Industry Outlook / Authors Grocery Channel John Rand Senior Vice President Mike Paglia Senior Analyst Alida Destrempe Analyst April / 2012

Industry Outlook

/ Authors

Grocery Channel

John RandSenior Vice President

Mike PagliaSenior Analyst

Alida DestrempeAnalyst

April / 2012

About Kantar Retail

Cannondale Associates, Glendinning Management Consultants, MVI and Retail

Forward combine to create Kantar Retail, the world’s leading retail insights and

consulting business. Kantar Retail (www.kantarretail.com) works with leading

retailers and branded manufacturers to transform the purchase behavior of

consumers, shoppers and retailers. The company solves client issues from

strategic to tactical and provides organizations with the skills and capabilities to

act. Kantar Retail offers clients better internal alignment and project efficiency,

from insight through strategy to activation, and across marketing through

category to sales. Kantar Retail has nearly 400 employees and offices in 15

markets around the globe. The company is headquartered in London and is part

of the Kantar Group of WPP.

Kantar Retail

Two Easton Oval Suite 500 Columbus, OH 43219 USA 1.614.355.4000

10th Floor 245 First Street Cambridge, MA 02142 USA 1.617.4100

6 More London Place Tooley Street London, England SE12QY UK +44.207.031.0251

• Macro Environment 6-14

• A Glimpse of Major Players and Performance 15-42

• A Look at “The Big Three” 43-64

• Shopper Loyalty is a Muddle 65-89

• The Supermarket Pricing War 90-119

• Key Channel Initiatives 120-161

/ Table of Contents/ Table of Contents

3

/ / A Glimpse of Major Players and A Glimpse of Major Players and PerformancePerformance

• Channel Performance 16-20

– Forecast Snapshot by Channel– Edible/Non-Edible Sales

• Changes in Rank – Scale Does Not Equal Success 21-32 – Retailer Rankings– Channel Growth Comes from the Middle

• Market Share- Who is Winning and Losing? 33-42

4

ChannelCAGR

'06-'11ECAGR

'11E-'16E

Apparel 1.0% 4.4%

Clubs 5.2% 5.5%

Category Specialist -0.1% 3.3%

Convenience 1.4% 2.9%

Department -2.2% 2.5%

Discounter 7.8% 7.8%

Drug 5.0% 4.6%

Supercenter 5.3% 3.1%

Mass Merch (no SC) -3.1% -0.7%

Non-Store Retail 9.5% 11.7%

Supermarket 2.4% 3.5%

KR Channel Totals 2.4% 4.2%

US Sales by FormatUS Sales by FormatSupermarkets Growing Share

$323 $364 $432

$72$113

$197$128

$110

$106$201

$259

$302$130

$166

$208

$44

$64

$94

$109

$98

$111

$45

$48

$56

$364

$363

$426

$99

$128

$167

$100

$105

$131

-

400

800

1,200

1,600

2,000

2006 2011E 2016E

Sale

s in

Billi

ons (

$)

Apparel

Clubs

Category Specialist

Convenience

Department

Discounter

Drug

Supercenter

Mass Merch (no SC)

Non-Store Retail

Supermarket

Source: Kantar Retail analysis; Company Reports

NOTE: Data as of 11/17/2011

5

Where Else Do Conventional Grocery Where Else Do Conventional Grocery Shoppers Go?Shoppers Go?

If 100% of the sample shops grocery stores, the following %’s also shop these

channels:

22%

22%

26%

29%

29%

30%

31%

35%

39%

43%

44%

65%

Dollar General

Best Buy

Dollar Tree

Lowe's

JCPenney

Kohl's

The Home Depot

CVS/pharmacy

Walgreens

Target/Super Target

Amazon.com

Walmart/Walmart Supercenter

Source: Kantar Retail ShopperScape®, January – December 2011

(Past Four-Week Shoppers, January-December 2011)

6

Non-Edible Grocery Sales %Non-Edible Grocery Sales %

$706$706 $887$887 $1,086$1,086

US

D B

illi

on

s

43%38% 36%

15%20%

19%

5% 5%4%

17% 16%17%

6% 5%5%

9% 9%10%

1% 1%1%

4% 5% 7%

0% 1% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2011E 2016E

Non Store Retail

Discounter

Department

Cash and Carry

Convenience

Drug

Mass Merch Excluding Supercenter

Hypermarket

Supermarket

Note: %s are Kantar Retail estimates

Supermarkets have the highest % of non-edible sales, yet losing ground.


7

Edible Sales % by ChannelGrocers Lose Share But Still Dominant

$445$445 $554$554 $679$679

58%53% 51%

17%21% 20%

2% 2%2%

2% 3% 3%

6% 5% 5%

9% 10% 11%

1% 1% 1%4% 5% 6%0% 0% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2011E 2016E

Non Store Retail

Discounter

Department

Cash and Carry

Convenience

Drug

Mass Merch Excluding Supercenter

Hypermarket

Supermarket

Supermarkets share declines in edibles are quite modest compared to past

years.


8






9

Top 3 US Grocers Account for USD162 Billion by Top 3 US Grocers Account for USD162 Billion by 2016E2016E(US Supermarket Sales)

US Rank2011ESales

Retailer 2006 2011E 2016ECAGR

('06-'11E)CAGR

('11E-'16E)2006 2011E 2016E

CAGR ('06-'11E)

CAGR ('11E-'16E)

2011E Sales

2011E Sq Ft

1 Kroger 56.0$ 75.1$ 95.7$ 6.0% 5.0% 119.4 125.0 128.4 0.9% 0.5% 19.4% 17%

2 Safeway 34.6$ 34.6$ 36.9$ 0.0% 1.3% 71.5 72.3 71.9 0.2% -0.1% 8.9% 10%

3 Supervalu* 34.2$ 29.2$ 29.7$ -3.1% 0.3% 87.0 77.5 83.7 -2.3% 1.5% 7.6% 10%

4 Publix 21.5$ 26.1$ 31.3$ 3.9% 3.7% 40.8 49.3 55.9 3.9% 2.5% 7% 7%

5 Ahold 20.3$ 24.4$ 27.5$ 3.8% 2.4% 36.9 38.7 40.2 0.9% 0.8% 6% 5%

6 Delhaize 17.2$ 18.8$ 20.1$ 1.8% 1.4% 56.9 59.7 60.5 1.0% 0.3% 5% 8%

Top 3 US Supermarket 124.8$ 138.9$ 162.3$ 2.2% 3.2% 277.9 274.9 284.0 -0.2% 0.7% 36% 37%

Top 6 US Supermarket 183.9$ 208.1$ 241.2$ 2.5% 3.0% 412.5 422.6 440.7 0.5% 0.8% 54% 57%

All Other US Supermarket 154.6$ 179.0$ 226.9$ 3.0% 4.9% 336.1 322.4 391.9 -0.8% 4.0% 46% 43%

Total KR US Supemarket 338.4$ 387.1$ 468.0$ 2.7% 3.9% 748.6 745.0 832.5 -0.1% 2.2% 100% 100%

Sales (USD billions)KR Top Supermarket Retailers

* Figures include Save-A-Lot. Does not include wholesale.

Square Footage (millions) % of US Totals

Kroger leads, Safeway follows, and Supervalu is just trying to stay in the race.“All Other” grocers beyond the Top 6 continue to keep pace in growth

Kroger leads, Safeway follows, and Supervalu is just trying to stay in the race.“All Other” grocers beyond the Top 6 continue to keep pace in growth


10

(Total Edible Grocery Sales Only)

““Fifty-Fifty” for the Top 10 GrocersFifty-Fifty” for the Top 10 GrocersNational Retailers Ranked Top 5, Yet Remaining are Regional

2006 2011E 2016E1 1 Walmart $ 87,902 $ 131,364 $ 161,325 23.5% 8.4% 4.2%2 2 Kroger 47,179 63,363 82,623 11.3% 6.1% 5.5%3 3 Costco 22,612 33,476 46,634 6.0% 8.2% 6.9%4 4 Safeway 27,835 25,983 28,427 4.6% -1.4% 1.8%6 5 LOSS LEADER Supervalu 28,770 24,971 24,406 4.5% -2.8% -0.5%5 6 Up Publix 17,544 21,610 25,509 3.9% 4.3% 3.4%7 7 Ahold 16,604 20,035 22,927 3.6% 3.8% 2.7%9 8 Down Delhaize 13,909 15,804 17,517 2.8% 2.6% 2.1%8 9 Up Aldi/Trader Joes 7,506 13,335 19,906 2.4% 12.2% 8.3%

10 10 H-E-B 9,067 12,082 14,653 2.2% 5.9% 3.9%278,928 362,022 443,926 64.8% 5.4% 4.2%

12 11 Down Wakefern 8,024 11,031 14,343 2.0% 6.6% 5.4%11 12 Up Target 4,963 9,091 14,377 1.6% 12.9% 9.6%

CAGR '06-'11E

CAGR '11E-'16E

Top 10 (Edible Grocery Only)

Rank 2016E

Rank 2011E

Expected Movement

RetailerEdible Grocery Sales (USD Millions) % of US

Total ('11E)2006 2011E 2016E1 1 Walmart $ 87,902 $ 131,364 $ 161,325 23.5% 8.4% 4.2%2 2 Kroger 47,179 63,363 82,623 11.3% 6.1% 5.5%3 3 Costco 22,612 33,476 46,634 6.0% 8.2% 6.9%4 4 Safeway 27,835 25,983 28,427 4.6% -1.4% 1.8%6 5 LOSS LEADER Supervalu 28,770 24,971 24,406 4.5% -2.8% -0.5%5 6 Up Publix 17,544 21,610 25,509 3.9% 4.3% 3.4%7 7 Ahold 16,604 20,035 22,927 3.6% 3.8% 2.7%9 8 Down Delhaize 13,909 15,804 17,517 2.8% 2.6% 2.1%8 9 Up Aldi/Trader Joes 7,506 13,335 19,906 2.4% 12.2% 8.3%

10 10 H-E-B 9,067 12,082 14,653 2.2% 5.9% 3.9%278,928 362,022 443,926 64.8% 5.4% 4.2%

12 11 Down Wakefern 8,024 11,031 14,343 2.0% 6.6% 5.4%11 12 Up Target 4,963 9,091 14,377 1.6% 12.9% 9.6%

CAGR '06-'11E

CAGR '11E-'16E

Top 10 (Edible Grocery Only)

Rank 2016E

Rank 2011E

Expected Movement

RetailerEdible Grocery Sales (USD Millions) % of US

Total ('11E)

Note: %’s are Kantar Retail estimates. Data as of 11/17/11


Total Edible Grocery Sales Only

11

Growth No Longer Consolidated to a Few Growth No Longer Consolidated to a Few Large, Efficient PlayersLarge, Efficient Players

1 Kroger $75,056 $95,716 $20,661 27.5%2 Walmart (supermarkets only) 4,132 13,239 9,107 12.1%3 Whole Foods 9,834 15,620 5,787 7.7%4 Publix 26,066 31,295 5,229 7.0%5 Wakefern 11,666 15,095 3,429 4.6%

$126,753 $170,966 $44,213 58.9%6 H-E-B 15,933 19,309 3,376 4.5%7 Ahold 24,392 27,498 3,106 4.1%8 Wegmans 6,240 9,180 2,940 3.9%9 Safeway 34,563 36,863 2,300 3.1%

10 Meijer* 10,372 12,655 2,283 3.0%11 Winco 4,619 6,208 1,589 2.1%12 Delhaize 18,782 20,089 1,307 1.7%13 Hy Vee 6,792 8,038 1,246 1.7%14 Sprouts 1,139 2,353 1,213 1.6%15 Giant Eagle 6,357 7,430 1,074 1.4%

$255,943 $320,590 $64,647 86.2%16 Tesco 958 1,964 1,007 1.3%17 Fresh Market 1,090 1,694 603 0.8%18 Ingles 3,390 3,960 570 0.8%19 DeCA 5,293 5,856 563 0.8%20 Harris Teeter 4,286 4,830 545 0.7%

$270,959 $338,895 $67,936 90.5%Top 20 Total

Rank % Sales Added (US Supermarket Sales)Sales Added 2011E-2016E

% of Total Sales Added 2011E-2016E

Top 5 Total

Top 15 Total

RetailerSales 2011E

(USD millions)Sales 2016E

(USD millions)

*Total Grocery only. NOTE: All data as of 11/17/11


Top 20 Supermarket Retailers Account for 90% of Sales Added from 2011-2016

12

Growth From the MiddleGrowth From the Middle

2nd and 3rd tier grocers account for roughly 30% of growth through 2016E. Includes:

• Ahold• Delhaize• HEB• Wakefern• Winn Dixie• Whole Foods

Sales Growth as a % of Total Growth: ’11E – ’16E

47.4%

16.0%

11.1%

16.0%

7.1%

2.8%

0% 10% 20% 30% 40% 50%

Top 3

Rank 4-6

Rank 7-9

Rank 10-20

Rank 21-35

Rank 36-50

Source: Kantar Retail analysis; company reports

NOTE: Data as of 11/17/2011

13

157 156

71

27

48

34

62 62 63 64 63

-

25

50

75

100

125

150

175

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Mill

ions

of

Squa

re F

oota

ge A

dded

(KR

Chai

ns)

Total Square Footage Added By KR ChainsTotal Square Footage Added By KR Chains2006-2016E2006-2016E

14

2012E –2016E Average:63 MM SqFt

2008 – 2011E:Square footage added by only most well-grounded

chains

2006–2007 Average:156.5 MM SqFt


Stores Are Getting Smaller as WellStores Are Getting Smaller as WellMedian Total Store Size – Square Feet

30,000

40,000

50,000

Source: Kantar Retail analysis; Food Marketing Industry Speaks 1996 - 2011

Sq

ua

re F

oo

tag

e

15

Scale Doesn’t Always Equal Success:Scale Doesn’t Always Equal Success:Regional Retailers Doing Better

-4.00%

0.00%

4.00%

8.00%

12.00%W

hole

Food

s

Weg

man

s

Wak

efer

n

Win

co

Ahol

d

Krog

er

H-E

-B

Publ

ix

Gia

nt Ea

gle

Supe

rmar

ket

Delh

aize

Safe

way

Supe

rval

u

2011E Supermarket Sales Growth Over PY

2011E Supermarket Sales Growth Over PY


16

ForecastForecast

$200

$400

$600

$800

$1,000

$1,200

2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Ahold Delhaize Giant Eagle H-E-B Publix Wakefern Wegmans

KRO

SWY

SVU

Regional Stores Perform BetterRegional Stores Perform BetterAverage Sales Per Square Foot


$200

$400

$600

$800

$1,000

$1,200

2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Ahold Delhaize Giant Eagle H-E-B Publix Wakefern Wegmans

KRO

SWY

SVUKroger, Safeway, Supervalu

17

Regional Store GrowthRegional Store GrowthSlight Growth Across all Banners


751

1,627

384299

197

1,173

27376

768

1,649

403312

197

1,216

29179

50

250

450

650

850

1050

1250

1450

16502010 2011E

18

Regional Performance OutlookRegional Performance OutlookAbove Industry Average

Retailer Store '11E - '16E CAGR

Sales '11E - '16E CAGR

Ahold US 1.10% 2.80%

Delhaize US 0.80% 2.00%

Giant Eagle 2.30% 3.60%

H-E-B 2.40% 4.00%

Meijer 0.50% 4.00%

Publix 3.20% 3.90%

Wakefern 2.30% 5.40%

Wegmans 2.90% 8.00%

Supermarket Channel 1.40% 3.50%


Greater than industry average

Greater than industry average

19

Implications:Implications:

• CPG companies have historically invested more with large-scale retailers– Unfortunately, scale alone is not a predictor of success– It was before the recession– But we’re in the post modern marketplace now– Real dollar sales growth is coming from companies with

smaller scale• Standard or all-channel approaches to customers aren’t very

well aligned to the unique circumstances of working with regional retailers

Source: Kantar Retail analysis

20






21

Store Productivity vs. Market ShareStore Productivity vs. Market Share

Share in Market

Sto

r e P

rod

uct i

vit

y (

Sale

s p

er

sq

uare

foot ) Hi Share/Hi

ProductivityDefend and Grow

Hi Productivity / Low Share

Invest and Grow or Harvest

Low Share/Low Productivity

Market exits / Swaps

High Share / Low ProductivityDecline or

Change

A market level look at your retailer allows you to target your resources more

effectively


22

Before Going Further…Here’s the Key to Before Going Further…Here’s the Key to Understanding These ChartsUnderstanding These Charts

Banner name

Sales per sq. ft

Directional change of market share (‘09-’11)

Store count in market

Banner name

Sales per sq. ft

Directional change of market share (‘09-’11)

Store count in market


23

Store Productivity vs. Market ShareStore Productivity vs. Market ShareHouston

WMT Superctr

($396)

Kroger($629)

HEB($949)

Fiesta Mart($366)

Randall's($469)

$200

$600

$1,000

0.0 18.0 36.0

33

110

83

76

35

33

110

83

76

35

Sto

r e P

r od

uct i

vit

y

( sal e

s p

er

sq

uare

f o

ot )

Share in Market

Source: Kantar Retail analysis; Trade Dimensions Market Scope data

Houston belongs to H-E-B

HEB is the one regional chain whose market share takes up nearly two-thirds of the local supermarket dollar in two Texas metro

areas. The retailer’s habit of tailoring individual stores to

the specific needs of neighborhoods has fueled much of that growth and strong market position.

24

Store Productivity vs. Market ShareStore Productivity vs. Market ShareAtlanta

Sto

r e P

r od

uct i

vit

y

( sal e

s p

er

sq

uare

f o

ot )

Share in Market


Regional and National Grocery vs. Walmart:

Kroger has held its own and even made strong gains while

competing with Walmart in Atlanta, as it continues to

implement strategies such as renovating stores as well as

improve areas where Walmart doesn’t have its greatest

strengths.

Publix is also gaining share in Atlanta which has come after

years of expansion, marketing, and focus on

quality and store presentation. Publix also is only in five Southern states,

which could give the company a better handle on the

southeastern consumer.

Kroger$629

Publix$528

WalMart$390

Ingles$308All American

$260

$220

$510

$800

0 18 36

148

79

156

56

24

25

Cincinnati is Kroger Territory

Kroger is the dominate retailer in Cincinnati and has

either the number 1 or 2 market share position in all

markets of operation. Kroger has been able to maintain and

grow its market share by offering competitive low

prices and loyalty programs that offer shoppers discounts.

Store Productivity vs. Market ShareStore Productivity vs. Market ShareCincinnati

Sto

r e P

r od

uct i

vit

y

( sal e

s p

er

sq

uare

f o

ot )

Share in Market


Kroger($629)

WMTSuperctr

($396)Meijer($386)

G.E.($450)

Save-A-Lot($321)

$250

$500

$750

- 25.0 50.0

243

117

29

42

14

26

West Coast is Safeway’s Core

Market, yet Kroger Leads Share

Safeway’s core operating market is in the West Coast. Yet within the Los Angeles

market, Kroger banner Ralphs stores are more productive and are gaining share faster

than Safeway. Ralphs has the potential to continue to gain

share profitability in the future as the retailer recently launched a new EDLP strategy

for its stores.

Store Productivity vs. Market ShareStore Productivity vs. Market ShareLos Angeles

Sto

r e P

r od

uct i

vit

y

( sal e

s p

er

sq

uare

f o

ot )

Share in Market


Vons($434)

Ralphs($495)

Albertsons (SVU)($330)

Stater Bros.($641)

$250

$500

$750

- 12.5 25.0

167

396

272

27

Philadelphia: A Market of Regional Dominance

Regional supermarkets are the key players that are

gaining store profitability on top of share within

Philadelphia, where national retailers such as Supervalu

and Walmart are losing their dominate position.

Store Productivity vs. Market ShareStore Productivity vs. Market SharePhiladelphia

Sto

r e P

r od

uct i

vit

y

( sal e

s p

er

sq

uare

f o

ot )

Share in Market


SuperValu$587

Weis$345

AholdGiant Food

$643

Walmart$390

A & P$845

$0

$450

$900

0 18 36

135

61

137

53

121

28

Florida is Publix Territory

Publix continues to be the dominate player within many Florida markets as Florida is

the retailer’s primary operating state and it

saturates the market. With its strong brand and store

penetration, Publix continues to gain share and beat

competitors by emphasizing service and a family-friendly

image.

Store Productivity vs. Market ShareStore Productivity vs. Market ShareMiami

Sto

r e P

r od

uct i

vit

y

( sal e

s p

er

sq

uare

f o

ot )

Share in Market


$220

$510

$800

0 30 60

28

235

91

3110

Publix$528

Target$290

WalMart$390

Winn-Dixie$301

Sedanos$275

29

Retail Leadership Coming From One of Two Retail Leadership Coming From One of Two Basic AreasBasic Areas

Leaders are growing in one of two primary ways:

– Market Density – Maximize Market Share - Tailors• Market density and saturation• Format prototyping• Store of the community• “I know the markets I operate in”

– Consumer Segmentation – Expand Share of Wallet From a Chosen Focused Consumer - Choosers

• Differentiated brands/stores/experiences• New category introduction• Loyalty card for 1:1 marketing• Aggressive brand marketing• “I know the person/people I’m selling to”

30Source: Kantar Retail analysis


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Documents

Industry Outlook / Authors Grocery Channel John Rand Senior Vice President Mike Paglia Senior Analyst Alida Destrempe Analyst April / 2012