A Tour of Shopper Bright Spots and Watch-Outs

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

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 © Copyright 2014 Kantar Retail 3

Watch-Outs Retailer Rationalization © Copyright 2014 Kantar Retail 4

Retailer Rationalization Continues in 2014 Who will earn continued listing in shoppers’ portfolios? Average Number of Retailers Shopped in Past Four Weeks* (among all primary household shoppers) 12. 4 11. 1 2007 11. 1 11. 2 10. 7 2008 2009 2010 2011 2012 2013 2014 YTD: 9. 7 *Inclusive of visits to stores and websites; averages are for Q 1–Q 3 of each year. Source: Kantar Retail Shopper. Scape®, January 2007–June 2014 © Copyright 2014 Kantar Retail 5

Shopper Portfolio: A Simple Illustration Total Portfolio Core Portfolio Source: Kantar Retail analysis ©

The Core Portfolio Is Shrinking, Too Average Number of Retailers in Shoppers’ Portfolio 12. 4 10. 7 5. 8 5. 0 Blue-Total Retailer Portfolio Yellow-Core Retailer Portfolio Source: Kantar Retail Shopper. Scape®, January-September 2007 and 2013 © Copyright 2014 Kantar Retail 7

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

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

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

“Non-Essentials” Retailers Among Top Five Shopped Less Top Retailers Shoppers Report Shopping Less vs. YA 2013 Best Buy 25% 26% JCPenney 26% 24% Home improvement/hardware retailer 21% 22% Kohl's 21% 22% Target or Super. Target 21% Walgreens 19% Macy's 18% 19% Walmart or Walmart Supercenter 17% 18% CVS/pharmacy 16% Amazon. com More discretionary vs. essential 2014 14% Source: Kantar Retail Shopper. Scape®, May 2013 and May 2014 © Copyright 2014 Kantar Retail 11

Walmart, Target Shopper Shopping Less Overall Top 5 Reasons for Shopping Walmart Less Often vs. Last Year Top 5 Reasons for Shopping Target Less Often vs. Last Year Shopping less in general 44% Shopping less in general 43% More pleasant at other retailers 21% Shopping more at Walmart 26% Doing more shopping at supermarkets 20% Shopping retailers that are more convenient 23% Shopping retailers that are more convenient 20% Better value at other retailers 23% Better value at other retailers 18% Doing more shopping at supermarkets 19% WMT loses shoppers to more “pleasant” retailers, supermarkets, more convenient retailers Source: Kantar Retail Shopper. Scape®, May 2014 TGT loses shoppers to Walmart, more convenient retailers, better value © Copyright 2014 Kantar Retail 12

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

Where Are Shoppers Shopping Less? Source: Kantar Retail Analysis and Shopper. Scape®, June 2014

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

Watch-Outs Data Dangers © Copyright 2014 Kantar Retail 16

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

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

Breach Exacerbated Trend in Penetration Decline Though Target now reporting improved traffic and sales trends Target Shopper Penetration: Past 4 -Week Shoppers When we survey consumers, we increasingly hear they have put the breach behind them and are resuming their Target shopping habits. John Mulligan, Q 1 Sales Release Call, May 2014 Source: Kantar Retail Shopper. Scape®, January 2008–May 2014 Corporate press releases © Copyright 2014 Kantar Retail 19

Not Even Half of Shoppers Trust Retailers Distrust relatively consistent across shopper segments Trust That Retailers Are Taking the Necessary Steps to Keep My Information Safe Non-Financial Information Strongly agree/agree Source: Kantar Retail Shopper. Scape®, February 2014 (e. g. , sales history, personal info) Neither agree nor disagree Strongly disagree/disagree © Copyright 2014 Kantar Retail 20

Key Takeaways: Watch-Outs • 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. Source; Kantar Retail analysis © Copyright 2014 Kantar Retail 21

Bright Spot: Spending Intentions © Copyright 2014 Kantar Retail 22

Spending Intentions Continue Positive Trend Lowest “Spend Less” levels on record in March and April Retail Spending Intentions in Coming Month (three-month moving average) 70% Spend About the Same 60% 50% 40% Spend Less 30% 20% Spend More 10% Ju Aun-0 g 8 O -08 ct D -0 e 8 Fe c-0 b 8 Ap -09 Ju r-09 Aun-0 g 9 O -09 ct D -0 e 9 Fe c-0 b 9 Ap -10 Ju r-10 Aun-1 g 0 O -10 ct D -1 e 0 Fe c-1 b 0 Ap -11 Ju r-11 Aun-1 g 1 O -11 ct D -1 e 1 Fe c-1 b 1 Ap -12 Ju r-12 Aun-1 g 2 O -12 ct D -1 e 2 Fe c-1 b 2 Ap -13 Ju r-13 Aun-1 g 3 O -13 ct D -1 e 3 Fe c-1 b 3 Ap -14 Ju r-14 n 14 0% Two consecutive months hitting alltime lows (March and April 2014), before slight uptick in May, then leveling off in June Source: Kantar Retail Shopper. Scape®, June 2008–June 2014 © Copyright 2014 Kantar Retail 23

Have Nots Contributing Disproportionately to Improvement Share of Shoppers Planning to Spend the Same or More in Coming Month (three-month moving average) 2012– 2014 Growth Rate Haves (Annual HH Income >$60 k) 5. 5% All Shoppers 6. 1% 6. 4% Have Nots (Annual HH Income ≤$60 k) Over past two years, growth in Have Nots planning to spend same or more has outpaced average and more affluent counterparts Source: Kantar Retail Shopper. Scape®, June 2012–June 2014 © Copyright 2014 Kantar Retail 24

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

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

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

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

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

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

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 Better than one in three CVS shoppers who have an Extra. Care card spend the most on HBC at CVS Source: Kantar Retail Shopper. Scape®, November 2013 © Copyright 2014 Kantar Retail 31

CVS, Walgreens Shoppers Share Similar Loyalty Card Values … CVS shoppers more likely to value dollars off, cardholder specials CVS Walgreens 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 “Extra. Bucks” per quarter Extra. Bucks also tied to prescriptions (fill 10, earn $5 in Extra. Bucks) and beauty (spend $50, get $5 in Extra. Bucks) Source: Kantar Retail Shopper. Scape®, November 2013 • • 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 © Copyright 2014 Kantar Retail 32

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

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

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

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

H-E-B Is Not Doing This in a Competitive Vacuum … Quite the Opposite ed Open center ution istrib d m the th fro r” Grow milia “unfa t for market Core ood M borh Neigh Source: Kantar Retail analysis; company reports n. Co ! Wi Hello © Copyright 2014 Kantar Retail 37

Why Do Shoppers Choose H-E-B? Value, Convenience, Assortment Reasons for Store Choice for Food/Groceries Among H-E-B Shoppers, by Where Spent Most H-E-B Anywhere Else Convenient to home, work or other stores I shop 64% 49% Lower everyday prices than competitors Higher quality fresh foods 53% 40% 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% Note: Highlighting indicates significant difference between column percentages (95% confidence level) Source: Kantar Retail Shopper. Scape®, Aug/Nov 2013 and Feb/May 2014 © Copyright 2014 Kantar Retail 38

Cross-Shopping Shows Extent to Which H-E-B Is Winning in World of Retailer Rationalization 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. Source: Kantar Retail Shopper. Scape®, January-December 2008 and 2013 © Copyright 2014 Kantar Retail 39

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

H-E-B “Gets” Its Shopper Better than Most And often, that shopper is Hispanic “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. ” Source: Kantar Retail store visits, company website © Copyright 2014 Kantar Retail 41

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 Extra. Care 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 © Copyright 2014 Kantar Retail 42

Questions? Submit questions on Q&A panel on right side of screen • 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 © Copyright 2014 Kantar Retail 44

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