Retail revolution061215

“The Revolu�on at Retail”

June 2015

What’s Happening?

Who’s Winning?

Jon Kramer, CMO, RockTenn

How to Get in the Loop

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OVERVIEW

The retailing world in which we do business is experiencing a tsunami of change

There is hope:  Elements of a Winning Strategy  Upcoming In-Store Innovations that Might Help

We are not in the driver’s seat

If you are doing business today the same way as you did business yesterday,

CORE CONCLUSION

Peter Drucker

6

If you are doing business today the same way as you did business yesterday,

If you are doing business today the same way as you did business yesterday, chances are that you won’t be doing business tomorrow.

Peter Drucker

CORE CONCLUSION

WARNING

Be Careful What You Think You Hear

7

“More Mobile Phones in the World than People” International Telecommunication Union, 2014

“Amazon to Open its first Retail Store” Forbes, 2014

“Drones will Deliver Your Groceries” Credit Suisse Financialist, 2014

“QR codes are dead” Advertising Age, 2013

“Brick-and-Mortar Retailers are Dinosaurs” Rocket Internet, 2014

“72 % Use Phones for Shopping” Pew Research, 2014

DRIVERS OF CHANGE

8

ECONOMIC

SOCIOLOGICAL TECHNOLOGICAL

DRIVERS OF CHANGE

Economic

9

 Median Household Incomes down 8% since 2007

$56.9 $51.9

2007 2013

$49.6

1993

§ Majority of Americans make less than $20/hr

Source: US Census Bureau US Department of Labor

Inflation adjusted

DRIVERS OF CHANGE

Economic

10

Source: Bureau of Labor Statistics

Jan 1990

Sep 2014

 # of Part-Time Workers at an All-time High § Approaching 25% of work force

DRIVERS OF CHANGE

Economic

11

 50 Distinct Economies Employed % of Total Population

Source: Bureau of Labor Statistics 2013

DRIVERS OF CHANGE

Sociological

12

 Population Rapidly Aging

>20

20-30

30-60

60+ 18% 20% 21% 23%

DRIVERS OF CHANGE

Sociological

13

 5 Different Generations Consume Very Differently

Source: RetailNet Group

The Silent Generation

Baby Boomers Generation X Millennial Gen Z

(1927-1945) (1946-1964) (1965-1979) (1980-2000) (2001-Present)

DRIVERS OF CHANGE

14

 Impact of Aging: -$55+ Billion Annually

Peak Spending

Aging In Aging Out

Source: US Census Bureau RNG Analysis

<25 25-34 35-44 45-54 55-64 65-74 75+

-$55+ Billion Sociological

DRIVERS OF CHANGE

Sociological

15

 Millennials, besides being tech savvy, are:

Source: RetailNet Group

More Diverse Marriage Later Kids Later

Earnings Polarized Educated Urban Growth,

Rent

DRIVERS OF CHANGE

Technological

16

 Massive Shift in How Consumers Spend Time Online § Mobile Apps now dominate

Source: Comscore Internet World Stats

 225 Million Americans access Internet via Broadband § 71% of Population

 173 Million Americans use a Smartphone § 54% of population, 74% of mobile subscribers

Mobile Apps on Smartphones & Tablets 52% Web Browsers on Desktops & Laptops 40% Web Browsers on Smartphones & Tablets 8%

DRIVERS OF CHANGE

Technological  Action Code Usage is Growing § QR is 75% of the Market

Blippar 17

QR Codes

documobi Digimarc

Microsoft Tag

Kooaba

DRIVERS OF CHANGE

Technological

18

 Growth of Mobile Payment and Digital Wallet § ApplePay will drive the market

 Beacon-delivered messaging § Delivered to your wrist

Source: RNG Analysis

Last Big Retail Innovation Was the “Super Center”  That was so ‘80’s …

TRANSFORMATION OF THE RETAIL INDUSTRY

Traditional Big Box Fewer Cars

Saturation

Demand for convenience

Digital Small / Proximate

Urbanization

Smaller Households

Aging Population

§ Big Box Operators facing pressure across the board

19

The Evolution of Shopping

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SYMPTOMS OF CHANGE

The Evolution of Shopping

21

SYMPTOMS OF CHANGE

 By 2020-30 55% of Transactions Will Involve Digital

Traditional 0-45%

Store Automation 0-45%

Digital / Pick-up 15-20%

Digital 15-25%

Shopper Digital In-Store 25-30%

Manual Digitally Enabled Digitally Managed Digital Trip


Retailers Rapidly Acquiring Digital Technology  In the past 18 months alone:

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Product Search

Predictive Intelligence WALMART

Online Front-end Optimization

Online Community

AdChemy

Inkiru

Torbit

Luvocracy

KROGER

AMAZON

Digital Offer Network Provider

Ecommerce Company

Video Broadcasting Game Site

YOU Tech.

Twitch

VitaCost.com

STORE


Yesterday

23

STORE

Today

On-Call Omnipresent

Personal Service

STORE


Yesterday

24

Tomorrow … the VIRTUAL

shopping trip?

STORE

Today

On-Call Omnipresent

Personal Service


Stores are NOT Dinosaurs  US will add $800+ Billion in Total Retail through 2020

$3,099

$3,778

$4,250

$4,612 +$834

§ Store Based Retail Still Majority of Both $ and $ Added

Informal

Traditional

Chain – Digital All Other

Chain – Digital Marketplace

Chain – Store Based Retail

Source: RNG Database; USD constant 2013

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Stores are NOT Dinosaurs  US will add $800+ Billion in Total Retail through 2020 § However, Non-Store Digital growth is 3-4X faster

27

CAGR

15.8%

3.5%

10.1%

2.9%

$ Added

-1.1%

3.5%

$119

$574

$156

-$84

$69 Informal

Traditional

Chain – Digital All Other

Chain – Digital Marketplace

+$834

Chain – Store Based Retail

Source: RNG Database; USD constant 2013


Ecommerce contributing to growth for  Especially for major players

28

* Tablet + Smartphone

Source :Internet Retailer :RetailNet Group

AMAZON WALMART TARGET

Total Sales 90.0 B +20% 476.3 B + 2% 72.6 B -‐ 1%

Ecommerce Sales 90.0 B +20% 7.9 B +15% 2.5 B +17%

Mobile* Ecommerce Sales 16.8 B +110% 1.4 B +90% .4 B +100%

WHO WINS?

The Shopper is the Clear Winner  Her Toolkit is Expanding

29

Smart Shopping List

Price Comparison

Store Navigation

Product Search & Availability

Personalized Offers

Mobile Checkout

Instant Payment

Anytime Delivery

WHO WINS?

Retailers Who Master the Five “Ds”

Data

Differentiation

Digital/Physical Integration

Delivery

Decentralization

31

Data

WINNING RETAIL STRATEGIES

Content Management

System

 RetailMeNot  Coupons.com  Catalina  Valassis

Digital Wallet

Analog (Store & Print)

FSI’s

Load to Card

3Party App

Retailer App

Location Based

Loyalty Card

BRAN

DS &

RE

TAIL

ERS

HUB

 Multiple Ways to Connect & Offer Coupons/ Promotions

32

Data  Building Online/Offline Targeting & Tracking Capabilities


WINS (Web Influenced In-store Sales)

Source: RNG research & analysis

33

Data  Layered Pricing: Fun for Shoppers / Limits Transparency



34

Data  Layered Pricing: Fun for Shoppers / Limits Transparency



35

Differentiation



 Three Core Positionings Lead to Superior ROIC:

9% of Dollars 16% of Growth

ENGAGING 3.


QUALITY 1.


LOW PRICE 2.

36

Differentiation



 Compressing and Pushing Back the Center Store § To expand differentiated offerings


37

Differentiation  Not your Father’s private label

Good Better Even Better Very Best

“We’re not offering knock-offs … we want to be Knock Out.” Gil Phipps, VP


38

Differentiation  Not your Father’s private label

39


Differentiation Bottom Line: It’s all about the Shopper Experience


Decentralization

40

 Getting Closer to the Customer § Smaller Store Formats


Decentralization

41

 Getting Closer to the Customer § Smaller Store Formats


Decentralization

42

 Getting Closer to the Customer § Order Online,

Pick Up in Store


Decentralization

43

 Getting Closer to the Customer § Digital Storefront


Decentralization

44

 Store-Within-A-Store § Credited with the

BestBuy turnaround


Decentralization  Store-Within-A-Store § Now being emulated

across the industry

JCPenny meijer

MACY’S


Decentralization

46

 Store-Within-A-Store § Now being emulated

across the industry

KOHL’S

OFFICEMAX TARGET

LOWE”S


Digital / Physical Integration

47

“Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur… our customers expect a seamless experience….”

Doug McMillon President/CEO

“Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur… our customers expect a seamless experience….”


Digital / Physical Integration

48

List Management Fulfillment

 List Management Drives Digital Engagement

Pre-Shop


49

Delivery  Ahold: the early Innovator


Delivery

50

 Walmart: pushing the envelope


Delivery

51

 As is Amazon


Delivery

52

 The USPS is getting into the act


Delivery

53

 What’s Next?

“We’re in the business, today, of delivering cars in five minutes.

But once you’re delivering cars in five minutes, there’s a lot of things you can deliver in five minutes.”

Travis Kalanick, CEO

WHO ARE THE RETAIL WINNERS?

Amazon+Walmart: 21% of US Chain Sales by 2020

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Source: RNG Database Analysis Includes Digital Marketplaces

2015E 2020E 2015E 2020E 09-14 15E-20E 09-14 15E-20E 09-14 15E-20E1 Walmart $352 $400 14% 12% 2.1% 2.6% $41 $57 9% 7%2 Amazon $122 $290 5% 9% 38.2% 19.6% $85 $191 18% 25%3 Kroger $111 $132 4% 4% 6.6% 3.6% $34 $25 7% 3%4 Costco $82 $108 3% 3% 5.8% 5.6% $23 $30 5% 4%5 Walgreens $79 $94 3% 3% 4.4% 3.7% $17 $19 4% 2%6 Home Depot $77 $93 3% 3% 2.4% 4.0% $10 $19 2% 3%7 Target $74 $82 3% 3% 2.4% 2.0% $9 $9 2% 1.2%8 CVS Health $68 $83 3% 3% 5.3% 3.7% $18 $16 4% 2%9 Albertsons $57 $61 2% 2% 52.6% 1.1% $52 $4 11% 0.5%10 Lowe's $57 $67 2% 2% 2.1% 3.5% $7 $12 1.4% 2%11 McDonald's $38 $44 1.5% 1.3% 3.5% 2.8% $7 $7 1.5% 0.9%12 eBay $36 $50 1.4% 1.5% 10.6% 7.5% $15 $18 3% 2%13 Best Buy $36 $38 1.4% 1.2% 0.2% 1.3% $0 $3 0.1% 0.4%14 Publix $31 $37 1.2% 1.1% 3.9% 3.5% $6 $7 1.3% 0.9%15 Sears Holdings $30 $29 1.2% 0.9% -4.9% -0.7% -$11 -$1 -2% -0.2%

Top 15 Total $1,251 $1,608 48% 50% 5.2% 5.1% $313 $416 66% 54%16-30 $304 $368 12% 11% 3.7% 3.9% $58 $76 12% 10%All Other Total $1,028 $1,259 40% 39% 1.8% 4.3% $100 $279 21% 36%RNG US Chain Total $2,583 $3,235 100% 100% 3.6% 4.6% $471 $771 100% 100%

Rank by 2015E Sales

Sales (USD bil)

Sales CAGR Sales Added (USD bil)

Share of Sales

Share of Sales AddedRetailer

2015-‐2020 EST SHARE OF SALES

SHARE OF GROWTH

WALMART 12% 7%

AMAZON 9% 25%

TOTAL 21% 32%


In Grocery, the Premium Operators Win

55

Source: RNG Database Analysis Includes Digital Marketplaces

2014E 2020E 2014E 2020E 10-14E 15E-20E 10-14E 15E-20E 10-14E 15E-20E1 Walmart Neighborhood Market $9 $33 2% 6% 25.2% 23.1% $6 $23 10% 22%2 Whole Foods Market $14 $26 3% 5% 12.0% 11.0% $6 $12 10% 11%3 Kroger $45 $56 11% 11% 7.3% 3.7% $13 $11 22% 10%4 Publix $30 $36 7% 7% 4.3% 3.4% $6 $7 9% 6%5 H-E-B $17 $21 4% 4% 5.7% 3.7% $4 $4 7% 4%6 Wegmans $7 $11 2% 2% 7.5% 5.9% $2 $3 4% 3%7 Sprouts Farmers Market $3 $6 1% 1% 43.1% 12.1% $2 $3 4% 3%8 ShopRite $13 $15 3% 3% 4.4% 2.9% $3 $2 4% 2%9 Food Lion $14 $16 3% 3% 2.2% 2.3% $1 $2 2% 2%10 Safeway $23 $25 6% 5% - 1.3% $23 $2 39% 2%11 Hy-Vee $8 $10 2% 2% 5.3% 3.3% $2 $2 3% 2%12 Harris Teeter $5 $7 1% 1% - 5.0% $5 $2 8% 2%13 Winn Dixie $9 $11 2% 2% - 2.7% $9 $2 15% 1%14 Market Basket $4 $6 1% 1% 8.2% 5.1% $1 $2 2% 1%15 The Fresh Market $2 $3 0% 1% 14.9% 10.3% $1 $1 1% 1%

$203 $280 50% 55% 11.5% 5.5% $85 $77 141% 72%$73 $85 18% 17% 5.9% 2.7% $18 $12 30% 12%$128 $146 32% 28% -5.6% 2.2% ($43) $18 -71% 17%$404 $511 100% 100% 3.3% 4.0% $61 $108 100% 100%

Share of Sales Added

Top 15 Total16-30 TotalAll Other TotalRNG USA Grocery Total

Rank BannerSales

(USD bil)Share of

Sales Sales CAGR Sales Added (USD bil)$ BILLIONS 2014 EST 2020 EST

WHOLE FOODS 14 26 H-‐E-‐B 17 21

WEGMANS 7 11 SPROUTS 3 6 HY-‐VEE 8 10

HARRIS TEETER 5 7 MARKET BASKET 4 6 FRESH MARKET 2 3

TOTAL 53 90

 8 Differentiated Leaders: 70% Growth vs 26% Market


56


57

-‐2.3%

4Q 2014 RESULTS

-2.3%

-3.1%

+1.0%

+10%

+25%

+70%

+245% Blinkbox Rentals

Online Clothing

Online Gen’l Merchandise

Online Grocery

Express Stores

Large Stores

57

Source: Tesco Analysts Meeting

Building a Collaborative Organization  Adding value to the retailer’s data-driven initiatives  Creating Custom Retailer Programming § Shopper Centric Retailer Solutions

Building Direct Relationships with Consumers  Omnipresent Brand Availability  Meaningful Engagement

Bringing Innovation to the Table  Shopper Insights Technology  P-O-P WOW

HOW DO WE GET IN THE LOOP?

58

THE COLLABORATIVE ORGANIZATION

Organizational Framework Must Change

Traditional Relationship

Mfg. Marketing Mfg. Sales/Trade

Retailer Marketing

Shopper Consumer

Retailer Merchandising

59

Traditional Relationship

Mfg. Marketing Mfg. Sales/Trade

Retailer Marketing

Shopper Consumer


New Collaborative Relationship

Mfg. Marketing

Retailer Marketing

Mfg. Sales/Trade


Shopper Insights

Retail Store Experience

Shopper Consumer

60

THE COLLABORATIVE ORGANIZATION

Supplier/Retailer Collaboration is Critical

DIRECT CONSUMER ENGAGEMENT

61

National Brands are Becoming Retailers  From retailer reliant to self-reliant


62



63



64


BRINGING INNOVATION TO THE TABLE

Technology is Creating Opportunity  The Secret Weapon of Mobile Technology is INSIGHT

65

We know how many went in

the door

We know who checked out and what they spent

THE GAP

TRENDS IMPACTING OUR BUSINESS


66

BUT… did they:

66

Visit Your Category? Stop There?

Engage? How? Buy? Why?

From Display or Shelf? From You or Your Competition?

What was the R.O.I.I.?


67

Live In-Store Learning Lab


 Not what they SAY they do … but what they really DO do.

Tracks Real Shopper Behavior


68 Powered by C.A.R.T

Smartphone GPS tracking

  linked to P-O-S system





Smartphone GPS tracking

  linked to P-O-S system

Powered by C.A.R.T

iBeacons push promotional offerings





Deep Data & Analytics

  In-store Tracking & Conversion

 FSC data 80+% of Transactions

 Quantitative Analysis of Shopper Behavior




71

Traffic to Store

Traffic to Aisle / Department

Fixture/Product Dwell Events

Dwell Times

Purchase

Dwell-Point Conversion

Defining Metric:



72

% Store

Category

% of Category

Dwell

% of Dwells ConversionOpportunity

TOTAL HBA 67.4%Hair Care 22.0% 49.0% 32.6% 67.4%

25.8% 44.9% 14.6% 85.4%28.0% 40.6% 36.8% 63.2%24.1% 29.4% 42.9% 57.1%

Oral Care 18.6% 40.1% 36.3% 63.7%Pain/GI 27.0% 36.3% 38.9% 61.1%

15.2% 29.0% 43.8% 56.2%Cold/Allergy 32.0% 39.9% 30.9% 69.1%First Aid 13.1% 38.7% 31.4% 68.6%

17.9% 37.0% 28.5% 71.5%Nail Care 29.0% 20.7% 48.2% 51.8%Skin Care / Lotions 9.2% 45.1% 28.1% 71.9%Hand Soap 24.8% 30.9% 26.0% 74.0%Vitamins 18.4% 27.4% 9.0% 91.0%Foot Care 16.6% 27.7% 6.5% 93.5%

25.8% 44.9% 14.6% 85.4%

Skin Care / Lotions 9.2% 45.1% 28.1% 71.9%


SUMMARY

The Retail World Is Changing  There is no one answer § Flexibility is required

Shopper Activation Is Critical  Across multiple touch points § Test & Learn

Store Based Retail Still Key  However evolving/changing § Less will need to be more

Retailer Collaboration is Critical  Leveraging THEIR Insights § Will take organizational change

“The Revolu�on at Retail”

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