

24. © Copyright 2014 Kantar Retail Have Nots Contributing Disproportionately to Improvement 24 2012–2014 Growth Rate Haves (Annual HH Income >$60k) All Shoppers Have Nots (Annual HH Income ≤$60k) 5.5% 6.1% 6.4% Over past two years, growth in Have Nots planning to spend same or more has outpaced average and more affluent counterparts Source: Kantar Retail ShopperScape ®, June 2012–June 2014 Share of Shoppers Planning to Spend the Same or More in Coming Month (three-month moving average)

25. © Copyright 2014 Kantar Retail BTS: Spending Plans Bifurcate Retailers will need to capitalize on those with plans to spend more to offset cautiousness 25 Spending Plans for Back-to-School Spending Compared with Last Year Source: Kantar Retail ShopperScape ®, June 2014

26. © Copyright 2014 Kantar Retail Back to School “Store Set” Good news: Mostly stable vs. last year … but Amazon poised to be a more prevalent factor 26 Source: Kantar Retail ShopperScape ®, June 2014 Back to School: Retailers Planning to Shop for School Supplies

27. © Copyright 2014 Kantar Retail More Shoppers Seek to Streamline BTS Shopping Budget has greater influence on timing this year 27 Back to School: How and When Shoppers Plan to Shop for School Supplies Source: Kantar Retail ShopperScape ®, June 2014

28. © Copyright 2014 Kantar Retail Bright Spot: CVS Is a “Capture Rate” Winner 28

29. © Copyright 2014 Kantar Retail CVS, WAG Capture Rates Mostly Steady But CVS better able to “capture” shoppers in HBC than WAG 29 HBC Capture Rates Capture Rate: The percentage of a retailer’s shoppers who report spending the most on a category at that retailer. Source: Kantar Retail ShopperScape ®, November 2013

30. © Copyright 2014 Kantar Retail “Loyal” Shoppers More Likely to Have Retailer Loyalty Card ExtraCare card attracts more shoppers than Balance Rewards 30 “Loyal” shoppers Source: Kantar Retail ShopperScape ®, November 2013

31. © Copyright 2014 Kantar Retail Better than one in three CVS shoppers who have an ExtraCare card spend the most on HBC at CVS The Converse Is True As Well: Loyalty Cards Drive Spending CVS, WAG shoppers who have a loyalty card are more likely to spend the most on HBC at that retailer 31 Source: Kantar Retail ShopperScape ®, November 2013

32. © Copyright 2014 Kantar Retail CVS, Walgreens Shoppers Share Similar Loyalty Card Values … CVS shoppers more likely to value dollars off, cardholder specials Source: Kantar Retail ShopperScape ®, November 2013 32 CVSWalgreens Discounts on regular prices 71%69% Discounts on gasoline 40% Ability to earn points to redeem for dollars off a future purchase 45%40% Weekly/monthly specials just for loyalty card holders 45%41% Personalized deals specific to the types of products I buy 32% Personalized discounts based on purchase behavior 2% back in “ExtraBucks” per quarter ExtraBucks also tied to prescriptions (fill 10, earn $5 in ExtraBucks) and beauty (spend $50, get $5 in ExtraBucks) Personalized discounts based on purchase behavior 2% back in “ExtraBucks” per quarter ExtraBucks also tied to prescriptions (fill 10, earn $5 in ExtraBucks) and beauty (spend $50, get $5 in ExtraBucks) Weekly savings + rewards points 5,000 points = $5; 10,000 = $10 Earn extra points when filling prescriptions Balance Rewards app allows shoppers to easily track points and coupons Weekly savings + rewards points 5,000 points = $5; 10,000 = $10 Earn extra points when filling prescriptions Balance Rewards app allows shoppers to easily track points and coupons

33. © Copyright 2014 Kantar Retail … But ExtraCare Card Generates Higher Satisfaction Especially among more loyal shoppers 33 Source: Kantar Retail ShopperScape ®, November 2013 Close to 90% of CVS shoppers who have an ExtraCare care and spend the most on HBC at CVS are very satisfied with their ExtraCare benefits

34. © Copyright 2014 Kantar Retail Bright Spot: H-E-B Continues to Win Shoppers

35. © Copyright 2014 Kantar Retail H-E-B Shoppers: A Loyal Bunch Majority use H-E-B as their primary grocery store Source: Kantar Retail ShopperScape®, Aug/Nov 2013, Feb/May 2014 35 in shoppers who walk through the doors of H-E-B spend the most on food/groceries there.

36. © Copyright 2014 Kantar Retail Benchmarking Shows H-E-B Consistently Above Par in Capturing Its Own Shoppers Source: Kantar Retail ShopperScape®, Feb/May/Aug/Nov 2009, 2010, 2011, 2012, and 2013, Feb/May 2014 36 Percent of Retailer’s Own Shoppers Who Spent MOST on Food/Groceries at Retailer

37. © Copyright 2014 Kantar Retail H-E-B Is Not Doing This in a Competitive Vacuum … Quite the Opposite Source: Kantar Retail analysis; company reports 37 Opened distribution center Hello! WinCo Core market for Neighborhood Market Growth from the “unfamiliar”

38. © Copyright 2014 Kantar Retail Why Do Shoppers Choose H-E-B? H-E-BAnywhere Else Convenient to home, work or other stores I shop 64%49% Lower everyday prices than competitors 53%40% Higher quality fresh foods 35%11% In stock on the items I want to buy 19%15% Better sales or promotions than other stores 18%16% Familiar with store/shopping here is a habit 14%18% Better able to one-stop shop for many categories/services 11%19% Good customer service 11%10% Faster checkout 7%11% More brand(s) I like 7%3% Open 24-hours every day 1%14% Frequent shopper/rewards program 1%12% Value, Convenience, Assortment Source: Kantar Retail ShopperScape®, Aug/Nov 2013 and Feb/May 2014 38 Reasons for Store Choice for Food/Groceries Among H-E-B Shoppers, by Where Spent Most Note: Highlighting indicates significant difference between column percentages (95% confidence level)

39. © Copyright 2014 Kantar Retail Cross-Shopping Shows Extent to Which H-E-B Is Winning in World of Retailer Rationalization Source: Kantar Retail ShopperScape®, January-December 2008 and 2013 39 Cross-Shopping Between H-E-B and Key Competitors (Texas Only) More Walmart and Kroger shoppers in Texas are cross-shopping H-E-B … while fewer H-E-B shoppers are cross-shopping Walmart and Kroger.

40. © Copyright 2014 Kantar Retail H-E-B “Gets” Its Shopper Better than Most And often, that shopper is Hispanic Source: Kantar Retail ShopperScape®, Aug/Nov 2013 and Feb/May 2014 40 Percent of H-E-B Shoppers Who Spent MOST on Food/Groceries at H-E-B All Shoppers Hispanic Shoppers Note: ShopperScape ® survey administered only in English; Hispanic respondents should be considered acculturated

41. © Copyright 2014 Kantar Retail H-E-B “Gets” Its Shopper Better than Most And often, that shopper is Hispanic Source: Kantar Retail store visits, company website 41 “We love our H-E-B stores and surrounding communities, because we live and shop here too.” “It’s not Hispanic marketing, it’s just marketing.”

42. © Copyright 2014 Kantar Retail Key Takeaways: Bright Spots In a shopper environment characterized by both positive spending sentiment and ongoing streamlining of routines, retailers that provide that extra level of value/benefits that resonates with their shoppers are best positioned to win Lessons to be learned from the winners CVS has been able to leverage its ExtraCare program to turn regular shoppers into loyal shoppers by giving them no reason to need/want to shop elsewhere. Despite an extraordinarily competitive grocery landscape, H-E-B continues to win shoppers vis-à-vis its competitors by understanding who their shopper is, and making the store experience, assortment, and message all about that shopper. Source: Kantar Retail analysis 42

44. © Copyright 2014 Kantar Retail Questions? Submit questions on Q&A panel on right side of screen 44 Watch-Outs –Retailer Rationalization Continues –Shopping Frequency: More Shopping Less –Data Dangers Bright Spots –Shopper Still Signal Positive Spending Intentions –Quick Case Studies: Retailers on a Winning Streak CVS H-E-B

45. © Copyright 2014 Kantar Retail Contact: Mary Brett Whitfield Senior Vice President marybrett.whitfield@kantarretail.com T:+ 1 614 355 4010 www.kantarretailiQ.com Rachel McGuire Senior Analyst rachel.mcguire@kantarretail.com T:+ 1 614 355 4036 www.kantarretailiQ.com Kate Senzamici Senior Analyst kate.senzamici@kantarretail.com T:+ 1 617 912 2866 www.kantarretailiQ.com Caroline Gormley Analyst caroline.gormley@kantarretaill.com T:+ 1 617 912 2865 www.kantarretailiQ.com