How Britain Shops for Food A look at the post-recession landscape

Today’s agenda What we’ll talk about the economy food shopping behaviour food retail strategies

the economy recovery on the way?

The economy The recession mindset  lack of money I can’t spend  lack of will I won’t spend  lack of spontaneity I think, then spend

The economy The household budget Income (-1.4%) Costs (-1.8%) Credit (-6.9%) Saving (+31%) Total change (-2.7%) Changes in position since H2, 2009

The economy Higher debt servicing costs Debt payments as a proportion of income 10.5% % % 2010/ % 2010/ % 2010/11 3% rate 5% rate 6% rate

The economy Taxation and statutory spend income tax national insurance value added tax council tax pension costs

The economy Erosion of discretionary income % 42.1% % Percentage of income that is discretionary 38.4% £13, %

The economy Spending decisions will be different RetailSavings HouseholdHealth services AutomotiveLeisure Lower priorityHigher priority

food shopping behaviour what does this mean for the consumer?

Food shopping behaviour Inflation +2.5%+5.5% 2006/072008/09

Food shopping behaviour Food spending dynamics Food retail spend as a proportion of all retail spend % % 37.7% 41.7%

Food shopping behaviour Consumer reaction Importance of price in driving store selection %

Food shopping behaviour Consumer reaction % Importance of price in driving store selection

Food shopping behaviour Shopping around 1.9 …other grocery retailers In 2008 on average customers visited their main store and… 2.4 In 2009 on average customers visited their main store and… …other grocery retailers

Food shopping behaviour Use of discount grocers +7.9% pts +3.2% pts +0.7% pts 7.9% 9.8% 3.6% 15.8% 13.0% 4.3% % pts 8.4% 9.0%

Food shopping behaviour Eating out %+2.3%-3.1%-0.1%+1.9% Percentage change in dining out expenditure (year-on-year)

Food shopping behaviour What it means for food and grocery +4.0% +5.5% +3.5% % % % % Year on year change in all food and grocery expenditure

Food shopping behaviour Summary Grocery will remain the most buoyant major retail sector Inflation will remain in the market, but not at 2008 levels Achieving volume growth will be challenging But there will be solid pockets of growth Value and price will remain more important

food retail strategies responses of the food and grocery sector

Food retail strategies Four considerations Fragmentation Demand is becoming more fragmented Stores Consumers have more stores to pick from Proliferation of product There is more choice than ever before Reach Shoppers want to buy in a variety of ways

Food retail strategies Consideration 1: fragmentation 20% of Waitrose shoppers are C2DE 18% of Aldi shoppers are AB

Food retail strategies Solution 1: segmentation Segmentation A segmented approach is required to grow Fragmentation Demand is becoming more fragmented

GOODBETTERBEST Low volume Highest price points Higher margins Premium offer High volume Low price Low margin Competitive entry prices Core product Core offer Basis of positioning Standard margin Food retail strategies Solution 1: segmentation

Food retail strategies Consideration 2: proliferation of product Important to have a wide range with lots of choice Important to provide an edited range of what I want +6.9 % pts -5.4 % pts Change from 1999 in consumer views on range

Proliferation of product There is more choice than ever before Edited choice Less will become more Food retail strategies Solution 2: clarity and edited choice

Food retail strategies Solution 2: clarity and edited choice Cooking from scratch Eating in treats Everyday basics Indulgent

Food retail strategies Consideration 3: choice 1970s1990s2000s1980s 4463 Average number of grocery stores consumers have easy access to

Added value and differentiation Stand out from the crowd Stores Consumers have more stores to pick from Food retail strategies Solution 3: added value

Food retail strategies Solution 3: added value niche differentiation fashionability personal service brand marketing experience / environment Watchwords for adding value and differentiation

Food retail strategies Consideration 4: customer reach Sources of growth in food and grocery retail ( )

Multi-format Use multiple touch points Reach Shoppers want to buy in a variety of ways Food retail strategies Solution 4: multi-format

Food retail strategies Solution 4: multi-format Meeting multiple customer needs

Food retail strategies How it all fits together Slowing sales growth, rising cost growthMust drive market share – must add valueConsumer wallets are under pressureNeed to stimulate wants Consumers and shopping trips becoming more segmented Segment stores/channels/ranges Competition intensifies  space saturation  product proliferation  message overload Clarity of offer  focused propositions, clearly identified/branded  clear price/range architecture  less is more

The end Thanks for listening