CDA

Convenience Trends 2016

September 27, 2016

Chelsea Gross | [email protected] Today’s Session

Convenience Learning from Intro Forecasts Summary Store Initiatives the Disruptors

• Channel View • Prepared Foods • Grocery • Real-time Retail • Segment View • Flagship Stores • QSR • Inspiration Outside • Top Banners • Automation • Click & Collect the Industry • Key Takeaways Introduction STEIP Model Drivers of Change Not Past Trends Define the Future

We Bring the Future to the Present

Traditional RNG process planning process T - 5 Today T + 5 Trends Drivers of Change

ocietal echnology conomic ndustry olitical

Track the Drivers Shaping the 2020 Retail Landscape to Guide Planning

3 Introduction $8 trillion Added in Retail Sales – STEIP Model 39% from New Shoppers, 61% from Increased Spending

Same Shoppers New Shoppers Spending More

4 Introduction Attention Spans Shrinking & Processing Speeds Accelerating, Consumer Impact Generational Differences Important Introduction Channel Blurring Competitive Set Changing Drastically for Proximity Retailing

Drug Discount Express Grocery

Convenience Food Superstores Future of Traditional Progressive Convenience

Competing with & Rolling Up

QSR / Food Service Independents Introduction Drivers of Change Top Drivers of Change Convenience Retailers

Meal Solutions / Future of the Trip Types Prepared Foods Front End

Desire to Pricing & Retail Health Experience Promotion Forecast Convenience Channel to Grow 5.5% 17E-20E, 28 Basis Points Channel Analysis Ahead of Total US Retail Channel Sales Share Matrix 9%

Discounters Apparel Specialists Convenience 20E Food Service Home Specialists - 6% Consumer / QSR Health & Hyper/Super & Mass Leisure Electronics Beauty Grocery Other Category Cash & Carry/Club US Retail Average Sales Specialists CAGR 17E-20E: 5.3%

Sales Sales CAGR 17E 3% Department Stores

0% 0% 5% 10% 15% 20% Share of 2020E Sales Source: RNG Database, excluding 3P marketplaces Forecast Convenience Superstores Outpace Traditional Convenience Channel Analysis Segment in Sales and Store Growth Through 2020E

Sales (USD bil) Share of Sales Sales CAGR Sales Added (USD bil) Share of Sales Added Segment 2016E 2020E 2016E 2020E 13-16E 17E-20E 13-16E 17E-20E 13-16E 17E-20E Convenience Superstore $27 $33 1% 1% 8.0% 6.3% $6 $5 2% 1% Traditional Convenience $55 $64 2% 2% 5.8% 5.1% $9 $9 2% 2% US Convenience Total $82 $97 3% 3% 6.5% 5.5% $14 $14 4% 3% RNG Total US Chain Retail $2,605 $3,038 100% 100% 5.2% 5.3% $366 $434 100% 100%

Stores Share of Stores Stores CAGR Stores Added Share of Stores Added Segment 2016E 2020E 2016E 2020E 13-16E 17E-20E 13-16E 17E-20E 13-16E 17E-20E Convenience Superstore 11,995 12,707 2% 2% 2.4% 1.9% 816 712 3% 3% Traditional Convenience 44,165 45,736 9% 9% 0.8% 1.2% 1,001 1,571 4% 7% US Convenience Total 56,160 58,443 11% 11% 1.1% 1.3% 1,817 2,283 7% 11% RNG Total US Chain Retail 509,186 530,766 100% 100% 1.9% 1.4% 27,414 21,580 100% 100%

Source: RNG Database Forecast Convenience Superstores Represent 6 of the Top 10 Convenience Channel Analysis Banners by Sales Added, 5 of 10 for Stores Added Sales Added (USD bil) Stores Added 1 7-Eleven +$4.3 1 7-Eleven +820 2 QuikTrip +$1.3 2 Mobil Mart +210 3 Wawa +$1.2 3 Speedway +193 4 Speedway +$1.1 4 Casey’s General Store +150 5 Circle K +$0.8 5 Kwik Trip +120 6 Sheetz +$0.6 6 Wawa +119 7 Casey’s General Store +$0.5 7 Circle K +100 8 Mobil Mart +$0.4 8 Sheetz +80 9 RaceTrac +$0.4 9 QuikTrip +60 10 Kwik Trip +$0.3 10 RaceTrac +59

Source: RNG Database Convenience Convenience Stores Shift to Multi-Destination Superstores 5 Core Store Initiatives Zones = New Trips

Fuel

Coffee

QSR Foods

Refreshments

Traditional Convenience Store Assortment

Source: RNG Store Tours Convenience Store Initiatives Disciplined Category Expansion to Broaden Trip Relevance

Oxxo – Mexico City

Source: RNG Store Tours Convenience Meal Solutions and Prepared Foods Driving Traffic Across Day Parts Store Initiatives – Also Supports Localization Efforts

Oxxo – Guadalajara

Source: RNG Store Tours Convenience Store Initiatives Driving New Trip Occasions, Blending Further with QSR

RaceTrac – Orlando, FL

Source: RNG Store Tours Convenience Store Initiatives Private Label to Strengthen Value Offering

7 Eleven – Miami, FL

Source: RNG Store Tours Convenience AM PM in Brazil Launches Flagship Store, Expanding Fresh Assortment Store Initiatives to Compete Against Full Grocery Trip

AM PM – Sao Paulo Source: RNG Research, AM PM Portal Convenience Store Initiatives Moving Store Locations Beyond the Highway Stop

Sheetz – Penn State Campus Source: RNG Store Tours Convenience 7 Eleven- Next Generation Concept Store Aligning to Store & Store Initiatives Network Renewal Trends

Healthy foods marketed as treats

Employee recommendations bring craft beers to local tastes

Day Parts reinforced with digital menus

Third party salad vending machine maintaining supply of fresh, adds authenticity to local supply chain 7 Eleven – Chicago, IL Source: RNG Store Tours Convenience Sainsbury’s Small Store Format, Sainsbury’s Local, Store Initiatives Now Adding Pharmacy Into Convenience Store

Queuing both self-checkout and pharmacy

Front end exclusively self-checkout

Prepared foods adjacent to Health & wellness informational material pharmacy, driving impulse spread throughout and efficiency Attached to hospital, serving patients, employees, and regular pharmacy customers Sainsbury – London Source: RNG Store Tours Convenience Store Initiatives Mobile App Extends the Power of the Retailer Beyond Small Box

Source: RNG Store Tours Learning from the Channel Blurring Driven by Format Diversification, Targeting Disruptors Ethnic, Small Format, and Discounter Trips

Oct 2009 – Kroger opens first larger May 2015 – CVS launches Feb 2016 – Kroger May 2016 – format, Kroger Marketplace CVS y mas format launches Main & Vine Whole Foods fresh format opens first 365 April 2005 – Publix July 2014 - Target format launches first targeted May 2010 – H-E-B launches launches small format Nov 2015 – Amazon Hispanic banner, first discount banner, Joe V’s Target Express opens first brick & mortar, Publix Sabor Smart Shop Amazon Books

Evolution of Food Relevant Retailers – US Timeline

July 2004 – Oct 2006 – H-E-B launches July 2012 – Target Sept 2015 – Ahold Feb 2016 – H-E-B opens H-E-B first targeted Hispanic launches first urban launches fresh format, first small format store launches first banner, Mi Tienda format, CityTarget bfresh large format H-E-B Plus! H1 2017 – Publix March 2014 – Walmart Nov 2015 – Costco opens expected to open first Sept 2007 – Publix launches launches convenience format, first hybrid business small/ campus format first organic format, Greenwise Walmart To Go center/ warehouse

Source: RNG research & analysis Learning from the H-E-B’s First Urban Store Maintains Look & Feel of Traditional Disruptors Big Box Banner

H-E-B – San Antonio, TX

Source: RNG Store Tours Learning from the Express Premiumization Approach, Combining Grocery & Disruptors Restaurant

Lunds & Byerly’s Kitchen – Wayzata, MN

Source: RNG Store Tours Learning from the Experience is Elevating - McDonald’s “Create Your Taste” Campaign Disruptors – Combines Digital Integration, New Healthy / Quality Ingredients

Quality / Fresh Ingredients Digital Integration

Table Service Marketing/ Social Media Learning from the Disruptors Walmart Automating Sampling Across Formats

• Swipe Sam’s membership card for new weekly sample of shelf-ready goods – food & non-food • Brands receive member info for further marketing & engagement • Rolled out to ~650 Sam’s Clubs in the US

• Various health & beauty samples for $1 each • Pay with credit card at kiosk • Samples displayed alongside machine Walmart Supercenter – Dallas, TX• Test in select Texas stores Sam’s Club – Dallas, TX Learning from the Mass Merchandise Express Formats Solving for Big Box Disruptors Weaknesses, Accelerating Development of Click & Collect

Target (Express) – St. Paul, MN

Source: RNG Store Tours Learning from the Economics Driving Emphasis on Click & Collect – Retailers Look Disruptors to Ameliorate Ecommerce Economics By Removing Last Mile In-Store Click & Collect Home Delivery

Pick Shopper Retailer Retailer

Pack Shopper Retailer Retailer

Ship Shopper Shopper Retailer

Profitability Learning from the Variation Across the Globe Fueling Click & Collect Diversification Disruptors – Innovation Seen Across Emerging and Developed Markets

Source: RNG research & analysis Learning from the Amazon Lockers – Reducing Friction and Increasing Disruptors Flexibility in the Click & Collect Process

Flexibility • Can pick up orders over a 3-day period with no penalty

No Checkout • No need to wait in line, enter payment information, or navigate traditional checkout

Automation • Automated lockers reduce human intervention • Relying on technology to remove labor costs and potential points of friction

Source: RNG research & analysis, Amazon Summary Real-Time The Shift… Real-Time, Risk-Based Management

from: to: open platform for open platform for historic data real time data

Source: MIT Senseable City Lab Summary Inspiration Outside of the Retail Industry, Ex-Retail Experiences Tracking Change Impact Shopper Expectations of Seamless Digital

Front End - Wearables Rewards - Transparency Meal Planning - Delivery

Queuing - Reservations Sponsorships - Content Gamification

Source: Mobile Commerce Daily, Tech Crunch Summary Key Takeaways Summary & Implications

Summary Implications

• Convenience retailers are well positioned for sales growth • Pricing & Mix more critical than unit growth as consumers continue to increase share of quick – Pricing & promotion will be reimagined with the expansion trips digital couponing & payment • Channel blurring driving both opportunities and – Players from across the ecosystem will look to own digital wallets & gain control of promotions and transactional data challenges for convenience retailers… increased competition alongside new opportunities for differentiation • Fragmentation, market across the spectrum…not to an – Two forms of differentiation: investment in quality experience average consumer and target distinct trips with different or seamless trip value equations and rotational assortment. Cannot • Integration & flexible fulfillment are not optional, but market to the middle winners will reimagine the store and add an experience – More impulse (esp. through cross-merchandising techniques) and seasonal SKUs layer to products • Experience is everything • Presence, Proximity, Personalization, and People are – Extend brand relevancy beyond need for product. brick & mortar’s key advantages… learn from entertainment, sports, food industries • Momentum Merchandising 1 Thank you! Questions?

2 Chelsea Gross, Analyst [email protected] 3