Repositioning the Food Lion brand for accelerated organic growth Cathy Green Burns December 1, 2011

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1 Repositioning the Food Lion brand for accelerated organic growth Cathy Green Burns December 1, Economic challenges create opportunity for repositioning Food Lion While unemployment in the Food Lion operating area continues to be worse than national average, it has stabilized versus last year. Although h unemployment has stabilized, we continue to see increasingi dependency on government benefits (SNAP). More than 90% of consumers in Food Lion markets report having made recent lifestyle changes in order to stretch their dollars more. Dollars most often cut are in entertainment, clothing, and food. More than half of consumers report reduced spending on non-essential food items as well as impulse purchases. In order to get the lowest price, consumers are most often switching to store brands, clipping coupons, and shopping at stores that have better weekly specials. Source: Delhaize America 3rd quarter economic survey 2 1

2 We conducted research to create a strategy to meet consumers needs in a challenging environment What is most important to our consumers: In 2010, Food Lion undertook full market research to inform the strategy consumers across all of our markets 120 supermarket features reviewed Measured against 28 competitors Research showed Food Lion has credibility on low prices Price Private brand Clean and easy place to shop Ease of navigation Fast and efficient checkout Shelves well stocked Friendly and helpful associates Fresh produce 3 We learned the strategy will help convert high Food Lion awareness into significant sales growth Research showed 92% of consumers in our markets are aware of our brand and have at least tried shopping at Food Lion Strategy will drive sales growth across consumers Growth opportunity exists in growing sales through our primary and secondary consumers Success using the same research methodology at Hannaford provides confidence 4 2

3 The Food Lion Brand Strategy Our customers know us as a price leader, providing a welcoming and consistent shopping experience Food Lion: Is recognized as a price leader Offers the greatest value in private brands Is a clean and easy place to shop Does the basics better than anyone Has familiar and dependable people Provides fresh produce, always Everyday Food Lion delivers simplicity and quality for everything a family needs at leading prices Simple. Quality. Price. Welcome Back to Food Lion 5 Is recognized as a price leader Price perception had been eroding Primarily targeted traditional competitors Multiple price tactics and messages across the store were confusing for the consumer Made targeted price investments Simplified price tactics and messages Prices are clearly marked and easy to read 6 3

4 Offers the greatest value in private brands Primarily focused on Food Lion brands national brand equivalent Missing a strong value tier In-store merchandising more focused on national brands (10% off-shelf) MyEssentials value tier is competitively priced with market price leaders Introduced 600 MyEssentials valuetiered items Increased merchandising of private brands (25% off-shelf) 7 Clean and easy place to shop Convenient, well laid out stores No single source of accountability for cleaning Merchandise heavily positioned throughout the store Convenient, well laid out stores Quality assurance department in each store Aisles and perimeter open and easy to navigate 8 4

5 Does the basics better than anyone Opportunities to improve in-stock position Perception of slow checkout process Associate coverage was limited In stock processes improved with CAO as an enabler Checkout experience improved through updated check stands Labor standards simplified and fully funded 9 Has familiar and dependable people Lacked clear lines of distinction for a brand strategy Majority of investment was in service of technical training Leadership and store associates were mainly task oriented Enrolled associates in the purpose and potential of the Food Lion strategy Increased capacity by removing non-value tasks Invested in associate development with a particular focus on Store Managers and District Managers 10 5

6 Fresh produce, always Under-valued the importance of produce to the consumer Inventory control focused Service standard focus on early/mid day vs. evening Belief in the halo effect produce provides to the entire store Top line sales focused through variety, selection, and quality Engaged all store associates in the importance and value of produce 11 The strategy focuses on consumer shopping experience more so than on capital enhancements Market renewal Brand strategy Significant capital investment Minimal capital investment Replace and/or upgrade mechanical equipment Targeted upgrades that consumers said mattered most Causes consumer disruption Limited consumer disruption Associates receive departmental strategy and technical training Associates receive comprehensive brand strategy training 12 6

7 Raleigh consumer feedback builds confidence in strategy and also highlights improvement opportunities Key wins Strategy has improved Raleigh price perception; perceived gap vs. Wal-Mart is better than target Price ratio improved to the strongest position in the Raleigh market Consumers have noticed other strategy investments in the store Key improvement opportunities Private brand perception remains an opportunity Produce quality and variety below consumer expectations highlighting potential for additional sales growth Efforts on associate efficiency and engagement are slower to gain traction as processes and fixtures have changed 13 Consumers are responding favorably to the investment in price More consumers identified Food Lion as having the lowest overall prices Lowest Overall Prices Change in perception scores, 2010 vs 2011 And fewer consumers identified Food Lion as having the highest overall prices Highest Overall Price Change in perception scores, 2010 vs Pre Post 0 Pre Post 14 7

8 Food Lion Phase One: results to date Increase in number of transactions Increase in number of items per basket Price investments Solid comparable store sales growth 15 Early results are encouraging Difference in Raleigh & Chattanooga vs comparable stores Q3 results (excludes wk 34-35) 112 Real growth in 111 P7 110 Q3 109 P P = comp stores Units/transaction Transactions Total units 16 8

9 As communicated in Q3 earnings release Implement strategy in stores in total by end of 2012, prioritized by high share markets Focus on year two Raleigh/Chattanooga sales Strategy implemented in entire network by the end of Going forward, we will continue to strengthen our brand position in the marketplace Marketing Leverage learnings to deliver relevant offers that shift shopping behavior Center store Produce Identify opportunities to improve off-shelf merchandising and category strategies to drive greater center store sales Accelerate traction in produce through further improvements in merchandising, variety and quality Sustainable results The organization is committed to maintaining strategic conviction and continuing to simplify the tools and processes that support success at retail 18 9

10 Conclusion We are encouraged by the volume growth delivered by transactions and items Early consumer feedback is favorable We continue to learn and adapt from consumer insights Organizational focus is balanced between delivering Raleigh/Chattanooga market results, stabilization of base business, 2012 rollout plan and sustainability of the strategy We are building momentum and confidence 19 10