Macroview Weekly News updateYour window on the latest trends in Packaged Groceries

Stephen Hall

Friday 8th July

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 2

• Superdrug says service is key to 62.4% profit spike in 2015 • Nisa retail returns to profit• 1,000 ‘smart’ sensors to monitor high street footfall across the UK• Sainsbury's cuts ties with Netto – all stores to close by August• Waitrose partners with British Corner Shop to drive international sales• Irish grocery market still growing but concerns Brexit could lead to return of cross

border shopping• Biggest fall in food prices for a year• Deflation and weak consumer demand impacts sales at Booker• Wilko FY 2015/16 results: 'year of recovery' • Disappointing quarter for M&S as clothing and food sales fall• Petrol forecourts now generating £4bn in retail sales• Consumer confidence drops at sharpest rate in 21 years following EU referendum• Co-op snaps up six My Local stores

Weekly News Summary – 4th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 3

Superdrug says service is key to 62.4% profit spike in 2015 A.S. Watson retailer Superdrug has more than doubled its profits in 2015, with operating profit reaching £62.2m up 62.4% on the £38.3m registered in 2014.

The UK high street chain experienced strong growth in make-up and cosmetics accessories, with growth of 11%, while fragrance was also singled out as an “excellent performer” by the company.

But it is Superdrug’s in-store service that received praise from A.S. Watson Health & Beauty UK CEO Peter Macnab. He said: “We believe the service offered in our stores is key, whether it's our experts offering beauty and health services, or advice given about the latest products.”

He added: “We’ve also continued to invest in our store colleagues, to give them the tools they need to offer the best service and give great advice.  We are delighted that Superdrug is now recognized as a top 20 UK company for customer service [UK Customer Satisfaction Index].”

Treatments offered in Superdrug stores are now available in more than 200 of its 787 locations; services include eyebrow shaping, nail treatments and Glitter Lips sparkly lip treatments. Meanwhile, the retailer also provides travel vaccinations in 41 stores and nurse clinics in 24 stores, with advise about weight management also on offer.

Besides Superdrug’s physical store sites, its online proposition is also flourishing. Online sales through superdrug.com grew by more than 50% in 2015. Last year, the retailer started offering delivery to consumers in the Republic of Ireland for the first time. Customers can also take advantage of benefits through the retailer’s loyalty programme, called Health & Beautycard. Through the programme, which now boasts seven million members, customers can receive personalised deals and pricing; sales grew almost 5% on 2014 through this service.

Source: Cosemtics Business 4th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 4

Nisa Retail Returns To ProfitDespite what it described as a “challenging” year, Nisa Retail swung back into profit during the 53 weeks to 3 April 2016.Adjusted earnings came in slightly ahead of target at £7.3m, compared to a loss of £2.9m in the previous year. Meanwhile, underlying profit was £0.6m, recovering from a loss of £5.4m in the prior year.

Nisa’s new management team attributed the improvement to reduced overheads, the removal of loss-making accounts, and new contract wins. It added that whilst there was still much to do in transforming the business, it was now on a more stable footing.Overall sales were 1.9% lower at £1.31bn, although after adjusting for the loss of Costcutter (and week 53), they were 2.3% higher. The group revealed that fresh sales rose 6% to £210m, whilst sales of its 800-strong Heritage own range were up 7.9% to £119m. Membership numbers also jumped by 476 stores to reach an overall total of 2,915.

Nisa also made a good start to its current financial year, with weekly sales to week 12 tracking 3.5% higher than the same period last year.

In the year ahead, the group said that range optimisation would be an area of focus, along with stock management. Nisa will also continue its work on addressing any loss-making accounts within its member base.

Nick Read, CEO of Nisa Retail, commented: “It has been a challenging, but ultimately pleasing year for Nisa. The business experienced the biggest swing in profit in its 39 year history as we sought to stabilise the company, address historical issues and lay the foundations to return to profitable growth and build for it a sustainable business model. Nisa is now very much back on an upward curve, with the business having already seen a 3.5% increase in weekly sales in the first 12 weeks of FY17, and we are extremely positive about our future.”

Source: NamNews 4th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 5

1,000 ‘smart’ sensors to monitor high street footfall across the UKSome 1,000 'SmartStreetSensors' are to be deployed in high streets as part of the UK's largest study into high street footfall patterns and impacts.

The Local Data Company in partnership with University College London and the Consumer Data Research Centre hopes the project will be the comprehensive study of footfall patterns across the UK to date.

Some 1,000 sensors will measure live footfall in 81 towns and cities with the locations offering a wide geographical spread, differing demographic profiles and a range of town centre profiles based on health and occupancy.

The SmartStreetSensor devices will use a unique calibration methodology to ensure the most accurate feed of data. The devices will only register people walking past a specific shop thereby reflecting the opportunities shop owners have to influence their immediate high street.

The data will then be sent anonymously, analysed and stored in LDC’s data warehouse before being presented through LDC’s live dashboards. Measures from all of the stores within a given centre will then be made available for research use, and will be made available through the popular maps.cdrc.ac.uk website.

LDC said the data will be analysed and organised in ways that will allow occupiers, local authorities, transport operators, landlords and investors to make more informed decisions.

Retailers and taking part in the scheme include Patisserie Valerie, Jack Wills, Tortilla, The Entertainer, Pizza Hut, Eurochange, Superdrug, Thorntons, Dixons Carphone, Itsu, Ed’s Easy Diner, Pret a Manger, Aldi, inmidtown BID and Oxfam.

Data from LDC data shows that in 2015 multiple retail and leisure occupiers closed a total of 1,043 high street stores in 2015. In contrast, 593 independent retailers opened in high street locations.

Matthew Hopkinson, director at LDC, said: “The current generic footfall numbers do not provide the breadth or depth of coverage that retailers need to understand the performance of their shops.

“Pavement opportunity is what this data will show and that is what retailers and leisure operators can influence and therefore relate back to store sales. This data combined with rigorous academic analysis and LDC’s detailed knowledge of places and companies will enable landlords and occupiers to access previously unavailable business-critical insights.”Source: Nretail Bulletin 4th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 6

Sainsbury's cuts ties with Netto – all stores to close by AugustSainsbury’s is ending its joint venture with Netto following a “comprehensive review” of the business and will close all 16 stores next month.

The supermarket giant, which penned a deal with Netto parent Dansk Supermarked Group (DSG) to bring Netto back to the UK in June 2014, said it made the “difficult decision” to end the partnership after assessing “trading data, customer and operational insights, expansion costs, the evolving food retail market and long-term strategies.”

The 16 Netto stores opened since the joint venture was launched will continue trading throughout July, but will close next month.Sainsbury’s, which will incur cash costs of around £10m to wind down the business, said it was now working with DSG to “minimise the impact” of the closures on around 400 Netto staff, whose jobs are now at risk.

It is understood than less than 100 of those workers are employed directly by Dansk, while Sainsbury’s will aim to re-deploy just over 300 staff into its existing shops.

The grocer’s chief executive Mike Coupe said: “Netto is an excellent retailer with talented leaders and colleagues and we have learnt a great deal about the discount grocery retail market from this trial venture. Since we first envisaged the trial, almost three years ago, the grocery sector has evolved significantly and we launched our strategy 18 months ago to address these changing dynamics.“Against this backdrop, as planned, we carried out a detailed review with DSG on the future of Netto.

“To be successful over the long-term, Netto would need to grow at pace and scale, requiring significant investment and the rapid expansion of the store estate in a challenging property market.

“Consequently, we have made the difficult decision not to pursue the opportunity further and instead focus on our core business and on the opportunities we will have following our proposed acquisition of Home Retail Group.

“Our learnings from the trial will undoubtedly benefit the rest of our business as we move forward.”DSG chief executive Per Bank added: “We, together with Sainsbury’s, set out to trial Netto in the UK to provide us with the basis to review the business at the end of the trial period.

“Whilst we are pleased with the performance of the stores to date, it has become clear to both partners that the business requires greater scale over a short period of time to achieve long-term success.“Reaching scale has been challenging due to appropriate site availability and therefore we decided together to end the joint venture and focus on other opportunities within our respective businesses.”Source: Retail Week 4th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 7

Irish Grocery Market Still Growing But Concerns Brexit Could Lead To Return Of Cross Border ShoppingThe latest supermarket share figures from Kantar Worldpanel in Ireland for the 12 weeks ending 19 June 2016 show that SuperValu maintained its No.1 position in a relatively buoyant grocery market where sales rose 2.5% compared with last year.

Georgieann Harrington, insight director at Kantar Worldpanel, commented: “We’ve seen the average spend per household increase by €27 this year. While higher prices have played a small part, this growth is primarily the result of an increased number of shopping trips: the average household has made 62 visits on average over the past 12 weeks, compared with 58 trips last year. With the number of items per basket also falling, we’re seeing a return to the tendency to shop ‘little and often’.”

She added: “While the grocery market is in growth, the landscape remains competitive. With the recent EU referendum result and the weakening of the pound against the euro, it could be that we see Irish shoppers return to old habits: during the recession many headed across the border in search of better value at UK retailers in Northern Ireland. Cross-border shopping only accounted for 0.3% of Irish grocery sales in the latest 12 week period, but at the peak of the recession this stood at 4.1%.”

With the exception of Tesco, all of the major retailers increased sales over the 12 week period, with Dunnes Stores posting the strongest performance and growing sales by 5.9%. The retailer attracted an extra 13,000 shoppers to its stores this year with the average spend increasing by almost €20.

Lidl posted the second highest sales growth – 5.8% – which was mainly the result of attracting an additional 55,000 shoppers. Aldi sales grew by 3.6% in the latest quarter, with the discounter also recruiting an impressive 37,000 customers versus last year. However, a combination of flat shopper numbers and only marginal increases in average spend mean Aldi continues to lag behind Lidl.

Harrington added: “SuperValu retains its position as Ireland’s largest retailer, growing its sales by 1.4% and capturing 22.6% of market share. SuperValu’s success is largely down to persuading the average shopper to spend an extra €14 per trip, no doubt driven by its ‘Let’s Get Cooking’ campaign.

“Sales remain challenging for Tesco in second place: the retailer saw a decline of 2.7% in the past 12 weeks. It’s not all bad news for Ireland’s number two retailer though, with the number of visits to its stores edging up: from 14 on average last year to 15 this year.”

Kantar Worldpanel’s data showed that grocery market inflation stood at 2.1% for the 12 week period.

Source: NamNews 5th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 8

Waitrose partners with British Corner Shop to drive international sales Waitrose has launched a partnership with online retailer British Corner Shop as part of a drive to sell more of its products overseas.

The upmarket grocer will offer more than 2,000 own-label products – including its Waitrose Duchy Organic, Waitrose Baby, essential Waitrose and Waitrose 1 ranges – through the ecommerce platform, which ships British goods to around 140 countries.

The move, which comes just months after it unveiled a similar partnership with Alibaba to sell goods in China, will allow Waitrose to enter “entirely new territories” including the US and Germany.

The grocer’s commercial director Mark Williamson told The Telegraph: “British Corner Shop gives a global audience access to Waitrose and provides a platform for our British suppliers to showcase the great food and drink they produce.”British Corner Shop, which ships more than 50,000 orders to British ex-pats every year, said that more Waitrose products, including teas, biscuits and soup, could be added to its ecommerce platform in the future.

The etailer’s managing director Mark Callaghan added: “We know the Waitrose brand will go down well with our British ex-pat customer base, in particular categories such as biscuits and household are in demand – and the Waitrose Duchy Organic brand is often requested.”

New Waitrose boss Rob Collins, who succeeded Mark Price earlier this year, has wasted no time in making his mark at the retailer and is keen to ramp up its international presence.

In April, the upmarket grocer unveiled plans to tie up with Chinese etail giant Alibaba, selling an initial proposition of 30 products through its Tmall platform.

Williamson said at the time that the partnership had the potential to become Waitrose’s “biggest international business in the next three to five years”.

Source: Retail Week 5th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 9

Biggest Fall In Food Prices For A YearData from the latest BRC-Nielsen Shop Price Index shows that food prices saw their biggest fall for over a year last month.Overall shop prices saw deflation of 2.0% in June, deepening from the 1.8% decline in May. Non-food deflation fell to 2.8% in June from 2.7% in May.

However, food deflation deepened further, falling to 0.8% from 0.3% the previous month. This was driven by an acceleration of fresh food deflation, falling to 1.5% from 0.8% in May. Meanwhile, ambient food inflation decelerated to 0.1% in June from 0.4% in May.

Helen Dickinson, Chief Executive of the British Retail Consortium (BRC), commented: “This extraordinary 38 month run of deflation has undoubtedly been good for consumers. While it has been driven largely by falling prices for non-food items we have, from time-to-time, seen food in deflationary territory as well – which provides the real boon for household budgets. June was one of those months with food prices falling by 0.8%, the deepest deflation in food for over a year.”

She added: “While the good news for household budgets continues, prices in store will eventually rise again. However, the time it takes for any price increases to make a re-appearance will depend on a combination of factors including the future value of the pound, commodity prices and any eventual impact of last week’s Brexit vote on input costs. That said, there won’t be any instant shocks as any changes will take time to feed through. Continuing fierce competition also means that putting up prices may not be viable for some retailers.”

Mike Watkins, head of retailer and business Insight, Nielsen, said: “Whilst changes in the economic landscape are anticipated next year, the current focus for the industry is the continued deflationary environment. This is good news for shoppers who benefit from falling prices but is added pressure for retailers as they balance increased costs from the national living wage and investment in multi-channel, with volatile consumer demand. A return to inflation is not expected just yet so it`s business as usual over the summer months and encouraging shoppers to keep spending is the priority.”

Source: NamNews 6th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 10

Deflation And Weak Consumer Demand Impacts Sales At BookerLike-for-like sales at Booker continued to slid in the first quarter of its new financial year, impacted by falling food prices and weak consumer demand.

During the 12 weeks to 17 June 2016, the wholesaler’s total rose 10%, boosted by the Budgens and Londis chains it acquired last year. However, on a like-for-like basis (excluding Budgens & Londis) sales fell 2.9%. Non-tobacco sales were down 0.7%, whilst tobacco sales slipped 7.7% as the ban on small stores displaying tobacco products continued to take its toll.

The group added that Booker Direct, Chef Direct, Ritter and Booker India performed “as expected”. Meanwhile, it said that its Premier symbol chain continued to grow and it made “good progress” with the integration of Budgens and Londis.

Booker said that remains on course to meet expectations for the full year with Charles Wilson, Chief Executive, remaining upbeat about the group’s prospects: “Booker Group continues to make good progress. Our plans to Focus, Drive and Broaden Booker Group are on track. Budgens and Londis joined the Group last September and are making a solid contribution. We continue to enhance choice, price and service for our retail, catering and small business customers and look forward to growing with them in the year ahead.”

Source: NamNews 6th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 11

Wilko FY 2015/16 results: 'year of recovery' Wilko has posted encouraging results for the year ending 30 January 2016, with positive sales and profit figures signalling signs of recovery.

Sales up 1.4%, profits rise to £23.6mFollowing a disappointing performance in 2014/15, Wilko has bounced back to positive growth in 2015/16. Sales increased from £1.44bn to £1.46bn, boosted by a successful Christmas trading period, while profits returned to growth at £23.6m following a strong start to cost cutting activities at the beginning of the year.

Investment: stores and infrastructure Wilko made key investments in 2015/16, namely a renewed focus on opening new stores and investing in supply chain efficencies with new technology to enable enhanced forecasting and replenishment. Eight new stores were opened in the year along with four store relocations. A focus on attracting London shoppers has seen Wilko open two of these new stores in Kensington and Staines, while locations have been carefully selected in strong-performing towns and high-footfall retail parks. With last year having the strongest store opening program in recent years, Wilko is confident that its store growth will continue in 2016/17 when we forecast the variety discounter will open up to 15 new stores.

4m customers and growth in mobileWith new stores and wider reach, Wilko now serves approximately 4m customers per week. Online and digital is also seeing steady growth in customers, with Wilko's mobile channel in particular boosting numbers. This is an important channel for Wilko to focus on and use to attract shoppers as being mobile-friendly gives the retailer a competitive advantage amongst other variety discounters that are less focused on digital.

Source: IGD 7th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 12

Disappointing Quarter For M&S As Clothing And Food Sales FallM&S has posted another set of disappointing results with sales in both its clothing and food division falling.

Like-for-like sales in its clothing & home arm plummeted 8.9% in the 13 weeks to 2 July. The group blamed the poor weather, fewer promotions and subdued demand as consumer confidence weakened in the run up to the EU referendum.

Like-for-like sales in its food division fell 0.9%, although the group said it continued to outperform a deflationary market, with comparative sales impacted by 0.5% from the timing of Easter this year. M&S added that it continued to leverage its volume growth to reinvest in price, whilst new Simply Food stores were performing ahead of its expectations.

New Chief Executive expressed his disappointment with the results but said the firm was “confident that our strategic priorities and the actions we are taking remain the right ones to deliver results for our customers and our business”.

Commenting on the figures, Richard Lim, Chief Executive of Retail Economics, said: “The iconic British brand suffered from an unseasonably wet and cold spring which has led to one of the toughest trading periods for clothing retailers since the financial crisis. M&S’s clothing figures are painfully weak and fail to stem the loss of market share to other more agile multichannel competitors. Its tireless efforts to revive the struggling clothing business have failed to resonate with its core customer base.

“The only brighter spot for the company is the food business managed to grow market share in a tough and rapidly evolving market”.

Source: NamNews 7th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 13

Petrol Forecourts Now Generating £4bn In Retail SalesA new report released by the Association of Convenience Stores (ACS) highlights the growing influence of petrol forecourts in the retail sector, now generating sales of £4bn (excluding petrol).

The 2016 Forecourt Report shows that UK consumers are increasingly flocking to their local petrol station to refuel themselves and not just their cars. Hundreds of stores now provide full food service solutions, from coffee and sandwiches to full meals.

ACS Chief Executive James Lowman said: “Forecourts have seen significant development over the last ten years, now giving customers the opportunity to get food and drink for now, for later and for the rest of the week, as well as a host of other goods and services. Some of the best convenience stores in the UK are located on petrol forecourts, and there is still huge potential in the sector for growth. Many consumers consider their local shop to be on a petrol forecourt, and we anticipate this trend to continue in the coming years.”

Some of the key findings from the report include:

• Coffee is a major part of a modern forecourt. 70% of stores have a coffee machine in store, from standalone vending machines to full barista services to refresh weary consumers.

• Forecourts are a major source of investment in the UK. On average, each store invests over £16,000 a year on developing their business.

• The forecourt sector creates over 117,000 jobs in the UK, with over 8,700 stores serving customers across every community, town and city.

Excluding sales of petrol, the forecourt sector generates over £4bn annually in sales.

Source: NamNews 7th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 14

Consumer confidence drops at sharpest rate in 21 years following EU referendum

New data has revealed that consumer confidence has dropped sharply following the result of the EU referendum. The long running GfK Consumer Confidence Barometer has fallen 8 points to -9 to mark the sharpest drop in 21 years.

Splitting the core index result by how people said they voted in the referendum, remainers were at -13 versus leavers who were more optimistic at -5. The survey was run from 30 June to 5 July to capture the mood of consumers immediately after the Brexit decision on 24 June.

Joe Staton, head of market dynamics at GfK, said: “In these extraordinary times this one-off CCB Brexit Special gauges the temperature of consumer confidence right now. During this period of uncertainty, we’ve seen a very significant drop in confidence, as is clear from the fact that every one of our key measures has fallen, with the biggest decrease occurring in the outlook for the general economic situation in the next 12 months.”

The results reveal consumer concerns about the economic outlook. Six in 10 said they expect the general economic situation to worsen in the next 12 months, up from 46% in June. Only 20% of consumers expect it to improve, down from 27% in June. The proportion of people who believe prices will increase rapidly in the next 12 months has jumped 20 percentage points from 13% to 33%.

There were distinct differences in how confidence has changed regionally. In the north of England, confidence has dropped 19 points and in Scotland it has fallen 11 points. In the south, including London, there has been a 2-point drop.Amongst 16 to 29 year olds confidence has fallen 13 points, but this group was the most optimistic of all age groups.The biggest drop in confidence, from an income perspective, was a fall of 16 points among households with income levels of £25,000 to £49,999.

Staton added: “Our analysis suggests that in the immediate aftermath of the referendum, sectors like travel, fashion and lifestyle, home, living, DIY and grocery are particularly vulnerable to consumers cutting back their discretionary spending.“As we’ve learnt from previous periods of uncertainty, consumers turn to well-known brands they love and trust as a guarantee of quality and value for money. Now is the time for companies to understand and respond to consumer concerns by anticipating and meeting their needs.”

Source: Retail Bulletin 8th July 2016

Copyright © 2015 Information Resources, Inc. (IRI). Confidential and Proprietary. 15

Co-op snaps up six My Local storesCo-op has acquired six My Local convenience stores around the UK one week after the convenience store chain went into administration.

Only 32 My Local stores remain open, with 93 now closed down as news emerged the retailer was on the brink of collapse.The My Local stores located in Croydon, Nottingham, Widnes, Blackpool, Stockport and Steeton were acquired by Co-op to help achieve its target of 100 new stores.

"In the last two years we have opened close to 200 new stores, and in 2016 the Co- op is actively pursuing 100 new stores as well as carrying out refits in a further 150," chief executive Steve Murrells said.

“The acquisition of these My Local stores supports our focus on convenience store retailing and adds to a portfolio that offers the right range in the right location. 

"Our strategy is clearly working, as is evident from our recent results and continued positive like for like sales growth.”Since Morrisons sold My Local to Greybull Capital in September last year, it has faced sharp competition and has been unable to return the business to profit.

Before it went into administration, the convenience store retailer employed 1658 people in 125 trading stores across the UK.Employees in stores which are sold will transfer to the new owners, with Co-op being the first retailer to come on board with its six acquisitions. 

For stores where no buyer is found, Morrisons has said it would welcome its My Local employees back to a job at their company.

Source: Retail Gazette 8th July 2016

Macroview Weekly News updateYour window on the latest trends in Packaged Groceries

Stephen Hall

Friday 8th July