Going Mobile Consumer and Technology Trends NGA / FMS Financial Management Conference. Copyright 2013 Hawkins Strategic, LLC. All rights reserved.

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1 Going Mobile Consumer and Technology Trends NGA / FMS Financial Management Conference

2 Retail Industry Power Shifts RETAIL The 1940s saw the rise of national radio and broadcast television networks and the spread of self-service supermarkets; both trends spurring the growth of national brands. Historically, power within the supply chain resided with the brand manufacturers: higher margins supported greater skill sets, marketing expertise, national advertising, and consumer reach. Retail shelves were simply viewed as real estate for distribution.

3 Retail Industry Power Shifts RETAIL 1.0 RETAIL During the past two decades, power has shifted to retailers driven by consolidation (fewer, bigger retail companies) and the accumulation of shopper data (e.g., through loyalty programs). Larger retailers leveraging size to develop sophisticated marketing capabilities and private label programs.

4 Retail Industry Power Shifts RETAIL 1.0 RETAIL 2.0 RETAIL Industry power is shifting again, this time to the individual shopper. Enabled by technology and driven by an understanding of shopper value at both retail and brand levels this shift is transforming marketing, supply chain activities, operations, and organizational structure for retailers and consumer goods manufacturers.

5 Power Shift Largely Driven by Mobile Growth 87% American adults who own a cell phone 1 44% 70% Growth of global mobile data traffic in Cell phone owners who have slept with their phone nearby because they didn t want to miss a notification 1 12-fold Mobile traffic in 2012 versus entire Internet in % Growth of smartphone usage in % American adults who own a smartphone Pew Internet: Mobile / Jan Cisco: The Mobile Network % American adults who own a tablet computer The year when mobileconnected devices will exceed the world's population 2

6 Retail Industry Transformation The retail industry is in the midst of the most significant transformation since the advent of the modern supermarket Transformation being driven by two synergistic developments Big data and incredibly sophisticated technology driving relevancy and personalization on a massive scale Advances and adoption of consumer tech - especially mobile - that make shoppers connected everywhere in realtime Big Analytics Big Insights Big Data Everything that has an information element can be digital, increasingly inexpensively. That leads to wholesale personalization of everything. - Andy Grove, Past Chairman, Intel

7 Shopper-Based Competition Goal: Shopper migration, moving shoppers from tertiary to secondary to primary to premium and retaining them at a high level PREMIUM PRIMARY This new battlefield requires shopper identified transaction data SECONDARY Purchase history powers targeting promotions to shopper Data enables creating new scorecards including a shopper inventory New Shoppers TERTIARY Drive same-store sales growth through precision targeted marketing Acquire Profitably grow total shopper base Grow Migrate secondary shoppers to primary shoppers Retain Maintain engagement and relevance with primary shoppers

8 Big Data and Sophisticated Insights Drive Growth consecutive quarters of same store sales growth 10% gain in market share in past 4 years Personalized offers to 10mm households each quarter... with 66% response rate! Kroger has grown number of premium, loyal shopper households from 4mm to over 10mm Big Analytics Big Insights Big Data % growth in # of premium shoppers 0 % of Shoppers % of Sales 0 % of Shoppers % of Sales

9 IN Consumer Tech Impacting Traditional Marketing Just for U Could End Print Ads: Safeway Feb. 21, 2013 Elliot Zwiebach PLEASANTON, Calif. Safeway here said Thursday the success of its Just for U digital program may enable it to discontinue print ads in the U.S. by the end of the year... Asked when the Just for U program might allow the chain to pull back on promotional spending, Burd said, We could get there probably late in 2013 and as people become more digital, we see it as an opportunity get out of newspaper ads and personalize the ads for every household, he said.

10 Financial Implications Reduction or elimination of mass ad flyers Significant cost savings and margin gain from elimination of wasted promotion $ Growth of digital shopper engagement Personalized ads; precision-targeting of promotions Lower communication costs while supporting shopper-specific content Drives increased basket $, increased shopping frequency, improved shopper retention, improved margins (resulting from less promotion cost)

11 Changing Industry Marketing Funds Kantar Retail report on Trade Promotion 2012: 100% Manufacturers decreasing trade promotion spending due to margin pressures 75% Redirecting growing portion of shrinking trade funds 50% to shopper marketing initiatives Increasing overall spending on retailer-specific 25% collaborative shopper marketing initiatives that drive growth 0% National Adv Trade Promo Account Specific Consumer Promo past Shopper Marketing $ Traditional Trade $ present # Retail Companies # Stores Industry Marketing $ Majority of industry marketing funds going to largest retailers Wall Street analysts are putting increased pressure on CPG brand manufacturers to improve their bottom line results Focus on marketing spend, 2nd biggest expense for CPG brands after cost-of-goods-sold GMA study: $50 billion annually spent on shopper marketing initiatives, and growing as manufacturers seek best return on marketing $ investment

12 Technology Trends

13 Technology on the Path to Purchase Technology is enabling marketers to interact with the shopper at each step along the path to purchase with increasingly relevant messaging All about shopper engagement Big data being used to measure and influence shopper behavior at every step, from creating general market awareness to acquiring, growing, and retaining shoppers In-Store Watchwords: Relevant Connected Realtime Measurable Pre-Shop Post-Shop RETENTION GROWTH AWARENESS CONSIDERATION ACQUISITION

14 Outside the Store Retailer s shopper database Datalogix connects shopper identified transaction data from store with shopper online to target specific messages through webpage ads and targeted Facebook ads

15 Outside the Store SHOPTOPIA MEDIA NETWORK Shoptopia is a highly targetable digital media network that interacts with shoppers actively engaged on the path to purchase.

16 Location-Based Marketing Many apps are able to take advantage of location-based services Retailer can geo-fence their store locations, the shopper receiving a message notification when entering the zone Example: Shopper passing within 2 miles of the Independent Market between 3-5pm is told the store has a special on rotisserie chicken for dinner that night Easily integrate solution to existing mobile app Create offers based upon location and time of day Additional targeting capabilities Complete reports and analytics

17 Inside the Store The store itself has become the focus of shopper engagement, enabled by new technologies and solutions The value of understanding true in-store shopper behavior and then impacting it represents massive opportunity to convert shoppers to customers and grow customer value Digital signage Video analytics Mobile analytics In-store locationbased services Entrance marketing Checkout

18 Video Analytics New technologies like video analytics are providing new and powerful information about instore activity that the largest retailers and brands are using to their advantage Video analytics provides powerful new metrics such as department, aisle, and category conversion rates that can be used to increase shopper engagement Key learning: Understanding impact of specific promotions on aisle and category traffic, dwell times, and purchase conversion Traffic to Store Traffic to Aisle / Department Display / Product Dwell Events Dwell Times Purchase Conversion Sales Analysis

19 Mobile Analytics Comparable capabilities available through mobile analytics; available to the independent sector at far better cost Traffic to Store Traffic to Aisle / Department Display / Product Dwell Events Dwell Times Purchase Conversion Sales Analysis

20 In-Store Mobile Location Services Complimenting outside-the-store location services, new in-store location-driven services are becoming available Presenting a shopper s personalized promotions on her way in the entrance Product-locator service (like Google Maps for inside your store) Coupon reminder based on location in-store Location-based marketing Fresh baked cookies from our bakery message on shopper s mobiles in the dairy department

21 Digital Signage Intelligent Digital Signage Displays that react to audience in realtime Camera able to detect demographic of shopper standing in front of it Message triggered by shopper gender and age range Cost of camera tech: Approximately $40 per month

22 Checkout: Center of the Retail Universe Payment Digital Receipts Shopperspecific promotions Self- Scan Omni- Channel Digital Coupons Shopper ID POS

23 Traditional POS: Ripe for Disruption Robust Locked-down solid, stable, Can operate stand-alone; intelligence at local level Heavy footprint Complex Expensive Light footprint Intelligence in the cloud Inexpensive terminals

24 Future POS: Light Footprint, Connected POS transformation already underway in different retail sectors: Apple stores Nordstrom Walmart and more

25 Digital Receipts Digital receipts growing in popularity while increasing numbers of merchants enable shoppers to get receipts via or online Some supermarket systems have digital receipt capability Retalix / Retalix Loyalty Third-party solutions available Key benefits to retailers: GREEN / sustainable positioning Appeal to tech-savvy shoppers Cost savings * R *

26 Digital Receipts Some companies, like Third Solutions and it s consumer facing MyReceipts solution, are creating a cloud-based platform enabling shoppers to collect receipts from multiple merchants The MyReceipts platform seeking to create an ecosystem linking shoppers, retailers, and marketers

27 Digital Coupons The number of retailers offering digital coupons (load-to-card) continues to grow though consumer use has failed to explode as rapidly as many predicted 305 billion coupons issued in 2012 Of them, 2.9 billion redeemed Digital coupons represent less than 1% of all coupons distributed and includes both print-at-home and loadto-card Print-at-home coupons represent an estimated 6% of all coupons redeemed and load-to-card redemption represents an estimated 1.3% 2013 NCH Coupon Facts Report

28 Shopper-Specific Promotions The ability to deliver shopper-specific promotions automatically into the transaction in realtime triggered by a shopper identification is rapidly becoming mission-critical Today this ability is same as ability to deliver digital coupons Some POS / Loyalty systems have resident: example: Retalix Loyalty, NCR Copient Often it is third-party loyalty providers: ProLogic, Midax, Accelitec, etc. Future: POS systems having standard interface to cloud for shopper-specific promotion delivery Future: Shopper-specific PRICING dunnhumby has over 100 analysts at Kroger focused on developing shopper-specific pricing

29 Payment Mobile payment an estimated $60 billion globally in projected to be $545 billion by 2015 Many challenges and issues: Lack of standards Lack of scale among solution providers Differing technologies Card-not-present rates

30 Mobile Payment Acceptance Payment solutions like Square, PayPal s Here, Intuit, and others are extending credit card acceptance While popular among small merchants previously lacking ability to take credit cards, there are applications in supermarket retail Garden Centers Coffee / Bakery counter Farmer s Markets other off-site retail operations

31 Mobile App Payment Some retailers - most notably Starbucks - are having success with payment integrated to their mobile app Few retailers are of the scale - or have the requisite brand loyalty - to make this strategy work Shoppers unwilling to have multiple apps on their phone for payment; ultimately a mobile wallet solution needs to become a standard with widespread acceptance Every week, Starbucks is seeing close to four million mobile payment transactions, up from two million near the end of last year and three million a month ago. Additionally, mobile now accounts for approximately 10 percent of Starbuck s total U.S. tender.

32 Mobile App: Shopping and Payment Walmart s Scan & Go app Self-scanning and payment at checkout Download app click in-store mode when entering store scan products using smartphone camera at checkout, scan QR code on screen to transfer order to POS pay

33 Mobile Payment Technology NFC vs. QR Codes NFC adoption appears stalled Google Wallet and ISIS primary proponents iphone does not appear to be adopting NFC QR code scanning for payment gaining ground driven by Apple s Passbook and applications like LevelUp

34 Mobile Payment Technology - WATCH Apple acquired Authentec this past year Authentec provides biometric authentication solutions It is widely reported that Apple will be including Authentec hardware - biometric finger swipe - technology in a future iphone Primary use for biometric authentication is for payment Given iphone s market penetration this will cause mobile payment to gain momentum quickly

35 Mobile Payment Technology - WATCH Biometric authentication combined with Apple s Passbook application may be the killer app Passbook used to hold coupons or offers using QR codes scanned at checkout Passbook can also hold and present loyalty cards (shopper identification) These can be linked with payment information, authenticated by a finger swipe

36 Mobile Payment Technology - WATCH Dunkin Donuts mobile app integrated to Apple s Passbook Stores loyalty card, special offers, and Dunkin s stored value card App is location aware so loyalty card pops up each time shopper is near Dunkin Donuts shop Customer can earn points and pay simply by having cashier scan mobile screen

37 Omni-Channel The ability to interact with shopper via any channel she wishes in realtime and shopper can move across channels while retaining same transaction Start transaction online and then pick it up at a drive-thru Carrefour Auchan LeClerc and others...

38 Recommendations

39 Recommendations MARKETING Insist on marketing measurability Mass promotion declining / precision targeting & relevant marketing increasing Build digital shopper engagement with realtime capabilities IN-STORE The new battleground Shopper analytics from video and/or mobile In-store wifi available to shoppers (high speed / high bandwidth)

40 Recommendations POS Put off major investment as long as possible; big changes coming Ability to deliver shopper-specific promotions realtime into transaction fast becoming mission-critical Digital receipts: winning position for retailers PAYMENT Green, sustainable, and saves $ Keep watching; solutions must develop scale and overcome card-not-present issue Watch Apple s iphone and the ecosystem Apple will seek to create Remember that mobile payment is only ONE piece of the shopper s mobile experience at your stores

41 Recommendations MOBILE Mobile is here NOW and is transforming retail Exploding capability Location-based services On-line, realtime, all the time Payment Will be nearly impossible to find one mobile app provider that can do it all Instead, think about your mobile app as a portal through which you can integrate new innovative services and solutions as they come available

42 Gary Hawkins