Supermarkets & Drugstores

1. Supermarkets & Drugstores Industry Analysis Prepared by: Karrie Braganza, Kitty Holingshead-Mancil & Jennica Stout

2. Introduction Part 1 – Supermarkets & Drugstores: Industry analysis • General operations • Industry current environment • Six year revenues • Industry trends Part 2 – Comparative company analysis • Company snapshots • - Five year revenues • Employment and compensation • Social responsibility • Growth, expansion and outlook

3. Industry Analysis Supermarkets & Drugstores

4. General Operations Supermarkets and drugstores: staple products, non-cyclical. Minimal effect by economic changes - essential commodities. Sectors include traditional supermarkets, superstores, combo stores, supercenters, limited assortment supermarkets, grocery stores, convenience stores, and wholesale clubs. Drugstores operate as chains or independents. Low-margin business: Improve efficiency to produce maximum profits. Use of category management, controlling product and labor costs, and collecting fees from manufacturers. One resounding theme in the sector is finding preferred customers Loyalty or frequent shopper programs to learn want their customers want and then target them directly.

5. Industry current environment Supermarkets Price reductions to appeal to price-conscious consumers were led by Wal-Mart and Kroger, who intensified competition in order to gain more market share in 2010. The sluggish economy calls for differentiation within the Food Retailers’ Sector. Intense competition drives for an adaptation in building smaller formatted stores that reach profitability goals more quickly and take advantage of the current real estate market. Food Retailers like Whole Foods, who offer differentiated products, rebounded in sales in 2010 as a reflection of higher-income customer demographics. Drugstores Significant opportunities for retail drugstores are presented if the Patient Protection and Affordable Care Act remains in force. There is a potential for an increase in demand from Medicare participants due to the PPAC act by closing the current hole in costs incurred by patients that are between the deductible limits of $2250 and $5100. Healthcare clinics within drugstores are poised for growth.

6. Six year analysis Financial data chart 2004 to 2009 total revenue* by sector: Food Retail – $984,221.8 Drug Retail $677, 194.5 Distributors $271,917.7 Super Centers $2,554,362.2 Other $141,702.3 * In millions

7. Supermarkets & Drugstores Industry Trends Food Retailers • Innovation and differentiation are current trends to stay competitive . • Smaller chains can avoid head to head competition with large discount operators. • Markets are shifting focus by diversifying product offerings in organic, natural, and ethnic food. • Private labels are benefiting retailers with margins at 35% to 40% compared to national brands at 27%. Drugstores • The aging US population benefits the industry long term. • Prescription drug spending is growing at an annual rate of 6.5% from a projected $260.1 billion in 2010. • Expiring patents increase the generic drug market and increasing profit margins. • Drugstores also are looking for ways to differentiate themselves by offering convenience tied with brand loyalty rewards programs.

8. Comparative Analysis Kroger, Wal-Mart & Whole Foods

9. Company snapshots Founded in 1962 in Rogers, Arkansas, the company currently has stores in fifteen different countries Based in Cincinnati, Ohio and founded in 1902, Kroger currently operates about 2,500 stores in 31 states. The largest US chain of natural and organic foods and founded in 1978, in Austin, Texas. Over 300 stores in the US, Canada the UK.

10. Facts & Figures Investor information Ticker: WMT Stock price: (5/27 )$54.70 Stock price range for the past year: $48.00 - $57.57 Current Ratio: 0.89 Earnings per share: $4.41 Ticker: KR Stock Price (5/29) $24.72 52 week range: $19.57 - $25.48 Current Ratio 0.94 Earnings per share: $1.92 Ticker: WFM Last close: (5/27) $60.57 52 week range: $34.19 - $66.73 P/E Ratio: 35 Earnings per share: $1.74

11. By the numbers Five year revenue

12. Getting paid Employment Wal-Mart: 2.1 million full time employees worldwide Kroger: 338,000 employees Whole Foods: 60,000 full/part time/temp employees Management Wal-Mart President & CEO Mike Duke: $18 million David B. Dillon, Chmn., Director of Kroger: $7.5 million President & COO A.C. Gallow, Whole Foods: $4.6 million

13. Social responsibility All three companies actively give back to their communities • Kroger utilizes their Plus Card to contribute proceeds from sales with emphasis on schools • Whole Foods holds 5% days, where 5% of the days profits are donated to a designated charity • Walmart provides local scholarships and donates to public service agencies • Aggressive recycling, composting and waste reduction practices can be found in these companies • Sustainability practices are taught to Walmart employees for work and personal use • Whole Foods supports local growers and suppliers by offering low interest loans

14. Growth & Expansion Walmart Continuous expansion of existing stores, new construction in US and global market Kroger Continuous development of concept stores such as Marketplace and Fresh Fare Whole Foods Fifteen new stores planned and smaller, urban versions are being considered

15. Comparative Outlook • The three companies are difficult to compare • All three serve different types of clientele and stock diverse offerings • Each company has a very active growth and development plan • Analysts are predicting continued increases in yearly revenues • Each company utilizes a highly skilled management team able to post profits in poor economic conditions

16. Questions?