1. 1© Copyright 2009 Kantar Retail THERE ARE 3 E’S IN “THE TEENS”: RETAIL PROJECTIONS 2010-2015 BRYAN GILDENBERG CHIEF KNOWLEDGE OFFICER

2. THE THREE E’S AND THEIR COUSINS, THE THREE S’S 2 © Copyright 2009 Kantar Retail Economics Emotion Execution Shopper Insights Service Shelf-Back Thinking

3. THE THREE E’S AND THEIR COUSINS, THE THREE S’S 3© Copyright 2009 Kantar Retail Economics Emotion Execution Shopper Insights Service Shelf-Back Thinking

4. ECONOMICS – SPOT THE RECESSION 2012 IS THE NEW 2009 4© Copyright 2009 Kantar Retail CAGR '04-'08 = 5.3% CAGR '10E-'14E = 4.4% CAGR '07-'11E = 0.6%

5. 5© Copyright 2009 Kantar Retail POST RECESSION BEHAVIOR? –82% of U.S. consumers in one nationwide survey said they intend to keep cooking at home instead of eating out even after the economy improves and they have more money to spend. –84% said they'll keep looking for specials in store flyers –80% said they plan to use coupons as much as possible –78% said they're determined to make fewer trips to the store in order to save on gasoline. Source: MVI analysis; Precima shopper survey, June 2009

6. –The old consumer is extinct Older consumers are modifying spending habits and may never completely return to their old behavior – a massive case of Post Downturn Shopping Disorder is the norm Younger consumers will drive the economy in new ways, based on new assessments of needs and wants –Effective marketing and communication will have different platforms, different messages, and will have to address these new needs Supplier methodologies that are the same as they were even a few years ago are likely incorrect KEY TAKEAWAY: RECALIBRATE THE CONSUMER TARGET 6© Copyright 2009 Kantar Retail

7. –When real estate-driven outlet expansion growth is no longer a sustainable path to growth, the path of competition changes in fundamental ways Market segmentation and fragmentation to find opportunity Intense focus on space productivity Shopper analytics become pervasive Fewer, deeper partnerships Customization for major customers increasingly required ECONOMICS: THE POST-MODERN MARKETPLACE 7© Copyright 2009 Kantar Retail

8. SQUARE FOOTAGE ADDED BY MVI CHAINS 2004-2011E 8© Copyright 2009 Kantar Retail 2004-2007 Avg: 138.0 MM Sq. Ft. 2008-2011E Avg: 52.5 MM Sq. Ft. 62% reduction! MVI Chains: Net Sq.Ft. Added By Year Source: MVI Database

9. –A variety of retailers are deploying a variety of 3 letter acronyms…. –The very power that makes them desirable customers makes them dangerous and demanding partners –When it looks like the pie won’t grow bigger, the retailers with power in the marketplace will demand a bigger slice of the pie THE “BIG ASK” IS THE FIRST RESULT… 9© Copyright 2009 Kantar Retail

10. 1.STORE: The median size of stores opening in the USA will continue to come down Smaller formats and smaller prototypes within customers 2.CATEGORY: The % of your square footage treated as a “destination” will come down 3.OFF SHELF: For most retailers, off-shelf opportunities will be more difficult to come by 4.ASSORTMENT: Most retailers will prefer expanded facings to expanded SKUs 5.SKUS: Most retailers will increase their private label share of shelf ECONOMICS: POST-MODERNISM = MORE WITH LESS …5 “WILL’S” 10© Copyright 2009 Kantar Retail Source: MVI analysis

11. 11© Copyright 2009 Kantar Retail RETAILER TRIPS/SHOPPER BIGGEST GAINS AT WMT SC & DOLLAR STORES Source: IRI Panel Data, Mid-Year 2008, 2009 (Heavy Shoppers, US) Trips Trips down at Kmart and flat at Walmart Discount; otherwise are up across the board Flat…

12. –Evidence of a historic reversal in behavior Instead of most decisions being made on-store, most decisions are made at home before ever going to the retail outlet – as much as 70% of purchases are now “planned” Combined with retailers changing philosophy –Key Implications The call to action has to be part of the brand This only gets weirder as shopping gets more eyes down with portable technology What’s the next generation of impulse? MORE FREQUENT TRIPS NOT NECESSARILY GOOD NEWS FOR IMPULSE CATEGORIES! 12© Copyright 2009 Kantar Retail

13. –Not just “Weird for the sake of weird” Moe the bartender on post-modern art! –Square footage expansion will not be the core driver of faster than market growth Suppliers: Space productivity Retailers: Format optimization/innovation ECONOMICS: THOUGHTS ON A POST-MODERN MARKET 13© Copyright 2009 Kantar Retail

14. –“The retail competitive environment is moving from a prize fight to a barfight” –Rob Price, Chief Marketing Officer, CVS/Caremark –The shopper insight conversation continues to move from “who, where and how” to “what, how much and why” SHOPPER INSIGHTS: WHAT’S NEXT? 14© Copyright 2009 Kantar Retail

15. TRANSACTIONAL DATA AND INTERNET RESEARCH GIVE US TONS MORE INFORMATION… What? Who? When? How Much?

16. YOU CAN OPTIMIZE WITH WHAT, BUT YOU CAN’T INNOVATE WITHOUT WHY… What? Who? When? How Much? Why? Why Not? What Else?

17. –Adjacent formats may be the key to “share of recovery” Take aim at the formats that lost trips Understand the attributes of those formats that can be stolen by the retailer that held onto the trip –“I got 20 other brokers analyzing charts, pal. I don't need another one…want another chance? Then stop sending me information, and start getting me some” – Gordon Gekko, Wall Street SHOPPER INSIGHTS: CONCLUSION 17© Copyright 2009 Kantar Retail

18. EMOTION: RETAILER BRAND OBJECTIVES: RELEVANCE CREDIBILITY –Brand – does it make sense? –Operationally – can I do it? –Economics – can I see how it makes me money? –Shopper – do I support this type of decision? –Brand – what’s better about buying it here? –Operationally – can I do this better, faster or cheaper than anyone else? –Economics – is this the best use of this space? –Shopper – does this attract a profitable shopper for me? 18© Copyright 2010 Kantar Retail Source: MVI analysis

19. EMOTION: RETAILERS AND PRIVATE LABEL Source: MVI analysis BrandFinance Reflective Incandescent M o t i v a t i o n P o w e r Trade Up Trade Down Leverage PL Image  $ Leverage National Image  Banner Source: MVI analysis

20. –Other directed –Single point of consumption –Timing static, planned, controlled –Fat chickens EMOTION: THE RISE OF “FREE-RANGE” MARKETING 20© Copyright 2009 Kantar Retail VS. –Self directed with parameters –Multiple consumption points –Timing dynamic, encouraged and framed –Happy chickens

21. CONCLUSIONS: FREE RANGE MARKETING –Retail is a subset of a much bigger challenge: How do we develop brand when we don’t control the medium it is being developed in? –How do we know the chickens will eat what we want ‘em to if they’re running around? –New techniques critical Campaign management Shopper response to stimulus “Impression” understanding –Retail and digital remain 2 sides of the same coin…. 21© Copyright 2009 Kantar Retail

22. SERVICE: REDEFINING THE VALUE EQUATION A NEW PRODUCTIVITY LOOP EMERGING? The in-store experience plays an increasingly important role and is key to defining the retailer’s brand in the marketplace Lower Prices Increased Velocity Increased Profit $s Lower Costs Higher margins Service Sales velocity Broad assortment Source: MVI analysis

23. –Optimized Multiple –More Better –Permanent Rotation –Standard Tailored EXECUTION WHAT WILL CHANGE WHAT IT MEANS 23© Copyright 2009 Kantar Retail –Ruthless self discipline SKUs Lines Brands –Scenario planning vs. ROI –Flexibility, which means Better measures More transparency More general managers Source: MVI analysis

24. “SHELF-BACK MARKETING” REQUIRES “SHOPPER ECONOMICS” AND “D3C” Sales = Path To Purchase Inventory = Facings Margin = Assortment Out-of- Stocks (OOS) Global Sourcing/Private Label/ Assortment Balance Pricing Strategy Source: MVI analysis Cost Reduction Consistency Continuous Improvement Design For Execution

25. –Can we change channel the way we used to change “channels”? Dynamic retail marketing spend/evaluation critical –Store-back marketing requires walking many miles in the retailer’s shoes, even for suppliers Economics and operations become a big part of marketing! –Store-back marketing means understanding that someone else is trying to use that space too Leveraging rather than eliminating PL becomes the conversation 3 FINAL THOUGHTS: SHELF-BACK MARKETING AND THE RETAILER’S BRAND 25© Copyright 2009 Kantar Retail

26. FORWARD LOOKING –Those who don’t know how to break free of the past are doomed to repeat it Optimization will not work for 2010/2011 New ideas fueled by new inputs will win at retail –Shopper insights are critical to taking our backwards process and making them forward looking –“The curse of the anniversary” will restrict many companies looking to leverage opportunity in the next 24 months! 26© Copyright 2009 Kantar Retail

27. THE THREE E’S AND THEIR COUSINS, THE THREE S’S 27 © Copyright 2009 Kantar Retail Economics Emotion Execution Shopper Insights Service Shelf-Back Thinking

28. Bryan Gildenberg Chief Knowledge Officer Bryan.Gildenberg@kantarretail.com 10 Mountain View Rd Upper Saddle River, NJ 07458 T +1 617 588 4124 C +1 617 512 2866 F +1 617 499 2723 www.mvi-insights.com 28© Copyright 2009 Kantar Retail © 2009.Kantar. No part of these materials may be used, reproduced or adapted without the prior written consent of the copyright owner. All rights reserved