Presentation Title Here and Can Run to Two Lines 24Pt

Navigating the Southeast Grocery Market

Diana Sheehan, Director Elley Symmes, Analyst September, 2017 Today’s Agenda

Exploring the Southeastern Macroeconomic Environment

Understanding the Larger Competitive Threats

The Store Framework

Investing for Today and Tomorrow

4 Job Growth Is Slower in the Majority of States in H1 Relative to 2016

West and Southeast lead, while low commodity prices are drag on the Midwest

‒Job leaders in order of strongest growing are: Nevada, Utah, States by Job Trends# Florida, Idaho, and Georgia Leading Average Lagging Declining ‒Job laggards are growing but well below average: Mississippi, Louisiana, North Dakota, Connecticut, and Illinois are lagging the furthest behind.

‒Job declines in a handful of states are due to low oil prices: Wyoming, Alaska, West Virginia, Oklahoma, and Kansas

‒Texas is notably one of the job leaders due to surging growth in Dallas and Austin. Houston is recovering after posting lagging growth in 2016 due to low oil prices.

‒Automobile-producing states should be watched: Ohio has been hit by job losses in the auto sector as automobile sales level off and inventories remain well above historical averages. Other auto-producing states — Michigan, Indiana, Kentucky, and Alabama — remain resilient for now.

# Categories are based on year-to-year job growth for the six months through June 2017. Leading are the top 16 states. Lagging and declining are the bottom 16 states. Average is all other states.

It also suggests rural areas and most smaller cities are lagging

States and Top 50 Metro Markets by Job Trends* ‒Orlando, Nashville, Atlanta, Jacksonville, and Dallas are the fastest Lagging Declining growing in the top 50. Notably, four of the five are in the Southeast. Leading Average

‒Thirty of the 50 biggest metros are posting growth that is at least as strong as the top 16 leading states (+1.8%).

‒Thirty of the 50 biggest metros are posting stronger growth than the average in their state or bi-state areas. This indicates these largest markets are magnets for jobs and retail sales growth not just relative to the national average, but also relative to the exurban and smaller cities in their area.

* Categories are based on year-to-year job growth for the six Metro markets labeled by months through June 2017. State job growth includes that of biggest to smallest job metro markets within the state. Leading are the top 16 states and market among top 50 and metro markets posting at least 1.8% job growth. Lagging and colored by growth declining are the bottom 16 states and metro markets posting category. See slide 25 for below 1.1% job growth. Average is all other states and metro market name. markets posting job growth between 1.8% and 1.1%.

Leading Average Lagging Declining Year-to-Year Index to Year-to-Year Index to Growth Lead Growth Lead Metro Market Last 6 Months Growth* Metro Market Last 6 Months Growth*

1 New York-Northern New Jersey-Long Island, NY-NJ-PA 1.4% 79 26 Cincinnati-Middletown, OH-KY-IN 2.2% 120 2 Los Angeles-Long Beach-Anaheim, CA 1.4% 76 27 Kansas City, MO-KS Metropolitan Statistical Area 2.4% 135 3 Chicago-Joliet-Naperville, IL-IN-WI 0.8% 43 28 San Jose-Sunnyvale-Santa Clara, CA 1.8% 99 4 Dallas-Fort Worth-Arlington, TX 3.4% 190 29 Columbus, OH 2.0% 111 5 Washington-Arlington-Alexandria, DC-VA-MD-WV 1.6% 88 30 Cleveland-Elyria-Mentor, OH 0.8% 43 6 Houston-Sugar Land-Baytown, TX 1.2% 68 31 Indianapolis-Carmel, IN 2.2% 122 7 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 1.9% 104 32 San Antonio-New Braunfels, TX 2.3% 125 8 Boston-Cambridge-Quincy, MA-NH NECTA 1.8% 100 33 Austin-Round Rock-San Marcos, TX 3.0% 169 9 Atlanta-Sandy Springs-Marietta, GA 3.6% 203 34 Las Vegas-Paradise, NV 3.3% 183 10 Miami-Fort Lauderdale-Pompano Beach, FL 2.5% 141 35 Sacramento--Arden-Arcade--Roseville, CA 1.6% 91 11 San Francisco-Oakland-Fremont, CA 2.4% 131 36 Nashville-Davidson--Murfreesboro--Franklin, TN 3.7% 204 12 Phoenix-Mesa-Glendale, AZ 2.5% 139 37 Milwaukee-Waukesha-West Allis, WI 0.1% 5 13 Detroit-Warren-Livonia, MI 2.0% 113 38 Virginia Beach-Norfolk-Newport News, VA-NC 0.1% 8 14 Minneapolis-St. Paul-Bloomington, MN-WI 2.2% 122 39 Salt Lake City, UT 3.1% 170 15 Seattle-Tacoma-Bellevue, WA 2.9% 160 40 Jacksonville, FL 3.4% 191 16 Denver-Aurora-Broomfield, CO 2.1% 119 41 Richmond, VA 1.1% 59 * Leading metro markets are those posting 1.8% job growth 17 San Diego-Carlsbad-San Marcos, CA 1.8% 99 42 Louisville-Jefferson County, KY-IN 2.1% 118 or above. Lagging and declining 18 Riverside-San Bernardino-Ontario, CA 3.0% 168 43 Memphis, TN-MS-AR 1.2% 69 are metro markets posting 19 Baltimore-Towson, MD 0.9% 50 44 Oklahoma City, OK 0.3% 19 below 1.1% job growth. 20 St. Louis, MO-IL 1.2% 64 45 Raleigh-Cary, NC 2.8% 153 Average is all other metro 21 Tampa-St. Petersburg-Clearwater, FL 3.0% 166 46 Providence-Fall River-Warwick, RI-MA NECTA 0.6% 33 markets posting job growth 22 Orlando-Kissimmee-Sanford, FL 3.9% 215 47 New Orleans-Metairie-Kenner, LA 0.2% 10 between 1.1% and 1.8%. 23 Pittsburgh, PA 1.0% 53 48 Hartford-West Hartford-East Hartford, CT NECTA 0.7% 40 24 Charlotte-Concord-Gastonia, NC-SC 2.9% 163 49 Buffalo-Niagara Falls, NY 0.7% 40 25 Portland-Vancouver-Hillsboro, OR-WA 2.0% 114 50 Rochester, NY -0.4% -22

8 Top Grocery Retailers at a Glance

Sales (USD millions) Sales Added CAGR Retailer 2017E 2022E ('17E-'22E) ('17E-'22E) Walmart $249,634 $277,209 $27,575 2% Kroger $95,945 $116,654 $20,709 4% Walgreens Boots Alliance $73,513 $97,688 $24,174 6% CVS $68,185 $85,087 $16,902 5% Costco $53,313 $68,614 $15,301 5% TOP 5 $540,589 $645,251 $104,661 4% Albertsons Companies $51,051 $60,555 $9,503 3% Ahold Delhaize $40,949 $45,036 $4,087 2% Publix $33,471 $42,116 $8,645 5% Aldi/Trader Joes $24,173 $38,324 $14,151 10% Target $32,672 $35,255 $2,583 2% TOP 10 $182,317 $221,285 $38,968 4% Dollar General $18,603 $28,612 $10,009 9% Who is not Rite Aid $24,888 $28,590 $3,701 3% H-E-B $18,422 $24,014 $5,591 5% here that we Wakefern $15,457 $19,206 $3,749 4% expected to Dollar Tree $13,898 $19,138 $5,240 7% TOP 15 $91,269 $119,560 $28,290 6% be?

Understanding sales mix critical to prioritizing retailers

Edible Grocery Sales Added Non-Edible Grocery Sales Added (2017E – 2022E, in Billions) (2017E – 2022E, in Billions) Walmart $18.4 Walgreens $21.5 Kroger CVS Aldi Walmart Costco Dollar General Albertsons Companies Amazon/Whole Foods Publix Amazon.com H-E-B Costco Lidl* Amazon/Whole Dollar Tree Amazon drives Foods only hits top post-merger non- Amazon/Whole Foods Rite Aid ten after merger edible grocery Ahold Delhaize $3.7 Kroger $3.1 growth. Discounters don’t make top 10.

100%

13% 14% 14% 16% 16% 15% 15% Household 90% 21% 22% 23% 26% 25% 25% 27% Income 31% 32% 36% 80% 15% < $25k 18% 19% 18% 18% 25% 22% 70% 26% 26% $25k – 11% 17% 27% 29% 30% $49.9k 60% 18% 28% 28% 19% 19% 17% 20% 30% 29% 50% 14% 28% $50k – 12% $74.9k 15% 18% 18% 40% 13% 13% 13% 15% 19% 19%

15% 16% 18% $75k – Lidl Here? Lidl 30% 11% 17% 17% $99.9k 13% 15% 12% 11% 11% 10% 20% 44% 42% 10% 35% 34% 9% 9% $100k+ 33% 31% 30% 7% 24% 10% 21% 19% 19% 18% 19% 17% 13% 13% 13% 0%

Low Risk Medium Risk Higher Risk

Clear, concise messaging

Produce Wine Health & Beauty

More of this… than this:

More shoppers, more trips, more basket dollars

No. of Shoppers No. of Trips Value of Basket

• Category • “Aldi Finds” • Emphasis on introduction or promotions and “value for money” expansion(e.g., unexpected items reinforces baby care, draw in treasure price perception organics) opens hunt traffic. and brand Aldi’s offer to new • The goal is positioning. shoppers. to make the trip • Increased fast and emphasis on select convenient. categories (e.g., fresh) creates new opportunities to convey value.

$18M remodel program Wisconsin $28M remodel program Detroit, MI $10M remodel program Iowa $15M remodel $10M remodel program program Nebraska $180M investment northeast PA Chicago

$13M remodel program, Raleigh- Durham, NC

4th warehouse to open in 2020

100th TX store $100M remodel investment

Elevating the experience while remaining true to its brand

A peek inside the stores

Source: Kantar Retail store visits Kantar Retail © 2017 21 CAGR CAGR Walmart US Sales Growth '11-'16E '16 - '21E Discount -9.0% -4.8% Supercenter 3.2% 1.4% 2011-2021E 2016e-2021e Walmart.com 15.9% 16.1% Jet.com n/a 46.4% CAGR: 34% of Hayneedle.com n/a 13.5% Neighborhood Market 29.3% 9.6% USD Supermercado de Walmart sales added Walmart Small Format -6.8% 8.1% billions Walmart Small Format from eCommerce Walmart US 3.1% 2.2% Hayneedle.com Sam's Club 1.5% 4.6% $450 Jet.com Walmart USA Total 2.8% 2.6% Walmart.com $1.6 $2.0 Walmart Supercenter $1.2 $400 $0.8 $19 $0.5 $17 Walmart Discount $0.3 Sam's Club $15 $13 $350 Neighborhood Market $9 $11 $8 $5 $6 $7 $300 $4

$250 $278 $281 $272 $275 $268 $200 $249 $263 $225 $237 $242 $257

$150

$100 $15 $14 $17 $16 $16 $21 $19 $18 $29 $26 $23 $68 $71 $60 $62 $65 $50 $58 $57 $58 $54 $56 $57 $23 $15 $17 $19 $20 $22 $4 $5 $6 $9 $13 $0 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

“New stores will continue to play a part, certainly, in what we do, but just not to the extent as they have in the past” –Brett Biggs, October 2016

Essential to boost productivity of existing stores

Customer 1st Corporate Brands Digital/eCommerce Good for You

• Continue to improve • Innovate and expand its • Further expand the • Develop broader, more Customer Service. brands, enhance ClickList click-and- comprehensive health • Expand product packaging, and expand collect program and wellness platform offerings with superior assortment. nationally. bridging the total store. quality. • Emphasize Simple • Explore other forms of • Expand Little Clinic and • Seek ways to improve Truth, one of the omnichannel fulfillment health services to the store and online retailer’s top-selling models. support shoppers. experience. brands, as a pillar for its • Integrate 84.51 and • Capitalize on • Focus on improved fresh and organic Market6 for further sustainability to drive pricing. initiatives. digital and shopper value and personalization. improve profitability.

“Free From” signage builds shopper trust while bulk assortments give shopper control

Efforts compliment Kroger’s Customer 1st corporate strategy

Making existing stores more profitable

$111 billion* $34.0 billion $21 billion* $10.7 billion $10.6 billion $5.4 billion 1,700+ stores 1100+ stores 450+ stores* 1000+ stores 725+ stores 240+ stores 11 states 7 states 11 states 9 states 8 states 7 states + D.C.

Sales Added Sales CAGR 12-17E Sales CAGR 17E-22E (USD million) Publix 4.7% 4.8% $9,017 Food Lion 1.6% 1.7% $969 Harris Teeter 3.8% 3.2% $932 Winn Dixie 1.4% 1.5% $592 HARVEYS 8.3% 11.0% $570 Fresco y Más n/a 28.4% $201 Bi Lo -3.8% 0.5% $61 Total 3.3% 3.8% $12,343

*Kroger and Walmart sales are estimates for Southeast regional sales based on U.S. population distribution

Southeastern Grocers’ Harvey’s banner has made significant strides in a very short period of time.

Shopper Penetration of Southeast Grocery Retailers Publix Food Lion Harvey's * Bi-Lo (Total inc Winn-Dixie) * Harris Teeter 10.0% 9.0% 8.7% 8.0% 7.0% 6.0% 5.0% 4.9% 4.5% 4.0% 3.0% 2.0% 2.2% 1.0% 0.9% 0.0% Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17

33 The Store

Back of Store: In store: ̶̶ Inventory management ̶̶ Remodels ̶̶ Store labor investments ̶̶ Merchandising ̶̶ Role of tech in supply chain ̶̶ Assortment ̶̶ Reorganization of back-rooms ̶̶ Price Investments for new fulfillment models ̶̶ Services

Outside of store: ̶̶ Online grocery ̶̶ Loyalty programs ̶̶ Circulars ̶̶ Data optimization

35 Logistics Sit at Heart of Improved Back-of Store Operations This process will evolve dramatically in coming years as technology impacts operations

Inventory Labor Technology Management

Out of Back-Room Stocks Ordering

Warehouse Virtual Slotting Shelf

41 In a Time of Peak Store Saturation, Retailers Must Get More Out of Existing Assets

Making in store initiatives a key priority

Price Remodels Merchandising Assortment Services Investment

All stores to be converted by 2020

By the end of 2017, 53% of Food Lion’s store foot print will be remodeled to the Easy, Fresh, Affordable format.

Still, stores remain largely generic and lack real differentiating factors

Fresh Key Assortments Services Price

Average Weekly Sales/Store for Renovated Food Lion Stores

Ahold Delhaize USA Quarterly Comparable Store Sales Ahold USA Delhaize America 4.0%

3.0%

2.0% 2.0% 1.3% 1.0% 1.3% 0.3% 0.0% Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 -1.0% Avg. weekly sales/ store for Food Lion -2.0% = $201,520 -3.0%

Aspirational & Value Value Hispanic

Sales by Square Feet Sales/Sq. Ft. 2012 Sales/Sq. Ft. 2017E Sales/Sq. Ft. 2022E $800 $737 $700

$600

$500 $439 $414 $407 $389 $400 $373

$300

$200

$100

$0 Publix Harris Teeter Food Lion HARVEYS Bi Lo Winn Dixie supermarket

Current stores Planned stores

North Carolina Florida

Elevated merchandising creates new standard for market

Florida North Carolina

Percentage of Shoppers Who Strongly Agree/Agree Transparency and trust perpetuate engagement: With Statements

62% of shoppers prefer to shop 53% at retailers that are transparent about product quality

I am paying more attention to I am increasingly likely to seek of shoppers are willing to spend food labels and ingredients than out food and beverages that are more money on a brand they trust I used to minimally processed

Kantar Retail © 2017 Source: Kantar Retail ShopperScape®, February and January 2017; August 2016 Kantar Retail © 2017 56 Harris Teeter Fosters Shopper By Identifying Better for You Products to Shoppers

Brand placement and proper labeling is pivotal to maintain relevance with retailers and shoppers

Threatening shopper loyalty, especially with Lidl’s commitment to H&W geared assortments

Signage outside of organic/natural designated areas focus on price and loyalty, rather than product transparency and sourcing.

Designated parts in store identify key assortments for shoppers.

Local assortment drives traffic and loyalty and targets conscious consumer

Incandescent • Gross Margin • OPP competition • Sourcing flexibility • Merch ladder

Source of PLof Source Power Emphasize trust and garner • Banner image Leverages the value brand loyalty; seen as • Innovation proposition inherent in equals or superiors to major, Private Label Image  $ • Differentiation respected national brands • Loyalty

Retailer’s Motivation • Relies on national brand’s equity Brand • Similar graphics, ingredients Finance Budget brands offering These brands leverage • Invites price/value comparison low-priced alternatives to A brand’s image, co-opting commoditized products the strength of that brand • Makes its own “light” Trade Down • Unique ingredients, packaging • Limits comparability • Often cross-category umbrella

Reflective

Incandescent Source PLSource of Power

Retailer’s Motivation

Finance Brand

Reflective

Ahold banners over deliver on private label, Delhaize banners under deliver

Importance of vs. Experience with Private Label at Ahold Delhaize (share of shoppers rating factor as “extremely important” vs. share indicating it describes experience) Performance Gap

Ahold “Good assortment of private label products is extremely important” 26% +2 ppt Shoppers “Good private label products are available at retailer” 28%

Delhaize “Good assortment of private label products is extremely important” 33% -13 ppt Shoppers “Good private label products are available at retailer” 20%

But differentiation through price is risky with Lidl driving new race to the bottom

Growing and improving services will be key to fend off encroaching Lidl

68 Outside of Store Capabilities Expand Shopper Touchpoints for Retailers

Matching new or updated initiatives with evolving shopper demands

Data Loyalty Online Grocery Circulars Optimization Programs

Veteran player still works to enhance capabilities, creating sophisticated mobile app platform

Retailers relinquish control in exchange for speed

Threatening overall strategic position, especially with new Aldi/Instacart partnership

Publix evolves theirs beyond just products to highlight occasions and services coupled with value

Food Lion SE Grocers Publix

Boomers are also more likely to do offline pre-trip planning, while online planning is largely driven by Millennials; a notable exception is the higher use of online circulars by Boomers

Pre-Trip Planning (% of past four-week supermarket shoppers who reported participating in each activity before last grocery trip)

Millennial Supermarket Boomer Supermarket Shoppers Shoppers

Shopped from a list I had written by hand 40% 55%

Selected paper coupons to use 23% 31% Boomer-led activities Looked at printed store circulars/ads 14% 30%

Looked at online circulars/retailer ads 11% 17%

Selected digital coupons to use 17% 14% Loaded coupons to a frequent shopper card 15% 15% Millennial-led activities Shopped from a list I was keeping on an app or a 13% 8% retailer's web site

Integrating mobile app and in-store digital kiosks to drive seamless shopping experience

And outsources loyalty program to Plenti, integrating program across banners

77 The Store – How Can Manufacturers Help Retailers?

Outside of store: ̶̶ Online grocery ̶̶ Loyalty programs ̶̶ Circulars ̶̶ Data optimization

Back of Store In-Store Front of Store

‒ Inventory Management: Build our account teams ‒ Remodels: Understand new target shopper or brand ‒ Online Grocery: Allocate resources to promote that have historical context and perspective, objective with remodeled stores. Align your and sell via retailers’ online grocery platforms. founded in data analytics, but empower to build new conversations to the retailers’ new direction. Recognize these platforms as new selling schools focused on understanding the implications touchpoints. of AI and Machine Learning. Retailers are looking ‒ Merchandising: Monitor nuanced merchandise for partners to learn with. strategies by state as retailers look to be more ‒ Circulars: Develop hybrid promotional strategies effective with local shopper groups. that are equally successful with traditional circular ‒ Labor: Evaluate your internal resources to better and newer digital and personalized coupons. understand how you can support more active ‒ Assortment: Align product launches and labeling to shopper-centric model. You cannot put boots on the elevated demands for product transparency and ‒ Data Optimization: Monitor retailers’ new data floor for your retailer, but you can make your sourcing from shoppers. Match branded product partnerships. Designate financial resources to operations more efficient, which allows the retailer labeling to private label counterparts. access this data as retailers look to drive new to reprioritize resources. revenue streams from it. ‒ Price investments: Expect downward pressure on ‒ Technology: Recognize the path forward. This isn’t prices as Southeast grocery retailers look to defend ‒ Loyalty Programs: Understand nuanced about what’s coming in retail, it’s about what’s here. against low price competitors (Lidl, Aldi, etc.) strategies to loyalty programs (in house vs. third Technology will continue to evolve both front and party) to best activate trade spend dollars with back of store operations, and manufacturers need ‒ Services: Partner with retailers on their differentiated these programs. to continue to educate themselves to truly in-store services to foster and enhance closer understand the impact moving forward. relationships with shoppers.

Contact: Contact: Diana Sheehan Elley Symmes Director Analyst

T: +1 (617) 912 2819 T: +1 (617) 912 2865 [email protected] [email protected]

@kantarretail @kantarretail www.kantarretail.com www.kantarretail.com