Channel Migration and Its Challenges in Today’s Economy

1. Channel Migration and Its Challenges in Today’s Economy Winning the Shopper in Today’s Turbulent Economic Environment Larry Levin Executive General Manager, Consumer Insights  Larry.Levin@SymphonyIRI.com SymphonyIRI Group February 27, 2013

2. Our discussion this morning

3. Today, Manufacturers and Retailers Are Balancing Emerging Trends – Across the Country and Across the Aisles! Financial Outlook The Search for Value One in five shoppers believes they will be worse off financially one year from now Channel Shifting Channel Shifting Value channels are emerging as a part of the new “norm” and Drug as the new “convenience” Emerging Trends Shopper is the Focal Point Shopper-Centric Targeting and Activation Need to understand in detail how consumers become shoppers, and influences that drive shopper conversion Source: SymphonyIRI MarketPulse 2012™

4. Headlines about the economy are persistent and conflicting! Seniors on Social Security squeezed by rising prices Postal Service increasing prices Jobless claims fall to four-year low California gas prices hit record Teaching jobs are finally coming back A new housing boom http://money.cnn.com/news/economy/continued.html

5. Trends shaping mindset shifts: A solid rise of the DJIA SIG fielded 2012 Economic Shopper Segmentation SIG fielded 2011 Economic Shopper Segmentation Source: Google Finance

6. Trends shaping segment shifts: Steadily declining unemployment SIG fielded 2011 Economic Shopper Segmentation SIG fielded 2012 Economic Shopper Segmentation Source: Bureau of Labor Statistics

7. Trends shaping segment shifts: And, continued falling mortgage rates SIG fielded 2011 Economic Shopper Segmentation SIG fielded 2012 Economic Shopper Segmentation Source: Freddie Mac; Moody's Analytics (ECCA) Forecast

8. It Starts with Understanding the Preparation for the Journey! Consumer Understanding An understanding of people’s behavior and the influences, preferences, attitudes driving product consumption Shopper Insights Insight as to how consumers become shoppers and the influences that drive shopper conversion Shopper Marketing Activation The execution of activation programs that directly communicate with and engage consumers and shoppers Planning Pre- Store Planning Activating Navigating The Shopper Journey In-Store Context Purchasing Using Usage In-Aisle

9. Cautious Behaviors Drive All Aspects of Trip Planning and Execution Trip Strategies % of Shoppers Source: SymphonyIRI MarketPulse Survey Q1 2011 v Q1 2012

10. Shoppers are Carefully Planning their Grocery Shopping Trips and Embracing a Wide Range of List-Making Tools List-Making Behaviors % of Shoppers Over 70% of shoppers make a shopping list prior to making grocery trips Source: SymphonyIRI MarketPulse Survey Q1 2011 v Q1 2012

11. Consumers Use the Internet For Many Shopping-Related Activities and to Buy a Wide Range of CPG Products Digital Media Usage % of Shoppers – Top 2 Box Responses What People Are Buying Online % of Shoppers Who Bought the Product – Among Those Who Have Shopper Online in the Past 6 Months Source: SymphonyIRI MarketPulse, June 2012 Source: Etailing Solutions, survey of 1,098 consumers

12. Most shoppers visit multiple channels to meet CPG needs, but recent trends hint of some consolidation of spending # of CPG Channels Shopped % of Consumers 2012 % of Consumers Shopping Multiple Channels By # of CPG Channels Shopped 2012 - 2009 Source: SymphonyIRI Consumer Network™, 52 weeks ending 09/09/2012 Source: SymphonyIRI Consumer Network™, 52 weeks ending 09/09/2012, 2011, 2010, 2009

13. Walmartis regaining household penetration while Sam's Club has seen a decline. Total Dollar and Club continue their upward trajectories! CPG Shopping Trends % Households Buying by Channel Source: SymphonyIRI Consumer Network™, 52 weeks ending 9/9/2012 vs 2011, 2009.

14. So how does this impact various shopping groups? Battery of questions regarding the economy, product purchase and shopping behavior fielded to a representative sample of 2000 U.S. primary grocery shoppers Latent class modeling was used to create the six segments, fusing behaviors and attitudes Creating an algorithm to predict membership Survey was fielded to the entire SymphonyIRI consumer panel where approximately 53,000 completes were collected. Panelists were segmented into one of the six cells based on the algorithm 1. 2. Segments are now available to apply against various consumer panel related deliverables (i.e., purchase trends, trial & repeat, channel migration, lifestyle segmentations, etc.). 3.

15. We identified six distinct groups of households ranging in economic state • Store • Selection • Brand Choice

16. Meet the “Downtrodden” • My family is hurt most by the economic recession. Our income was cut. Even worse, my job is at risk. • Gas prices, utility costs and even food prices are all rising. Borrowing (credit cards and loans) becomes harder for us. It is difficult for us to meet monthly expenses. • This is not going to end soon. Our financial future a year from now is grim. Financial & Economy Lifestyle Changes • We now serve more “simple”, less expensive meals at home. We snack less, eat smaller portions and use frozen foods in individual portions so we can only use the amount we need. • We’re going out with friends or family for entertainment or socializing much less often, and delay many purchases. • We make products last longer, and share more products. Median Age: 49 Median Income: $38K 8% of HH’s make $100K or more Average Family Size: 2.7 26% College or Postgraduate Skew to rural counties slightly Shopping Behavior • We prepare for shopping – reading in-store circulars and going online, deciding where to shop based on low price offers and to make fewer larger trips to save on gas. • Price and deals are the keys for purchasing. We are buying more private label products and look for OTC medicines that treat several symptoms and products that family members can share. 14.2% of Households

17. Meet the “Cautious and Worried” • My family is hurt by the economic downturn. We are worried about our job security and our investments in our retirement account. • Gas prices, utility costs and even food prices are all rising, so it is hard to meet our monthly expenses. • We don’t believe the economy will rebound soon. Our financial situation a year from now will not get better. Financial & Economy Lifestyle Changes • We watch our spending closely. • We eat out less often, serve more “simple”, less expensive meals at home. • We have cut back on favorite activities, such as entertainment and socializing. We delay many purchases, and go to hair salons or spas less often. • We make personal care and cleaning products last longer. Median Age: 55 Median Income: $42K 10% of HH’s make $100K or more Average Family Size: 2.3 24% College or Postgraduate Skew to rural counties slightly Shopping Behavior • We don’t put much energy into shopping preparation. We don’t search for product information online or collect coupons from various sources. We make a shopping list to remember what to buy. • We make fewer, larger shopping trips and shop closer to home to reduce gas expense. Price is the key for purchasing. 24.7% of Households

18. Meet the “Optimistics” Financial & Economy • Current economy has hurt us, but it’s not a big deal. We are optimistic about the future. • Actually, our financial situation is not bad at all. My job is secure. • We believe the economy will rebound within 6 months, then our investments, real estate value and our income will all get better a year from now. Lifestyle Changes • We haven’t made big changes, since we believe the current economic conditions are temporary. • We still splurge on premium or gourmet products, and treat ourselves to small indulgences to help ease everyday stress. • But we watch our spending more closely to meet growing needs. We’ve cut back on favorite activities. We bring snacks/food from home to work/school to save money. Median Age: 43 Median Income: $58K 16% of HH’s make $100K or more Average Family Size: 2.5 44% College or Postgraduate Skew to urban counties slightly Shopping Behavior • It is convenient for us to get product information, recipes and download coupons online. We don’t engage in collecting coupons or read store circulars as much. • Price has become a more important factor in our purchase decision. Product experience and brand trust are also important to brand purchase. • We shop for some groceries at Wal-Mart, and occasionally online. 17.1% of Households

19. The consumer mix has shifted, primarily at both extremes Shopper Segment Size Changes from Q2 2011

20. Savvy Shoppers and Start-ups are heavily drawn for the deal; more stressed segments are heavily involved in value channels % Dollar spending with Trade and Coupons, and Private Labels Based on Panel Data % Dollar spending at selected channels Based on Panel Department Data Note: Channel shares are exclusive.

21. The groups are balanced in the sacrifices made due to the economy and optimism – Start-ups are making the most sacrifices Optimistic on financial issues over next 12 months Optimistics Start-Ups Savvy Shoppers Made least lifestyle sacrifices due to the economy Made most lifestyle sacrifices due to the economy Carefree Cautious & Worried Downtrodden Pessimistic on financial issues over next 12 months

22. Both Savvy Shoppers and Start-Ups plan their purchasing by finding deals in advance of going to the store High usage of online sources for grocery shopping Start-Ups Optimistics Low usage of coupon & circular from home High usage of coupon & circular from home Savvy Shoppers Downtrodden Cautious & Worried Carefree Low usage of online sources for grocery shopping

23. Start-Ups and Carefree shoppers are starkly different regarding responsiveness to merchandising efforts and price Most responsive to in-store display, circular, loyalty card discount and kiosks, and product packaging Start-Ups Least likely driven by low price for grocery shopping Most likely driven by low price for grocery shopping Savvy Shoppers Downtrodden Optimistics Carefree Cautious & Worried Least responsive to in-store display, circular, loyalty card discount and kiosks, and product packaging

24. Downtrodden shoppers are the most likely to delay major purchases and on the fence about trying/recommending new products Most likely to delay major purchases Downtrodden Least likely to try and recommend new CPG products Most likely to try and recommend new CPG products Cautious & Worried Start-Ups Optimistics Savvy Shoppers Carefree Least likely to delay major purchases

25. Have a clear understanding of consumers’ involvement in the 4ps! 1. • Where do they shop? Place 2. • What do they buy? Product 3. • What role does price play? Price 4. • What do they respond to? Promotion

26. Place – identify which consumer groups are key to your retail success % of Retailer Dollars More Optimistic Half of the dollars come from 40% of the population. • Focus on: • In-store circulars • In-store signs/displays • Product labels/packaging 49% More Pessimistic

27. Place – understand key shopper groups in your store and what you need to do 1 in 5 dollars stem from Savvy Shoppers, 27% above average. Savvy Shoppers leverage more coupons and trade promotions. % of Retailer Dollars More Optimistic • Focus on: • In-store kiosks • Online advertising • Television or radio advertising • Retailer website or email More Pessimistic

28. The Great Golden State! California

29. California HHs are Somewhat Polarized; Disproportionately Downtrodden / Highly Concentrated with Carefree. Today’s Economic Challenges Drive Savvy Shoppers Source: SymphonyIRI Group, National Consumer Panel, Total U.S. All Outlets; 52 weeks ending August 12, 2012

30. California HHs, Especially Those Seeking Value, Make More Shopping Trips Over the Course of the Year Source: SymphonyIRI Group, National Consumer Panel, Total U.S. All Outlets; 52 weeks ending August 12, 2012

31. More Quick Trips Instead of Pantry Stocking Trips with Larger Basket RingsThis Dynamic is Especially Relevant Among Carefree Shoppers Optimistic Trip Type % of CPG Trips by Trip Mission Carefree Trip Type % of CPG Trips by Trip Mission

32. Internet Usage for CPG Shopping is Similar for California vs. the United States, But California is Less Likely to Use Twitter and Facebook to Obtain Coupons Impact of the Internet and Online Information Sources: Top-2 Box

33. California Residents are More Likely to Choose Brands Based on Shopper Loyalty Card Discounts and Less Likely to Rely on Previous Brand Familiarity Why Specific Brands are Chosen: Top-2 Box

34. California Residents are More Likely to be Early Adopters of New Products and More Open to Trying Them Attitudes Towards New Packaged Goods Products : Top-2 Box

35. Conclusions: Manufacturers • Identify new growth opportunities and risks through ongoing category and brand channel migration tracking • Align distribution, marketing and merchandising strategies with channel migration patterns • Protect and grow share among top shoppers • Stay close to your partners’ shoppers to understand trip mix and how it impacts their stores • Regularly evaluate the evolving competitive channels and retailers • Understand the shift to online and what products and categories are most apt to influence migration • Shoppers are the prize; spend time understanding their past to predict their futures and recognize how your brands’ play a role in that decision hierarchy • Work closely with retailers that have similar “best shopper” profiles to your own • Recognize where your most valued buyers are, what types of trips, channels and store locations are most critical • Connect with consumers by driving your most effective merchandising and promotional strategies by leveraging traditional and new media platforms • Reach them online, at-home, in-store and on-the-go with personalized communication • Let your product promotions drive trips with your most valued buyers • Create specially-targeted promotions that reward and entice your most important buyers • Maximize in-store presence by demonstrating to retailers the mutually beneficial impact of your products in their baskets

36. Conclusions: Retailers • Identify new growth opportunities and risks through ongoing category and brand channel migration tracking • Align distribution, marketing and merchandising strategies with channel migration patterns • Protect and grow share among top shoppers • Track shifts in trip mix at the market level and across key shopper segments • Evaluate competitive set at most granular levels; keep an eye on channel changing and acceptance • Watch the migration from traditional channels to online • Identify key brands that drive migration • Know your most important shoppers by understanding more than their behaviors, but also their lifestyles • Collaborate with your manufacturing partners; know which shoppers you share; talk to them together • Have the products and strategies to drive loyalty among your most important shoppers • Match communication and promotional strategies to the optimal vehicles your shoppers desire at-home, online, on-the-go or in-store • Drive satisfaction, trips and basket size with specially-targeted promotional programs that entice and reward top shopper segments • Maintain a deep understanding of emerging shopping patterns and competitive threats among key shopper and target segments

37. Many Thanks! Questions and Comments? California