1. Presented by: Sara AlTukhaim Director, Retail Insights August 2014 Incrementality & Beyond: The 10 Reasons Why Getting Club Right is Good Great for Your Company

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 #1. Exposure: Selling club exposes your company to >128 million desirable shoppers. Club memberships (millions) Source: Company reports and Kantar Retail analysis and estimates (2013E) 3 *For Costco, memberships represent global cardholders and retention rate reflects US and Canada only (Costco is at 87% globally); Sam's Club does not report membership data, therefore the total estimated number of members is reported per Kantar Retail calculations and includes US and Puerto Rico 90% retention ~82-83% ~84-85% *128 million* AFFLUENT members collectively shopping club In a retail landscape where consumer attention and share of wallet is only getting harder and harder to come by, why wouldn’t your company want to place its bets on club?

4. © Copyright 2014 Kantar Retail #2. Loyalty: Club member loyalty translates to conversion for your company. Source: Company reports and Kantar Retail analysis and estimates (2013E) 4 As a supplier, if your brands aren’t in club, chances are that members aren’t going to look for them elsewhere. At the same time, truly capitalizing on member loyalty means aligning with club needs to drive value through customization. “Any time we get another reason why you want to come shop at Costco, it’s another reason why you’re going to renew every year.” – Richard Galanti, CFO, Costco (March 2013) …Drive Loyalty …Drive Strategy Memberships Drive Profit

5. © Copyright 2014 Kantar Retail #3. Clout: Club shoppers are the folks you want your brands exposed to. Source: Kantar Retail ShopperScape®, January–December 2013 5 All shoppersClub ChannelBJ'sCostcoSam's Club Average income$58,970.40$70,629.14$74,736.43$76,768.54$64,536.13 Sample size48,22417,8272,8418,3758,483 Shading indicates significantly greater percentage vs. all shoppers; border indicates significantly lower percentage (95% confidence level) Annual Household Income By nature of the geographies and demographics the clubs cater to, their members often represent community leaders and powerful word-of-mouth drivers who can serve as valuable ambassadors for supplier brands. How does this fit with your company’s broader brand and marketing goals?

6. © Copyright 2014 Kantar Retail #4. Composition: Clubs attract shoppers at key life stages that benefit your company. Source: Kantar Retail ShopperScape®, January–December 2013 6 Shopped Channel/Retailer in the Past 4 Weeks All shoppersClub ChannelBJ'sCostcoSam's Club Annual Household Income <$25K25%15%13%12%17% $25K - $49.9K25%22%20%18%25% $50K - $74.9K18%19%18%19%20% $75K - $99.9K11%15%16% 14% $100K+21%29%33%35%24% Market Size Non- MSA/ MSA <500K28%22%8%14%32% MSA 500K - 1,999K21%20%24%15%24% MSA 2M51%58%67%71%43% Presence of Children Children under 19 at home25%29%28% 29% No children under 19 at home75%71%72% 71% Generational Cohort Gen Y (born 1982 to 2002)17%15%14%16%15% Gen X (born 1965 to 1981)31%32%34%32%31% Boomers (born 1946 to 1964)39%38%40%37%39% Seniors (born before 1946)14% 13%15%14% Female Education Graduated college - bachelor's degree25%28% 32%25% Post graduate degree13%15%17% 13% Male Education Graduated college - bachelor's degree24%28%29%31%24% Post graduate degree14%18%17%21%16% Sample size 4822417827284183758483 Shading indicates significantly greater percentage vs. all shoppers; border indicates significantly lower percentage (95% confidence level) True, the club memberbase is aging. But in an environment where the future of retail relies on appealing to the next generation, the clubs are well positioned to attract and retain Gen Yers who are a step ahead of their peers in terms of job security, family formation and home ownership.

7. © Copyright 2014 Kantar Retail #5. Growth: As retail growth gets harder to come by, your company can bet on club. Source: KRiQ.com (updated May 27, 2014) 7 U.S. Sales by Format As more and more of retail (and retail growth) polarizes to align with either end of the Have and Have Not spectrum, the club channel provides suppliers with a growth platform that they can rely on as long as they are willing to invest in selling club right.

8. © Copyright 2014 Kantar Retail #6. Volume: Selling club rewards your company with the strongest volume in retail. Source: Retailer reports, Kantar Retail analysis (updated May 24, 2013) 8 * Using 2012 Values from Retailer Reports and KR Estimates ** Front-End Merchandise Sales Used for Calculation Demands for low margin are offset by the incredibly strong volume at which club SKUs are performing. For your company to fully realize the success that comes with selling club, it is vital to shift focus from margin to volume and prioritize the item development process required to maintain hurdle rates.

9. © Copyright 2014 Kantar Retail #7. Incrementality: In nearly all cases, club growth is incremental for your company. 9 Source: Kantar Retail analysis A Way to Think About “Incrementality” in Club Thinking about incrementality in club is as much about what your company gains as it is about what your company does not lose by ensuring its brands live and breathe in this space.

10. © Copyright 2014 Kantar Retail #8. Efficiency: Getting club right makes for a more efficient company overall. Source: Kantar Retail analysis 10 Fully leveraging club space requires a relentless focus on item rotation, planned obsolescence and innovation. Suppliers who master these skills for club are positioning themselves very well to align with the elevated demands and expectations of tomorrow’s shoppers, particularly Gen Y.

11. © Copyright 2014 Kantar Retail #9. Longevity: Winning with club will help your company endure future disruption. Source: Kantar Retail analysis 11 The Six Rights of Club Merchandising Suppliers that align their supply chain, item development and innovation pipelines with these needs in mind are setting themselves up not only to win with the clubs, but also to lead the charge against the incredibly disruptive retail environment that lies ahead.

12. © Copyright 2014 Kantar Retail #10. Mastery: The clubs will make your company smarter…If it lets them. 12 Source: Kantar Retail analysis Natural/ Organic Natural/ Organic Value PremiumClubs ‘13E-’18E CAGR = 9% ‘13E-’18E CAGR = 6 % ‘13E-’18E CAGR = 8% ‘13E-’18E CAGR = 6% Total Kantar Retail Database CAGR (‘13E-’18E) = 4% Retailers with a clear brand outgrow the market. Kantar Retail Retailer Differentiation Model What do these growth formats have in common? Looking ahead, one thing is clear: Retailers with a clear brand will continue to outgrow the market. In getting club right, a supplier’s real prize is so much bigger than club; it’s in the mastery gained to best align with the increasingly differentiated and complex total brands of tomorrow’s growth retailers.

13. © Copyright 2014 Kantar Retail Contact: Sara AlTukhaim Sara.altukhaim@kantarretail.com