Digital fdm Shoppers, new healthcare shoppers, and performance gaps at target and walmart Rachel McGuire Senior Analyst Kate Senzamici Analyst Mary Brett Whitfield U.S. FDM Shopper Webinar Series Senior Vice President August 3, 2013

Copyright Notice and Disclaimer Copyright ©2013 Kantar Retail LLC All Rights Reserved. 501 Boylston Street, Boston, MA 02116 USA Tel. +1 617 912-2828 Contact: howard.zimmerman@kantarretail.com 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 LLC. The printing of any copies for back up is also strictly prohibited. Disclaimers The analyses and conclusions presented here represent the opinions of Kantar Retail LLC. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion. This content is not endorsed, or otherwise supported, by the management of any of the companies covered during the course of the presentation or within the following slides. 2

Agenda Digital FDM Shoppers New Healthcare Shoppers Performance Gaps at Target and Walmart through a Shopper Lens

Kantar Retail ShopperScape® 4,000 primary household shoppers per month CORE SAMPLE: Representative sample of ~50,000 unique primary household U.S. shoppers annually ALSO: Oversample of men for representative sample of males HOH 18+ (n = 800/month) Who? How? Fielded online the third week of every month Survey fielded through LSR access panel of more than 3 million individuals What? Monthly and quarterly tracking questions on retailers and venues shopped, products purchased, where spent, near-term spending outlook, and household financial health Questions on timely and topical issues (including key holiday periods) affecting shopping behavior Coverage 200+ retailers across all sectors of retail 75+ product categories (e.g., over-the-counter medications) 7 major merchandise groups (e.g., health and beauty care products) 4 4

Agenda Digital FDM Shoppers New Healthcare Shoppers Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

Use of Retailer Apps on Mobile Growing Accessed Retailer App on Smartphone (among all primary household shoppers) Interest in Using Retailer App in Store to Make Shopping for Groceries/HH Essentials/HBC Easier (% rating extremely/somewhat important) 2013: 11% All Shoppers 16% Gen Y 30% Gen X 24% Boomers 9% Seniors 3% 2012: 7% Source: Kantar Retail ShopperScape®, January 2012 and January 2013 (left) and May 2013 (right)

Strong Desire to Use Apps: Grocery Shopping More than half of all smartphone owners cite at least one app use as appealing as part of grocery shopping while in store … Strongest Appeal: View current sale/ad items Also popular: Access shopper card data/ discounts Locate item Make a list Stay on budget Get location-based deals As payment Average # of app activities that are appealing: 2.4 Source: Kantar Retail ShopperScape®, May 2013

Gen Y Leads Interest in Adopting Apps By Generation: Would Ideally Like to Be Able to Use Primary Grocery Store's Smartphone App While Shopping in Store to … (among shoppers with a smartphone)   All Shoppers Gen Y (born 1982 to 2002) Gen X (born 1965 to 1981) Boomers (born 1946 to 1964) Sample Size 1039 233 453 297 View current ad/sale items 38% 43% 42% 32% Access my frequent shopper card information/discounts 29% 37% 31% 23% Locate a specific item in the store 28% Make a shopping list 24% 19% Monitor my spending/use app to stay on budget while shopping 22% 25% 14% Have special deals pushed to phone based on store location 21% 27% 15% Scan items with my phone as I shop and pay with my mobile phone 20% 17% “Route" my shopping trip through the store based on my list 18% 13% Quickly/easily read reviews for products 12% Arrange to have out-of-stock items delivered to my home 16% 8% Message a store employee for assistance 9% 10% 7% Engage with my social network for advice or sharing 6% 4% None of these 46% 39% 40% 54% Average number of things with appeal 2.4 3.1 2.6 1.9 Source: Kantar Retail ShopperScape®, May 2013

(among shoppers with a smartphone) Target Shoppers More Likely to Be Interested in Using Apps in Store vs. Walmart Shoppers Would Ideally Like to Be Able to Use Target/Walmart’s Smartphone App While Shopping in Store to … (among shoppers with a smartphone) Significant difference between Target and Walmart shoppers Source: Kantar Retail ShopperScape®, May 2013

Drug Store Retailer Apps Attracting Users … but “converting” fewer than half of users Percent of All Shoppers Who Have App Among Shoppers with App, those Who Never Use Any of Key Functionality 11% 52% 9% 58% Source: Kantar Retail ShopperScape®, August 2013

Walgreens App: Feature and Functionality Rich Fast Rx refills, Rx management, myriad photo-related options Source: Retailer marketing materials, Kantar Retail analysis

Use of Drugstore Apps Transaction Oriented Very functional; shoppers using digital in path to purchase Top Uses of Leading Drugstore Apps in Past 6 Months (among smartphone shoppers with apps) Ordered Rx refill (19%) Searched for coupons (17%) Checked reward program (18%) Checked reward program (16%) Browsed weekly ad (15%) Browsed weekly ad (15%) Searched for coupons (11%) Shopped (9%) Searched for a store location (8%) Made a shopping list (9%) Shopped (7%) Checked for drug interactions (9%) Source: Kantar Retail ShopperScape®, August 2013

Online Shopping and Purchasing on the Rise Conversion rates growing as well Average Online Shopping and Purchasing across Categories* (among all shoppers, online activity at any retailer) Conversion Rate 50% 49% * Across 30 categories tracked in ShopperScape® Source: Kantar Retail analysis, Kantar Retail ShopperScape®, July 2011 and July 2013

More Online Activity for Most Categories Two consumables categories in top 10 shopped online Top Categories Shopped Online Total Shopping Rate (among all shoppers, online activity at any retailer) Shopping Rate Chg vs. 2011 (ppt) Purchase Rate Chg vs. 2011 (ppt) +0.8 ppt 0.0 ppt +2.9 +2.6 -0.9 -1.2 +6.9 +5.9 +2.2 +1.4 +0.2 +0.6 +1.5 +1.1 +3.6 +3.2 +1.7 +0.4 +2.0 +0.5 +2.3 +4.2 +2.1 +1.9 29% 22% 20% 19% 18% 16% 15% 14% 14% 13% 11% 10% 10% 10% 10% Source: Kantar Retail ShopperScape®, July 2011 and July 2013

Consumables Grow Online Purchaser and Shopper Base Online Shopping and Purchasing Rates for Consumables Categories Total Shopping Rate (among all shoppers, online activity at any retailer) Shopping Rate Chg vs. 2011 (ppt) Purchase Rate Chg vs. 2011 (ppt) +2.2 ppt +1.4 ppt +3.2 +2.6 +1.9 +1.7 +0.8 +0.7 +0.3 +0.9 +1.2 +0.4 +0.5 -0.3 +1.6 +1.0 +0.2 18% 14% 10% 10% 10% 8% 6% 5% 5% 5% 5% Source: Kantar Retail ShopperScape®, July 2011 and July 2013

Top Conversions Span from GM to Consumables Some conversion drops … but vitamins/OTC and personal care among biggest conversion increases Conversion Rates Chg vs. 2011 (ppt) +3.1 -2.6 -2.7 +4.5 +2.7 +0.5 -1.6 +4.8 +4.1 +1.7 +4.2 -1.0 -1.8 -1.5 +5.8 Top Online Conversion* Categories * Conversion calculated as % purchased online/% shopped online Source: Kantar Retail ShopperScape®, July 2011 and July 2013

Online Sales as Share of Total Category Sales All Categories Contribute to “Driving the Double” Online Sales as Share of Total Category Sales 14% AVERAGE ACROSS CATEGORIES 7% AVERAGE ACROSS CATEGORIES 4% AVERAGE ACROSS CATEGORIES Source: U.S. Department of Commerce, Kantar Retail analysis

How Digital Impacts the Brick & Mortar Trip Online-influenced expectations transforming demands at store level Easy search Flex time Speed of decision Time Research Details Sourcing Ingredients Inform Side-by-side Pricing Rankings Peer Reviews Compare “This with that” Solutions Intelligent suggestions Linkage Online activity influences nature of trip and expectations of shopping experience Source: Kantar Retail analysis

Key Takeaways Digital FDM Shoppers Clearly in the “post-desktop” information age Mobile creating “perpetual purchase occasions” But shoppers still integrating mobile tools and functionality into routines Shopping apps not yet entrenched as “killer app” of mobile tools Mobile has key role in redefining retailer value proposition in a “world without walls” Source: Kantar Retail analysis

Agenda Digital FDM Shoppers New Healthcare Shoppers Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

% Population Without Insurance Highest Since 1998 Percentage of People Without Health Insurance in The United States from 1990 to 2011 Percentage of population Source: US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States 2011

Health Care Reform 2014: Deciphering the Affordable Care Act Starting January 1, 2014 includes: Guaranteed coverage means that insurance companies cannot refuse coverage to anyone including sick or elderly Individual mandate which fines those that do not have coverage Cost assistance and subsidies to offset spend Unlimited coverage means there is no cap to health spending 14,000,000 Estimated additional insured expected in 2014 Source: company & government websites

Which Shoppers Are Prime Candidates? Have Nots, Hispanics, Gen Y-ers Health Insurance Coverage   All Shoppers Have Nots (<$60,000) Haves ($60,000+) Hispanic* Boomers Gen Y Sample size 4024 2371 1653 483 1487 610 Through employer or private insurance 58% 40% 84% 59% 64% 54% Medicare or Medicaid 28% 38% 15% 18% 19% I do not have health insurance 16% 23% 5% 22% 17% 24% Prefer not to answer 3% 4% 2% 7% INSURED 86% 78% 99% 77% 83% 69% Potential for more Rx transactions and store traffic from these groups Shading indicates significantly greater percentage vs. all shoppers; border indicates significantly lower percentage (90% confidence level) *The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population Source: Kantar Retail ShopperScape®, February 2013

How Well Do Shoppers Understand? Admittedly, not too well… Shoppers whom are most primed for ACA also have lowest awareness, understanding Arrows indicate significantly greater percentage vs. all shoppers (90% confidence level) *The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population Source: Kantar Retail ShopperScape®, August 2013

How Retailers Hope to Capture New Shoppers Educating, & positioning themselves as trusted advisors ? Source: company websites, Kantar Retail analysis

Walmart, Walgreens, CVS Positioned to Gain Largest Shares of Newly Insured Shoppers Especially Gen Y, Hispanic Gen Y: 26% Hispanic: 27% Gen Y: 20% Hispanic: 15% Gen Y: 14% Hispanic: 18% More than three-quarters of Hispanics (77%) and Gen Y-ers (76%) plan to purchase prescriptions when they get insurance Arrows indicate significantly greater percentage vs. all shoppers (90% confidence level). Low sample for Hispanics (n=80); no statistical testing. *The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population. Source: Kantar Retail ShopperScape®, August 2013

CVS Wins Overall Prescription Share of Preference Drug, Target win with Hispanic & Gen Y shoppers Walmart appeals to Have Nots Can uninsured members of these cohorts be expected to follow suit? Spending Facts Hispanic shoppers almost evenly split between CVS (24%) and Walgreens (23%) CVS captures equal percentages of Hispanic and Gen Y shoppers (24%) Gen Y shoppers favor CVS, though Walgreens is close behind (21%) Almost as many Boomers get most scripts filled via mail/online (18%) as do at CVS (19%) Source: Kantar Retail ShopperScape®, June 2013

… And Currently Has Highest Prescription Capture Rate Does this guarantee success with newly-insured shoppers? Source: Kantar Retail ShopperScape®, June 2013

But Trend Likely to Shift Away from Drug Favors shift to non-store/online ordering in long term Still means healthy growth for other channels over time Prescription Drugs: Share of Category Spending by Channel 1997 2020F 2002 2012E 2007 Drugstores, including HBC specialists Grocery stores Big-box & small-box mass retailers* Non-store, including online Total Category CAGR 2002–2007 2007–2012E 2012E–2020F 7.0% 2.7% 5.0% 6.0% 3.2% 4.9% 6.9% 2.1% 6.2% 20.3% 9.4% 8.6% 7.6% 4.6% 6.2% *Includes  big-box mass retailer formats such as supercenters, warehouse clubs, discount department stores/ mass merchandisers, as well as small-box retailers such as dollar stores  and other  discount formats Growth rates for food, drug, and mass channels in this category will still outpace growth of most other store categories Means impact on sales mix of store can still be significant Source: U.S. Department of Commerce and Kantar Retail

Added Prescription Trips = Opportunity to Draw Shoppers Throughout Store Shoppers want more than just a pharmacy 84% of trips to drug involve activities other than, or in addition to, prescription filling Shoppers consider the entire shopping experience when choosing where to get prescriptions filled Source: Kantar Retail ShopperScape®, August 2013

Prescription Drugs Top Categories Purchased at Drug Other categories in the mix point at how to capitalize on prescription trips Top 5 Categories Purchased at Drug (among shoppers who shopped the drug channel in the past 6 months) All Drug Channel Shoppers Have Nots (<$60,000) Hispanic* Gen Y Prescription drugs Personal care products OTC Candy/gum Vitamins/ supplements Color cosmetics *The ShopperScape® survey is conducted online and in English only; Hispanics in sample are more acculturated and not representative of full U.S. Hispanic population Source: Kantar Retail ShopperScape®, August 2013

A New Side to Retail: Shoppers Open to Some Medical Services at Retail Hispanics, Gen Y are game; Boomers more wary Across all services, Hispanic, Gen Y shoppers are significantly more likely than all shoppers to be very willing to use As store traffic increases, pressure will be on suppliers to drive sales in the front end Source: Kantar Retail ShopperScape®, February 2013

Expanding Pharmacy Services & Clinics Retailers are ramping up clinic expansion, with CVS projecting 1,500 total by 2017 Clinics allow retailers to offer convenient, and quick health services when shoppers would have to wait to see their PCP Services are clearly priced, making it more transparent and straightforward for the shopper Retailers are expanding the services they offer to include screening for different diseases, as well as consistent management for chronic conditions Capturing & catering to that repeat customer Walgreens recently rebranded its Take Care Clinics to Healthcare clinics Source: Kantar Retail analysis, store visits

Rite Aid Partners with NowClinic to offer Services Offering virtual clinic areas in 70+ stores In-store consultation rooms host computers to connect with NowClinic, a virtual clinic service that offers consultations with nurse practitioners and doctors via webcam Way for Rite Aid to offer the services it needs to compete, without the hefty investment Source: Kantar Retail analysis, store visits

Takeaways/Implications Impact of the ACA is a waiting game—for both shoppers and retailers. Shoppers do not fully understand what the ACA means for them, and are unsure of how it will affect them. Retailers have to be proactive and establish themselves as trusted guides throughout the process. Suppliers can help in this effort—be an ally. Hispanic, Gen Y, and Have-Not shoppers are least likely to have insurance and are prime candidates for guaranteed health insurance. This means an increase in prescription sales and overall traffic to retailers. Important to think about how you communicate with these cohorts in order to maximize the trip. Shoppers are thinking about the full shopping experience when filling prescriptions—and a mere 15% of trips are only prescription focused. One-stop shopping and an easy experience are important. All categories gain more traffic as prescription trips increase (and shoppers are routed through the box to back of store). Aid shoppers in completing their easy, one-stop trip. Hispanic and Gen Y shoppers are particularly open to using medical services at retail. As more retailers expand their clinical offerings, there will be more pressure on suppliers to drive sales in the front end … but also opportunities to capture more shoppers with solutions that combine services + products. Source: Kantar Retail analysis

Agenda Digital FDM Shoppers New Healthcare Shoppers Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

What Matters to Shoppers in a Grocery Trip? Assortment Price/Value Experience Source: Kantar Retail ShopperScape®, May 2013

Expectations Vary by Cohort Gen X expects the most; Gen Y emphasizes experience Ideal Grocery/HH Essential/HBC Shopping Experience (% rating factor as extremely/somewhat important)   All Shoppers Gen Y Gen X Boomers Seniors Have Nots* Haves* Sample Size 4022 526 1199 1553 744 2347 1675 Experience Items I want are in-stock 83% 77% 86% 80% 87% Fun and pleasant shopping experience 62% 67% 69% 61% 47% 64% Associates can give good advice about what to buy 35% 43% 36% 30% 33% Ability to use retailer app on smartphone while in the store to make the shopping trip easier 16% 24% 10% 3% 15% Price/ Value Knowing that I'm paying a low price 79% 84% 82% Feeling like I got a "good deal" 81% 72% Frequent shopper/loyalty program with good rewards 50% 53% 57% 48% 38% Double coupons 44% 45% Assortment Food offer matches up with what I like to cook/eat 68% 73% 71% Local food product available 52% High-quality private label brands 49% 54% 51% Private label brands in many categories 42% 46% 37% Local interest items available 20% 29% 8% 19% *Kantar Retail segments shoppers into “Have Nots” and “Haves” based on income; Have Nots have an annual household income of less than $60k, Haves have an annual household income of $60k+. Note: Yellow highlighting indicates significantly greater vs. all shoppers (95% confidence level) Source: Kantar Retail ShopperScape®, May 2013

How Do Mass Retailers Measure Up? Ideal vs. actual shopping experience at Target and Walmart How do Target and Walmart deliver on their value propositions? Source: Kantar Retail analysis

Target Shoppers Do Indeed “Expect More” Especially place emphasis on experiential factors Ideal Grocery/HH Essential/HBC Shopping Experience (% rating factor as extremely/somewhat important)   All Shoppers Monthly Target/SuperTarget Shoppers Monthly Walmart/WMSC Shoppers Sample Size 4022 977 2029 Experience Items I want are in-stock 83% 90% 86% Fun and pleasant shopping experience 62% 76% 64% Store associates can give good advice about what to buy 35% 38% 37% Ability to use the retailer's app on my smartphone while in the store to make the shopping trip easier 16% 21% 17% Price/ Value Knowing that I'm paying a low price 88% 87% Feeling like I got a "good deal" 79% Frequent shopper/loyalty program with good rewards 50% 57% 45% Double coupons 44% 48% Assortment Food offer matches up with what I like to cook/eat 72% 77% 74% Local food product available 53% 54% High-quality private label brands 49% 51% 52% Private label brands in many categories 43% Local interest items available 20% 23% Note: Yellow highlighting indicates significantly greater vs. all shoppers (95% confidence level) Source: Kantar Retail ShopperScape®, May 2013

How Well Does Target Meet Guests’ Wants? Best performance on experiential factors Biggest gap Experience Price/Value Assortment Source: Kantar Retail ShopperScape®, May 2013

Focus on Improving Food Assortment Target emphasizes meal solutions and better choices Focus on improving the health and wellness of its guests Goal of increasing organic food offerings by 25% by 2017 Spun off Simply Balanced from Archer Farms in July 2013 Source: Kantar Retail store visits, research, and analysis

Ideal vs. Actual Experience at Target Varies Strengths and weakness differ across segments Ideal Grocery Shopping Experience vs. the Experience at Target: Key Differences by Shopper Segment* Target Does Better Among… Target Does Worse Among… Experience Items I want in-stock Rx Rewards Fun/pleasant to shop at Target Seniors Boomers Associates can give good advice Kids at home Target app makes shopping easier Gen X Price/ Value Knowing I’m paying a low price Gen X, Kids at home Feeling like I’m getting a good deal REDcard rewards are relevant to me Gen Y Assortment Food offer matches what I like to cook/eat Local food products available REDcard High-quality private label brands Private label brands in many categories *Shopper segments listed in the table are those among which the gap between the ideal experience and Target experience is substantially smaller (Target does better) or larger (Target does worse) than all monthly Target shoppers. Source: Kantar Retail ShopperScape®, May 2013

Walmart’s Low-Price Message Resonates Evaluation of experience and assortment less rosy Biggest gap Price/Value Experience Assortment Source: Kantar Retail ShopperScape®, May 2013

Focus on Improving the Experience Adding interactions, events Source: Kantar Retail store visits and analysis

Walmart’s Gaps Larger Among Young and Affluent Shoppers Ideal Grocery Shopping Experience vs. the Experience at Walmart: Key Differences by Shopper Segment* Walmart Does Better Among… Walmart Does Worse Among… Price/ Value Knowing I’m paying a low price Seniors Gen X Feeling like I’m getting a good deal Gen Y, Gen X Experience Items I want in-stock Haves Fun/pleasant to shop at Walmart Associates can give good advice Gen Y Walmart app makes shopping easier Boomers Assortment Food offer matches what I like to cook/eat Have Nots Local food products available High-quality private label brands Private label brands in many categories *Shopper segments listed in the table are those among which the gap between the ideal experience and Walmart experience is substantially smaller (Walmart does better) or larger (Walmart does worse) than all monthly Target shoppers. Source: Kantar Retail ShopperScape®, May 2013

Shopper Showdown: Target vs. Walmart Experience Price/Value Assortment Source: Kantar Retail ShopperScape®, May 2013

Implications Shoppers “expect more” Leverage Target’s equity around experience Partner with Target to build equity around price/value and assortment Compelling food offer key to relevance of Pfresh stores (and urban stores)…bridge the gap Rx Rewards shoppers are more loyal…but also more aware of Target’s shortcomings Shoppers know they can “save money” at Walmart Partner with Walmart to improve shopping experience where you can Shoppers view quality of private label lacking—opportunity for branded manufacturers to fill gap Struggling with young and affluent shoppers…how can you help build Walmart’s equity among these key groups? Source: Kantar Retail analysis

Questions? Submit questions on Q&A panel on right side of screen Digital FDM Shoppers New Healthcare Shoppers Grocery Shopping Performance Gaps at Target and Walmart through a Shopper Lens

Mary Brett Whitfield Rachel McGuire Senior Vice President Senior Analyst 614 355 4010 614 355 4036 marybrett.whitfield@kantarretail.com rachel.mcguire@kantarretail.com Kate Senzamici Analyst 617 912 2866 kate.semzamici@kantarretail.com