52 Weeks Ending Dec. 19, 1998

Grocery Banners +2Drug Stores +0Warehouse Clubs +12Mass Merchandisers +9

Copyright 1999, ACNielsen

All Commodity $ Growth

The Retail Front

Ready..set..go! The Canadian consolidation race has begun! In the Spring of last year, Hudson’s Bay purchased Kmart stores to convert and revamp those stores into Zellers. More changes to the retail environment continued, including Empire’s acquisition of Agora, Loblaw Companies purchasing the Bolands Division and the finalization of the Loblaw Companies and Provigo deal. Retailers, manufacturers and consumers wait in anticipation of the effects these changes will have on the industry in terms of control, costs and pricing. These acquisitions all bring truth to the phrase, “The big are getting bigger”. The current top 2 Retailers account for 17.6% of sales. With the mergers, this increases to 25%. The result of the Canadian mergers provides Empire with a 7.8 share of the retail market and Loblaw Companies with potentially a 17.2 share. Analysts’ speculations that the consolidation trends south of the border would move in to Canada have been substantialized. As supermarket mergers continue at a rapid pace in the U.S., down the road they may set their eyes on acquisitions within Canada increasing the competitive pressures. As well, the threat of WalMart expanding the superstore concept beyond just test stores has provoked Canadian organizations to create a solid position for themselves. Now that the ball is rolling, are there more to follow?

Retail Consolidation…The big are getting bigger!

Source: ChannelWatch, 52 Weeks to Dec. 19, 1998

The Top 10 Retailers account for 52.7% of sales. The Top 2 Retailers will potentially account for 25% of sales Nationally.

Welcome to The Retail Front! You are about to read the inaugural issue of what will become a successful quarterly tradition. The Retail Front is an easy-to-read, enlightening and entertaining newsletter issued by the ACNielsen Retail Services Group. In our rapidly changing marketplace there always seem to be a number of issues that affect a variety of Canadian Retailers. Given our extensive lineup of research tools, including: Market Tracking, Modelling, In-store Observation, and Consumer Diagnostic & Attitudinal solutions, ACNielsen is in a unique position to provide perspective on the issues that matter. Whether it’s Retailer Consolidations, Category Trends, Hot New Product Launches, or Consumer Attitudes; ACNielsen has a fact-based perspective on the trends, behaviour and attitudes occurring in the market. We hope you find The Retail Front to be a worthwhile read.

Sincerely, Gord KillopsVice President Retail Services

13 Weeks Ending Dec. 19, 1998

Grocery Banners +4Drug Stores -1Warehouse Clubs +6Mass Merchandisers +0

All Commodity $ Growth

Current Shares of Top 10 Retailers Amongst All Outlets

11.6

6.0 5.9 5.3 4.7 4.7 4.7 4.23.3

2.3

Loblaw Cos . Agora Price/Costco Provigo Inc. Wal-Mart Zellers /Kmart Cda Safeway Metro Rich. Corp. A&P Overwaitea Grp.

Potential Importance of Top 8 Retailers Post-Mergers

7.8

5.94.7 4.7 4.7 4.2

3.3

17.2

New LCL New Empire Price/Costco Wal-Mart Zeller/Kmart Cda Safeway Metro Rich. Corp. A&P

Retail Services

Copyright 1999, ACNielsen

MACH 3, the new razor system from Gillette, has made quite an impact on the Razor Category since its launch last summer. In fact, MACH 3 alone has posted dollar sales volumes higher than any other historical level reached by the entire Razor Category. Through the introduction of the MACH 3 the Category has grown at a phenomenal pace comparing the 4-weekly periods to the same time frames last year. So, once consumers use the blades they obtained with the original razor purchase, have they continued to support the MACH 3 by buying replacement blades? The answer is a resounding “Yes”! In fact, MACH 3’s share of system blades has risen to over 28.8% in a mere 28 weeks. I guess it is only fitting in the inaugural edition of “The Retail Front” we should outline one of the most positive new product introductions in history. A quote from Gillette sums up the performance of this razor: “MACH 3 is exceeding our initial targets and we expect this fantastic performance to continue in 1999 and beyond”.

Source: ACNielsen 1998 Fresh Report

Fresh Insights on Fresh Categories Perishable food items are staples of the Canadian diet and are found in virtually every household. The challenge faced by stakeholders in these commodities is to get existing consumers to buy more product, not getting more people to buy. Consumption of beef, pork, and deli meats is down in more households than it is up. In the case of fresh fruits, vegetables and chicken, consumption trends appear to be moving in an upward direction. These items are also well developed among middle-aged consumers who will continue to exercise enormous purchasing clout. Cheese consumption has declined markedly among older Canadians. As such, the industry must work towards either increasing demand among younger Canadians to sustain volume, or reposition itself to the older segment in which demand is falling. Significant pockets of the Canadian population - up to 20% of households for some regions and categories - buy their perishables from outlets other than Traditional Supermarkets. Some Retail Banners are quite vulnerable to traffic loss to “specialty stores” when their core shoppers need to buy fruits, vegetables, meats or cheeses. For more information about the ACNielsen 1998 Fresh Report - a profile of the fresh products marketplace - please contact your Account Representative or call (905) 475-1131 x 2602

MACH 3 Cuts Through The Market!

Great New Products

202

79

139130

140 137

76

169

-3-4 -1023

Feb

28'98

Mar

28'98

Apr

25'98

May

23'98

J un

20'98

J ul

18'98

Aug

15'98

Sept

12'98

Oct

10'98

Nov

7'98

Dec

5'98

J an

2'99

J an

30'99

Thanks to MACH 3 the Razor category has experienced phenomenal growth since the launch.

Channel Share of Market Shr. Chg. $/Trip Chg. Vs. Year Ago Trips/Hhld Chg. Vs. Year AgoGrocery Banners 46.1 -0.9 $35.04 -$0.44 97.6 1.7Drug Stores 6.2 -0.3 $19.99 $0.59 23.5 -1.2Warehouse Clubs 6.4 0.4 $92.26 -$0.45 10.2 0.7Mass Merchandisers 10.0 0.5 $36.12 $2.31 22.1 -0.2

Source: MarketTrack, All Channels

Total Razor CategoryAll Channels

Dollar % Change Vs. Year Ago4 Weeks to Period

MACH 3introduced

Where and How are Consumers Shopping?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Chicken Beef Pork Turkey Deli Meats Cheese Fruits Vegetables

Stayed The Same

Decreased

Increased

Over the past 12 months has the average amount of Beef consumed at home by members of your household increased, decreased or stayed the same?

Source: ChannelWatch, 52 Weeks to December 19, 1998

Copyright 1999, ACNielsen

Suggestions are welcome! Suggestions are welcome! Please contact your ACNielsen Account Team Toronto: (905) 475-1131, Montreal: (514) 333-1416, Vancouver (604) 270-7444. For general inquiries call (905) 475-1131, Extension 2525.

In today’s crowded retail marketplace, differentiating your banner’s image from the competition plays a pivotal role towards ensuring sustained success. Million dollar advertising campaigns, creative store layouts and state of the art merchandising techniques are all areas where today’s retailers have invested heavily in order to win the war for the customer dollar. These strategic thrusts alone, will not guarantee success. The support of knowledgeable and friendly in-store associates is essential to secure the return on your strategic investments.Late in 1998, ACNielsen set out to discover how well Canadian retailers are measuring up to customer’s service expectations. While the results are promising, there is still room for improvement:

What’s Hot in Grocery? Top 10 Growing Categories

What’s Hot in Drug?Top 10 Growing Categories

Category: $ % Chg Unit % Chg 1. Soya Drinks +109 +85 2. RTD Ice Tea Cans +95 +119 3. Fresh Tortilla Shells +59 +47 4. Instant Potatoes +32 +34 5. Single Serve Fruit/Apple Sauce +30 +31 6. Face Care & Remaining Products +29 +23 7. Shelled Nuts +29 +12 8. Tofu & Meat Analog Products +28 +25 9. Flat Water (<18 litres) +22 +3510. Prepackaged Bagged Salad +22 +7

MarketTrack - 52 Weeks to Jan 30, 1998 - National Total Grocery

Service With a Smile Still Matters!

First the good news:64% of mystery shop customers received professional service from knowledgeable staff85% received “friendly” serviceonly 2% received “unfriendly” serviceRegional Variations:New Brunswick and Quebec scored the highest on average across four service areasAlberta and PEI scored the lowest in both friendliness of service and product knowledgeSector by Sector:Jewellery, women’s lingerie, children’s and men’s clothing stood out in four key service areasMusic stores offered the lowest level of friendly service coupled with the lowest amount of product knowledge

The moral of this story is to not take the simple things for granted. While we all say customer service is important, we need to ensure that we are doing the right things to ensure we are practising what we preach.

7 Steps to Improved Servicing:1. Focus on what is most important to customers 5. Remember your part-time employees. 2. Take a closer look at your training programs 6. Know your business and the service implications3. Rethink your greeting policy 7. Measure the impact of your programs4. Keep your sales staff happy

At your service: How retailers measure up by sectorFriendly Good Acknowledged Service Service Product in Under in Under ____ Knowledge 3 Minutes 3 Minutes

Adult Clothing 81% 61% 48% 70%

Books 75% 65% 15% 50%

Cards & Wrap 84% 65% 47% 56%

Children’s Clothing 89% 70% 57% 75%

Electronics 78% 71% 53% 77%

Footwear 85% 65% 51% 76%

Jewellery 90% 69% 62% 84%

Lingerie 86% 73% 41% 86%

Men’s Clothing 91% 71% 56% 81%

Music 71% 54% 41% 54%

Photo 75% 54% 54% 79%

Sporting Goods 83% 63% 47% 71%

Women’s Clothing 88% 64% 51% 69%

Category: $ % Chg Unit % Chg 1. Herbal Remedies +95 +86 2. Anti-Smoking +71 +45 3. Razors +60 +23 4. Ovulation Predictor Kits +56 +44 5. Energy Bars & Drinks +37 +40 6. Personal Lubricants +34 +23 7. Fever Thermometers +27 +9 8. Breath Fresheners +25 +32 9. Foot Soaps +23 +1910. Cotton Swabs +22 +17

MarketTrack - 52 Weeks to Jan 30, 1998 - National Drug

Source: ACNielsen Mystery Shopper and Consumer Interviews.