Market Shift Trends NAVIGATING THE TRANSFORMATION OF RETAIL, SHOPPERS & PL Mark Wright and Donna Wydra June 2018 Today’s Presenters • Mark Wright Principal, Consumer & Shopper Marketing, IRI • Donna Wydra Principal, Consumer & Shopper Marketing, IRI © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 2 Fill Out the Survey at the End for Some Quick Insights from Our Top Studies © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 3 What You Will Learn Today’s Discussion BIG Shifts Underway in the Retail Marketplace The Evolving Roles of Private Brands Navigating Life in the Fast(er) Lane © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 4 BIG SHIFTS ARE UNDERWAY IN THE RETAIL MARKETPLACE © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 5 Retail’s Greatest Change Since the Advent of the Automobile © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 6 Mergers, Acquisitions and Other Recent Events in the Retail Marketplace Southeastern Grocers Dollar General plans to Sam’s Club announces files for bankruptcy, open 900 new stores, closing of 63 announces closing of 94 remodel 1,000 existing sites warehouses across the stores SEG Release and relocate 100 stores US. Walmart Release 03/15/2018 Chain Store Age 12/7/2017 1/11/2018 Albertsons Companies Lidl plans to open as Amazon acquires Whole announces a merger many as 600 stores in Foods Markets agreement with Rite Aid. the US. Business Amazon Release 6/16/2017 Albertsons Release 2/20/18 Insider 5/17/17 ALDI announces plans to Bodega Latina Corp will The Kroger Co. agrees to expand to 2,500 US stores acquire Fiesta Mart ‘s 63 sell its 700+ store c-store by the end of 2022 ALDI Hispanic-themed stores. business . release, 6/12/17 Progressive Grocer Progressive Grocer, 3/26/2018 2/05/2018 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 7 Continued Growth in Online Sales Quarterly Share of e-Commerce Sales of Total U.S. Retail Sales % Online to CPG All Outlet Sales 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 - IRI E-Market Insights ©2018 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 8 Accelerating Innovation in Order and Delivery Options… Albertsons announces new Digital Marketplace providing for consumer-direct ordering and shipping Albertsons Companies 03/20/2018 Albertsons Companies and Instacart to bring same-day grocery delivery to 1,800-plus stores Progressive Grocer 11/28/2017 Amazon and Whole Foods Market announce the introduction of free two-hour delivery through Prime Now Amazon Company Release 2/8/2018 Prime Now delivery makes Whole Foods competitive on price with Kroger in Cincinnati Fooddive.com 3/29/2018 Walmart plans to expand its popular Online Grocery Delivery option to more than 40% of U.S. households Walmart Release 3/14/2018 Kroger Announces 1,000th ClickList Store and Introduces Seamless Digital Shopping Experience Kroger Company Release 12/18/2017 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 9 …across the Industry © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 10 How Important is Online Ordering? 55% of Millennials and 45% of Gen X’ers Say They Intend to Purchase Groceries Online in the Coming Year Likelihood of Purchasing Groceries Online in the Coming Year % of Respondents 18% 20% 31% 34% 46% 27% 35% 29% 31% 27% 21% 27% 20% 17% 12% 28% 21% 18% 18% 22% Total U.S. Millennials Gen Xers Boomers Seniors Very likely Somewhat likely Not very likely Not at all likely Source: Consumer Connect™, Q4 2017 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 11 Of those Shopping Online, Many, Especially Younger Shoppers, Feel Shopping Online Saves Money and Offers Convenience Gen X’ers and Millennials also cited reduced impulse buying and ease of finding needed items. Online Shopping Value Perceptions by Generation (Top 2 Boxes) 55% Online order/in-store pickup (click- 52% and-collect) allows me convenience without the added shipping fee 36% 25% 30% Buying online allows me to find lower- 26% priced food and beverage options 18% 11% Millennials Gen Xers Boomers Seniors Source: Consumer Connect™, Q4 2017 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 12 But, Nearly 74% of Shoppers Have Not Tried any Online Ordering or Delivery Service Their Reasons Vary, as Does Their Usage Usage of Online Ordering Reasons for Not Ordering and Delivery Varies by Age Groceries Online to be Shipped 84.7% 70.2% Prefer to physically see and 84% None of these 63.3% choose groceries 84% 67.5% 6.0% Products more expensive 34% Order online, Pick up in drive-thru 7.6% online than in-store 26% lane 9.8% 7.0% 17% Age 55+ Tried it and didn't like it 10.4% 27% Order online, Pick items up inside 10.2% Age 45-54 2016 store 11.5% 11.9% Age 35-44 Not home during the day to 16% 2017 accept shipments 16% 19.6% Age 21-34 Order online, Not same day home 17.2% delivery 18.9% Service not available where I 14% 17.0% live 11% 6.7% Order online, Same day home 7.7% 12% delivery 10.6% Products not delivered fresh 12.5% 10% 0% 20% 40% 60% 80% 100% 0% 50% 100% Source: IRI AttitudeLink™ Survey March 2018 Source: AlphaWise, Morgan Stanley Research © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 13 Marketers Must Stay in Lockstep With Evolving Consumer Needs and Wants to Encourage Engagement and Purchase Activity Capabilities That Drive Channel Selection | % of Respondents 58% 57% Online purchasing with free delivery 49% 39% 45% 43% Online purchasing with fast delivery 34% 25% 44% 43% Online purchasing with in-store pickup 30% 22% 42% Online purchasing of freshly prepared 34% items 24% 17% 31% Subscription services for frequently 30% purchased items 20% 11% Millennials Gen Xers Boomers Seniors Source: Consumer Connect™, Q4 2017 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 14 Market Entries and Acquisitions Lidl Amazon-Whole Foods Aldi Value and Private Brands at the core of retail changes Polar ends of the value spectrum outperforming middle-of-the-road peers* *Source: Deloitte © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 15 Lidl Enters the U.S… became aware 40% DRIVING by the store said Lidl offered Good Value 69% 70% for the Money FRESH PRODUCE liked the Private Brand was the top product purchased 59% assortment PRICE/INCENTIVES 69% drove them to the store CURIOSITY & 64% © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 16 …Resonating with Some Customers, But Not with All • Initially some good news… • 20% are shifting much more of their shopping over to Lidl stores • Half said their experience was better than expected • 58% said they definitely will visit Lidl again in the future • But sales are soft… • 16% said Lidl was worse than expected • Repurchase intent dropped by more than half (from 44% to 21%) from fall opening to March, 2018 © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 17 Lidl’s Market Entry has had Mixed Results Shoppers are the big winners… • Lidl’s entry sparked industry-wide activity, forcing competing retailers and manufacturers to up their merchandising games • Lidl significantly impacted grocery prices -6.3% in Grocery channel, -6.6% in All-Outlets* and -2.5% to -13.9% declines at Walmart, Food Lion, Pricing Impacts of Lidl Store Openings Kroger, Publix and Aldi** Aldi The U.S. Market Continues to Challenge Lidl Food Lion • Aggressive growth plans and sales expectations have not been met Kroger • Most shoppers liked Lidl stores, but haven’t transferred their loyalty to Lidl Grocery Channel • In response, new stores will have smaller footprints and more-limited All Outlets assortment, rolled out more slowly in more urban markets Publix Recommendations for Competitors Walmart • Know your customers and your markets – localized and personalized -15.0% -10.0% -5.0% 0.0% actions are essential to prevent Lidl triers from becoming Lidl loyals • Key themes to blunt Lidl’s messaging: greater product variety, produce freshness & quality of your own private brand items * IRI POS Price comparison **UNC Lidl Price Survey, stores within 1.7 miles of Lidl store © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 18 ALDI Growing Quickly by Offering Value With 1600 Stores Today and Adding 900 More by 2022 Aldi Could be the Third Largest Grocery Chain Selection of FRESH Store Brand 93% 61% PRODUCE products & said that good/affordable (77%) was the pricing/value price is what they Unique top product products offered are drove them liked about ALDI to ALDI purchased liked at ALDI over other retailers Half said their experience was Better Than Expected 1/3 shifting much more of their shopping to Aldi © 2018 Information Resources Inc. (IRI). Confidential and Proprietary. 19 Aldi’s Expansion Quietly Continues, and Shoppers are Very Aware Shoppers will be the big winners here as well! • 60% to 70% of markets experienced price declines when Aldi opened • Pricing impacts are broad, but small—overall market prices declined by an average 1-3%, while category price impacts ranged from +2% to -15% • Savings opportunities exist against specific competitors (Nancy Luna, Orange County Register/SCNG) What to do? Aldi’s prices are lower than many competitors’ • Know your own customers—identify and meet their needs Ralphs Vons • Clean up your own house before Aldi opens—eliminate any issue Meijer that would give a new competitor an opening with your shoppers Food Lion Albertsons • Focus on strengths—broader assortment, private brand offerings Publix and quality, produce and meat quality, etc. Kroger • Monitor and respond to Aldi pricing as appropriate Walmart Total Aldi -5% 0% 5% 10% 15% 20% 25% Price per Volume Comparison, Edibles Categories, IRI Consumer Network © 2018 Information Resources Inc.