Channel Migration and Its Challenges in Todays Economy

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@Symphony. IRI. com Symphony. IRI Group October 30, 2021 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1 1 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

Our discussion this morning Welcome Economy in the News Channel Shifting in 2011 Introduce our 2012 Economic Segments Interaction of California Shoppers in Today’s Economy Questions & Answers Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2 2 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012

Emerging Trends 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 Value channels are emerging as a part of the new “norm” and Drug as the new “convenience” 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: Symphony. IRI Market. Pulse 2012™ Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3 3 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

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 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 4 4 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. http: //money. cnn. com/news/economy/continued. html

Trends shaping mindset shifts: A solid rise of the DJIA Dow Jones Closing 14 000 13 500 13 000 12 500 12 000 SIG fielded 2012 Economic Shopper Segmentation 11 500 11 000 10 500 SIG fielded 2011 Economic Shopper Segmentation Source: Google Finance Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 5 5 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. 4 -окт-12 4 -сен-12 4 -авг-12 4 -июл-12 4 -июн-12 4 -май-12 4 -апр-12 4 -мар-12 4 -фев-12 4 -янв-12 4 -дек-11 4 -ноя-11 4 -окт-11 4 -сен-11 4 -авг-11 4 -июл-11 4 -июн-11 4 -май-11 4 -апр-11 4 -мар-11 10 000

Trends shaping segment shifts: Steadily declining unemployment Unemployment Rate 9, 5 9, 0 8, 5 SIG fielded 2011 Economic Shopper Segmentation 8, 0 7, 5 Source: Bureau of Labor Statistics Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 6 6 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Sep 2012 Aug 2012 Jul 2012 Jun 2012 Apr 2012 Mar 2012 Feb 2012 Jan 2012 Dec 2011 Nov 2011 Oct 2011 Sep 2011 Aug 2011 Jul 2011 Jun 2011 May 2011 Apr 2011 Mar 2011 Feb 2011 Jan 2011 7, 0 May 2012 SIG fielded 2012 Economic Shopper Segmentation

Trends shaping segment shifts: And, continued falling mortgage rates FHLMC: 30 -Year Commitment Rate - Fixed Rate National, (%, NSA) 5, 00 4, 80 4, 60 4, 40 4, 20 4, 00 3, 80 3, 60 3, 40 3, 20 3, 00 SIG fielded 2011 Economic Shopper Segmentation Source: Freddie Mac; Moody's Analytics (ECCA) Forecast Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 7 7 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. ма й 12 ию л 12 се н 12 12 ма р- 12 вян 11 яно 11 се лию н- 11 1 -1 ма й 11 ма р- ян в- 11 SIG fielded 2012 Economic Shopper Segmentation

It Starts with Understanding the Preparation for the Journey! Consumer Understanding Shopper Insights Shopper Marketing Activation An understanding of people’s behavior and the influences, preferences, attitudes driving product consumption Insight as to how consumers become shoppers and the influences that drive shopper conversion The execution of activation programs that directly communicate with and engage consumers and shoppers PLANNING Pre. Store Planning ACTIVATING Context THE SHOPPER JOURNEY USING Usage Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 8 8 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. NAVIGATING In-Store PURCHASING In-Aisle

Cautious Behaviors Drive All Aspects of Trip Planning and Execution Trip Strategies % of Shoppers 62% Look at a store circular either before or at the store Choose the store you went to specifically because it offered lower prices on things you needed 56% 52% 71% Make a shopping list prior to going to the store Stock up on certain items because they were on sale Make additional unplanned purchases after seeing products or deals in the store 67% 51% 50% 51% Source: Symphony. IRI Market. Pulse Survey Q 1 2011 v Q 1 2012 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 9 9 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012 Q 1 2011

Shoppers are Carefully Planning their Grocery Shopping Trips and Embracing a Wide Range of List-Making Tools Over 70% of shoppers make a shopping list prior to making grocery trips List-Making Behaviors % of Shoppers Source: Symphony. IRI Market. Pulse Survey Q 1 2011 v Q 1 2012 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1010 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012

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 Books 55% Electronics 49% Personal care 49% Food Other household items 38% Toys 37% Music 37% Pet supplies 33% Medications 33% Cleaning supplies 32% Beverages 31% Baby supplies Source: Symphony. IRI Market. Pulse, June 2012 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1111 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. 40% Source: Etailing Solutions, survey of 1, 098 consumers Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012 13%

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 One; 1% Ten or More; 21% % of Consumers Shopping Multiple Channels By # of CPG Channels Shopped 2012 - 2009 Two; 2% Three; 4% Four; 8% 20, 9% 22, 4% 22, 7% 64, 0% 63, 5% 63, 3% 64, 1% 15, 1% 14, 4% 13, 2% 2012 2011 2010 2009 Five; 11% Nine; 12% Six; 14% Eight; 14% Seven; 14% <5 Source: Symphony. IRI Consumer Network™, 52 weeks ending 09/09/2012 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1212 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. 5 -9 10 + Source: Symphony. IRI Consumer Network™, 52 weeks ending 09/09/2012, 2011, 2010, 2009 Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012

Walmart is 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 2012 Pt Change Penetration vs 2011 vs 2009 Grocery. X 98. 3% (0. 1) (0. 2) Drug 76. 2% (0. 6) Mass. X/SCX 69. 6% (1. 5) (2. 6) Walmart 81. 2% +0. 3 (0. 3) Conv/Gas 27. 4% (1. 3) (3. 9) Dollar 59. 1% +0. 7 +1. 7 Club 50. 5% +0. 6 +0. 7 Sam’s Club 25. 2% (0. 3) (1. 5) Source: Symphony. IRI Consumer Network™, 52 weeks ending 9/9/2012 vs 2011, 2009. Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1313 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

So how does this impact various shopping groups? 1. 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 2. 3. Survey was fielded to the entire Symphony. IRI consumer panel where approximately 53, 000 completes were collected. Panelists were segmented into one of the six cells based on the algorithm Segments are now available to apply against various consumer panel related deliverables (i. e. , purchase trends, trial & repeat, channel migration, lifestyle segmentations, etc. ). Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1414 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Optimism Income Spending Economic Segmentation

d an Br oice Ch Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1515 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. S Se tore lec tion We identified six distinct groups of households ranging in economic state

Meet the “Downtrodden” Financial & Economy Lifestyle Changes q My family is hurt most by the economic recession. Our income was cut. Even worse, my job is at risk. q 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. q This is not going to end soon. Our financial future a year from now is grim. q 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. q We’re going out with friends or family for entertainment or socializing much less often, and delay many purchases. q We make products last longer, and share more products. Shopping Behavior q 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. q 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. Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1616 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Median Age: 49 Median Income: $38 K 8% of HH’s make $100 K or more Average Family Size: 2. 7 26% College or Postgraduate Skew to rural counties slightly 14. 2% of Households

Meet the “Cautious and Worried” Financial & Economy Lifestyle Changes q My family is hurt by the economic downturn. We are worried about our job security and our investments in our retirement account. q Gas prices, utility costs and even food prices are all rising, so it is hard to meet our monthly expenses. q We don’t believe the economy will rebound soon. Our financial situation a year from now will not get better. q We watch our spending closely. q We eat out less often, serve more “simple”, less expensive meals at home. q 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. q We make personal care and cleaning products last longer. Shopping Behavior q 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. q We make fewer, larger shopping trips and shop closer to home to reduce gas expense. Price is the key for purchasing. Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1717 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Median Age: 55 Median Income: $42 K 10% of HH’s make $100 K or more Average Family Size: 2. 3 24% College or Postgraduate Skew to rural counties slightly 24. 7% of Households

Meet the “Optimistics” Financial & Economy Lifestyle Changes q Current economy has hurt us, but it’s not a big deal. We are optimistic about the future. q Actually, our financial situation is not bad at all. My job is secure. q 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. q We haven’t made big changes, since we believe the current economic conditions are temporary. q We still splurge on premium or gourmet products, and treat ourselves to small indulgences to help ease everyday stress. q 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. Shopping Behavior q 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. q Price has become a more important factor in our purchase decision. Product experience and brand trust are also important to brand purchase. q We shop for some groceries at Wal-Mart, and occasionally online. Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1818 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Median Age: 43 Median Income: $58 K 16% of HH’s make $100 K or more Average Family Size: 2. 5 44% College or Postgraduate Skew to urban counties slightly 17. 1% of Households

The consumer mix has shifted, primarily at both extremes Shopper Segment Size Changes from Q 2 2011 14% 17% Optimistics 19% 17% Carefree 14% 15% Savvy Shoppers 11% 12% 25% 18% 14% 2011 Q 2 2012 Q 2 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 1919 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Start-Ups Cautious and Worried Downtrodden

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 Deal - Trade and Coupon Private Label 47% 36% 31% 19% 25% 20% 21% Total Sample Downtrodden Cautious and Worried 34% 19% Start-Ups 19% Optimistics 26% 18% Carefree 18% Savvy Shoppers % Dollar spending at selected channels Based on Panel Department Data Grocery 14% 20% Drug 15% 14% 25% 24% 9% 4% 5% 8% 2% 4% 10% 3% 4% 48% 47% 45% Total Sample Downtrodden Cautious and Worried Mass Walmart Other 13% 15% 14% 18% 20% 19% 9% 3% 6% 11% 5% 4% 52% 47% 48% Start-Ups Optimistics Carefree 7% 4% 7% Note: Channel shares are exclusive. Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2020 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Club 13% 11% 10% 5% 7% 55% Savvy Shoppers

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 Made least lifestyle sacrifices due to the economy Savvy Shoppers Made most lifestyle sacrifices due to the economy Carefree Cautious & Worried Downtrodden Pessimistic on financial issues over next 12 months Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2121 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

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 Downtrodden Carefree Savvy Shoppers Cautious & Worried Low usage of online sources for grocery shopping Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2222 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. High usage of coupon & circular from home

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 Savvy Shoppers Downtrodden Optimistics Carefree Cautious & Worried Least responsive to in-store display, circular, loyalty card discount and kiosks, and product packaging Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2323 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Most likely driven by low price for grocery shopping

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 Cautious & Worried Start-Ups Optimistics Carefree Savvy Shoppers Least likely to delay major purchases Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2424 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Most likely to try and recommend new CPG products

Have a clear understanding of consumers’ involvement in the 4 ps! 1. Place §Where do they shop? Product 2. §What do they buy? Promotion Price 3. §What role does price play? 4. §What do they respond to? Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2525 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012

Place – identify which consumer groups are key to your retail success % of Retailer Dollars More Optimistics Carefree Savvy Shoppers Start Ups 17% 11% 11% 27% Cautious and Worried Downtrodden More Pessimistic Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2626 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Half of the dollars come from 40% of the population. 22% Walmart Focus on: 49% • In-store circulars • In-store signs/displays • Product labels/packaging

Place – understand key shopper groups in your store and what you need to do % of Retailer Dollars More Optimistics Carefree Savvy Shoppers Start Ups 21% 9% 20% 15% Cautious and Worried 20% Downtrodden 15% More Pessimistic Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2727 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. 1 in 5 dollars stem from Savvy Shoppers, 27% above average. Savvy Shoppers leverage more coupons and trade promotions. Focus on: • In-store kiosks • Online advertising • Television or radio advertising • Retailer website or email Target Source: Symphony. IRI Economic Segmentation Survey Data; Oct 2012

The Great Golden State! California Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2828 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

California HHs are Somewhat Polarized; Disproportionately Downtrodden / Highly Concentrated with Carefree. Today’s Economic Challenges Drive Savvy Shoppers Downtrodden Cautious and Worried Start ups Optimistics Carefree Savvy Shopper 14% 25% 22% 11% 17% 15% 17% 13% 15% 19% Percent of US HHs Percent of California HHs Source: Symphony. IRI Group, National Consumer Panel, Total U. S. All Outlets; 52 weeks ending August 12, 2012 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 2929 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. 20%

California HHs, Especially Those Seeking Value, Make More Shopping Trips Over the Course of the Year Avg. Annual # of Shopping Trips (Average Retail Trip per Shopper) 172 173 Downtrodden 180 179 Cautious and Worried US Shoppers California Shoppers Start ups Optimistics Carefree 167 165 177 168 Savvy Shopper Source: Symphony. IRI Group, National Consumer Panel, Total U. S. All Outlets; 52 weeks ending August 12, 2012 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3030 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. 171 193 188 192

More Quick Trips Instead of Pantry Stocking Trips with Larger Basket Rings This 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 55 57 56 17 17 16 15 14 12 12 8 US California PANTRY STOCKING SPECIAL PURPOSE Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3131 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. FILL-IN QUICK TRIP PANTRY STOCKING SPECIAL PURPOSE 61 17 14 FILL-IN QUICK TRIP

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 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3232 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

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 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3333 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

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 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3434 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.

Conclusions: Manufacturers 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 • Work closely with retailers that have similar “best shopper” profiles to your own • Let your product promotions drive trips with your most valued buyers • Regularly evaluate the evolving competitive channels and retailers • Recognize where your most valued buyers are, what types of trips, channels and store locations are most critical Identify new growth opportunities and risks through ongoing category and brand channel migration tracking • 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 Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3535 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. • 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 • 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

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 • Track shifts in trip mix at the market level and across key shopper segments • Collaborate with your manufacturing partners; know which shoppers you share; talk to them together • Evaluate competitive set at most granular levels; keep an eye on channel changing and acceptance • Have the products and strategies to drive loyalty among your most important shoppers • Watch the migration from traditional channels to online • Match communication and promotional strategies to the optimal vehicles your shoppers desire athome, online, on-the-go or in-store • Identify key brands that drive migration • Know your most important shoppers by understanding more than their behaviors, but also their lifestyles Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3636 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary. Protect and grow share among top shoppers • 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

Many Thanks! Questions and Comments? California Copyright © Symphony. IRI Group, 2012. Confidential and Proprietary. 3737 Copyright © Symphony. IRI Group, 2010. Confidential and Proprietary.