Taking the “General” out of General Merchandise Wednesday-June 11, 2013

1. Taking the “General” out of General Merchandise Wednesday-June 11, 2013

2. From GM Resource to the ‘Hierarchy’ • The GMDC/Nielsen Hierarchy is part of a New General Merchandise (GM) Resource • The Hierarchy enables the industry to organize and analyze data in a consistent “framework” across the GM industry players (Retailers / Wholesalers and Suppliers) and channels…common language and definitions • The Hierarchy is being used to prioritize research study “deep dives” and serves as the backbone for a new data and analytics delivery tool supported by Nielsen's’ “Answers”.

3. Defining GM

4. Size of the Prize: GM = $209 Billion GM Matters! • Out of $814 Billion in Total All Outlet Sales • 25.7% is General Merchandise, or $209 Billion • Food represents 15.2% of Total GM, or… • $32.8 Billion in GM Sales is within Food Channel Source: Nielsen All-Outlet Projection.

5. …but, the largest % of GM is from outsideFood/Drug channels Source: Nielsen All-Outlet Projection.

6. Overall GM Department Channel Trends Sales trends are positive for Overall GM… Food $32.8B in Sales, 2.6% growth Drug $12.8B in Sales, -1.9% decline All Other $163.5B in Sales, 2.1% growth Source: GMDC / Nielsen Hierarchy Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

7. Defining the new GM Industry Hierarchy 1 2 “Items for me or my family to enjoy and experience…” “Items I need to help run and manage our household…” • Apparel • Baby • Candy • Electronics & Personal Entertainment • Pet • Publishing (Reading Materials) • Social Expressions • Sporting Goods • Toys • Auto • Electrical Appliances • Hardware • Home • Household • Kitchen • Outdoor • School and Office • Seasonal 3 Source: GMDC/Nielsen Hierarchy. Confidential: Property of GMDC

8. 1 3 “Items for me or my family to enjoy and experience…” “Items to better enjoy the seasons and holidays…” Next Levels of the Hierarchy… Confidential: Property of GMDC

9. Next Levels of the Hierarchy… 2 “Items I need to help run and manage our household…” Confidential: Property of GMDC

10. GM Performance: Retailer Quartile Overview”Averages” don’t tell the whole story… GM Sales Growth% 4-Q (Best) GM UPC Growth% 3-Q 2-Q 1-Q (Worst) Source: The Nielsen Company, Radian.

11. …but the Best Performing Quartile Retailers have gained the most value from these categories… • The Largest “Mega” Category • 4th Quartile Retailers: +5.9 point gap… • 3rd Largest “Mega” Category • 4th Quartile Retailers: +6.1 point gap… • 6th Largest “Mega” Category • 4th Quartile Retailers: +7.1 point… Source: The Nielsen Company, Radian.

12. Range of Alternatives Smaller Role Larger Role DESTINATION EXTENDED BASIC/CORE Broad deep in most GM categories. Broader presence in many categories. Minimal set of basicGM categories. TRADITIONAL TARGETED GM Basic/Core + extend around Seasonal. Focusin “Signature” categories

13. MAGAZINES PRESENTATION GMDC INSIGHTS

14. Agenda • Publishing Category Channel Performance • Level 2 Magazines Category Channel Performance • Food Channel Magazines Performance • Food Channel Magazines Sales and Shopper Trends • Level 3 Magazines Subcategory Sales Trends and Drivers

15. Overall Channel PerformanceCategory: Publishing Level 1 Level 1 Publishing Category includes: Magazines, Books, Newspapers and Maps / Atlas • FOOD CHANNEL • $1.7 Billion • (6%) 2012 Sale Decline • 360 Average UPCs • ALL OTHER OUTLETS • $1.8 Billion • 2% 2012 Sale Increase • 260 Average UPCs • DRUG CHANNEL • $0.5 Billion • (2%) 2012 Sale Decline • 150 Average UPCs Source: GMDC / Nielsen Hierarchy Channel Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

16. Overview – Contribution to Overall GMCategory: Publishing Level 1 • Publishing contributes 5% of overall GM sales in the Food channel and ranks 5th or 18 GM Level 1 categories • Although sales are slightly higher in all other outlets, Publishing only contributes 1% of their GM sales and ranks last • The Food channel has had a steeper decline than Drug or All others and lags overall GM sales growth by 9%. • All Other Outlets managed to grow Publishing sales in parallel with the rest of GM categories. Category Trend: DARK BAR Rest of GM Trend: LIGHT BAR Source: GMDC / Nielsen Hierarchy Channel Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

17. Category Channel PerformanceCategory: Magazines Level 2 • Magazines drives the overall Publishing Level 1 Category sales with 50% to 60% of total sales • Magazines are in substantial decline in both Food and Drug channels while Book sales have seen growth in both channels Source: GMDC / Nielsen Hierarchy Channel Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

18. Category Channel PerformanceCategory: Magazines Level 2 • Magazines UPC sold per period are declining as well but at a slightly slower rate than dollar sales. • Average unit price is only 5% higher in the Drug channel compared to the Food channel. Source: GMDC / Nielsen Hierarchy Channel Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

19. Food Retailer Performance Category: Magazines Level 2 – Quartile Sales 2 Year Sales Compound Annual Growth% 2 Year UPC Compound Annual Growth% • Per Store Metrics • $71K per year • 538 UPCs / year • $129 per UPC • Per Store Metrics • $75K per year • 534 UPCs / year • $147 per UPC • Per Store Metrics • $39K per year • 459 UPCs / year • $92 per UPC • Per Store Metrics • $68K per year • 557 UPCs / year • $118 per UPC Source: GMDC / Nielsen Hierarchy, Radian. Food Channel Analysis

20. Food Retailer Performance Category: Magazines Level 2 – Quartile Statistics • The top three quartiles have a substantially higher sales per store basis. • However, all quartiles are experiencing similar declines in sales and UPCs Source: GMDC / Nielsen Hierarchy, Radian. Food Channel Analysis

21. Food Retailer Sales Trends Category: Magazines Level 2 • Sales declines have been steady the last two years for most Food Retailer except the lowest performing quartile. Source: GMDC / Nielsen Hierarchy, Radian. Food Channel Analysis

22. Food Retailer Sales Per Unit TrendsCategory: Magazines Level 2 • Top Quartile Trends • The top quartile has the highest sales per unit in the last 3 years • Price differentials by quartile are small and do not drive store selection • All Food Retailer quartiles show a steady 2% increase in prices per year Source: GMDC / Nielsen Hierarchy, Radian. Food Channel Analysis

23. Food Retailer Shopper TrendsCategory: Magazines Level 2 • Buyer conversion in the Food Channel has remained high over the last 3 years although it did decline 4% last year. A substantial percent of Food Channel customers purchase magazines. • Dollars per shopper declined only in 2012. • The key driver of sales decline is the frequency of purchase (number of trips where magazines were purchased). Shopper trip including Magazines declined outside the food channel at similar rates to inside the food channel. Source: GMDC / Nielsen Hierarchy, Radian. Panel Data Analysis

24. Subcategory Sales DetailsCategory: Magazines Level 3 Subcategories • “Magazines Unknown” represents unclassified titles including many new titles Source: GMDC / Nielsen Hierarchy Channel Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

25. Subcategory Sales DetailsCategory: Magazines Level 3 Subcategories • “Magazines Unknown” represents unclassified titles including many new titles Source: GMDC / Nielsen Hierarchy Channel Data: Total stores reporting 52 weeks through 9/25/12 (without projections)

26. Food Retailer Performance Category: Quartile Statistics – Relative Growth Rates • The top quartile retailers outperform the bottom quartile retailers by 4 points in Publishing and Magazines (but still a negative trend line) Source: GMDC / Nielsen Hierarchy, Radian. Food Channel Analysis

27. Subcategory Sales InsightsCategory: Magazines Level 3 Subcategories • All main subcategories are in sales decline – most in double digit decline this last year • New titles and small distribution titles (Unknown and Other subcategories) have shown growth in the last year, mitigating a small amount of the overall category decline • The Sports, Hunting and Outdoors subcategory and the Health and Fitness subcategory have about ½ the decline rate of other subcategories but account for just 9% of total sales

28. Implications for RetailersCategory: Magazines Level 2 • Magazines is a $1B dollar business and rank 5th in overall GM sales - This is an important category to manage proactively • Although Magazines are in a long term decline like other print media, 25% of Food Retail customers purchase this category – This is an important category for your customers • New and low volume titles have sales growth that mitigate the overall decline – Retailers have to support assortment updates and regular category refinements

29. Implications for SuppliersCategory: Magazines Level 2 • Suppliers have to refine their go-to-market strategies and supply chains to remain profitable in a declining market • The Food channel is central to the overall success for the Magazines category. Category refinements and title updates are critical to slowing the sales decline. • Price increase have trimmed the overall sales decline but purchase frequencies are declining and is a critical risk to customer engagement and readership.

30. Implications for SuppliersNext Steps • Improve overall data elements to capture clearer picture of the category • Provide “clean” and complete list of UPCs for new titles • Identify Mainline vs. Check stand titles • Identify retailer best practices that are mitigating decline • Cross-merchandising Outposts • Renew emphasis of contribution margin of category • Category is still over $1 Billion in sales and delivers a 2 to 3 times greater “contribution” margin than most any other category in the store.

31. Thank You • Mark Deuschle • GMDC • markd@gmdc.org