The 2014 American Pantry Study

The 2014 American Pantry Study

What's inside 5 The new normal: Frugality threatens America s favorite brands 6 The new normal: Brand loyalty decreases as consumers look for savings 8 Same game, different approaches: How each segment plays the game: Tactics, attitudes and personal economics drive behavior 10 Consumers have re-evaluated their brand relationships 11 Settled vs. settling-in 12 Must have brands: What is happening in your category 13 Frugal behaviors: Consumers continue to look for ways to save 14 Cross-channel shopping: No longer a one stop shop 15 Technology: Enhancing the consumer shopping experience through digital engagement 16 Playbook Recommendations for brand success 18 In closing: Understanding the evolving consumer 19 About the study 2014 American Pantry Survey 3

The new normal Frugality threatens America s favorite brands The unusually prolonged recession has left a lasting impression on consumers, causing many to adopt frugal attitudes and behaviors. According to Deloitte s 2014 American Pantry Study, 79 percent of consumers surveyed said the economy is currently in a recession and 80 percent said the American economy has fundamentally changed, revealing a sense of enduring resourcefulness among respondents. In 2010, Deloitte embarked upon the inaugural American Pantry Study to understand the impact of the recession on shoppers. Since then, 79 percent of consumers surveyed said the economy is currently in a recession and 80 percent said the American economy has fundamentally changed, revealing a sense of enduring resourcefulness among respondents. Deloitte has continued to administer this annual study to help the industry understand the role of brands, consumer behavior, and brand trade-off strategies in the midst of these new financial realities. A shift has now occurred, and in 2014, consumers are living more economical and cautious lifestyles as a result of the new economy. Many consumers now refuse to change their shopping habits and continue to behave as if the recession is not over. This behavior, along with consistently low brand loyalty and the competition from rival and store brands, pose potential threats to national brands positions. As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/ about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 4 2014 American Pantry Survey 5

The new normal Brand loyalty decreases as consumers look for savings Brands are under competitive pressure from three fronts: 1) other brands are available on sale or are less expensive, 2) consumers are not able to afford to pay full price, and 3) consumers have found store brands to be just as good as national brands. Narrower loyalty Consumers have chosen a narrower set of brands to be loyal towards, and price positioning is playing an important role in determining loyalty. Focused brands vs. scattered brands Brands with a more focused price positioning are outperforming those with a relatively scattered positioning in terms of brand loyalty. Products line up across price tiers Recent efforts have been made by Consumer Packaged Goods companies to better target consumers at multiple price points through good, better, best product strategies. Cross-channel shopping Complex cross-channel shopping has become more common among consumers as they find new ways to save. Nearly 9 out of 10 consumers found several store brands just as good as national brands they save money without giving up anything. Same game, different approaches Resourcefulness has manifested itself in terms of different savings tactics by consumer segments. Dearth of growth opportunities Seemingly limited growth opportunities from existing markets/products, new consumers/ products, or pricing hampers growth. Consumers remain focused on saving and expect to remain cautious 2013 2012 2011 2010 I am looking closely at every spending category to see where I can save 83% 80% 85% 84% Even if the economy improves, I will remain cautious and keep my spending at its current level 94% 94% 93% 93% Even though I'm spending less on products now, it doesn't feel like I m sacrificing much 71% 72% 70% 65% I now save a larger portion of my income than 5 years ago 52% 6 2014 American Pantry Survey 7

Same game, different approaches: How each segment plays the game Tactics, attitudes and personal economics drive behavior Least impacted by recession, least likely to have changed shopping practices. Deliberate and concentrated effort to increase use of coupons and multiple store shopping. Feelings of resourcefulness have grown, even though the need to be resourceful has not. Sense of empowerment, resourcefulness has grown significantly due to recession. Take great pleasure in saving money. Youngest segment, highest income, most educated. A WELL-BALANCED, opportunistic take on resourcefulness. SPECTATORS Resentful even bitter about the compromises they have had to make. While they too take pride in resourcefulness, it comes at a steep emotional price. Switching to store brands prompts disappointment. Most likely to have taken an income hit in past two years and are the lowest income segment. 32% (vs. 36% in 2010) 19% (vs. 22% in 2010) 26% (vs. 21% in 2010) 23% (vs. 21% in 2010) More females in this segment. Resourcefulness expressed at the CASH REGISTER. SUPER SAVERS Have forgone the coupon/discount route to focus more on product mix to help facilitate a shift from prepared to from-scratch meals. Reap savings by buying large pack sizes even though they are least likely to have children in household. Resourcefulness expressed through PANTRY MANAGEMENT. Resourcefulness managed at the SHELF. SACRIFICERS PLANNERS 8 2014 American Pantry Survey 9

Consumers have re-evaluated their brand relationships Settled vs. settling-in One out of five Must Have brands were downgraded during the recession because consumers were drawn to lowerpriced brands and private labels. Where consumers were not connected to the brand, they downgraded 'must haves' to 'preferred' or 'sale only' 2012 2013 Reasons you no longer consider these as must have brands (multiple select) 42% 38% Other brands are available on sale 23% 24% I can t afford to pay full price for those brands 23% 24% Found another brand that is less expensive Categories most impacted by reason in 2013 Paper Towels Dressings/ Marinades Food Storage Frozen Meals Beer Sauces 2012 2013 Percentage of brands that were downgraded from 'must-have' during the recession 18% 20% Brands face different pressures from competing brands, cost-conscious consumers and store brands in each category. Must have brands were downgraded during the recession because consumers were drawn to lower-priced brands and private labels Sauces Meal Kits Soft Drinks Deli Cereals Laundry Soaps Settled Consumers who settled for lower-quality store brands are more likely to want to switch back to national brands. They have feelings of resentment when buying less expensive brands because they have to. Settling-in Consumers are settling into store brands without feeling they have sacrificed quality. Percentage of respondents who perceive store brands quality as the same or better than national brands 85% 75% 65% Average 55% 45% Premium Desserts Bottled Water Tabletop Disposable Paper Products Food Storage Condiments Dairy Salty snacks Crackers HH Cleaners Juice/Sports Drinks Cookies Dressings Sauces Soups Meal Kits Cereals Candy Paper Towels Dish Cleaning Frozen food Gum Laundry Soaps Toilet Paper Coffee Energy Drinks Soft Drinks Beer 35% Settled: Lower-quality store brands, where consumers more likely to want to switch back to national brands 25% -5% -3% -1% 1% Average 3% 5% 7% 9% Pet Foods Settling in: High-quality store brands with improving quality Change in perception of store brand quality vs. national brands (2013 Vs. 2011) 20% 21% Found a store brand that is just as good 21% 21% I decided they were not worth paying more for Food Storage Cereals Energy Drinks Soft Drinks Coffee Condiments/ Jelly Gum Crackers Most of the time I can t tell the difference between the store brands and national brands Consumer respondent 10 2014 American Pantry Survey 11

Must have brands What is happening in your category Frugal behaviors Consumers continue to look for ways to save Some categories appear to be in decline from not only a must have brand perspective, but also from a total consumption perspective. The role of coupons, product sales, and promotions remain predictable to consumers 2013 2012 2011 I only use coupons for things I would have purchased anyway 79% 71% 69% The products I buy are always on sale somewhere I shop so I don't worry about using coupons I have a set of brands in mind that I will consider and purchase whichever one is on sale 37% 34% 35% 86% 84% 83% Consumers look to use loyalty cards, but less often than in prior years 2013 2012 2011 2010 What is happening in your category? % of Brand Buyers Who Consider it a Must Have Brand 45% 40% 35% Average (2010) Average (2013) 30% 25% 20% 15% 10% 5% Targeted favorites Candy/confections Pet Foods Powerful brands Household Cleaners Cereals Iced Teas, Sports Drinks Soft Drinks Crackers Laundry Soaps Beer Energy Drinks & Enhanced Waters Condiments/Jelly Dish/dishwasher cleaning Meal Kits products Cookies Salty Snacks Dressings/Marinades Toilet Paper Coffee Soups Food Storage Fruit Juices & Juice Gum Drinks Premium Desserts Dairy-yogurt/cheese Bottled Water Frozen pizza/frozen Deli* ready-made meals Paper Towels Sauces Tabletop Disposable Paper Products Price to value brands Interchangeable brands 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of Consumers Purchasing in this Average (2013) Category in the Past Three Months Categories that lost 5 or more Must Have percentage points in the past three years Categories that gained 5 or more Must Have percentage points in the past three years * Newly added in 2013 Note: Comparison is made with 2011 for the categories that were not a part of the 2010 study 60% of consumers say sale prices are the #1 driver for at-the-shelf impulse purchases. I use grocery shopper loyalty cards in grocery stores every time I shop It's fun to see how much money I can save by using coupons or my shopper loyalty card. 47% 58% 47% 44% 80% 80% 80% 81% 12 2014 American Pantry Survey 13

Cross-channel shopping No longer a one stop shop Consumers tend to know when products will be on sale and plan shopping trips to save. Cross-channel shopping for food, beverage and household consumables is pervasive Shopped for grocery 2 at the channel in the past year 1 Consumer Packaged Goods companies need to consider developing distinct channel-specific value propositions. Typical shopping trip type of those who shopped at the channel Stock-up Fill-in Hard-tofind items Today s meal Eat and shop Grocery/Supermarket 90% 51% 22% 18% 7% 1% 47% Mass Merchandisers 85% 34% 42% 14% 6% 2% 41% Has become more important to meet the needs of the household Technology Enhancing the consumer shopping experience through digital engagement Younger age-groups are influenced much more than others by online advertisements and promotions. This group is also recording higher online price comparison and online purchase rates. Younger consumers are more engaged with technology % Extremely or Very Interested Total (% of those who Agree Strongly or Agree Somewhat) By age-group 21-29 30-44 45-59 60-70 Convenience determines my choice of the retailer I visit 83% 84% 83% 82% 83% Product pricing determines my choice of the retailer I visit 82% 83% 84% 81% 80% Dollar stores 48% 11% 48% 23% 11% 4% 43% Warehouse/Club 47% 56% 19% 19% 3% 3% 50% Drug stores 42% 7% 48% 26% 10% 4% 31% Convenience stores 24% 2% 34% 11% 20% 27% 20% Online stores 18% 17% 20% 49% 4% 3% 49% Package / liquor store 18% 11% 23% 45% 10% 5% 19% Specialty Food stores 15% 9% 12% 64% 9% 4% 39% Neighborhood markets 15% 11% 38% 20% 22% 7% 38% Other 3% 35% 21% 16% 8% 9% 40% Represents highest value in each column (excluding 'Other' channel) Represents second-highest value in each column excluding Other channel) Traditional advertisements and promotions (e.g., newspaper, TV) make me aware of products I want to buy Advertisements and promotions in retail stores make me aware of products I want to buy Online advertisements and promotions (e.g., banner ads, emails, social media) make me aware of products I want to buy I compare prices of the products I am interested in through mobile apps and websites I conduct research about the products I am interested in through mobile apps and websites Online purchases are displacing purchases that I used to make at my preferred brick and mortar retailer for stock-up purchases Online purchases are displacing purchases that I used to make at my preferred brick and mortar retailer for fill-in purchases 77% 77% 77% 77% 74% 76% 75% 77% 78% 71% 51% 65% 56% 46% 38% 48% 64% 56% 41% 30% 45% 61% 52% 38% 29% 31% 45% 36% 26% 18% 30% 44% 37% 24% 16% Note: 1. All figures are averages across 30 CPG categories; 2. Grocery refers to food, beverage and household products indicates highest in each row indicates lowest in each row 14 2014 American Pantry Survey 15

Playbook Recommendations for brand success Where to Play How to Win What Growth Opportunities? What Customer Segments? What Behaviors to Change? What Drivers and Barriers to Address? How to Position Relative to Competition? What Offering and Go to Market Approach? How to Effectively Execute? Consumer engagement and strategy Portfolio Strategy 5 Digital technology 6 At-the-shelf decisions 7 Brand loyalty 1 Consumer segmentation 2 Portfolio optimization 3 Store brand competition 4 Category strategy Enhance digital engagement and consumer experience throughout the shopping process Narrowly target impulse shoppers and price-sensitive consumers Move from a scattered to a focused brand to evoke stronger loyalty Embrace how resourcefulness has uniquely impacted consumer behaviors Move from Good, Better, Best to Ok, Better, Excellent Challenge the store brand value proposition from all sides Use category blurring as a source of growth $$$ Trade and pricing strategy 8 Cross-channel decisions 9 Pricing strategy 10 Trade spend Develop distinct channelspecific value propositions Align portfolio and channel price architecture with willingness to pay by consumer segment Optimize promotional return through an understanding of true drivers of incremental lift and in-store shopper behavior Innovation strategy 11 New products Rethink your objectives for new products and product extensions 12 Innovation Innovate beyond the product to drive sustainable advantage 16 2014 American Pantry Survey 17

In closing Understanding the evolving consumer About the study Deloitte commits to administering the annual American Pantry Study to help evaluate and quantify consumer shopping behavior so companies can revise their strategies to reach these resourceful and evolving consumers. Our intent of the study is to provide an understanding of today's consumers and the affect the economy has had on their brand perceptions, shopping tactics and attitudes toward spending in the aisles. After four years of gathering this insightful data, this year s report offers a growth playbook for packaged goods companies outlining recommendations on where to play and how to win. For further details specific to your company, or to learn how Deloitte can help you with your brand playbook, please contact: Pat Conroy Vice Chairman U.S. Consumer Products Leader Deloitte LLP +1 317 656 2400 pconroy@deloitte.com Rich Nanda Principal Deloitte Consulting LLP +1 312 486 2761 rnanda@deloitte.com In January 2014, the Deloitte American Pantry Study collected 4,024 consumer responses to an online survey about their shopping behaviors and attitudes. The study sample reflected the gender distribution of the United States 58 percent women, 42 percent men. The study takes a deeper look into consumer behaviors and attitudes to reveal the continued impact of the recession on the consumer; their brand choices and loyalty, shopping habits and savings tactics. With data on 376 brands in 30 categories the study reveals the functional, emotional, and situational requirements of Must Have Brands while understanding the role alternate brands, channels and technology play in today s new shopping game. Categories covered in the study: Beer Bottled water Candy/confections Cereals Coffee Condiments Cookies Crackers Dairy/yogurt/cheese Deli Dish cleaning products Dressing/Marinades Energy drinks Food storage Frozen ready-made Fruit juices & Juice drinks Gum Household cleaners Iced teas, Sports drinks & Enhanced waters Laundry soaps Meal kits Paper towels Pet food Premium desserts Salty snacks Sauces Soft drinks Soups Tabletop disposable paper Toilet paper 18 2014 American Pantry Survey 19

The 2014 American Pantry Study Same game, different approaches RESOURCEFULNESS HAS ENDURED, BUT CHANGED At 31 % Must have brand ratings remain relatively low @DeloitteCB #AmericanPantry14 SPECTATORS A well-balanced, opportunistic take on resourcefulness 32 % vs. 36% in 2010 19 % vs. 22% in 2010 SACRIFICERS Resourcefulness managed at the shelf 26 % vs. 21% in 2010 23 % vs. 21% in 2010 $$$ PLANNERS Resourcefulness expressed through pantry management $$$ $$$ SUPER SAVERS Resourcefulness expressed at the cash register 1 out of 5 consumers downgraded brands in 2013 86 % of consumers have a set of brands they consider and purchase whichever one is on sale Lower-quality store brands, consumers more likely to want to switch back to national brands Feeling of resentment buying less expensive because they have to High-quality store brands with improving quality The consumer actually likes them now they are losing the feeling of sacrifice Nearly 9 out of 10 consumers found several store brands just as good as national brands they save money without giving up anything Younger age groups most interested in online advertisements and promotions AGE 21-29 30-44 45-59 60-70 65 % 56 % 46 % 38 % of consumers say 60 % sale prices are the #1 driver for at-the-shelf impulse purchases of consumers say 54 % trusted brands are the #1 reason for buying higher-priced new products of consumers plan their shopping trips around sales of consumers plan to remain cautious with spending even if the economy improves Top 3 reasons Must have brands are downgraded $ 38% Other brands on sale 24% Can t afford full price 24% Other brands less expensive For more information go to: www.deloitte.com/us/americanpantry14 This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. Copyright 2014 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited