1. Digital fdm Shoppers, new healthcare shoppers, and performance gaps at target and walmart
Rachel McGuire
Senior Analyst
Kate Senzamici
Analyst
Mary Brett Whitfield
U.S. FDM Shopper Webinar Series
Senior Vice President
August 3, 2013

2. Copyright Notice and Disclaimer
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Disclaimers
The analyses and conclusions presented here represent the opinions of Kantar Retail LLC. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion.
This content is not endorsed, or otherwise supported, by the management of any of the companies covered during the course of the presentation or within the following slides. 2

3. Agenda Digital FDM Shoppers New Healthcare Shoppers
Performance Gaps at Target and Walmart through a Shopper Lens

4. Kantar Retail ShopperScape®
4,000 primary household shoppers per month
CORE SAMPLE: Representative sample of ~50, unique primary household U.S. shoppers annually
ALSO: Oversample of men for representative sample of males HOH (n = 800/month)
Who?
How?
Fielded online the third week of every month
Survey fielded through LSR access panel of more than 3 million individuals
What?
Monthly and quarterly tracking questions on retailers and venues shopped, products purchased, where spent, near-term spending outlook, and household financial health
Questions on timely and topical issues (including key holiday periods) affecting shopping behavior
Coverage
200+ retailers across all sectors of retail
75+ product categories (e.g., over-the-counter medications)
7 major merchandise groups (e.g., health and beauty care products) 4 4

5. Agenda Digital FDM Shoppers New Healthcare Shoppers
Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

6. Use of Retailer Apps on Mobile Growing
Accessed Retailer App on Smartphone
(among all primary household shoppers)
Interest in Using Retailer App in Store to Make Shopping for Groceries/HH Essentials/HBC Easier
(% rating extremely/somewhat important)
2013:
11%
All Shoppers
16%
Gen Y
30%
Gen X
24%
Boomers 9%
Seniors 3%
2012: 7%
Source: Kantar Retail ShopperScape®, January 2012 and January 2013 (left) and May 2013 (right)

7. Strong Desire to Use Apps: Grocery Shopping
More than half of all smartphone owners cite at least one app use as appealing as part of grocery shopping while in store …
Strongest Appeal: View current sale/ad items
Also popular:
Access shopper card data/ discounts
Locate item
Make a list
Stay on budget
Get location-based deals
As payment
Average # of app activities that are appealing: 2.4
Source: Kantar Retail ShopperScape®, May 2013

8. Gen Y Leads Interest in Adopting Apps
By Generation: Would Ideally Like to Be Able to Use Primary Grocery Store's
Smartphone App While Shopping in Store to …
(among shoppers with a smartphone)
All Shoppers
Gen Y (born 1982 to 2002)
Gen X (born 1965 to 1981)
Boomers (born 1946 to 1964)
Sample Size
1039
233
453
297
View current ad/sale items
38%
43%
42%
32%
Access my frequent shopper card information/discounts
29%
37%
31%
23%
Locate a specific item in the store
28%
Make a shopping list
24%
19%
Monitor my spending/use app to stay on budget while shopping
22%
25%
14%
Have special deals pushed to phone based on store location
21%
27%
15%
Scan items with my phone as I shop and pay with my mobile phone
20%
17%
“Route" my shopping trip through the store based on my list
18%
13%
Quickly/easily read reviews for products
12%
Arrange to have out-of-stock items delivered to my home
16% 8%
Message a store employee for assistance 9%
10% 7%
Engage with my social network for advice or sharing 6% 4%
None of these
46%
39%
40%
54%
Average number of things with appeal
2.4
3.1
2.6
1.9
Source: Kantar Retail ShopperScape®, May 2013

9. (among shoppers with a smartphone)
Target Shoppers More Likely to Be Interested in Using Apps in Store vs. Walmart Shoppers
Would Ideally Like to Be Able to Use Target/Walmart’s Smartphone App While Shopping in Store to …
(among shoppers with a smartphone)
Significant difference between Target and Walmart shoppers
Source: Kantar Retail ShopperScape®, May 2013

10. Drug Store Retailer Apps Attracting Users
… but “converting” fewer than half of users
Percent of All Shoppers Who Have App
Among Shoppers with App, those Who Never Use Any of Key Functionality
11%
52% 9%
58%
Source: Kantar Retail ShopperScape®, August 2013

11. Walgreens App: Feature and Functionality Rich
Fast Rx refills, Rx management, myriad photo-related options
Source: Retailer marketing materials, Kantar Retail analysis

12. Use of Drugstore Apps Transaction Oriented
Very functional; shoppers using digital in path to purchase
Top Uses of Leading Drugstore Apps in Past 6 Months
(among smartphone shoppers with apps)
Ordered Rx refill (19%)
Searched for coupons (17%)
Checked reward program (18%)
Checked reward program (16%)
Browsed weekly ad (15%)
Browsed weekly ad (15%)
Searched for coupons (11%)
Shopped (9%)
Searched for a store location (8%)
Made a shopping list (9%)
Shopped (7%)
Checked for drug interactions (9%)
Source: Kantar Retail ShopperScape®, August 2013

13. Online Shopping and Purchasing on the Rise
Conversion rates growing as well
Average Online Shopping and Purchasing across Categories*
(among all shoppers, online activity at any retailer)
Conversion
Rate
50%
49%
* Across 30 categories tracked in ShopperScape®
Source: Kantar Retail analysis, Kantar Retail ShopperScape®, July 2011 and July 2013

14. More Online Activity for Most Categories
Two consumables categories in top 10 shopped online
Top Categories Shopped Online
Total Shopping Rate
(among all shoppers, online activity at any retailer)
Shopping Rate Chg vs (ppt)
Purchase Rate Chg vs (ppt)
+0.8 ppt
0.0 ppt
+2.9
+2.6
-0.9
-1.2
+6.9
+5.9
+2.2
+1.4
+0.2
+0.6
+1.5
+1.1
+3.6
+3.2
+1.7
+0.4
+2.0
+0.5
+2.3
+4.2
+2.1
+1.9
29%
22%
20%
19%
18%
16%
15%
14%
14%
13%
11%
10%
10%
10%
10%
Source: Kantar Retail ShopperScape®, July 2011 and July 2013

15. Consumables Grow Online Purchaser and Shopper Base
Online Shopping and Purchasing Rates for Consumables Categories
Total Shopping Rate
(among all shoppers, online activity at any retailer)
Shopping Rate Chg vs (ppt)
Purchase Rate Chg vs (ppt)
+2.2 ppt
+1.4 ppt
+3.2
+2.6
+1.9
+1.7
+0.8
+0.7
+0.3
+0.9
+1.2
+0.4
+0.5
-0.3
+1.6
+1.0
+0.2
18%
14%
10%
10%
10% 8% 6% 5% 5% 5% 5%
Source: Kantar Retail ShopperScape®, July 2011 and July 2013

16. Top Conversions Span from GM to Consumables
Some conversion drops … but vitamins/OTC and personal care among biggest conversion increases
Conversion Rates Chg vs (ppt)
+3.1
-2.6
-2.7
+4.5
+2.7
+0.5
-1.6
+4.8
+4.1
+1.7
+4.2
-1.0
-1.8
-1.5
+5.8
Top Online Conversion* Categories
* Conversion calculated as % purchased online/% shopped online
Source: Kantar Retail ShopperScape®, July 2011 and July 2013

17. Online Sales as Share of Total Category Sales
All Categories Contribute to “Driving the Double”
Online Sales as Share of Total Category Sales
14%
AVERAGE ACROSS CATEGORIES 7%
AVERAGE ACROSS CATEGORIES 4%
AVERAGE ACROSS CATEGORIES
Source: U.S. Department of Commerce, Kantar Retail analysis

18. How Digital Impacts the Brick & Mortar Trip
Online-influenced expectations transforming demands at store level
Easy search
Flex time
Speed of decision
Time
Research
Details
Sourcing
Ingredients
Inform
Side-by-side
Pricing
Rankings
Peer Reviews
Compare
“This with that”
Solutions
Intelligent suggestions
Linkage
Online activity influences nature of trip and expectations of shopping experience
Source: Kantar Retail analysis

19. Key Takeaways Digital FDM Shoppers
Clearly in the “post-desktop” information age
Mobile creating “perpetual purchase occasions”
But shoppers still integrating mobile tools and functionality into routines
Shopping apps not yet entrenched as “killer app” of mobile tools
Mobile has key role in redefining retailer value proposition in a “world without walls”
Source: Kantar Retail analysis

20. Agenda Digital FDM Shoppers New Healthcare Shoppers
Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

21. % Population Without Insurance Highest Since 1998
Percentage of People Without Health Insurance in The United States from 1990 to 2011
Percentage of population
Source: US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States 2011

22. Health Care Reform 2014: Deciphering the Affordable Care Act
Starting January 1, 2014 includes:
Guaranteed coverage means that insurance companies cannot refuse coverage to anyone including sick or elderly
Individual mandate which fines those that do not have coverage
Cost assistance and subsidies to offset spend
Unlimited coverage means there is no cap to health spending
14,000,000
Estimated additional insured expected in 2014
Source: company & government websites

23. Which Shoppers Are Prime Candidates?
Have Nots, Hispanics, Gen Y-ers
Health Insurance Coverage
All Shoppers
Have Nots (<$60,000)
Haves ($60,000+)
Hispanic*
Boomers
Gen Y
Sample size
4024
2371
1653
483
1487
610
Through employer or private insurance
58%
40%
84%
59%
64%
54%
Medicare or Medicaid
28%
38%
15%
18%
19%
I do not have health insurance
16%
23% 5%
22%
17%
24%
Prefer not to answer 3% 4% 2% 7%
INSURED
86%
78%
99%
77%
83%
69%
Potential for more Rx transactions and store traffic from these groups
Shading indicates significantly greater percentage vs. all shoppers; border indicates significantly lower percentage (90% confidence level)
*The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population
Source: Kantar Retail ShopperScape®, February 2013

24. How Well Do Shoppers Understand?
Admittedly, not too well…
Shoppers whom are most primed for ACA also have lowest awareness, understanding
Arrows indicate significantly greater percentage vs. all shoppers (90% confidence level)
*The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population
Source: Kantar Retail ShopperScape®, August 2013

25. How Retailers Hope to Capture New Shoppers
Educating, & positioning themselves as trusted advisors ?
Source: company websites, Kantar Retail analysis

26. Walmart, Walgreens, CVS Positioned to Gain Largest Shares of Newly Insured Shoppers
Especially Gen Y, Hispanic
Gen Y: %
Hispanic: 27%
Gen Y: 20%
Hispanic: 15%
Gen Y: %
Hispanic: 18%
More than three-quarters of Hispanics (77%) and Gen Y-ers (76%) plan to purchase prescriptions when they get insurance
Arrows indicate significantly greater percentage vs. all shoppers (90% confidence level). Low sample for Hispanics (n=80); no statistical testing.
*The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population.
Source: Kantar Retail ShopperScape®, August 2013

27. CVS Wins Overall Prescription Share of Preference
Drug, Target win with Hispanic & Gen Y shoppers
Walmart appeals to Have Nots
Can uninsured members of these cohorts be expected to follow suit?
Spending Facts
Hispanic shoppers almost evenly split between CVS (24%) and Walgreens (23%)
CVS captures equal percentages of Hispanic and Gen Y shoppers (24%)
Gen Y shoppers favor CVS, though Walgreens is close behind (21%)
Almost as many Boomers get most scripts filled via mail/online (18%) as do at CVS (19%)
Source: Kantar Retail ShopperScape®, June 2013

28. … And Currently Has Highest Prescription Capture Rate
Does this guarantee success with newly-insured shoppers?
Source: Kantar Retail ShopperScape®, June 2013

29. But Trend Likely to Shift Away from Drug
Favors shift to non-store/online ordering in long term
Still means healthy growth for other channels over time
Prescription Drugs: Share of Category Spending by Channel
1997
2020F
2002
2012E
2007
Drugstores, including HBC specialists
Grocery stores
Big-box &
small-box mass retailers*
Non-store, including
online
Total
Category
CAGR
2002–2007
2007–2012E
2012E–2020F
7.0%
2.7%
5.0%
6.0%
3.2%
4.9%
6.9%
2.1%
6.2%
20.3%
9.4%
8.6%
7.6%
4.6%
6.2%
*Includes  big-box mass retailer formats such as supercenters, warehouse clubs, discount department stores/ mass merchandisers, as well as small-box retailers such as dollar stores  and other  discount formats
Growth rates for food, drug, and mass channels in this category will still outpace growth of most other store categories
Means impact on sales mix of store can still be significant
Source: U.S. Department of Commerce and Kantar Retail

30. Added Prescription Trips = Opportunity to Draw Shoppers Throughout Store
Shoppers want more than just a pharmacy
84%
of trips to drug involve activities other than, or in addition to, prescription filling
Shoppers consider the entire shopping experience when choosing where to get prescriptions filled
Source: Kantar Retail ShopperScape®, August 2013

31. Prescription Drugs Top Categories Purchased at Drug
Other categories in the mix point at how to capitalize on prescription trips
Top 5 Categories Purchased at Drug
(among shoppers who shopped the drug channel in the past 6 months)
All Drug Channel Shoppers
Have Nots (<$60,000)
Hispanic*
Gen Y
Prescription drugs
Personal care products
OTC
Candy/gum
Vitamins/ supplements
Color cosmetics
*The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population
Source: Kantar Retail ShopperScape®, August 2013

32. A New Side to Retail: Shoppers Open to Some Medical Services at Retail
Hispanics, Gen Y are game; Boomers more wary
Across all services, Hispanic, Gen Y shoppers are significantly more likely than all shoppers to be very willing to use
As store traffic increases, pressure will be on suppliers to drive sales in the front end
Source: Kantar Retail ShopperScape®, February 2013

33. Expanding Pharmacy Services & Clinics
Retailers are ramping up clinic expansion, with CVS projecting 1,500 total by 2017
Clinics allow retailers to offer convenient, and quick health services when shoppers would have to wait to see their PCP
Services are clearly priced, making it more transparent and straightforward for the shopper
Retailers are expanding the services they offer to include screening for different diseases, as well as consistent management for chronic conditions
Capturing & catering to that repeat customer
Walgreens recently rebranded its Take Care Clinics to Healthcare clinics
Source: Kantar Retail analysis, store visits

34. Rite Aid Partners with NowClinic to offer Services
Offering virtual clinic areas in 70+ stores
In-store consultation rooms host computers to connect with NowClinic, a virtual clinic service that offers consultations with nurse practitioners and doctors via webcam
Way for Rite Aid to offer the services it needs to compete, without the hefty investment
Source: Kantar Retail analysis, store visits

35. Takeaways/Implications
Impact of the ACA is a waiting game—for both shoppers and retailers. Shoppers do not fully understand what the ACA means for them, and are unsure of how it will affect them. Retailers have to be proactive and establish themselves as trusted guides throughout the process. Suppliers can help in this effort—be an ally.
Hispanic, Gen Y, and Have-Not shoppers are least likely to have insurance and are prime candidates for guaranteed health insurance. This means an increase in prescription sales and overall traffic to retailers. Important to think about how you communicate with these cohorts in order to maximize the trip.
Shoppers are thinking about the full shopping experience when filling prescriptions—and a mere 15% of trips are only prescription focused. One-stop shopping and an easy experience are important. All categories gain more traffic as prescription trips increase (and shoppers are routed through the box to back of store). Aid shoppers in completing their easy, one-stop trip.
Hispanic and Gen Y shoppers are particularly open to using medical services at retail. As more retailers expand their clinical offerings, there will be more pressure on suppliers to drive sales in the front end … but also opportunities to capture more shoppers with solutions that combine services + products.
Source: Kantar Retail analysis

36. Agenda Digital FDM Shoppers New Healthcare Shoppers
Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

37. What Matters to Shoppers in a Grocery Trip?
Assortment
Price/Value
Experience
Source: Kantar Retail ShopperScape®, May 2013

38. Expectations Vary by Cohort
Gen X expects the most; Gen Y emphasizes experience
Ideal Grocery/HH Essential/HBC Shopping Experience
(% rating factor as extremely/somewhat important)
All Shoppers
Gen Y
Gen X
Boomers
Seniors
Have Nots*
Haves*
Sample Size
4022
526
1199
1553
744
2347
1675
Experience
Items I want are in-stock
83%
77%
86%
80%
87%
Fun and pleasant shopping experience
62%
67%
69%
61%
47%
64%
Associates can give good advice about what to buy
35%
43%
36%
30%
33%
Ability to use retailer app on smartphone while in the store to make the shopping trip easier
16%
24%
10% 3%
15%
Price/ Value
Knowing that I'm paying a low price
79%
84%
82%
Feeling like I got a "good deal"
81%
72%
Frequent shopper/loyalty program with good rewards
50%
53%
57%
48%
38%
Double coupons
44%
45%
Assortment
Food offer matches up with what I like to cook/eat
68%
73%
71%
Local food product available
52%
High-quality private label brands
49%
54%
51%
Private label brands in many categories
42%
46%
37%
Local interest items available
20%
29% 8%
19%
*Kantar Retail segments shoppers into “Have Nots” and “Haves” based on income; Have Nots have an annual household income of less than $60k, Haves have an annual household income of $60k+.
Note: Yellow highlighting indicates significantly greater vs. all shoppers (95% confidence level)
Source: Kantar Retail ShopperScape®, May 2013

39. How Do Mass Retailers Measure Up?
Ideal vs. actual shopping experience at Target and Walmart
How do Target and Walmart deliver on their value propositions?
Source: Kantar Retail analysis

40. Target Shoppers Do Indeed “Expect More”
Especially place emphasis on experiential factors
Ideal Grocery/HH Essential/HBC Shopping Experience
(% rating factor as extremely/somewhat important)
All Shoppers
Monthly Target/SuperTarget Shoppers
Monthly Walmart/WMSC Shoppers
Sample Size
4022
977
2029
Experience
Items I want are in-stock
83%
90%
86%
Fun and pleasant shopping experience
62%
76%
64%
Store associates can give good advice about what to buy
35%
38%
37%
Ability to use the retailer's app on my smartphone while in the store to make the shopping trip easier
16%
21%
17%
Price/ Value
Knowing that I'm paying a low price
88%
87%
Feeling like I got a "good deal"
79%
Frequent shopper/loyalty program with good rewards
50%
57%
45%
Double coupons
44%
48%
Assortment
Food offer matches up with what I like to cook/eat
72%
77%
74%
Local food product available
53%
54%
High-quality private label brands
49%
51%
52%
Private label brands in many categories
43%
Local interest items available
20%
23%
Note: Yellow highlighting indicates significantly greater vs. all shoppers (95% confidence level)
Source: Kantar Retail ShopperScape®, May 2013

41. How Well Does Target Meet Guests’ Wants?
Best performance on experiential factors
Biggest gap
Experience
Price/Value
Assortment
Source: Kantar Retail ShopperScape®, May 2013

42. Focus on Improving Food Assortment
Target emphasizes meal solutions and better choices
Focus on improving the health and wellness of its guests
Goal of increasing organic food offerings by 25% by 2017
Spun off Simply Balanced from Archer Farms in July 2013
Source: Kantar Retail store visits, research, and analysis

43. Ideal vs. Actual Experience at Target Varies
Strengths and weakness differ across segments
Ideal Grocery Shopping Experience vs. the Experience at Target: Key Differences by Shopper Segment*
Target Does Better Among…
Target Does Worse Among…
Experience
Items I want in-stock
Rx Rewards
Fun/pleasant to shop at Target
Seniors
Boomers
Associates can give good advice
Kids at home
Target app makes shopping easier
Gen X
Price/ Value
Knowing I’m paying a low price
Gen X, Kids at home
Feeling like I’m getting a good deal
REDcard rewards are relevant to me
Gen Y
Assortment
Food offer matches what I like to cook/eat
Local food products available
REDcard
High-quality private label brands
Private label brands in many categories
*Shopper segments listed in the table are those among which the gap between the ideal experience and Target experience is substantially smaller (Target does better) or larger (Target does worse) than all monthly Target shoppers.
Source: Kantar Retail ShopperScape®, May 2013

44. Walmart’s Low-Price Message Resonates
Evaluation of experience and assortment less rosy
Biggest gap
Price/Value
Experience
Assortment
Source: Kantar Retail ShopperScape®, May 2013

45. Focus on Improving the Experience
Adding interactions, events
Source: Kantar Retail store visits and analysis

46. Walmart’s Gaps Larger Among Young and Affluent Shoppers
Ideal Grocery Shopping Experience vs. the Experience at Walmart: Key Differences by Shopper Segment*
Walmart Does Better Among…
Walmart Does Worse Among…
Price/ Value
Knowing I’m paying a low price
Seniors
Gen X
Feeling like I’m getting a good deal
Gen Y, Gen X
Experience
Items I want in-stock
Haves
Fun/pleasant to shop at Walmart
Associates can give good advice
Gen Y
Walmart app makes shopping easier
Boomers
Assortment
Food offer matches what I like to cook/eat
Have Nots
Local food products available
High-quality private label brands
Private label brands in many categories
*Shopper segments listed in the table are those among which the gap between the ideal experience and Walmart experience is substantially smaller (Walmart does better) or larger (Walmart does worse) than all monthly Target shoppers.
Source: Kantar Retail ShopperScape®, May 2013

47. Shopper Showdown: Target vs. Walmart
Experience
Price/Value
Assortment
Source: Kantar Retail ShopperScape®, May 2013

48. Implications Shoppers “expect more”
Leverage Target’s equity around experience
Partner with Target to build equity around price/value and assortment
Compelling food offer key to relevance of Pfresh stores (and urban stores)…bridge the gap
Rx Rewards shoppers are more loyal…but also more aware of Target’s shortcomings
Shoppers know they can “save money” at Walmart
Partner with Walmart to improve shopping experience where you can
Shoppers view quality of private label lacking—opportunity for branded manufacturers to fill gap
Struggling with young and affluent shoppers…how can you help build Walmart’s equity among these key groups?
Source: Kantar Retail analysis

49. Questions? Submit questions on Q&A panel on right side of screen
Digital FDM Shoppers
New Healthcare Shoppers
Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

51. Mary Brett Whitfield Rachel McGuire Senior Vice President
Senior Analyst
Kate Senzamici
Analyst