GROCERY

INSIGHT UPDATE MAY 2012

TESCO INSIGHT UPDATE MAY 2012 Tesco announce annual results Tesco has released its results for the year to 25 February 2012 revealing that Group revenues increased 6.8% to 64.5bn. In the UK, revenue (ex VAT) was up 5.3% to 42.2bn while like for like sales (ex VAT, ex fuel) declined 0.9% over the year with a 1.6% reduction in the fourth quarter. (IGD)

Plan launched to 'build a better Tesco in the UK Tesco have developed a plan that will see it making substantial changes to its UK business. CEO Philip Clarke commented that we are committing over 1 billion to make the UK shopping trip better for customers: more staff giving improved service instore; refreshed stores that are better and easier places to shop; lower prices and even more value from an improved product range. As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve. The plan, 'Building a Better Tesco' has six key components:
Service & Staff - Tesco has committed to b oost its focus on service in store, freeing up more staff hours to ensure it delivers on service as it aims to enhance the customer shopping experience. F resh food in particular will be a focus area.

Stores & Formats - Giving stores a warmer look and feel, and adding in counters, are important elements of the Refresh programme, and this programme is being significantly up weighted. 200 stores have now been refitted. With 430 further stores to be refreshed or refitted in 2012/13, this will mean over 40% of active Clubcard holders will be shopping at refurbished stores by the year end. At the same time a shift in approach to new space is emerging: fewer hypermarkets with more emphasis on convenience and online, all key elements of the growth strategy.

Price & Value - For competitive reasons, Tesco only released limited details, but did reveal that better prices and promotions and more personalised offers would be key elements and that there is more to come. Longer term a shift towards more targeted, p ersonalised and less generalised promotions should be expected.

Range & Quality - Tesco will look to improve ranges, starting with the relaunch of p rivate label ranges, as it seeks to drive quality. The relaunch of Tescos Value range as Everyday Value is an important first step here. Brand & Marketing - Philip Clarke spoke of how Clubcard would play a more integral part in this development, with following the customer a stronger focus than ever to enable better, clearer, more relevant communication with customers. The localisation aspect of this is an important one.

Clicks & Bricks - Tesco has a unique position given the full breadth of its store network and its well-developed position online to be at the forefront of cross-channel development. Click & Collect roll-out in food is now in 45 stores, while Tesco has big plans for non-food, including roll-out to c. 50% of all Express stores. (IGD)

ASDA INSIGHT UPDATE MAY 2012

Asda remain top in fastest growth of top 4 grocers in latest market data

The latest data from Kantar reveals that Asda are still benefiting from the boost of the conversion of Netto uplift, up from 7.8% in March. This momentum has pushed its market share to 17.6%. (IGD) Asdas multi-format focus for 2012
Asda plans to add 25 new stores and 600,000 sq ft of net selling space to its store estate in 2012, building on the 1.7m sq ft opened last year, driven in most part by the Netto acquisition. There will be further focus on building the Asda Supermarket format and fine tuning the concept so that it maximises the opportunity from local demand. (IGD) Artist's impression showing how the new Asda store in Todmorden may look. stores, and has sustained its position as the fastest growing of the largest four retailers, achieving an 8.3%

Asdas relentless focus on price Asda has re-emphasised the importance of price and pricing transparency as central to its appeal to
customers. The key mechanic remains the Asda Price Guarantee but it is being further embedded into the retailer's customer proposition to drive loyalty. CEO Andy Clarke having commented that Asda has "only just scratched the surface of what APG can do for our customers". (IGD) Asda set to increase in-store marketing with Momentum Asda has hired Momentum UK to rejuvenate & increase its in- store marketing and improve the shopping experience for its primary customer base; mums. The objective of the marketing scheme is to make the supermarket giant stand out from the competition during the upcoming Olympic Games and Diamond Jubilee celebrations due to take place in the UK this year. (IGD) The appointment will also mean that a programme of events strategically aligning with the objective of the supermarkets

will be delivered with a proven commercial return, while also brand partners. This will include the use of Asdas digital and
social platforms in order to promote each event to customers. (TheDrum)

SAINSBURYS INSIGHT UPDATE MAY 2012 Sainsbury's takes further strides in multi-channel strategy
Sainsburys has acquired 18 Total branded filling stations. The forecourt sites are being divested by Rontec Investments, the consortium that acquired Total UK's strong 810 filling station network last June. The Sainsbury's deal, which is subject to approval from the Office of Fair Trading, includes seven Total UK sites in London, as well as sites in the Midlands, Southampton and Lincolnshire, and will provide useful addition scale for Sainsbury's convenience and fuel retailing operations. (IGD)

M-commerce move will augment online proposition

Full details of the launch have yet to be revealed, but this will be an important move for Sainsbury's in what is a key growth segment. To date, the online grocery market has been largely based on PC based solutions, but this is changing fast as smartphones and tablets gain greater resonance among shoppers. The move follows launches from Tesco, Ocado and most recently Asda and will p rovide Sainsbury's with another way of interacting with its customers as well as selling to them. What's more it could attract new customers to its online grocery proposition, given the added convenience it provides. (IGD)

Sainsbury's new Milestone store at Welwyn Garden

Sainsburys strategic thinking on store design can be seen in four key areas in the new store: 1. New look fresh offer benefiting from a far reaching re-design, the fresh produce section has immediate impact as customers enter the store. 2. New style counters with an open design and low level fixtures to facilitate interaction between customers and staff. 3. Novel approach to non-food with its spacious general merchandise offer on the level above groceries. The section succeeds in delivering Sainsbury's ambition of providing a compelling yet complementary offer and should drive footfall for the core groceries offer. 4. Focus on sustainability by showcasing several novel technologies. Light tubes deliver powerful shafts of natural light creating a pleasant shopping ambience, rainwater harvesting supplies much of the store's water needs and cold air from chiller units is captured and recycled. (IGD)

MORRISONS INSIGHT UPDATE MAY 2012

Morrisons' growth flagging

The latest Kantar market share figures, covering the 12 weeks to 15th April 2012, show Morrisons falling further behind the market having achieved growth of just 3.6%, well over a percentage point behind the average. As a result its market share shrank back from 12.1% to 11.9%. (IGD)

Morrisons extends 'garden' ranges

Morrisons has significantly increased its offer in gardening and h orticulture, with the roll out of extended ranges as temporary external features at 129 of its stores. Morrisons is using space in store car parks and in front of store to offer a notably enhanced range of plants and gardening sundries, including larger items such as patio trees with a price ceiling up to 70. These temporary garden centres will remain in place over the summer to target seasonal impulse demand. This latest d evelopment suggests that M orrisons is looking to horticulture as a clear future opportunity, and follows the company's reported interest in acquiring The Garden Centre Group (previously Wyevale) earlier this year. With its extended ranges offering a fuller offer than other grocers, Morrisons is now competing more closely with specialist garden centres using a strong value message. (IGD)

Morrisons to launch new healthy eating range

SO WHAT SHOULD WE DO? Morrisons is launching a new healthy range under the NuMe banner. The NuMe range will consist of 315 products, including ambient, chilled and frozen lines. Developed under the guidance of Executive Chef Neil Nugent, the new range features products with reduced salt, fat and sugar content. By January 2013, 5,000 new lines will have been introduced and a further 5,000 lines are set to follow next year. A key feature of the new range will be clear labelling of n utritional benefits, with new packs bearing simple imagery explaining why the product is a healthy option, calorie content and five-a-day information. (IGD)

SO WHAT SHOULD WE DO? 1. With Tesco planning to invest over 1 billion including a commitment to increase staff and staff hours it follows that the base level for availability and promotional compliance is likely to rise throughout stores. As the basics of store visits are taken care of more by Tesco, additional value driving actions such as secondary displays will need to be focussed on to drive return. 2. With a change of focus from Tesco away from the larger hypermarket formats to more emphasis on convenience there is likely to be a negative impact on local independent stores. As Sainsburys continue to add to their convenience outlets through the acquisition of 18 filling stations it will become increasingly important to regularly review Independent call files to ensure that any negativity is minimised. 3. The launch of the Tescos private label Everyday Value and Morrisons healthier range represents a growing challenge to our clients both in terms of potential erosion of profits and loss of space. Our clients need to ensure that their key skus are included in head office store planograms and we need to work with category managers to reinforce the message that brands drive overall category sales. We need to be winning the battle for space in store. 4. If the retailer is successful in building a better Tesco we are likely to see an increase in footfall and greater sales, particularly in the refurbished stores. We need to ensure that our client call files reflect any changes in store sales rankings. 5. Morrisons significant increase in its offer in gardening and horticulture is likely to see it competing more closely with specialist garden centres. For current clients in this market such as Scotts and any future clients Morrisons progress should be reviewed for potential inclusion in call files. 6. With Morrisons utilising their front of store car parking space for their new garden range consideration should be given when planning any sampling or experiential activity outside. 7. Asdas market share continues to grow at the fastest rate of the top four grocers and with continued focus on their Price Guarantee this may well continue. Conversely Morrisons market share continues to decline albeit against a relatively strong position from last year. All call file reviews should consider market share movements and reflect any trends in the mix of stores selected. 8. Tesco plan to localise their brand and marketing activities and it is quite conceivable that the other three top grocers may follow suit. Our clients need to be aware of this to ensure that their planned activities are in line with that of the stores, the need for a regional strategy may become more important. For example, by understanding which regions and stores are likely to be price sensitive based on demographic data and insights, would help to ensure that the appropriate activity is launched at the right time and in the right place.