Retail Revolution: How Technology And The New

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Retail Revolution:How Technology and the New Consumer areTransforming the Food Retail LandscapeAndrew HarigSenior Director – Sustainability, Tax and TradeFood Marketing Instituteaharig@fmi.org202-220-0628

FMI proudly advocates on behalf of the foodretail industry FMI conducts programs inpublic affairs, food safety,research, education andindustry relations onbehalf of its more than1,225 food retail andwholesale membercompanies in the U.S.and around the world.FMI membership coversthe spectrum of diversevenues where food issold.More thanRegionalfirms 770billion330combined annualsales volumeassociate membersthat include retail40,000supplierpartnersretail foodstores260companiesoutside the USin more insNearly25,000pharmacies2

Supermarkets Today Look VeryDifferent Than They Did 35 Years Ago Selection– Average Number of SKUs 1980 : 14,145 2015 : 39,500Cost– Food as a % of Disposable Income– 1980 At Home – 9.0% Total - 13.2%– 2014 At Home – 5.5% Total - 9.7%Technology– Self Checkout– Online Sales3

Technology and a Changing Consumer are Compressingthe Next Retail Revolution into an Even Tighter Timeframe Store Level– New Entrants– Digital Technology / DigitalCommerce Consumer Level– Rise of the Millennial /Generation X– Digitally Engaged Consumer– Radical Transparency4

The Good News for Food Retailers is ThatMillennials and Gen Xers are Willing to Spend onFood Weekly Household Grocery Expenses – By Age GroupAverage WeeklySpendingAt Primary StorePrimary Store %Millennials (18-37) 117.19 87.0474%Generation X (38-51) 122.81 91.3474%Boomers (52-70) 93.02 72.6878%Matures (71 ) 82.82 66.8981% The Bad News is That They Are Slightly Less Loyal to Their Primary StoreThan Other Age Groups5FMI, U.S. Grocery Shopper Trends 2016

This Trend is Driving a Rise in Multi-Channel Shopping AmongConsumers:Shoppers average 3.7 different stores a month67%56%54%52%49%Channel of Primary Store27%22%23%25%22%SupermarketSupercenter7% 6% 5% 6% 5%2% 2% 3% 2% 2%WarehouseDiscount2005201020141%7% 4% 4% 7%Limited Assortment2015Fairly Often/Almost Always visitChannelshoppingfrequencyandloss ofprimarystoreSource: FMI U.S. Grocery Shopper Trends, 2016.Regular full-service supermarketSupercenterConventional discount storeWarehouse Club storeLimited AssortmentDollar storeDrug storeNatural Organic storeConvenience storeEthnic food storeOnline-only food store1% 2% 2% 3% 3%Organic/specialty20169% 9% 7%No Primary Store* 9%21%20%18%13%8%7%5%

In Addition, Consumers are IncreasinglyPlanning, Shopping and Exploring FoodCulture Through Social Media7

Online Tools Are Playing a Bigger Role in HowConsumers Interact With Retailers8

The New Consumer Isn’t Just Digitally Engaged– They’re Engaged With Where Their FoodComes From, How It is Produced and How ItImpacts Their LifeHow Do You Balance “Value” with “Values”?9

Evolving Consumer ValueDrivers Consumers are activelyshaping andEXPANDING the numberof DRIVERS theyincorporate into their foodpurchasing DECISIONSSource: Deloitte, Capitalizing on the Shifting FoodValue Equation (Report for FMI and GMA).10

Shoppers Believe That Eating Food Prepared atHome is Healthier for Them Than Eating Out89of Shoppers believe eating AT HOME isHEALTHIER than eating at a restaurant%Yet, most are concerned they’reNOT GETTING ENOUGH GOODNUTRITION in the food they eatWhy concerned?Shopper concern about the nutritional content intheir foodTop-2 box"Not Concerned"Bottom-2 box"Somewhat/VeryConcerned"61%I’m concerned about my health ingeneral44%Some of the food I eat has toomuch of something I need to avoid22%The foods I eat aren’t nutritiousenough in general20%17%18%82%80%83%82%19%I’m not getting enough of specificnutrients I ure(71 )18%I have a specific health concernthat affects my food choices18%18%82%TotalSource: FMI U.S. Grocery Shopper Trends, 2016. A18: “11

Shoppers Recognize Farmers & Their PrimaryStore as Their AlliesWhen it comes to helping you stay healthy, which of these groups tend tobe on your side and which tend to be working against you?Working against meMy familyDoctorsMy friendsFarmersFitness/health clubsMy “primary” food storeDrug storesHealth insurance %24%Food stores in general11%15%27%Local restaurantsGovernment institutionsCelebrity chefsThe news mediaFood manufacturersThe entertainment industryFast food restaurantsWorking for me13%23%33%31%53%27%17%16%13%13%9%9%12Source: FMI U.S. Grocery Shopper Trends, 2016.

The Consumer LandscapeThe new path-topurchase leveragesdigital, social,mobile mediaChanging familymakeup and decisionmaking processQuest for value quality, price andassortmentMulti-channelshopping andchannel blurringFrom the 1970s 500to today’s 5,000 adsper dayShoppers aremore diversethan ever withincreasinglyvaried needs in afragmentingretail landscape with dramaticallymore complexmedia stimuli requiringpersonalizationIncreasing ethnicdiversity among USshoppersImportance ofconvenience andshopping experienceeCommerce replacingbrick & mortar withnew business models(home delivery,click and pickup)Increasing shift inmobile - 105B in adspend by 2020 onmobile platformsaloneA tailored shoppingexperience includingavailable product mixand availability plusspecialized offersSource: IRI: The Connected Consumer13

So, how is the “new consumer” changing theretail landscape?“Revolution” isn’t hyperbole – technology and the newconsumer are likely to create a retail environment thatlooks very different from today’s.14

FMI’s CEO Laid Down a Challenge to OurIndustry – Rethink How You See CompetitionI would humbly suggest we consider upgrading and modernizing ourconcept of competition, because I fear that if some or all of us in this roomconsider those sitting around us as our primary competition, we’reengaging in an outdated mode of thinking. I believe our primary threat lieselsewhere.I would submit that restaurants, online, and mail order kits are grabbingmore shares of the 14 meals and 14 to 21 snacking occasions a weekthan your traditional supermarket competition is. Consumers do not makedistinctions between foodservice and retail. They simply want their desirefor their next meal to be met.And if we don’t compete well with these alternative venues and emergingchannels, the slice of the pie the traditional food retailer competes for willjust keep getting smaller.15

A Key Component of Succeeding in anOmnichannel Environment is BuildingSuccessful Digital EngagementSix Keys for Online onveniencePersonalizationSource: FMI & Nielsen, The Digitally Engaged Food Shopper, 2017.16

Online Sales: A Deeper DiveOnline Food and Beverage Sales Could Reach 100 Billion by 2025Total Online Sales% of Retail SalesGrocery Store EQ2016 20.5 Billion4.29%764 Stores2025 Conservative 44.6 Billion8.51%1,659 Stores2025 Moderate 72.6 Billion13.8%2,702 Stores2025 Aggressive 103 billion19.7%3,844 StoresSource: FMI & Nielsen, The Digitally Engaged Food Shopper, 2017.17

Five Key Trends Driving the Move Online:This is Not the End of Brick and Mortar Consumers are already shopping for groceries across channels andthis will accelerate. Large-volume center store categories will migrate online. Retailers and manufacturers are experimenting to find their wayonline. Grocery will come online faster than other industries. Younger, newer and more digitally engaged shoppers will adopt newtechnologies faster.Source: FMI & Nielsen, The Digitally Engaged Food Shopper, 201718

Retailers Are Innovating to Compete Online, ButChallenges Remain Direct to Consumer Sales– Requires a Significant Investment in Distribution Networks and/or Supply ChainPartnerships– Shipping Direct to Consumers Profitably is Challenging Even for Established ERetailers Home Delivery– Creates Personnel Challenges – Who Will Pick, Pack and Deliver an Order– Requires Consumers to Be Home and Threatens the “Convenience Factor”– Creates New Cost Center With No Guarantee of Overall Sales Increase Click and Collect– Tough Balancing Act Between Consumer Needs and Employee Training andExpectations– New Cost Center– Will Consumers Pay a Premium?Source: FMI & Nielsen, The Digitally Engaged Food Shopper, 201719

Even Online, Consumers Will Demand “Value” and“Values”Transparency Loyalty56%Of Consumers Say They Would Very LikelyRemain Loyal to a Brand for Life If That BrandOffers Complete TransparencySource: Label Insight20

Consumer Information Transparency Initiative21

Thank YouAndrew HarigSenior Director – Sustainability, Tax and TradeFood Marketing Instituteaharig@fmi.org202-220-062822

2005 2010 2014 2015 2016 Channel of Primary Store * * Source: FMI U.S. Grocery Shopper Trends, 2016. Fairly Often/Almost Always visit 2015 2016 Regular full-service supermarket 86% 85% Supercenter 48% 54% Conventional discount store 33% 38% Warehouse Club store 28% 29% Limited Assortment 18% 21% Dollar store 16% 20% Drug store 17% 18%

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