2018 Optimizing Checkstand Merchandising Maximizing Shopper Interaction in a New Era of Technology

Transcription

1 2018 Optimizing Checkstand Merchandising Maximizing Shopper Interaction in a New Era of Technology

2 Research Methods FEF Relies on Several Methods Checkout space allocation audits conducted by: TIR Associates detailed category measurements for all checkout categories by lane type Conducted in August of 2017 Retailers include: Kroger Safeway Giant Eagle Publix Jewel Harris Teeter Hy-Vee Tom thumb King Soopers Marianos Ralph s Albertsons Food Lion Pick-n-Save Brookshire Lowes Foods Price Chopper Vons Woodman s Consumer Interviews of Front-End checkout buyers Interviews with 1,500 grocery front-end checkout buyers regarding their shopping attitudes and purchase habits at the front-end checkstands Checkout sales performance data provided by IRI for checkout categories in grocery channel Nationally projected 1

3 Research Methods FEF Relies on Several Methods (cont d) 4 Data from Willard Bishop Super Study 2016 delivered in Total Grocery COT Department Data for C/O Categories = C/O + Gondola (provided by Nielsen) In Store Video Observation (conducted by Video Mining) Primary Metrics: Conversion Rates, Consumption & Shopping Behavior In-store video (including facial recognition) captures consumer behavior T-log data matched with video to understand purchase behavior N = Front End trips 4,173,178 National Sample of Grocery Retailers Mobile Eye Tracking (in collaboration with Indiana University) Mobile Eye Tracking Device (eye glasses mounted) used to capture visual attention Exit interviews: Shopability and Attitudes/Shopping Questions N = 313 National Sample of Grocery Retailers and Lab Research 2

4 Seven Key Insights for Checkout Optimization The checkout power categories of Beverages, Magazines & Confectionery generate over 81% of front-end checkout sales Improving C/O Shopper Conversion by 1% nationwide could add over $65M in Revenue Annually ($1,707 per store)* Merchandising the Power Categories on every lane is critical Shoppers spend more time looking at the Customer Left Arm & ROS top tiers when approaching checkout; Power Categories must be available in these areas Secondary displays detract significantly from primary checkout end-cap displays Most C/O categories are not growing in step with historical growth rates; ensure that quality and amount of space is allocated for those categories/items with the highest sales potential Focus should also be provided on those categories that get a higher percentage of their total store sales from the front-end checkouts; those categories are primarily Magazines & Gum * Source: Progressive Grocer 2016, DHC Analysis 3

5 The Front-End Checkout Is A Crucial Area of the Store for Retailers A location most every shopper passes Represents a significant source of impulse sales Front-End checkstands generate 0.9% of store sales and 1.04% of store profits Major location for immediate consumption items Consumable snacks and beverages Time Sensitive Products Source : U.S Census Bureau, IRI Front-End Sales 2017 DHC Analysis 4

6 Front-End Checkstands Deliver $5.3 Billion in Supermarket Sales Estimated 2016 Front-End Sales Dollar Sales % Change vs. Year Ago Average of 2017 and 2016 Total Store Front-End Check Stand 2.3% 3.0% $5.3 Billion Front-End Share of Total Store Sales = 0.9% The Front-End Check Stand is Growing at a Higher Rate Compared To Total Store Growth Rate over the last 2 years * Statista/U.S. Census Bureau IRI Front-end Sales Through Mid-July 2017,2016, 2015 DHC Analysis 5

7 Retailers Are Facing a Changing Landscape Increased Retailer Focus Retail Design & Style Front-End Changes Basket size Checkout trips Overall sales decline Desire for promotion space Mobile payment Retailer apps Average program life = 4.5 years Continued space allocation adjustment Streamlined look Lower profile fixtures Reduced number of lanes Design flexibility for ability to react to market changes LED Lighting Emerging Categories New item speed to market Additional & larger beverage coolers Some experimenting with healthy checkouts Digital retailer service such as In-Store Pick-up or Home Delivery Commitment to self checkout High velocity checkouts Continued technology improvements 6

8 Front-End Checkout Buyers Survey Results - Shopping Behaviors and Attitudes

9 Candy, Gum, Carbonated Beverages, Bottled Water, and Salty Snacks Are the Front-End Categories Most Front-End Buyers Have Purchased What Categories Have You Ever Purchased (HH Penetration) % of Respondents (Multiple answers allowed) Magazines 43% Candy Gum Mints 56% 83% 73% Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages 32% 47% 65% 58% Batteries Phone/Gift Cards Salty Snacks Nuts/Seeds Meat Snacks Nutrition/Energy Bars 38% 34% 37% 42% 30% 56% Magazines are purchased by 43% of Front-End Buyers Source: FEF Online Consumer Interviews 2017 Question: Q6.1 Have you EVER purchased any of the products merchandised at the checkout lanes? N = 500 8

10 Most Front-End Checkout Categories Are Purchased Frequently % of Shoppers Buying Frequency at Checkout Once a Month or More (% of Purchasers of Categories) Magazines Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages 65% 66% 54% 77% 75% 83% 68% 78% Batteries Phone/Gift Cards 23% 24% Salty Snacks Nuts/Seeds Meat Snacks Nutrition/Energy Bars 77% 68% 53% 72% Categories where over 75% of respondents purchased once a month or more include magazines, carbonated beverages, bottled water, non-carbonated beverages, and salty snacks, Source: FEF Online Consumer Interviews 2017 Question Q6.2 Of items purchased from the checkout in the last 6 months, how frequently do you make the purchases? N varies by category purchased 9

11 Supermarket Retailers Have an Opportunity to Increase Impulse Levels of Key Front-End Categories % of Shoppers Buying on Impulse (% of Purchasers of Categories) Magazines 41% Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages 37% 24% 43% 25% 62% 62% 76% Changes to front-end merchandising and promotional activities could enhance impulse purchase rates of key categories Batteries Phone/Gift Cards 29% 21% Salty Snacks Nuts/Seeds Meat Snacks Nutrition/Energy Bars 42% 37% 37% 64% After years of research, it is evident that recall of impulse purchases is lower for on-line research than compared to in-store research; current 2017 data is a strong baseline Source: FEF Online Consumer Interviews 2017 Question Q6.3 Of the items purchased in the last 6 months, was the most recent purchase bought on impulse or planned? N varies by category purchased 10

12 Front-End Power Categories Are Defined By Key Metrics High performing retailers consider 4 essential shopper demand criteria when allocating space 1 Household Penetration 4 $ Share of Front-End Sales Front-End Power Categories 2 Frequency of Purchase 3 Impulsiveness of Purchase Source: Front-End Focus, DHC Analysis 11

13 A Number of Key Front-End Categories Score Highly And Are Considered Power Categories Lower Scores Mixed Scores High Scores Batteries Non-Carbonated Beverages Candy Phone/Gift Cards Energy Drinks Gum Nuts/Seeds Nutrition/Energy Bars Carbonated Beverages Mints Salty Snacks Meat Snacks Magazines Bottled Water High scores are generated by household penetration, frequency of purchase, and impulsiveness of purchase Focus on key categories which Have high Household Penetration Have high Purchase Frequency Provide higher Impulse Sales Source: FEF Study, DHC Analysis 12

14 Many Categories Are Viewed to Be Important to Merchandise at Front-End Checkouts How Important Is It to Have These Categories Available at Checkout? % of Respondents Answering Somewhat, Very, Extremely Important Magazines Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages Batteries Phone/Gift Cards Salty Snacks Nuts/Seeds Meat Snacks Nutrition/Energy Bars 41% 48% 58% 51% 49% 61% 39% 44% 46% 43% 50% 43% 32% 36% Source: FEF Online Consumer Interviews 2017 Question Q7 Thinking about your personal shopping habits at the grocery store, how important to you for the listed products be available at the checkout lanes? N =

15 46% of Front-End Buyers Only Look at Certain Items Displayed at the Front-End Checkstands % of Respondents that agree completely/somewhat I use my shopper loyalty card when I shop 63% I prefer to use self-checkout lanes wherever possible I only look at certain items to be displayed in the checkout lanes I often buy products on impulse when I see them at checkout I use my mobile device while waiting in line at checkout I will purchase promoted items when displayed at the checkout lanes I would like to pay for my purchase with my phone/mobile device 22% 49% 46% 39% 45% 45% Perhaps changes to front-end merchandising of key front-end categories can get front-end buyers to shop more front-end categories Source: FEF Online Consumer Interviews 2017 Question Q9. Please indicate how much you agree or disagree with each statement regarding how you shop in the grocery store/supermarket. N = 1,500 14

16 Almost 50% of Respondents Were Not Looking for New or Promoted Items at the Checkout When completing your shopping trip were you aware if there were new items displayed in or around your checkout lane? (% of Respondents) I am not sure, I was not looking for any new or promoted items 49% I did see new/different items displayed in the checkout lane since the last time I shopped I did not see any new items, but I was shopping the area 19% 16% I did not "shop" the front-end checkout 12% I purchased an item which was not displayed at the front-end previously 3% As mentioned before, perhaps changes to front-end merchandising and promotion can get buyers to look for new or promoted front-end items Source: FEF Online Consumer Interviews 2017 Question: Q10 Were you aware if there were new items displayed in or around your checkout lane? N = 1,500 15

17 Over Two-Thirds of Respondents Felt It Was Somewhat/Very Important to Have All Lanes Merchandising the Same How important is it to you regarding the products displayed at front-end checkouts? (% of Respondents Shopping The Front-End Answering Somewhat/Very Important) Displaying a "sale of the week" or hot item at the front-end checkouts 82% Changing the selection of items at the front-end checkout lanes seasonally 79% Advertising items displayed at front-end 77% Having all the checkouts have the same merchandise displayed 69% Keeping the checkout lanes the same year-round 52% Source: FEF Online Consumer Interviews 2017 Question: Q11 Please rate how important it is to you regarding the products displayed at the front-end checkouts N varies by statement 16

18 Checkout Category Space and Profit Performance

19 Regular Lanes Account for Almost 60% of Total Front- End Checkstand Space Share of Front-End Linear Space by Lane Type Self-Checkout Lanes, 13.3% Express Lanes, 28.5% Regular Lanes, 58.2% Source: TIR Retail Audits, August/September

20 Confectionery Products Account for 45% of Total Front-End Space Across All Lanes Share of Front-End Linear Space All Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks Batteries Phone/Gift Cards Salty Snacks Meat Snacks Nuts/Seeds Nutrition/Energy Bars 16.0% 26.6% 13.6% 5.1% 12.2% 6.2% 2.4% 1.5% 2.0% 1.9% 6.0% 4.2% 1.3% 0.7% 1.3% 45.4% Magazines and beverages account for 28% of front-end space Source: TIR Retail Audits, August/September

21 In Regular Lanes, Confectionery Items Have Over 47% of Front-End Space Share of Linear Space Regular Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks Batteries Phone/Gift Cards Salty Snacks Meat Snacks Nuts/Seeds Nutrition/Energy Bars 16.4% 28.0% 14.4% 4.8% 9.0% 4.3% 2.0% 1.4% 1.4% 2.3% 6.9% 4.0% 1.3% 0.6% 1.7% 47.1% Magazines and beverages have 25% of front-end space Source: TIR Retail Audits, August/September 2017 *Less than 0.1% 20

22 In Express Lanes, Confectionery Represents 44% of Front-End Space Share of Linear Space Express Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks Batteries Phone/Gift Cards Salty Snacks Meat Snacks Nuts/Seeds Nutrition/Energy Bars 15.3% 25.3% 14.0% 5.1% 12.1% 4.0% 3.3% 1.6% 3.2% 2.0% 5.4% 5.6% 1.5% 0.7% 1.2% 44.4% Magazines and Beverages have 27% of front-end space in express lanes Source: TIR Retail Audits, August/September

23 In Self-Checkout Lanes, Confectionery Accounts for Almost 40% of Front-End Space Share of Linear Space Self-Checkout Lanes Front-End Checkstands Magazines 16.0% Total Confectionery Candy Gum Mints 9.4% 6.7% 23.5% 39.6% Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks Batteries Phone/Gift Cards Salty Snacks Meat Snacks Nuts/Seeds Nutrition/Energy Bars 2.4% 2.0% 2.0% 0.1% 3.6% 2.0% 1.0% 1.5% 0.0% 26.1% 19.7% Beverages have 26% of front-end space in self-checkout lanes Source: TIR Retail Audits, August/September

24 Profit: A Better Indicator of Checkout Departmental Health and True Category Contribution Front End Focus has been enhanced by the addition of a detailed True Profit model fueled by the WBC Super Study Major Innovation = Data availability for the development of the FEF profit model Is Profit a better indicator of how space should be allocated? Yes, many items may be present on a POG but are not profitable which is a drain on retail resources Retailers may argue that items are carried for Customer Convenience but every square inch of retail space should be profitable in order to allow a retailer to compete more effectively with other brick-and-mortar as well as on-line retailers Included Activity Based Cost (ABC) Elements Included Profit Model Elements o o o o o o Warehousing/Receiving Transportation/Loading Inventory Store Occupancy Direct/Indirect Labor Shelf Facing/Stocking o Adjusted Cost of Goods o Slotting Fees o Value of Scan Based Trading (SBT) o Performance Based Trade Funds Off Invoice Trade Funds Bill-Backs Scan-Downs Temporary Price Reductions (TPR) Source : U.S Census Bureau, IRI Front-End Sales 2017 DHC Analysis 23

25 In Many Categories, the Front-End Checkstand Is Growing Faster Than the Rest of the Store % of Total Store Sales Generated by Front-End Checkstands* Carbonated Beverages Candy Gum Energy Bars Magazines 9.8% 21.6% 41.1% 69.0% 91.1% 88.6% -1.4% -7.2% Front-End 2.9% 2.5% 7.6% SALES % CHANGE Total Store* -2.7% -2.4% -4.5% -8.3% 1.2% Bottled Water 16.2% 2.6% 1.3% Salty Snacks 1.6% 3.0% 0.3% Batteries 19.4% -2.8% 4.6% Razors/Blades 15.7% 5.8% -13.1% Meat Snacks N/A 17.8% N/A Focus attention on front-end checkstands on magazines, gum and candy since most of the total store sales come from the front-end checkstands Source: *Nielsen All Grocery Store Sales, 52 weeks ending Sept. 30, 2017 #IRI Front-End Sales, 52 weeks ending July 16, Magazine sales data comes from Magnet data 3 quarters ending Q The information contained herein is based in part on data reported by IRI through its Market Advantage service as interpreted solely by Time Inc and/or Dechert-Hampe & Co. (Copyright 2013), Information Resources, Inc.). The information is believed to be reliable at the time supplied by IRI but is neither all-inclusive nor guaranteed by IRI. 24

26 Beverages, Confectionery, and Magazines Drive Front-End True Profit Dollars True Profit Dollar Shares of Front-End Checkstand True Profit Dollars Total Beverages Carbonated Beverages Energy Drinks Non-Carbonated Beverages Bottled Water Confectionery Chocolate Candy Gum Mints Non-Chocolate Candy Magazines 86% of total checkstand true profit dollars come from the 3 Power Categories : Confectionery, Beverages, and Magazines Salty Snacks Batteries Razors/Blades Meat Snacks Energy Bars Source: The information on this page comes from the Willard Bishop 2016 SuperStudy along with analysis from Dechert-Hampe. Note: For some categories in the Willard Bishop SuperStudy, there was not a frontend measurement for categories like Salty Snacks, Batteries, Razors/Blades, Meat Snacks, and Energy Bars. In those cases the profit and true margin numbers used were for the total category across the store. 25

27 True Profits Are the Best Measure of the Success of the Front-End Categories Share of True Profits Share of Front-End Linear Space (All Lines) # Space to True Profits Average Facings on Regular Lanes Beverages Candy Gum Mints Magazines Salty Snacks Batteries Razors/Blades Meat Snacks Energy Bars N/A Best Practice Beverages are under spaced while many other categories are over spaced and in need of rationalization Source: *IRI 52 weeks ending July 16, 2017, DHC Analysis; #TIR Audits, Sept. 2017, Standard B-Sized Pockets Willard Bishop Super Study 2017, Note: For some categories in the Willard Bishop SuperStudy, there was not a front-end measurement for categories like Salty Snacks, Batteries, Razors/Blades, Meat Snacks, and Energy Bars. In those cases the profit and true margin numbers used were for the total category across the store. The information contained herein is based in part on data reported by IRI through its Market Advantage service as interpreted solely by Time Inc Sales & Marketing and/or Dechert-Hampe & Co. (Copyright 2013), Information Resources, Inc.). The information is believed to be reliable at the time supplied by IRI but is neither all-inclusive nor guaranteed by IRI. Without limiting the generality of the foregoing, specific data points may vary considerably from other information sources. Any opinions expressed herein reflect the judgment of Time Inc Sales & Marketing and/or Dechert- Hampe & Co. and are subject to change. IRI disclaims liability of any kind arising from the use of this information. 26

28 TIR Recently Conducted Eye Tracking and Video Mining Research Research provided additional consumer/shopper insights Eye Tracking Video Mining Checkout lane hot spots and influence of secondary displays at checkout Conversion rates 27

29 Eye Tracking Can Help Identify Visual Hotspots in Checkout Displays Source: Eye Tracking Research,

30 Shoppers Spend Time Looking at All Areas of an Endcap Generally the top 3 or 4 tiers of the end cap get the most viewing time Left Customer End Cap* Right Customer End Cap* 1.73 sec 95 % 1.94 sec 87 % 3.01 sec 97 % 3.89 sec 95 % 3.02 sec 97 % 2.45 sec 98 % 1.39 sec 63 % 1.75 sec 92 % 2.02 sec 84 % 0.95 sec 45 % Best Practice Make sure that the top tiers are carrying top selling magazines Source TIR/Indiana University Multi Year Eye Tracking Research * % of shoppers viewing tier & amount of time spent viewing same 29

31 Most Viewing Time Is Spent Viewing Items Before the Belt Upon Entering the Lane Customer Left* 2.27 sec 84 % 2.45 sec 82 % 4.19 sec 81 % Best Practice Make sure top selling items are merchandised in these hot spots Source: TIR/Indiana University Multi Year Eye Tracking Research * % of shoppers viewing tier & amount of time spent viewing same 30

32 Many Retailers Block Highly Productive End Caps with Secondary Display Merchandising Secondary displays hamper the efficiency of end caps and can compromise front-end sales Source :TIR/Indiana University Multi Year Eye Tracking Research

33 Secondary Displays Significantly Reduce Time Spent Viewing the Primary Display No Blockage* Blockage: 5-Hour Energy* Blockage: Kind Bar* 4.69 sec 98 % 4.99 sec 99 % 3.88 sec 100 % 6.12 sec 100 % 2.89 sec 96 % 1.04 sec 87 % 4.16 sec 97 % 6.73 sec 100 % 0.7 sec 27 % 9.63 sec 100 % 0.6 sec 28 % 0.9 sec 1 % 0.84 sec 7 % 1.81 sec 67 % Consider Total Primary Display Viewing: Total Primary Display Viewing: sec 13.2 sec Total Primary Display Viewing: 10.6 sec Are secondary displays important enough to distract from primary displays? Source: TIR/Indiana University Multi Year Eye Tracking Research * % of shoppers viewing tier & amount of time spent viewing same; Includes Visual Attention allocated to the endcap and arm rack segments on Customer Right 32

34 Total Checkout Sales Were Impacted by Secondary Displays Secondary displays can & DO have a negative effect on total checkout sales Total Checkout Unit Sales % Change Secondary Display: 5-Hour Energy Secondary Display: Kind Bar -19% -41% TIR/Indiana University Multi Year Eye Tracking Research

35 Summary 1 When a secondary display is present, it attracts almost 40% of shoppers visual attention away from the primary display 2 The negative impact is greatest for the blocked tiers, but there is also an effect on the unblocked tiers 3 The secondary display is often the first area shoppers examine as they approach the checkout and may be the only thing they see when they don t have to wait in line * Source: Progressive Grocer 2015, DHC Analysis 34

36 Fanned / Tiered Display

37 Some Retailers Use a Fanned/Tiered Magazine Display Conventional Display (Control) Fanned/Tiered Display 2 sec 1.45 sec 87 % 77 %** 2.87 sec 92 % 2.58 sec 79 %** 6.35 sec 94 % 4.04 sec 89 %** 2.16 sec 2.3 sec 81 %** 82 % 6.38 sec 94 % 2.72 sec 85 % 2.81 sec 81 %** 4.36 sec 90 %** 3.38 sec 88 % 1.92 sec 79 % 1.56 sec 35 % 1.64 sec 76 % 0.82 sec 45 % 2.73 sec 82 %* 1.48 sec 44 % 0.23 sec 8 % 2.26 sec 80 %* 1.04 sec 45 % 0.27 sec 13 % Displaying Magazines in a tiered configuration significantly reduced attention to Magazine covers partially obscured Source: TIR/Indiana University Multi Year Eye Tracking Research

38 60% of Active Front-End Shoppers Become Buyers Converting more of the front-end traffic into shoppers can drive greater incremental sales Overall Front-End Path to Purchase** Front-End Traffic Glance Shoppers Active Shoppers Buyers 26,684 11,724 44% 2,804 24% 1,680 60% 11% of consumers become Active Shoppers *Source: Videomining Research, 4 th Quarter 2014 **Data represented per store per week *$ sales assuming each buyer purchased 1 item at Front End. Traffic Store visitors who passed by category; Shoppers Traffic that stops to interact with category; Buyers Shoppers who make a purchase from category 37

39 Leverage High Shopper Conversion at Front-End by Engaging More Traffic Improving Traffic to Shopper Conversion by 1% nationwide could add over $65M in Revenue Front-End Growth Opportunity: What If Analysis Shopper Metrics/Week/Store Current Scenario Traffic to Shopper Conversion Increased by 1% Net Change Front-End Traffic to Shopper Conversion 44% 45% 1% Shoppers 2,804 2, Buyers 1,680 1, Weekly Sales $3, $3, $32.84 Annual Front-End Sales $170,745 $172,452 $15, $1,707 Shopper Conversion - % of shoppers who made a purchase *Approximately 38,015 Grocery stores *Source: Videomining Research, 4 th Quarter 2014 Nationwide Annual Category Sales Increase: $65M 38

40 While 15% of Consumers Shopped Multiple Categories, the Majority of Shoppers Bought Only 1 Item from the Checkstands There is an opportunity to build baskets and drive front-end sales by enticing shoppers to purchase more than one item Front-End Shopping & Purchasing Incidence Distribution 85% 95% 13% 4% 2% 1% # of Categories % Shoppers % Buyers Traffic Store visitors who passed by category; Shoppers Traffic that stops to interact with category; Buyers Shoppers who make a purchase from category Source: Videomining Research, 4 th Quarter

41 Converting Active Shoppers to Active Buyers Is High Across All Lanes Self-Checkout lanes do a better job of converting Glance Shoppers to Active Shoppers Overall Front-End Path to Purchase by Lane Type Traditional Lane Express Lane Self-Checkout Lane Consider Front-End Traffic Glance Shoppers Active Shoppers Buyers 9,355 7,454 9,853 7,035 75% 2,696 36% 1,993 20% *$ sales assuming each buyer purchased 1 item at Front End. Traffic Store visitors who passed by category; Shoppers Traffic that stops to interact with category; Buyers Shoppers who make a purchase from category *source: Videomining Research, 4 th Quarter ,470 21% % % % % % What merchandising techniques can be used on all three types of lanes to convert more Glance Shoppers into Active Shoppers? 40

42 Conversion Rates Vary by Category and Type of Shopper Conversion Rates of Front-End Category Front-End Traffic Glance Shoppers Active Shoppers Buyers Avg $/Unit Total Front-End Checkstand 26,684 44% 24% 60% $1.98 Beverages 20,001 17% 30% 88% $1.51 Candy 17,469 18% 11% 76% $1.32 Gum & Mints 26,684 16% 12% 60% $1.76 HBC 7,664 13% 5% 33% $1.53 Magazines 23,419 27% 14% 13% $3.82 Magazines, Candy & Beverages have a higher conversion rate of Glance Shoppers Beverages convert the highest percentage of Glance Shoppers into Active Shoppers followed by Magazines Beverage converts 88% of Active Shoppers into Buyers followed by Candy (76%) & Gum/Mints (60%) Magazines have a higher average unit price compared to other categories listed Source: Videomining Research, 4 th Quarter

43 Recommendations Research re-confirms the importance of the power categories (Beverages, Confectionery, and Magazines) to front-end checkstands Retailers need to focus on The appropriate merchandising strategies should be implemented across all types of lanes for these key categories to drive the highest incremental sales Those categories that get a higher percentage of their total store sales from the front-end checkouts (primarily Magazines and Gum/Mints) Temporary Displays in front of the check stand endcaps do not drive incremental sales find other locations for temporary displays Make sure key products are carried in the check stand hotspots Try new/different merchandising approaches to drive higher conversion rates and increase front-end basket size efforts will be rewarded; potential best practice could yield +$1,707 (incremental sales per store) 42

44 FEF: Top Checkstand Best Practices 1 Checkout is a massive department representing $5.3B in retail sales and 0.9% of Grocery Retailer $ which should be managed as a distinct department/category 2 Power Categories are defined as products that are High Impulse, Frequently Purchased and have High HH penetration Power Categories = Beverages, Magazines, Candy, Gum and Mints Beverage Coolers should be located on 80% or more of Checkout Lanes Magazines should be located on 100% of Checkout Lanes to maximize sales 43

45 FEF: Top Checkstand Best Practices 6 Maximize Checkout Sales by placement of Magazines both In-Line and on End-caps 7 OTB Space Productivity is maximized when Magazines, Gum, Candy and GM are merchandised in this area 8 Beverage Coolers should be located In-Line at Checkout Lanes to maximize C/O Sales & Profits on Regular Lanes 9 Optimal Magazine merchandising techniques differ by lane type (e.g., Regular, Express and Self-Scan), but make sure that Magazines and the other Power categories are stocked on every lane. 44

46 Implications/Recommendations Magazines Magazines get 69% of their total store sales from the front-end checkouts so retailers should focus on getting key titles on every lane Magazines should be located on 100% of Checkout Lanes to maximize sales Maximize Checkout sales by placement of Magazines both In-Line and on End-caps OTB Space Productivity is maximized when Magazines, Gum, Candy and GM are merchandised in this area 41% of shoppers rate Magazines as somewhat, very, and extremely important to carry on the front-end so once again, make sure that key titles are available on all lanes Secondary displays in front of Magazine endcaps significantly reduce viewing time of the primary display and negatively impact total sales of the checkout The Magazine Category exhibits one of the highest True Profit (22.4%) Metrics at Checkout 45

47 Appendix 46

48 Candy, Gum, Carbonated Beverages, Bottled Water, and Salty Snacks Are the Front-End Categories Most Front-End Buyers Have Purchased Expanded List Magazines What Categories Have You Ever Purchased % of Respondents (Multiple answers allowed) 43% Batteries 38% Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages Salty Snacks Nuts/Seeds Meat Snacks Cookies/Crackers Nutrition/Energy Bars Baked Goods Grocery Products Other Snacks 32% 47% 56% 65% 58% 56% 37% 42% 44% 30% 37% 39% 30% 83% 73% Energy Shots Lip Care Oral Care Beauty Care Health Items Razors/Blades Phone/Gift Cards Audio/Video/CD/DVD Maps/Heroscopes/Puzzles Concentrated Drink Mix Books - Non-Children Childrens Items Other Household Items Other Items 8% 21% 29% 31% 31% 24% 20% 21% 20% 18% 23% 25% 34% 42% Magazines are purchased by 43% of Front-End Buyers Source: Time Inc. Retail Online Interviews Question: Q6.1 Have you EVER purchased any of the products merchandised at the checkout lanes? N =

49 Most Front-End Checkout Categories Are Purchased Frequently Expanded List Magazines Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages Salty Snacks Nuts/Seeds Meat Snacks Cookies/Crackers Nutrition/Energy Bars Baked Goods Grocery Products Other Snacks % of Shoppers Buying Frequency at Checkout Once a Month or More (% of Purchasers of Categories) 65% 66% 54% 77% 75% 83% 68% 78% 77% 68% 53% 78% 72% 75% 93% 69% Batteries Energy Shots Lip Care Oral Care Beauty Care Health Items Razors/Blades Phone/Gift Cards Audio/Video/CD/DVD Maps/Heroscopes/Puzzles Concentrated Drink Mix Books - Non-Children Childrens Items Other Household Items Other Items Categories where over 75% of respondents purchased once a month or more include magazines, carbonated beverages, non-carbonated beverages, salty snacks, cookies/crackers, grocery products Source: Time Inc. Retail Online Interviews Question 6.2 Of the items purchased in the last 6 months from the checkout, how frequently do you make the purchases? N is dependent on category purchase, thus varies 23% 36% 30% 48% 54% 57% 36% 24% 31% 33% 37% 31% 51% 57% 76% 48

50 Supermarket Retailers Have an Opportunity to Increase Impulse Levels of Key Front-End Categories Expanded List Magazines Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages Salty Snacks Nuts/Seeds Meat Snacks Cookies/Crackers Nutrition/Energy Bars Baked Goods Grocery Products Other Snacks 12% 41% 37% 24% 43% 25% 42% 37% 39% 37% % of Shoppers Buying on Impulse (% of Purchasers of Categories) 41% 41% 76% 62% 62% 64% Batteries Energy Shots Lip Care Oral Care Beauty Care Health Items Razors/Blades Phone/Gift Cards Audio/Video/CD/DVD Maps/Heroscopes/Puzzles Concentrated Drink Mix Books - Non-Children Childrens Items Other Household Items Other Items New Merchandising and Promotion approaches towards key front-end categories could improve impulse levels Source: Time Inc. Retail Online Interviews Question 6.2b And of the items purchased in the last 6 months, was the most recent purchase bought on impulse or planned? N is dependent on category purchase, thus varies 29% 13% 23% 14% 20% 21% 33% 14% 26% 43% 43% 58% 60% 64% 66% 49

51 Many Categories Are Viewed as Being Important to Merchandise at Front-End Checkouts Expanded List How Important Is It to Have These Categories Available at Checkout? % of Respondents Answering Somewhat, Very, Extremely Important Magazines 41% Batteries 46% Candy Gum Mints Carbonated Beverages Bottled Water Energy Drinks Non-Carbonated Beverages Salty Snacks Nuts/Seeds Meat Snacks Cookies/Crackers Nutrition/Energy Bars Baked Goods Grocery Products Other Snacks 48% 58% 51% 49% 61% 39% 44% 50% 43% 32% 42% 36% 37% 45% 41% Energy Shots Lip Care Oral Care Beauty Care Health Items Razors/Blades Phone/Gift Cards Audio/Video/CD/DVD Maps/Heroscopes/Puzzles Concentrated Drink Mix Books - Non-Children Childrens Items Other Household Items Other Items 17% 15% 46% 32% 30% 38% 28% 22% 19% 43% 19% 19% 33% 37% Source: Time Inc. Retail Online Interviews Question 7 Please indicate how important it is to you for each of the listed products to be available at the checkout lanes? N=

52 Confectionery Products Account for 45% of Total Front-End Space Across All Lanes Expanded List Share of Front-End Linear Space All Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks 16.0% 26.6% 13.6% 5.1% 12.2% 6.2% 2.4% 1.5% 2.0% 45.4% Cookies/Crackers Nutrition/Energy Bars Drink Drops Energy Shots Batteries Razors/Blades General Merchandising Health/Beauty Aids Phone/Gift Cards Greeting Cards 2.3% 1.3% 0.3% 0.6% 1.9% 1.3% 0.3% 3.0% 6.0% 0.9% Salty Snacks Meat Snacks Nuts/Seeds 4.2% 1.3% 0.7% DVD/CD Computer Accessories All Other 0.0% 0.4% 1.8% Magazines and beverages account for 28% of front-end space Source: TIR Retail Audits, August/September

53 In Regular Lanes, Confectionery Items Have Over 47% of Front-End Space Expanded List Share of Linear Space Regular Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks 16.4% 28.0% 14.4% 4.8% 9.0% 4.3% 2.0% 1.4% 1.4% 47.1% Cookies/Crackers Nutrition/Energy Bars Drink Drops Energy Shots Batteries Razors/Blades General Merchandising Health/Beauty Aids Phone/Gift Cards Greeting Cards 1.0% 1.7% 0.3% 0.8% 2.3% 1.0% 0.5% 2.9% 6.9% 1.2% Salty Snacks Meat Snacks Nuts/Seeds 4.0% 1.3% 0.6% DVD/CD Computer Accessories All Other Magazines and beverages have 25% of front-end space * 0.3% 2.6% Source: TIR Retail Audits, August/September 2017 *Less than 0.1% 52

54 In Express Lanes, Confectionery Represents 44% of Front-End Space Expanded List Share of Linear Space Express Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks 15.3% 25.3% 14.0% 5.1% 12.1% 4.0% 3.3% 1.6% 3.2% 44.4% Cookies/Crackers Nutrition/Energy Bars Drink Drops Energy Shots Batteries Razors/Blades General Merchandising Health/Beauty Aids Phone/Gift Cards Greeting Cards 3.9% 1.2% 0.2% 0.6% 2.0% 1.7% 0.0% 3.1% 5.4% 0.5% Salty Snacks Meat Snacks Nuts/Seeds 5.6% 1.5% 0.7% DVD/CD Computer Accessories All Other Magazines and Beverages have 27% of front-end space in express lanes 0.1% 0.9% 0.8% Source: TIR Retail Audits, August/September

55 In Self-Checkout Lanes, Confectionery Accounts for Almost 40% of Front-End Space Expanded List Share of Linear Space Self-Checkout Lanes Front-End Checkstands Magazines Total Confectionery Candy Gum Mints Total Beverages Carbonated Beverages Non-Carbonated Beverages Bottled Water Energy Drinks 9.4% 6.7% 2.4% 2.0% 2.0% 16.0% 23.5% 26.1% 19.7% 39.6% Cookies/Crackers Nutrition/Energy Bars Drink Drops Energy Shots Batteries Razors/Blades General Merchandising Health/Beauty Aids Phone/Gift Cards Greeting Cards 5.1% 0.0% 0.0% 0.1% 0.1% 1.8% 0.0% 2.8% 3.6% 0.0% Salty Snacks Meat Snacks Nuts/Seeds 2.0% 1.0% 1.5% DVD/CD Computer Accessories All Other 0.1% 0.1% 0.2% Beverages have 26% of front-end space in self-checkout lanes Source: TIR Retail Audits, August/September

56 Additional Measurement Definitions Measure Group / Individual Measure Measure Definition Measure Calculation for New Aggregates and/or Notes Additive or Calculative Share Weekly Sales Measure Group / Weekly True Profit Individual Measure Warehouse ABC Details Adjusted Gross Profit Labor ABCs Per-Unit Sold Product Cash Flow Transport ABCs Per-Unit Sold Inventory # SKUs ABCs Per-Unit Sold Storage ABCs Per-Unit Sold Weekly Movement Sub-Total ABCs Per-Unit Sold Square Foot Facing Share of "parent" segment's sales. (i.e., cheese category's share of dairy department sales) Share of "parent" segment's true profits. (i.e., cheese category's share of Measure dairy department Definition true profits) Share of "parent" segment's adjusted gross profit after trade and terms are factored in. (i.e., cheese category's Weighted average labor cost to handle one consumer unit share of dairy department adjusted gross profit) in the warehouse. Cost drivers include pallet configuartion, Share of "parent" segment cash flow (profit after covering case pack size, and selection method. only variable ABCs) (i.e., cheese category's share of dairy Weighted average cost to ship one consumer unit to the department product cash flows) store Share of weighted average number of SKUs across the Weighted average inventory carrying cost at warehouse "parent" segment (i.e., cheese category's share of dairy level for one consumer unit department # of SKUs) Weighted average occupancy cost to store one consumer Share of "parent" segment's weekly movement. (i.e., unit in the warehouse cheese category's share of dairy department weekly Sum of all warehouse ABCs at the consumer unit level Share of "parent" segment's square foot of facing (space) (cost per case / case pack size) (i.e., cheese category's share of dairy department sq. ft.) Child Sales / Parent Sales = % Measure Calculation for Child True Profit / Parent True Profit = % New Aggregates and/or Notes Child Adjusted Gross Profit / Some of the Parent activities Adjusted that build Gross up to Profit this = cost % include: receive, inspect, put away, let down, select, load, etc. Child Product Cash Flow / Cost drivers include Parent transportation Product Cash cost Flow per = % mile, cubic feet per truck, case cube and case pack size Cost drivers include cube and turns Child # SKUs / Parent # SKUs = % Each segment pays its fair share of the retailer's overhead Child Weekly Movement / costs to run the warehouse (mortgage, utilities) Parent Weekly Movement = % Sum of Labor + Transport + Child Warehouse Sq. Ft. / Inventory Parent Sq. + Storage Ft. = % Calculative Additive or Calculative Calculative Calculative Calculative Calculative Calculative Calculative Calculative Calculative Calculative Calculative Store ABC Details Direct Labor ABCs Per-Unit Sold Indirect Labor ABCs Per-Unit Sold Inventory ABCs Per-Unit Sold Occupancy ABCs Per-Unit Sold Sub-Total ABCs Per-Unit Sold Weighted average direct ("touch") labor cost to handle one consumer unit in the store Weighted average indirect labor cost to handle one consumer unit in the store. Costs are allocated on a SKU basis. Weighted average inventory carrying cost at store level for one consumer unit Weighted average occupancy cost for one consumer unit at the store. Cost drivers include the amount of shelf space a product has, how fast it turns, and if it uses more utility costs, e.g. freezer and refrigeration. Sum of all store ABCs at the consumer unit level Some of the activities that build up to this cost include: order, receive, inspect, put away, sort, load, move, stock, rotate, face, clean up, tender, bag, etc. Some of the activites included are salaried managers, etc. Cost drivers include days-of-supply at the store and cost of money Each segment pays its fair share of the retailer's overhead costs to run the store (mortgage, utilities) Sum of Direct Labor + Indirect Labor + Store Inventory + Occupancy Calculative Calculative Calculative Calculative Calculative Source: Willard Bishop Super Study

57 Average weekly true profit (after trade, terms and retailer Additional Measurement Definitions Measure Group / Individual Measure Measure Definition Measure Calculation for New Aggregates and/or Notes Additive or Calculative ABCs (Activity-Based Costs) Store ABCs as % of Sales Transport ABCs as % of Sales Per Source: Facing Willard KPIs Bishop Super Study Total store ABCs as a percent of sales Transportation ABCs to the store as a percent sales (Store ABCs Per-Unit Sold x Weekly Movement) / Weekly Sales = % (Transportation ABCs Per-Unit Sold x Weekly Movement) / Weekly Sales = % Calculative Calculative Warehouse ABCs as % of Sales Total warehouse ABCs as a percent of weekly sales (Warehouse ABCs Per-Unit Sold) / Weekly Sales = % Calculative Total ABCs as % of Sales Total ABCs as a percent of sales ABCs / Weekly Sales = % Calculative Total ABCs Per-Unit Sold Total ABCs per-unit (weekly movement) ABCs / Weekly Movement = $ Calculative Inventory & Turns Average Days-of-Supply Average number of days-of-inventory on hand at the shelf Average of All Segment's Days-of-Supply Calculative Measure Group / Measure Calculation for Additive or Individual Measure Average number of Measure times the Definition inventory turns annually (with New Aggregates and/or Notes Calculative Average Turns Average Days-of-Supply / 365 = # Calculative current days-of-supply / weekly movement) Margin Performance Straight Average of the Capacity (Units on Shelf) Average Units on Shelf The Average product's number adjusted of consumer gross profit units as on a shelf percent store of sales, Calculative Adjusted Gross Margin Adjusted for All Gross UPCs Profit in Category / Weekly / Group Sales = % Calculative after trade and term monies Straight Average of the Case Pack Count for all Average Units Per Shipping Case Weighted Average units average per shipping profit margin case after (case trade pack) and terms and Calculative True Margin True UPCs Profit in / Category Weekly Sales / Group = % Calculative retailer ABCs Average cost of inventory carrying ABCs as a percent of (Warehouse Inventory ABCs + Capital Cost as a % of Sales Calculative Merchandising Space sales Store Inventory ABCs) / Unit Price = % Average cash flow (profit after covering only variable ABCs, True Profit + Fixed Costs Product Cash Flow If a product is stocked on the shelf two positions wide and # Facings A single merchandising shelf position for the product Calculative Additive i.e., labor and interest) reported as a percent of sales three high, (Warehouse the product Storage has two + Store facingsoccupancy) The annual value of the retailer-held inventory (backroom Will be larger than the average on shelf at a given time # SKUs Number of SKUs in / out distribution throughout 52 weeks Additive and shelf), based on the net cost of goods (adjusted for Shelf Inventory (net cost) since it includes Based ALL SKUs on annual for all investment retailers included in the Additive The terms amount and trade). of linear Regardless (horizontal) of shelf how much space a occupied retailer sells, by This measure is based on the product width and number of Linear (Shelf) Feet Additive the product retailer invests the store in inventory for the shelf. facings percent SKUs that is required to reach to Calculated behind the scenes (cannot be recreated in the % SKUs Generating 95% Sales The amount of square feet of merchandising shelf space This measure is based on the product width, number of Square Foot Facing Calculative Additive occupied 95% of segment by the product sales in the store facings, tool) and shelf height Weekly Sales $ Per Facing Average weekly sales per facing Weekly Sales / Facing = $ Calculative Weekly AGP $ Per Facing Average weekly profit including trade and terms per facing Adjusted Gross Profit / Facing = $ Calculative 56