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Maintaining Relevancy: Retail Trends Impacting Today's World and Beyond

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Maintaining Relevancy: Retail Trends Impacting Today's World and Beyond Maintaining Relevancy: Retail Trends Impacting Today’s World and Beyond Neil Stern, Senior Partner McMillanDoolittle U.S. Consumer Confidence has Risen to 14-Year Highs Consumer Confidence 2009-2017 100.7 October 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: University of Michigan Consumer Sentiment Survey 2 Unemployment Rates in U.S. at a 17-Year Low Unemployment Rate 2007-2017 11% 10% 9% 8% 7% 6% 17-Year Low 5% Unemployment Rate Rate Unemployment 4% 4.10% December 2017 3% 2% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Labor Statistics – U1 Table 3 Since 2010, Retail has Grown at a CAGR of 3.7% and Sales in 2017 Exceeded $4.5 Trillion Retail Trade and Food Services Sales (billions) $4,568 $4,383 $4,255 $4,195 $4,042 $3,940 $3,785 $3,542 2010 2011 2012 2013 2014 2015 2016 2017 Source: U.S. Census Bureau, Retail Trade and Food Services excluding Auto, 2010-2017 Not Seasonally Adjusted 4 Everything Must Be Great! Right? Retailmageddon! Why? Retail is Being Disrupted by a Number of Large Changes Demographics Societal Technology & 8 Demographics Are Changing The Face of the Consumer is Changing Percentage of the U.S. Population 80% 2017 60% 2020 2040 40% 2060 20% 0% White Hispanic Asian Black Source: U.S. Census 2014 Population Projections, Pew Research, Politico 10 Boomers Hold Spending Power: Millennials are Coming % of U.S. % from Ethnic Generational Group Age Spending Power Population Minority Groups 22 and younger 26% 47% $250 Billion 20s & 30s 22% 42% $1.7 Trillion 40s 14% 38% $1.25 Trillion Baby 50-70 26% 27% $2.1 Trillion Boomers Sourrce: Technomic, 2015 11 SOCIETAL Societal Changes 12 U.S. Prosperity is Unequal The Income Distribution Gap Between “Have Nots” and “Haves” is Widening 75% 74% 73% 72% 32% 30% 70% 28% 27% 26% 25% 68% 1973 1983 1993 2003 2013 2025E 1973 1983 1993 2003 2013 2025E Source: Kantar Retail 13 Changing Labor Model And Wage Pressures Retailers are investing more in employees through training and education and increased wages to attract and keep better talent. Or….looking at automation and efficiencies 14 Technology Think About This… Average person spent Total Minutes (Billions) Spent on Mobile 2 hrs 51 min Source: comScore Mobile Metrix, U.S., Age 18+, Dec 2013 – Dec 2016 per day on mobile 1,10 0 1,00 0 90 (Billions) 0 80 In 2018, the Average 0 Person will Spend Minutes 70 0 Total Total 3 hrs 23 min 60 0 per day 50 0 Dec- Jun- Dec- Jun- Dec- Jun- Dec- 2013 2014 2014 2015 2015 2016 2016 Source: ComScore, eMarketer 16 Millennials Identify Social Media and Video Streaming as “Must Have” Online Services “Must Have” Online Services Millennials % Choices Social Networking Mobile App 53% Scubscription Streaming Video Service 48% Video Sharing Service 47% GPS-Enabled Map Service 41% Subscription Streaming Music Service 31% Private Texting Service 19% Health/Fitness App 18% Grocery Delivery 17% Mobile App for Coffee Pick-up 16% Voice-Activated Assistant 13% Meal Kit Delivery 11% None of the Above 11% Source: Mintel March 2017 17 Communications Happen Differently Now… 18 Ecommerce Grabbing Larger Share of Retail Sales E-commerce Retail Sales $500 12.00% $450 10.00% $400 $350 8.00% $300 $250 6.00% $200 Sales (billions) Sales 4.00% $150 $100 2.00% $50 $- 0.00% Automotive excluding Sales Retail Total of Percent 2015 2016 2017 Sales (billions) Percent of Total Retail Sales Source: U.S. Census, Estimated Quarterly U.S. Retail Sales, U.S. Census Bureau, Retail Trade and Food Services excluding Auto, 2010-2017 Not Seasonally Adjusted 19 Online is Grabbing Bigger Share: 20% Theory Online % of Retail Sales 35% 30% 25% 20% 15% 10% 5% 0% Books and Apparel & footwear Toys & sporting Electronics & Drugs, health & Furniture & home Food & alcohol magazines / music goods appliances / beauty care furnishings / videos computer & office products 2016 2021* Source Statista, eMarketer, Kantar Retail 20 E-commerce Penetration Varies Greatly By Demographics More Women Than Men Millennials Budget More for Online 44% 47% Millennials Gen X 39% 49% Baby Boomers 31% 22% Seniors Online Skews Urban Larger Household Incomes 38% 34% 34% $100K + 57% $50K-$99K 52% <$50K 47% Urban Suburban Rural Source: Big Commerce, Deloitte 21 And the Biggest Disruptor…. Amazon Changing (And Will Change) the Retail World 2017E Global Retail Sales ($BN) Walmart $511.4 Amazon $138.0 Costco $120.9 Amazon is the fastest company to ever reach $100 billion in sales. Schwarz Group $116.0 Kroger $115.4 About 54% of U.S. households are Prime Members, up from 18% in 2013 Carrefour $102.0 Aldi $98.4 Home Depot $97.7 Walgreens Boots Alliance $97.2 Tesco $89.5 Source: Kantar Retail, Cowen 23 “Prime Members Have Spending Power, Attracting the “Right” Households” Average HHI of Shoppers by Retailer 2015 - US Avg. HHI $56,516 $69,900 $66,800 $61,000 $62,900 $56,000 Average HHI of Amazon Prime members was 24% higher than average HHI in the US Walmart Walmart.com Amazon Target Amazon Prime 24 And has Surpassed Google in Share of Search The majority of consumers now start their online shopping search on Amazon vs. search engines like Google Share of Searches 2016 Amazon 52% Search 26% Engine Amazon’s share of searches has grown steading from 2014-2016 comprising 52% in 2016 while Search Engine searches Retailer 12% Websit have been on the decline, now making up e only 26%. 2015 was the first year Amazon surpassed search engines. Other 5% In 2016, Retailer’s websites captured 12% of searches from search engines Ebay 4% 25 And the Biggest Deal Yet… The Price Drops Heard Round the World 27 And much more to come…one hour delivery Including the “Grocery Store of the Future”- Amazon Go Amazon Go promises “No Lines. No Checkout. No Seriously” • Video recognition technology tracks items as they are removed from the shelf and places them into the customers “virtual shopping cart” o Distinguishes between items taken from the shelf and placed back on the shelf and those eventually purchased • Machine learning analyzes data from customer/product interactions to continuously improve product offering • Payment happens automatically as customer leaves the store • Opened to the public on January 22nd, 2018 29 Amazon Go Technology…and Offer 1.5 Billion Fewer Trips Since 2012 – The Amazon Effect? Number of Retailer Trips (billions) 17.6 1.5 billion Fewer Trips 16.9 16.5 16.1 15.8 2012 2013 2014 2015 2016 Source: Nielsen Homescan Panel, All Outlets, Total Trips, calendar year 2012-2016 31 Grocery and foodservice are also undergoing major changes At Over $1.2 Trillion, Food is the Largest U.S. Retail Category Market Share is Shifting Away from Traditional Grocery 90% Traditional Grocery Retailers -40% market share between 1988-2006 While the pace of change has slowed, 50% Traditional Grocery 48% 46% Retailers lost market share at a CAGR of - 1.0% 2006-2015 1988 2006 2009 2015 34 E-commerce, Club, Dollar, Supercenters & Pet are the Big Winners CAGR 2010-2016 E-Commerce 8.5 Club 4.9 Dollar 4.8 Supercenters 4.6 Pet 4.1 Drug 2.7 Conv/Gas 2.1 Supermarkets 1.5 Liquor 1.2 Discount Dept 0.4 Sporting Goods 0.3 HHI -0.1 Department -0.4 Auto -0.5 Home, Bed, Bath -0.5 Office -0.5 Apparel -0.8 Electronics -0.9 Books -1.1 Toy -1.7 Mass Merch -3.0 Source: Nielsen TDLinx & Nielsen Analytics 35 Younger Shoppers are Making Fewer Grocery Store Visits Distribution of Trips, Total U.S. Grocery 22 20 18 16 14 12 10 Under 35 35-44 45-54 55-64 65+ 2006 2015 Source: Nielsen Homescan Acct Shopper – 52 WKQ3 2015, 52WK Q4 2005-2014 36 Grocery Retail Space at Record High The amount of retail space selling groceries per capita has hit a record as supermarkets have expanded while club retailers, mass merchants and dollar stores have also increased their food offerings 37 Source: WSJ Food Deflation Grocery Heading in the Right Direction 38 U.S. On Track to Post Longest Stretch of Falling Food Prices in Over 50 Years 39 Food Deflation – Grocery is Looking Up 40 Restaurant Sales Now Exceed Grocery Sales In late 2014, restaurant spending overtook grocery spending in the U.S., and the spread has continued grow. Grocery and Food/Bar sales in the US 2011-2016 (Million USD) $658,017 $625,430 Grocery $547,527 $495,334 Restaurant 2011 2012 2013 2014 2015 2016 Source: Nielsen Homescan Acct Shopper – 52 WKQ3 2015, 52WK Q4 2006-2014 Source: Nielsen Homescan Acct Shopper – 52 WKQ3 2015, 52WK Q4 2006-2014 41 Change is a Constant in the Industry… 42 Where’s the Growth? ANTICIPATED COMPOUND ANNUAL SALES GROWTH RATE VS. INFLATION: 2016-2020 eCommerce (Food & Consumables) 23.1% Fresh Format 8.6% Limited Assortment 7.0% Dollar 4.8% Super Warehouse 3.3% Wholesale Club 3.0% Supercenter 2.9% Other (Small) Grocery 2.6% Convenience (without Gas) 1.9% Convenience (with Gas) 1.4% Military 0.9% Food Inflation Compound Annual Rate: 1.5% Traditional Supermarkets 0.4% Drug 0.4% Mass -1.4% Key Format & Channel Innovations Influencing the Industry Today Fresh & Natural Ethnic Meal Solutions Convenience Discount Omnichannel 45 Fresh & Natural Consumers crave “better for you” products resulting in an increased demand for healthy products. 46 Consumers are Shifting Purchases: Smaller Brands Since 2011, More than $18 Billion in Industry Sales Have Shifted from Large to Smaller Companies Sales as a Share of Total CPG - Industry Sales (%) 2011-2015 60% Company Growth in Sales Size Market Share Growth 50% (P.P) (%) Overall - +2.5 40% XS +1.1 +5.6 30% S +1.0 +4.4 20% 10% M +0.6 +3.2 0% L -2.7 +1.3 Extra Small Small Midsize Large 2011 2014 2015 1 Share Point was worth $6.7 billion in 2015 Source: IRI, Mulo C, BCG, IRI Analysis
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