Total US Boilerplate

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NGA Workshop Feb 4, 2009 Michael Twitty
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Agenda

• Winning Shoppers in Turbulent Times is a
  shopper survey with tracking of actual purchase
  behavior
• A Brief Review Of What Shoppers Told Us They
  Would Do If Difficult Times Got Worse
• Focus What Are Shoppers Actually Doing
• Recessionary Shopping Patterns Revealed
• How 120 CPG Categories Were Actually Shopped in
  2008
• Summary, Implications Closing Thoughts

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What We Did Ten Months Ago

• Future-looking Survey Actual Shopping Behavior
• Surveyed 47,000 Nielsen Homescan households
• 36 Key Categories Across The Store
• Conducted in March 2008
• What are you going to do if things get worse?

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36 Categories Surveyed
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Nine Key Shopping Tactics Were Measured

• For Each Category, We Asked What Shoppers
  Would Do If Times Got Worse
• Not change how I shop for this product
• Only buy when its on sale
• Use coupons whenever I buy this product
• Stock up more when purchasing
• Switch to less expensive name brand
• Switch to generic or private label
• Switch stores to search for savings
• Buy product less often
• Stop buying this product

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Six Key Takeaways
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Turbulent Times - No End In Sight

• Economic circumstances and rising prices are
  changing the way some most people live shop

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American Life Has Changed

• Shoppers Are
• Eating at home more often
• Planning more of their shopping - using
  circulars, ads, etc. to choose
• stores to get the most value

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Shopping Trips Decline

• Quick Trips Are Uneconomical
• Result Fewer Quick Trips,
• More Planned Stock-up Trips

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Smart Shopping is Everywhere

• Convenience is King Value is King
• A major trend shift smart shopping is not only
  in vogue, its a key strategy among all groups

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More Pressure on the Middle

• Accelerated Trend
• Top and bottom tier propositions will do best
• Mid-tier propositions will have to fight to hold
  onto their shoppers

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Category Knowledge is the Key
Winning comes from knowing how shoppers will
treat each category - shopper groups are
behaving similarly -

• High Income shoppers are shopping where low
  income shoppers shop
• Low income shoppers are borrowing tactics from
  high income shoppers

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Basic Needs Tend to Take Priority
of households who would Reduce spending a
lot if economic conditions worsen
Shoppers are LESS willing to give up
Shoppers are MORE willing to give up
Source Nielsen Homescan Panel Unilever 2008
Winning Shoppers in Turbulent Times study
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Reported Reductions in Spending

• Not all grocery items are safe

Source Homescan, a service of The Nielsen
Company PanelViews Survey
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Premium PL Products Are Winning
Price Tier Performance Shared Gains Among 36
Studied Categories
23 of 36 categories saw PL gain share. In those
categories, the majority of share gain came from
mainstream and value brands.
Within 23 Private Label Share Growth Cat. Segment
Performance ( Share Loss)
Premium Mainstream Value
PL
Premium Mainstream Value

• Segments defined by brand price variance vs.
  category average. Premium 25, Mainstream 25
  to -25, Value

Source Nielsen FDM including Wal-Mart
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Consumers Want Pack Sizes That FitTheir Economic
Realities
of US Households Responding Prefer Most
Q8. If raw material costs rose substantially for
a manufacturer of food and/or personal care
products what would you prefer they do?
Source Nielsen Homescan Panel Survey
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2 Key Savings Tactics Emerge

• Primary savings tactics heavily employed
• Only buy when its on sale
• Use coupons whenever I buy this product
• Secondary strategies will vary by category
• Stock up more when purchasing
• Switch to less expensive name brand
• Switch to generic or private label
• Switch stores to search for savings
• Buy product less often
• Stop buying this product
• Not change how I shop for this product

41 34 16 19 21 14 17 4 26
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Different Worlds - an Aisle Apart
Source Nielsen Homescan Panel Unilever 2008
Winning Shoppers in Turbulent Times study
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Consumers Say They Are Most Likely to Cut Back
on Indulgences
Deal Hunting Moderate Risk
Brand Switching High Risk
Tissues/Toilet Paper Pain Relievers/Cold Rem
Margarine Personal Cleansing Laundry Detergent,
HHC Olive Oil, Pasta Sauce Disposable
Razors Canned Vegetables Hand Body Lotion Dry
Side Dishes Hair Care
Yogurt Cold Cereal Batteries Canned Soup Salad
Dressing

• Staples
• Low Risk

Indulgence Highest Risk
Pet Food Baby Food Vitamins/Supps Coffee/Tea
Bag AP/Deo Fresh Meat/Seafood Diapers Mayonnaise P
eanut Butter
Beer/Wine Face Care Soda/Pop Ice Cream Salty
Snacks Frozen Dinners Cookies Air Fresheners
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What Are Shoppers Actually Doing?Total US All
Outlets, All CPG Categories
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Translating Claimed Savings Tactics to Shopping
Behavior
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What We Did We tracked Behaviors That
Correspond To Original Survey

• Whole Store View We looked at all of the 120
  CPG categories tracked by Nielsen, comparing
  performance year on year, for the 52 weeks ending
  8/15/2008 vs 52 weeks ending 8/15/2007
• Identified Shopper Strategies For Turbulent Times
  Cluster Analysis grouped product categories that
  behaved similarly when we looked at changes
  across all of these measures and categories,
  simultaneously via cluster analysis

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Shopper Behavior What We FoundTotal US All
Outlets, All Categories
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The Value Shift at Retail

• Supercenters, Club and Dollar Stores are winning
  trips, fueled by wealthier shoppers (70K)
• Lower income shoppers are reducing trips at a
  faster rate
• Channel shifting is significant, advantages are
  not as dramatic

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Upper Income Shoppers Lead A Shift to
Supercenters, Club Dollar Stores
52 Weeks 3Q08 vs 3Q07 Total Trips Percent Change
Lower income households have reduced trips at a
greater rate than more affluent households. These
more affluent households have allocated more
trips to Supercenters and Club stores.
Source Homescan, a service of The Nielsen
Company Con/gas Excludes gas only trips
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Is Anyone Really Winning?
52 Weeks 3Q08 vs 3Q07 Components of Total Store,
Change in Units
While Supercenters, Club, Drug and Dollar stores
all see more trips, only Supercenters see some
net gain in UPC-coded unit sales
Source UPC Coded Products, Homescan, a service
of The Nielsen Company, 52 weeks Ending 3Q2008
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Pricing Has Delivered CPG Gains

• In 2008 shoppers bought less while CPG
  spending increased

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Price Increases Sustained CPG Growth
Shoppers have stopped buying some categories and
reduced buying rates in others, but price
increases have enabled 3 growth
Source IRI
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Three Key Shopper Changes
Yes, Private Label is up, but in many, many
categories penetration is down. Some consumers
are buying more frequently and buying fewer units
per occasion, potentially as a means to control
spending-per-occasion.
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Seven Shopper Strategies

• Cluster analysis a simultaneous analysis of the
  shoppers savings tactics, across all 120
  categories has revealed seven distinct patterns
  of CPG shopping in 2008
• These clusters show the macro-trends in shopper
  behavior and their causes, to help guide
  manufacturer and retailer strategies
• Which categories are people abandoning?
• Which categories are they reducing their purchase
  rates?
• Which ones will continue growing?

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Of Seven Shopper Strategies, Two Are Driving The
Shopper Slowdown
Trading To Private Label
Dropping Out Of The Category
Buying Less Of The Category
Each Category In The Store Falls Into One of
These Shopping Strategies
Strong Foods Where Shoppers May Want To Downsize
Stocking Up Buying On Deal
Consumer Staples That Grow In Turbulent Times
HBA Essentials Competing On Deal
Average Price Change 5.7
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Reading Radar Charts
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Reading Radar Charts
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in Units/Occasion
Change in on MFG. Coupon
Change in on Trade Deal
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Reading Radar Charts
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in Units/Occasion
Change in on MFG. Coupon
Average Price Change 5.7
Change in on Trade Deal
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Here Is The First Shopper Strategy,Dropping Out
Of The Category
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Dropping Out Of The Category

• Most categories are losing buyers
• Of 122 categories, 87 experienced penetration
  declines!!!!!!
• The first cluster features categories with the
  highest levels of penetration losses

A staggering 3 out of 4 categories lost buyers!
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Dropping Out of the Category
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in Units/Occasion
Change in on MFG. Coupon
Average Price Change 1.4
Change in on Trade Deal
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Dropping Out Of The Category
Non-essential, non-food categories appear to be
the hardest hit by losses in household
penetration. These categories also typically
have longer purchase cycles, with the exception
of Water and Frozen Novelties
- These categories are in 1 of the trips or
less
The notable penetration losses among these
categories indicate that these are the
main categories that shoppers have stopped buying
in the 52 weeks preceding August 15, 2008. Note
that in some cases declines were taking place
before this time period.
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Trading to Private Label
Large and Fast Growing Private Label Categories
Change in Private Label Dollar Share
Change in on MFG. Coupon
Average Price Change 9.2
Change in on Trade Deal
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Trading To Private Label
Many, but not all, of these are commodity food
categories that are characterized by the absence
of dominant brands, especially Dairy which has
seen the highest rise in retail prices.
- These categories are in 1 of the trips or
less
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Buying Less of the Category
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in on MFG. Coupon
Change in Units/Occasion
Change in on Trade Deal
Average Price Change 9.5
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Buying Less of the Category
Many of these categories could be deemed
non-essentials and therefore viable candidates
for shoppers to cut back on. Some food
beverages categories (Carbonated Beverages and
Candy/Gum) may be perceived as indulgences.
Declines in Baby Food and Pet Food may reflect
shoppers narrowing purchases to just the
essentials in these categories.
- These categories are in 1 of the trips or
less
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Stocking-Up and Buying On Deal
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in on MFG. Coupon
Change in Units/Occasion
Avg Price Change 2.7
Change in on Trade Deal
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Stocking-Up and Buying On Deal
These non-perishable categories are good
candidates for stocking-up on, when the price is
right.
- These categories are in 1 of the trips or
less
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HBA Essentials Competing on Deal
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in Units/Occasion
Change in on MFG. Coupon
Average Price Change 4.7
Change in on Trade Deal
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HBA Essentials Competing on Deal
Categories where shoppers may wait for deals, buy
whatever is on sale or leverage coupons tend
to be higher priced non-food categories.
- These categories are in 1 of the trips or
less
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Consumer Staples that Grow in Turbulent Times
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in on MFG. Coupon
Change in Units/Occasion
Average Price Change 3.4
Change in on Trade Deal
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Consumer Staples that Grow in Turbulent Times
Eating-in more often, dry cleaning less, cutting
back on Starbucks but consuming alcohol. Present
buying habits support growth in these categories.
- These categories are in 1 of the trips or
less
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Strong Food Categories Where Some Shoppers May
Be Looking to Downsize
Penetration Change
Change in Private Label Dollar Share
Change in of Trips
Change in on MFG. Coupon
Change in Units/Occasion
Average Price Change 6.2
Change in on Trade Deal
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Strong Food Categories Where Some Shoppers May
Be Looking to Downsize
This group of largely food categories seem to
reflect the dining out less often trend. In
addition, these categories might be under more
week-to-week budget pressure as frequency is
increasing while units purchased are in decline.

• - These categories are in 1
• of the trips or less

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Foods Show Strength Opportunities In Buying
Rate
Trading To Private Label
Foods
Dropping Out Of The Category
Buying Less Of The Category
Non-essential Non-foods
Non-essential Foods
Strong Foods Where Shoppers May Want To Downsize
Stocking Up Buying On Deal
Mix of Non-perishable Items
Foods
Consumer Staples That Grow In Turbulent Times
HBA Essentials Competing On Deal
Home Personal Care
Foods
Average Price Change 5.7
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Summary

• Major paradigm shift in CPG shopping value has
  become more important than convenience
• Virtually all shoppers have changed the way they
  live and shop
• The most important changes are
• Reduction of out-of-home activities, e.g., eating
  out, entertainment, etc.
• In-home prepared meals and in-home activities
  increasing
• In an attempt to save money, shoppers increase
  planning of meals and shopping trips
• Differences between the ways categories are
  shopped are more pronounced than differences
  between economic groups
• In an attempt to stretch their dollars, more
  shoppers visit value-oriented retailerswealthier
  shoppers lead the shift

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Summary

• Four big changes seen in CPG shopping
• Reduced numbers of trips shifting to value
  channels
• Increased private label spending
• Buying less of the category, per buying occasion
• Widespread losses in category penetration
• There is certainly trading down going on,
  however, penetration declines are the most
  important driver of the CPG slowdown
• Food categories are most resistant to decline
• Grocery retailers should
• Understand the types of sacrifices their shoppers
  are making and find ways to help them cope feel
  better
• Understand how shoppers are treating important
  categories to help determine retail strategies
• Leverage Categories That Grow in Turbulent
  Times
• Drive buying rates in other food categories

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What to Do?Implications By Shopping-Strategy

• Keep discretionary categories top of mind through
  communications to drive awareness and relevance.
• NA
• Consider multiple promotions (buy 2 get 1 free),
  yet be careful of breaking a price barrier as
  many of these categories are non-essential.
• Promote more frequently and move to larger sizes.
• Promotional frequency and high coupon face values
  may be good triggers. Deal stacking may optimize
  share gains as current recession strategy.
• Maintain current levels of communication and
  promotional frequency to fuel continued growth.
• Leverage Eating at Home communication
  strategies. Additionally, frequency of promotion
  is critical due to week to week buying habits.
  Consider promoting smaller sizes.

• Dropping Out Of The Category
• Trading To Private Label
• Buying Less of the Category
• Stocking-Up and Buying On Deal
• HBA Essentials Competing on Deal
• Consumer Staples that Grow in Turbulent Times
• Strong Food Categories Where Some Shopper may be
  Looking to Downsize

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Two Closing Thoughts

• 1. Healthy eating is more difficult on a smaller
  budget and this will become a more important
  issue in these times
• Add value with healthy eating suggestions for
  shoppers on a budget
• Simple, healthy meal ideas
• In the circular and reinforced in-store
• Help shoppers to improve their cooking skills
  help them to see the benefits for their health
  and wallets
• Inexpensive belly-filling foods will, however,
  continue to be valued by shoppers

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Two Closing Thoughts

• 2. Get them to your store
• It has never been more important to influence
  shoppers before their trip
• Shoppers are planning and cooking more
• Use of the internet and other media to identify
  savings and cooking tips is soaring
• They are looking for more ways to plan meals and
  save money because of the offerings in your
  circulars, web sites, etc.

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Thank You!
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Appendix
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Glossary

• Penetration - of total shoppers purchasing the
  category within the retailer
• of Trips the of total trips that contain
  the category.
• Units Per Occasion the average number of units
  purchased per trip.
• Percent of Dollars on Trade Deal the of
  category dollars purchased on a consumer
  perceived trade deal.
• Percent of Dollars on Coupon the of category
  dollars purchased with a coupon.
• Percent of Dollars Private Label the of
  category dollars that are accounted for by
  Private Label.

Point Changes plotted for all metrics other than
Units per Occasion, which is plotted on
percentage change
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US Average All Categories
Three of the key changes we have seen in shopper
behavior through August 15, 2008
Avg Price Change 5.7
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More At-Home Meal Preferences
Source Homescan, a service of The Nielsen
Company PanelViews Survey
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Edible Departments Driving Dollar Growth
Source The Nielsen Company upc-coded products
52 weeks ending 11/01/08 (versus prior year)
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Unit Sales Off 1 Across the Store Largest
Declines from Genl Merch, Non-Food HBA
Source The Nielsen Company upc-coded products
52 weeks ending 11/01/08 (versus prior year)
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Behavioral Shifts are Gradual Immediate
Consumers increasingly using internet to find
ways to save
Source Nielsen Homescan and RMS, Label Trends,
Nielsen Online thru Sept. Nielsen Entertainment
thru Sept, PL 11/1/08
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Same Store Sales Reflect Consumer Actions
Macys
Kohls
Home Depot
Discretionary Spending
JCPenney
Nordstrom
Target
Q3 2008 Carrefour
2.9 Metro CC 3.2 Delhaize
U.S. 2.5 Delhaize Belgium
3.7 Loblaws 3.0
Value Convenience
SuperValu

Same Store Sales Growth
Stock Up Save
Oct 08 same store sales (excluding fuel) for
Costco, Rite Aid Walgreens Kroger trending
for the qtr all other latest quarterly reports