Trends in Retail Space Allocation & Store Design 2012 &

Large-Scale Examination of Trends in Retail Space …With Key Findings Across Multiple Channels, 16 Departments, and over 700 stores: Supermarkets Supercenters Drug Club Mass Value Collected: Base Linear Footage of Major Departments Merchandising and Fixture Statistics Checkouts Aisle Signage Use/Permission of Floor Displays

Four Areas You Should Know Changing Channels Retailer Review 1 4 2 3 Signage of the Times Designing for Today’s Shopper

1 Changing Channels 1

Retailer Store Portfolio Strategy Changing to Meet All Shopper Needs and Expectations Re-investment vs. new store growth “Gone back to the basics” on merchandising fundamentals Segmentation of stores and data homogenizing retailer landscape Channel blurring continues 1 Changing Channels

Primary Reason for Trip, by Channel Shopped on Trip Trip Missions Vary by Channel Primary Reason for Trip, by Channel Shopped on Trip (last trip for groceries, other household essentials, or health and beauty care products) All Store Types Club Discount/ Value1 Drug Mass/ Supercenter Conven. Supermarket2 Stock-up trip 32.1% 51.1% 11.0% 4.3% 35.8% 31.6% Fill-in trip 24.6% 19.1% 32.3% 15.4% 27.3% 23.2% Immediate use 15.3% 7.2% 27.7% 22.3% 13.5% 16.0% Specific sale items 12.8% 5.1% 11.6% 31.8% 7.4% 17.2% Specific coupons 6.7% 4.2% 13.6% 5.8% Special occasion 4.9% 5.2% 7.7% 5.0% 3.8% Browsing/new items 3.7% 6.1% 4.5% 1.1% 1 Includes Dollar General, Dollar Tree, Family Dollar 2 Excludes health/natural food stores (e.g., Whole Foods), specialty food/neighborhood food stores (e.g., Trader Joe’s ), and limited-assortment grocery stores (e.g., Aldi) Source: Kantar Retail ShopperScape®, May, August, & November 2010, and February & May 2011 1 Changing Channels 6

What Format Connects to Which Mission? Walgreens Store Portfolio aligned to shopper missions Promotionally Driven/ Immediate Use CCR H&D Flagship Fill In Oasis Drugstore.com Special Occasion/ Stock Up Look Boutique Source: Kantar Retail ShopperScapeTM®, May 2011 and May 2012 1 Changing Channels

Consumables Expanding Presence Space Allocation Changes 2009-2011 Indices Increased effort on Health & Wellness also fuels perimeter, service and consumables for all retail channels 1 Changing Channels

Shoppers Willing to Spend on Products that Will Help Them Maintain Health Top 5 Spending Priorities by Generation Willing to Spend More on Products That … Past ShopperScape data has shown that shoppers value, and are willing to spend on, products that will help them stay healthy. Among all generational cohorts, spending on health-related items have been part of their top 5 spending priorities. Source: Kantar Retail analysis; ShopperScape® April 2011 1 Changing Channels

Supermarkets Emphasize Prepared Meals/Consumables to Tie to Lifestyle Fill-in, immediate consumption trips have been growing. “Millennials” are trained to do prepared meals. 1 Changing Channels Source: Kantar Retail analysis; store visits

Mass Appeal to Drive Traffic with Consumables Trip frequency driver Convenient for fill-ins Incremental basket ring items 1 Changing Channels Source: Goldman Sachs Global Retailing Conference, Company report and Kantar Retail store visits

CVS & Walgreens Urban Food Experience FPO 1 Changing Channels Source: Kantar Retail analysis

Discounters Dealing on Consumables Too 1 Changing Channels Source: Kantar Retail analysis

Value Discounters Gain, C-Stores Suffer Shopping incidence pinpoints winners and losers 2011 vs. 2010 Monthly Shoppers (among all primary household shoppers) 76% 74% 74% 73% 72% 68% 55% 55% 42% 39% 29% 29% Warehouse clubs Mass channel retailers Convenience stores Supermarkets Drugstores Value Discounters Source: Kantar Retail ShopperScape®, October 2005, 2010, and 2011 1 Changing Channels

Promotional Space is 6% of Total Retail Space: Up +1 Promotional Space is 6% of Total Retail Space: Up +1.5% Across All Retail Formats Increase led by Club and Supercenters Decrease in Mass (Walmart Project Impact) Treasure Hunt focus in Clubs Drug increasing promotional space to drive margins in front end Promotional space is DESTINATION for Value Discounters 1 Changing Channels

2 Retailer Review 2

Think Small. Act Big. $2,122 $1,764 $1,604 < 20,000 20,000 – 50,000 USD Billions $2,122 $1,764 $1,604 < 20,000 20,000 – 50,000 51,000 – 100,000 101,000 – 150,000 150,000 > Note: Total sales by box size does not include non-store retail 2 Retailer Review Source: KantarRetailIQ.com

Average Linear Footage Across Channels 2 Retailer Review

Value Perception Fuels Growth Retailers who respect shoppers budgets and time are winning Redefined convenience New values offer new growth opportunities Health & Wellness Local/Organic 2 Retailer Review

Shopper Definition of Value Goes Beyond Price Fewer than 6 out of 10 shopper confident they are getting lowest price But I still shop there because … Confidence that Primary Grocery Store Offers Lowest Price on Total Basket Convenient location 70% One-stop shop 49% Prices “low enough” on key items 42% Easy to shop 36% Pleasant to shop 28% High quality produce/meat 27% Good customer service 24% Loyalty program 22% Specific items 14% Specific brands 10% 2 Retailer Review Source: Kantar Retail ShopperScape®, February 2012

Kroger Investing in Its Newest Formats Accelerating efforts in rolling out Marketplace stores Approx. 50 to date (some new, some replacements) Cheaper to build than a Fred Meyer ($18 MM vs. $30 MM) Added GM gives margin flexibility and can fulfill more of shoppers’ needs Stores getting larger: ~160k square feet 2 Retailer Review Source: Kantar Retail analysis; store visits

SUPERVALU Continues Emphasis on “Hyper Local” Increases Relevancy, but Also Complexity Ethnic assortments and local trade shows as examples. Store managers now have decision rights over 50% of promotional end cap space. Commentary: Could add extra complexity Greater store level autonomy Sales managers in the field could have more influence 2 Retailer Review Source: Kantar Retail analysis; company reports

Rite Aid Keeping Pace with CVS, Walgreens 2 Retailer Review Source: Kantar Retail analysis

Costco Differentiates Itself with GM 2 Retailer Review Source: Kantar Retail research and analysis, Warehouse Club Focus (Fife, WA, Business Center only)

3 Signage of the Times 3

Signage Preferences Align with Retailer Strategies Consistency in Retailer brand identity in-store and in ad Sightlines improved, number signs increased 3 Signage of the Times Source: CROSSMARK, Kantar Retail analysis

Display Policies Align with Design Strategies CVS 2006 Walmart CVS 2011 3 Signage of the Times Source: CROSSMARK, Kantar Retail analysis

Improved On-Shelf Education On-shelf education includes health & wellness advice, interactive displays and bilingual signage 3 Signage of the Times Source: Kantar Retail store visit

Signs Play Increasingly Important Role in the Store Signage engages the shopper in-store Types of materials and signs communicate value positioning of store and categories Placement of signs help move the shopper around the store Multi-Media signs help bridge brick & mortar with clicks Use of QR codes and web links help connect multi-channel strategies for retailers 3 Signage of the Times

Designing for Today’s Shopper 4 Designing for Today’s Shopper 4 Thinking beyond the store with a developed multi-channel strategy is essential to future success.

Connecting with Shoppers Defines the Store of Today and the Future Engage shoppers in-store and out-of-store Leverage technology Store systems Integration with mobile and online In-store enhanced experiences Out-of-store connection with social media Appeal to shoppers needs for convenience and simplicity 4 Designing for Today’s Shopper

Experimenting with Social Media and Digital Marketing… “Our Shaw's banner has done a great job of really connecting with consumers via the Shaw's Facebook page. Again, hyperlocal, talking directly to our most loyal customers. For those of you who like ice cream and might live in Chicago, sign up for Groupon this weekend and see if we might be playing around with Groupon at Jewel-Osco” -Craig Herkert 7/26/11 4 Designing for Today’s Shopper Source: Kantar Retail analysis; company reports; Groupon.com; Facebook.com

Stop & Shop Leads Supermarkets in Digital Path to Purchase 4 Designing for Today’s Shopper Source: Stopandshop.com

Designing for Today’s Shopper Walgreens: Web Pickup Redefines Convenience, Leverages the Store 4 Designing for Today’s Shopper Source: Kantar Retail analysis

Target Brands In-Store and Online Experience with Seamless Success 4 Designing for Today’s Shopper Source: company webpage, circular, photos

Stores in the Future May be Assorted Very Differently Categories are at risk of migrating online Understanding the risk and rate of migration of categories will help retailers map out the economics of the box Presence in all stores may be less relevant - knowing what categories and where they need to be is key to efficient use of future space 4 Designing for Today’s Shopper

Winning From a Kantar Retail Point-of-View Retailers Should Focus On: Convenience = Satisfaction Per Second Loyalty = Managing “Convenience Leakage” Experience = Delight Per Dollar Value = Changing Language of Price Execution & ROI = Processes to Enable Growth Suppliers Should Focus On: Identify = Know Your Focus Influence = Probabalize the Store’s Role Impact = “presence is more than just being there” Innovate = Create a need to see AND want

Thank You! Rachel Donovan Director, Retail Insights Rachel.donovan@KantarRetail.com www.kantarretail.com www.kantarretailiQ.com Customer Service CustomerService@KantarRetail.com © Copyright 2012 Kantar Retail 38 38