Freshtop Trends in Convenience April 28, 2016 FMI Is the Trade Association That Serves As the Voice of Food Retail

Home , Target Corporation, Wegmans

FreshTop Trends in Convenience April 28, 2016 FMI is the trade association that serves as the voice of food retail. We assist food retailers in their role of feeding families and enriching lives.

Our members are food retailers, wholesales and suppliers of all types and sizes

FMI provides comprehensive programs, resources and advocacy for the food, pharmacy and grocery retail industry

CONSUMER & FOOD SAFETY GOVERNMENT INDEPENDENT CENTER STORE COMMUNITY AFFAIRS & DEFENSE RELATIONS OPERATOR PRIVATE BRANDS SUPPLY CHAIN TECHNOLOGY

ASSET COMMUNICATION EDUCATION FRESH FOODS HEALTH & WELLNESS INFORMATION RESEARCH SUSTAINABILITY WHOLESALER PROTECTION SERVICE

Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 3 Fresh @ FMI FMI is committed to the growth and success of fresh companies and their partners. FMI provides resources and networks that support the interests of member companies throughout the global, fresh produce supply chain, including family-owned, private and publicly traded businesses as well as regional, national and international companies.

Emphasis on fresh • Produce Rick Stein • Meat Vice President, Fresh Foods • Seafood Food Marketing Institute • Deli/In-store, fresh prepared foods and [email protected] Fresh Foods assortments 202.220.0700

Research and Education Networking Advocacy

In-depth information, trends and Share ideas, explore best Understand what is going on in insights to foster innovation, practices and develop business Washington and make your take advantage of new relations voice heard opportunities and help develop winning strategies

John Ruane (Co-Chair) Alex Corbishley Pat Pessotto Ahold USA Target Corporation Longo Brothers Fruit Markets Inc.

Rick Steigerwald (Co-Chair) Chris Darling Jerry Suter Lund Food Holdings, Inc. Albertsons, LLC Meijer, Inc. Fresh Foods

Tom DeVries (Past Chair) Jerry Edney Geoff Waldau The FEC seeks to Giant Eagle, Inc. Associated Wholesale Grocers, Inc. Delhaize America

Jason Anderson John Grimes Dan Wampler • identify areas of Affiliated Foods Midwest Cooperative, Inc. Weis Hy-Vee collaboration across all fresh foods departments Bill Artman John Haggerty Blaine Bringhurst* Giant Eagle, Inc. Burris Logistics Price Chopper Supermarkets • promote understanding and cooperation John Beretta Mark Hilton Steve Mayer* throughout the industry Albertsons, LLC Harris Teeter LLC Schnuck Markets, Inc. and with sister fresh associations Dave Bornmann Christopher Lane Nicole Wegman* Publix Super Markets, Inc. Wakefern Food Corporation Wegmans Food Markets, Inc. • maximize common learning’s between fresh Scott Bradley Mike Malone * Silent members(*) categories and to create a Target Corporation Brookshire Grocery Company vision of leadership for the entire fresh category Jerry Chadwick Dan Murphy Lancaster Foods, LLC Unified Grocers, Inc.

John Ruane (Co-Chair) Paul Mastronardi Joe Watson Ahold USA Sunset Grown Produce Produce Marketing Association

Rick Steigerwald (Co-Chair) Michael Higgins Joe Weber Fresh Foods Lund Food Holdings, Inc. Hussmann Smithfield Foods Inc.

The FFLC is.. FEC Members Henry Pellerin Art Yerecic

FMI Fresh Executive Committee Hill Phoenix Yerecic Label Comprised of FMI Member

companies, industry trade Glen Dolezal Jeff Oberman Cargill United Fresh Produce Association association and fresh focused knowledge partners Chris DuBois Janet Riley IRI North American Meat Institute

Michael Eardley Tristan Simpson International Dairy-Deli-Bakery Association Ready Pac Foods, Inc.

Jim Ethridge Tom Super National Cattleman's Beef Association National Chicken Council

Sherry Frey Jarrod Sutton Nielsen Perishables Group National Pork Board

Objective

Define the major trends that are driving Perimeter sales outperformance and will directly impact long-term success of retailers and suppliers over the next 3- 5 years

Inputs

industry interviews primary data analysis secondary research

Trends are still in the early stages of growth

Embracing these trends drives sales outperformance

Pursuing trends requires strategic perspective across departments

Trends will set foundation for next generation of retail business success

Strategies and tactics that reduce time and effort for consumers

Evidenced by foods that: • Are Easier to Eat • Are Easier to Cook • Have Customizable Portions

Where placed in the store

Layout enhancements of the store

Parking spaces for quick trips to purchase the convenient products

Dedicated checkouts

Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 15 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 16 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 17 Easier to Easier to EAT eat options contributing a Snack Size Vegetables large percentage of category sales 2X rate of RW $ sales v. YAG

Prepared Entrees

+10% $ sales v. YAG

Cut Fruit

+9.9% $ sales v. YAG

Fresh squeezed juice, infused water and smoothies +22% Over last year +105% Over 3 years

Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 19 Easier to Easier to COOK cook options growing faster Value Added Meat than total v +5.4% s +4.8% category $ sales v. YAG total category

Fixed Weight Vegetables

v +5.4% s +3.6% $ sales v. YAG total category

Take and Bake Bread

v +12.5% s +1.9% $ sales v. YAG total category

7.9% 5.6%

Value added seafood $ growth Total seafood $ growth

+4.7% +26% +2% +8% +11% CAGR CAGR CAGR CAGR CAGR

36 categories 12 categories 20 categories 14 categories 13 categories

Across Fresh Across Fresh Across Fresh Across Fresh Across Fresh departments: Deli Meat, departments. RFG meals departments. Seeing departments. Over 120% departments. Deli Cheese, Fresh Meat, growing at 167% largest growth in RFG growth in RFG Entrée Dairy, RFG meals, RFG Tortilla/Eggrolls/Wonton and RFG Spreads Sides wraps (+36%)

+18% over previous year

Emerging Trends:

Personalization

Entertainment

Customization (breads/cakes, etc)

55% 20% Married Couples Married Couples w/Kids w/Kids 23% 29% Married Couples Married Couples w/o Kids 1950 w/o Kids 2015 9% 28% Singles Living Singles Living Alone Alone

Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 24 Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplement, 1967 to present One person households are growing

Source: U.S. Census Bureau, Decennial Census, 1960, and Current Population Survey, Annual Social and Economic Supplements, 1968 to 2015.

1994

2004

2014

2024

16-24 25-54 55+

“I eat 3 square meals a day and no snacks”

“I eat 4 – 5 mini meals”

“I eat on the run and grab food when I have a chance”

“I eat 3 square meals and several snacks”

58% 13% +20% Eat their evening Eat their evening of Millennials meal away from meal away from eat out home 1-2 times/week home 3-4 times/week 3-4 times/week

Source: IRI Convenient Cooking Omnibus April 2016 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 28 Restaurants have answered demands with convenient and affordable options In 2015

Total Restaurants & Bars +4.0%

LSRs +3.5%

Full Service +4.5%

Cooking is Fun

Social Recipes Hybrid homemade & meal preparation

Use individual ingredients to 79% cook from scratch 36% 50% Use ready-to-heat Younger Millennials foods that are semi- are embracing ready- prepared to-heat (18-24)

Source: IRI Convenient Cooking Omnibus April 2016 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 31 When at home 17% 20% of consumers buy fully of 18-24 and 35-49 prepared meals from year olds their local store

of consumers stated they are using online 1.3% subscription meal kits Source: IRI Convenient Cooking Omnibus April 2016 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 32 Opportunities exist to expand consumption to additional days of the week with variety and price

Ready-to-heat Fully prepared meals # of times/week and semi-prepared from a local store

3.2% 3.4%

11.6% 6.3%

35.4% 25.2%

48.5% 60.7%

Affluent are heavier adopters of premium offerings

Although 40% of consumers purchase pre-cut vegetables or fruit, purchasing skews towards more affluent consumers

$50K-$75K $75K-$99K <$25K

$75K-$99K $100K+

Lower income

Multiple job workers

2nd and 3rd shifts

Hispanic and other ethnic groups

Convenience outperforming across departments

Supported by long-term consumer dynamics and household trends

Both retailers and manufacturers changing offerings rapidly

Broadening offerings will unlock future growth

Opportunity & Activation

10% 35% 47% 8%

125+ 100-125 19% 35% 17% 29% 75-100 Under 75

8% 44% 38% 10%

Retired HS and below Professional, $75K- Older $75K- 2-4 Graduate HH income Children HH income household School

Must Treat Stores Individually

African American, Asian, Upper Income Caucasian 46+ Avg. Age Single +$75K person Median HHI HH Married w/kids

The top 20 clusters: are spend 21% Of the population but 39% account for More than average On prepared fruit 34% of volume

Source: IRI FreshLook POS data, MULO, 52 weeks ending 11/29/2015 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 45 Adding convenient items does not require large investments in every store

Masked Retailer Example 22% This retailer with low cut fruit sales has 22% of stores with high potential High potential 300 (index 120+) 250 15% 200 Good potential (index 80-120) 150 63% 100 Limited potential 50 (index below 80) 0

Source: IRI FreshLook POS data, MULO, 52 weeks ending 11/29/2015

QUARTILE ANALYSIS OF CUT Fruit 2015 SALES GROWTH Sales Growth by RMA QUARTILE 1: Avg: 29%

20%

Opportunity Gap is 3900 0% basis points

-20% QUARTILE 4: Avg: -11%

<35, White, Asian, Hispanic 45-55 Avg. Age Single person +$75K 1-3 Median HHI HH person HH’s

Quartile 1 Quartile 2 Quartile 3 Quartile 4

121 104 94 75

Current store-level opportunity low performing retailer in value-added meat

Stronger VAM Target Index 25% of this retailer’s stores have opportunity for improvement

Weaker VAM Stronger VAM Sales Index Sales Index

These stores have less opportunity and shouldn’t be prime candidates for investment Weaker VAM Target Index

QUARTILE ANALYSIS OF VAM 2015 SALES GROWTH Sales Growth by RMA QUARTILE 1: Avg: 14.3%

20%

Opportunity Gap is 2100 0% basis points

-20% QUARTILE 4: Avg: -7.2%

Black, Hispanic 55-64 Avg. Age Single +$75K person Median HHI HH Single Slight Skew

Quartile 1 Quartile 2 Quartile 3 Quartile 4

124 105 103 78

Current store-level opportunity low performing retailer in chicken

180 Stronger VAM Target Index

160

140

Weaker VAM 120 Stronger VAM Sales Index Sales Index

100 0 20 40 60 80 100 120 140 160

20 Weaker VAM Target Index

QUARTILE ANALYSIS OF 2015 SALES GROWTH Sales Growth by RMA QUARTILE 1: Avg: 15%

20%

Opportunity Gap is 2300 0% basis points

-20% QUARTILE 4: Avg: -8%

Food Safety

Convenience vs. financial

Opportunity insight

Integrated plan across stores and categories

View convenience as a holistic strategy across departments

Push boundaries to find new opportunities to reduce time/effort

Use store-level opportunity to guide tactical deployment by category

Focus on pricing to balance revenue and profit

Jan 28 Feb 25 Mar 30 Apr 28 May 19 June

Food Fresh New Supply Convenience Next: FMI Connect

Transparency Prepared & Chains Connected Refresh/Update Specialty Consumer Webinar Foodservice Webinar Webinar Webinar Content Plan

Webinar Communication Plan

Chris DuBois Chris DuBois Steve Ramsey Sally Lyons Wyatt Larry Levin

Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 58 Copyright © 2016 Information Resources, Inc. (IRI). Confidential and proprietary. 59 Thank You! Sally Lyons Wyatt Rick Stein EVP, Practice Leader VP, Fresh Foods

[email protected] [email protected] (312) 285-7319 (301) 377-2779