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2016 Retail Year in Review a Look Back at Key Themes Across Channels Kantar Retail Research Team January 2017 Copyright © 2017 Kantar Retail

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2016 Retail Year in Review a Look Back at Key Themes Across Channels Kantar Retail Research Team January 2017 Copyright © 2017 Kantar Retail 2016 Retail Year in Review A Look Back at Key Themes Across Channels Kantar Retail Research Team January 2017 Copyright © 2017 Kantar Retail. All Rights Reserved. 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. 2 2016 in Review: Kantar Retail’s Top 5 Takeaways A strong year cultivates greater systemic changes in the industry 1. Strong macroeconomic indicators: The macroeconomic environment was favorable to the retail industry for most of 2016. Dropping unemployment, rising wages, and less disruption than anticipated in the wake of the U.S. presidential election all contributed to broad-based dollar growth across channels. 2. Health and wellness takes center stage: Competition for share of shoppers’ well-being was a key storyline throughout the year. Whether in the form of healthier snacking options at discounters, a greater emphasis on fresh items at supercenters, or more visible sustainability at clubs, the health and wellness trend spanned multiple channels and retailers. 3. Private brands are the new “national” brand: Retailers across channels have continued to invest heavily in private brands across departments. From Amazon launching private label apparel and consumables lines to 7-Eleven expanding into a premium tier of “Select” products, retailers see private brands as a growth engine moving in to 2017. 4. Reconfiguring physical assets: As brick-and-mortar retailers looked to squeeze more profit out of their square footage, we saw a handful of common strategic moves. A number of large-scale mergers and acquisitions occurred as retailers sought greater synergy on a corporate level. Other retailers closed underproductive stores to better focus on top performers. Across channels, a greater infusion of digital into the physical box became more apparent in the form of click-and-collect deployment, technology integration into the store, and greater use of social media to better engage with shoppers. 5. Digital drives growth: Continuing a 2015 trend, digital was a key component for retailers in every channel. From the dramatic growth in online grocery to heavy investments in website design and focused, personalized digital communication from retailers to shoppers, digital priorities did not slow in 2016 and will continue to evolve and serve as a critical focus area for retailers in 2017. Source: Kantar Retail analysis 3 Table of Contents Macroeconomics………………………………………….. 5 Shopper Activity…………………………………………… 9 Mass………………………………………………………… 13 Club…………………………………………………………. 16 Discounter…………………………………………………. 20 Grocery…………………………………………………….. 24 Drug………………………………………………………… 28 Convenience……………………………………………..... 32 Digital……………………………………………………….. 35 4 1. Macroeconomics 5 Year in Review: Macroeconomics Overall Retail ‒ Overall retail performance: Nominal growth improved, but was below the historical average. Inflation-adjusted growth was the strongest since 2005. Market Disruptions ‒ Market disruptions: Election uncertainty had very little effect on spending confidence. Global uncertainty stayed at arms length from U.S. households. Spending Intentions ‒ Shopper spending intentions: Total shoppers improved, with upper-income households the strongest. Lower-income households posted the largest incremental improvement. Employment and Income ‒ Employment and income: The unemployment rate reached its lowest level since late 2007. Income and wage growth remained modest. Job losses related to the Housing Market faltering energy sector were acute in some regions. ‒ Housing market: Home values were back to their prerecession level nationally. Homebuilding sustained a strong pace, while home sales faced headwinds due to Prices low inventories. ‒ Prices: Gas prices reached their lowest annual level since 2004. Food-at-home Monetary and Fiscal Policy prices posted their first annual decrease since 1967. Strong inflation in essential services siphoned off income that could have been used on core retail purchases. ‒ Monetary and fiscal policy: The Fed delayed a second rate increase until Retail Market Effect: Positive Mixed Negative December. Dormant inflation and Fed caution pushed rates to low levels. Source: Kantar Retail analysis 6 Annual Retail Sales Trends Online drove modestly improved top-line growth in 2016 Top Line: Annual Retail Sales Breakdown Top line: Latest Years & Forecast, Year-to-Year Growth 2015 2016E 2017F ‒ Top-line growth moved a notch higher in 2016. 16% ‒ Given steep deflation, top-line inflation-adjusted growth was the 16% strongest since 2005. 15% Brick-and-Mortar vs. Online: ‒ Online posted its strongest growth since 2011. ‒ Aggregate brick-and-mortar channel growth was the weakest since 4.1% 2.8% 2010. 4.0% 2.6% 3.8% 3.0% ‒ Declining growth in the combined mass channel was the biggest 2.7% 2.2% 2.7% drag on the consumables channels given food deflation and online competition; drugstores led; supermarkets slowed due to food Top-Line Major Apparel & price deflation. Retail Sales Online** Consumables Homegoods 2 ‒ Home centers and home furnishing specialty channels widely Measure* Channels¹ Specialists outpaced the apparel specialty channel. BRICK-AND-MORTAR CHANNELS3 * Top-line measure excludes auto dealers, fuel, and food service channels; includes auto parts stores ** Online sales are from quarterly retail eCommerce sales reported by the government 1 Includes drugstores, supermarkets, supercenters, discount department stores, warehouse clubs, and dollar stores 2 Includes traditional department stores 3 Channels include some online, catalog, and TV home-shopping sales in addition to brick-and-mortar stores Source: U.S. Department of Commerce, Kantar Retail analysis 7 Year in Review: Category Trends 2014 2015 2016 (through October) 4.4% 4.9% 4.8% 4.5% ‒ Total spending was moderate. 3.5% 3.8% 3.7% 3.9% 2.9% 2.7% ‒ Grocery categories dampened Category 1.0% 1.3% consumables spending. Aggregates ‒ Homegoods led discretionary. Total Spending Grocery Home & softgoods (excl. Services ‒ Services outpaced goods. (incl. fuel, autos & Rx) & HBC autos) 11.0% 9.5% ‒ Pet spending surged. 7.3% 6.5% 6.0% 6.0% 5.8% ‒ Food services and travel gained 5.3% Leading 4.7% 5.0% 4.4% share of wallet. Categories 3.7% ‒ Sharp price increases partly drove Rx and health services. Pet supplies Food services Prescription Healthcare & hotels drugs services ‒ Food spending growth was buoyed by demand amid price deflation. 3.9% 4.5% 4.5% 3.2% 3.7% 3.9% Category 3.0% 2.4% ‒ HBC improved to above average. 1.8% 2.0% 1.1% 1.3% ‒ Apparel lagged most categories. Detail ‒ Home furnishings led most goods. Food & beverages Health & Clothing Home furnishings at home beauty care & footwear Source: U.S. Department of Commerce, Kantar Retail analysis 8 2. Shopper Activity 9 Spending Intentions Were Largely Positive — and Largely Unchanged — in 2016 Slight softening in late summer reversed itself in October Retail Spending Intentions in Coming Month, Compared With Same Period Last Year (three-month moving average) 2016 70% Spend about the same 60% 62% 50% 40% Spend much/somewhat less 30% 24% 20% Spend much/somewhat more 14% 10% 0% Source: Kantar Retail ShopperScape®, January 2009-November 2016 10 Shoppers’ “retailer set” held constant in 2016 2016 vs. 2015 in constant set” held “retailer Shoppers’ Rationalization Retailer on Pause Pressed Have Shoppers 10.0 12.0 14.0 16.0 (among all primary household shoppers) household primary all (among Number of Retailers in Shopped Average Past Four Weeks* * Inclusive Inclusive * 0.0 2.0 4.0 6.0 8.0 Jan-07 12.4 2007 of visits to stores and websites; averages are for averages websites; and storesvisits to of Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 12.4 Mar-08 2008 May-08 Jul-08 Sep-08 Nov-08 Jan-09 11.1 Mar-09 2009 May-09 Jul-09 Q1 Sep-09 - Q3 Nov-09 of each year. of Jan-10 11.1 2010 Mar-10 Average Q1-Q3 May-10 Jul-10 Sep-10 Nov-10 Jan-11 11.2 Mar-11 2011 May-11 Jul-11 Shopped Retailers of # Avg. Monthly Source Sep-11 Nov-11 : ShopperScape Kantar Retail Jan-12 11.2 Mar-12 2012 May-12 Jul-12 Sep-12 Nov-12 Jan-13 10.7 2013 ® Mar-13 , January May-13 Jul-13 2007 Sep-13 - September 2016 Nov-13 Jan-14 2014 Mar-14 9.6 May-14 Jul-14 Sep-14 Nov-14 Jan-15 2015 Mar-15 9.4 May-15 Jul-15 Sep-15 Nov-15 Jan-16 2016 Mar-16 9.4 May-16 Jul-16 11 Sep-16 Over the Course of 2016, More Channels Saw More Green — That Is, Attracted More Shoppers vs. Last Year Past Four-Week Shopping Incidence by Channel, Indexed to Same Prior-Year Period Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Mass retailers/supercenters 94 96 96 97 96 96 98 95 96 98 96 Small-format value retailers 96 98 95 99 98 98 100 93 101 101 96 F/D/M Drugstores 93 97 90 95 94 95 100 92 96 94 92 Channels Warehouse clubs 96 109 94 97 98 96 102 98 99 93 95 Supermarkets 91 96 93 95 94 96 100 94
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