Verdict 27 years of retail research

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Verdict overview

EconomicOutlookShoppingbehaviourRetailerreactionFood & Grocery Retail in 2012Inflation &volumes

Verdict overview

Who we are

Our credentials

VerdictOverview

Verdict core outputWhat we do

Products and services

VerdictOverview

Market sizing & sharesForecastsHow we do it

Sector and retailer research - methodology

VerdictOverview

Recovery from the recession

Changes to store development plans

Transactional websites

High/low growth areas

New product areas

Changes in price positioningProvide strategic insightHow we do it

Trade interviews

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Important to have a feel for the retailers you are profilingHow we do it

Store audits

VerdictOverview

Economicoutlook

Economy

Yearly GDP view2009-4.4+2.1GDP growth patterns, year-on-year change (%)201020112012201320142015+0.7+0.6+1.6+2.3+2.5NormalityRecessionRecessionRecoveryEconomicoutlook

EconomyUnemployment (national)Unemployment rate by year, % LFS measureEconomicoutlook

EconomyInflation prospectsInflation forecasts for RPI and CPI RPI measure CPI measure%Economicoutlook

2.9%1.9%2.0%Retail inflation rates for 2012EconomyInflationEconomicoutlook

Economy

Consumer confidence indexNationwide consumer confidence indexNationwide consumer confidence index Spending indexEconomicoutlook

Economy

Household incomeReal household disposable income (year on year change, %)

2009201020112012201320142015+1.6%-0.2%-1.2%-0.7%+0.3%+1.1%+1.5%Economicoutlook

Inflation &volumes

UK Food & Grocery MarketMarket growthInflation&Volumes

UK Food & Grocery MarketImpact of inflation on volumes Inflation&Volumes

UK Food & Grocery MarketWhat does low volumes mean for retailers? Inflation&Volumes

UK Food & Grocery MarketGrowth of expenditure online vs total Inflation&Volumes

UK Food & Grocery MarketGrowth of sales in convenience vs total Inflation&Volumes

Shoppingbehaviour

UK Food & Grocery MarketWhat it all means for shopper behaviourShoppingbehaviour Save moneySave time Trade up

Retailerreaction

Shopper trendsWhat it means for retailersRetailerreactionBe CheaperEnable Quicker Offer Better

Better: Affordable indulgence

Quicker: Top-up shoppingCheaper: Pricing & promotionsRetailerreaction

Shopper trendsRetailer reactionBetter affordable indulgence Polarisation of demandQuality & FreshnessAlternative to dining outRespite from austere climateDisposable incomestightOwn label alternativesPrice sensitivity

Shopper trendsRetailer reactionBetter affordable indulgenceQuality perception Cooking from scratch drives demand

Shopper trendsRetailer reactionBetter affordable indulgence Trading up in own brand product innovation

Shopper trendsRetailer reactionBetter affordable indulgenceProviding respite from restricted budgets, alternative to dining out

Better: Affordable indulgence

Quicker: Top-up shoppingCheaper: Pricing & promotions

Shopper trendsRetailer reaction

Shopper trendsRetailer reaction

Grocers expansionTop-up shoppingOnline shoppingFurther consolidationSpace churnNew entrantsbring innovationDeclining salesdensities Changing market dynamics for convenience retailersShopper trendsRetailer reactionNew strategies for gaining loyalty

Shopper trendsRetailer reactionQuicker Growth in c-stores

Shopper trendsRetailer reactionQuicker Innovation in convenience food

Fresh & food to go focus Click & collect Price focusEngaging with local communitySpecialisationInsulation from inflationIncreased spend in convenience sectorLeverage local loyaltyLocal retailer loyaltyLeveraging buying powerRetaining over recruitingGrocersSymbolsIndies

Better: Affordable indulgence

Quicker: Top-up shoppingCheaper: Pricing & promotions

Shopper trendsShopper reactionCheaper- pricing & promotions

UK Food & Grocery MarketInflation impacts price sensitivity

Shopper trendsRetailer reaction

Shopper trendsRetailer reaction

at round pricePrice comparisonShopper trendsRetailer reaction - Couponing

Retailer positioningWhere they are and where they are going

Thanks for listening

*Outline of presentationWhat we will cover todayAnd our three key themesBetter, Quicker, Cheaper*First some background of Verdict for those of you that are not familiar with us

***Verdict produce 6 core products:- consumer research- sector, channel & location reports- forecasts- news and comment pieces

Our consumer reports such as How Britain Shops, are based on primary research and allow us to analyze the key driving forces affecting consumer purchasing decisions in the UK market.

Sector reports are the bulk of what we produce and provide an in depth analysis of any given retail sector including market growth rates, analysis of the key players and their market shares.

Channel and location reports provide an analysis of both physical shopping locations such as out-of-town and town centers and non-physical channel such as online and catalogue retailing.

Our Retail Futures series provides 5 year and quarterly forecasts and analysis of a sectors retail sales and space.

We also produce regular trading updates, and comment pieces and have strong relationships with Sky News, BBC, Bloomsberg, and Drapers for whom we provide television appearances and write short articles.

***Before we look more closely at the Food & Grocery consumer lets take a look at the economic factors influencing their behaviour

Firstly, GDP fears of a double dip recession have been widely report. We believe that although 2012 will continue to be tough we will continue on the road to recovery.

More substantial GDP growth will come towards the back end of 2014Unemployment continues to be a worry in 2012. We predict unemployment will rise to 2.7m this year before dropping slowly to steady off in 2015.

Continuing high unemployment compared to pre-recession numbers.

This will impact household spending and consumer confidence. Shoppers are likely to be wary of investing in big ticket purchases as the threat of unemployment looms.Inflation overall remains high and RPI is set to continue to rise towards 2015Looking more closely at category level inflation Food inflation is at 2.9% and is the primary driver of growth in the food & grocery market as volumes stagnate

In other sectors we can see that inflation in clothing & footwear is at 1.9% and in Home related categories (including DIY, furniture etc) at 2.0%All of these factors are hampering consumer confidence. Shoppers are worried about job security, the euro crisis and fears of double dip recession. Inflation is pushing up prices restricting spending power of shoppers

Real household disposable income has been dropping for the last two years and will fall again in 2012

Beyond 2013 we will start to see recovery in household income as inflationary pressures ease in certain categories and the threat of unemployment diminishes*Lets take a closer look at inflation and volumes in the context of the Food & grocery market

What does this mean for market growth? How is it impacting consumer behaviour? And what does it mean for retailers? Expenditure in the food & grocery sector is set to increase by 3.2% in 2012.

This will be driven mainly by inflation which remains high in the market

Volumes meanwhile will remain relatively flat, up just 0.3%Lets take a closer look at volumes and inflation now over a ten year period

We can see in this chart the relationship between volumes and inflation. As inflation rises sharply in 2008 for example, volumes dipped dramatically.

Shoppers cut back on non-essentials and minimise waste to dial out inflationThis means volume based promotions lose appeal

Moreover, the habits of cutting back and limiting waste become ingrained in shopper behaviour and will remain even when inflation slows in 2015 and beyond.

With less volume sales in the market what does this mean for retailersAs grocers continue to expand sales gains are harder to make. Shoppers are buying less instore an average of one less item per trip according to Tesco. Moreover, with increased coverage retailers are finding it harder to reach new customers, overlapping instead with existing store catchments.We can see the effect of this in this chart, as space growth continues the gap with sales per sq foot (or sales densities) is increasing.In essence this means its harder for retailers to increase sales and to make space profitable. How they are responding to that is by looking at which stores drive densities up, namely convenienceOnline continues to offer an avenue for growth for retailers, though growth rates are slowing as the channel matures, they remain in double digits. Online food & grocery sales are set to increase by 16.1% in 2012. Extended delivery coverage, lower costs, better availability and the provision of click & collect facilities are key drivers of growth in online food & grocery sales.The convenience sector is the key driver of growth in the food & grocery market with growth of 4.2% i