Agenda - ECRM

Agenda - ECRM

The Evolution of "Brand": How U.S. Shoppers Have Helped Create the New Wave of Private Label Diana Sheehan April 6, 2016 Agenda Growth and Trends Private Label on the Ground What to Do Back at Home 3 Why Do Retailers Invest in Private Brands? Finance Brand Source: Kantar Retail analysis Operations 4 Private Label Growth and Trends at a Glance US All Outlet Private Label Dollar Sales ($ in Billions) 120.5 118.4 116.2 113 2013 2014 2015 2016* US: 18% Source: PLMAs 2016 Private Label Yearbook, 2016 Sales are Kantar Retail Projection

5 Significant Regional Variations Exist within the US Dollar* and Unit Share of Private Label by Region The Coasts lag the rest of the US *Dollar Share is top line in graphic and Unit Share is bottom line, Data for 2015 Source: PLMAs 2016 Private Label Yearbook 6 Private Label Already Captured Staple Categories The next opportunity is smart center-store expansion and HBC Last Purchase: National vs. Private Brand (among shoppers who ever purchase category) National Brand Private Brand 90% 80% 70% 60% 58% 54% 50% 40% 51% 51% 48% 48% 45% 43%

42% 32% 30% 31% 30% 29% 28% 28% 27% 22% 20% 19% 18% 18% 18% 14% 14% 10% 0% ilk M r y y s s e s

s s ts ds te in ie nt ltr ct ct er ar l o a er a u u e u c k p O r o s w o d d a p m g /g o /b by ro es di t/p d

su ed ta d p a d pr l n e a t s a r g t B o n e g n a e n C M in P pe an Bo ze ki Br C an pa f/ ro Ba e H cl H

am H e H cr e Ic TC e ic Ju C a l/o a e er l ea tm k ac n S s od fo t ur g Yo Source: Kantar Retail ShopperScape, February 2017 Sk in re ca

ls ea m y en od z b / o ap Fr o S w h as C SD s e od ar fo c t r ai Pe H 7 The Foundations Behind Your Private Brands Reasons for Purchasing Private Label Food/Beverage Products Instead of National/Name Brand (among shoppers purchased private label last time they purchased category; weighted average across 15 food/beverage categories) Gen Y Lower price

51% Good experience w/brand in past 34% Better value 29% Boomers 48% 53% 25% 39% 22% 32% Trust product will meet expectations 23% 20% 27% Like/trust retailer, so assume PL products will be good 24% 19% 26% 20% 19% 12%

13% 9% 4% Item on sale/promotion 19% Tastes/works better than name brand Better ingredients 13% 6% Higher quality than name brand version 5% 8% 4% Better for me/my family 5% 9% 4% 4% 4% 5% 3% No equivalent name brand product Had a coupon for the private label version 4% 4%

Note: Arrows indicate significant difference vs. all private label purchasers (95% confidence level) Source: Kantar Retail ShopperScape, February 2017 8 How Do Shoppers Trust Brands? All Shoppers Gen Y Gen X Baby Boomers Seniors 57% 57% 57% 56% 57% 57% 56% 59% 57% 57% 61% 59% 60%

63% 61% I am willing to spend more for a product that makes a specific safety guarantee 42% 47% 43% 38% 42% I prefer to shop at retailers that are transparent about product quality 63% 64% 61% 63% 63% I am willing to spend more on a brand I trust 61% 69% 62% 57% 61% I trust that retailers are taking the necessary steps to ensure the quality of the products they offer

I trust that brands are taking the necessary steps to ensure the quality of the products they offer I trust that retailers will remove a product from their shelves if they feel it's unsafe Source: Kantar Retail ShopperScape, March 2016 Shading indicate significant difference from all shoppers 9 A Useful Tool For Understanding Private Label Incandescent Retailers Motivation Finance Budget brands offering low-priced alternatives to commoditized products Source of PL Power Leverages the value proposition inherent in Private Label Image $ Emphasize trust and garner brand loyalty; seen as equals or superiors to major, respected national brands These brands leverage A brands image, co-opting the strength of that brand Brand Trade Down Gross Margin

OPP competition Sourcing flexibility Merch ladder Banner image Innovation Differentiation Loyalty Relies on national brands equity Similar graphics, ingredients Invites price/value comparison Makes its own light Unique ingredients, packaging Limits comparability Often cross-category umbrella Reflective Source: Kantar Retail research and analysis 10 How Can We Think About Well Known Private Labels Today? Incandescent Finance Source of PL Power Retailers Motivation

Brand Reflective Source: Kantar Retail research and analysis 11 Carrefour Supports Differentiated Go-To-Market Strategies by Market A Staged Approach to Consolidate Brand Equity and Leverage Margins Asia Substitute Emerging markets balance a high A Brand shopper affinity on one hand and a high value orientation on the other. Carrefour employs private label to tackle the value extreme while its building its brand equity in the market. Latin America Localize Carrefour pursues its strategy to consolidate its brand equity by leveraging established local sourcing to elevate its ranges. Eastern Europe Diversify As its quality and value proposition shape up Carrefour employs private label to manage margins in key categories. Private label tiering becomes more complex as new products come to broaden the shoppers choice. Source: Kantar Retail research and analysis Western Europe Differentiate As markets become increasingly competitive and shoppers have more

choice Carrefour elevates its private label offer to higher margin categories. 12 Tailored Pricing and Promotions Support Carrefours Private Labels Developed markets rely more on programs, while hybrid and emerging markets reinforce quality and price 10% credit on Carrefour Baby products Carrefour France 30% credit on second product purchased Carrefour Italy Highlighted PL products on shelves Carrefour Poland Source: Kantar Retail store visits and analysis Eye level placement on shelves Carrefour Express Turkey 13 Carrefours PL Granted High Visibility in Online Assortment 14 Consolidating Quality Proposition Reinforcing Growth Categories RDF is featured in the International products category in China, further elevating its brand position. Carrefour Spain sustains impulse and elevates private label brands in niche key growth categories. Promoting as Standalone Offer The private label offer has dedicated sections facilitating access to the ranges. Source: Kantar Retail store visits and analysis 14

Price Positioning, Promotions, and Organic Critical to Walmart Grocery PL PL level varies by category; prevalent in spices/milk with non/organic option Adjacent positioning and lower pricing with national brands Fresh guarantee PL as lower priced gap-filler More premium option but sill reflective, quality and organic even extend to most generic portions of PL Sams Choice differentiates against other PLs and national brands with better packaging and quality but higher pricing Source: Kantar Retail research, analysis and store visits Ready-to-eat options, same as national brands PL more emphasized than national brands on rollbacks and promotions 15 Target Pursues a Highly Differentiated Private Label Strategy Grocery Home Apparel Best Better Good Source: Company reports; Kantar Retail research and analysis

16 Amazon Private Label History in a Nutshell Strathwood - Outdoor patio, lawn, & garden Amazon Elements Denali - DIY tools & accessories - Happy Belly, Mama Bear and more Premium-positioned baby wipes sold exclusively to Prime members - 2004 2014 2006 2009 2005 Amazon Fashion Pinzon - Bedding, bath, home furnishings Pike Street products (also launched 2005) re-branded under Pinzon

- Amazon Basics - - Opened multiple consumable brands for detergent, coffee, nuts and more all available exclusively to Prime members Started in consumer electronics accessories and home and office supplies Expanded to general merchandise, including fitness, home & pet supplies 2016 7 private label apparel lines: Franklin & Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Ro, and Society New York Source: Kantar Retail analysis; Company Website Source: Kantar Retail research and analysis; 17 Amazon Has Had Both Successes and Missteps From work work dresses dresses to to weekend weekend From wear, our polished wardrobe wear, our polished wardrobe essentials serve

serve up up effortless effortless style style essentials Sustainable Scannable packaging for more Info Transparent Sets precedent for future brands Source: Kantar Retail research and analysis; media reports; 18 Amazons Foray Into Consumables Takes an Experimental Approach Differentiation New brands this year and beyond Summer Summer New brands could means opportunity for co-branding for suppliers Fall Consolidation Organic Baby Food Coffee Nuts Trail Mix

Sustainable Laundry Detergent Amazon currently only stocks about 10 Happy Belly and 3 Mama Bear SKUs. These brands could transition to Amazon Elements or remain brands in their own right All of these newer brands are exclusive to Prime members and can be seen as additional feeders for membership renewals. At this point, they represent a shift away from Amazon branding but maintain the same focus on quality, sustainability, sourcing, and transparency that has marked other PLs. These brands are a long-term threat as Amazon further test private label waters in more categories to discover the best method of building equity. Source: Kantar Retail research and analysis; company reports; 19 Kirkland Signature Is Always Evolving To Maximize Value and Quality Costco sold $3.5 million on its first Singles Day in China through Alibaba, helped by the wide brand recognition KS had among Chinese shoppers in advance of the sites 2014 launch KS is well-known both for the occasional uberpremium products like a $600 bottle of Glenlivet and high quality products in bulk such a mens shirts. KS expands into any category where there is an opportunity and

embodies the Costco brand. Members trust KS products to be high-quality, wellpriced, and relevant to their lives. Items are continuously being improved in regards to price, formulation, and packaging Source:; Costco publications KS Bath Tissue is the best selling item at Costco 20 Sams Club: Revamping Private Label An Opportunity and Threat Start 20 different brands Phase 1 Phase 2 573 items 12 brands 166 Members Mark Feb. 2016 Chandra Holt announces changes Double PL team

from 30 to 60 Aug. 2016 Have added 300 Members Mark items Have added 300 Members Mark items Total of 770 Members Mark items, no other private labels Dec. 2016 Source: Kantar Retail research and analysis, company reports Dec. 2017 21 ALDI and Lidl Are the Ultimate Private Label Manifestation If the financial model extends beyond a product brand to include the entire store, then the model changes Branded Alignment Discount Prices No Sacrifice in Quality Conclusion: These stores are well positioned for growth Lidls US headquarters and DCs

Global Aldi Lidl Sales Sales Growth CAGR 2016E 2018E 2021E 2016-2018 2018-2020 2016E $ 107.1 $ 124.3 $ 141.4 7.7% 6.7% 11,170 $ 95.3 $ 111.3 $ 128.6 8.1% 7.5% 10,888 Stores 2018E 11,757 11,491 2020E 12,340 12,194 Sales Sales Growth CAGR 2016E 2018E 2020E 2016-2018 2018-2020 $ 13.9 $ 17.2 $ 20.6 11.2% 9.4% $ 10.8 $ 12.7 $ 14.9 8.4% 8.3% $ 0.7 $ 3.8

140.5% Stores 2018E 1,767 535 120 2020E 1,982 568 330 USA Aldi Trader Joe's Lidl 2016E 1,557 486 - Source: Kantar Retail store visits; KRiQ Report Builder 22 Simple Truth: The Transcendent Brand of the Future The power of $1.7B to a retailer struggling to grow Source: Kantar Retail analysis 23 Things to Remember: Shoppers Are Changing! Shoppers are Embracing Private Label Retailers are Adding Premium Appeals to their Labels Private Labels Can Be as Trusted as National Brands Private Brands Can Be a Bellwether for a Retailers Strategy Dont Forget: New Challenges Can Mean Fresh Opportunities The Opportunity Has Never Been Better Source: Kantar Retail research and analysis

24 Register today! Planning Conference (previously Mid Year Forum) Essential Insights to Drive Growth May 24-25 Chicago, IL Join Kantar Retail cross-channel thought leaders for a two-day event designed provide you with planning frameworks to customize your retailer plans. Assortment, promotions, pricing, and retailer segmentation are all under intense scrutiny. This Conference will feature Kantar Retails latest synthesis of macroeconomic, shopper, and retailer insights to guide 2018+ plans. To register visit or email [email protected] 25 For further information please refer to Contact: Diana Sheehan T: +1 (708) 250 3693 [email protected] @KR_DianaS @kantarretail 26

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