Food Retail Industry Insights Spring 2020 Food Retail Industry Insights | Spring 20202020 T a b l e o f Sources C o n t e n t s 1. "Consumer Spending Tracker for Measured Channels." IRI. April 2, 2020 2. "How the Coronavirus Crisis is Changing Grocery Shopping." Supermarket News. April 3, 2020 3. "Grocery Workers Are Beginning To Die of Coronavirus." Washington Post. April 6, Sector Spotlight: COVID-19 2020 3 Impact 4. "Food Spending of Middle-Income Households Hardest Hit by the Great Recession." United States Department of Agriculture Economic Research Service. September 27, 2018 5. S&P Global Market Intelligence 6. "COVID-19" Packaged Food & Beverage Brands Enjoy Surging Sales, But Mass Unemployment Could Change the Landscape Rapidly." Food Navigator USA. March 19, 2020 7 Trends and Insights 7. "The Relationship Between Crude Oil Prices and Export Prices of Major Agricultural Commodities." U.S. Bureau of Labor Statistics. April 2019 8. "Unemployment Insurance Weekly Claims" U.S. Department of Labor. April 2, 2020 9. "Dean & DeLuca Files for Bankruptcy, Still Hopes to Reopen Stores." Bloomberg. March 31, 2020 10. "Bankrupt Lucky’s Market To Sell 23 Stores, Distribution Center For $29 Million." Supermarket News. March 27, 2020 Public Company 11. "Fairway Market to Sell Two N.J. Store Leases to Amazon." Supermarket News. 15 Benchmarking and Valuation March 25, 2020 12. "Save-A-Lot Gets $350 Million in New Capital." Mass Market Retailers. April 3, 2020 13. "New Yorkers Flock to Grocery Delivery Services Amid Food Crunch." Bloomberg. March 18, 2020 14. "Walmart Unveils an A.I.-Powered Store of the Future, Now Open to the Public." Smart Hosting Plans. April 25, 2019 Recent Food Retail 15. "Kroger Set to Build Second Ocado Automated Warehouse." Supermarket News. 22 Transaction Activity July 25, 2019 16. "State Minimum Wages." National Conference of State Legislatures. January 6, 2020 17. "Higher Wage Bills Will Eat Into Grocers' Gains." Wall Street Journal. April 1, 2020 18. "Coronavirus: How Leading Grocery Chains Are Responding to Keep Customers Safe and Shelves Stocked." Supermarket News. March 13, 2020 About Our Food Retail 19. "How the Virus Transformed the Way Americans Spend Their Money." The New York Times. April 11, 2020 23 Corporate Finance Practice 20. “How Grocers’ Online Shopping Strategies are Being Impacted by the COVID-19 Crisis.” The Food Institute. April 9, 2020 2 Food Retail Industry Insights | Spring 2020 Sector Spotlight | COVID-19 Impact • The global outbreak of COVID-19 has significantly impacted economic Large vs. Small Format Retailers | YoY % Sales1 activity and people’s everyday lives. Many businesses have been forced Multi-Outlet Stores Convenience Stores to close, resulting in 30% of Americans realizing a loss of income and 63% nearly 17 million new unemployment filings in the U.S. in April 2020, 58% according to the U.S. Labor Department. • Widespread shelter-in-place orders have shut down normal business operations across the U.S., leading to approximately 45%-50% of Americans working from home, according to Global Workplace Analytics 11% 3% estimate, and school children in 31 states not going to school. 3% 3% 2% 2% 4% 0% • The high-risk of catching COVID-19 and the health implications have led W/eW/e 9 Feb Feb W/eW/e Feb 16 W/eW/e Feb 23 W/eW/e 1 Mar Mar W/eW/e 8 Mar Mar W/eW/e Mar 15 W/eW/e Mar 22 most Americans to only leave their homes for necessities, such as going 92020 2020 Feb16 2020 2020 Feb23 2020 2020 12020 2020 82020 2020 Mar15 2020 2020 Mar22 2020 2020 to the grocery store. According to a recent survey by Technomic, 30% of • The disruption due to COVID-19 has also changed how many Americans consumers plan to leave their homes less often and order take out less purchase and consume food. Credit Suisse estimates that 80% of U.S. frequently. household food spend now goes towards food at home rather than food away from home. This is meaningfully greater than the 2018 food at home share of 47.6% and post-Great Recession high of 50%, according to the Retail Product Sales (% Change W/e 15 Mar 2020 vs. 2019)1 USDA Economic Research Service. • As restaurants closed and people began staying home in March, grocery Cosmetics -4.8% Nonedible stores experienced a surge in demand. In a 7-day period that ended on Gen. Merchandise 19.6% Edible 19 Pet Food + Care 37.3% March 18, grocery sales were up 79% from the previous year. There were Personal Care 35.6% runs on many household staples, including pasta, flour, toilet paper and OTC Healthcare 60.1% soap. Processed foods and canned goods were also in high demand. Home Care 75.3% • Food retailers have reacted swiftly to ensure out-of-stock situations are Paper Products 97.9% Frozen Foods 92.7% short-lived, and have received logistics support from manufacturers and Packaged Food 76.2% foodservice distributors. Dairy 58.1% • Sales have fallen since mid-March, but they are still higher than normal for Fresh Foods 43.4% this time of year. Between March 26 and April 1, sales were up 7%. Online Baby Food + Care 41.9% Alcohol 39.6% grocery delivery services, such as Instacart who is expected to turn a profit Beverage 28.2% in April for the first time ever, and meal kit companies are among the biggest winners.19 3 See page 2 for data sources Food Retail Industry Insights | Spring 2020 Sector Spotlight | COVID-19 Impact • U.S. consumers are increasingly making fewer grocery store trips while • The sharp increase in consumers ordering groceries online has created spending more per visit, as evidenced by an increase in basket sizes in logistics issues for providers of these services, resulting in delays or March. The combination of consumers cooking at home more, reporting a cancellations. In mid-March, Instacart announced that it would hire upwards of weekly average of six meals at home, up from the 2019 average of 3.8, and 300,000 new shoppers to accommodate its overwhelming demand. However, consumer attempts to limit outside exposure have led to swelling basket Instacart workers went on strike in late March because they felt they did not sizes.2 According to a survey conducted by LendingTree, consumers spent have adequate means to protect themselves from infection. In mid-March, an average of USD 178 per trip over the first two weeks of March. Millennials Thrive Market was forced to limit order sizes to USD 100 and asked customer led the way with baskets averaging over USD 195, while baby boomers had to delay re-ordering by two weeks to minimize delivery times. the smallest average basket at USD 150. Other high index demographics • Meal kits are also experiencing an uptick in popularity. Companies like Blue include parents with small children ( USD 189) and individuals earning over Apron, HelloFresh and Home Chef are already seeing a flood of new $100,000 per year (USD 219). customers. Many first-timers are turning to these services for their convenience and price. However, it is unclear whether the surge of demand will be sustained as some existing customers may drop off as budgets become E-commerce Grocery Sales by Type (3/15/2020)1 constrained, while others could enter the market if restaurants remain closed. Delivery 19% U.S Consumer Expectations for Online Groceries Spending Once Outbreak is Home Contained1 Shipment 38% Click and Collect Much less Slightly less About the same Slightly more Much more 43% 10-15% 5-10% 60-65% 10-15% 5-10% • Social distancing has caused consumers to seek easier alternatives to • Although food retailers are one of few businesses able to remain open entering stores, such as online shopping, click-and-collect and curbside during shelter-in-place directives, reports of various COVID-19-related pickups. Many consumers are turning to digital grocery shopping, a category grocery store employee deaths are leading to store closures and increasing which made up only 5% of total grocery sales in 2019, according to Nielsen, anxiety among grocery store workers.3 Thousands of grocery store for the first time. A recent survey by L.E.K. Consulting found that consumers employees have continued to report to work as U.S. infections and death expect online grocery spend to account for 40% of their total grocery rates climb, with many reporting long shifts and extra workloads to keep up expenditures if the pandemic worsens. Consumers choosing to order food with spiking demand. Some employment experts, union leaders and small online are either increasing their use of grocery delivery or pickup services or grocery store owners believe it has become too dangerous to let customers trying it for the first time. Adobe Digital Economy Index found that click-and- browse aisles, as this causes them to come in too close of contact with collect orders, otherwise known as pick-up orders, for the four weeks ending workers. Grocery stores are still flooded with customers, and experts say it's March 24 grew by 62% over the prior year. time for large chains to go “dark to the public” and convert to curbside pickup and home delivery.3 4 See page 2 for data sources Food Retail Industry Insights | Spring 2020 March 25, 2020 – The Company has been experiencing Select Business Updates in unusually strong traffic and sales, particularly in its stores for same-day services. Month-to-date in March, overall Response to COVID-19 comparable sales are more than 20% higher than last year, with comparable sales in essentials and food and beverage April 1, 2020 – Ingles announced plans to hire over 5,000 up more than 50%.