Food and Drink Federation Sales Directors’ Forum

Leeds Marriott Hotel 15th July 2014

MARKET REVIEW FOCUS ON PRICE AND PROMOTIONS

Food & Drink Federation 15th July 2015

Leeds

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DAILY TELEGRAPH – 8TH JULY 2014

• Overall UK inflation levels at 1.5%

• Food Prices +0.6% inflation for June

• Lowest inflation level since BRC began measuring in 2006

• Could be worse

• Clothes -13.7%

• Electricals -4%

• Price and Value will

remain on agenda

Source: Gordon Raynor, Chief Reporter, 08 Jul 2014

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CONSUMER CONFIDENCE IMPROVEMENT SLOW TO REACH GROCERY SALES

“When economic conditions improve what will you continue to do?”

Source: Nielsen Consumer Confidence survey

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5 Source: Nielsen Scantrack TSR Total Coverage (Including General Merchandise)

2013 Last 12 weeks

FALLING VOLUMES IN FOOD RETAILING

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Source : Nielsen 52 weeks to 24th May 2014

SHOPPING DIFFERENTLY FOR FMCG

(Homescan )

(Homescan )

Total Market Convenience On Line

(Scantrack )

Discounters

(Homescan )

Share of FMCG Sales 9% 5% 14%

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DISCOUNTERS: THE ALDI OFFERING IS APPEALING TO MORE AND MORE SHOPPERS

“Considers” – those who would consider shopping at the retailer

Q12a And which of these stores would you consider shopping at in the future? [MA]. Neilsen Homescan Survey 2013 Base: All Supermarket shoppers, 2011 (n=1205), 2012 (n=1212), 2013 (n=1168)

“As you have indicated that you have not shopped at any Discounter or Value Stores

over the last few months, please can you tell us why? (Please scan all that apply)”

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EVERYONE IS TALKING ABOUT PRICE

*Q18, Thinking about the same statements again, please indicate which stores you associate with each of the statements. For each statement you can select as many stores as you like (“low prices for most items”). Base: 2013 n=218, 2012 n=302, 2011 n=245

% respondents who associate Waitrose with “low prices for most items”*

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AS SHOPPERS INCREASINGLY STICK TO A LIST, DISCRETIONARY PURCHASE IS UNDER THREAT

Base: All HM/SM shoppers, 2012 (n=1212), 2013 (n=1168) Ref. Q132, Now we have a few questions about your attitudes towards grocery shopping. In general when shopping, to what extent do you agree or

disagree with the following statements? [Yes or no]

% said yes

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MARKET SHARE

SALES TREND REASONS WHY

28.6%

Recovered then Stalled

-0.6%

3 years of falling market share High level of in store promotions/use of coupons Highest spending Supermarket on Advertising

16.5%

Momentum

Slowing

+1.8%

Benefited from increased selling space in 2013 Brand Match and Advertising still differentiate Growths slowed in Q1 2014

16.4%

Improving Growths

+0.9%

Consistently perceived as “cheapest supermarket” Improved Store Equity and now ahead of Tesco

11.1%

Declines Accelerating

-1.9%

Impacted by Asda and Discounter growth Still attracting new shoppers … But FMCG spend per visit down -2%

TOP 4 PERFORMANCE LAST 12 MONTHS ..

Source: Nielsen Homescan Total Till 52 weeks to 24/5/2014

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Source: Nielsen Homescan Total Till 12 weeks ending 24TH May 2014

TOP 4 PERFORMANCE LAST 12 WEEKS VALUE SHARE ASDA LEADING WAY…

% Chg Yr AgoValue Share Of Total Grocers

28.2

16.4

16.4

10.9

5.6

5.0

5.2

3.1

4.0

2.1

TOTAL GROCERS

TESCO

SAINSBURY

ASDA

MORRISONS

CO-OPERATIVE

WAITROSE

ALDI

MARKS AND SPENCER

LIDL

ICELAND

1.3%

-3.3%

-0.4%

1.7%

-5.0%

-0.1%

7.2%

32.6%

6.1%

22.5%

2.1%

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Men Eyes Don’t Lie

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SHOPPER BEHAVIOUR IN MARKET

“The shops are having to price competitively to get people to part with their money. There is clearly a big supermarket war

going on, and Lidl and Aldi are a big factor in that.”

Mr Archer said that the rise of discount supermarkets and shops such as Poundland signified a long-term “change in culture” in

the nation’s spending habits.

He said the lengthy economic downturn meant “people have got into the habit of looking for the best deals”

Source: Howard Archer – Chief UK Economist, Global Insight – telegraph 8th July

PRICE AND PROMOTIONS

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PRICE AND PROMOTIONS .. RETAILER AND MANUFACTURER BIGGEST CONCERN

Source: Nielsen Homescan Total FMCG Grocery Multiples 2013

Issue Manufacturer Retailer

Optimise Price / Trade Promos 82% 92%

On-Shelf availability 62% 65%

Brand/Portfolio Management 65% 60%

Assortment/Layout 70% 55%

Unmet Needs 60% 65%

Source: Nielsen study 2014 86 manufacturers, 53 retailers Top 2 Priorities

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16 State of the Nation 2014

Source: Nielsen Homescan Survey (GB) January 2014

% Respondents

PROMOTIONS VARY IN POPULARITY, PRICE REDUCTIONS APPEAL TO NEARLY ALL SHOPPERS

48% 44%

Offer Type as % of Total Promotional £ Spend

Multibuy Price Cuts

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% Exp On Offer: Total FMCG

28%

30%

32%

34%

36%

38%

40%

42%

44%

25-M

ay-1

3

22-Ju

n-13

20-Ju

l-13

17-Aug-

13

14-Se

p-13

12-Oct

-13

09-Nov-

13

07-Dec

-13

04-Ja

n-14

01-Fe

b-14

01-M

ar-1

4

29-M

ar-1

4

26-Apr-1

4

24-M

ay-1

4

2013

Source: Nielsen Homescan Grocery Multiples 4 weeks ending periods to 24th May 2014

2014

WAITROSE INCREASED PROMOTIONAL SPEND DURING 2014

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High promotion categories Medium promotion categories

Low promotion categories

Source: Nielsen Homescan – Total FMCG Grocery Multiples 52 w/e 4th January 2014 vs 52 w/e 5th January 2013 State of the Nation 2014

% SPEND ON OFFER STILL NEAR RECORD LEVELS

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PROMOTION AND GROWTH DO NOT CORRELATE

4 weekly growth

Source: Nielsen Scantrack Grocery Multiples Total Store Read Spend on offer: Nielsen Homescan Grocery Multiples

FMCG spend bought on offer

State of the Nation 2014

DEVELOPING EFFECTIVE PRICE & PROMOTION CAPABILITIES

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21 (1) Source: Booz&Co/POI,CGT Customer Planning Trade Management Benchmarking Study, Nov 2013

COMPANIES FACE A NUMBER OF CHALLENGES IN DELIVERING EFFECTIVE PRICING & PROMOTION PROGRAMMES

SIGNIFICANT SPEND

2nd largest expense in CPG,3.5x Ad spend

80%(1) spend too high

UNSOPHISTICATED & UNSATISFIED

40% events ineffective

KEY CHALLENGES

Retail execution vs plan

70%(1) unhappy with planning and execution tools

and technology

$1 TRILLION

SPENT EACH YEAR

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Delivering success in pricing and promotion management requires excellent capability in five core activities

PRICING & PROMOTION PLANNING

Analyze, assess, learn and adjust to improve promotion effectiveness

Accurately manage promotion funds, deductions and claims settlement

Establish excellent shelf execution in real time

Optimize promotion plans to drive effective JBP

engagement with Customers

Set strategic direction and targets on volume, pricing, and promotion

investment

Prioritize better

Plan better

Budget better

Execute better

Perform better

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23 (1) Source: Gartner;

(2) Source: Various studies including McKinsey, Deloitte and BCG

5-10% PROMOTIONAL EFFICIENCY SAVINGS

FINANCIAL VALUE

5% - 10%(1) improvements

in Trade Promotion effectiveness

STRATEGIC VALUE OPERATIONAL VALUE TIME VALUE

Build a lasting organizational

competitive advantage

Shift to smart analytic-based

decision-making

Fast, efficient planning with less

effort

£200MN TURNOVER BUSINESS INVESTING 25% IN TRADE PROMOTIONS - £50MN – COULD DELIVER EFFICIENCIES OF £2.5MN-£5MN

TO REINVEST TO GROW YOUR BRANDS WITH FAVOURITE RETAIL PARTNER

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SUMMARY A few headlines……

• Price and Promotion is still the dominant theme. But more so!

• Shopping has changed. Store choice and in-store behaviour are moving

• Savvy shopping is here to stay, regardless of any economic improvement

• In a high cost, low growth environment getting ‘smarter’ is essential

• Leading businesses are already investing in their RMO capabilities

BARRY WILLIAMS SVP/CHIEF MERCHANDISING OFFICER FOOD TRADING

Our strategy…

Funded by Low Cost Operating Model

Lowest cost multi-channel retailer

BUY FOR LESS

Innovative sourcing ideas Leverage the power of WMT

WO4L

Streamline the end to end supply chain

WAYS OF WORKING

Organisation to deliver the strategy

The playing field has changed…

Source: Count of Asda current estate

(Kantar 12w/e 22 Jun-14)

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Total Tesco Asda Sainsbury's Morrisons

Market outlook Latest 12 weeks read shows ahead growth consistently ahead of market

Market outlook Asda growing ahead of Kantar for 4 consecutive months

*Kantar 4 week growth (up to 4 w/e 22nd Jun)