Millennials Have Grown Up

DON’T CALL ME A #MILLENNIAL Millennials have grown up.

July 2016

1 2 THE ONLY THING EVERY MILLENNIAL HAS IN COMMON IS WHEN THEY WERE BORN Generations are defined by Age born 1982-1995 21-34 years old 25% of Total U.S. Population

3 BUT I DON’T ACT LIKE A MILLENNIAL! Millennial stereotypes draw Millennials away from their generational label

PEOPLE SAY MILLENNIALS… MILLENNIALS SAY…

…don’t want to grow up.

27% …want immediate gratification. WHAT GENERATION 40% DO I FEEL LIKE I …are not loyal. BELONG TO? % of 21-34 …only buy piecemeal & on-the-go. year-olds

33% …are self-involved & lazy.

…spend too much time online. Millennial GenX No Affiliation Source: Pew Research, Most Millennials Resist the ‘Millennial’ Label

4 So why do we all care so much about Millennials anyway?

5 THEY ARE A HUGE SEGMENT WITH BIG INFLUENCE Too big to ignore

LARGE & PURCHASING LIFE STAGE INFLUENCE ECOMMERCE DIVERSE POWER

79.7 million From landing first job $1.4 trillion Impacting Fluidity of Largest living and increasing annual spending everything shopping cohort & income, to marriage, by 2020 from the behaviors most diverse parenthood and Will account for grocery aisle online and homeownership 50% of retail to the instore spending in workplace 5 years

Source: CEB Iconoculture, US Census, Mintel

6 “KIDS THESE DAYS” NO MORE Millennials have grown up and are choosing their path into adulthood

Leaves College Lands Gets first job Buys a divorced Gets home Has a remarried Baby

Moves out of parent’s home rd Starts Has 2nd Has 3 Gets planning baby baby married a family

21 Varying life-stages for Millennials now that they’ve entered adulthood. 34 y/o y/o

7 WHEN MILLENNIALS WERE THEIR AGE… Life stages of GenX & Boomers when they were the age of Millennials

77% 73% 70% 64% 66% 56% 53% 52% 47% 44% 46% 44% 34%

19% 15%

Married Parents Employed College Educated Home Ownership

Millennials in 2015 (20-37 y/o) GenX in 1998 (21-33 y/o) Boomers in 1984 (20-38 y/o)

Source: Pew Research, How Millennials Compare to Their Grandparents & Comparing Millennials to Other Generations; CEB Iconoculture, Millennial Ties that Bind; US Census

8 BEING A MILLENNIAL MEANS SPENDING LESS & SHOPPING LESS OFTEN, BUT SPENDING ABOUT THE SAME PER TRIP Less disposable income & more options for spending

Dollars per HH Trips Per HH Dollars Per Trip Per HH 45 $1,765 $1,575 42 $1,298 $37 $37 $34

Millennials GenX Boomers Millennials GenX Boomers Millennials GenX Boomers

Brick & Mortar FMCG Channels | Last 52 weeks Source: InfoScout Panel Data

9 FOOD & MASS CHANNELS WIN WITH ALL GENERATIONS Mass has slight advantage with Millennials but GenX spends more

Dollars per Household by Generation Brick & Mortar FMCG Channels | Last 52 weeks $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Food Mass Club Drug Convenience Dollar Millennial GenX Boomers

Source: InfoScout Panel Data

10 Some of these Millennials are not like the others

11 MILLENNIALS ARE “SETTLING DOWN” INTO ADULTHOOD The presence of children and adapting shopping behaviors

Marriage Parenthood

47% 53% Married/ Single Partnered

WHY? 44% 67% 25% 22% Of Millennials are Of Millennials without Not Financially Not Ready to parents children say they would Stable Yet Settle Down like to be parents

Source: U.S. CDC; Mintel, Marketing to Millennials; UN DESA, World Population Prospects; CEB Millennials in 2016, Millenial Marketing

12 MILLENNIALS HAVE MORE WITH LOW INCOME, BUT THIS WILL CHANGE AS THEY PROGRESS IN THEIR CAREERS Currently their incomes are lower than total U.S. income

30% 27% 25% 22% 20% 21% Total U.S. Millennials 20% 18% 15% 16% 15% 11% 12% 52% 67% 10% 9% 10% 8% 6% Low-Income Low-Income 4% (Below $60K) (Below $60K) 5% 0% Under $20K $20-40K $40-60K $60-80K $80-100K $100-125K $125K+ 47% 33% LOW INCOME HIGH INCOME High-Income High-Income (Over $60K) (Over $60K) Millennials Total U.S.

Source: InfoScout Panel Data, US Census Bureau; 15 Economic Facts about Millennials – whitehouse.gov

13 The Millennial Income Disparity

14 MILLENNIALS DO MORE WITH LESS & UTILIZE ECOMMERCE OPTIONS Less disposable income & more options for spending

ANNUAL DOLLARS PER HH BY INCOME $2,500 Brick & Mortar FMCG Channels | Last 52 weeks +46% +35% $2,000 +32% +26% +26% +28% +25% $1,500

$1,000

$500

$0 - $20k $20k-40k $40k-60k $60k-80k $80k-100k $100k-125k $125k +

Millennial Dollars / HH Gen-X Dollars / HH Boomer Dollars / HH

Source: InfoScout Panel Data

15 BEING A MILLENNIAL DOESN’T MEAN YOU SHOP PIECEMEAL Other generations behave similarly based on income

MILLENNIAL

Dollars & Frequency per HH By Income $55 50

$45 40 $35

$25 30

Dollars / Trip Trips per HH

Brick & Mortar FMCG Channels | Last 52 weeks Source: InfoScout Panel Data, CEB Iconoculture

16 BEING A MILLENNIAL DOESN’T MEAN YOU SHOP PIECEMEAL Other generations behave similarly based on income

MILLENNIAL GENX BOOMER

Dollars & Frequency per HH Dollars & Frequency per HH Dollars & Frequency per HH By Income By Income By Income $55 50 $55 50 $55 50

$45 $45 $45 40 40 40 $35 $35 $35

$25 30 $25 30 $25 30

Dollars / Trip Trips per HH Dollars / Trip Trips per HH Dollars / Trip Trips per HH

Brick & Mortar FMCG Channels | Last 52 weeks Source: InfoScout Panel Data, CEB Iconoculture

17 THE GENERATION SADDLED WITH THE MOST STUDENT LOAN DEBT Putting stress on Millennial incomes

47% 42% Attended College Paying off student loans $30,000 Median Balance Student Loan Debt

COLLEGE-EDUCATED MILLENNIALS MEDIAN NET WORTH

No Student Loan Debt $64,700

Has Student Loan Debt $8,700

Source: CEB Millennials in 2016; US Bureau of Labor Statistics, Nielsen Consumer 2015

18 Millennials say “Hello Baby. Goodbye Money.” How the presence of a child in the home affects HOW this demographic shops

19 ADULTHOOD CAN MEAN BABIES. BABIES MEAN MAJOR EXPENSES. Parents alter their basket to include items for baby

Clothing Transportation $770 $1,700 $12,190 Healthcare Formula & Food $850 st $1,460 Babies 1 Year

Diapers Childcare $1,000 $2,920 $230,610 Birth to age 18 Housing Misc. $2,700 $790

Source: USDA 2013 Annual Report- Expenditures on Children By Families

20 “BABY BUMP” BIFURCATION No matter age or income, babies mean more money and more trips

Dollars Per HH Trips Per HH

+38% +50% +31% +6 +42% $562 +7 +7 $559 $406 +8 $438 42 39 $1,314 $1,482 35 33 $1,038 $1,126

Millennial Millennial GenX GenX Millennial Millennial GenX GenX Low Income High Income Low Income High Income Low Income High Income Low Income High Income No Kids Kids No Kids Kids

Brick & Mortar FMCG Channels | Last 52 weeks Source: InfoScout Panel Data

21 The Millennial Income & Parenthood Disparity Segmenting Millennials and their shopping behavior

22 MILLENNIAL INCOME & PARENTHOOD AS DETERMINING PATHS The path to adulthood is paved by income & parenthood

All Millennials Millennials w/o Kids Millennials w/ Kids

No Kids 56% Low Low Income Income High 69% 64% Income High 36% Income 31%

Has Kids 44% High Income: Over $60,000 Low Income: Under $60,000

Source: InfoScout Panel Data

23 “BABY BUMP” BIFURCATION OF MILLENNIAL HOUSEHOLDS With less money to spend, Millennials still spend more when they have a child

Dollars / HH Dollars / HH Dollars / HH Total Millennials Presence of Children Presence of Children & High/Low Income

$2,000 $2,000 +30% +19% +14% $1,685 -13% -18% $1,476 -20% $1,000 $1,000 $1,550 $1,126 $1,298 $1,038 $1,065

$0 $0 Millennial Millennial w/Kids High Income w/Kids Low Income w/Kids Millennial w/o Kids High Income w/o Kids Low Income w/o Kids

Brick & Mortar FMCG Channels | Last 52 weeks Source: InfoScout Panel Data

24 MASS WINS WITH LOW-INCOME MILLENNIALS, BUT NOT BY MUCH High Income households spend at mass and food equally

Dollars per HH by Millennial income Brick & Mortar FMCG Channels | Last 52 weeks Total Millennials $3,500 High/Low Income % $3,000 $2,500 67% $2,000 Low Income $1,500 $1,000 $500 $0 33% All Millennials High Income Low Income High Income Millennials Millennials Food Mass Club Drug Convenience Dollar

Source: InfoScout Panel Data

25 MASS WINS WITH PARENTS When you add the demographic for children, mass spikes.

Dollars per HH by Millennial Parenthood Brick & Mortar FMCG Channels | Last 52 weeks Total Millennials $4,500 With Kids & w/o Kids $4,000 $3,500 $3,000 56% $2,500 No Kids $2,000 $1,500 $1,000 $500 44% $0 Has All Millennials Millennials w/ Kids Millennials w/o Kids Kids

Food Mass Club Drug Convenience Dollar

Source: InfoScout Panel Data

26 MASS DEFINITELY WINS HOUSEHOLDS WITH CHILDREN Households with children seek the value & convenience of Mass channel

Dollars Per Household By Millennial Segments (Income & Kids) Total Millennials Brick & Mortar FMCG Channels | Last 52 weeks $4,000 $3,500 Low Income 38% - No kids $3,000

$2,500 High Income - No Kids $2,000 17% $1,500 Low Income $1,000 - Has Kids 29% $500 High Income $0 - Has Kids Food Mass Club Drug Convenience Dollar 16% High Income - Kids Low Income - Kids High Income - No Kids Low Income - No Kids

Source: InfoScout Panel Data

27 MILLENNIALS PICKING RETAILERS IN MASS CHANNEL OVER KROGER Millennials are value seekers, especially when they have kids

Has Kids Has Kids No Kids No Kids All Millennials Hi Income Low Income Hi Income Low Income 1 Walmart Walmart Walmart Walmart Walmart 2 Costco Costco Costco Costco Costco 3 Kroger Target Kroger Kroger Kroger 4 Publix Kroger Publix Target Publix 5 Target Sam's Club Target Sam's Club Sam's Club 6 Sam's Club Ahold Sam's Club Ahold Target 7 Ahold Aldi Safeway Safeway BJ's 8 Safeway CVS Aldi Whole Foods Ahold 9 Albertsons Walgreens Albertsons Trader Joe's Safeway 10 Aldi Dollar General Ahold CVS Albertsons

Retailers ranked by Millennial dollars per HH KEY Brick & Mortar FMCG Channels | Last 52 weeks Blue: Mass Pink: Club Green: Grocery Grey: Drug Source: InfoScout Panel Data

28 WALMART WINS DESPITE A LACK OF SATISFACTION And Kroger ranks higher with Millennials than general population

Rank in All Rank in All Net Net Retailer Age Groups in Retailer Age Groups in Recommended Recommended National National 1 Amazon 55.7% 1 11 CVS 41.2% 10 2 Wegmans 52.5% 4 12 Kroger 39.5% 15 3 Costco 52.1% 3 13 Delhaize 36.7% 17 4 Dollar General 52.0% 2 14 Rite Aid 35.9% 12 5 HEB 49.3% 6 15 Target 35.7% 16 6 Sam’s Club 46.6% 7 16 Walmart 31.7% 18 7 BJ’s 45.1% 8 17 ShopRite 31.2% 13 8 Family Dollar 44.6% 5 18 Walgreens 31.0% 14 9 Publix 44.3% 9 19 Albertsons 25.1% 19 10 Meijer 41.5% 11 20 Stop & Shop 21.9% 20

Overall, thinking about your purchase of XXX, how likely would you be to recommend shopping at RETAILER for XXX to a friend? (SR)

Source: Lucros Partners Shopper Intelligence

29 What are Millennials buying? Kroger Category Deep-Dive

30 MILLENNIAL CATEGORY MIX CHANGES WITH PARENTHOOD A Millennial parent’s top categories are different from those without kids

Millennials With Kids Millennials Without Kids Index Index Dollars / $ Increase Dollars / $ Increase Categories Rank to all Categories Rank to all HH (vs. all HHs HH (vs. all HHs HHs with kids) HHs w/o kids) Formula 1 144 $126.85 $38.93 Performance Bars 1 108 $6.53 $0.51 Aerosol & Spray Deodorant 2 124 $12.10 $2.31 Nutritious Snacks 2 106 $17.55 $1.06 Breakfast & Cereal Bars 3 121 $8.18 $1.42 Safer Sex (Contraceptives) 3 106 $11.23 $0.62 Wipes & Wipe Holders 4 120 $18.93 $3.18 Rice 4 106 $10.06 $0.55 Baby Food 5 118 $38.94 $5.93 Face Make-up 5 105 $9.52 $0.47 Disposable Diapers 6 117 $70.83 $10.16 Utensils & Gadgets 6 103 $4.97 $0.17 Air Freshener Sprays 7 116 $11.59 $1.58 Fresh Seafood 7 103 $27.90 $0.88 Baby Cereal 8 115 $9.71 $1.25 Grains & Rice 8 103 $5.09 $0.16 Pantiliners 9 113 $7.99 $0.92 Couscous 9 103 $5.48 $0.16 Hot Cocoa 10 113 $5.21 $0.59 Oil & Blemish Control 10 103 $8.49 $0.24

Source: InfoScout Panel Data

31 OPPORTUNITY TO GAIN DIAPER DOLLARS FROM MILLENNIAL PARENTS WHO SHOP AT KROGER Millennials with children share of wallet at Kroger

Spend by Category Categories Purchased at Kroger & Other Channels

Formula 47% • Food items do better Aerosol & Spray Deodorant 81% than non-food items Breakfast & Cereal Bars 66% • Kroger has an Wipes & Wipe Holders 41% opportunity to gain Baby Food 51% disposable diaper dollars Disposable Diapers 28% from the mass channel Air Freshener Sprays 45% Baby Cereal 80% Pantiliners 57% Hot Cocoa 66%

Kroger Other Food Mass Drug Club Dollar Convenience Last 52 weeks Source: InfoScout Panel Data

32 OPPORTUNITY TO GAIN PERFORMANCE BAR DOLLARS FROM MILLENNIALS WITHOUT KIDS WHO SHOP AT KROGER Millennials without children share of wallet at Kroger

Spend by Category Categories Purchased at Kroger & Other Channels Couscous 87% • Food items do better Face Make-up 52% than non-food items Fresh Seafood 88% • Kroger has an Grains & Rice 59% opportunity to gain Nutritious Snacks 54% performance bar dollars Oil & Blemish Control 46% from the mass channel Performance Bars 50% Rice 62% Safer Sex (Contraceptives) 68% Utensils & Gadgets 52%

Kroger Other Food Mass Drug Club Dollar Convenience Last 52 weeks Source: InfoScout Panel Data

33 MILLENNIAL CATEGORY SATISFACTION AT KROGER Do Millennials recommend their top categories at Kroger?

FORMULA

BREAKFAST BARS BABY FOOD DIAPERS ENERGY DRINKS

SPICES 65.9% 53.4% 45.9% 40.9% 39.4%

16.4%

% Recommend Source: Lucros Partners Shopper Intelligence

34 FOR MILLENNIAL PARENTS, ONLY TWO TOP CATEGORIES EXCEED 10% SPEND ONLINE COMPARED TO IN-STORE Despite fear of ecommerce, the majority of Millennial spend is going to brick & mortar

50% 60% 70% 80% 90% 100% • In-store still has the leg up. Formula 96.0% 4.0% Aerosol & Spray Deodorant 100.0% • Non-food items are an Breakfast & Cereal Bars 98.1% 1.9% opportunity area for Wipes & Wipe Holders 89.2% 10.8% Kroger to differentiate Baby Food 97.8% 2.2% themselves from Disposable Diapers 88.8% 11.2% ecommerce. Air Freshener Sprays 99.7% 0.3% Baby Cereal 98.0% 2.0% Pantiliners 97.2% 2.8% Hot Cocoa 97.9% 2.1% Instore Online

Source: InfoScout Panel Data

35 FOR MILLENNIAL WITHOUT KIDS, THEIR AFFINITY FOR FRESH FOODS KEEPS THEM IN-STORE Despite fear of ecommerce, the majority of Millennial spend is going to brick & mortar

• In-store still has the 50% 60% 70% 80% 90% 100% leg up for food Couscous 97.9% 2.1% categories. Face Make-up 99.8% 0.2% Fresh Seafood 100.0% • Non-food items are an Grains & Rice 100.0% opportunity area for Nutritious Snacks 98.2% 1.8% Kroger to differentiate Oil & Blemish Control 97.4% 2.6% themselves from Performance Bars 100.0% ecommerce. Rice 99.5% 0.5% Safer Sex (Contraceptives) 97.3% 2.7% Utensils & Gadgets 97.4% 2.6% % Instore % Online

Source: InfoScout Panel Data

36 HOW THE INSTORE EXPERIENCE GIVES BRICK & MORTAR A LEG UP Compete with ecommerce by creating an authentic in-store experience for Millennials

78% 70% “The key to retail success in Choose to spend money believe experiences make on an experience over them feel more connected this era of robot-like online ownership of goods to their community shopping lies in finding creative ways to turn it into a real experience.”

69% 60% - Daniel Newman, Forbes Contributor “How Social and Digital Create The New Retail Experience” experience FOMO which shared their experiences on drives Millennials to show social media in the past year up, share and engage

Source: Eventbrite - Harris survey - Millennials Fueling the Experience Economy: July 2014

37 WHERE CAN KROGER GET THE BIGGEST BANG FOR THEIR BUCK? Demand Index & Sales Data

38 STORES WITH HIGH DEMAND, BUT LOW SALES ON DIAPERS CREATE OPPORTUNITY FOR KROGER Areas of Maryland, North Carolina, & Southern California are opportunity areas for Kroger

High Sales – High Demand

High Sales – Low Demand

Low Sales – High Demand

Low Sales – Low Demand

• Harris Teeter markets & Southern California are opportunity areas

Source: Spectra Demand Data; Nielsen Scan Data

39 STORES WITH HIGH DEMAND, BUT LOW SALES ON CONTRACEPTIVES CREATE OPPORTUNITY FOR KROGER Areas of Southern California & Metropolitan areas of Texas are opportunity areas for Kroger

High Sales – High Demand

High Sales – Low Demand

Low Sales – High Demand

Low Sales – Low Demand

• Areas of Southern California & Metropolitan areas are places to maintain your lead with non-baby Millennials

Source: Spectra Demand Data; Nielsen Scan Data

40 RECOMMENDATIONS

41 SO WHAT’S THERE TO KNOW ABOUT #MILLENNIALS? When it comes to how Millennials think about themselves & your brand

Don’t think of They are savvy shoppers They consistently shop at Millennials as kids or who look for promotions the same retailers, teenagers who don’t and value, particularly despite being known for want to grow up. those with children. lacking in loyalty.

They value sharable experiences that make They expect authenticity They have an affinity them feel a part of in their relationships for fresh foods. something bigger with brands. than themselves.

42 RECOMMENDATIONS FOR KROGER

Assist cash-strapped, Support busy parents by Give Kroger the Baby value-seeking Millennials focusing on how to make Destination feel. by catering to their need their trip convenient. to stretch incomes.

Mix items with low Remind this segment to Hyper-personalize satisfaction into a meal kit, purchase self-improvement your 84.51 loyalty appealing to desire for items with healthy foods. program cooking & convenience.

43 THANK YOU