REDEFINING RETAIL FACTORS INFLUENCING CPG GROWTH Q1 2014

REDEFINING RETAIL FACTORS INFLUENCING CPG GROWTH Q1 2014

WHO ARE THE GLOBAL CONSUMERS? Copyright 2013 The Nielsen Company. Confidential and proprietary. 2

THE CHALLENGE FOR GROWTH Copyright 2013 The Nielsen Company. Confidential and proprietary. 3

CPG STILL SPUTTERING FOR GROWTH IN NORTH AMERICA United States Canada +1.1-0.1 +1.4 +0.2 Dollars Units Nielsen: ScanTrack - Total Tracked Sale 52 wks ending March 25, 2014 Dollars Units Nielsen: MarketTrack - Total Tracked Sale 52 wks ending March 8, 2014 4

2014 IS STARTING OFF SLOW Slow growth, driven only by inflation 5 $ % Chg Unit % Chg 0 2 2 2 2 2 2 0 0 0 1 2009 2010 2011 2012 2013 Q1 2014 Inflation +5 +0 +2 +2 +2 +1 Source: Nielsen MarketTrack, National All Channels 52weeks to March 8, 2014 - Total Tracked Sales excluding Fresh Random Weight 5

NOT ALL REGIONS ARE CREATED EQUAL The Prairies lead regional growth twice the National average 52 week Regional CPG Performance 4 $ % Chg Unit % Chg 2 1 1 1 0 0 0 1 0 0 0 National Maritimes Quebec Ontario Prairies B.C. Source: Nielsen MarketTrack, National All Channels 52 weeks Ending March 8, 2014 - Total Tracked Sales excluding Fresh Random Weight 6

WESTERN CANADA HAS NOW SURPASSED THE EAST AS YOUNGER CANADIANS MIGRATE FOR JOBS East Ontario West 30.6% 38.4% 30.7% Older Deal sensitive Less Store Brands Immigration Discount Urbanization Source: Statistics Canada The Canadian Population in 2011 Analytical document East: Atlantic + Quebec West: Prairies + BC Jobs Migration Fertility Immigration 7

OVERALL, FOOD CATEGORIES ACCOUNT FOR OVER 2/3 RDS OF CPG SALES, AND STRUGGLING FOR GROWTH $ Share and Growth +1 +1 +2 Non Grocery HABA 15.3 +2 13.1 +1 9.6 18.1 +2 10.5 +2 +5 Grocery Categories 66.5 +1 76.4 All Channels Source: Nielsen MarketTrack, 52 Weeks to March 8, 2014- Excludes Random Weight Fresh Grocery + Mass +1 71.2 19.2 Drug Stores +1 +5 8

HABA CATEGORIES ARE LEADING RETAIL SALES GROWTH WITHIN GROCERY + MASS MERCHANDISERS $ Share and Growth +2 +1 +2 Non Grocery HABA 15.3 +2 13.1 +1 9.6 18.1 +2 10.5 +3 +5 Grocery Categories 66.5 +1 76.4 All Channels Source: Nielsen MarketTrack, 52 Weeks to March 8, 2013 - Excludes Random Weight Fresh Grocery + Mass +1 71.2 19.2 Drug Stores +1 +5 9

FOOD CATEGORIES ACCOUNT FOR ALMOST 1 IN 5 DOLLARS SALES IN DRUG STORES - FUELING GROWTH $ Share and Growth +2 +1 +2 Non Grocery HABA 15.3 +2 13.1 +1 9.6 18.1 +2 10.5 +3 +5 Grocery Categories 66.5 +1 76.4 All Channels Source: Nielsen MarketTrack, 52 Weeks to March 8, 2014 - Excludes Random Weight Fresh Grocery + Mass +1 71.2 19.2 Drug Stores +1 +5 10

WHERE IS THE CONSUMER TODAY? Do you think economics conditions are better today than a year ago? YES NO 11

WHERE IS THE CONSUMER TODAY? As a result, will you change your spending behaviours? YES NO 12

CONSUMERS ARE STILL FOCUSED ON SPENDING RESTRAINT $$$ 55% are trying to reduce household expenses -3% decline in household expenditures (-8% since 2008) Source: Nielsen Homescan, Total Expenditures - 52 Weeks Ending December 28, 2013 Q4 Global Omnibus Survey - Canada 13

WHERE DO WE FIND GROWTH IN A CHALLENGING ENVIRONMENT? 14

TRENDS IMPACTING GROWTH Cyclical Changes Economy still fragile Cautious Consumer Structural Changes Value Motivators Retail, Redefined Connected Consumer Evolving Consumer 15

CONSUMER SENTIMENT IN A HOLDING PATTERN Copyright 2013 The Nielsen Company. Confidential and proprietary. 16

CANADIAN CONSUMER CONFIDENCE IS IN A HOLDING PATTERN SINCE THE RECESSION 110 114 111 112 113 105 104 96 90 98 102 101 96 94 100 98 100 99 84 1Q05 1Q06 1Q07 1Q08 1Q09 4Q09 2Q11 2Q12 2Q13 1Q14 Pre-Recession Source: Nielsen Global Online Consumer Confidence Surveys Q1 2014 Recessio n Post-recession 17

TOP CONCERNS Rising utility bills are the newest consumer pressure point 1) Economy 2) Debt 3) Jobs 1) Debt 2) Economy 3) Utility Bills 4) Health 5) Food Prices 2011 Source: Nielsen Global Omnibus Consumer Confidence Survey Q1 2014 - Canada 4) Health 5) Jobs 2014 18

1 IN 3 CONSUMERS ARE STRETCHED 28% 60% 11% Spending = Afford The Basics 18% 32% 50% Source: Nielsen Q1 2014 Nielsen Panel Views Survey - Canada Living Comfortably 20% 58% 22% Spending Freely 24% 67% 9% 19

POLARIZATION IS REDEFINING OUR LANDSCAPE $ $$$ $$$ Driving consumer behaviour and choice Increased Promotional Activity Value vs. Premium Brands Discount vs. Conventional Retail Formats 20

WHAT ARE CONSUMERS DOING TO SAVE? Top saving activities: Only buy items when on sale 75% Stock up when on promotion 64% Use Coupons 63% Seek out stores with lower prices 58% Buy lower priced store brands 53% Shop at Discount Retailers 38% Buy lower priced name brands 33% Source: Nielsen PanelViews Survey - Canada - May 2013 $$$ 21

SINCE BEFORE THE RECESSION, % OF RETAIL SALES SOLD WITH A PRICE CUT HAS INCREASE 10 POINTS % Dollars Sold on TPR 31% 27% 27% 35% 37% 33% 34% An increase of $3.9 billion But total sales only increased $3.5 billion 2007 2008 2009 2010 2011 2012 2013 Source: Nielsen MarketTrack, National GB+MM+DG - 12 week periods ending June 29,, 2013 Quarterly Periods 22

IT S IMPORTANT TO REALLY UNDERSTAND INCREMENTAL Nielsen Innovation: Promotion Source of Volume Market Expansion Brand Switch Incremental Volume Store Switch Time Switch Subsidized Volume Non Promoted Volume Past Paradigm Subsidized Volume Non Promoted Volume Purchase Behaviors 23

IT S IMPORTANT TO REALLY UNDERSTAND INCREMENTAL Nielsen Innovation: Promotion Source of Volume Market Expansion Brand Switch Incremental Volume New Paradigm Store Switch Time Switch Subsidized Volume Non Promoted Volume Past Paradigm Subsidized Volume Non Promoted Volume Purchase Behaviors 24

WHILE PROMOTIONS ARE INCREASING RAPIDLY, THE BENEFITS ARE NOT WHAT THEY SEEM PROMOTIONAL IMPACT FRAMEWORK LOW HIGH Retailer Benefit LOW Source: Nielsen Promotional Source of Volume Models Retailer Growth Mutual Growth 22% 14% Subsidization Manufacturer Growth 42% 22% Manufacturer Benefit HIGH 25

OUR STRATEGY NEEDS TO CHANGE but how low do I need to go in order to stay profitable and create It s not about how low can I go, win-win scenarios 26

ALMOST 6 BILLION IN GROCERY SALES HAVE SHIFTED TO DISCOUNT RETAILERS SINCE 2007 Yr 2007 Yr 2014 34.3% 43.5% MORE TO COME Discount Share Projections: Discount $ Share +9 share points Source: Nielsen MarketTrack National GB+DG+MM 52 weeks to March 8, 2014 2014: 44.7% 2017: 50.9% 27

TRADITIONAL RETAIL UNDER ATTACK Copyright 2013 The Nielsen Company. Confidential and proprietary. 28

THE LOYAL, DISLOYAL SHOPPER Average Loyalty to Store 14% Source: Nielsen Homescan: Top 10 Banners in Ontario - Avg $ Share of Requirements 52 weeks to Sept 19/13 The Opportunity Need to understand what and where your shoppers are spending the other 86% 29

TRADITIONAL CPG CHANNELS RELATIVELY STATIC Grocery -2% Drug -2% Mass Merch -8% less Zellers +5% Dollar Stores +1% Source: Nielsen Homescan Channel Watch Canada - 52 weeks to March 29, 2014 *Convenience Track 52 weeks to March 8, 2014 30

MANY RETAIL CHANNELS SUFFERING DUE TO THE SHIFT TO ONLINE AND INCREASED COMPETITION Grocery -2% Drug -2% Mass Merch -8% less Zellers +5% Dollar Stores +1% Source: Nielsen Homescan Channel Watch Canada - 52 weeks to March 29, 2014 *Convenience Track 52 weeks to March 8, 2014 Office Supply -25% Electronic -17% Department -11% General Merch -5% Hardware/DIY -3% 31

E-COMMERCE, ETHNIC, HEALTH AND BUYING IN BULK LEADS RETAIL GROWTH IN CANADA Online +56% Ethnic Grocery +13% Health Food +8% Warehouse +5% Conv. & Gas* +3% Grocery -2% Drug -2% Mass Merch -8% less Zellers +5% Dollar Stores +1% Source: Nielsen Homescan Channel Watch Canada - 52 weeks to March 29, 2014 *Convenience Track 52 weeks to March 8, 2014 Office Supply -25% Electronic -17% Department -11% General Merch -5% Hardware/DIY -3% 32

THE POTENTIAL DOLLAR STORE FOOD FIGHT CANADA U.S DOLLAR STORES $ Share 1.1% 2.3% % Chg +1% +7% Penetration 74% 66% 83% of Dollar Store shoppers buy food in the U.S. Source Nielsen Homescan 52 weeks to December 2013 Frozen Food +30% Dairy +19% Dry Grocery +9% 33

ETHNIC STORES CONTINUE TO CAPTURE A LARGER SHARE OF CANADIAN WALLETS Ethnic Stores +13% Source: Nielsen Homescan Retailer Watch Ethnic Stores, 52 weeks to March 29, 2014 Estimate $4-5 Billion* 16% of households :36% in Toronto Spending $315 per year 11 trips per year * Perry Caico CIBC World Markets 34

ONLINE SHOPPING GAINING MOMENTUM Online Shopping 1.9% share of CPG +56% 43% of households (+33%) Copyright 2013 The Nielsen Company. Confidential and proprietary. +11% YA $2.3 Billion Source: Nielsen Homescan, National Total Expenditures, 52 Weeks Ending March 29, 2014 Spending $383 per year 35

WHAT ARE CONSUMERS BUYING ONLINE AND WILLING TO BUY ONLINE? Currently Buying Online Willing to Buy Online 21% Toys 16% Health & Beauty 14% Cosmetics 9% Paper Products 7% Household Products 7% Confectionery 6% Pet Products 6% Non Perishable Food 6% Baby Products 4% OTC Drugs 4% Beverages 3% Fresh Produce 3% Perishable Food Source: Canadian PanelViews Social Media Survey Oct 2013 70% Paper Products 64% Household Products 56% Heath & Beauty 55% Toys 50% Non Perishable Food 49% Pet Products 48% Confectionery 48% Cosmetics 47% OTC Drugs 45% Beverages 33% Baby Products 20% Perishable Food 18% Fresh Produce 36

FEWER TRIPS BUT MORE CONNECTION POINTS 2008 62% read store flyers online (+6 pts) 208 annual shopping trips 68% visit social media sites (+3 pts) 2013 32% own a tablet (+10 pts) 171 annual shopping trips -37 Source: Nielsen Consumer Panel Q3 Total Expenditures Canada December periods 51% own a smartphone (+11 pts) (Versus 2012) 37

SMARTPHONES ARE REDEFINING CONSUMER CONNECTION POINTS 43% Willing to shop a virtual store +11 40% Willing to use a retailer loyalty app 51% of Canadians Own Source: Nielsen PanelViews, Social Media Survey, 2013 27% Willing to use phone to pay 38

LOCATION, LOCATION, LOCATION: 3 OUT OF 10 ARE WILLING TO RECEIVE GPS BASED PROMOTIONS GPS BASED MARKETING 43% <35 yrs. 38% 35-44 yrs. 26% 45-54 yrs. 29% willing to receive Source: Nielsen PanelViews, Social Media Survey, 2013 17% 55-64 yrs. 12% 65+ yrs. 39

KEY TAKEAWAYS Economic Divide: Economy remains sluggish; opportunities across the economic spectrum with polarizing growth - Premium vs. Value Promote for Win-Wins: It s not about spending more, it s about promoting and pricing smarter for sustainable growth and profitability for both the manufacturer and the retailer Copyright 2013 The Nielsen Company. Confidential and proprietary. Mix of Old and New: Online is growing but on a small base. The role of digital needs to be integrated with the overall shopping experience 40

Top Events of 2013 41

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