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The 4Ps of Understanding Lidl’s US Entry and Working with to Protect Your Business Mike Paglia, Director Laura Kennedy, Director April 20, 2017 Doing Business in Bentonville

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1.88in Content Top Copyright © 2017 Kantar . All Rights Reserved.

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Agenda

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1.88in Content Top Lidl’s Here: Why It Matters The Walmart Impact • What Suppliers Need to Do

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Source: Sample source runs here 3 Left Margin 0.42in Right Margin

Lidl is a European Powerhouse SALES CAGR 1.25in Heading Baseline 2011-2016E 4-7% 1.88in Content Top $160,000 13,000 7-12% Sales Stores 12,540

13-19% $140,000

12,194 20%+ $120,000 11,847 12,000 $100,000 Stores No. 11,491 $80,000 11,124 $60,000 10,888

11,000 $95 BILLION Sales USD USD BillionsSales $40,000

$20,000 10,888 STORES $95,276 $102,731 $111,335 $119,777 $128,621 $137,390 $0 10,000 2016E 2017E 2018E 2019E 2020E 2021E

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Source: Kantar Retail analysis 4 Left Margin 0.42in Right Margin

It’s For : Lidl is Coming!

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Source: Kantar Retail analysis, Washington Post 5 Left Margin 0.42in Right Margin

Lidl’s Anticipated First Wave in the US

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Source: Kantar Retail analysis; Google Maps; News 6 Left Margin 0.42in Right Margin

Lidl Will Grow into a Formidable Retailer Within Five Years

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1.88in Content Top Overall Sales Forecast Store Growth Forecast (USD Billions)

630

$8.8 530

$7.1 430

$5.4 330

$3.8 230

$2.1 120

$0.7 20 $0.1 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

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Source: Kantar Retail analysis Left Margin 0.42in Right Margin

Many People Have the Wrong Idea About Lidl

1.25in Heading Baseline

1.88in Content Top The Misconception: Lidl operates down market discounters with a corresponding in-store experience. Its shoppers are predominately low income, coming from poor areas, who do most of their shopping there. Lidl competes primarily with other discounters like .

The Reality: Lidl operates a variety of no-frills, midmarket stores that are pleasant to shop. Its shoppers, who come from a wide range of income brackets, are all price-sensitive. They demand a fast, easy fill-in trip, but for different reasons. Lidl attracts shoppers from larger-format and supercenters.

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The Big Surprise is Who is Leaking Share to Lidl

1.25in Lidl £m switching gains of +£ 367m Heading Baseline

1.88in Content Top £102

Asda £102

Sainsbury’s £72

Morrisons £58

Waitrose £12

Co-op £9

In deps & £6 Symbols

Aldi £5

Iceland £1

0 20 40 60 80 100 120 £m Switching Note: 52 weeks ending Jan. 1, 2017 6.75in Content Bottom

Source: Kantar Worldpanel 9 Left Margin 0.42in Right Margin

Lidl Will Surprise Many as a Mid Market Retailer

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100% 1.88in Content Top 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%

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Source: Kantar Retail analysis 10 Left Margin 0.42in Right Margin

Walmart Is at High Risk

1.25in Many will feel pressure, but not all equally Heading Baseline High Risk Winn Dixie 1.88in Content Top Giant Foods Bi-Lo Medium Risk Walmart Safeway Stop & Shop Low Risk Target Aldi Dollar Tree Family Dollar Dollar General

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How Does Lidl Approach the Four P’s?

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1.88in Content Top Unconventional

Innovative Disruptive

Reconfigurable

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Source: Kantar Retail aanalysis 12 Left Margin 0.42in Right Margin

Lidl has a Rotational Assortment Strategy

1.25in Nothing lasts forever Heading Baseline

1.88in Traditional Content Top Begin recoup Rampup investment Sales Launch “Soft landing” exit & investment Time Lidl Assumes meet/exceed velocity hurdles

Sales Item #1 Item #2 Item #3

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Source: Kantar Retail analysis 13 Left Margin 0.42in Right Margin

Private Label is Central to the Assortment

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1.88in Content Top Private Label Architecture

PREMIUM

STANDARD

BUDGET

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Lidl Has Identified Critical Categories To Help Them Drive Traffic

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1.88in Content Top Wine

Ethnic Produce Total Core Offer Check- Hero Meat & Categories Limited Offer Out Fish Offer

F2G Bakery

HBC

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Source: Kantar Retail analysis 15 Left Margin 0.42in Right Margin

Brands Have Five Distinct Roles in Lidl’s Stores

1.25in Heading Baseline 1. Acceptance

1.88in Content Top • Drive shopper/household penetration through helping to develop the discounters’ image as an acceptable place to shop.

2. Conversion and Penetration • Leading brands help to convert discounter shoppers to purchase in the category. Drive penetration in existing categories or help launch new categories.

3. Comparison • Provide a basis for comparison to private label brands.

4. Build Basket • Using Brands to expanded categories help to build total basket size

5. Drive Frequency • Time sensitive in and out promotions

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Source: Kantar Retail analysis 16 Left Margin 0.42in Right Margin

Lidl’s Disruptive Approach to Branded Pricing

1.25in Heading Baseline Baby Care Edible Household Personal Care TOTAL BASKET Lidl Index Lidl Index Lidl Index Lidl Index Lidl Index 1.88in Retailer Subtotal to Subtotal to Subtotal to Subtotal Amount Double digit Content Top to Retailer to Retailer Retailer Retailer Retailer discounts at the Lidl £ 6.38 - £ 40.55 - £ 25.55 £ 18.31 - £ 90.79 - Tesco £ 6.35 100 £ 46.56 87 £ 28.00 91 £ 23.40 78 £ 104.31 87 basket level…. £ 6.60 97 £ 46.56 87 £ 32.00 80 £ 22.00 83 £ 107.16 85

Index: Lidl to Asda – Personal Care Sub-basket

…reinforced by deeper more punctuated discounts on KVIs

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Source: Kantar Retail analysis, mysupermarket.co.uk 17 Left Margin 0.42in Right Margin

Lidl’s Private Label Pricing is No Less Disruptive

1.25in Heading Baseline HBA Edible Nonedible TOTAL BASKET

1.88in Lidl Index Lidl Index Lidl Index Lidl Index Content Top Retailer Subtotal Subtotal Subtotal Amount to Retailer to Retailer to Retailer to Retailer

Lidl £ 3.27 - £ 4.68 - £ 8.92 - £ 16.87 - Tesco £ 4.55 72 £ 5.49 91 £ 11.75 85 £ 21.79 89 Asda £ 4.45 73 £ 5.01 93 £ 10.02 89 £ 19.48 87

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Source: Kantar Retail analysis, mysupermarket.co.uk 18 Left Margin 0.42in Right Margin

Lidl Leverages Brands to Make its Initial Price Impression

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Content Top Fresh Category Offering

Private Label Quality

Private Label Prices

TRIP FREQUENCY TRIP Branded Prices

TIME (3-4 Years)

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Themes are Central to Lidl’s Promotional Efforts

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Week 6 Week 7 Week 8 Week 9 Week 10

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Source: Kantar Retail analysis, company materials 20 Left Margin 0.42in Right Margin

There’s More to Lidl’s Promotions Than Selling Ad Blocks

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This is a Small Supermarket

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Source: Kantar Retail analysis; Kantar Retail Virtual Reality 22 Left Margin 0.42in Right Margin

Stores Will be Modular and Reconfigurable

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Phase 1 Phase 1

Phase 2 Phase 2

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Lidl Is a Multi Dimensional Disruptor

1.25in Heading Baseline Unconventional

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Innovative Disruptive

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2. The Walmart Impact

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How Will Walmart Compete with Lidl’s Proposition?

1.25in Putting supplier implications into focus Heading Baseline

1.88in Content Top Broad assortment, services

Solutions Asymmetric EDLP

One-stop shop

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Product: Emphasizing the Consistent, Broad Assortment, and Quality

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1.88in Content Top ‒ Broad cross-box assortment ‒ Highlighting quality, differentiated products, exclusives (including private label) ‒ Elevating unique offers around fresh, services

Supplier to-do: • Highlight innovative and new products, and especially exclusive or unique items that are not easily comparable • Understand private label’s role in your merchandising ladder • Link to differentiating services—especially pharmacy—whenever possible

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Source: Kantar Retail research and analysis 27 Left Margin 0.42in Right Margin

Price: Selective, Careful Price Cuts, and a Focus on Private Label

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1.88in Content Top ‒ Selective cuts on key SKUs ‒ Elevation of private label value: deep price cuts as well as emphasis on quality ‒ Emphasis on elasticities across merchandise ladders

Supplier to-do: • Understand your items’ elasticity using analytics: how deep do price cuts need to go? How much (or little) can your item sustain? • Prioritize your items and what they offer: is there another item that would be better to price ? • Determine how price gaps affect the full pricing ladder, including Walmart’s private labels.

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Promotion: Driving Solutions Across the Box

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1.88in Content Top ‒ Point to benefits of broad assortment ‒ Elevate the “Walmart Calendar” to hone seasonal cross- merchandising and theming

Supplier to-do: • Continue emphasis on basket-building • Look for new and unique occasions around which to craft solutions and messaging—beyond the traditional seasons

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Place: Elevating the One-Stop Shop and Convenience

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1.88in Content Top ‒ Store enablement of flexibility and convenience: Pickup, Online Grocery Pickup ‒ Availability of extended aisle online

Supplier to-do: • Emphasize Walmart’s “hero” departments—baby, toy, entertainment, pharmacy and health—and link them with consumables • Drive conversion on Pickup and Online Grocery • Keep close track of performance of stores in the new Lidl stores’ trading area

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Source: Kantar Retail research and analysis 30 Left Margin 0.42in Right Margin

Capitalize on Walmart’s Asymmetric Advantages vs. Lidl

1.25in Heading Baseline Broad assortment, 1.88in Content Top services

Asymmetric Solutions EDLP

One-stop shop

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Source: Kantar Retail aanalysis 31 Left Margin 0.42in Right Margin

Don’t Miss Out!

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1.88in Content Top Mass/Club/Discounter Walmart & Sam’s Club Retail Webinar Series

Workshop Enterprise wide with access to recordings Nov 8-9, 2017, Bentonville, AR Join Kantar Retail’s experts on Walmart, Sam’s Next up: Club, and the Walmart shopper to learn how to Driving a Differentiated best align your plans. Multichannel Experience at Walmart May 11, 2017

To register visit https://KRevents.cvent.com/ or email [email protected]. 6.75in Content Bottom

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1.88in Content Top For further information please refer to www.kantarretailiq.com

Contact: Contact: Laura Kennedy Mike Paglia

T: +1 617 912 2851 T: +1 617 912 2855

[email protected] [email protected]

@LauraWK_KR @KanRetMP

www.kantarretail.com www.kantarretail.com

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