Business Overview

Navigating the Supermarket Channel -West Coast US 1

John Rand, SVP

October 2016 Regional Grocery Forum - West

501 Boylston St., Suite 6101, Boston, MA 02116 T: +1 (617) 912 2828 [email protected]

No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photography, recording, or any information storage and retrieval system now known or to be invented, without the express written permission of Kantar Retail. The printing of any copies for backup is also strictly prohibited.

Disclaimers The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion. This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides.

1 Exploring the West Coast Retail Landscape

2 The Albertsons Companies

3 Zooming In: Regional Focus

KR Top West Supermarket Retailers Sales (USD billions) Square Footage (millions) % of West Totals US CAGR Rank CAGR CAGR CAGR 2016E 2016E Retailer 2011 2016E 2021E ('16E- 2011 2016E 2021E 2016E ('11-'16E) ('11-'16E) ('16E-'21E) Sales Sq Ft '21E) Sales

1 Kroger $84.1 $112.6 $140.0 6.0% 4.5% 143.9 171.0 179.3 3.5% 1.0% 59.4% 53.4%

2 Albertsons Market (LLC) $40.6 $56.5 $57.4 6.8% 0.3% 82.4 110.2 110.2 6.0% 0.0% 29.8% 34.4%

3 WinCo $4.6 $6.6 $8.8 7.8% 5.9% 7.4 10.1 12.2 6.4% 3.7% 3.5% 3.2%

4 Save Mart $4.7 $4.7 $5.0 0.3% 1.1% 10.9 10.7 10.7 -0.5% 0.1% 2.5% 3.3%

5 Stater Bros $3.7 $4.0 $4.5 1.8% 2.3% 5.8 5.9 6.1 0.5% 0.7% 2.1% 1.8%

6 Raleys $3.4 $3.2 $3.3 -1.1% 1.0% 8.1 7.3 7.3 -2.2% 0.0% 1.7% 2.3%

7 Bashas' $1.5 $1.8 $1.9 3.5% 1.5% 4.3 5.0 5.1 3.0% 0.6% 0.9% 1.6%

Total West US Supermarkets * $ 142.5 $ 189.5 $ 221.1 5.9% 3.1% 263.0 320.2 330.9 4.0% 0.7% 100% 100%

* Total of this sample of top retailers only

Ratio of sales to space always a strong indicator Source: Kantar Retail analysis

2016E Sales CAGR Retailer Status Growth (USD billions) ('16E-'21E) Kroger $112.6 Stable 4.5% Leading Albertsons Market (LLC) $56.5 In Flux 0.3% Lagging WinCo $6.6 Stable 5.9% Leading Save Mart $4.7 Stable 1.1% Lagging Stater Bros $4.0 Stable 2.3% Lagging Raleys $3.2 Stable 1.0% Lagging Bashas' $1.8 Stable 1.5% Lagging

For comparison the forecast for supermarkets nationally is a CAGR of 4.1%

Source: Kantar Retail analysis

West Supermarket Retailers Share of Store 4,810 5,844 5,970 100% 1.7% 1.9% 2.2% 2.3% 2.0% 2.0% 2.7% 2.1% 2.0% 2.9% 2.9% 90% 3.5% 4.8% 3.8% 3.8% 80%

70% 34.4% 38.3% WinCo 60% 39.2% Bashas' Raleys 50% Stater Bros 40% Save Mart Albertsons Market (LLC) 30% Kroger 50.6% 48.2% 48.8% 20%

10%

0% 2011 2016E 2021E Source: Kantar Retail analysis

West Supermarket Retailers Share of Sales (USD Billion) $142.4 $189.5 $221.0 100% 1.5% 2.4% 2.1%1.7% 2.0% 2.6% 2.5% 2.3% 3.3% 4.0% 90% 3.2% 3.5%

80% 26.0% 28.5% 70% 29.8% Bashas' 60% Raleys Stater Bros 50% Save Mart 40% WinCo Albertsons Market (LLC) 63.3% 30% 59.0% 59.4% Kroger

20%

10%

0% 2011 2016E 2021E Source: Kantar Retail analysis

Rank % Sales Added (US West Supermarket Sales-Supermarket Format Only) Sales 2016E Sales 2021E Sales Added % of Total Sales Added ` (USD billions) (USD billions) 2016E-2021E 2016E-2021E 1 Kroger $112.6 $140.0 $27.4 86.9% 2 WinCo $6.6 $8.8 $2.2 6.9% 3 Albertsons Market (LLC) $56.5 $57.4 $0.9 2.8% 4 Stater Bros $4.0 $4.5 $0.5 1.5% 5 Save Mart $4.7 $5.0 $0.3 0.9% 6 Raleys $3.2 $3.3 $0.2 0.5% 7 Bashas' $1.8 $1.9 $0.1 0.4% Top 7 Total $189.5 $221.1 $31.6 100.0%

Finding above average growth in most Western conventional supermarkets will be difficult

Source: Kantar Retail analysis

Sales per Store (USD million) 2011 2016E 2021E $80

$67.4

$61.0 $60 $57.1

$48.1

$40.0 $40 $34.5

$27.9 $25.4$26.5 $25.8 $24.5 $24.7$25.1 $23.8 $22.1 $22.4 $20.3$21.3 $20 $15.7 $13.8 $15.0

$0 WinCo Kroger Raleys Albertsons Stater Bros Save Mart Bashas' Market (LLC)

Source: Kantar Retail analysis

Sales by Square Feet 2011 2016E 2021E $1,000

$800 $781 $736 $725 $681 $639 $659 $655 $614 $584 $600 $521 $493 $513 $468 $459 $444 $437 $427 $412 $374 $400 $349 $357

$200

$0 Stater Bros Kroger WinCo Albertsons Save Mart Raleys Bashas' Market (LLC) Ranked by 2016E Sales Source: Kantar Retail analysis

Square Foot per Employee by Retailer Sq ft/Employee 2016 Sales/ sq ft 2016 750 $800 672 676 650 $681 $659 549 $655 550 470 $600 450 397 $513 350 329 $437 $400 250 $357

150

50 $200 Stater Bros Kroger Raleys Bashas' Albertsons WinCo Market (LLC)

Source: Kantar Retail analysis

Ranked by Sales/SKU/Store/Week Retailer Sales/SKU Sales/SKU/Store/Week Sales/SKU/Store WinCo $151,007 $26.6 $1,385.4 Kroger $2,251,821 * $15.4 $799.9 Raleys $72,273 $11.6 $602.3 Albertsons Market (LLC) $1,284,893 * $10.8 $561.3 Stater Bros $91,592 $10.4 $542.0 Save Mart $107,765 $9.3 $483.3 Bashas' $40,515 $6.5 $340.5

* Corporate totals; assumes full distribution

Source: Kantar Retail analysis

Projected dollar growth 2016E-2021E is:

West National

Premium 22.2% (CAGR 7.1%) 19.9% (CAGR 5.5%) “Haves”

Mainstream 55.6% (CAGR 0.5%) 31.5% (CAGR 1.7%)

Value 22.2% (CAGR 4.5%) 48.0% (CAGR 5.4%) “Have “Have Nots”

Pacific and Northwest overall affluent and on-trend Source: Kantar Retail analysis; company reports Data as of 8/29/16 with premium, especially organic

Retailers Prime KPI Key Metrics Vendor Impact

• Save Mart • Bashas’ Steady YoY Promo Excite Family Owned • Aldi/Trader Joe’s Value of Assets Improvements Sales, Co-Marketing • Stater Bros** Inventory Collaboration

Employee Owned Profitable Steady YoY Deal and slotting • WinCo improvement in all Improvements Sales, performance Co-Op areas Inventory structures

Inventory, Real • Albertsons Best Practice Store conditions Private Equity Estate, Comps Companies Cash generation Product selection EBITDA

Collaboration, off- • Kroger Quarterly reporting to Sales, Comps, Corporate invoice monies, • Costco Market GMROI slotting fees

** legally owned by a closely held private equity firm established for the purpose Source: Kantar Retail analysis

Top Six Most Important Factors When Grocery Shopping (share rating factor as “extremely important”)

High-quality fresh foods Assortment 70%

Specific items I want are in-stock Convenience 61%

Convenient location Convenience 57%

Easy to find what I am looking for Experience 55%

Feeling like I'm getting a "good deal" Value 53%

Store is clean and looks nice Experience 53%

Source: Kantar Retail ShopperScape®, February 2016

Importance vs. Experience: Most Important Grocery Shopping Factors (share rating factor as “extremely important” vs. share indicating it describes experience)

Extremely Important Describes Shopping Experience (avg. across all retailers)

70% High-quality fresh foods Assortment 38%

61% Specific items I want are in-stock Convenience 40%

57% Convenient location Convenience 57%

55% Easy to find what I am looking for Experience 46%

53% Feeling like I'm getting a "good deal" Value 45%

53% Store is clean and looks nice Experience 52%

Source: Kantar Retail ShopperScape®, February 2016

Convenience In your opinion, how do these retailer compare?

Value How different are they from one another?

What makes them special to their Experience shoppers?

Assortment

Source: Kantar Retail research and analysis

Hi-Lo EDLP

Source: Kantar Retail research & analysis

* PRICE POINT * PRICE RANGE * x/For % OFF B1G1 B1G1 50% OFF OTHER

Sprouts Safeway Albertsons

2016 Year to Date *Safeway includes only Safeway banner Source: Kantar Retail analysis; ECRM MarketGate Data *Albertsons SOC includes all California market

Raley's Ralph's Save Mart * PRICE POINT

* PRICE RANGE * x/For

% OFF

B1G1

OTHER Sprouts Safeway Albertsons

2016 Year to Date Source: Kantar Retail analysis; ECRM MarketGate *Safeway includes only Safeway banner *Albertsons SOC includes all California market

* x/For

% OFF

B1G1

OTHER Sprouts Safeway Albertsons

2016 Year to Date Source: Kantar Retail analysis; ECRM MarketGate *Safeway includes only Safeway banner *Albertsons SOC includes all California market

Hi-Lo EDLP

Source: Kantar Retail research & analysis

1 Exploring the West Coast Retail Landscape

2 The Albertsons Companies

3 Zooming In: Regional Focus

Source: Kantar Retail analysis

Source: Kantar Retail analysis, company site

‒ What did you and your company expect from the Albertsons Companies in 2016?

‒ Are you on track?

‒ What are the positives? Negatives?

‒ What do you expect going forward?

Source: Kantar Retail analysis

‒ Operates in 121 markets . Claimed #1 or #2 market share in 68% (~82 markets) at the time of the SWY acquisition

‒ ~2,200 stores

‒ 1,698 pharmacies

‒ 378 fuel stations

‒ 33 million shoppers per week (~15,000 shoppers per store per week)

Source: Kantar Retail analysis; company materials

How is the reality of having both banners managed at a given Division by the same buying and merchandising team ?

Are the banners becoming more distinct or less?

Source: Kantar Retail analysis

‒ Decentralized management structure . Division and district level management teams . Charged with creating “superior” shopper experience & “outstanding” operating performance . Possess decision rights around ‒ Product assortment ‒ Product placement ‒ Pricing & promotion ‒ Capital spending . Store directors responsible for implementing operating playbook

Source: Kantar Retail analysis; company materials

Centralization: Leveraging Scale Localization: Leveraging local relevance & expertise

Maximize Maximize Efficiencies Effectiveness i.e., Planogram i.e., Local SKUs filled- done centrally in by individual banners

i.e., Cereal i.e., BBQ Sauce Variation Little variation by in taste from NC to TX; region, less flexibility more space allocated for for localized SKUs local decision

‒ Fundamentals – logistics, timely ad plans, item accuracy, order accuracy – will be mission critical for some time to come – cannot expect the merged but separated divisional structure to have established uniformly smooth operations

‒ Attempts to align divisions to simultaneous performance are probably a waste of energy for all but the most critical seasonal moments . Responsiveness and timeliness likely a problem – much like Kroger about 10 or 15 years ago and for the same reason – they each have a P&L

‒ Despite the intention to be run at divisional level the center will eventually attempt to become a profit center no matter how unreliable they may be in delivering value to suppliers

Source: Kantar Retail analysis

Whoever has a P&L will eventually make decisions regardless of permission.

Compliance varies proportionally with distance from headquarters.

Centralized structures will always attempt to create validating revenue

Nothing in retail is as variable as real estate.

Faster than market growth usually requires investment above market average.

No brand (whether retailer or supplier) is equally valuable to everybody.

Source: Kantar Retail analysis

‒ It was over a year ago that Albertsons (directed by Cerberus) started to arrange an IPO to raise cash by selling a minority share of the company’s value. . Parallel strategies at Supervalu, also still owned by Cerberus, to divest Save-A-Lot ‒ It is clear that Cerberus is looking for at least some portion of an exit strategy

‒ The IPO announcement is still front-and-center on the corporate website

‒ When Walmart confessed to earning declines and lower forecasts, the entire retail sector lost value, and the IPO was delayed indefinitely.

‒ Albertsons challenge: to maintain reports of positive top line growth, squeeze costs to deliver cash flow and near-term profit, and wait for the market to rebound

‒ How does this play out in Albertsons tactics? . Price statements? Labor? Capital spending?

Source: Kantar Retail analysis

Execution may be an issue:

Overall lack of alignment: • Corporate wants to grow the top line • Divisions want to grow their bottom lines • High divisional hurdle rates

What are underlying causes? • Complexity of formats and banners

Source: Kantar Retail analysis

1. Operate Stores to the Highest Standards

2. Deliver Superior Shopper Service

3. Provide Compelling Product Offering

4. Offer an Attractive Value Proposition to Shoppers

5. Drive Innovation Across Store Network

6. Make Disciplined Capital Investments

Source: Kantar Retail analysis; company materials

‒ “Full, fresh, friendly, and clean” Y

‒ G.O.L.D. program: Grand Opening Look Daily . Fresh offerings N . Well stocked shelves . Clean, well lit departments

To-Do: Focus on appearance, standards, and execution – it matters.

Source: Kantar Retail analysis; store visits

Source: Kantar Retail store visit 9/2016

Source: Kantar Retail Store visits 9/2016

2016 to-do list for Albertsons/Safeway Product

‒ Key focus areas/categories . High quality fresh . Natural and/or organic assortment . Private label as a core component of product offer ‒ Open Nature ‒ O Organics . Signature products as point of differentiation ‒ Cut in store fruit and produce ‒ Prepared foods ‒ Fresh bakery . Targeted assortments driven by local tastes To-Do: and preferences Legacy Safeway strengths (e.g. private label, store perimeter), to be a big part of the offer

Source: Kantar Retail analysis; store visits, Safeway.com

‒ The level of investment Safeway had made in development, packaging, and marketing of its retailer brands was far above that of legacy Albertsons

‒ What is the strategic impact of the Albertsons Companies retailer brands on your opportunities? ??

Reason for Buying Private Brand vs. National Brand, $$$ Among Albertsons/Safeway Shoppers (weighted average across all categories)

Price top motivator across all categories

Dairy 56% OTC 56% HH paper 54% HH cleaning 54% Frozen foods 52% Canned goods 49% Non-carbonated beverages 47% Snack foods 44% Carbonated beverages 43% Soap/body wash 40% Pet food 36% Hair care 36% Meat 35% Skin care 30% Source: Kantar Retail ShopperScape®, February 2016 $

Retailer’s Primary Motivation

Finance Brand

• Gross Margin •Banner image • OPP competition •Innovation • Sourcing flexibility •Differentiation • Merch ladder •Loyalty

Source: Kantar Retail analysis

•Makes its own “light” •Unique ingredients, packaging •Limits comparability •Often cross-category umbrella Radiant

The source of the Private Label’s “power”

•Relies on national brand’s equity Reflective •Similar graphics, ingredients •Invites price/value comparison

Source: Kantar Retail analysis

Leverage PL Image$ Trade Up

Radiant O ER POW

Finance Brand

Leverage National Image Trade Down Reflective Banner

Source: Kantar Retail analysis MOTIVATION

Financial Strategy Assessment: Re-instill / re-emphasize the trust GMROII factors behind brand loyalty Opex – what is the full cost of Radiant True Product Innovation PL to vendor? Concentrate on distinguishing Contributions to Value features and benefits

Beyond Gross Margin O ER POW

Finance Brand

Pack it for them Align with other non-competing, Close the price gap Private label products Build promotions against PL Co-opt their brand strength Reflective Create a 2nd tier brand

Source: Kantar Retail Analysis MOTIVATION

2016 to-do list for Albertsons/Safeway Service

‒ Consistent investment in store level labor

‒ Incentive structure centered on sales and EBITDA

‒ Shopper satisfaction measured weekly

‒ Shopper satisfaction improving along with ID sales growth ??

Y To-Do: Leverage staff as a shopper touchpoint. N

Source: Kantar Retail analysis

2016 to-do list for Albertsons/Safeway Value

‒ Strategic price investment to drive traffic and basket growth

‒ Leverage private label portfolio

‒ Legacy loyalty programs are central to value proposition . Just for U . MyMixx . Fuel rewards

‒ Goal is to improve price perception To-Do: across the store Expect increased pressure to align your pricing actions.

Source: Kantar Retail analysis; Safeway.com, Acme.com, store visits

‒ Varies widely between divisions and level of competition

Monthly Ad Count Comparison Safeway Albertsons 2,500

2,000

1,500

1,000

500

1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/2016

10/1/2014 11/1/2014 12/1/2014 10/1/2015 11/1/2015 12/1/2015 Albertsons Intermountain division and Safeway banner only. All categories.

Source: Kantar Retail analysis; ECRM MarketGate

Category Share of Voice: Now vs. Year Ago

Health & Beauty Care Perimeter Categories See largest declines in ad space See largest gains in ad space

Top 10 Declining TY % of Var in % Top 10 Growing TY % of Var in % Categories Total Total Categories Total Total Oral Care 0.5% -0.4% Meat 1.4% 1.4% Cough/Cold 0.2% -0.3% Bakery In-Store 4.2% 1.4% Personal 0.3% -0.3% Dairy 1.2% 0.9% Cleansing Poultry 1.4% 0.8% Refrigerated 0.0% -0.3% Dairy 1.2% 0.8% Prepared Foods Hair Care 0.5% -0.3% Snacks 0.9% 0.7% Baby 0.3% -0.3% Deli 1.1% 0.6% Seafood 0.0% -0.2% Baking Needs 0.6% 0.5% Sauces & 0.5% -0.2% Meat 1.4% 0.5% Spreads Fresh Vegetables 0.9% 0.5% Allergy 0.1% -0.2% Canned Foods 0.2% -0.2%

Source: Kantar Retail analysis; ECRM MarketGate

Category Share of Voice: Now vs. Year Ago

Spirits & Seafood Perishable & Dry Grocery categories Sees largest declines in ad space See largest gains in ad space

Top 10 Declining TY % of Var in % Top 10 Growing TY % of Var in % Categories Total Total Categories Total Total Wine/Sparkling 0.5% -0.4% Dairy 1.6% 1.6% Seafood 2.1% -0.3% Frozen 1.3% 1.2% Fresh Fruit 2.4% -0.1% Meat 1.1% 0.9% Baking Needs 0.0% -0.1% Paper Products 0.9% 0.8% Fresh Vegetables 1.6% -0.1% Canned Foods 0.7% 0.7% Household Sauces&Spreads 0.6% 0.6% 0.1% -0.1% Chemicals Coffee/Tea&Coco 0.6% 0.6% Floral 0.9% -0.1% a International/Ethni Snacks 0.6% 0.5% 0.1% -0.1% c Foods Condiments&Dres 0.5% 0.5% Laundry Products 0.0% 0.0% sings Feminine Hygiene 0.0% 0.0% Beverage 0.4% 0.4%

Source: Kantar Retail analysis; ECRM MarketGate

2016 to-do list for Albertsons/Safeway Innovation

‒ Implement latest trends in store décor, fixtures, and layout.

‒ Expanding online and home delivery services.

‒ Assess where to invest in oldest real estate

Y To-Do: Assist/partner in elevating the stores’ experiential N game and drive shopper engagement both in the store and online.

Source: Kantar Retail analysis; store visits

Offers delivery in ten markets coast to coast

Source: Kantar Retail research & analysis

Planning 1 ‒ Plan for a low rate of growth ‒ Expect continued margin and labor pressure ‒ Divisions have P&Ls

Brand Position and Mission 2 ‒ Align to digital initiatives as they expand ‒ Help Albertsons differentiate from competitors – and itself

Private Label 3 ‒ Expect expanded private label emphasis ‒ Compete! Develop a nuanced defense against private label

Expectations ‒ Expect expanded loyalty programs across banners ‒ Train your brands on the realities of time and execution across 4 the multiple divisions ‒ Monitor center management for signs of fund diversion away from divisions through data, national programs Source: Kantar Retail analysis

1 Exploring the West Coast Retail Landscape

2 The Albertsons Companies

3 Zooming In: Regional Focus

Despite overall size, the total market is dominated by major chains

Source: Kantar Retail analysis, Agg data

Rank % Sales Added (US West Supermarket Banner Sales-Supermarket Format Only) Sales 2016E Sales 2021E Sales Added Rank Retailer Banner (USD millions) (USD millions) 2016E-2021E 1 Kroger Kroger $48,273.4 $58,910.1 $10,636.7 2 Winco WinCo $6,644.3 $8,832.7 $2,188.4 3 Albertsons Safeway $25,830.9 $27,002.8 $1,172.0 4 Kroger Smiths $5,163.4 $6,230.0 $1,066.6 5 Kroger King Soopers $4,060.4 $5,114.9 $1,054.5 Top 5 Total $89,972.4 $106,090.5 $16,118.1 6 Kroger Frys Food $4,406.2 $5,246.7 $840.4 7 Stater Bros Stater Bros $4,030.0 $4,512.0 $481.9 8 Kroger Ralphs $5,538.6 $5,901.3 $362.7 9 Albertsons Vons $4,833.6 $4,998.4 $164.7 10 Albertsons Albertsons LLC $9,953.2 $9,329.6 -$623.6 Total Top 10 West Retailers $189,505.0 $221,066.6 $31,561.6

Source: Kantar Retail research & analysis

States by Job Trends

Delaware

Suggests that retailers have more room for growth and Hawaii shoppers looking for more than mere price Alaska

Above-average gains Leading = last six months* * Year-to-year job growth for the six months through May 2016 is 1.9% or stronger. Source: U.S. Department of Labor, Kantar Retail analysis

States by Recovery in Home Prices

10% 1% 4% 10% 8% 5% 7% 1% 3% Mass. 5% 9% 5% 1% 5% 8% 10% 6% 3% R. Island 6% Much of the Pacific 8% 5% 8% 4% states still below 8% 4% D.C recession value but 7% 3% recovering Hawaii 6% 3% 6% 11% Alaska 5% Home Price Recovery by State* At or above prerecession peak Still below peak, but growing above average Source: U.S. Department of Labor, FHFA, Kantar Retail analysis * Percent change is Q1 2016 from the year-ago quarter.

Source: Kantar Retail analysis, Agg data

Pacific Northwest Regional Banner Sales (USD billion) Sales 2011 Sales 2016E Sales 2021E $14

$12.1 $12 $11.5 QFC alone grows almost as much as $10 $9.4 Safeway – while Albertsons may be $8 struggling to create $6.0 $6.1 $6 sustained growth $4.9 $4.6 $3.9 $4.0 $4 $3.4 $3.6 $2.8 $2.6

$2 $1.1 $0.5 $0 Safeway Kroger WinCo QFC Albertsons LLC

Source: Kantar Retail research & analysis

SEATTLE-TACOMA-BELLEVUE, WA Current Previous Market Sales Market Banner Market Market Delta (USD million) Stores Share Share Fred Meyer $2,617.0 35 20.7% 20.5% 0.2% Safeway $2,505.1 89 19.8% 19.8% 0.0% Quality Food Center $1,856.1 53 14.7% 14.2% 0.5% Costco $1,693.6 16 13.4% 12.7% 0.7% Walmart Supercenter $615.7 14 4.9% 4.9% 0.0% WinCo Foods $492.3 8 3.9% 3.5% 0.4% Trader Joe's $450.2 17 3.6% 3.6% 0.0% Albertsons $398.0 15 3.1% 5.2% -2.1% Target $155.6 20 1.2% 1.1% 0.1%

Source: Kantar Retail analysis, Chain Store Age 2016 Market Share Data

Northwest Sales by Square Feet 2011 2016E 2021E $1,000 $881 $851 $800 $765 $728 $725 $701 $646 $655 $651 $614 $615 $600 $545

$423 $392 $400 $375

$200

$0 Quality Food Kroger WinCo Safeway Albertsons LLC Centers

Source: Kantar Retail analysis

Assortment Data How and why are Actionable and decisions made? affordable? Integrated?

Brand How different does your customer succeed in being? Cost How does customer price strategy impact their position in the market? Execution Who gets it done?

Does it get done at all?

Source: Kantar Retail analysis

Safeway Albertsons Fred Meyer QFC WinCo Save Mart Food 4 Less

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Safeway Albertsons Fred Meyer QFC WinCo Save Mart Food 4 Less

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Safeway Albertsons Fred Meyer QFC WinCo Save Mart Food 4 Less

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Source: Kantar Retail analysis; store visits

Local vodka

Source: Kantar Retail analysis; store visits Local truffles

Mainstream Niche items & Simple Truth widely categories & Items brands present

Source: Kantar Retail analysis; store visits

Safeway Albertsons Fred Meyer QFC WinCo Save Mart Food 4 Less

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

‒ Unlike most supermarkets WinCo is superbly efficient by design . Limited assortment . EDLP . Volume oriented . Employee owned

Source: Kantar Retail store visits, analysis

Source: Kantar Retail Store visits

Source: Kantar Retail store visits

Source: Kantar Retail, retailer document

Safeway Albertsons Fred Meyer QFC WinCo Save Mart Food 4 Less

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

WinCo ‒ Recognize WinCo as a “horse to ride” for volume as long as you 1 have the price; brand patience is required for items since their volume-based strategy does not take new items easily – educate your company as needed.

Fred Meyer / QFC ‒ The days of the West being an exception area for Kroger are 2 largely over. Expect increasing digital, data, and integration with Kroger corporate. Invest in the data, recognize that suppliers are increasingly seen as secondary to decision

All Other ‒ The Northwest is a leading home of alternative independents, 3 including organic independents, localized retail, and club shopping. Source: Kantar RetailMonitor research & analysis trend and know what your company and competition is doing elsewhere. Keep your retailer and your company aware and informed. © Kantar Retail 2016 80 Regional Zone: California

Source: Kantar Retail research & analysis, Agg Data

California by • The 5 metro markets 10 Largest surrounding Los Angeles to Sacramento- San Arden-Arcade- Metro Markets San Diego represent nearly Francisco- Roseville Oakland- 59% of population Fremont

• The 5 metro markets Stockton surrounding San Francisco to San Jose represent nearly 27% San Jose- Sunnyvale- Fresno of population Santa Clara

Bakersfield- Delano Riverside- Oxnard- Los Angeles- Thousand Long Beach- San Bernardino- Oaks-Ventura Santa Ana Ontario

San Diego- Carlsbad-San Marcos

Source: U.S. Census Bureau, US. Bureau of Labor Statistics; Kantar Retail analysis

California Regional Banner Sales (USD billion) Sales 2011 Sales 2016E Sales 2021E $10 $8.7 $8.3 $8 $7.5

$6.0 $6 $5.4 $5.6 $5.5 $5.0$5.3 $4.5 $4.0 $4 $3.7 $3.0 $2.8$2.8 $2.7 $2.7 $2.5 $2.1 $2 $1.7 $1.1

$0 Safeway Ralph's Vons Stater Bros Save Mart Albertsons LLC WinCo

Note: Vons includes Pavilions, Save Mart includes Luckys Source: Kantar Retail research & analysis

SAN FRANCISCO-OAKLAND-HAYWARD, CA Current Previous Market Sales Market Banner Market Market Delta (USD million) Stores Share Share Safeway $2,786.6 99 27.8% 27.9% -0.1% Costco $1,587.7 15 15.8% 16.3% -0.5% SaveMart $972.6 48 9.7% 10.5% -0.8% Trader Joe's $847.4 32 8.5% 8.8% -0.3% Whole Foods Market $746.3 21 7.4% 7.2% 0.2% Raley's $344.5 14 3.4% 3.7% -0.3% Smart & Final $259.0 18 2.6% 2.4% 0.2% Walmart Supercenter $219.9 5 2.2% 1.8% 0.4% Target PFresh $178.9 23 1.8% 1.7% 0.1% Mi Pueblo Food Center $123.2 6 1.2% 1.1% 0.1% WinCo Foods $123.1 2 1.2% 1.3% -0.1% Sprouts Farmers Markets $115.9 7 1.2% 0.8% 0.4% Sam's Club $53.8 1 0.5% 0.6% -0.1% Walmart Neighborhood Market $51.0 3 0.5% 0.3% 0.2%

Source: Kantar Retail analysis, Chain Store Age 2016 Market Share Data Note that 16% of the market is WFM and TJ

Stater Bros. surprisingly strong; Albertsons banner still lags

California Sales by Square Feet 2011 2016E 2021E $1,000

$800 $736 $725 $681 $689 $639 $655 $653 $651 $614 $615 $600 $545 $542 $522 $527 $511 $485 $462 $463 $423 $392 $400 $375

$200

$0 Stater Bros WinCo Ralphs Safeway Vons Save Mart Albertsons LLC Note: Save Mart includes Lucky’s and Vons includes Pavilions Source: Kantar Retail research and analysis

Sales (USD million) Banner CAGR 2011 2016E 2021E ('16E-'21E) Save Mart $ 1,652.2 $ 1,467.2 $ 1,530.9 0.9% Lucky $ 1,272.4 $ 1,303.2 $ 1,366.5 1.0% FoodMaxx $ 1,112.6 $ 1,300.6 $ 1,414.5 1.7% SaveMart Superstore $ 524.0 $ 544.8 $ 578.3 1.2% S Mart Foods $ 94.3 $ 74.8 $ 53.0 -6.7% Maxx Value $ 10.4 $ 51.0 $ 68.5 6.1% Save Mart Total $4,666.0 $4,741.7 $5,011.7 1.1%

Source: Kantar Retail research & analysis

© Kantar Retail 2016 There Is A Focus on Social Engagement 86 Is it enough for Save-Mart to compete? Site includes a “social wall,” where shoppers can find the latest tweets, likes, pins on the retailer. Word of mouth marketing creates some good marketing among today’s social shoppers. Ability to The average age of a Facebook post on see the top social posts the site is 20 months old from both Tweets and Pinterest pins are far more Save Mart current ( 2-4 weeks) and its shoppers.

Source: Kantar Retail analysis; SaveMart.com

Source: retailer website, Kantar Retail research

LOS ANGELES-LONG BEACH-ANAHEIM, CA Current Previous Market Sales Market Banner Market Market Delta (USD million) Stores Share Share Kroger (Ralphs, Food 4 Less) $7,179.4 205 23.4% 23.7% -0.3% Costco $3,810.6 36 12.4% 12.1% 0.3% Safeway $3,096.2 110 10.1% 10.8% -0.7% Trader Joe's $1,827.3 69 6.0% 6.0% 0.0% Albertsons $1,459.2 55 4.8% 5.5% -0.7% Smart & Final $1,294.9 90 4.2% 3.8% 0.4% Stater Bros. $1,279.1 55 4.2% 4.2% 0.0% Walmart Supercenter $1,231.4 28 4.0% 3.7% 0.3% Whole Foods $1,208.4 34 3.9% 3.2% 0.7% Northgate Gonzalez Market $855.2 32 2.8% 2.8% 0.0% Superior Grocers $807.4 35 2.6% 2.6% 0.0% El Super $773.3 29 2.5% 2.4% 0.1% Sam's Club $753.1 14 2.5% 2.5% 0.0% Target 9 of the$643.8 top 10 probably81 2.1% 1.9% 0.2% 37.5% of Sprouts Farmers Markets look$563.0 familiar 34 1.8% 1.6% 0.2% the total Vallarta Supermarket $439.5 27 1.4% 1.3% 0.1% market is Walmart Neighborhood Market $289.1 17 0.9% 0.9% 0.0% non- WinCo Foods $184.6 3 0.6% 0.6% 0.0% Numero Uno Market $168.8 10 0.6% 0.5% 0.1% traditional retailers Source: Kantar Retail analysis, Chain Store Age 2016 Market Share Data

© Kantar Retail 2016 San Diego – All Outlet Market Share 90 San Diego similar to L.A. SAN DIEGO-CARLSBAD, CA Current Previous Market Sales Market Banner Market Market Delta (USD million) Stores Share Share Safeway $1,407.38 50 18.2% 19.7% -1.5% Costco $1,376.04 13 17.8% 17.8% 0.0% Kroger (Food 4 Less, Ralphs) $1,155.70 33 15.0% 14.3% 0.7% Albertsons $636.73 24 8.2% 11.6% -3.4% Walmart Supercenter $439.80 10 5.7% 5.6% 0.1% Trader Joe's $370.75 14 4.8% 4.5% 0.3% Sprouts Farmers Markets $347.71 21 4.5% 4.1% 0.4% Smart & Final $316.53 22 4.1% 2.7% 1.4% Stater Bros. $255.82 11 3.3% 3.3% 0.0% Northgate Gonzalez Market $213.80 8 2.8% 2.7% 0.1% Whole Foods Market $142.16 4 1.8% 1.8% 0.0% Target $140.01 18 1.8% 1.6% 0.2% Walmart Neighborhood Market $85.03 5 1.1% 0.9% 0.2% El Super $80.00 3 1.0% 1.0% 0.0% WinCo Foods $61.54 1 0.8% n/a n/a Sam's Club $53.79 1 0.7% 0.7% 0.0% Vallarta Supermarket $32.55 2 0.4% 0.4% 0.0% Source: Kantar Retail analysis, Chain Store Age 2016 Market Share Data

Safeway Albertsons WinCo SaveMart

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Ralphs Vons Stater Bros WinCo

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Stater Bros. Smart & Final

Two ads, same week, 100 yards apart Source: Kantar Retail analysis, store visits

Stater Bros. Smart & Final

One of these is locally sensitive

Source: Kantar Retail analysis, store visits

Cardenas SmartCardenas & Final

And possibly knows them better….

Source: Kantar Retail analysis, store visits

Stater Bros. Smart & Final

Source: Kantar Retail analysis, store visits

‒ A+ for effort, but didn’t quite stick the landing

Source: Kantar Retail analysis, store visits

‒ This 8 foot fixture is the entirety of the local and organic produce offer at this store

‒ In California’s Inland Empire, a short distance from the largest agricultural produce region in the U.S.

‒ This is what happens when a 25,000 sq. ft. store has to compete with the much more expansive real estate of better funded competitors

Source: Kantar Retail analysis, store visits

The Market ‒ Recognize and adjust to the variable nature of California – more 1 complex than many countries, the north/south divide (SFO vs LAX) and the east-west demarcation line of I-5 are indicative of dramatically different shoppers, economics, and retailer strategies Stater Bros. ‒ Surprisingly effective but stores are limitations in both space and 2 placement. Invest in highly detailed location-based analysis to best understand market nuances. Population density, variable affluence, real estate scarcity, and cultural variation Stater variable

All Other ‒ The California market is both chain driven (consolidated) and full of 3 variation (unconsolidated). Leverage your knowledge of alternative retail outlets both as opportunity and as a way to influence and

Source: Kantar Retailadvise research & analysistraditional large customers

Source: Kantar Retail analysis

Source: Kantar Retail research & analysis, Agg data

PHOENIX-MESA-SCOTTSDALE, AZ Current Previous Market Sales Market Banner Market Market Delta (USD million) Stores Share Share Fry's $3,186.94 91 24.2% 23.9% 0.3% Walmart Supercenter $2,111.03 48 16.0% 16.1% -0.1% Safeway $1,688.85 60 12.8% 13.2% -0.4% Costco $1,481.89 14 11.2% 11.6% -0.4% Bashas $1,075.00 75 8.2% 8.5% -0.3% Albertsons $716.33 27 5.4% 4.9% 0.5% Sam's Club $591.71 11 4.5% 4.7% -0.2% Sprouts Farmers Markets $380.83 23 2.9% 2.5% 0.4% WinCo Foods $369.23 6 2.8% 2.4% 0.4% Target $330.03 30 2.5% 2.5% 0.0% Walmart Neighborhood Market $289.11 17 2.2% 1.9% 0.3% Trader Joe's $238.34 9 1.8% 1.9% -0.1% Whole Foods Market $177.70 5 1.3% 1.4% -0.1% Smart & Final $129.49 9 1.0% 0.8% 0.2% El Super $106.67 4 0.8% 0.6% 0.2%

Source: Kantar Retail analysis, Chain Store Age 2016 Market Share Data

Southwest Regional Banner Sales (USD billion) Sales 2011 Sales 2016E Sales 2021E $15

$12.0

$10.0 $10 $8.8

$5.2 $5 $4.2 $4.4 $4.2 $4.3 $4.3 $3.8 $3.2 $2.7 $2.6 $2.5 $2.4 $2.4 $1.8 $1.2

$0 Kroger Frys Food Safeway Frys Marketplace Albertsons LLC Bashas' Source: Kantar Retail research & analysis

Southwest Sales by Square Feet 2011 2016E 2021E

$1,400 $1,336

$1,200 $1,094

$1,000 $881 $782 $800 $728 $646 $670 $651 $622 $615 $545 $600 $515 $423 $392 $400 $375 $367 $360 $364

$200

$0 Frys Marketplace Kroger Frys Food Safeway Albertsons LLC Bashas'

Source: Kantar Retail research & analysis

Sales (USD million) Banner CAGR 2011 2016E 2021E ('16E-'21E) Bashas' $888.4 $1,169.6 $1,219.7 0.8% Food City Supermarkets $527.3 $535.9 $619.2 2.9% AJs Fine Food $86.4 $77.2 $81.7 1.1% Bashas' Total $1,502.1 $1,782.7 $1,920.5 1.5%

Bashas’ has recovered well from financial difficulties just a few years ago but their market is under extreme pressure from large, well funded competitors. Many retailers around the country have evolved a similar portfolio of banners. Best practice suppliers will plan for differentiated distribution, pricing and programs appropriate to each banner

Source: Kantar Retail research and analysis

WinCo Safeway Fry's Albertsons Bashas

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Fry’s Food & Drug has announced a $260 million investment that includes

1. Six Marketplace locations • Gas stations • Starbucks • Murray’s Cheese Shops • Sushi bar • Salad/soup bar • indoor/outdoor seating • The Little Clinic

2. One conventional Fry’s location

3. 2,000 jobs created

Current Phoenix market share (according to Metro Market Studies)

1. Fry’s: 25% 2. Walmart: 19% 3. Albertsons/Safeway: 16% Source: Kantar Retail analysis; Supermarket News

Source: Bashas.com

Source: SupermarketNews.com

Bashas’ 1 Recognize the differentiated banners and plan accordingly for the different strategies and shopper targets of each

The Market Watch the Real Estate – recovery has been slow but in-migration, 2 retirees, and resurging development are bringing more growth and competition back to the area, including areas beyond Phoenix

Source: Kantar Retail research & analysis

Source: Kantar Retail analysis

Intermountain Regional Banner Sales (USD billion) Sales 2011 Sales 2016E Sales 2021E $35

$30 $29.0 $24.9 $25 $23.9

$20

$15

$10 $8.6 $7.2 $6.1 $6.1 $5.2 $5.8 $4.9 $5 $4.0 $3.4 $3.4 $3.1 $2.3 $3.1 $1.2 $0.6 $0.3 $0.2 $0.3 $0 Kroger Smiths Safeway King Soopers Albertsons LLC Smith's Raleys Marketplace

Source: Kantar Retail research & analysis

Intermountain Sales by Square Feet 2011 2016E 2021E

$2,400 $2,315

$2,200

$2,000 $1,884 $1,800

$1,600

$1,400

$1,200

$1,000 $881 $818 $786 $800 $728 $728 $646 $661 $651 $577 $615 $598 $600 $545 $535 $423 $375 $392 $385 $405 $414 $400

$200 Smith's Kroger Smiths Safeway King Soopers Albertsons Raleys Marketplace LLC Source: Kantar Retail research & analysis

DENVER-AURORA-LAKEWOOD, CO Current Previous Market Sales Market Banner Market Market Delta (USD million) Stores Share Share King Soopers $2,801.70 80 33.7% 31.6% 2.1% Walmart Supercenter $1,231.43 28 14.8% 14.8% 0.0% Safeway $1,097.75 39 13.2% 16.8% -3.6% Costco Wholesale $846.80 8 10.2% 10.3% -0.1% Sam's Club $430.33 8 5.2% 5.3% -0.1% Whole Foods Market $390.94 11 4.7% 5.1% -0.4% Target $386.08 23 4.6% 4.6% 0.0% Sprouts Farmers Markets $314.60 19 3.8% 3.0% 0.8% Albertsons $212.24 8 2.6% 2.2% 0.4% Walmart Neighborhood Market $187.07 11 2.3% 2.3% 0.0% Trader Joe's $132.41 5 1.6% 1.0% 0.6%

Source: Kantar Retail analysis, Chain Store Age 2016 Market Share Data

Year Launched ~2011 Developments Since 2015: ‒ In April 2016, Raley’s improved its Web and More than 30 locations mobile eCart platforms, developed with Unata. The Market Availability in select Raley’s, Nob Hill, enhanced interface allows shoppers to navigate and Bel Air locations between mobile devices and desktops. The retailer Click-and-Collect: In Car continues to improve the functionality. Delivery Model/ (curbside pickup) ‒ Raley’s launched a personalized health program Fees $4.95 called “Let’s Begin” with a dedicated website. The Service fee waived for orders >$100 initiative promotes healthier lifestyles by providing shoppers with education, goal setting, and sharing. Basket Minimum None

Membership None

Fulfillment Pick from store

Merchandise aligned Assortment = to brick-and-mortar store

Source: Kantar Retail analysis, Raleys.com

Raley's/Bel Albertsons Safeway Dillons Smiths Air WinCo

Assortment

Brand

Cost

Data

Execution

Source: Kantar Retail analysis

Kroger banners 1 ‒ Be alert to Kroger ‘s increasing limitations on new items, particularly line extensions in center store

Kroger banners ‒ The role of 84.51 is now paramount; traditional vendor roles in 2 category decision and execution are under pressure as Kroger recaptures decision processes and labor in-house

Raley’s ‒ Though small, Raley’s attracts a lot more attention for progressive 3 retailing than many customers, making it a great learning lab for digital marketing, and testing of both items and skills

Source: Kantar Retail research & analysis

‒ What makes this region important to your business?

‒ What makes it harder to manage?

‒ What are the core opportunities?

‒ What do you wish your company would do to enable you to improve business in this region?

For further information please refer to www.kantarretailiq.com

Contact: John Rand, SVP

T: 617.912.2860 M: 508.667.3321 [email protected]

@kantarretail www.kantarretail.com