U.S. Retailing & Consumer Trends: Jeff Gregori The Nielsen Company October 23, 2008

U.S.
Retailing & Consumer Trends

Jeff Gregori The Nielsen Company October 23rd, 2008
Confidential & Proprietary Copyright 2008 The Nielsen Company
Agenda
Economic Outlook
U.S. Retail Trends
Key Consumer Trends

Health & Wellness
Key Insights & Recommendations
U.S. Retailing & Consumer Trends
December 19, 2012
Page 2
Overall Cost of Living Rising Sharply

Consumers Can Not Keep Up With Necessities
12 Month Percentage Increase, Selected Items (March 2007 vs. March 2008)
48% 35% 27% 16% Fuel Oil Gasoline

Gallon Gallon
13% Milk
half gallon
10%
7%
3% Wages - 8% Housing
Eggs
dozen
Bread
pound
Chicken Ground pound Beef

pound
Source: U.S. Department of Labor Statistics (Consumer Price Index; U.S. City Average); USDA, NAR, BLS
December 19, 2012
Page 3
Consumers Combining Trips, Eating Out Less, Staying Home, Cutting Spending @ Alarming Levels!
78% combining shopping trips & errands (+ 10 pts from YAGO), 52% eating out less (+ 14 pts), 51% staying home more often (+ 12 pts) & 63% of U.S. consumers are reducing spending (+ 18 pts)!
Saving Money in What & How they Buy & Where They Shop
Impact higher gas prices had on driving & spending habits? Check all Buy less expensive grocery brands
Use more coupons
Jun/Jul 05 17%
20%
Jun/Jul 06 22%
24%
Jun 07 19%
21%
Jun 08 35%
32%
Shop more @ Supercenters

Buy Larger, Economy Size
Nielsen Homescan Gas Impact Study
22%
10%
26%
11%
23%
10%
28%
16%
December 19, 2012
Page 4
So, Tough Times for Growth & How Important Are Value, Variety & Convenience to You?
How are you equipped to compete against Value, Variety or Convenience? Are you providing Value, Variety & Convenient solutions to category consumers & retail shoppers? An integral part of these themes is innovation
December 19, 2012
Page 5
U.S. Retailing Trends
December 19, 2012
Page 6
Value & Convenience Winning As Evidenced By Increased Store Count

U.S. Store counts
Warehouse Clubs Supercenters Dollar Stores Mass Merch Supermarkets Drug Convenience
Source: Trade Dimensions & TDLinx, services of The Nielsen Company
907 1,167 1,583 3,178 13,151 19,805 6,421 6,584 30,682 32,027 39,660 37,399 2001 Mid-2008
Supermarkets have not grown at the rate of other retail channels no wonder the channel has lost shopping trips!
124,516 145,624
December 19, 2012
Page 7
Shopping Behavior Trends

Retailers can grow their sales by: Increasing their shopper base Driving shopping frequency Building baskets Leveraging categories & brands that impact one or more of these components Driving need state trip opportunities Health & wellness Meal occasions Large versus small trips Time-starved consumers
Source: Homescan, a service of The Nielsen Company
December 19, 2012
Page 8
Value Winning As Evidenced By Consumer Acceptance

% US household penetration
Military Conv/Gas Warehouse Supercenters* Dollar Drug Mass Merch Grocery
Source: Homescan, a service of The Nielsen Company ** Note: Conv/Gas channel behaviors understated because of the high level of gasoline only buys & purchases of immediate consumables
3.6 3.8 45 41 50 51 51 59 68 64 81 81 86
2001 Mid-2008
Benefits from new store openings
95 100 99
*Includes Kmart, Target & Wal-Mart Supercenters
December 19, 2012
Page 9
Value Channels Grabbing Trips

Trips per household
Military Warehouse Dollar Conv/Gas Drug Mass Merch Supercenters* Grocery
20 10 11 11 13 15 14 15 14 15 20
24
-17%
2001 Mid-2008
Grocery & Mass trips continue to drop

24 26 59 72
-18%
*Includes Kmart, Target & Wal-Mart Supercenters
December 19, 2012
Page 10
Value Retailing Driving Price Compression

Average $ basket ringtotal expenditures
Military Dollar Conv/Gas Drug Grocery Mass Merch Supercenters* Warehouse
$59 $63 $11 ** $14 $10 $19 $19 $23 $32 $40 $39 $49 $51 $64 $82
One Stop Shopping A Key Strength For Military
2001 Mid-2008
$98
*Includes Kmart, Target & Wal-Mart Supercenters **Source: Progressive Grocer
December 19, 2012
Page 11
Military Channel mostly competing for Larger Stock Up Trips (>$64) very similar to Club
% of channel dollars by trip type
Military $ Stores C-Stores Drug Grocery Mass Merch Supercenters Warehouse Clubs 22 14 7 16 Immediate
Total USNielsen Homescan52 weeks ending 7/1/2006
12
18 73 55 51 32 28 24 30
29
41 18 23 24 10 13 26 28 32 47 Routine Stock-up
Immediate = <$31 Fill In = >$31 <= $64 Routine = $64 - $125 Stock Up = >$125
6 3 11 11 12 23
30
30
Fill In
December 19, 2012
Page 12
Next to Club, no channel appeals more to higher income households than the Military Channel
% sales from all shoppers
100 80 60 40 20 0 $100k + $70 - $99.9k $50 - $69.9k $40 - $49.9k $30 - $39.9k $20 - $29.9k < $20k
D ru Su g pe rc en te r
.H hl
G ro
D ol
U .S
Source: Homescan, a service of The Nielsen CompanyTotal US52 weeks ending 6/28/2008
ilit ar
What can the Military Channel learn from Club retailers?
ds
la r
ce ry
C lu
as s
December 19, 2012
Page 13
Value channel (Dollar, Mass & Club) growth coming from ALL income segments!
$ % Chg V. Year Ago - By Income Group
Dollar Stores Total Mass Grocery Club Drug
20 10
Flat
0 -10
Low Income
Mid-Income
High Income
Source: MY 2008 Vs. MY 2007 Account Shopper Profiler Low Income = < $20K, Mid Income $20K-$99.9K, High Income >$100K
December 19, 2012
Page 14
Low income households unlikely to trade up, but high income households will trade down
Penetration By Income Group
11 Million HHs 84 87
78
78 63
65 47 40
75 50 30
79 81 83 68 46 41 33
Dollar Stores
Wal-Mart
Target
Club
Drug
C-Stores
Low Income
Source: Mid-Year 2008 Homescan
Mid-Income
High Income
Low Income = < $20K, Mid Income $20K-$99.9K, High Income >$100K
U.S. Retailing & Consumer Trends December 19, 2012 Page 15
Dollar Stores Expanding Assortment
December 19, 2012
Page 16
Retailers How Are the Winners Winning? Convenient Shopping Solutions

BAG & CHECKOUT AS YOU SHOP!
ANTICIPATE SHOPPER NEEDS
December 19, 2012
Page 17
Marketside Wal-Marts Newest Banner

First 4 Locations Near Phoenix, AZ
7561 E. Baseline Road, Mesa 910 E. Elliott Road, Gilbert 950 N. McQueen Road, Chandler 838 W. Elliott Road, Tempe
15,000-20,000 Square Feet of Selling Space

Half the Size of a Neighborhood Market
This new banner allows Wal-Mart to attract upscale shoppers without the Wal-Mart name or the Big Box image.
http://www.marketside.com
U.S. Retailing & Consumer Trends December 19, 2012 Page 18
Retailers Performing Well In Tough Economy

Costco July sales rose 14%, same-store up 10% BJs July same-store sales up 16.7%, excluding gasoline, same-store up 7% Dollar Tree posted 12.5% increase in sales during fiscal 2nd qtr, comp-store up 6.5% Kroger 1st qtr sales up 11.5%, identical supermarket sales up 9.2% with fuel & 5.8% without Family Dollar July sales rose 7.2%, same-store up 4.6% Walgreen Co. July sales up 10.7%, same-store up 4.1% Wal-Mart 2nd qtr sales up 10.1%, same-store up 4.5% Consumer Motivation
Source: Industry e-newsletters & company web sites U.S. Retailing & Consumer Trends
= Stock-up & Save

December 19, 2012 Page 19

= Value Seeking

= Value & Convenience


= Value & 1-Stop Shop

Key Consumer Trends
December 19, 2012
Page 23
Short & Long-term Growth Can Be Accomplished With Consumer Focus

Health & Wellness opportunities are here to stay
Make them key component of messaging and/or understand how to take advantage of indulgent consumers Improve reaction time to new diets & eating trends In-store health clinics growing
Wal-Mart to add 400 by 2010 Grains Veggies Fruits Oils Dairy Meat/Beans
December 19, 2012
Page 24
Many Health & Wellness Claims Show Strong Growth vs. Year Ago
Health & Wellness Claim Natural Low Fat Absence of Specific Fat
(Trans Fat or Saturated Fat)
52-Week Dollar Sales $21.8 Billion $14.9 Billion $13.3 Billion $11.3 Billion $10.6 Billion $10.0 Billion $8.5 Billion $5.8 Billion $5.5 Billion $4.7 Billion $2.1 Billion $1.9 Billion $1.6 Billion
Chg Vs Year Ago +11.4% +3.9% +30.5% +9.7% +8.6% +5.2% +9.6% -0.6% -2.2% +22.5% +16.6% +15.8% +1.8%
Reduced Calories Cholesterol Free Fat Free Reduced Fat No Calories Caffeine Free Organic Multi-Grain Antioxidants Good Source of Fiber
Source: Nielsen LabelTrends, Total U.S. FDMxWM, 52 Weeks Ending 9/6/08
December 19, 2012
Page 25
Organics Have Grown Considerably Over 4 Years, but Sales Volume Small Compared to Other H&W Trends
Fiber Presence
73% $3.5 Billion 15% 143%

$4.7 Billion
Organic Preservative Presence
23% 19% $13.6 Billion 24% $17.3 Billion 6% 37% $21.9 Billion 12%
6%
% Chg. 4 Yrs. Ago % Chg. YA
Calorie Presence
Natural
52 Week Sales
Fat Presence
32% $46.8 Billion 12%

Source: Nielsen Strategic Planner, 52 Weeks Ending 8/9/08
December 19, 2012
Page 26
4 W k 4 W En d
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0.0%
5.0%
Recent Weeks Show Less Aggressive Organic Growth
% Chg. $ Sales % Chg. Units
Source: Nielsen Strategic Planner

10 En /09 4 W d 0 / 04 k 1 En /01 4 W d 0 /05 k 3 En /26 4 W d 0 / 05 k 6 En /18 4 W d 0 / 05 k 9 En /10 4 W d 1 / 05 k 2 En /03 4 W d 0 / 05 k 2 En /25 4 W d 0 / 06 k 5 En /20 4 /0 W d0 6 8/ k 12 En 4 /0 W d1 6 k 1/ En 04 4 /0 d W 01 6 k En /27 4 W d 0 / 07 k 4 En /21 4 W d 0 / 07 k 7 En /14 4 W d 1 / 07 k 0 En /06 4 W d 1 / 07 k 2 En /29 4 W d 0 / 07 k 3 En /22 4 W d 0 / 08 k 6 En /14 /0 d 09 8 /0 6/ 08
In which aisles are Organic products most prevalent? UPC Fresh Produce & Dairy
Department Fresh Produce (UPC-coded) Dairy Fresh Meat (UPC-coded) Dry Grocery Frozen Foods Deli (UPC-coded) Packaged Meat Alcoholic Beverages HBA Total Organics Organic Dollar Sales $869 Million $1,475 Million $30 Million $1,836 Million $339 Million $28 Million $37 Million $24 Million $41 Million $4,680 Million % Chg. Organic Shr. YA of Dept. +26% 6.3% +20% 3.5% +23% 1.9% +24% 1.3% +23% 1.1% +27% 0.5% +25% 0.4% +32% 0.1% +27% 0.1% +23% 1.3%

December 19, 2012
Page 28
Organics Comprise Less Than 1% Share for Most Categories

Category
Milk Fresh Produce (UPC-coded) Soft Drinks Non Carb Yogurt Baby Food Eggs Dessert/Fruit/Toppings Froz Soup Dried Fruit Jams/Jellies/Spreads Tea Cereal Breakfast Foods Flour Canned Vegetables
Organic Dollar Sales

$1,018 Million $869 Million $67 Million $180 Million $167 Million $142 Million $40 Million $139 Million $34 Million $52 Million $70 Million $185 Million $56 Million $12 Million $72 Million
Sales % Chg.YA
+18% +26% +4% +21% +23% +29% +36% +17% +46% +45% +28% +12% +60% +37% +36%
Organic Share of Category

7.5% 6.3% 6.1% 5.0% 4.4% 4.1% 3.6% 3.3% 3.0% 2.9% 2.8% 2.5% 2.4% 2.4% 2.2%
Total Organics
$4,680 Million
+23%
1.3%
Nielsen tracks 76 categories with organic claim.


December 19, 2012
Page 29
Big Names in Organics

Some Manufacturers have created Organic Line Extensions
Source: Nielsen Strategic Planner: FDM 52 Weeks Ending 1/27/2007
December 19, 2012
Page 30
Big Names in Organics

Several Large Manufacturers Produce Organic Products Under a Different Brand Names
December 19, 2012
Confidential Page 31 Source: Organic News & Proprietary Copyright 2008 The Nielsen Company
Meet the Health &Wellness Segments:

(% of U.S. general population adults)
Least concerned & knowledgeable about health & healthy eating
Driven to health by all means
17% EAT, DRINK & BE MERRYS
25% WELL BEINGS
Low belief in the value of healthy categories
19% FENCE SITTERS 19% MAGIC BULLETS
16% FOOD ACTIVES
Dedicated to health through smart nutrition and weight management
High belief in the value of supplements less concern with food

U.S. RetailingHealth & Wellness Nielsen & & Consumer December 19, 2012 Trends NMI Service Introduction Page 32
23% of Military Shoppers are Food Actives

Shopper Index
93
117
98
% Shoppers
95
95
18 19
23 20
22 23 14 15
23 24
Well Beings Food Actives Magic Bullets Fence Sitters Eat Drink & Be Merry
Total Military Shoppers

Source: Homescan, a service of The Nielsen Company
Total Mkt Shoppers
December 19, 2012
Page 33
Military Shoppers most likely to be FOOD ACTIVES and EAT DRINK & BE MERRY type shoppers
Dollar Spend Index v. Avg HH
WELL BEINGS FOOD ACTIVES MAGIC BULLETS FENCE SITTERS EAT DRINK & BE MERRYS
MILITARY Whole Foods
97 241
108 35
98 162
89 45
105 23
Wegmans
Costco Sams Club Safeway Grocery Corp Target Banner Wal-Mart Banner
134
111 88 106 105 84
127
111 117 93 101 93
71
117 118 105 92 94
88
81 85 106 100 110
88
82 91 94 103 115
Read as: Costco $ sales are 11% greater than industry among WELL BEINGS
Source: Homescan, a service of The Nielsen CompanyTotal US52 week ending 09/06/2008
December 19, 2012
Page 34
FOOD ACTIVES
Health-Related
Eating healthy is vital, over three-fourths eat heart smart Believe maintaining proper weight is key to healthful living Low use of natural and organic food Most apt to count calories and use artificial sweeteners instead of sugar Highest use of prescription drugs; lowest use of alternative healthcare Dedicated to health through healthy eating, avoiding negatives and adding those with nutritional benefits. FOOD ACTIVES are driven by a desire for balance of exercise, nutrition, and weight management. FOOD ACTIVE 16%
(% of population)
Branding Influences
Most likely to choose products for which they have a coupon Lower than average levels of LOHAS environmental values
Health & Wellness Nielsen & NMI Service Introduction
December 19, 2012
Page 35
Health & Wellness Segments Show Different Category Preferences

Dollar Spend Index v. Avg HH
WELL BEINGS
FOOD ACTIVES
MAGIC BULLETS
FENCE SITTERS
EAT DRINK & BE MERRYS
Yeast Flour Fresh Produce
159 130 120
129 100 111
69 108 108
155 91 91
27 78 77
Yogurt
119
112
111
84
80
Wine Beer
129 91
125 95
113 90
78 107
66 114
Read as: Flour $ sales are 30% greater than average HH among WELL BEINGS
Source: Homescan, a service of The Nielsen CompanyTotal US52 week ending 09/06/2008 upc-coded products
December 19, 2012
Page 36
Summary & Closing Thoughts
December 19, 2012
Page 37

1. More than ever, shoppers of all economic means are seeking value Combining shopping trips
Eating more meals at home & doing more at-home entertaining

Seeking the right mix of value, variety, & convenience BUT AT ACCELERATED LEVELS
The Military Channel is more important than ever to its customers

More shoppers are taking advantage of the Military Channel as UPC product penetration has increased to 3.8% (4.4 MM) but shopping frequency is has eroded How aggressive are we advertising The Military Channel Value proposition to shoppers versus Mass, Dollar & Club stores?
December 19, 2012
Page 38

2. The Military Channel Health & Wellness strategy should consider the following elements: Key Assortment Drivers of Health & Wellness o Natural, Preservatives, Fat and Calorie Presence Claims offer the Military Channel opportunity to build Health & Wellness equity with its customers more than Organics Potential Organic category entry points for the Military Channel includes: Primarily Center Store - Non-Carb Soft Drinks, Baby Food, Soup, Dried Fruit, Jams/Jellies, Tea, Cereal, Breakfast Foods & Canned Vegetables Perimeter Areas Milk, Yogurt, Eggs Organic Frozen can be a differentiation point for Military versus competitive channels. This sector is undeveloped for Organics, but the Total Frzoen Dept is real strength at Military.
December 19, 2012
Page 39

3. The Food Actives Shopper Segment is a significant opportunity for the Military channel to drive growth with Health & Wellness o A big target for Military as 23% are considered Food Actives (1MM+ Shoppers)
75% eat Heart Smart and Count Calories Most likely to use Artificial Sweeteners instead of Sugar Most likely to choose products for which they have a Coupon
o While these shoppers already spend 8% more than the average shopper in Military, we need to define ourselves somewhere between Sams (117) & Wegmans (127)
December 19, 2012
Page 40
Thank You!
Mid-Year Update
Appendix
December 19, 2012
Page 42
Health & Wellness Segmentation Methodology
U.S. RetailingHealth & Wellness Nielsen & & Consumer December 19, 2012 Trends NMI Service Introduction
Page 43
NMI Health & Wellness Segmentation Methodology

NMIs analysis of the U.S. populations attitudes and behaviors regarding health and wellness has long indicated that there are clearly identifiable psychographic health and wellness segments.
In 2001, NMI developed a proprietary health and wellness segmentation of U.S. consumers. Based on more than 40 measures, the Health and Wellness segmentation has become a cornerstone of the Health & Wellness Trends Report (HWTR). The five segments identified have been quite robust over time, displaying strong consistency from year to year.
Page 44
NMI Health & Wellness Segmentation Methodology

The formal analytical model measures commonalities and differences between five distinct consumer groups using k-means cluster analysis. The comprehensive statistical modeling process used to derive NMIs health and wellness consumer segmentation is based on the following techniques and methodologies:
Exploratory and confirmatory factor analysis of nearly 200 measures of consumer attitudes and behaviors regarding health and wellness, organic products, supplements, exercise, and many other topics. The analysis identified more than 25 potential factors The identification of 31 measures from the factor analysis that best represented each of the potential factors identified and maintained consistency with the previous years segmentation solution K-means cluster analysis which examined numerous potential solutions to determine which segmentation model provided the optimal solution, based on the following criteria: Maximum differentiation between consumer groups Maximum homogeneity within each consumer group
Page 45
NMI: Unparalleled Expertise in Health, Wellness & Sustainability

NMI is an international strategic consulting, market research, and business development company specializing in the health, wellness, and sustainability marketplace.
Since 1990, NMI has focused on the well-being of people and products, and the environmental and social responsibility of the planet. NMI owns the only H&W consumer database.
Page 46
EAT, DRINK & BE MERRYS

EAT, DRINK & BE MERRYS 23%
Health-Related
Least likely to agree that consumption of healthy, nutritious food is important to a healthy lifestyle Lowest monthly expenditure on healthy and natural products Driven more by taste and to select emotional, feel-good products Least likely to read labels
(% of population)
Branding Influences
Most likely to choose store brand and buy on price
Least likely to associate personal values with brand choice
Least concerned about health and healthy eating; least knowledgeable about healthrelated benefits. Know they should eat healthier, but dont. Most focused on taste.
Page 47
WELL BEINGS
Health-Related
High use of healthy food such as soy food/beverages, fiber, organic food/beverages Spend significantly more on healthy and natural products As challenged to eat right as other segments, yet are the most successful at healthy eating Choose natural/organic over conventional Above average use of alternative healthcare Driven to health by all means, including food, supplements, and other products. Strong preference for concepts that are natural and organic, with strong environmental linkage. WELL BEING 25%
(% of population)
Branding Influences
Least likely to base purchase decisions on price; choose quality regardless of cost; concerned about brand image Most likely to shop natural channel, including Trader Joe's and Whole Foods Market Early adopters and influencers Purchase from companies that share their values
Page 48
MAGIC BULLETS
Health-Related
Above average interest in, understanding, and use of organic and natural food/ beverages Highest use of functional/fortified food/beverages Highest usage of weight loss food and artificial sweeteners Highest use of OTC, alternative healthcare, homeopathic remedies, condition specific supplements, VMHS; high use of Rx MAGIC BULLETS 19%
(% of population)
Branding Influences
Average brand loyalty, less concerned with brand image After WELL BEINGS, most likely to shop Trader Joes and Whole Foods Market
More likely to choose products for which they have a coupon

High belief in and usage of supplements for health, and less concern with food. Among the groups most actively managing weight, sensitive to environmental concerns, and some leanings toward natural and organic. Healthy convenience resonates with this group.
Page 49
FENCE SITTERS
FENCE SITTERS 17%
Health-Related
Lower belief in the connection between diet and health Less than average use of most healthy food categories Less concerned about sugar, high fructose corn syrup, and artificial sweeteners
(% of population)
Branding Influences
Average brand loyalty Concerned about brand image More likely to buy on price Less environmentally sensitive
Primarily younger households with kids, who buy on price and are driven by the family diet. They are neutral on most health issues, with a low belief in the value of healthy categories
Page 50
Good Alignment Between NMI & Homescan Consistent Segment Sizes

23 17 19 16 25 24 16 22 19
WELL BEINGS EAT, DRINK, & BE MERRYS FENCE SITTERS MAGIC BULLETS FOOD ACTIVES
19 Homescan H&W
NMI H&WS % Population
% Households
Source: NMI 2007 H&W Consumer Trends Database; Homescan, a service of The Nielsen Company
Page 51
Who is the Military Shopper?

Demographics of the average Military Shopper
HHLD Income $40K+ Female Head Age 55+ Affluent Suburban Spreads Younger Bustling Families Empty Nest Couples Senior Couples Not In Work Force African American Asian Non-Caucasian
Demographics of HEAVY Military Shopper

HHLD Income $40K+ Female Head Age Under 35 Female Head Age 65+ 2 Member Household 3 4 Member Household 5+ member Household Affluent Suburban Spreads Younger Bustling Families Empty Nest Couples Senior Couples Not In Work Force African American Asian Non-Caucasian
Your Most Important shoppers

Heavy Shoppers represent approximately 82% of total military volume
December 19, 2012
Page 52
Who is the Military Shopper?

Demographics of the average Military Shopper
HHLD Income $40K+ Female Head Age 55+ Affluent Suburban Spreads Younger Bustling Families Empty Nest Couples Senior Couples Not In Work Force African American Asian Non-Caucasian
Demographics of LIGHT Military Shopper

HHLD Income $50K - $99k Female Head Age 65+ Modest Working Towns Senior Couples Not In Work Force African American Asian Non-Caucasian
Light occasional shoppers

Light Shoppers represent approximately 18% of total military volume
December 19, 2012
Page 53

U.S. Retailing & Consumer Trends: Jeff Gregori The Nielsen Company October 23, 2008

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Retailing & Consumer Trends

Confidential & Proprietary Copyright 2008 The Nielsen Company

Key Consumer Trends

Key Insights & Recommendations