Consumer Trends and Private Label

John KrohnDirector, Category Management & Insight

Today’s Topics

Consumer TrendsFactors Driving DemandWhat’s Coming

Private LabelGlobal ImpactDomestic ImpactPrivate Label EvolutionTrends in Product Development

What’s Driving the Consumer

SOURCE: Hartman Group Study on Shopper Insights 2005

Cultural Trends Driving Shopping Occasions11 Distinct Shopping Motivators

•After-Work

•Party Fixings•Traditional Weekly

•Destination

•Random Emergency

•Crafting Recipes

•Recreation

•Coffee Shop Experience

•Workout Fuel

•Socializing with Friends

•Meal Eaten in Store

What motivates Consumers?How do we fulfill their needs?

Cultural Occasions Driving Demand

0102030405060708090

100Tr

aditio

nal W

eekly

Destin

ation

Rando

m E

merge

ncy

Craftin

g a R

ecipe

After-W

ork S

upple

ment

Recra

tion

Coffee

Sho

p Exp

erien

ceMea

l In S

tore

Party

Fixing

s

Social

izing

w/ F

riend

sW

orkou

t Fue

l

In Past Month Most RecentP

erce

nt o

f Trip

s

SOURCE: Hartman Group, Shopper Insights 2005

Household Definitions are Changing

Independent singlesIncrease in Men and Women living alone

Family structure is changingIncreased divorce ratesSignificant decrease in Married Couples with Children

Current US Consumer Trends:Natural & Organic US Diversity Shift

• 66% of Americans have used Organic products in the past year, up from 55% in 2000.

• 61% of consumers who purchase natural and organic foods buy them in supermarkets

• By 2040, Hispanic, Asian, and African Americans will represent over 50% of the US Population.

SOURCE: The Hartman Group

Consumer Education

An Educated Consumer…

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2004

2001

1998

1995

1992

1989

1986

1983

1980

1977

1974

1971

1968

1965

Less than High School1-3 years High School4 years High School1-3 years College4 years or more College

Years of Education Among All People Aged 25 or Older (U.S. Only)

Source: U.S. Census Bureau

The Food Network: Impacting ConsumersConsumer choice and shopping motivation inspired by top chefs, are seeking out new

recipes and authentic ingredients

Travel Abroad: New Culture, New Experience

-123456789

10

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Mill

ions

# of U.S. Passports Issued Annually

Experiencing Other Cultures with Food & Taste

2%Africa

3%Oceania

4%Middle East

4%Eastern Europe

7%Central America

9%South America

18%Caribbean

19%Asia

40%Western Europe

22%Nightclub/ Dancing22%Water Sports/Sunbathing28%Art Gallery, Museum31%Cultural Heritage Sights

35%Touring the Countryside43%Sightseeing in Cities43%Visit Small Towns/Villages

51%Visit Historical Places75%Shopping84%Dining in Restaurants

Top Destinations

SOURCE: U.S. Department of Commerce, ITA, Office of Travel & Tourism Industries, "In-Flight Survey," May 2005

Top Recreational Activities

Among US Resident Travelers to Overseas Destinations…

The Aging Consumer

To Put it in Perspective…

“No challenge is as certain as global aging, and none is as likely to have as large and enduring an effect –on the size and shape of government budgets, on the future growth of living standards, and on the stability of the global economy and even the world order.”

-- Center for Strategic & International Studies

Aging: Income & EducationThe Most Affluent Retirees in History, But Not All

Age 50+ individuals own 80% of U.S. Financial assets & dispose of 50% of discretionary income.Today’s workers feel optimistic about the future, but real savings are declining and people are not planning for retirement.Resources that many boomers are counting on to fund retirement are likely to be cut drastically.The aging population will more sharply divide into haves and have nots.

10%

25%

40%

25%

Poverty Less than $35K $35K-$95K More than $95K

Baby Boomer Households

Source: “Enhancing Volunteerism Among Aging Boomers”, AARP 2003, AARP via Nielsen 360, www.marketingresearch.com

Current US Consumer Trends:Baby Boomer/Aging Consumer Trends

•By 2030, the percentage of persons 65+ in the US will almost double, growing from the current 12.5% to 23%

•The Boomers are expected to utilize Drug stores for health needs, and convenience for groceries.

0

2

4

6

8

10

12

14

Under 25 25-34 35-44 45-54 55-64 65+

Age Groups

% o

f Exp

endi

ture

s

Health Care

Food at Home

Food Away From Home

SOURCE: Willard Bishop; Competitive Edge Report Dec2004

VNU: The Aging U.S. Population

Behavioral Trends in the Aging

Resulting EffectsBehavior Trend

Boomers will redecorate, renovate, and even move or buy second homes in less metropolitan or rural areas.

Cocooning, Enjoying the Home

As the nest empties, couples with more time and money will turn eating into a leisure activity seeking healthier, tastier foods and cooking for two for fun.

Healthy Eating

Affluent Boomers will spend more money than ever before on health and appearance.

Do Not Want to Look or Feel Old

More working out, traveling, leisure, entertainmentContinue to Seek Adventure

Working past traditional working years, alternative careers are starting earlier, The chance to contribute to society.

Desire to Stay Young & Active

As their children leave the home, empty nesters are finding moretime and money to spend on themselves.

Continued Desire for Comfort

Convenience Meets Lifestyle Need1. Easy I.D.

The name of the drug is printed on the top of the bottle, so it’s visible if kept in a drawer.

2. Code red.The red color of the bottle is Target’s signature— and a universal symbol for caution.

3. Information hierarchy.Adler divided the label into primary and secondary positions, separated by a horizontal line.

4. Upside down to save paper.Klaus Rosburg, a Brooklyn-based industrial designer hired by Target, came up with an upside-down version that stands on its cap, so that the label can be wrapped around the top.

5. Green is for Grandma.Adler and Rosburg developed a system of six colored rubber rings that attach to the neck of the bottle.

6. An info card that’s hard to lose.A card with more detailed information on a drug (common uses, side effects) is now tucked behind the label.

7. Take “daily.”Adler avoided using the word once on the label, since it means eleven in Spanish.

SOURCE: New York Magazine

Health and Wellness

To Put it in Perspective…

“For the first time in human history, the number of overweight people rivals the number of underweight people. ... While the world’s underfed population has declined slightly since 1980 to 1.1 billion, the number of overweight people has surged to 1.1 billion.”

-- American Obesity Society

Source: American Obesity Society

Barriers to Eating Healthy

Cost34% of shoppers say that the cost of healthful foods deters them to from eating better.

Conflicting/Confusing information on healthful foods

Atkins diet, low-carb dietsDespite these barriers, shoppers tend to make purchases based on health and nutritional claims on the package

Source: Food Marketing Institute 2005

Health and Wellness

Shoppers believe that supermarkets are not the best outlets for meeting their health needs. The group mostly like to move away from supermarkets are the young shoppers. Shoppers want information, convenience, and products that help them to lose weight.

Gen.Y Gen. X Boomers Matures

Health prepared foods

46 59 52 50 34

Foods without trans-fatty acids

45 52 43 51 36

Low fat foods 40 48 42 40 36

Low-carbohydrate foods

39 48 40 40 32

Information about weight loss

36 43 40 37 29

Organic foods 34 40 40 34 28

Herbal and natural remedies

33 40 34 40 21

Vitamin and mineral

27 37 33 27 22

Generation %Want my store to

offer moreTotal

%

Proportion of Shoppers Who Want Their Store to Offer More of Each Product of service

Source: Food Marketing Institute 2005

The Organic Consumer

The Hartman group reports that 66% have tried organic food and beverages.

Mainstream is moving the demographic profile of the organic consumer The Organic Shopper has less to do with demographic and more to do with attitude toward food and health concerns

Source: Food Marketing Institute 2005

43%

15% 14% 14%11%

Gro

cery

Sup

erm

arke

ts+

Dis

coun

t

Spe

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ity

Farm

ers

Mkt

s

Hea

lth F

ood

Sto

res

% of Shoppers who Purchase Organic Foods by Outlet:

Natural & Organic Now Mainstream

Private Label Worldwide

Private Label EvolutionPrivate Label Evolution1970s–Generic

Private Label Evolution1980s–“Me Too”

Private Label Evolution1990s–Premium

Private Label EvolutionToday–Unique

Global Impact

$108B Global Grocery SalesGlobal Growth 3% All Categories

Private Label up 5%National Brands up only 2%

Discount Retailers have seen the fastest growth in Private LabelMature markets (Germany & Spain) are still experiencing strong growth2/3rd of Consumers Consider PL “Good Alternative”

North America & Western Europe 4/5th

SOURCE: ACNielsen “Power of Private Label 2005”

Reuters: “Fighting Private Label in Germany” AiMark/Europanel

Datamonitor: “How to Resist the Private Label Threat in 2006”

Private Label by Region

2%

4%

6%

16%

23%

17%

Latin America

Asia Pacific

Emerging Markets

North America

Europe

Global

5%

5%

11%

7%

4%

5%

Latin America

Asia Pacific

Emerging Markets

North America

Europe

Global

Private Label Dollar Share Private Label Dollar Growth

SOURCE: ACNielsen “The Power of Private Label 2005”

Room for Growth

SOURCE: Reuters, Business Insights, “Fighting Private Label in Germany” 2005

Private Label Defined

Private Label DefinedExclusive Products only available at a specific chain of storesNot limited to Food and Drug IndustryNot defined by GeographyPrivate Brands are Everywhere

Brand Tiers

Banana Republic is known for casual luxury, with high-quality apparel for men and women and sophisticated seasonal collections of accessories, shoes, personal care products, intimate apparel and gifts for the home. The brand's timeless style and luxurious fabrications capture a modern interpretation of classic fashion. Customers can expect exceptional service from Banana Republic

Old Navy makes shopping fun again! With great fashion at great prices for adults, kids and babies, Old Navy is famous for the best in denim, graphic tees, cargos, Performance Fleece, plus the Old Navy Item of the Week; each and every week, a special item at a special price.

Gap has provided its customers with clothing and accessories that enhance personal style. What began as one brand has grown to include Gap, GapKids, babyGap and GapBody. By providing great style, value and service.

Brand Tiers

Gap has provided its customers with clothing and accessories thatenhance personal style. What began as one brand has grown to include Gap, GapKids, babyGap and GapBody. By providing great style, value and service.

Banana Republic is known for casual luxury, with high-quality apparelfor men and women and sophisticated seasonal collections of accessories, shoes, personal care products, intimate apparel and gifts for the home. The brand's timeless style and luxurious fabrications capture a modern interpretation of classic fashion. Customers can expect exceptional service from Banana Republic

Old Navy makes shopping fun again! With great fashion at great prices for adults, kids and babies, Old Navy is famous for the best in denim, graphic tees, cargos, Performance Fleece, plus the Old Navy Item of the Week; each and every week, a special item at a special price. Value

Mainstream

Premium

Private Label Growth

PRIVATE LABEL GROWTH 2004

Private Label Growth Factors

Growth is outpacing National Brands Breaking into new and diverse categories and channels of trade Positioned to meet changing consumers demands Adding excitement to the consumers retail experienceGood and/or Better Quality as compared to the National Brands

Private Label Growth in Categories

Private Label has become the category share leader in 95 categories over the past 8 years.

SOURCE: ACNielsen Homescan; Total US, All Outlets; Share measured in dollars

Total # of Categories

# of Categories with Private Label

# of Categories w/Private Label Ranked # 1a

1997 2005

1,022

709

146

1,062

832

241

Global Private Label Product Development

SOURCE: Mintel, Global New Products Database 2006

Almost 12,000 New Private Label Items launched in the last yearTop two -USA (25%), UK (20%)

Canada, France & Germany Rounded out Top 5

26% of the Food items were positioned as “healthier”

Consumer Reports – August 2004“Big name detergents aren’t much better cleaners… But they cost 2 to 3 times as much”

Tide with Bleach Alternative $0.31 /Load

Kirkland Signature$0.11 /Load

3 of the 6 “Best Buys” were Own Brand Laundry Detergents

Kirkland Signature (Costco) was the highest overall rated detergent based on quality and value. Only product to get “Excellent” score in all categories.Winn-Dixie and Sears Own Brand were also rated “CR Best Buys”

Consumer Reports – August 2005

Tested 65 products in six categories including: facial tissues, paper towels, plastic bags, canned peaches, french fries, and yogurt

Many store brands are at least as good as national brands.Switching to a store brand can cut the cost of a product by as much as half.The companies that make store brands are often household names. Our behind-the-scenes peek shows that they include Sara Lee, Del Monte, and Birds Eye.

Source: GNPD, Private Label Prices from Retail Audits

Brands are Positioning Themselves

Charmin Basic“Soft, Strong, Sensible.“

KRAFTProduct Reformulations

SKU Rationalization

Over 33,000 New Products introduced last year:Only 22 generated over $50 million in annual retail salesMajority of which were line extensions, new flavors/scents, or “Me Too”Few meaningful to the Consumer

Major Brands are consolidating their Portfolios Retailers are increasingly able to differentiate their products and drive category innovation.

Private Label Brand Loyalty

Out-of-StoreEnvironment

Direct Mail

Advertising

OutDoor

Promotions

RetailerPositioning

In-StoreEnvironment

Employees

Destination

Marketing/POP

Promotions

Retail Solutions

Demos

Creating a Consistent Brand Experience

Private Label Portfolio

Product

Package

Tiers

Consumer Understanding

Changing Attitudes Toward Private Label

THENCheap goods, low qualityBlue collar, downscale familiesNot educatedNecessity

NOWNBE or better w/ consistent qualityEveryone buys itSmart, awareChoice

No longer a homogenous view of the “typical” private label shopper

Food Enthusiast• Enjoy Cooking• Try new Products/Recipes• Prefer Food Presented as

an Art form• Tend to watch Food Network,

Martha Stewart Living or Read Food & Wine, Bon Appetite, and also Shop at Williams-Sonoma

Core Corporate Brand Shopper•Have purchased a specific combination of PL items from both High and Low Penetrated categories

Consumer UnderstandingThe Premium Target Consumer

Customer Consumer Skew• HH Income $50K+• Some College Education• 2+ Person HH

The Premium

Consumer Target

Findings based on Simmons 2003

Consumer UnderstandingMarketing to the Premium Private Label Consumer

Family & Career Oriented:Enjoy Entertaining People at HomeLike Spending Time with FamilyLook at Work as a Career, not just a Job

Food Enthusiast:Prefer Authentic Foreign, Gourmet, and Spicy FoodsThoroughly Enjoy Cooking and Trying New Recipes and New Food Products. Always look for the Freshest Ingredients when CookingThe Stores Environment makes a Difference whether I shop there or not.

Health Conscious:Regularly Diet and ExerciseMake a conscious effort to Monitor Product Ingredients on Packaging

Though these consumers try to maintain a healthy lifestyle, they also agree that “there is nothing wrong with indulging in fattening foods”.

What’s to Come?

Building Loyalty

Private Label Innovation

Private Label Going Up-Scale

Expanding Categories

Thank You