State of the Industry

Transcription

1 Retail Food Sales Outlook Top 75 Supermarket Retailers Supermarket Performance Measures Retail Landscape Food Prices Income-Polarized Economy Resulting in Disappearance of Middle Class State of the Industry Table of Contents The Changing Landscape of Food Retail Formats, Channels, and Services Customer Confidence/Satisfaction Corporate Social Responsibility Retail Product Trends Restaurant Trends Retail Marketing Leading Retail Technology Trends Retail Store Trends Format/Channel Endnotes TABLE 1.1 TABLE 1.2 TABLE 1.3 TABLE 1.4 TABLE 1.5 Estimated Global Food-Selling Channels Sales Summary, Food Expenditures as a Share of Disposable Personal Income Dairy, Deli, and Bakery Estimated Sales for Top 75 Supermarket and Grocery Chains, Top Current and Forecast Food, Drug, and Mass Retailers, Worldwide Average Per Store Supermarket Performance Measures TABLE 1.6 Channel Sales Estimates for North America 10 TABLE 1.7 Channel Sales Estimates for Europe List of Tables TABLE 1.13 Store Expansion in the United States TABLE 1.14 TABLE 1.15 TABLE 1.16 TABLE 1.17 Types of Stores Shopped in Past Three Months Preferred Store for Fresh Perimeter Category is Different from Primary Store, by Generation American Customer Satisfaction Index, Q Q4 2013, Retail Sector American Customer Satisfaction Index National Scores, Q Q TABLE 1.18 Private Label Share in Supermarkets TABLE 1.19 Supermarket Private Label Unit and Dollar Volume TABLE 1.8 Retail Sales Format Shift Forecast to TABLE 1.9 TABLE 1.10 Annual Revenue Growth of Leading US Food Retailers, Market Share and Format Characteristics, TABLE 1.11 Market Share Forecast, TABLE 1.20 TABLE 1.21 TABLE 1.22 Supermarket Private Label Department Dollar and Unit Share, Supermarket Regional Private Label Department Dollar and Unit Share, Current and Forecast Foodservice Sales and Market Share TABLE 1.12 Expected Compound Annual Sales Growth Rate vs. Inflation: TABLE 1.23 Top Five Digital Tactics Shoppers Employ Along the Path to Purchase What s in Store International Dairy Deli Bakery Association

2 2 Industry Highlights STATE OF THE INDUSTRY HIGHLIGHTS Demographic microtrends that have a major sustainable impact on retail include more urbanization, an increase in single-family and smaller family households, a rising aging population, more acculturation, and a new modern family. Holistic health experiences and sustainability are important purchase drivers among consumers who are searching for fresher, less-processed foods with clean, simple ingredient labels. Worldwide consumer confidence is growing, but with the decline of US middle-class families, the economy has become income-polarized resulting in a widening gap between high-and low-income segments. Poised for growth will be retailers at the higher end of the mid-market, discounters, and ultra-premium channels. Digital customer disruption through online shopping options such as click-and-collect and drive, and mobile and social media will provide an array of engagement, communication, and diverse shopping channels. The rising popularity of cross-channeling among consumers will continue to pressure brick-and-mortar formats to create unique in-store shopping experiences. CONSUMER LIFESTYLE HIGHLIGHTS Consumers remain conservative in their spending and exercise value-seeking behaviors despite improving economic conditions. In 2043, the United States, will have a minority majority for the first time, with minorities accounting for 57% of the population by Hispanics and Asians are among the fastest growing minority groups, creating new opportunities for retailers. Men are taking a more active role in household shopping and meal preparation. Millennials comprise 22% of the US population and are the most ethnically diverse generation, with an estimated spending power of $200 billion. The number of Americans age 65 and older will more than double between 2012 and Sales of fresh, local food, estimated at $9 billion annually, have increased 13% per year since Watch for growth in nutrient-dense, high protein, gluten-free, functional, and organic foods. Consumers balance their nutritional needs with more mini meals and snacks 77% of consumers report eating a snack at least once a day. Snacks are an underserved opportunity for fresh perishable departments. BAKERY HIGHLIGHTS Consumers look at product presentation, freshness, taste, and selection when shopping the ISB. In today s bakeries, indulgent products, single-serve, and healthful benefits are top trends. Millennials seek smaller-sized products on their frequent, quick-trip bakery missions. Household size and age are prominent factors impacting ISB sales. Hispanic shoppers are an important ISB demographic, due to their large-sized families. Consumers want bakery products made with high fiber, whole grains, and free-from ingredients (e.g., rice flours, corn flour, ancient grains), while avoiding high salt, fructose corn syrup, and trans and hydrogenated fats. What s in Store International Dairy Deli Bakery Association

3 Industry Highlights 3 DAIRY HIGHLIGHTS Dairy is one of the most frequented perishable departments in the store. Consumers average 35 trips to the department per year. Dairy represents the second largest category for private label products. Protein is the buzzword in dairy products, as 71% of consumers report that they are seeking dairy products for their protein plus needs. Growth projections are strong for the spoonable yogurt category. Expected growth is over 20% through 2018 to $63 billion in sales globally. Dairy products align with many consumer macro trends from indulgent options, to healthy on-the-go snacks, to global ethnic flavors. CHEESE HIGHLIGHTS Consumers are seeking bold, aged, flavors, but they also want clean labels and to know where their cheese is from. Millennials are a key demographic for specialty cheese. They like experiential shopping experiences and are adventuresome consumers when it comes to new cheeses. Cheese is a great source of protein for customers. Highlighting cheese s protein content can further position it as a part of a healthy diet. In the United States, the cheese category is positioned to grow 25% through 2018 to over $27 billion. Globally, the retail cheese market is expected to grow to over $138 billion by DELI HIGHLIGHTS Millennials are more likely to use Deli departments than their Boomer+ counterparts. Gen Y seek these values in the deli products they buy convenience, variety for them and their children, the ability to experiment without needing culinary expertise, and high quality, fresh products. People are increasingly cooking at home and looking to improve kitchen skills. The deli can bridge the gap by providing consumers with tools or kits to make cooking at home a bit easier, while still allowing for some skill development. Deli operators have the opportunity to connect with shoppers by sharing more information regarding the health attributes and origins of the foods they offer. High quality and unique flavors are in demand for Millennials being exposed to an evolving food culture. On-trend are deli products promising innovative flavors reflecting regional, ethnic, and restaurant-inspired cuisine. Department menus need to highlight small plate ideas, add-ons, time-saving options, sides and other tie-ins to home meal solutions, and customizable options. Specialty meats are shopped by about two in five shoppers. They are often a solution for dinner, especially for later eating. Shoppers are increasingly concerned with issues tied to sustainability, especially when it comes to what animals are fed and how humanely the animals are raised. What s in Store International Dairy Deli Bakery Association

4 4 State of the Industry RETAIL FOOD SALES OUTLOOK RetailNet Group forecasts sales at food-selling channels in North America to reach $1.8 trillion in 2017, up from $1.5 trillion in The group predicts global sales to reach $5.3 trillion by 2017, up from $4.2 trillion in See TABLE 1.1, Estimated Global Food-Selling Channels Sales Summary, Retail is following the same path as the economy, Tim O Connor, vice president, RetailNet Group, told IDDBA. Retail growth is one to 1.5 percentage points above inflation and should continue to rise, which in turn benefits retailers. Job growth grows slowly and wages remain flat. We re witnessing the 80 effect, in that % of the population is trending down or flat in income while all the growth is at the top. Retailers are experiencing negative real-volume growth, as real consumer spending per capita on food at home has decreased. The good news is that a focus on quality and health and wellness is expanding at all income levels, providing opportunity for differentiation. 1 See TABLE 1.2, Food Expenditures as a Share of Disposable Personal Income. Grocery retailers are more optimistic about 2014 than they ve been about any upcoming year in the past decade, according to Progressive Grocer s 81 st Annual Report of the Grocery Industry. Compared to a year ago, 39.3% of grocery retailers said they were more optimistic about the retailing climate for supermarkets; 32.5% reported no change in their outlook; and 28.2% were less optimistic. The top three issues of concern reported by grocers were employee benefits (e.g., minimum wage, Affordable Care Act); competitive threats; and labor (e.g., recruitment, retention, diversity, and training). 2 PG s 81 st Annual Report said supermarket sales (at stores generating $2 million or more annually) reached $620 billion in 2013, up 2.9% from the prior year. Contributing to this growth were natural/gourmet supermarkets, which experienced an 11.7% increase in the number of stores in this format as well as an 11.4% rise in sales. Conventional supermarket formats accounted for 71% of all supermarket sales, 3 down slightly from 72% in Supermarkets with sales of $2 million or more increased almost 1.1% to 37,459 total stores. Per-store sales rose to an average of $16.6 million in 2013, up from $16.3 million in TOP 75 SUPERMARKET RETAILERS The high number of acquisitions and mergers in 2013 contributed to much of the growth in Supermarket News Top 75. These transactions allowed new entrants to join the annual list, including formats catering to consumer demand for healthier alternatives, lower priced alternatives, and stores appealing to the Hispanic demographic. 6 To estimate the size of the dairy, deli, and bakery business for the top 75 supermarket retail players, refer to TABLE 1.3, Dairy, Deli, and Bakery Estimated Sales for Top 75 Supermarket and Grocery Chains, The top 75 chains, total sales, number of stores, and number of service delis and in-store bakeries are all reported by Chain Store Guide s 2014 Directory of Supermarket, Grocery, & Convenience Store Chains. To estimate dairy, deli, and bakery department sales for each chain, we multiplied each chain s total estimated sales by the average percentage of store sales each department represents, as reported by Progressive Grocer s 66 th Annual Consumer Expenditures Study. 9.00% for dairy. 3.49% for service deli. 1.29% for self-service deli. 2.09% for bakery. Adjusted total deli sales and adjusted total bakery sales consider that delis and bakeries are not present in all stores bakery sales will account for 2.09% of a chain s total sales only if bakeries are present in 100% of that chain s stores. To adjust, we multiplied total deli or bakery sales by the ratio of stores with delis or bakeries to the total stores. For example, H-E-B, rank 9, reports 358 stores, 200 of which have in-store bakeries. Total bakery sales are 2.09% of $19.9 billion, or $415.9 million. To get adjusted sales, we multiplied the total bakery sales number by the number of H-E-B stores with in-store bakeries, then divided it by the total number of H-E-B stores: $415.9 million = $232.3 million. Adjusted total deli numbers are the estimated sum of adjusted service deli sales and unadjusted self-service deli sales. Neither self-service deli sales nor dairy sales are adjusted because both appear in nearly all supermarkets in the United States.

5 State of the Industry 5 TABLE 1.1 Estimated Global Food-Selling Channels Sales Summary, (millions of US dollars) Sales '13 Sales '14 Sales '15 Sales '16 Sales '17 Sales CAGR Sales CAGR Stores CAGR Stores CAGR Region (est.) (est.) (est.) (est.) '09-'13 '14-'17 (est.) '09-'13 (est.) '14-'17 (est.) East Asia $627,090 $707,558 $782,430 $858,899 $927, % 10.3% 7.1% 3.4% Oceania 87,133 86,585 90,202 93,547 96, Southeast Asia 66,935 71,712 78,939 86,827 93, South Asia 9,919 11,279 13,704 16,134 18, Central Asia Asia/Pacific Region $791,596 $877,687 $965,866 $1,056,030 $1,137, % 9.5% 7.9% 4.3% Western Europe 1,313,246 1,372,088 1,435,055 1,498,190 1,559, Central/Eastern Europe 273, , , , , European Region $1,587,124 $1,669,582 $1,762,306 $1,853,838 $1,942, % 5.2% 2.2% 2.1% Brazil 102, , , , , Mexico 76,907 81,021 85,200 89,780 94, South America Ex. Brazil 67,938 71,319 75,663 79,911 84, Central Am./Caribbean 15,204 16,201 17,291 18,365 19, Latin American Region $263,016 $273,148 $290,678 $308,362 $325, % 5.50% 8.1% 4.5% Sub-Saharan Africa 41,007 43,869 46,720 49,406 52, Middle East 25,709 28,145 30,771 33,298 35, North Africa 5,813 6,441 7,135 7,867 8, Middle East & Africa Reg. 72,529 78,455 84,626 90,571 96, USA & Puerto Rico 1,354,187 1,406,309 1,469,708 1,536,959 1,609, Canada 158, , , , , North America Region $1,513,079 $1,570,839 $1,642,207 $1,716,975 $1,796, % 4.4% 1.9% 1.8% Total $4,227,343 $4,469,712 $4,745,682 $5,025,776 $5,298, % 5.8% 4.0% 2.9% Source: RetailNet Group, LLC, 2014, See the following tables: TABLE 1.3, Dairy, Deli, Bakery Estimated Sales for Top 75 Supermarket and Grocery Chains, TABLE 1.4, Top Current and Forecast Food, Drug, and Mass Retailers, Worldwide. TABLE 1.2 Food Expenditures as a Share of Disposable Personal Income 25% $12,000 SUPERMARKET PERFORMANCE MEASURES There is a positive return in businesses that made an investment in their employees, in selling area square footage, and service. See TABLE 1.5, Average Per Store Supermarket Performance Measures. RETAIL LANDSCAPE 2014 Sandy Skrovan, US research director, Planet Retail, United Kingdom, shared five trends reshaping the grocery landscape: 1. The shift to smaller format stores, as evidenced by Planet Retail s list of fastest growing retailers: six of the top 10 are small-box formats. The group projects an average annual sales growth of 18% for these six Percent of Spending 20% 15% 10% 5% 0% 3.6% 17.2% '52 '62 '72 '82 '92 '02 '12 At Home 3.4% 13.1% 3.6% 4.3% 4.0% 9.9% 8.3% Away from Home 7.0% 3.8% 4.3% 5.9% 5.7% $10,000 $8,000 $6,000 $4,000 $2,000 $0 Disposable Income Source: Food CPI, Prices and Expenditures: Expenditures as a Share of Disposable Income, Economic Research Service, US Department of Agriculture, accessed July 3, 2014 Disposable Income in Billions

6 6 State of the Industry TABLE 1.3 Dairy, Deli, and Bakery Estimated Sales for Top 75 Supermarket and Grocery Chains, 2013 All sales numbers in thousands of dollars. As reported by Chain Store Guide (CSG) CSG s unit and total sales multiplied by avg. % of store sales per dept. as reported by Progressive Grocer A B C D E F G H I J K L M N FULL-SERVICE (3.49% of total) 4 SELF-SERVICE (1.29% of total) 5 (4.78% of total) 3 2 FULL-SERVICE 2 IN-STORE BAKERY SALES (2.09% of total) 6 BAKERY SALES 2 DAIRY SALES (9.00% of total) 7 RANK 1 GROCERY SALES UNITS grocery, supermarket supercenter, club, gourmet 1 # SERVICE DELIS 1 IN-STORE BAKERIES 1 STORE NAME C x 3.49% C x 1.29% F + G J + G (E/D) x F C x 2.09% (K/D) x L C x 9.00% 1 Walmart Supercenters $147,414,000 3,275 3,273 $5,144,749 $1,901,641 $7,046,389 $7,043,247 $5,141,607 3,273 $3,080,953 $3,079,071 $13,267,260 2 The Kroger Co. $98,700,000 3,427 2,519 $3,444,630 $1,273,230 $4,717,860 $3,805,189 $2,531,959 1,307 $2,062,830 $786,729 $8,883,000 3 Costco Wholesale Corp. $66,865, $2,333,606 $862,565 $3,196,171 $3,196,171 $2,333, $1,397,489 $1,397,489 $6,017,895 4 Safeway, Inc. $37,300,000 1,406 1,406 $1,301,770 $481,170 $1,782,940 $1,782,940 $1,301,770 1,335 $779,570 $740,203 $3,357,000 5 Sam's Club $36,270, $1,265,823 $467,883 $1,733,706 $1,729,700 $1,261, $758,043 $758,043 $3,264,300 6 Publix Super Markets, Inc. $27,600,000 1,080 1,035 $963,240 $356,040 $1,319,280 $1,279,145 $923,105 1,080 $576,840 $576,840 $2,484,000 7 Ahold USA, Inc. $26,118, $911,518 $336,922 $1,248,440 $1,169,536 $832, $545,866 $498,614 $2,350,620 8 Albertson's, LLC $22,500,000 1,059 1,069 $785,250 $290,250 $1,075,500 $1,082,915 $792,665 1,069 $470,250 $474,691 $2,025,000 9 H-E-B $19,900, $694,510 $256,710 $951,220 $931,820 $675, $415,910 $232,352 $1,791, Delhaize America, Inc. $17,117,000 1,349 1,349 $597,383 $220,809 $818,193 $818,193 $597,383 1,349 $357,745 $357,745 $1,540, Whole Foods Market, Inc. $12,917, $450,803 $166,629 $617,433 $580,582 $413, $269,965 $269,965 $1,162, Trader Joe's Co. $11,750, $410,075 $151,575 $561,650 $151,575 $0 0 $245,575 $0 $1,057, BI-LO, LLC $10,300, $359,470 $132,870 $492,340 $494,439 $361, $215,270 $216,527 $927, Meijer, Inc. $9,211, $321,464 $118,822 $440,286 $440,286 $321, $192,510 $192,510 $828, Giant Eagle, Inc. $9,153, $319,462 $118,082 $437,544 $280,813 $162, $191,311 $95,207 $823, BJ's Wholesale Club, Inc. $8,865, $309,389 $114,359 $423,747 $282,837 $168, $185,279 $185,279 $797, SUPERVALU, Inc. $8,783,652 1, $306,549 $113,309 $419,859 $152,421 $39, $183,578 $23,422 $790, Aldi, Inc. $8,350,000 1,316 0 $291,415 $107,715 $399,130 $107,715 $0 0 $174,515 $0 $751, Hy-Vee, Inc. $7,360, $256,864 $94,944 $351,808 $351,808 $256, $153,824 $153,824 $662, Wegmans Food Markets, Inc. $6,600, $230,340 $85,140 $315,480 $315,480 $230, $137,940 $137,940 $594, Great Atlantic & Pacific Tea Co., Inc. $6,000, $209,400 $77,400 $286,800 $286,800 $209, $125,400 $125,400 $540, Walmart Neighborhood Market $5,800, $202,420 $74,820 $277,240 $277,240 $202,420 0 $121,220 $0 $522, WinCo Foods, LLC $5,595, $195,266 $72,176 $267,441 $267,441 $195, $116,936 $116,936 $503, SuperTarget $5,400, $188,460 $69,660 $258,120 $258,120 $188, $112,860 $112,860 $486, Save Mart Supermarkets $4,580, $159,842 $59,082 $218,924 $100,811 $41, $95,722 $95,722 $412, Roundy's Supermarkets, Inc. $3,975, $138,728 $51,278 $190,005 $190,005 $138, $83,078 $83,078 $357, Golub Corporation $3,875, $135,238 $49,988 $185,225 $185,225 $135, $80,988 $69,944 $348, Stater Brothers Holdings, Inc. $3,859, $134,707 $49,791 $184,498 $174,819 $125, $80,670 $42,992 $347, DeMoulas Supermarkets, Inc. $3,850, $134,365 $49,665 $184,030 $184,030 $134, $80,465 $52,132 $346, Ingles Markets, Inc. $3,588, $125,256 $46,298 $171,554 $161,682 $115, $75,010 $75,010 $323, Raley's Family of Fine Stores $3,100, $108,190 $39,990 $148,180 $148,180 $108, $64,790 $64,790 $279, Tops Markets, LLC $2,918, $101,838 $37,642 $139,480 $139,480 $101, $60,986 $60,986 $262, Weis Markets, Inc. $2,800, $97,720 $36,120 $133,840 $133,840 $97, $58,520 $58,520 $252, Schnucks Markets, Inc. $2,575, $89,868 $33,218 $123,085 $121,340 $88, $53,818 $52,773 $231, K-VA-T Food Stores, Inc. $2,241, $78,211 $28,909 $107,120 $85,922 $57, $46,837 $39,396 $201, Sprouts Farmers Markets $2,216, $77,359 $28,594 $105,953 $105,953 $77, $46,327 $46,327 $199, Houchens Industies, Inc. $2,212, $77,216 $28,541 $105,758 $45,546 $17, $46,241 $9,560 $199, Brookshire Grocery Company $2,170, $75,733 $27,993 $103,726 $103,726 $75, $45,353 $43,586 $195, Smart & Final Stores, LLC $2,125, $74,163 $27,413 $101,575 $27,413 $0 0 $44,413 $0 $191, Bashas', Inc. $1,820, $63,518 $23,478 $86,996 $86,996 $63, $38,038 $38,038 $163, ShopRite Supermarkets, Inc. $1,770, $61,773 $22,833 $84,606 $84,606 $61, $36,993 $36,993 $159,300

7 State of the Industry 7 TABLE 1.3 continued Dairy, Deli, and Bakery Estimated Sales for Top 75 Supermarket and Grocery Chains, 2013 All sales numbers in thousands of dollars. As reported by Chain Store Guide (CSG) CSG s unit and total sales multiplied by avg. % of store sales per dept. as reported by Progressive Grocer A B C D E F G H I J K L M N STORE NAME FULL-SERVICE (3.49% of total) 4 SELF-SERVICE (1.29% of total) 5 (4.78% of total) 3 RANK 1 GROCERY SALES UNITS grocery, supermarket supercenter, club, gourmet 1 # SERVICE DELIS 1 C x 3.49% C x 1.29% F + G J + G (E/D) x F C x 2.09% (K/D) x L C x 9.00% 42 The Fresh Market, Inc. $1,575, $54,968 $20,318 $75,285 $55,264 $34, $32,918 $21,364 $141, GFS Marketplace $1,560, $54,444 $20,124 $74,568 $20,124 $0 0 $32,604 $0 $140, Saker ShopRite, Inc. $1,500, $52,350 $19,350 $71,700 $71,700 $52, $31,350 $31,350 $135, Sweetbay Supermarket $1,500, $52,350 $19,350 $71,700 $71,700 $52, $31,350 $31,350 $135, SpartanNash Co. $1,487, $51,902 $19,185 $71,087 $71,087 $51, $31,082 $31,082 $133, Village Supermarket, Inc. $1,476, $51,528 $19,046 $70,575 $70,575 $51,528 5 $30,858 $5,320 $132, Big Y Food, Inc. $1,450, $50,605 $18,705 $69,310 $68,467 $49, $30,305 $29,800 $130, Grocery Outlet, Inc. $1,400, $48,860 $18,060 $66,920 $18,060 $0 0 $29,260 $0 $126, Marsh Supermarkets, Inc. $1,250, $43,625 $16,125 $59,750 $59,750 $43, $26,125 $26,125 $112, Inserra Supermarkets, Inc. $1,200, $41,880 $15,480 $57,360 $57,360 $41, $25,080 $25,080 $108, Lowes Foods, Inc. $1,200, $41,880 $15,480 $57,360 $56,478 $40, $25,080 $24,552 $108, Bodega Latina Corp. $1,200, $41,880 $15,480 $57,360 $57,360 $41, $25,080 $25,080 $108, Fresh & Easy Neighborhood Market $1,150, $40,135 $14,835 $54,970 $14,835 $0 0 $24,035 $0 $103, Woodman's Food Markets, Inc. $1,075, $37,518 $13,868 $51,385 $13,868 $0 15 $22,468 $22,468 $96, Fareway Stores, Inc. $1,038, $36,226 $13,390 $49,616 $49,616 $36,226 0 $21,694 $0 $93, Fiesta Mart, Inc. $1,025, $35,773 $13,223 $48,995 $31,109 $17, $21,423 $12,139 $92, Coborn's, Inc. $1,020, $35,598 $13,158 $48,756 $48,756 $35, $21,318 $8,319 $91, Northgate Gonzalez Market, Inc. $1,015, $35,432 $13,097 $48,529 $48,529 $35, $21,219 $21,219 $91, Brookshire Brothers, Ltd. $993, $34,682 $12,819 $47,501 $39,425 $26, $20,769 $15,933 $89, Lowes Pay and Save, Inc. $980, $34,202 $12,642 $46,844 $17,796 $5, $20,482 $1,403 $88, Super Center Concpts, Inc. $969, $33,818 $12,500 $46,318 $46,318 $33, $20,252 $20,252 $87, Price Rite Supermarkets $906, $31,651 $11,699 $43,351 $43,351 $31,651 0 $18,955 $0 $81, Redner's Markets, Inc. $881, $30,754 $11,367 $42,121 $32,047 $20, $18,417 $12,384 $79, Cardenas Markets, Inc. $835, $29,142 $10,772 $39,913 $36,898 $26, $17,452 $17,452 $75, Jerry's Enterprises, Inc. $830, $28,981 $10,712 $39,693 $39,693 $28, $17,355 $17,355 $74, Rouses Enterprises, LLC $815, $28,444 $10,514 $38,957 $38,957 $28, $17,034 $17,034 $73, King Kullen Grocery Co., Inc. $815, $28,444 $10,514 $38,957 $38,957 $28, $17,034 $17,034 $73, SVT, LLC $800, $27,920 $10,320 $38,240 $38,240 $27, $16,720 $16,720 $72, Associated Retail Stores $800, $27,920 $10,320 $38,240 $38,240 $27, $16,720 $16,720 $72, Dierbergs Markets, Inc. $765, $26,699 $9,869 $36,567 $36,567 $26, $15,989 $15,989 $68, Niemann Foods, Inc. $750, $26,175 $9,675 $35,850 $27,727 $18, $15,675 $6,306 $67, Festival Foods $715, $24,954 $9,224 $34,177 $34,177 $24, $14,944 $14,944 $64, HAC, Inc. $713, $24,898 $9,203 $34,101 $19,792 $10, $14,910 $14,910 $64, Foodland Super Market, Ltd. $712, $24,849 $9,185 $34,034 $25,263 $16, $14,881 $9,191 $64,080 S $701,950,245 25,751 19,602 24,498,064 9,055,158 33,553,222 30,604,072 21,548,914 17,876 14,670,760 11,930,364 63,175,522 2 FULL-SERVICE 2 IN-STORE BAKERY SALES (2.09% of total) 6 BAKERY SALES 2 DAIRY SALES (9.00% of total) 7 IN-STORE BAKERIES 1 1 Directory of Supermarket, Grocery & Convenience Store Chains,Chain Store Guide, All Adjusted Sales figures are prorated based on the ratio of stores with service departments to total stores. 3 Total deli sales based on Annual Consumer Expenditures Study, Progressive Grocer, September full-service deli sales 3.49% + self-service deli sales 1.29% = 4.78% of total supermarket sales. 4 Full-service deli sales based on Annual Consumer Expenditures Study, Progressive Grocer, September % of total supermarket sales. 5 Self-service deli sales based on Annual Consumer Expenditures Study, Progressive Grocer, September % of total supermarket sales. 6 In-store bakery sales based on Annual Consumer Expenditures Study, Progressive Grocer, September % of total supermarket sales. 7 Dairy sales based on Annual Consumer Expenditures Study, Progressive Grocer, September % of total supermarket sales.

8 8 State of the Industry TABLE 1.4 Top Current and Forecast Food, Drug, and Mass Retailers, Worldwide Company Sales Market Share Company Sales Market Share Walmart (USA) $513,178,241, % Walmart (USA) $628,313,683, % Carrefour (France) 133,461,122, Carrefour (France) 164,683,814, Tesco (UK) 113,346,627, Costco (USA) 154,999,069, Costco (USA) 110,614,542, Schwarz Group (Germany) 147,934,938, Seven & I (Japan) 110,461,016, Seven & I (Japan) 138,766,161, Schwarz Group (Germany) 108,514,534, Tesco (UK) 132,556,882, Kroger (USA) 103,490,588, Kroger (USA) 128,937,362, AEON (Japan) 101,266,805, Auchan (France) 128,200,174, Metro Group (Germany) 100,199,218, AEON (Japan) 119,920,632, Aldi (Germany) 88,713,609, Aldi (Germany) 116,461,380, Auchan (France) 87,371,276, Metro Group (Germany) 113,706,271, Total Market $9,085,565,518,700 Total Market $12,536,219,828,400 Total sales (including grocery and non-grocery) through food retail formats, as a percentage of nationwide sales through these formats. Food retail formats are typically hypermarkets, supermarkets, convenience stores, grocery ecommerce, warehouse clubs and US-style supercenters etc., where edible grocery sales account for more than 40% of total sales. The total market includes retailers operating in both modern and traditional channels. This data includes VAT. Source: Planet Retail, Ltd., June 2014, planetretail.net TABLE 1.5 Average Per Store Supermarket Performance Measures Sales volume ($ millions) $15.98 $16.26 $16.56 Selling area (square feet) 33,300 33,100 33,250 Number of checkouts Number of full-time equiv. employees AVERAGE WEEKLY SALES Dollars per store $299,373 $312,758 $318,462 Dollars per square foot $8.99 $9.45 $9.58 Dollars per checkout $30,863 $31,592 $31,222 Dollars per full-time equiv. employee $4,536 $4,533 $4,423 Source: Nielsen TDLinx; Progressive Grocer Market Research, 2014 stores through 2018, compared to less than 4% for US grocery channels as a whole. 2. The role of retailers as wellness advocates that create a holistic health experience for customers seeking good-for-me solutions will mark an inflection point for Walmart with the addition of hundreds of its small-format stores, the emerging site-to-store drive model, and the reinvention of its supply-chain model. 4. The growth and acceleration of grocery-to-go in the form of AmazonFresh, the Walmart drive concept (whereby drivers pick up orders without having to get out of their cars), and click-to-collect services. 5. Digital customer disruption through online, mobile, and social media outlets that provide an array of engagement, communication, and shopping channels. Plant Retail statistics that support this trend include: two out of five online shoppers want to receive realtime offers on their smartphones while they shop; and one-third of shoppers would like to use their smartphones as an in-store navigation tool to help them locate products. 7 Among the global megatrends for 2014 given by Daymon Worldwide are: 1. Demographic shifts. Microtrends that have a sustainable impact on retail include urbanization, an increase in single-family and smaller family households, a rising aging population, more acculturation, and a redefined traditional family. 2. Greater consumer consciousness of environmental issues. This includes consumer/company reduction of their carbon footprint, investment in the long-term care of the environment, more transparency in the supply chain, and reducing waste. 3. The impact of the economic environment on spending. This includes value-seeking behaviors of today s consumers and new ways they seek out deals (such as pre-shopping and in-store evaluation via smartphone). 4. More consumer demand for health and wellness options, such as fresh, less-processed foods, the impact of advances in food technology, and the expanded definition of wellness.

9 State of the Industry 9 5. Consumer behaviors and implications of a 24/7 world, such as the need for convenient solutions and experiences, the need for immediacy, and the rise of Webenabled e verything. 8 FOOD PRICES Food Price Outlook The US Department of Agriculture s (USDA) Economic Research Service forecasts a 2.5% to 3.5% increase in food prices for This price inflation would equate to a 1.4% bump from and be more in line with the historical norm. The range is based on an assumption of normal weather conditions for the year. 11 The Consumer Price Index for food at home grew 2.7% from May 2013 to May In May 2014, the index for food at home rose 0.7%, the largest monthly increase since July O Connor, RetailNet Group, told IDDBA that prices are currently being suppressed by low inflation and competitive intensity. Drought is also affecting pricing, triggering greater interest in more localized sourcing and inciting some retailers to line up local providers. Localization also creates a shorter supply chain for fresher product and less risk of disruption along extended delivery routes, O Connor said. 13 INCOME-POLARIZED ECONOMY RESULTING IN DISAPPEARANCE OF MIDDLE CLASS On top of all that, the US middle class is shrinking. While not technically an endangered species, they are playing an increasingly smaller role in retailers customer base, and grocers will need to respond accordingly. Over the past 30 years, the number of middle-income families has declined, resulting in a widening gap between high- and low-income segments. The Pew Research Center found that Americans who identify themselves as middle class has dropped sharply, with as many people identifying themselves as lower or lower-middle class (40%) as middle class (44%). This is the lowest percentage of individuals who identified themselves as middle class recorded in a Pew survey. In terms of income, US Census Bureau statistics show that median income decreased by 8% (from $55,627 to $51,107) since the start of the Great Recession in December As the gap between rich and poor grows, low-priced retailers such as Aldi and dollar stores are poised for growth, as projected in Daymon Worldwide s Global Retail Trends Predictions for 2014 and Beyond. Premium retailers and specialty stores with differentiated propositions like Whole Foods will also experience growth. For those retailers without a clear position, the risk of becoming less relevant and losing traction among shoppers will be apparent, as consumers will continue to make purchases at several stores in what Daymon Worldwide calls the share of wallet game. 15 RETAIL STORE TRENDS FORMAT/CHANNEL The middle class in developing countries, however, will increase substantially over the next 20 years, evolving into the most important social and economic sector worldwide, according to the National Intelligence Council. This demographic shift will ensure that, for the first time, a majority of the world s population will not be impoverished, and it will present new opportunities for retailers and manufacturers worldwide. 16 See the following tables: TABLE 1.6, Channel Sales Estimates for North America. TABLE 1.7, Channel Sales Estimates for Europe. TABLE 1.8, Retail Sales Format Shift Forecast to Retail Channel/Services Pricewaterhouse Coopers (PwC)/Kantar Retail s Retailing 2020/Winning in a Polarized World states that the US is the only major developed economy where income classes define retail channel dynamics, resembling a developing economy rather than a developed one. The United States is the most income-polarized economy in the developed world. The report projects that the future US retail landscape will be driven by

10 10 State of the Industry TABLE 1.6 Channel Sales Estimates for North America (estimates based on constant 2012 dollars) SALES ESTIMATE (billions of dollars) SHARE OF SALES (estimate) SALES CAGR (estimate) SHARE OF ALL RETAIL CHANNEL SALES ADDED (estimate) Channel Hyper/Super & mass $487.9 $ % 21.2% 3.1% 5.0% 21.9% 24.1% Grocery Home specialists Health & beauty Cash & carry/club Department store Apparel Discounters Consumer electronics Other category specialist Convenience Leisure Total $2,363.2 $2, % 100.0% 3.0% 4.4% 100.0% 100.0% Source: RetailNet Group, LLC, 2014, TABLE 1.7 Channel Sales Estimates for Europe SALES ESTIMATE (billions of dollars) SHARE OF SALES (estimate) SALES CAGR (estimate) SHARE OF ALL RETAIL CHANNEL SALES ADDED (estimate) Channel Grocery $ $ % 34.7% 4.0% 4.0% 38.4% 32.0% Discounters Hyper/Super & mass Consumer electronics Home specialists Apparel $103.4 $ Department store Health & beauty Cash & carry/club Convenience Leisure Other category specialist Total $2,118.3 $2, % 100.0% 3.6% 4.4% 100.0% 100.0% Source: RetailNet Group, LLC, Europe Market Analysis, 2014, income polarization, whose impact will be most noticeable in three defined retail channel dynamics. Masstige retail. A combination of mass and prestige, this mid-market retail position is aimed at the higher end of the mid-market. The United States provides ample opportunity for this position to grow, when well-executed. Discounters. This channel is poised for aggressive growth, as it helps low-income families stretch available cash between paychecks. Ultra-premium. This channel is at the very top end of the marketplace, and US-based retailers and global operators will continue to use technology to reach shoppers. 17 Distinctive Positioning Yields Success Today s most successful grocers have adopted strategies focused on specific niches such as premium/fresh and valuefocus in place of a one-size-fits-all approach, which has historically characterized supermarket retail, according to Food Marketing Institute s US Grocery Shopper Trends These strategies, which pursue single-value propositions, resonate with the demands and dynamics of modern food culture. The result has been increased sales gains and expansion, while sales at mid-market retailers barely keep pace with inflation. 18 The rise in the number of supermarkets over the past two decades, along with the addition of dollar stores and fresh and organic food retailers, has created an unsustainable middle for