Presented by: Rachel McGuire, Senior Analyst Kate Senzamici, Senior Analyst Mary Brett Whitfield, Senior Vice President U.S. Shopper FDM Webinar February 7, 2014 What to Expect from Shoppers in 2014

© Copyright 2014 Kantar Retail Copyright © 2014 Kantar Retail. All Rights Reserved. 501 Boylston Street, Suite 6101, Boston, MA (617) No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photography, recording, or any information storage and retrieval system now known or to be invented, without the express written permission of Kantar Retail. The printing of any copies for back up is also strictly prohibited. Disclaimers The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion. This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides.

© Copyright 2014 Kantar Retail Agenda: What to Expect from Shoppers in 2014 Shopping Approaches and Spending Priorities Perceptions of Price Leadership Loyalty Programs –Update on Safeway’s “just for U” Program 3

© Copyright 2014 Kantar Retail Shopping Approaches and Spending Priorities 4

© Copyright 2014 Kantar Retail Despite Macro-Economic Uncertainty, Spending Intentions Holding Steady Source: Kantar Retail ShopperScape ®. June 2008–December Spend Much/ Somewhat More Spend about the Same Spend Much/ Somewhat Less Retail Spending Intentions in Coming Month Compared with the Same Period Last Year (three-month moving average)

© Copyright 2014 Kantar Retail Deal Seeking Continue at Top of the List … but perhaps less top of mind as behaviors ingrained in routines 6 Behavior Changes Type of Behavior Taking advantage of good sales/deals49%47% Deal-Seeking Buying only things I truly need45% Limiting Using more coupons41% Deal-Seeking Buying fewer things34%38% Limiting Doing more price comparison shopping before purchasing29% Deal-Seeking Shopping less often29%31% Limiting Using/keeping items longer before buying replacements25% Limiting Buying only items needed in the near term25%26% Limiting Shopping more at discount and value retailers24% Trading-Down Postponing more purchases19%21% Limiting Buying less expensive versions of products19%20% Limiting Buying more store brands instead of national or high-end brands18% Trading-Down Buying fewer luxury items18%19% Trading-Down Shopping online for more things14%15% Moving Online Shopping online more often13%15% Moving Online Trading down to less-expensive brands12% Trading-Down Using smart phone to compare prices while in stores 7% Deal-Seeking Switching some purchasing to "auto-replenishment" programs 1% Moving Online Source: Kantar Retail ShopperScape ®, October 2012 and October 2013 Planned Changes in Shopping Behavior for Year Ahead (among all primary household shoppers)

© Copyright 2014 Kantar Retail Have-Not Shoppers More Likely to Plan More Changes 7 Behavior ChangesHave NotsHavesType of Behavior Taking advantage of good sales/deals46%48% Deal-Seeking Buying only things I truly need48%39% Limiting Using more coupons42%40% Deal-Seeking Buying fewer things39%35% Limiting Doing more price comparison shopping before purchasing30%26% Deal-Seeking Shopping less often34%27% Limiting Using/keeping items longer before buying replacements27%24% Limiting Buying only items needed in the near term29%23% Limiting Shopping more at discount and value retailers27%19% Trading-Down Postponing more purchases23%19% Limiting Buying less expensive versions of products25%13% Limiting Buying more store brands instead of national or high-end brands21%13% Trading-Down Buying fewer luxury items19%18% Trading-Down Shopping online for more things14%16% Moving Online Shopping online more often14%17% Moving Online Trading down to less-expensive brands14%8% Trading-Down Using smart phone to compare prices while in stores 6%10% Deal-Seeking Switching some purchasing to "auto-replenishment" programs 1% Moving Online Planned Changes in Shopping Behavior for Year Ahead (2014) (among all primary household shoppers) Source: Kantar Retail ShopperScape ®, October 2013 Note: Have-Not shoppers have annual household income less than $60K’; Have shoppers have annual household income of $60K+

© Copyright 2014 Kantar Retail Planned Changes in Shopping Behavior: 2014 vs (among all primary household shoppers) Growing participation vs. last year: Limiting Behaviors –Buying fewer things 34%38% –Shopping less often 29%31% –Postponing more purchases 19%21% Shoppers Signaling More “Limiting” in Plus online shopping more likely to be in the mix Source: Kantar Retail ShopperScape ®, October 2012 and October 2013 Note: Yellow shading indicates a significant difference between 2013 and 2014 (90% confidence level)

© Copyright 2014 Kantar Retail Store Set Contracts in 2013 Source: Kantar Retail ShopperScape ®, January 2007–October *Inclusive of visits to stores and websites; averages are for Q1–Q3 of each year. Average Number of Retailers Shopped in Past Four Weeks* (among all primary household shoppers) Average Number of Retailers Shopped in Past Four Weeks* (among all primary household shoppers)

© Copyright 2014 Kantar Retail Data points indicate that “Limiting” is on the agenda –Fewer retailers shopped for back-to-school –Fewer retailers shopped for holiday gift giving –Lower rate of category purchase incidence across myriad discretionary and non- discretionary categories in Q4 Evidence that Shoppers Drawing Boundaries Mounts 10 Source: Kantar Retail ShopperScape ®, December 2010–2013

© Copyright 2014 Kantar Retail Categories that Maintained Q4 Purchaser Base 11 TVs Video game system Personal computers Tablet computers Printers Small and major appliances Craft/hobby/arts supplies Sporting goods Key home improvement categories Color cosmetics Pet food and supplies Beer and wine Vitamins Source: Kantar Retail ShopperScape ®, October–December 2013 Categories with Flat Category Purchaser Incidence Rate Q vs. Q (among 80+ categories tracked ) Categories with Flat Category Purchaser Incidence Rate Q vs. Q (among 80+ categories tracked ) No categories had significantly higher purchasing rates …

© Copyright 2014 Kantar Retail Staying Healthy and Organized Are Top Spending Priorities 12 24% 10% 9% 8% 7% 5% 10% 5% 3% 2% 3% 2% 1% % selecting as top priority Source: Kantar Retail ShopperScape ®, October 2013 Spending Priorities (% of shoppers selecting products as one of top five near-term spending priorities) Spending Priorities (% of shoppers selecting products as one of top five near-term spending priorities)

© Copyright 2014 Kantar Retail Varying Priorities by Generation Help Further Refine Opportunities 13 Source: Kantar Retail ShopperScape ®, October 2013 Top 5 Spending Priorities by Generation (as ranked by percentage of shoppers selecting products as one of top five near-term spending priorities) Top 5 Spending Priorities by Generation (as ranked by percentage of shoppers selecting products as one of top five near-term spending priorities)

© Copyright 2014 Kantar Retail Haves and Have Nots have same top spending priorities … … but a few differences farther down the list Minimal Differences by Income 14 Opportunities across the “good-better-best” spectrum Staying healthy Staying organized Source: Kantar Retail ShopperScape ®, October 2013 Key Differences in Spending Priorities: Haves vs. Have Nots

© Copyright 2014 Kantar Retail Amazon Becomes the Top Holiday Destination Leapfrogs Target in 2011, Walmart in 2013 Source: Kantar Retail ShopperScape ®, December 2011, December 2012 and December Note; Arrows indicate significant decline vs, holiday 2012 (95% confidence level)

© Copyright 2014 Kantar Retail Holiday Shopping Shifts Online Proving ground for building online shopping routines Source: Kantar Retail ShopperScape ®, December Budget shifted more toward online/Cyber Week than Black Friday Holidays set stage for year-round online shopping

© Copyright 2014 Kantar Retail Online Disrupts Shopping Routines Source: Kantar Retail ShopperScape ®, October How Approach to Shopping Has Changed in Past Year Percent of Shoppers Indicating Statement Describes “Quite Well” or “Somewhat” How Approach to Shopping Has Changed in Past Year Percent of Shoppers Indicating Statement Describes “Quite Well” or “Somewhat” Online Disrupts Shopping Routines

© Copyright 2014 Kantar Retail Perceptions of Price Leadership 18

© Copyright 2014 Kantar Retail Price Remains Paramount in the Value Equation Which retailers are best positioned to win with price-sensitive shoppers looking to limit spending in 2014? Source: Kantar Retail ShopperScape®, January

© Copyright 2014 Kantar Retail Walmart’s EDLP Message Reflected in Shoppers’ Price Perceptions Source: Kantar Retail ShopperScape ®, November But how do “core” shoppers view these retailers?

© Copyright 2014 Kantar Retail Walmart Perceived Leader for Shelf-Stable Grocery HEB slips vs. last year, while ALDI gains Source: Kantar Retail ShopperScape ®, November 2011, November 2012, and November

© Copyright 2014 Kantar Retail HEB Dominates in Fresh Grocery Supermarkets in general the perceived price leaders Source: Kantar Retail ShopperScape ®, November 2011, November 2012, and November

© Copyright 2014 Kantar Retail Walmart Leads in Household Essentials Many supermarkets see slight gains in price perception Source: Kantar Retail ShopperScape ®, November 2011, November 2012, and November

© Copyright 2014 Kantar Retail Walmart’s Lead in HBC Price Perception Slips Walgreens and Publix make gains Source: Kantar Retail ShopperScape ®, November 2011, November 2012, and November

© Copyright 2014 Kantar Retail Summary of Price Leadership Winners and Losers Source: Kantar Retail ShopperScape®, November 2011, 2012, and 2013; Kantar Retail analysis 25 Trending UpTrending Down Non-perishable grocery Publix Ahold banners Safeway banners Walmart Sam’s Club Fresh grocery HEB Kroger banners Publix Safeway banners ALDI Sam’s Club HH cleaning and paper products Kroger banners Safeway banners Publix Sam’s Club HBC Walgreens Publix Walmart Family Dollar Retailers Trending Up/Down In Price Leadership Perception Among Monthly Shoppers

© Copyright 2014 Kantar Retail Two Retailers Improved Across All Categories from 2012 to Source: Kantar Retail analysis and ShopperScape ®, November 2012 and November 2013 Price Leadership Perception Among Monthly Shoppers of Retailers

© Copyright 2014 Kantar Retail Non- Perishable Grocery Fresh Grocery HH Cleaning and PaperHBC Walmart/Walmart Supercenter Have Nots 1 Boomers Target/SuperTarget Gen XGen Y Warehouse clubs Seniors Drug stores Dollar stores Have Nots 1 Supermarkets Haves 1 Price Leadership Perceptions Differ by Key Demographic Groups 27 Price Leadership Perception, by Generation and Income (demographic groups listed significantly more likely vs. all shoppers to name retailer/channel as price leader) Source: Kantar Retail ShopperScape ®, November 2013 Target more likely to be perceived price leader for non-perishable grocery among Gen X, but all other categories among Gen Y Seniors more likely to view clubs as price leader across all categories Walmart’s price leadership perception strongest among lower-income shoppers and Boomers—historically, Walmart’s core shopper base 1 “Have Nots” are those with an annual household income of <$60k; “Haves” are those with an annual household income of $60k+

© Copyright 2014 Kantar Retail How Well Do Shoppers’ Perceptions Match Reality? 28 Total Basket Price $28.70 $34.05 $37.89 $42.49 $28.82 $30.81 Source: Kantar Retail analysis Note: Data based on pricing study done by Kantar Retail. Six retailers located within a five-mile radius of each other in the Northeast U.S. were selected. For each retailer, Kantar Retail assessed the lowest price point available to the shopper in each of 21 categories (trial sizes were excluded) so that she could minimally meet her purchase requirement. Pricing study performed in September 2013.

© Copyright 2014 Kantar Retail How Well Do Shoppers’ Perceptions Match Reality? 29 Pretty well, with a few exceptions Note: Actual price of total basket based on pricing study done by Kantar Retail. For each retailer, Kantar Retail assessed the lowest price point available to the shopper in each of 21 categories (trial sizes were excluded) so that she could minimally meet her purchase requirement. Pricing study performed in September Source: Kantar Retail analysis and ShopperScape ®, November 2013

© Copyright 2014 Kantar Retail Walmart Goes Head-to-Head on Price 30

© Copyright 2014 Kantar Retail Shopper Showdown: Walmart vs. Key Competitors 31 Price Leadership Perception Among Monthly Shoppers of Retailers (among monthly shoppers of both Walmart AND competitor, % who say Walmart/competitor is the price leader) Source: Kantar Retail ShopperScape ®, November 2013

© Copyright 2014 Kantar Retail Changing Price Leadership Perceptions Though we’ve seen a shift toward other aspects of “value” in recent years, price is still the paramount consideration –As more shoppers look to maintain spending levels and adopt some limiting behaviors in 2014, price is likely to become more important Walmart has the strongest price leadership perception overall, but there are some rocky spots –Leadership position slipping in non-perishable grocery and HBC –Loses (often handily) to key competitors in fresh grocery –Price leadership position strongest among “core” Walmart demographic groups, but growth will depend on winning with other shoppers (young, affluent) Internalization of deal-seeking mentality reflected in price leadership perception gains for many supermarkets 32 Key Takeaways

© Copyright 2014 Kantar Retail A Look at Loyalty Programs 33

© Copyright 2014 Kantar Retail Spending Less Most Important to Shoppers Loyalty cardholders more concerned with value 34 Source: Kantar Retail ShopperScape ®, November 2013 Spending as little as possible top factor when shopping ~75% of loyalty card and non-loyalty card shoppers ranked it among top four Arrows in chart indicate significant difference between column percentages at a 90% confidence level. Convenience vs. Value

© Copyright 2014 Kantar Retail Loyalty Card Participation Mostly Steady Across Retailers: More Have Cards vs Balance Rewards gaining traction since September 2012 rollout Increase in participation vs Source: Kantar Retail ShopperScape ®, November 2012 & November 2013 *Read as: 49% of shoppers surveyed in November 2013 reported having a CVS ExtraCare card. Arrows indicate significant difference vs (90% confidence level) ¹Dillons, Fry’s, King Soopers, Kroger, QFC, Ralphs, Smith’s; ²Dominicks, Randalls, Safeway, Tom Thumb, Vons; ³Giant Foods, Stop & Shop; ⁴ Acme, Albertsons, Jewel, Shaw’s/Star Market

© Copyright 2014 Kantar Retail CVS ExtraCare Leads in Loyalty 15 year history and penetration give CVS the advantage Source: Kantar retail analysis & store visits, company reports million unique cards, 70 million active users – Well established among CVS shoppers Well developed & need-specific programs Leveraging insights to hone assortments and drive shoppers to new categories across the box Partnering with individual suppliers Encouraging collaboration b/t vendors & ExtraCare for solutions

© Copyright 2014 Kantar Retail Finding that though membership is high, actual usage is low –Shoppers find the program confusing –Not used to the points system Now Walgreens is ready to shift the focus from registering to rewarding members –Working on educating the shopper, making it easy for them to optimize the system Source: ECRM MarketGate, Kantar Retail analysis One Year Later, Where Does Balance Rewards Stand? Making the reward clear for shoppers, putting it into a measure they understand

© Copyright 2014 Kantar Retail Kroger Continues to “Capture” Most of Own Shoppers with Loyalty Card Source: Kantar Retail ShopperScape ®, November 2012 & *Read as: 94% of Kroger shoppers have a Kroger loyalty card. Percentage point figures indicate ppt difference from November Balance Rewards gains traction, while SVU Rewards loses shoppers due to store closures

© Copyright 2014 Kantar Retail Supermarket Loyalty Cards Still Generate Higher Satisfaction vs. Drug 39 Source: Kantar Retail ShopperScape ®, November 2012 & 2013 Though CVS, Walgreens are improving Arrows indicate significant difference vs (90% confidence level) ¹Dillons, Fry’s, King Soopers, Kroger, QFC, Ralphs, Smith’s; ²Dominicks, Randalls, Safeway, Tom Thumb, Vons; ³Giant Foods, Stop & Shop; ⁴ Acme, Albertsons, Jewel, Shaw’s/Star Market

© Copyright 2014 Kantar Retail % Loyalty Cardholders Who Spend the Most on Merchandise Group at Retailer ppt difference Kroger (all banners) 46%44%**-2.1 Giant Eagle Advantage Card* 46%43%-3.1 Ahold (all banners) 30%35%5.0 Safeway (all banners) 39%35%-4.4 Winn Dixie Customer Reward Card 30%31%1.1 Food Lion MVP Card 31%29%-1.9 Supervalu (all banners) 25%24%-1.3 CVS ExtraCare card 19% 0.5 Walgreens Balance Rewards 17%14%-2.9 Rite Aid Wellness+ 11%10%-0.8 But Do Loyalty Cards Really Generate Loyalty? Capture rates mostly down from Source: Kantar Retail ShopperScape ®, November 2012 & 2013 Food / Groceries HBC *Low sample size (n = 84) **Read as: 44% of shoppers who have a Kroger loyalty card spend the most on food/groceries at Kroger.

© Copyright 2014 Kantar Retail Discounts Most Important to Shoppers While other factors carry pretty equal weight 41 39% of Safeway shoppers rate personalized pricing as a very important benefit 39% of Safeway shoppers rate personalized pricing as a very important benefit Source: Kantar Retail ShopperScape ®, November 2013

© Copyright 2014 Kantar Retail Case Study: Safeway’s “just for U” Kantar Retail Analysis 42 Digital coupons, personalized shopping lists, weekly Club Card Specials Personalized Deals Sale items chosen for shoppers based on basket history—shoppers get their OWN price on items they buy often Personalized Deals Sale items chosen for shoppers based on basket history—shoppers get their OWN price on items they buy often WHAT: An enhanced loyalty program that provides a more digital and tailored shopping experience by organizing and personalizing the shopping experience according to what is most important to each shopper

© Copyright 2014 Kantar Retail JFU Demographics Steady from 2012 With some slight increases 43 Source: Kantar Retail ShopperScape ®, November 2012 & 2013 Safeway claims more than 6 million registered just for U users (Q conf. call) Arrow indicates significant difference vs. previous year (90% confidence level) *The ShopperScape ® survey is conducted online and in English only; Hispanics in this sample not representative of the full U.S. Hispanic population.

© Copyright 2014 Kantar Retail Safeway’s Personalized Pricing Boosts Price Perception 44 Important pillar of “just for U” program Source: Kantar Retail ShopperScape ®, November 2012 & ppt +3 ppt +9 ppt +3 ppt Price perception among JFU members has increased across categories from 2012 Arrows indicate significant difference vs. all Safeway Club Card members (90% confidence level) *Includes Dominick’s, Randalls, Safeway, Tom Thumb, Vons

© Copyright 2014 Kantar Retail Program Resonates with Shoppers’ Values Deals, discounts, and ease Source: Kantar Retail ShopperScape ®, November Spending as little money as possible Getting a “good deal” Stress-free shopping experience All JFU members Have-nots (< $60,000) Haves ($60,000+) Sample size Variety of coupons77%85%70% Personalized deals offer good prices76%80%72% Ease of adding coupons to my club card75%83%68% Personalized deals are relevant73%81%64% Ease of accessing account information73%82%63% Ability of JFU site to help plan grocery trips65%76%53% Satisfaction higher among Have-Not just for U members Shading indicates significantly greater percentage vs. all just for U members; border indicates significantly lower percentage (90% confidence level)

© Copyright 2014 Kantar Retail Are just for U Members More Loyal? Fewer shoppers report shopping, spending more since joining just for U 46 Shopping Spending Source: Kantar Retail ShopperScape ®, November 2012 & 2013 “…mobile users [are] using the site more frequently, spending more money than those who are accessing the technology on a desktop computer.” -Safeway Q conf. call “…mobile users [are] using the site more frequently, spending more money than those who are accessing the technology on a desktop computer.” -Safeway Q conf. call

© Copyright 2014 Kantar Retail just for U App Usage On the Rise Especially among Have-Not shoppers 47 Have Nots (<$60,000) Haves ($60,000+) Sample size just for U Web site on a computer89%80%84%81% just for U smartphone app10%22%27%32% just for U iPad app1%5% 6% None of these8%10%6%7% Which of the following have you used to access or manage your “just for U” account? Source: Kantar Retail ShopperScape ®, November 2012 & 2013 Shading indicates significant difference year-to-year (corresponding shopper segments); 90% confidence level

© Copyright 2014 Kantar Retail Satisfaction Doesn’t Translate Into Trip Driver just for U more of a convenient bonus—especially among higher-income members 48 Source: Kantar Retail ShopperScape ®, November 2013 Arrows indicate significant difference compared with all just for U members (90% confidence level)

© Copyright 2014 Kantar Retail Takeaways/Implications Shoppers’ needs are pretty simple: They want to spend as little as possible, get a good deal, and have a frustration-free shopping experience. Communicating with retailers the importance of keeping it simple will resonate most with shoppers. Personalized pricing is a best in class example of keeping it simple. Shoppers have almost unlimited options today—help shoppers simplify shopping routines by customizing their shopping experience for them in the form of relevant deals. Even with the success of personalized pricing, JFU is still not a major trip driver for Safeway. 49 High participation and satisfaction with rewards programs still doesn’t guarantee true loyalty

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© Copyright 2014 Kantar Retail Questions? Shopping Approaches and Spending Priorities Perceptions of Price Leadership Loyalty Programs –Update on Safeway’s “just for U” Program Submit questions on Q&A panel on right side of screen 51

© Copyright 2014 Kantar Retail Contact: Rachel McGuire Senior Analyst T: Kate Senzamici Senior Analyst T: Mary Brett Whitfield Senior Vice President T: