ANNUAL SHOPPER REVIEW WALMART Prepared by Robin Sherk

ANNUAL SHOPPER REVIEW: WALMART Prepared by: Robin Sherk Senior Analyst Rachel Mc. Guire Senior Analyst October 2012

Executive Summary: Walmart Annual Update Walmart’s biggest formats are not driving shopper penetration growth. Though nearly two-thirds (65%) of primary household shoppers shop its core Supercenter and Discount formats, there has been a continuous erosion in Walmart shopper penetration since 2008. Moreover, one in five (22%) of Walmart’s current shoppers report shopping at Walmart less often than last year. Many of these shoppers are shopping less in general, reminding the retailer that a sizable portion of its audience (approximately one in five) still feel that their financial situation is deteriorating. Others shopping less at Walmart are shopping more at competitors, including other grocers, Target, Dollar General, and Amazon. Basket sizes are increasing, though emphasis of wide assortment is doubleedged. Walmart shoppers have noticed the broadened assortment this year. Average basket sizes and trip frequency have risen since 2010, with grocery serving as the primary trip driver. Conversion for general merchandise still lags. Given the wider assortment, shoppers also feel that the in-store experience has weakened recently as they report out-of-stocks and more difficulty shopping the box. Viewed broadly, the retailer’s one-stop affirmations are in line with what its shoppers find important relative to other factors, but this proposition is becoming less of a motive to shop at Walmart over time. Source: Kantar Retail analysis © Copyright 2012 Kantar Retail 2

Executive Summary: Continued Price leadership still needs support. Despite Walmart’s intense marketing efforts since early 2011, its shoppers tend to disagree about whether the value offered by Walmart is improving. At the same time, its shoppers increasingly value receiving a good deal in addition to seeking Walmart’s everyday low price (EDLP) proposition. Shopper reach is steadily growing at Neighborhood Market. The Neighborhood Market shopper base is slightly different than other Walmart shoppers, skewing younger, more urban, and Hispanic. The grocer also draws shoppers on a different type of trip than does the supercenter, as it better serves quick, fill-in trips. Meeting the needs of this distinct audience will gather increased attention as management rapidly expands its store footprint. Walmart. com has opportunity to reach Walmart shoppers. Even though 45% of Walmart shoppers also shop monthly at Amazon, only 22% of Walmart shoppers shop monthly at Walmart. com. Moreover, Walmart’s website disproportionately captures young families, a crucial audience for the retailer to maintain over time. Source: Kantar Retail analysis © Copyright 2012 Kantar Retail 3

Table of Contents • Shopper Penetration – Penetration by channel, banner – Penetration by demographics • Shopper Motivations – Financial concerns – Spending intentions – Reasons to shop less – Motives to visit • Shopping Behaviors – Trips, trip type, and baskets – Where else Walmart store shoppers shop • Brand Position – Perceived price leadership – Assortment and store of the community • Growth Platforms – Neighborhood Market – Online • Appendix – Category preference, change over time © Copyright 2012 Kantar Retail 4

Shopper Penetration Walmart US has 3, 925 stores, the majority of which are supercenters or discount stores. The total includes an increase of 224 Supercenter and Discount store locations between early 2007 and the end of 2011. Given the expanding footprint, Walmart’s shopper reach has evolved in recent years: • However, Supercenter and Discount store weekly shopper penetration has trended downward since 2007. • At the same time, Neighborhood Market and online penetration is trending upward—underscoring the growth in these emerging formats. • Walmart’s shopper base tends to be lower income, rural, and suburban families, though it has made gains with upper income shoppers and urban dwellers in recent years. Source: Kantar Retail analysis © Copyright 2012 Kantar Retail 5

Mass Channel Weekly Shoppers Have Declined Most core retail channels have witnessed a reduction in weekly shoppers since 2007, though value discounters and drug stores are starting to rebound. Meanwhile, mass merchandisers continue to wane. Fewer weekly shoppers across channels indicates a broader trend of shoppers spreading their purchase needs across stores, indicating decreased allegiance to particular formats. Source: Kantar Retail Shopper. Scape®, October 2007, 2008, 2009, 2010 and 2011 © Copyright 2012 Kantar Retail 6

Though Walmart’s Newer Formats Show Growth While the shopper base at Walmart’s big boxes shrinks, its penetration is growing at Neighborhood Market and Walmart. com. Given this trend, the retailer is both shoring up its core and investing in these rising opportunities. Source: Kantar Retail Shopper. Scape® , January 2007 - July 2012 © Copyright 2012 Kantar Retail 7

While the Families that It Attracts Evolves Traditionally, Walmart’s base has been lower income, rural families with children. While the retailer still over-indexes with these groups, it also is attracting more urban, younger, and higher income shoppers over time. Note: Grey highlighting on indicates statistically significant diff (95% CL). Source: Kantar Retail Shopper. Scape® April, May and June of 2012, 2011 and 2007 © Copyright 2012 Kantar Retail 8

Table of Contents • Shopper Penetration – Penetration by channel, banner – Penetration by demographics • Shopper Motivations – Financial concerns – Spending intentions – Reasons to shop less – Motives to visit • Shopping Behaviors – Trips, trip type, and baskets – Where else Walmart store shoppers shop • Brand Position – Perceived price leadership – Assortment and store of the community • Growth Platforms – Neighborhood Market – Online • Appendix – Category preference, change over time © Copyright 2012 Kantar Retail 9

Shopper Motives Given the eroding penetration at its core Supercenter and Discount formats, understanding shoppers’ financial security and motives around shopping Walmart is necessary to gain perspective on the issue: • Many Walmart shoppers feel that their financial situation is improving and their spending intentions are on par with others. • However, Walmart shoppers also are more sensitive to price pressures, such as food inflation. Of the Walmart shoppers shopping at the retailer less often, they’re generally shopping less often overall. • Motives for Walmart shoppers to shop at the retailer involve low prices and the one-stop shop. Over time, the one-stop shop is decreasing in importance as shoppers increasingly want a deal. Source: Kantar Retail analysis © Copyright 2012 Kantar Retail 10

Financial Concerns Are Easing versus Last Year Assessments of income and home value have improved since 2011, while views of credit card debt, mortgage & car payments, and investments are stable. However, a sizable group still says their situation is worsening. Household Financial Health of Walmart Shoppers Job security Much better/somewhat better off No change from last year Somewhat worse/much worse off Household Income level Much better/somewhat better off No change from last year Somewhat worse/much worse off Credit card debt Much better/somewhat better off No change from last year Somewhat worse/much worse off Monthly mortgage/car payments Much better/somewhat better off No change from last year Somewhat worse/much worse off Worth of investments Much better/somewhat better off No change from last year Somewhat worse/much worse off Value of home Much better/somewhat better off No change from last year Somewhat worse/much worse off Source: Kantar Retail Shopper. Scape®, April–June 2011 and 2012 Q 2 2011 18% 62% 20% 24% 48% 28% 26% 56% 18% 20% 67% 13% 24% 53% 22% 15% 56% 30% Q 2 2012 19% 61% 21% 28% 46% 26% 25% 56% 18% 21% 66% 13% 21% 56% 23% 18% 58% 24% Note: Shading indicates significant year-to-year difference (90% CL) © Copyright 2012 Kantar Retail 11

Though Shoppers Still Very Sensitive to Prices Last year, Walmart shoppers were more likely than others to notice rising food costs and take action. Looking to 2013, the base will likely respond similarly to the food inflation expected as drought conditions affect prices. Strategies Using to Offset Rising Food Prices 49% 52% Buying whatever brand is on sale 33% 35% Planning meals around what’s on sale 28% 30% Buying whatever brand I have a coupon for 22% 23% Shopping around to “cherry pick” best deals 18% 21% 46% 48% 45% 49% Sticking to list 42% 45% Buying more products to cook from scratch 23% 24% Buying fewer prepared foods 19% 21% Buying fewer gourmet and specialty items 17% 19% Buying more private brand 32% 36% Buying less expensive versions of products 27% 31% Buying less expensive cuts of meat 24% 27% Buying canned/frozen instead of fresh produce 12% 13% None of these Limiting Using more coupons Buying fewer items on impulse Trading Down Walmart Shoppers Not buying items that seem too expensive Deal-Seeking All Shoppers 12% 9% Note: Shading indicates significant difference between all shoppers and Walmart shoppers (90% CL) Source: Kantar Retail Shopper. Scape®, November 2011 © Copyright 2012 Kantar Retail 12

Overall, Spending Plans Steadily Are Improving On par with all U. S. primary household shoppers, Walmart shoppers are generally holding or increasing their near-term spending intentions versus the same time last year. Note: No significant differences between all shoppers and Walmart shoppers (90% confidence level) Source: Kantar Retail Shopper. Scape®, January 2009–June 2012 © Copyright 2012 Kantar Retail 13

But One in Five Are Going to Walmart Less Often About half of the shoppers going to Walmart less often are shopping less overall. Many are going to supermarkets more often. Walmart also is losing its higher income shoppers to Target, middle income shoppers to clubs, and lower income shoppers to dollar stores. Among the 22% of Walmart shoppers who are shopping Walmart less often Source: Kantar Retail Shopper. Scape® May 2012 © Copyright 2012 Kantar Retail 14

Walmart’s Shoppers Value Savings, One-Stop Relative to others, Walmart’s base is more focused on spending as little money as possible and a one-stop shop. They are slightly less focused on high-quality, though they equally appreciate “stress-free” shopping. Arrows indicate significant difference between all shoppers vs. Walmart shoppers (90% confidence level) Source: Kantar Retail Shopper. Scape®, January 2012 © Copyright 2012 Kantar Retail 15

Higher-Income Shoppers Appreciate the Deal Walmart’s higher-income shoppers focus more on the experience: having fun, finding new & high-quality items, and getting a deal. The lower income focus more on employee interaction, a one-stop shop, and spending less. Functional Experiential Notes: Boxes indicate significant difference between Haves and Have Nots (90% confidence level) Definition of ‘Have Nots’: Annual household income of less than $65, 000; ‘Haves’ is income $65, 000 + Source: Kantar Retail Shopper. Scape® , January 2012, Kantar Retail analysis © Copyright 2012 Kantar Retail 16

Fewer Choosing Because of One-Stop Appeal Compared with 2007, Walmart’s grocery/consumables shoppers are less likely to chose Walmart because of its one-stop shop propositions. It’s now less important than sales/promotions. Shoppers continue to value EDLP. Source: Kantar Retail Shopper. Scape®, Feb/May/Aug 2007 and Feb/May/Aug 2012 © Copyright 2012 Kantar Retail 17

Table of Contents • Shopper Penetration – Penetration by channel, banner – Penetration by demographics • Shopper Motivations – Financial concerns – Spending intentions – Reasons to shop less – Motives to visit • Shopping Behaviors – Trips, trip type, and baskets – Where else Walmart store shoppers shop • Brand Position – Perceived price leadership – Assortment and store of the community • Growth Platforms – Neighborhood Market – Online • Appendix – Category preference, change over time © Copyright 2012 Kantar Retail 18

Trips, Basket, & Cross-Shopping After experiencing decreased customer traffic in 2010, Walmart reinforced its one-stop, low-price brand proposition in an effort to reverse this trend. At the same time, its shoppers are generally starting to feel better about their income and home values, helping to shore up near-term spending confidence. In this environment, the trip to Walmart is evolving: • After trips bumped up in 2011, the frequency settled to channel norms in 2012. At the same time, average basket sizes have steadily increased. • The retailer continues to garner approximately as many trips for fill-in and immediate use as it does stock-up occasions. Grocery continues to be the primary trip driver. • Amazon has risen as a significant contender in recent years, becoming the retailer most commonly cross-shopped by Walmart shoppers. Source: Kantar Retail analysis © Copyright 2012 Kantar Retail 19

Though Leveling Off, Trips Are Up since 2010 On par with the mass merchandiser & grocery channel averages, Walmart’s shoppers visit the retailer approximately once a week. This indicates that Walmart serves as a destination for shoppers fulfilling routine needs. Note: arrows indicate significant year-to-year difference (90% confidence level) Source: Kantar Retail Shopper. Scape® , Feb/May/Aug/Nov 2010 and 2011, Feb/May/Aug 2012 © Copyright 2012 Kantar Retail 20

Trips Are Generally for Stock-Up Occasions Nearly 40% of the grocery and consumables trips to Walmart are for stocking up. However, trips for fill-ins and immediate use also are very common: combined they account for 42% of the occasions. Stock-up Fill-in Immediate use Buy coupon items Browsing Special occasion Buy sale items Source: Kantar Retail Shopper. Scape®, May/Aug/Nov 2010, Feb/May/Aug/Nov 2011, Feb/May 2012 © Copyright 2012 Kantar Retail 21

The Basket Leans to Grocery, Consumables Walmart’s basket size continues to expand across grocery and general merchandise. Though most shoppers purchased food on their most recent trip to Walmart, only 26% bought general merchandise—indicating opportunity to increase shopper conversion across the box. $88. 30 Source: Kantar Retail Shopper. Scape® , Feb/May/Aug/Nov 2010 and 2011, Feb/May/Aug 2012 $95. 60 $101. 99 © Copyright 2012 Kantar Retail 22

Fresh Is the Dominate Department Shopped Fresh food has risen to be the #1 department shopped at Walmart. Meanwhile the other top 10 categories have seen eroding shopper penetration since 2009. Many shoppers shop relatively few categories at Walmart, underscoring its need to encourage shoppers to “cross the box” to general merchandise Source: Kantar Retail Shopper. Scape® , May 2009, May 2010, May 2011, and May 2012 © Copyright 2012 Kantar Retail 23

Cross Shopping Rises Starkly for Amazon Underscoring the heightened competition from online, Amazon is now the #1 retailer where Walmart shoppers also shop. – More Walmart shoppers are now crossshopping Amazon. com and drug stores • Kohl’s also is gaining traction • Dollar channel holding steady 14% of Gen Y Walmart Moms are also members of Amazon Mom, Amazon’s auto-replenishment program targeted to mothers of infants and toddlers. This underscores how today’s young families shop differently than their parents did. – Less cross-shopping of category specialists (particularly The Home Depot and Best Buy) – Less cross-shopping of Sam’s Club, Kmart/Sears, Big Lots, and JCPenney Source: Kantar Retail Shopper. Scape® , January-July, 2007 and 2012 © Copyright 2012 Kantar Retail 24

Table of Contents • Shopper Penetration – Penetration by channel, banner – Penetration by demographics • Shopper Motivations – Financial concerns – Spending intentions – Reasons to shop less – Motives to visit • Shopping Behaviors – Trips, trip type, and baskets – Where else Walmart store shoppers shop • Brand Position – Perceived price leadership – Assortment and store of the community • Growth Platforms – Neighborhood Market – Online • Appendix – Category preference, change over time © Copyright 2012 Kantar Retail 25

Brand Position: Merchandise & Marketing Walmart is known for carrying a broad, one-stop shopping offer at an everyday low price to help shoppers “save money” and therefore “live better. ” In recent years, though, the retailer has faced challenges on both of these fronts: • Assortment: In 2009 and 2010, Walmart “rationalized” SKUs, cutting about 10% of the items in its box. By 2011, the retailer recognized shoppers’ frustration and added back the assortment by the end of the year. This year, Walmart has further focused on the shopper by emphasizing local, “Store of the Community” products. While shoppers have generally noticed the broadened assortment, they also see the corresponding drawbacks (i. e. , out of stocks). • Lowest prices: Walmart has faced price leadership challenges recently. In Kantar Retail’s semi-annual pricing study, Target’s basket has been equal to or less than Walmart’s basket in half of the assessments since 2009. Starting in 2011, and augmented in 2012, Walmart has aggressively asserted its price position by promoting Ad Match and “see for yourself” savings messages and investing in gross margin to lower prices. Today, its shoppers still disagree whether the value that Walmart offers is improving. Source: Kantar Retail research and analysis Walmart’s core principles examined in this section: © Copyright 2012 Kantar Retail 26

Walmart’s Price Leadership Faces Challenges More Walmart shoppers disagree that Walmart’s value has improved over the past year than agree. Seniors are particularly skeptical, while more Gen Y shoppers feel that the value is better. Anticipate that Walmart will continue to ramp up its Ad Match and “See for yourself” local price leadership messages *Among Walmart shoppers only Note: Yellow arrows indicate significantly greater/lesser vs. total (95% confidence level) Source: Kantar Retail Shopper. Scape®, May 2012 © Copyright 2012 Kantar Retail 27

But Shoppers Notice the Widened Assortment Nearly one in three shoppers noticed the broadened assortment, with Gen Y and Gen X shoppers particularly attentive. However, only one in five noticed more local items, suggesting opportunity to further assert Store of the Community. *Among Walmart shoppers only Note: Yellow arrows indicate significantly greater/lesser vs. total (95% confidence level) Source: Kantar Retail Shopper. Scape®, May 2012 © Copyright 2012 Kantar Retail 28

Greater Attention to the Experience Needed Too With the broadened assortment, about one-third of shoppers also are noticing more out-of-stocks. More than one in four shoppers also feel that the ease of shopping at Walmart has declined. Note: Yellow arrows indicate significantly greater/lesser vs. total (95% confidence level) Source: Kantar Retail Shopper. Scape®, May 2012 © Copyright 2012 Kantar Retail 29

Table of Contents • Shopper Penetration – Penetration by channel, banner – Penetration by demographics • Shopper Motivations – Financial concerns – Spending intentions – Reasons to shop less – Motives to visit • Shopping Behaviors – Trips, trip type, and baskets – Where else Walmart store shoppers shop • Brand Position – Perceived price leadership – Assortment and store of the community • Growth Platforms – Neighborhood Market – Online • Appendix – Category preference, change over time © Copyright 2012 Kantar Retail 30

Growth Platforms Neighborhood Market and Walmart. com shoppers Recognizing the growth of smaller formats and online shopping, Walmart is advancing its grocery banner and e. Commerce platforms: • Neighborhood Market: In October 2011, Walmart announced that it was ready to roll out this format, increasing its store base by about 50% in 2012. This announcement came as the banner posted ~5% comparable store sales growth and customer traffic gains, and reached the returns that Walmart demands. From a shopper insights perspective, the format has rising penetration and a distinct shopper profile: more urban, younger, and Hispanic. • Walmart. com: In April 2012, Walmart asserted that one of its corporate strategies is “winning in global e. Commerce. ” Its recently created @Walmar. Labs division has focused on improving Walmart. com’s platform in 2012 by introducing a new product search engine, called Polaris, and advancing the website’s pricing position and search engine optimization. Though Walmart shoppers shop online and Walmart. com’s penetration is steadily growing, the website has opportunity to develop its reach among Walmart shoppers. Source: Kantar Retail research, store visits, and analysis © Copyright 2012 Kantar Retail 31

Neighborhood Market Penetration Is Growing With a footprint in about one-third of states, this format is steadily increasing its shopper reach with a 1 percentage point gain in July, year over year. This coincides with the retailer’s reported ~5% comparable store sales gains in mid 2012, well above Walmart US’s average. Source: Kantar Retail Shopper. Scape® , January 2011 – July 2012, Kantar Retail analysis © Copyright 2012 Kantar Retail 32

And the Shopper Base Is Slightly Different Compared to the Supercenter, Neighborhood Market shoppers are younger, more urban, and more likely to be of Hispanic origin. Given that Walmart traditionally does not over-index with these shoppers, Neighborhood Market should help the retailer widen its audience base *in states where Neighborhood Market was present as of January 2011 Source: Kantar Retail Shopper. Scape®, Jan-July 2012 © Copyright 2012 Kantar Retail 33

The Basket also Is Quite Lucrative The average Neighborhood Market basket is only about 10% less than the Supercenter basket, and the trip frequency reaches 1– 2 times a week. The spend on general merchandise is fairly similar across formats. $100. 02 9. 5% diff $90. 52 Avg Trips per Month: 5. 2 Source: Kantar Retail Shopper. Scape® , Aug/Nov 2011 and Feb/May/Aug 2012 Note that the presence of general merchandise varies widely in this format, with some stores offering entertainment and home areas 6. 9 © Copyright 2012 Kantar Retail 34

Neighborhood Market Shares Its Shoppers with a Wide Range of Retailers … … suggesting that it serves as more of a complement vs. destination format Competitors that Neighborhood Market particularly overlaps and over-indexes with: *in states where Neighborhood Market was present as of January 2011 Source: Kantar Retail Shopper. Scape®, Jan-July 2012, Kantar Retail analysis © Copyright 2012 Kantar Retail 35

Two-Thirds of Walmart Shoppers Shop Online Walmart shoppers are equally as likely to report shopping and purchasing online as others. However, most are not frequenting Walmart. com to do so, indicating opportunity to connect the in-store and online experience. 22% of Walmart shoppers are monthly shoppers of Walmart. com, much lower than the proportion that regularly shop Amazon. com! Source: Kantar Retail Shopper. Scape®, July 2012, June 2011 - August 2012 Note: no statistically significant difference between all shoppers and Walmart shoppers. © Copyright 2012 Kantar Retail 36

Penetration on Walmart. com Is Steadily Rising Though Walmart. com is the #1 most frequently shopped website among those operated by brick & mortar retailers, Amazon captures more than double the unique visits and nearly two-thirds more shoppers than Walmart. com. – Unique trips to Walmart. com continue to gain traction, rising 12. 3% year-over-year. • Comparatively, Target has witnessed year-over-year declines. – Furthermore, Walmart. com’s unique shopper counts increased at a faster pace, growing 19. 6% year over year. • Walmart’s lead over Target is becoming more pronounced, while Amazon is holding its lead over Walmart. Source: Compete, Kantar Retail analysis © Copyright 2012 Kantar Retail 37

And Most Often Buy Apparel, Entertainment Though, Walmart’s shoppers also shop for less expected categories online, including beauty, OTC, toys, and pet food. Over time, Kantar Retail expects more of these categories to be purchased online. Whether or not your categories are widely purchased online, it evolves the store’s trip-drivers: Consider which of your category's co-purchased items are moving online faster, anticipating how this will affect in-store navigation and your promotions. Source: Kantar Retail Shopper. Scape® July 2012, Kantar Retail analysis © Copyright 2012 Kantar Retail 38

Walmart. com’s Core Shopper Is Young Families Walmart. com shoppers tend to be younger and are more likely to have children at home than other Walmart shoppers, making them a desirable demographic. Relative to all Walmart shoppers, Walmart. com shoppers are: • Younger (25 -34 yrs old) • Have children in the household • Less likely to be Hispanic Source: Kantar Retail Shopper. Scape®, Jan-July 2012 © Copyright 2012 Kantar Retail 39

Its Biggest Online Competitor Is Amazon More than two-thirds of Walmart. com shoppers also shop Amazon. As this is more than twice the proportion that also shop Target. com, Amazon has become the primary online contender for Walmart shoppers. – Walmart. com cross-shopping down from 2007: • Target. com • Category specialists (Best Buy & office supply) – Walmart. com cross-shopping up from 2007: • Amazon. com • Department stores (Macy’s, Kohl’s) • Drug stores • Apple Source: Kantar Retail Shopper. Scape® , January – July, 2012 and 2007, Kantar Retail analysis © Copyright 2012 Kantar Retail 40

Table of Contents • Shopper Penetration – Penetration by channel, banner – Penetration by demographics • Shopper Motivations – Financial concerns – Spending intentions – Reasons to shop less – Motives to visit • Shopping Behaviors – Trips, trip type, and baskets – Where else Walmart store shoppers shop • Brand Position – Perceived price leadership – Assortment and store of the community • Growth Platforms – Neighborhood Market – Online • Appendix – Category preference, change over time © Copyright 2012 Kantar Retail 41

Appendix The following charts are appended in the associated Excel file on KRIQ. Click here to download the Excel file. Demographic Profiles by Department Shopped: • Shopper Profiles: Shoppers Who Indicate Walmart U. S. Is Store of Preference for Grocery/HBC • Shopper Profiles: Shoppers Who Indicate Walmart U. S. Is Store of Preference for General Merchandise Penetration by Department/Category: • Did Most Past Month Spending on Grocery at Walmart • Did Most Past Month Spending on Health and Beauty Care at Walmart • Did Most Past Month Spending on Electronics and Entertainment at Walmart • Did Most Past Month Spending on Apparel, Shoes and Accessories at Walmart • Did Most Past Month Spending on Home Improvement Products at Walmart Source: Shopper. Scape®, Kantar Retail analysis © Copyright 2012 Kantar Retail 42