Channel Migration and Its Challenges in Today’s Economy Winning the Shopper in Today’s Turbulent Economic Environment Larry Levin Executive General Manager, Consumer Insights  Larry.Levin@SymphonyIRI.com  SymphonyIRI Group November 12, 2018 

Our discussion this morning Welcome Economy in the News Channel Shifting in 2011 Introduce our 2012 Economic Segments Interaction of California Shoppers in Today’s Economy Questions & Answers

Shopper is the Focal Point Today, Manufacturers and Retailers Are Balancing Emerging Trends – Across the Country and Across the Aisles! The Search for Value One in five shoppers believes they will be worse off financially one year from now Financial Outlook Channel Shifting Value channels are emerging as a part of the new “norm” and Drug as the new “convenience” Channel Shifting Emerging Trends Shopper-Centric Targeting and Activation Need to understand in detail how consumers become shoppers, and influences that drive shopper conversion Shopper is the Focal Point Source: SymphonyIRI MarketPulse 2012™

Headlines about the economy are persistent and conflicting! Seniors on Social Security squeezed by rising prices Postal Service increasing prices Jobless claims fall to four-year low California gas prices hit record Teaching jobs are finally coming back A new housing boom http://money.cnn.com/news/economy/continued.html

Trends shaping mindset shifts: A solid rise of the DJIA SIG fielded 2012 Economic Shopper Segmentation SIG fielded 2011 Economic Shopper Segmentation Source: Google Finance

Trends shaping segment shifts: Steadily declining unemployment SIG fielded 2011 Economic Shopper Segmentation SIG fielded 2012 Economic Shopper Segmentation Source: Bureau of Labor Statistics

Trends shaping segment shifts: And, continued falling mortgage rates SIG fielded 2011 Economic Shopper Segmentation SIG fielded 2012 Economic Shopper Segmentation Source: Freddie Mac; Moody's Analytics (ECCA) Forecast

Consumer Understanding Shopper Marketing Activation It Starts with Understanding the Preparation for the Journey! Consumer Understanding An understanding of people’s behavior and the influences, preferences, attitudes driving product consumption Shopper Insights Insight as to how consumers become shoppers and the influences that drive shopper conversion Shopper Marketing Activation The execution of activation programs that directly communicate with and engage consumers and shoppers Planning Pre- Store Planning Activating Navigating Context The Shopper Journey In-Store Using Purchasing Usage In-Aisle

Cautious Behaviors Drive All Aspects of Trip Planning and Execution Trip Strategies % of Shoppers In addition to impacting trip mission trends, consumers’ perceptions of the evolving economy are impacting trip strategies. For example, though The Great Recession officially ended in mid-2009, the grocery shopping process appears to be getting more deliberate and more strategic still today. According to SymphonyIRI’s MarketPulse survey series, list-making has escalated during the past year, and today nearly three-quarters of shoppers enter the retail environment with a pre-made list in hand. About half of consumers stick tightly to that list, avoiding additional, unplanned purchases in order to stay within their established grocery budget. They are also stocking up on sale items and trying new brands—including private label items—in the name of saving money. The strength of the pre-planning trend speaks volumes to the need to begin to impact shoppers well before the grocery purchase process begins. And, with means of connecting with shoppers inside and outside the store growing and changing quickly, CPG marketers must be on their toes. The ability to identify and leverage the most effective tools at the shopper level will define the winners in the battle for share of spending and loyalty. Traditional tools, such as store circulars, continue to see high—sometimes growing—levels of usage as consumer approaches to learning about, purchasing and consuming CPG products evolves. To be discussed on the following pages, new media are also very much a part of this process. In-store strategies, too, are changing quickly. In-store strategies will be discussed in just a bit. Source: SymphonyIRI MarketPulse Survey Q1 2011 v Q1 2012

Shoppers are Carefully Planning their Grocery Shopping Trips and Embracing a Wide Range of List-Making Tools List-Making Behaviors % of Shoppers Over 70% of shoppers make a shopping list prior to making grocery trips In addition to impacting trip mission trends, consumers’ perceptions of the evolving economy are impacting trip strategies. For example, though The Great Recession officially ended in mid-2009, the grocery shopping process appears to be getting more deliberate and more strategic still today. According to SymphonyIRI’s MarketPulse survey series, list-making has escalated during the past year, and today nearly three-quarters of shoppers enter the retail environment with a pre-made list in hand. About half of consumers stick tightly to that list, avoiding additional, unplanned purchases in order to stay within their established grocery budget. They are also stocking up on sale items and trying new brands—including private label items—in the name of saving money. The strength of the pre-planning trend speaks volumes to the need to begin to impact shoppers well before the grocery purchase process begins. And, with means of connecting with shoppers inside and outside the store growing and changing quickly, CPG marketers must be on their toes. The ability to identify and leverage the most effective tools at the shopper level will define the winners in the battle for share of spending and loyalty. Traditional tools, such as store circulars, continue to see high—sometimes growing—levels of usage as consumer approaches to learning about, purchasing and consuming CPG products evolves. To be discussed on the following pages, new media are also very much a part of this process. In-store strategies, too, are changing quickly. In-store strategies will be discussed in just a bit. Source: SymphonyIRI MarketPulse Survey Q1 2011 v Q1 2012

What People Are Buying Online Consumers Use the Internet For Many Shopping-Related Activities and to Buy a Wide Range of CPG Products Digital Media Usage % of Shoppers – Top 2 Box Responses What People Are Buying Online % of Shoppers Who Bought the Product – Among Those Who Have Shopper Online in the Past 6 Months Source: Etailing Solutions, survey of 1,098 consumers According to comScore’s, “State of the U.S. Online Retail Economy in Q1 2012,” online sales of CPG products grew 10-14% in Q1 2012 versus prior year. Certainly, online CPG-related activity goes well beyond making physical purchases. According to SymphonyIRI’s MarketPulse survey, about one-third of Internet users (about three-quarters of U.S. households are online1) download recipes and coupons from the Internet. Consumers are also using various Internet-based tools to learn more about CPG products. Among those that have shopped online in the past six months, half have bought personal care products, almost as many have bought food, and one-third have bought beverages, cleaning supplies and/or medications. Internet traction is showing no signs of slowing down. In fact, just the opposite is true. Online CPG shopping will continue to grow at very aggressive rates. CPG marketers must be in lock-step with consumers’ online shopping behaviors. As demonstrated by SymphonyIRI’s DigitaLink segmentation, adoption, level of comfort and usage varies greatly across consumer segments, and these differences need to be understood and addressed in order to develop effective digital marketing strategies. SymphonyIRI will continue to closely monitor and report on the evolution of online CPG behavior. 1 Source: U.S. Bureau of the Census Source: SymphonyIRI MarketPulse, June 2012

% of Consumers Shopping Multiple Channels Most shoppers visit multiple channels to meet CPG needs, but recent trends hint of some consolidation of spending # of CPG Channels Shopped % of Consumers 2012 % of Consumers Shopping Multiple Channels By # of CPG Channels Shopped 2012 - 2009 Gas prices have been declining during the past year, supporting the common practice of carrying out CPG shopping over five or more retail channels. In fact, it is not uncommon for consumers to shop as many as seven CPG channels in pursuit of the best value for their money. The number of consumers that shop fewer than five channels is slowly increasing. At the same time, the number of consumers shopping five to nine channels is showing an opposite trend—decline. These trends may well indicate that shoppers are sharpening their money-saving strategies even further, and increasingly choosing their channels of choice with laser precision, limiting their spending to the channels offering the greatest value. This is no surprise, for even today, several years after the official end of The Great Recession, 22% of consumers are still having difficulty affording their groceries. Indeed, according to SymphonyIRI’s MarketPulse survey, 51% of consumers feel that they have made significant changes in the past six months in order to save money, and 38% feel that their personal financial situation has deteriorated during the past year. The economy has shown some signs of improving. Unemployment is lower, predicted by Moody’s to be 8.1% for 2012, versus 9.0% in 2011. But, under-employment is a huge issue and a lot of instability exists in the United States and abroad. The recession has long since softened, but the economy is far from stable. As a result, consumers are holding fast to many of the frugal behaviors they adopted earlier in the downturn—these behaviors, indeed, appear to be the new normal. Consumers are on a quest to maximize the return on their CPG dollar. Detailed on the pages that follow, it is a quest for value that is having a significant impact on CPG channel trends. Source: SymphonyIRI Consumer Network™, 52 weeks ending 09/09/2012 Source: SymphonyIRI Consumer Network™, 52 weeks ending 09/09/2012, 2011, 2010, 2009

% Households Buying by Channel Walmart is regaining household penetration while Sam's Club has seen a decline. Total Dollar and Club continue their upward trajectories! CPG Shopping Trends % Households Buying by Channel Channel 2012 Penetration Pt Change vs 2011 Pt Change vs 2009 GroceryX 98.3% (0.1) (0.2) Drug 76.2% (0.6) MassX/SCX 69.6% (1.5) (2.6) Walmart 81.2% +0.3 (0.3) Conv/Gas 27.4% (1.3) (3.9) Dollar 59.1% +0.7 +1.7 Club 50.5% +0.6 Sam’s Club 25.2% Consumers’ ongoing quest for low-cost CPG solutions is evidenced in share gains by supercenter and dollar store channels. In fact, these channels are successfully acquiring shoppers from across competing retail channels. Dollar store penetration has been on an upward trend for several years now, and two out of three Americans shopped the dollar store channel during the past year. Penetration growth is, in part, due to the growing acceptance and prevalence of dollar store outlets. But, dollar store growth strategies go beyond opening more outlets. Increasingly, dollar stores are going head-to-head with other channels for share of routine shopping trips. For instance, Family Dollar is adding cooler space at more than 1,000 locations this year, paving the way for growth in refrigerated and frozen food departments1. Dollar Tree is adding to its food and beverage assortment, as well. Additionally, the retailer recently opened a third-party pharmacy in a Florida location, and may expand this program if it is successful2. Efforts like these, coupled with store population expansion, ongoing “facelifts,” and a prolonged down economy, have all contributed to dollar channel retailers winning heavy shoppers from across retail channels. For dollar stores, the most sizable shift is the shift of heavy drug channel shoppers into the dollar channel—the top one-third of spenders within the channel. This is not a huge surprise, as the two channels do share some important features. Store size is comparable, for instance, and the two channels carry many of the same categories. Likewise, both channels are well positioned, geographically, for easy-access fill-in shopping trips. In a prolonged down economy, dollar stores are feeling the benefit of having a strong value proposition. Consumers’ quest for value will not subside in the foreseeable future. To succeed going forward, it is essential that retailers strike a clear and consistent balance in everyday and promotional pricing strategies. These strategies must clearly communicate value to the shopper while still allowing for attainment of key performance goals. Source: SymphonyIRI Consumer Network™, 52 weeks ending 9/9/2012 vs 2011, 2009.

So how does this impact various shopping groups? Battery of questions regarding the economy, product purchase and shopping behavior fielded to a representative sample of 2000 U.S. primary grocery shoppers Latent class modeling was used to create the six segments, fusing behaviors and attitudes Creating an algorithm to predict membership Survey was fielded to the entire SymphonyIRI consumer panel where approximately 53,000 completes were collected. Panelists were segmented into one of the six cells based on the algorithm 1. Economic Segmentation Spending Income Optimism 2. Segments are now available to apply against various consumer panel related deliverables (i.e., purchase trends, trial & repeat, channel migration, lifestyle segmentations, etc.). 3.

We identified six distinct groups of households ranging in economic state Store Selection Brand Choice

Meet the “Downtrodden” Financial & Economy My family is hurt most by the economic recession. Our income was cut. Even worse, my job is at risk. Gas prices, utility costs and even food prices are all rising. Borrowing (credit cards and loans) becomes harder for us. It is difficult for us to meet monthly expenses. This is not going to end soon. Our financial future a year from now is grim. Lifestyle Changes We now serve more “simple”, less expensive meals at home. We snack less, eat smaller portions and use frozen foods in individual portions so we can only use the amount we need. We’re going out with friends or family for entertainment or socializing much less often, and delay many purchases. We make products last longer, and share more products. Median Age: 49 Median Income: $38K 8% of HH’s make $100K or more Average Family Size: 2.7 26% College or Postgraduate Skew to rural counties slightly 14.2% of Households Shopping Behavior We prepare for shopping – reading in-store circulars and going online, deciding where to shop based on low price offers and to make fewer larger trips to save on gas. Price and deals are the keys for purchasing. We are buying more private label products and look for OTC medicines that treat several symptoms and products that family members can share.

Meet the “Cautious and Worried” Financial & Economy My family is hurt by the economic downturn. We are worried about our job security and our investments in our retirement account. Gas prices, utility costs and even food prices are all rising, so it is hard to meet our monthly expenses. We don’t believe the economy will rebound soon. Our financial situation a year from now will not get better. Lifestyle Changes We watch our spending closely. We eat out less often, serve more “simple”, less expensive meals at home. We have cut back on favorite activities, such as entertainment and socializing. We delay many purchases, and go to hair salons or spas less often. We make personal care and cleaning products last longer. Median Age: 55 Median Income: $42K 10% of HH’s make $100K or more Average Family Size: 2.3 24% College or Postgraduate Skew to rural counties slightly 24.7% of Households Shopping Behavior We don’t put much energy into shopping preparation. We don’t search for product information online or collect coupons from various sources. We make a shopping list to remember what to buy. We make fewer, larger shopping trips and shop closer to home to reduce gas expense. Price is the key for purchasing.

Meet the “Optimistics” Financial & Economy Current economy has hurt us, but it’s not a big deal. We are optimistic about the future. Actually, our financial situation is not bad at all. My job is secure. We believe the economy will rebound within 6 months, then our investments, real estate value and our income will all get better a year from now. Lifestyle Changes We haven’t made big changes, since we believe the current economic conditions are temporary. We still splurge on premium or gourmet products, and treat ourselves to small indulgences to help ease everyday stress. But we watch our spending more closely to meet growing needs. We’ve cut back on favorite activities. We bring snacks/food from home to work/school to save money. Median Age: 43 Median Income: $58K 16% of HH’s make $100K or more Average Family Size: 2.5 44% College or Postgraduate Skew to urban counties slightly 17.1% of Households Shopping Behavior It is convenient for us to get product information, recipes and download coupons online. We don’t engage in collecting coupons or read store circulars as much. Price has become a more important factor in our purchase decision. Product experience and brand trust are also important to brand purchase. We shop for some groceries at Wal-Mart, and occasionally online.

The consumer mix has shifted, primarily at both extremes Shopper Segment Size Changes from Q2 2011

Savvy Shoppers and Start-ups are heavily drawn for the deal; more stressed segments are heavily involved in value channels % Dollar spending with Trade and Coupons, and Private Labels Based on Panel Data % Dollar spending at selected channels Based on Panel Department Data Note: Channel shares are exclusive.

Optimistic on financial issues over next 12 months The groups are balanced in the sacrifices made due to the economy and optimism – Start-ups are making the most sacrifices Optimistic on financial issues over next 12 months Optimistics Start-Ups Savvy Shoppers Carefree Downtrodden Cautious & Worried Made least lifestyle sacrifices due to the economy Made most lifestyle sacrifices due to the economy Pessimistic on financial issues over next 12 months

High usage of online sources for grocery shopping Both Savvy Shoppers and Start-Ups plan their purchasing by finding deals in advance of going to the store High usage of online sources for grocery shopping Optimistics Start-Ups Savvy Shoppers Carefree Downtrodden Cautious & Worried Low usage of coupon & circular from home High usage of coupon & circular from home Low usage of online sources for grocery shopping

Least likely driven by low price for grocery shopping Start-Ups and Carefree shoppers are starkly different regarding responsiveness to merchandising efforts and price Most responsive to in-store display, circular, loyalty card discount and kiosks, and product packaging Optimistics Start-Ups Savvy Shoppers Carefree Downtrodden Cautious & Worried Least likely driven by low price for grocery shopping Most likely driven by low price for grocery shopping Least responsive to in-store display, circular, loyalty card discount and kiosks, and product packaging

Most likely to delay major purchases Downtrodden shoppers are the most likely to delay major purchases and on the fence about trying/recommending new products Most likely to delay major purchases Optimistics Start-Ups Savvy Shoppers Carefree Downtrodden Cautious & Worried Least likely to try and recommend new CPG products Most likely to try and recommend new CPG products Least likely to delay major purchases

Have a clear understanding of consumers’ involvement in the 4ps! Place Where do they shop? 1. Product What do they buy? 2. Price 3. What role does price play? Promotion 4. What do they respond to?

Place – identify which consumer groups are key to your retail success % of Retailer Dollars More Optimistic Half of the dollars come from 40% of the population. Focus on: In-store circulars In-store signs/displays Product labels/packaging 49% More Pessimistic

Television or radio advertising Retailer website or email Place – understand key shopper groups in your store and what you need to do 1 in 5 dollars stem from Savvy Shoppers, 27% above average. Savvy Shoppers leverage more coupons and trade promotions. % of Retailer Dollars More Optimistic Focus on: In-store kiosks Online advertising Television or radio advertising Retailer website or email More Pessimistic

The Great Golden State! California

California HHs are Somewhat Polarized; Disproportionately Downtrodden / Highly Concentrated with Carefree. Today’s Economic Challenges Drive Savvy Shoppers Source: SymphonyIRI Group, National Consumer Panel, Total U.S. All Outlets; 52 weeks ending August 12, 2012

California HHs, Especially Those Seeking Value, Make More Shopping Trips Over the Course of the Year Source: SymphonyIRI Group, National Consumer Panel, Total U.S. All Outlets; 52 weeks ending August 12, 2012

More Quick Trips Instead of Pantry Stocking Trips with Larger Basket Rings This Dynamic is Especially Relevant Among Carefree Shoppers Optimistic Trip Type % of CPG Trips by Trip Mission Carefree Trip Type % of CPG Trips by Trip Mission

Impact of the Internet and Online Information Sources: Top-2 Box Internet Usage for CPG Shopping is Similar for California vs. the United States, But California is Less Likely to Use Twitter and Facebook to Obtain Coupons Impact of the Internet and Online Information Sources: Top-2 Box

Why Specific Brands are Chosen: Top-2 Box California Residents are More Likely to Choose Brands Based on Shopper Loyalty Card Discounts and Less Likely to Rely on Previous Brand Familiarity Why Specific Brands are Chosen: Top-2 Box

Attitudes Towards New Packaged Goods Products : Top-2 Box California Residents are More Likely to be Early Adopters of New Products and More Open to Trying Them Attitudes Towards New Packaged Goods Products : Top-2 Box

Conclusions: Manufacturers Align distribution, marketing and merchandising strategies with channel migration patterns Work closely with retailers that have similar “best shopper” profiles to your own Recognize where your most valued buyers are, what types of trips, channels and store locations are most critical Connect with consumers by driving your most effective merchandising and promotional strategies by leveraging traditional and new media platforms Reach them online, at-home, in-store and on-the-go with personalized communication Protect and grow share among top shoppers Let your product promotions drive trips with your most valued buyers Create specially-targeted promotions that reward and entice your most important buyers Maximize in-store presence by demonstrating to retailers the mutually beneficial impact of your products in their baskets Identify new growth opportunities and risks through ongoing category and brand channel migration tracking Stay close to your partners’ shoppers to understand trip mix and how it impacts their stores Regularly evaluate the evolving competitive channels and retailers Understand the shift to online and what products and categories are most apt to influence migration Shoppers are the prize; spend time understanding their past to predict their futures and recognize how your brands’ play a role in that decision hierarchy

Conclusions: Retailers Align distribution, marketing and merchandising strategies with channel migration patterns Collaborate with your manufacturing partners; know which shoppers you share; talk to them together Have the products and strategies to drive loyalty among your most important shoppers Match communication and promotional strategies to the optimal vehicles your shoppers desire at-home, online, on-the-go or in-store Protect and grow share among top shoppers Drive satisfaction, trips and basket size with specially-targeted promotional programs that entice and reward top shopper segments Maintain a deep understanding of emerging shopping patterns and competitive threats among key shopper and target segments Identify new growth opportunities and risks through ongoing category and brand channel migration tracking Track shifts in trip mix at the market level and across key shopper segments Evaluate competitive set at most granular levels; keep an eye on channel changing and acceptance Watch the migration from traditional channels to online Identify key brands that drive migration Know your most important shoppers by understanding more than their behaviors, but also their lifestyles

Many Thanks! Questions and Comments? California