New Grocery Formats:

Walmart & Beyond

September 3, 2009
The Retail Forward Intelligence System™

Focused on the road ahead:

Food, Drug, Mass

Homegoods
Softgoods

Global Retailing

Wal-Mart World™
Target Program
Home Improvement

ShopperScape™
Today’s Panel and Webinar Logistics

Al Meyers
ameyers@retailforward.com
Senior Vice President

Sandy Skrovan
sskrovan@retailforward.com
Senior Vice President and Manager of the
Food/Drug/Mass, Wal-Mart World™ and
Target programs of the Retail Forward
Intelligence System™

Jennifer Halterman, Senior Consultant with

Retail Forward specializing in the food, drug To ask a question:
and mass segments – Click on the cartoon dialogue icon in
the lower right hand corner of your
Audio information screen
 Toll-free from within the U.S. or – Type your question in the box
Canada: (866) 775-2265 – Send your question to the host
 Toll call from anywhere: 1 (281) 913-
0854
 Passcode: 6143554009
3
No More One Size Fits All

From 2006 Retail Perspectives

“Supermarkets: One Size Does Not Fit All”
— Retail Forward

“Expect the supermarket landscape

to look vastly different in 2010 than
it does today. The cookie-cutter
approach—to store format, layout,
product mix, merchandising, etc.—
is out of date. Supermarkets are
actively engaged in broadening their
store portfolios to meet different
shopper needs and shopping
occasions.”
Building a Portfolio of Formats

Convenience

Extreme-value/price-
impact

Upscale/fresh/healthy

Ethnic specialty

Food/general
merchandise combos

Online
Supermarket Industry Is Looking for Growth

Supermarket Industry Sales Growth and Forecast

(in $ Billions)
Nominal Sales
Real (2005) Sales $565
Forecast $550
$536
$521
$506
$492 $494
$469
$448 $443
$435 $435 $439 $440 $433 $433 $433 $432
$428 $432 $431
$418$427
$406

2003 2004 2005 2006 2007 2008 2009F 2010F 2011F 2012F 2013F 2014F

Compound Annual Growth Rate

Real (2005)
Nominal Sales Sales
2003–2008 3.9% 0.6% Real sales growth
2008–2014F 2.3% -0.3%
remains flat
Sources: U.S. Department of Commerce and Retail Forward
 Especially as Center Store Is Pressured

Supermarket Category Sales Compound Annual Growth, 2002–2007

Meat Poultry In-store General

& Seafood Bakery Merchandise
+0.9% +1.2% +6.4%

Dairy Produce
+2.6% +3.8%

Frozen &
Deli
Ice Cream
+1.1% +1.4%
Center Store1 0.4%

Pharmacy HMR
+5.2% +3.5%

40% of store sales

Includes: grocery food, grocery non-food and health and beauty care.
1

Sources: Progressive Grocer and Retail Forward

High Frequency Merchandise Is Sold Everywhere
Shoppers Shift Food Shopping Patterns

Weekly Shoppers—Supermarket/Food Retailers

(Percentage of U.S. primary household shoppers who shop weekly at format)
2007–08 2005–08
37% Difference Difference
Conventional supermarkets 31%
45%
41% -3.6 +4.1
25%
24%
Walmart Supercenter 28%
28% -0.2 +3.4
7%
Extreme-value/ 6%
warehouse supermarkets 8%
9% +0.9 +2.2

7%
Specialty food stores/ 6%
neighborhood specialty markets 9%
-1.0 +1.3
8%
3%
4% 2005
SuperTarget 5% 2006
-0.5 +1.9
5% 2007
2008
4%
4%
Health/natural supermarkets 6% -1.2 +1.2
5%
Source: Retail Forward ShopperScape™, October 2005, 2006, 2007 and 2008
Shoppers Are Eating Out Less

Tactics Shoppers Are Using to Save Money on Food/Grocery

Eating out at restaurants

less frequently or eating
40%
out at less expensive
restaurants

Buying more products to

cook from scratch more 25%
often

Source: Retail Forward ShopperScape™, February 2009

So They Want It All When Grocery Shopping

Fast Grocery Shopping Factors

(Percentage of U.S. primary household shoppers who strongly agree/agree with statement)

Fresh

Affordable Want to get in-and-out fast when 51%

food shopping

Often try new food products seen in 37%

the grocery store

Like trying out or shopping in new 28%

food stores

Don’t buy fresh/healthy foods

because too expensive 26%

Prefer buying prepared or convenience

foods rather than cooking from scratch 24%

Source: Retail Forward ShopperScape™, February 2009

Shoppers Are Ready to Try New Food Stores

Shoppers Are Ready to Shop the New Breed of Small Food Stores*

Definitely/probably Might or might not shop Definitely/probably

will shop will not shop

Unnamed 64% 30% 6%

small-format food store

*Concept defined to include the following features:

- Specializes in fresh, prepared foods, e.g., "ready-to-eat" or "ready-to-heat and eat" meals
- Carries a basic assortment of grocery staples at competitive prices
- Carries gourmet, ethnic and organic specialty products
- Neighborhood location
- Is easy to shop, e.g., plenty of parking, not too big, smaller than the typical supermarket
- Has a quick checkout

Source: Retail Forward ShopperScape™, February 2008

And They’re Willing to Give Walmart a Try

Shoppers Are Ready to Shop the New Breed of Small Food Stores*

Definitely/probably Might or might not shop Definitely/probably

will shop will not shop

Unnamed 64% 30% 6%

small-format food store

Walmart
55% 29% 16%
small-format food store

*Concept defined to include the following features:

- Specializes in fresh, prepared foods, e.g., "ready-to-eat" or "ready-to-heat and eat" meals
- Carries a basic assortment of grocery staples at competitive prices
- Carries gourmet, ethnic and organic specialty products
- Neighborhood location
- Is easy to shop, e.g., plenty of parking, not too big, smaller than the typical supermarket
- Has a quick checkout

Source: Retail Forward ShopperScape™, February 2008

It’s About Time, and Timing

From 2004 report

“Wal-Mart 2010”
— Retail Forward

“By 2010, Wal-Mart will have a

broader portfolio of formats to satisfy
more consumer needs and shopping
occasions.

“Retail Forward believes several

venues ... hold potential for Wal-Mart
going forward.”
 Walmart Supercenter Is Hitting the Wall

Walmart Supercenter vs. Conventional Discount Store

Unit Growth and Projection
Forecast

2,980 3,030
2,920
2,840
2,740
2,612
2,447
2,256

1,960 1,921 1,980

1,869
1,801
1,736
1,647 1,713
1,568 1,478
1,471
1,353
1,258 1,209
1,066 1,075
888 971
891
827 777
721 737 707 682
564
441
344

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F 2011F 2012F 2013F

Conventional Walmart discount stores Walmart Supercenters

Sources: Company reports Retail Forward projections
Unit Expansion Is Slowing Down

2005 2009
Planned new Walmart Supercenters +250 +125

Planned total new U.S. units +335–365 +157–177

Planned Number of New U.S. Wal-Mart Stores

Unit Growth Plans 2005 2006 2007 2008 2009

Walmart Supercenters + 240 – 250 + 277 – 280 + 190 – 200 + 166 + 125 – 140
Walmart conventional stores + 40 – 45 + 13 – 15 + 5 – 10 +2 0
Neighborhood Market/Grocery formats + 25 – 30 + 11 – 12 + 15 – 20 + 23 + 17
Sam's Club + 30 – 40 + 31 – 33 + 20 – 30 + 21 + 15 – 20

Total U.S. Expansion + 335 – 365 + 332 – 340 + 305 – 330 + 222 + 157 – 177

Sources: Company reports

Competitive Situation Demands New Formats

Fresh & Easy:

– 2007 debut

100 stores in one year

– Phoenix: 26 stores
– Las Vegas: 25 stores
– So. Cal: 49 stores
Retail Forward

Opened 120th store in

May 2009

Original aggressive
expansion plans now
stalled
– Recession
– Tweaking model

Phoenix
Source: www.freshandeasy.com
Small Formats Will Change the Food Landscape

Small-Format Grocers
(illustrative list, not all-inclusive)

Trader Joe’s
Fresh & Easy (Tesco)
The Fresh Market
Sprouts Farmers Market
Sunflower Farmers Markets
Famima!! (FamilyMart)
Source: yelp.com

Giant Eagle Express

Marketside (Walmart)
The Market by Von’s (Safeway)
Urban Fresh by Jewel (Supervalu)
Heartland Pantry (Hy-Vee)
FRESH (Brookshire Grocery)
Schnucks Culinaria
Giant To Go (Giant Food/Ahold)
Retail Forward

Source: TNS Retail Forward

Walmart Introduces Marketside

Four Marketside stores

At Marketside, we provide fresh,
Open October 2008 innovative answers to the daily
Phoenix area question, “What’s for dinner tonight?”
Source: www.marketside.com
– Chandler
– Gilbert
– Mesa
– Tempe

Retail Forward
High Marks for Overall Store Experience

All photos by Retail Forward

Prepared Foods Selection Serves as Test Lab

All photos by Retail Forward

Service Sells Fresh Component

All photos by Retail Forward

Basket Price Bragging Rights

Source: Marketside April 29, 2009 Weekly Flyer

Marketside Starts to Leverage Walmart Brand

April 29, 2009 ad (Cinco de Mayo) May 20, 2009 ad (Memorial Day)

Source: Marketside April 29, 2009 Ad Source: Marketside May 20, 2009 Ad
A Miss: Edited Assortment, but Still Too Much

All photos by Retail Forward

A Miss: Potential to Siphon Off Supercenter Trips

Marketside Walmart Supercenter

Walmart Supercenter

All photos by Retail Forward

Walmart Doing More to Cater to Local Markets

2008: Opens Hispanic

supercenter in Garland, Texas
– Expanded produce
selection
– More ethnic grocery brands
– Fresh prepared specialty
food items
Retail Forward
Recent introductions
– Supermercado de Walmart
• Houston, April 2009
• Phoenix, June 2009
– Mas Club
• Houston, August 2009

Source: Más Club

Supermercado Inside Entrance Suggests Fresh
Storefront and Exterior, Includes Outdoor Eating Area

All photos by Retail Forward

In-Store Bakery and Tortilla-Making
Storefront and Exterior, Includes Outdoor Eating Area

All photos by Retail Forward

Full-Service Meat/Butcher Shop

All photos by Retail Forward

But Same Walmart Case-Ready Meats Too

Retail Forward
In-Store Prepared Foods “La Cocina” Is Busy

All photos by Retail Forward

Fresh OverBrands
Hispanic Grocery Frozen: Only
Merchandised One with
Side-by-Side Frozen Aisle
U.S. Brands

Retail Forward
Store Is Filled with Hispanic Specialties

All photos by Retail Forward

Large BabyBrands
Hispanic Grocery Area for Young
Merchandised Growing
Side-by-Side Families
with U.S. Brands

All photos by Retail Forward

Bilingual Signing and Familiar Price Message

All photos by Retail Forward

Good Idea, But Still Feels Very “Walmart-y”

All photos by Retail Forward

Walmart Becoming a Better Merchant

Highland Village
– Tailors assortment to meet local tastes and preferences
– Opened Nov. 2007

Retail Forward
Upscale Products Appeal to Higher Incomes

All photos by Retail Forward

Displays Tailored to Affluent Surroundings Too

Retail Forward
Introducing Warmer Color Palette in Food

All photos by Retail Forward

Testing Cross-Merchandising Efforts

All photos by Retail Forward

Focus Is on Fresh, Prepared, Convenience

All photos by Retail Forward

Provides Shoppers with Meal Solutions

All photos by Retail Forward

Another New Concept: One aisle. $1 or less.

All photos by Retail Forward

Out-of-Stocks Suggest Demand for $1 Items

All photos by Retail Forward

Other Retailers Test New Concepts Too

A Taste of Market Street

– Mini-version of Market Street
– On supermarket store pad
– 1,300 sq. ft.
– Gourmet meals to go
– Grab-and-go
– Fresh produce
– Baked goods

Retail Forward

Source: www.unitedtexas.com
Prepared Meals Destination Priced Right

Retail Forward
Plenty of Grab-and-Go Convenience

Photos by Retail Forward

Fresh Bakery and Peet’s Coffee

All photos by Retail Forward

And Many Convenience Staples Too

All photos by Retail Forward

Giant Eagle Introduces Express Concept

2007: 1st opened in

Pittsburgh

Now plan 3–5 more

14,000 sq. ft.

Combines elements of:

– Supermarket
– Drug store
– Convenience store

Retail Forward
Some Traditional Departments

All photos by Retail Forward

Lots of Easy-Prep and Ready-to-Eat Options

All photos by Retail Forward

Tempting Ready-to-Go Meals

Retail Forward Source: Giant Eagle, Inc.

Fills a Convenient Good-for-You Fresh Niche

All photos by Retail Forward

User-Friendly Deli Features Kiosk

All photos by Retail Forward

Giant Eagle Launches Upscale Market District

2007 opening

2 Pittsburgh locations
– 3rd unit planned in
Columbus, Ohio

Differentiates on fresh
and gourmet
– Prepared foods
– Grab-and-go
– Gourmet/specialty
All photos by Retail Forward
Personal Shopper Program Eases Checkout

All photos by Retail Forward

Market-like Feel in Produce Department

All photos by Retail Forward

Focus on Fresh Prepared and Gourmet

All photos by Retail Forward

Lots of Made-to-Order and Grab-and-Go Options

All photos by Retail Forward

Natural/Organic Offer Rivals Whole Foods

All photos by Retail Forward

Kroger Opens More Fresh Fare Stores

Opening more units as

Fresh Fare

Focus:
– Gourmet/specialty
– Fresh, prepared
– Convenience and
stock-up

Targets upscale and busy,

time-pressed shoppers

All photos by Retail Forward

Inviting, Upscale Ambience and Atmosphere

All photos by Retail Forward

Attractive Displays, Convenience Offer

All photos by Retail Forward

Prepared Foods a Plenty

All photos by Retail Forward

Target Introduces PFresh Prototype

All photos by Retail Forward

Convenience Selection of Produce

All photos by Retail Forward

Meat Case, Limited Prepared or Take-out

All photos by Retail Forward

Big Lots Introduces “Next Generation” Layout

All photos by Retail Forward

Food/Consumables Is the Focal Point

All photos by Retail Forward

Bold Signing and Wider Aisles Greet Shoppers

All photos by Retail Forward

Toys “R” Us Debuts “R” Market

Retail Forward
Features an Expanded Grocery Assortment

All photos by Retail Forward

Other Household Essentials Are Offered Too

All photos by Retail Forward

Baby Basics Moved Up Front for One-Stop Shop

All photos by Retail Forward

Expect More Food, Food Everywhere

Sprouts Farmers Market

Add photo of:

Giant To Go
Other?

Sunflower Farmers Markets

All photos by Retail Forward

Shoppers Want It All ... When They Want It

More

Service

Quality Selection

Consistency Convenience

Price Risk

Time Effort

For Less
Questions? To Learn More …

To ask a question:
– Click on the cartoon dialogue
icon in the lower right hand
corner of your screen
– Type your question in the box
– Send your question to the host

To learn more about the Retail

Forward Intelligence System™ or
ShopperScape™:

Contact Katherine Clarke,

Vice President of Marketing at
kclarke@retailforward.com
or 614.355.4009

Webinar participants will receive a

link to the recording of today’s
session
2009 Strategic Outlook Conference

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