WHAT GIVES A RETAILER A STRONG PRODUCE DEPARTMENT?

WHAT GIVES A RETAILER A STRONG PRODUCE DEPARTMENT?

2 MANY FACTORS DRIVE STRONG PRODUCE PERFORMANCE WIDE ASSORMTNET BULK AND BAGGED QUALITY BRAND MIXTURE HEALTH GLOBAL LOW PRICES FRESHNESS BUT COMPETITION HAS FIERCELY INCREASED Copyright 2013 The Nielsen Company. Confidential and proprietary. CONVENIENCE

FRESH SHARE OF TOTAL STORE IS INCREASING FRESH 36.7% 37.4% 35.8% 2013 2014 2015* 63.3% 62.6% CENTER 3 Copyright 2013 The Nielsen Company. Confidential and proprietary. DOLLAR SHARE DOLLAR SHARE 64.2% Source: Nielsen Advanced Fresh Perspective Database, *2015 YTD

PEOPLE PURCHASE FRESH EVERYWHERE SHARE OF CHANNEL SHOPPERS PURCHASING FRESH WITHIN EACH CHANNEL DRUG CONVENIENCE/ GAS MASS/ SUPERCENTER WAREHOUSE/ CLUB GROCERY 20% 35% 84% 88% 99% Copyright 2012 The Nielsen Company. Confidential and proprietary. Source: Source: Nielsen Homescan Total Shopper View Specialty Panel, 52 weeks ending 6/25/15 GROCERY SEGMENTS 94% VALUE GROCERY 85% PREMIER FRESH 4

SALES AND TRIP GAINS ARE HAPPENING OUTSIDE OF CONVENTIONAL GROCERY Store Counts 0.4% +3% +1% +6% +3% 26,487 5,688 3,412 3,144 1,320 Conventional Grocery Trips per HH % Chg. vs. YA, Total Fresh Mass+ SuperCenter Value Grocery Premier Fresh Grocery Warehouse Club Copyright 2013 The Nielsen Company. Confidential and proprietary. Spend per HH % Chg. vs. YA, Total Fresh 2% +4% +1% +1% +2% +1% +11% +3% +7% +4% Trip increases suggest a shift in how consumers are shopping across multiple channels Source: Nielsen Perishables Group via Homescan TSV Specialty Panel 52 weeks ending 12/27/14 5

PRODUCE IS EVOLVING TO MEET CONSUMER PRIORITIES Produce department leading fresh sales growth KEY CONSUMER TRENDS $$ SIX OF THE TOP TEN FASTEST GROWING CATEGORIES ACROSS THE ENTIRE STORE SINCE 2009 ARE PRODUCE CATEGORIES CONVENIENCE QUALITY/VALUE Value Added Vegetables Value Added Fruits HEALTH VERSATILITY Cooking Greens Specialty Fruit GLOBAL Source: Nielsen Perishables Group FreshFacts Historical Projected Database ending 12/27/2014; Avocados Pineapple 6

In retailing we should cater to the individual rather than the masses. Specialize by product, lifestyle, pursuit, service or convenience. The Times, Oct 17, 1985

WHAT PERCENTAGE OF FRESH PRODUCE SALES DO BRANDS REPRESENT?

BRANDED PRODUCE GROWTH OUTPACES NON BRANDED From 2010, branded produce has climbed from 27% to 34% in dollar share of produce Fresh Produce Branded vs. Unbranded 2010 2014, Dollar Share 9% 11% Categories with Highest Branded Dollar Sales 64% 55% 27% 34% 2010 2014 Branded Unbranded Private Label 12% 5 YEAR DOLLAR CAGR (compound annual growth rate) 2% 10% Berries Produce Beverages Packaged Salad Citrus Source: Nielsen Perishables Group FreshFacts Historical Projected Database ending 12/27/2014 9

REALITY OF BRANDS Brand competition is intense; shelves are crowded Thousands of new products a year Increased competition from private label Shopping fragmentation due to rise of e commerce TRUST is a foundational element of building and maintaining brand health and achieving strong inmarket performance. Source: Nielsen Perishables Group 10

BRANDS BRING OPPORTUNITY TO CONNECT AND ENGAGE WITH THE CONSUMER Use packaging to communicate and spread messages such as health claims Create a sense of trusted quality no matter where the product is purchased Use social media and online presence to engage with shoppers WHEN BRANDS WIN High innovation rate High product differentiation Strong brand equity WHEN PRIVATE LABEL WINS Minimal differentiation and low brand equity High price sensitivity and high purchase frequency Low innovation rate Source: Nielsen Perishables Group 11

Copyright 2015 The Nielsen Company. Confidential and proprietary. EVERY ASPECT SHOULD REVOLVE AROUND SOLVING A CUSTOMER NEED Shift focus from product attributes to consumer experience Dissatisfied Dabbling Circumstances of Nonconsumption Surprising Product Combinations Complex Problem Solving JOB Hiring and Firing Moments Workarounds Nonconsumers Trade Offs 1 Source: Nielsen Breakthrough Innovation Report, June 2015 12

Copyright 2015 The Nielsen Company. Confidential and proprietary. BOLTHOUSE: MAKING CARROTS COOL ACCESSIBILITY AVAILABILITY AFFORDABILITY For more information: Harvard Business Review, photos sourced from Web 13

YOUR BRAND S SALES HAVE BEEN STAGNANT. WHAT ARE SOME TACTICS TO SPUR GROWTH?

MORE THAN JUST THE TRADITIONAL LEVERS BUT YOU CAN T ALWAYS PULL THESE LEVERS PRICE Some products are more sensitive to price changes Over promotion can train a shopper to only buy when it s on sale PROMOTION Some products already have national distribution DISTRIBUTION JOINTLY THESES CONTRIBUTE TO THE BREADTH OF REACH AND FREQUENCY OF PURCHASE Source: Nielsen Perishables Group 15

HOW CAN WE USE DIFFERENT ADVANTAGES TO DRIVE MUTUAL GROWTH? Household Penetration Value to Store Sales Growth Product and Shopper Connections Creative Cross Store partnerships Purchase Frequency Source: Nielsen Perishables Group, Total Store Connectivity Study 2014 16

CONNECTIONS ARE ALREADY OCCURRING Opportunity to go beyond intuition and guess work and base solutions in consumers DRIVING CONNECTIONS OUTSIDE THE STORE Occasionbased advertising DRIVING CONNECTIONS INSIDE THE STORE Mariano s apple promotion Fresh and center cross promotions Coke Effortless Meals Program Solution Center (BLT) Source: Photo credit Nielsen Perishables Group, company websites 17

SOME CPG COMPANIES ARE PARTNERING WITH FRESH CATEGORIES TO SPUR SALES GROWTH And the results have been extremely positive CASE STUDY: Global Soft Drink Company Partnered with A Deli Category New Category Buyers for Both Parties Higher Cross Category Sales Greater Buyer Conversions Increased Engagement with Millenials Source: Nielsen Homescan Total Shopper View: 9/1/2013 8/30/14 versus year ago 18

SIMILAR CATEGORIES MAY BE FRIENDS, NOT FOES BUYER OVERLAP FRESH Vegetables $20.1 Billion +4.6% 6% CANNED Vegetables $4.9 Billion 0.8% 88% <1% 4% FROZEN Vegetables $3.0 Billion 2.2% Similar categories should work together to drive sales through strong overlapping category connections Source: Nielsen Homescan 52 Weeks Ending 12/27/14; Nielsen ScanTrack Ending 4/25/15; Nielsen FreshFacts Ending 3/28/15 19

GROWTH IS OUT THERE, FOR THOSE WILLING TO WORK FOR IT FRESH AND PACKAGED CAN BE FRIENDS OR FOES 62% of all Grocery/Club/Mass trips have both fresh and center store items in the basket Deli Meat Seafood Dairy THE OPPORTUNITY Copyright 2013 The Nielsen Company. Confidential and proprietary. Beverage Center Produce Cafe Florist Dry Grocery HBC Rx Non Food Frozen Bakery Source: Nielsen Homescan Total Shopper View Specialty Panel including non UPC category purchases for the Grocery, Club and Mass channels, 52 weeks ending September 2014 20

TRUE OR FALSE? PRICE IS THE ONLY COMPONENT TO CONSIDER WHEN FACED WITH CROP AND SUPPLY LIMITATIONS?

FALSE: VALUE EQUALS MORE THAN PRICE Must understand consumer needs in order to understand their value equation OCCASION PRICE VALUE CONVENIENCE Source: Nielsen Perishables Group 22

BUT PRODUCE HAS LIMITATIONS DUE TO CROP CYCLES Responding to consumer trends and priorities in produce can take longer than other areas of the store Time to grow a crop 4 6 years 2 5 years 3 7 years The time to start responding to consumer needs was yesterday 2 3 years www.starkbros.com/blog/how many years/ 23

ONCE COMMODITY DRIVEN, THE APPLE INDUSTRY SHIFTING FOCUS TO MEET CONSUMER NEEDS APPLES 8.2% Compound annual growth rate 2010 2014 Value added apple volume growth outpaced value added fruit growth by 5.6 percentage points over the last 5 years Copyright 2012 The Nielsen Company. Confidential and proprietary. MARKETING TO KIDS: PACKAGING, SMALLER FRUIT SIZE, NEW FLAVOR PROFILES Source: Nielsen Perishables Group FreshFacts Historical Projected Sales, 2010 2014 SNACKING: ON THE GO AND ACCOMPAINMENTS CONVENIENCE: NEW PACKAGING, SMALLER FRUIT 24

EVEN MATURE CATEGORIES CAN EVOLVE TO STAY RELEVANT BY INTRODUCING NEW VALUE PACKAGED SALAD COMPLETES/KITS Copyright 2012 The Nielsen Company. Confidential and proprietary. $3.4 BILLION Average volume +3% growth Source: Nielsen Perishables Group FreshFacts 52 weeks ending 3/28/2015; Historical Stable Sales 2010 2014, Total U.S. $700 MILLION Average volume +29% growth Despite the higher price tags, salad competes/kits have revolutionized the packaged salad category and DOUBLED share since 2010 25

INDUSTRY MUST COMBAT SUPPLY ISSUES WHICH OCCUR FOR A NUMBER OF REASONS Recall linked to salmonella. Freeze could end growing season for immature crops Idle farmland doubles during California drought Deep freeze damages citrus crop. Sources: various online article headlines 26

THE CALIFORNIA DROUGHT WILL IMPACT EACH CATEGORY DIFFERENTLY 2015 Price Elasticity Predictions 1 Critical to understand a product s sensitivity to price changes Source: 1: Nielsen Perishables Group and Dr. Tim Richards, Arizona State University Sources:Nielsen Perishables Group FreshFacts 2013 2014; Nielsen Perishables Group Drought Research 2015 27

SUPPLIERS ADAPT IN CROP SITUATIONS THAT ARE OUT OF THEIR CONTROL Suppliers/Growers turn a freeze into a new way to gain new buyers Artichokes are Frost Kissed when the temperature drops below 32 degrees. California winter frosts can yield Frost Kissed Artichokes that are available in stores for a limited time. Re adapt products to gain new shoppers and incremental sales Source: oceanmistfarms.com 28

RASPBERRY OVERSUPPLY LEADS TO INCREASE IN NEW BUYERS FOR THE CATEGORY In Q1 and Q2 2014: Top Categories Berries gained volume from in Q1/Q2 2014: 33% of volume growth was due to an increase in category consumption 67% of volume growth was due to categories switching into Berries Yogurt Bananas Grapes Fruit Cups & Cans Stone Fruits Citrus 7.3% 8.2% 2.2% 1.9% 2.3% 0.9% 1.9% 4.5% Berries Bananas Citrus Grapes Berries Bananas Citrus Grapes 2014 Q1 2014 Q2 Understand how other categories supply can impact your sales and what categories are substitutes for your product Source: Nielsen Perishables Group FreshFacts, 52 weeks ending 12/27/14 ; 3: Shoppers Insight Report 29

PRODUCE IS IN THE DRIVER S SEAT FOR SUCCESS PRODUCE IS TOO IMPORTANT NOT TO MANAGE STRATEGICALLY UNDERSTAND CONSUMER NEEDS MANAGE THE VALUE EQUATION UNDERSTAND HOW TO LEVERAGE FRIENDS AND BEAT YOUR FOES Source: Nielsen Perishables Group 30

QUESTIONS? Sarah Schmansky Nielsen Perishables Group 773.929.7013 NIELSEN PERISHABLES GROUP SARAH SCHMANKSY CLIENT DIRECTOR SARAH.SCHMANSKY@NIELSEN.COM