Shopper Update

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February/2010 Food Drug Mass Shopping Incidence: Who’s Winning, Who’s Losing Point of View

During the recession, shoppers reduced the number of retailers shopped and shifted allegiances in search of deals and value. Winning channels—those exhibiting an increase in shopping incidence in 2009, according to Retail Forward’s ShopperScape™— include supermarkets, warehouse clubs and dollar stores/small-format value retailers. Supermarkets and clubs are positioned to retain shoppers and build traffi c as the economy improves. Dollar stores will be challenged to sustain their momentum. Mass channel retailers (e.g., supercenters and discount department stores) have comparable shopper shares vis-à-vis a year ago. Going forward, expect mass channel players to sustain traffi c and share as a result of the new frugal consumer mindset. The convenience store and drug store channels are losing shoppers—evidence that these two retail sectors are struggling to fi nd a USP (unique selling proposition) aside from convenient locations. During tough economic times, shoppers are willing to trade convenience for better deals and lower prices. (Figures 1–2)

Figure 1 2009 Shopping Incidence—Food/Drug/Mass Formats

MonthlyMonthly PptPpt ChangeChange ShoppersShoppers 20052005–0909 20082008–0909

Supermarkets1 50%50% 26%26% 75% +4.3 +2.1

Convenience stores 44%44% 28%28% 72% -5.4 -1.0

Drug stores 21%21% 35%35% 55% -2.1 -1.6

Supercenters 30%30% 25%25% 55% +7.7 +0.1

Discount department stores 17%17% 29%29% 46% -5.7 -0.2

Dollar stores/small-format value retailers2 15%15% 27%27% 41% +2.9 +1.3 Shop weekly Shop 1–3 times a month Warehouse clubs 9%9% 22%22% 31% +0.9 +2.0

NOTE: Percentages may not add due to rounding 1 Includes conventional supermarkets, extreme value/price-impact supermarkets, health/natural supermarkets and specialty food stores/neighborhood specialty markets 2Includes dollar stores (e.g., Dollar General and Family Dollar), one-price stores (e.g., Dollar Tree) and closeout/liquidators (e.g., Big Lots) Source: Retail Forward ShopperScape™, October 2009

Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 1 / Author Sandra J. Skrovan 614.355.4014 [email protected]

Sandra J. Skrovan is a Senior Vice President and Manager of the Food/Drug/Mass, Target and Walmart WorldTM programs of the Retail Forward Intelligence System™. Ms. Skrovan specializes in industry and competitor research and analysis, market opportunity analysis, and channel strategies. She graduated Summa Cum Laude with a bachelor’s degree in marketing and an MBA from Kent State University.

/ Program Director Sandra J. Skrovan 614.355.4014 [email protected]

/ Director, Retail Forward Intelligence System™ Mary Brett Whitfi eld 614.355.4010 marybrett.whitfi [email protected]

/ Production Associate Lisa A. Weiderman

About Kantar Retail Kantar Retail Cannondale Associates, Glendinning Management Consultants, MVI and Two Easton Oval Retail Forward combine to create Kantar Retail, the world’s leading retail Suite 500 insights and consulting business. Kantar Retail (www.kantarretail.com) Columbus, OH 43219 works with leading retailers and branded manufacturers to transform the USA purchase behavior of consumers, shoppers and retailers. The company 1.614.355.4000 solves client issues from strategic to tactical and provides organizations with the skills and capabilities to act. Kantar Retail offers clients better internal alignment and project effi ciency, from insight through strategy to activation, 10th Floor and across marketing through category to sales. Kantar Retail has nearly 245 First Street 400 employees and offi ces in 15 markets around the globe. The company is Cambridge, MA 02142 headquartered in London and is part of the Kantar Group of WPP. USA 1.617.588.4100 About Retail Forward ShopperScape™ … The Retail Forward ShopperScape™ database is a unique source of 6 More London Place information about shopping behavior based on a monthly survey of 4,000 Tooley Street nationally representative households. The extensive survey measures a wide London, England range of shopping behaviors and attitudes. Survey respondents are the self- designated primary shopper for their households. Surveys are conducted SE12QY online using the TNS 6th dimension access panel. For details on how to UK access the complete database and other ShopperScape™ reports available, +44.207.031.0251 contact Katherine Clarke, Vice President Marketing, at (614) 355-4009 or [email protected].

© 2010 Kantar Retail. All rights reserved. COPYRIGHT NOTICE: No part of this publication may be reproduced in any form by photostat, microfi lm, xerography, or any other information retrieval system, electronic or mechanical, without the written permission of the copyright owner.

2 Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 Figure 2 Shopping Incidence Trends—Food/Drug/Mass Formats PPptpt ChangeChange Weekly Shoppers 20052005–0909 20082008–0909 44.2% 38.0% Supermarkets1 51.5% +5.3 +0.9 48.6% 49.5% 51.5% 48.0% Convenience stores 49.7% -7.4 -3.0 47.1% 44.1% 25.8% 25.4% Supercenters 30.1% +4.4 +0.4 29.8% 30.2% 20.8% 20.1% Drug stores 23.8% 21.2% -0.2 -0.6 20.6% 18.4% Discount department 16.3% stores 18.9% -1.8 +0.2 16.4% 16.6% 14.3% Dollar stores/small-format 13.1% 2005 value retailers2 15.9% 14.4% 2006 +0.5 +0.4 14.8% 2007 7.2% 7.3% 2008 Warehouse clubs 8.8% +2.0 +1.1 8.1% 2009 9.2%

MonthlyShoppers3 71.1% 64.1% Supermarkets1 76.9% +4.3 +2.1 73.3% 75.4% 77.3% 73.5% Convenience stores 75.0% -5.4 -1.0 72.9% 71.9% 57.3% 55.6% Drug stores 59.9% -2.1 -1.6 56.8% 55.2% 47.1% 47.6% Supercenters 54.0% +7.7 +0.1 54.7% 54.8% 51.6% Discount department 46.6% 51.0% stores 46.1% -5.7 -0.2 45.9% 2005 38.4% Dollar stores/small-format 37.0% 2006 2 42.6% value retailers 40.0% 2007 +2.9 +1.3 41.3% 2008 30.1% 30.6% 2009 Warehouse clubs 30.7% 29.0% +0.9 +2.0 31.0%

1Includes conventional supermarkets, extreme value/price-impact supermarkets, health/natural supermarkets and specialty food stores/neighborhood specialty markets 2Includes dollar stores (e.g., Dollar General and Family Dollar), one-price general merchandisers (e.g., Dollar Tree) and closeout/liquidators (e.g., Big Lots) 3Includes weekly shoppers Source: Retail Forward ShopperScape™, October 2005, 2006, 2007, 2008 and 2009

Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 3 WINNING CHANNELS/FORMATS moves one way or another in terms of monthly shopping incidence gains or losses, but instead (Figure 3) held their own in terms of shopper retention.

• Conventional supermarkets—The conventional • Walmart—While its overall shopper base held supermarket segment is a winner in terms steady in 2009, Walmart Supercenter’s weekly of expanding both its weekly (+2.4 ppts) and shopper base has increased by more than 4 monthly (+3.2 ppts, which includes weekly percentage points since 2005 and its monthly shoppers) shopper bases. After years of shopper base by more than 7 points. watching some shoppers shift to low-priced Walmart Supercenter (as the format rapidly • Target—While the percentage of monthly rolled out across the nation), conventional Target shoppers held fairly steady from 2008 to supermarkets are now witnessing a reversal of 2009, Target general merchandise stores saw fortune. Increasingly, shoppers are being drawn slightly more than a percentage point increase back to the supermarket in large part because in weekly shopper incidence—evidence that of the strong price/value/quality proposition Target’s increasing focus on shopper “needs” and aggressive pricing by leading chains as well (e.g., via PFresh introduction, a stronger food as a growing roster of supermarket formats. focus, up&up private brand launch) vs. “wants” Additional appeal factors, such as service and may indeed be driving more frequent traffi c. selection (e.g., specialty foods, health/natural foods, prepared foods/meal solutions), position • Niche supermarkets—At opposite ends of conventional supermarkets to retain shoppers the grocery store spectrum, both extreme- during the anticipated economic recovery in value/price-impact grocers (e.g., ALDI, Food 2010 and beyond. 4 Less, Save-A-Lot) and healthy/natural supermarkets (e.g., Whole Foods) are holding • Warehouse clubs—An increasing focus on onto their weekly shopper bases. However, the food and fresh and prepared meal solutions percentage of monthly shoppers is edging up at by club operators is prompting more frequent both formats, suggesting that shoppers are still warehouse club shopping trips: The percentage interested in visiting these formats on a regular of weekly club shoppers increased 1.1 basis if not weekly. percentage point between 2008 and 2009. The percentage of shoppers making a monthly club trip rose 2 percentage points year-to-year as LOSING CHANNELS/FORMATS affl uent yet frugal shoppers use clubs to stock up on essentials as well as for the occasional • Drug stores—Drug stores continue to struggle treasure hunt. Looking forward, clubs have to attract and retain shoppers. Fewer plenty of upside potential to rebuild traffi c consumers are shopping the drug store channel levels and sales with business customers as the on a monthly basis. While the sector’s Big economy improves. 3—Walgreens, CVS and Rite Aid—are holding their own in terms of monthly shoppers, • Dollar stores and other small-format value “all other drug store retailers” have had a retailers—Dollar stores appeal not only to signifi cant dropoff in monthly shoppers since core low-income shoppers, but a broad swath mid-decade. of shoppers looking for more ways to stretch a buck. The percentage of monthly dollar • Convenience stores—ShopperScape™ fi ndings store shoppers edged up 1.3 percentage provide increasing evidence of underlying issues points between 2008 and 2009. Going forward, in the c-store model. The channel heavily however, dollar stores will be challenged to relies on gasoline as a traffi c driver, but the sustain momentum and retain shoppers and percentage of shoppers buying gasoline at traffi c levels as the economy rebounds. convenience stores continues to trend down. The channel relies on higher-margin in-store merchandise to drive profi tability, but fewer IN A HOLDING PATTERN shoppers report regular purchasing of in-store merchandise compared with past years. It is ● Supercenters and discount department imperative for convenience store operators stores—From 2008 to 2009, mass channel to take much-needed action to stanch further formats—i.e., supercenters and discount erosion in store traffi c. department stores—did not experience any big

4 Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 Figure 3 Formats That Are Winning vs. Losing Shoppers Shopping Incidence (Percentage of Weekly and Monthly Shoppers)—ranked by 2008–09 Difference in Shopping Incidence WeeklyWeekly ShoppersShoppers PptPpt CChangehange 20052005 20082008 20092009 20052005–0909 20082008–0909 Conventional supermarkets 37.0% 41.1% 43.5% +6.5 +2.4

Warehouse clubs 7.2% 8.1% 9.2% +2.0 +1.1

Target general merchandise stores 6.6% 7.7% 8.8% +2.2 +1.1

Kmart/Big Kmart/Kmart Super Center 4.3% 3.7% 4.7% +0.4 +1.0

Walmart Supercenter 24.5% 27.9% 28.7% +4.2 +0.8

SuperTarget 3.0% 4.9% 5.4% +2.4 +0.5

Walmart discount stores 11.6% 10.0% 10.5% -1.1 +0.5

Dollar stores/small-format value retailers2 14.3% 14.4% 14.8% +0.5 +0.4

Extreme-value/price-impact supermarkets3 6.8% 9.0% 9.3% +2.5 +0.3

Health/natural supermarkets 3.5% 4.7% 4.9% +1.4 +0.2

Drug stores 20.8% 21.2% 20.6% -0.2 -0.6

Specialty food stores/neighborhood specialty markets4 6.7% 8.0% 6.9% +0.2 -1.1

Convenience stores—gasoline purchase 48.2% 43.3% 41.1% -7.1 -2.2

Convenience stores—merchandise purchase 22.5% 18.7% 16.4% -6.1 -2.3

MonthlyMonthly ShoppersShoppers1 PptPpt CChangehange 20052005 20082008 20092009 20052005–0909 20082008–0909 Conventional supermarkets 60.3% 63.1% 66.3% +6.0 +3.2

Warehouse clubs 30.1% 29.0% 31.0% +0.9 +2.0

Kmart/Big Kmart/Kmart Super Center 16.9% 13.4% 14.9% -2.0 +1.5

Dollar stores/small-format value retailers2 38.4% 40.0% 41.3% +2.9 +1.3

Health/natural supermarkets 11.8% 11.6% 12.7% +0.9 +1.1

Extreme-value/price-impact supermarkets3 18.4% 20.1% 21.2% +2.8 +1.1

Target general merchandise stores 27.7% 28.0% 28.5% +0.8 +0.5

Walmart Supercenter 43.8% 50.7% 51.1% +7.3 +0.4

Walmart discount stores 28.8% 24.5% 24.3% -4.5 -0.2

SuperTarget 10.1% 14.8% 14.2% +4.1 -0.6

Convenience stores—gasoline purchase 73.7% 69.5% 68.9% -4.8 -0.6

Specialty food stores/neighborhood specialty markets4 16.9% 18.2% 16.7% -0.2 -1.5

Drug stores 57.3% 56.8% 55.2% -2.1 -1.6

Convenience stores—merchandise purchase 38.4% 32.8% 31.0% -7.4 -1.8 Shading indicates a significant difference (at 90% level) in shopping incidence between the years under analysis, e.g., 2005 vs. 2009 and 2008 vs. 2009 1Includes weekly shoppers 2Includes dollar stores (e.g., Dollar General and Family Dollar), one-price general merchandisers (e.g., Dollar Tree) and closeout/liquidators (e.g., Big Lots) 3Includes Save-A-Lot, ALDI, Cub Foods, Food 4 Less, SaveRite, etc. 4Includes specialty markets, e.g., Trader Joe's, The Fresh Market Source: Retail Forward ShopperScape™, October 2005, 2006, 2007, 2008 and 2009

Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 5 DATA APPENDIX

Figure 4 Shopping Incidence—Supermarket/Food Formats/Retailers Ppt Change WeeklyWeekly SShoppershoppers 20052005–0909 20082008–0909 37.0% 30.6% Conventional supermarkets 44.7% +6.5 +2.4 41.1% 43.5% 24.5% 23.6% Walmart Supercenter 28.1% +4.2 +0.8 27.9% 28.7% 6.8% Extreme-value/price- 6.3% +2.5 +0.3 1 8.1% impact supermarket 9.0% 9.3% 6.7% Specialty food 6.2% store/neighborhood 9% +0.2 -1.1 2 8% specialty market 6.9% 3.0% 2005 4.1% 2006 SuperTarget 5.4% +2.4 +0.5 4.9% 2007 5.4% 2008 3.5% 2009 3.6% Health/natural supermarket 5.9% +1.4 +0.2 4.7% 4.9%

MonthlyMonthly ShoppersShoppers3

60.3% 52.4% Conventional supermarkets 67.4% +6.0 +3.2 63.1% 66.3% 43.8% 44.0% Walmart Supercenter 49.6% +7.3 +0.4 50.7% 51.1% 18.4% Extreme-value/price- 16.9% 19.9% +2.8 +1.1 impact supermarket1 20.1% 21.2% 16.9% Specialty food 15.5% 2005 21% 2006 -0.2 -1.5 store/neighborhood 18% specialty market2 16.7% 2007 10.1% 11.2% 2008 SuperTarget 15.5% 2009 +4.1 -0.6 14.8% 14.2% 11.8% 10.9% Health/natural supermarket 15.2% +0.9 +1.1 11.6% 12.7%

1Includes Save-A-Lot, ALDI, Cub Foods, Food 4 Less, SaveRite, etc. 2Includes specialty markets, e.g., Trader Joe's, The Fresh Market 3Includes weekly shoppers Source: Retail Forward ShopperScape™, October 2005, 2006, 2007, 2008 and 2009

6 Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 Figure 5 Shopping Incidence—Key Mass Channel Retailers PptPpt CChangehange Weekly Shoppers 20052005–0909 20082008–0909

24.5% 23.6% +4.2 +0.8 Walmart Supercenter 28.1% 27.9% 28.7% 11.6% Walmart 9.5% -1.1 +0.5 11.8% discount store 10.0% 10.5% 6.6% Target general 7.3% +2.2 +1.1 8.7% merchandise store 7.7% 8.8% 3.0% 4.1% +2.4 +0.5 SuperTarget 5.4% 4.9% 5.4% 2005 2006 4.3% 2007 Kmart/Big Kmart/ 3.7% +0.4 +1.0 4.7% 2008 Kmart Super Center 3.7% 2009 4.7%

Monthly Shoppers1

43.8% 44.0% Walmart Supercenter 49.6% +7.3 +0.4 50.7% 51.1% 27.7% Target general 27.1% +0.8 +0.5 merchandise store 31.5% 28.0% 28.5% 28.8% Walmart 24.4% -4.5 -0.2 discount store 27.1% 24.5% 24.3% 16.9% Kmart/Big Kmart/ 13.8% -2.0 +1.5 17.2% 2005 Kmart Super Center 13.4% 2006 14.9% 2007 10.1% 11.2% 2008 +4.1 -0.6 SuperTarget 15.5% 2009 14.8% 14.2%

1Includes weekly shoppers Source: Retail Forward ShopperScape™, October 2005, 2006, 2007, 2008 and 2009

Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 7 Figure 6 Shopping Incidence—Convenience Store Purchases

PptPpt CChangehange 20052005–0909 20082008–0909 Daily/MoreDaily/More ThanThan OnceOnce a WeekWeek SShoppershoppers

16.6% 13.6% Gasoline purchase 13.9% -6.0 -0.9 11.5% 10.6% 2005 2006 11.5% 2007 9.2% Merchandise 10.1% 2008 purchase -3.8 +0.1 7.6% 2009 7.7%

WeeklyWeekly SShoppershoppers1

48.2% 44.6% Gasoline purchase 46.2% -7.1 -2.2 43.3% 41.1% 2005 22.5% 2006 19.1% Merchandise 2007 21.2% purchase 2008 -6.1 -2.3 18.7% 16.4% 2009

MonthlyMonthly ShoppersShoppers2 73.7% 70.4% Gasoline purchase 71.8% -4.8 -0.6 69.5% 68.9%

38.4% 2005 33.1% Merchandise 2006 37.2% -7.4 -1.8 purchase 2007 32.8% 31.0% 2008 2009 1Includes daily/more than once a week shoppers. 2Includes weekly shoppers.

Source: Retail Forward ShopperScape™, October 2005, 2006, 2007, 2008 and 2009

8 Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 Figure 7 Monthly Drug Store Shoppers—Top 3 Drug Store Chains vs. All Others (among all primary household shoppers)

PptPpt CChangehange 20.2% 20052005–0909 20082008–0909 20.3% Walgreens 23.9% +3.6 -1.1 24.8% 23.7%

16.1% 16.7% CVS 19.2% +3.7 +0.4 19.3% 19.8%

8.1% 7.5% Rite Aid 8.4% +0.5 -0.6 9.2% 8.6% 2005 11.5% 2006 All other drug store 10.5% 2007 5.9% -8.6 -2.1 retailers 5.0% 2008 2.9% 2009

Source: Retail Forward ShopperScape™, January–December 2005, 2006, 2007, 2008 and 2009

Figure 8 Monthly Warehouse Club Shoppers—By Player (among all primary household shoppers) PptPpt CChangehange 20052005–0909 20082008–0909

11.1% 10.5% +1.0 -0.2 Costco 12.0% 12.3% 12.1%

14.5% 13.2% Sam’s Club 13.3% -2.6 -0.5 12.4% 11.9%

3.7% 3.4% 2005 2006 BJ’s 4.0% 2007 +0.2 -0.2 4.0% 2008 3.9% 2009

Source: Retail Forward ShopperScape™, January–December 2005, 2006, 2007, 2008 and 2009

Shopping Incidence: Who’s Winning, Who’s Losing, February 2010 9