Gas Price Impact & U.S. Economic Outlook

Gas Price Impact & U.S. Economic Outlook Todd Hale SVP – Consumer & Shopper Insights Nielsen Consumer Panel Services August 14, 2008 as seen on: nielsenwire.com

U.S. Economic Outlook: How Rocky Is The Road? Gas Price Impact Page Page

The Answer Is…..….Pretty Rocky

- Minutes of the Federal Open Market Committee, June 24-25, 2008

Gas Price Impact Page “… economic activity has remained soft in recent months. Manufacturing activity had deteriorated , business investment in equipment appeared to have moved down , and residential construction had continued its steep descent . Labor market conditions had weakened further, and consumer sentiment was at historical lows , but despite these developments, consumer spending appeared resilient . Core consumer price inflation had been stable over recent months, but headline inflation had remained elevated ...”

Forces at Work: Consumer Wallet Pressures Gas Price Impact Page

Personal debt servicing

Home energy

Transportation

Food

Healthcare

Education

Home & stock portfolios losing value

Tighter credit

Flat income in existing jobs

Unemployment rate increasing

Weak dollar

Average U.S. Consumers Getting Squeezed Lower Spending Power Falling Wealth, Income & Credit Rising Costs Rising Living, Household Expenses

Overall Cost of Living Rising Sharply Consumers Can Not Keep Up With Necessities Gas Price Impact Page Source: U.S. Department of Labor Statistics (Consumer Price Index; U.S. City Average); USDA, NAR, BLS Fuel Oil Gallon Gasoline Gallon Bread pound Ground Beef pound Chicken pound Eggs dozen Milk half gallon 3% Wages Housing - 8% 12 Month Percentage Increase, Selected Items (March 2007 vs. March 2008) 48% 35% 27% 16% 10% 13% 7%

On pace to lose nearly 1,000,000 jobs Gas Price Impact Page Source: Bureau of Labor Statistics – Payroll report June payrolls -62,000, Apr & May revised downward, Unemployment Rate 5.5%

No Signs of a Turnaround in Housing: 1990 was the last time at current level Gas Price Impact Page Building Permits In thousands Apr 2008 -40% Vs yago Sept 2005

Declining Home Values 12 Month Pricing % Change in 20 Major Markets, Jan 2007 vs. Jan 2008 Gas Price Impact Page Source: Standard & Poor’s S&P/Case-Shiller Home Price Indices (Published March 25, 2008) (19%) (19%) (18%) (17%) (17%) (15%) (15%) (13%) (11%) (10%) (9%) (7%) (6%) (5%) (5%) (3%) (3%) (1%) (1%) 2% Declining Metro Markets Increasing Metro Markets Charlotte Portland Seattle Dallas Boston Atlanta Detroit New York Chicago Cleveland Minneapolis Washington D.C. San Francisco Tampa Denver Los Angeles San Diego Phoenix Las Vegas Miami

Declining Savings & Increased Borrowing Gas Price Impact Page Source: U.S. Federal Reserve Analysis 1980 2008 0% 10% 1980 Note: blended ratio includes all U.S. households, including those who have income BUT do not have mortgage (e.g.house is fully owned or rented) and/or no other consumer debt. Many average Americans have much higher ratios, approaching 30% or more. 2008 0% 10% 15% Personal Annual Savings Rate Debt Service Ratio Payments on all outstanding mortgage and consumer debt as percentage of all household post-tax income 10% 0.7% 11% 14%

Energy Needs Becoming the #1 Household Spending Item Gas Price Impact Page Annual household spend fueling up; assumes 12,000 per year, average 20 miles per gallon Dept of Energy—2 car households—approx 60% Consumer Expenditure Survey

Household Spending:

Food $6,111

At Home $3,417

Away From Home $2,694

Gas – only $4,921

Health Care $2,766

Entertainment $2,376

Apparel & Services $1,874

Consumers Are Not Secure

Almost half feel somewhat worse off financially than a year ago

1/4th of consumers don’t feel secure they’ll keep their job & two thirds don’t have enough savings for potential disasters or retirement

Gas Price Impact Page Source: Homescan®, a service of The Nielsen Company, PanelViews Economic Impact Survey – April 2008 % of U.S. Households

Consumers believe we are already in a recession Gas Price Impact Page 85%

Declining Consumer Confidence (Index 100 = 1985 Confidence Level) Gas Price Impact Page March 2008 January 2008 January 2007 January 2006 February 2008 107 92 110 94 87 69 76 58 65 48 Source: The Conference Board Consumer Confidence Index Consumer Expectations Index Worst since 1992 Apr 2008 May 2008 45 57 62 50

Global Demand Pushes Gas to $4/Gallon; Can $5/Gallon Be Far Off? Gas Price Impact Page Dept of Energy

Oil Disruptions Are the Wild Card

May 22, 2008:

“ NOAA Predicts Near Normal or Above Normal Atlantic Hurricane Season”

May 27, 2008:

“ Nigerian Rebels Blow Up Pipeline Forcing Cut in Oil Production

Gas Price Impact Page

Forces at Work: CPG Margin Pressures Gas Price Impact Page

Commodities at all time highs

Barley (+47%) Corn (+59%) Wheat (+63%)

Fuel Prices at record levels

transportation of goods plus pressure on the consumers wallet

Pricing Decisions

Value Retail Expansion—competitors must hold/lower prices in their path

Growth of private label

Discount food retailers

Margin Pressures on both CPG Manufacturers & Retailers! Retail Prices Weaker U.S. Dollar Wal-Mart growth Discount player emergence Rising Commodity Prices Ingredient Cost Transportation Cost Packaging Cost

Gas Price Impact Page Pain at the Pump! Gas Price Monitor

Gas Price Impact Page Source: Homescan® Total ShopperView, a service of The Nielsen Company―Total US―52 weeks ending 06/28/2008; Average Weekly Gas Prices http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html Household-based Measures of Gas Buying As Prices Increase, Consumers Have Less to Spend & Must Make Trade-Offs Last week of November & December meal & holiday shopping

Changing Behaviors as Economy Weakens Gas Price Impact Page 2Q08 vs 2Q07 Percent Change Source: Homescan®, a service of The Nielsen Company Posting improvement in trip trends, some Electronic & DIY retailers appear to have benefited from rebate checks * Excludes gas only trips Trip Generators Trip Optimizers Trip Avoiders

Low Income Taking More Drastic Trip Cuts Gas Price Impact Page 2Q08 vs 2Q07 Percent Change Source: Homescan®, a service of The Nielsen Company Shopping Trips By Hhld Income Lower income drove Electronic trips, more affluent drove increased Supercenter, Club, Dollar & Liquor Store trips * Excludes gas only trips At Risk Trip Generators Trip Optimizers Trip Avoiders

Low Income Stocking Up Across Most Channels Gas Price Impact Page 2Q08 vs 2Q07 Percent Change Source: Homescan®, a service of The Nielsen Company * Excludes gas only trips Trip Generators Stocking Up At Risk Basket Ring per Trip By Hhld Income Trip Generators Trip Optimizers Trip Avoiders

Retailers Performing Well In Tough Economy

Costco July sales rose 14%, same-store up 10%

BJ’s July same-store sales up 16.7%, excluding gasoline, same-store up 7%

Dollar Tree posted 12.5% increase in sales during fiscal 2nd qtr, comp-store up 6.5%

Kroger 1 st qtr sales up 11.5%, identical supermarket sales up 9.2% with fuel & 5.8% without

Family Dollar July sales rose 7.2%, same-store up 4.6%

Walgreen Co. July sales up 10.7%, same-store up 4.1%

Wal-Mart 2 nd qtr sales up 10.1%, same-store up 4.5%

Gas Price Impact Page Source: Industry e-newsletters & company web sites = Stock-up & Save Consumer Motivation

Gas Price Impact Page Source: Industry e-newsletters & company web sites = Value Seeking Consumer Motivation

Gas Price Impact Page Source: Industry e-newsletters & company web sites = Value & Convenience Consumer Motivation

Gas Price Impact Page Source: Industry e-newsletters & company web sites = Value & 1-Stop Shop Consumer Motivation

Other Retailers Struggling

Gelson’s Markets …”rising costs for food & fuel “may have caused some customers to make some or all of their purchases from our competitors,” 2 nd qtr same-store sales declined 2.7%”*

Target Corp. July sales up 4.7%, same-store off 1.2%

Safeway’s 2 nd qtr identical-store, excluding fuel, off 0.3%

“ Whole Foods Market weak 3 rd qtr sales … worst comp-store sales gains in 28-year history — up 2.6% — predicted comp-sales for the 4 th qtr would rise 1.5%”*

Gas Price Impact Page * Source: Supermarket News Source: Industry e-newsletters & company web sites High or higher end retailers not immune

Circuit City 1 st qtr sales off 7.4%, comp- store down 11.3%

Williams-Sonoma 1 st qtr total comp-sales off 9%

Home Depot sales for their 1 st qtr were off 3.4%, comp- store off 6.5%

Barnes & Noble 1 st qtr sales up 1.1%, comp-store off 1.5%

Macy’s 1 st qtr sales off 2.9%, same-store off 2.6%

Softness in Alternative & Specialty Channels Gas Price Impact Page Source: Industry e-newsletters & company web sites Anyone care to forecast the holiday season for these retailers?

Gas Price Impact Page Gas Price Impact – Attitudinal Insights

Consumers Combining Trips, Eating Out Less, Staying Home, Cutting Spending @ Alarming Levels! Gas Price Impact Page 78% combining shopping trips & errands (+ 10 pts from YAGO), 52% eating out less (+ 14 pts), 51% staying home more often (+ 12 pts) & 63% of U.S. consumers are reducing spending (+ 18 pts)! Nielsen Homescan Gas Impact Study

Consumers Combining Trips, Eating Out Less, Staying Home, Cutting Spending @ Alarming Levels! Gas Price Impact Page 78% combining shopping trips & errands (+ 10 pts from YAGO), 52% eating out less (+ 14 pts), 51% staying home more often (+ 12 pts) & 63% of U.S. consumers are reducing spending (+ 18 pts)! Nielsen Homescan Gas Impact Study Saving Money in What & How they Buy & Where They Shop Impact higher gas prices had on driving & spending habits? Check all Jun/Jul ‘05 Jun/Jul ‘06 Jun ‘ 07 Jun ‘ 08 Buy less expensive grocery brands 17% 22% 19% 35% Use more coupons 20% 24% 21% 32% Shop more @ Supercenters 22% 26% 23% 28% Buy Larger, Economy Size 10% 11% 10% 16%

Households Combining Trips, Eating Out Less & Staying Home @ Alarming Levels! Gas Price Impact Page Nielsen Homescan Surveys Impact higher gas prices had on driving & spending habits? Check all Jun/Jul ‘05 Jun/Jul ‘06 Jun ‘ 07 Jun ‘ 08 Combine errands/trips 61% 68% 68% 78% Eat out less 31% 39% 38% 52% Do more things @ home 30% 39% 39% 51% Reduce spending small degree 26% 33% 29% 37% Buy less expensive grocery brands 17% 22% 19% 35% Use more coupons 20% 24% 21% 32% Shop more @ Supercenters 22% 26% 23% 28% Reduce spending great degree 10% 15% 16% 26% Switch to lower price gas stations 30% 31% 26% 24% Buy Larger, Economy Size 10% 11% 10% 16%

2008 could be tough year for mainstream full-service restaurants & opportunity for manufacturers & retailers

Consumers will be eating more products in the home & doing more at-home entertaining

Look for continued growth in “better-for-you at-home meal solutions”

Health & wellness should not take a back seat to this opportunity

Look for additional focus to capture a larger share of “at-work” meals

Except for Low & High Income, Similar Response to Combining Trips, Eating Out & Staying Home Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes of $100k + are 10% less likely to eat out less & are 13% less likely to do more things at home. Nielsen Homescan Surveys Responses from affluent moving closer to the average Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Combine Errands & Trips 78% 91 101 103 105 104 102 98 Eat Out Less 52% 91 106 106 106 106 102 90* Do More @ Home 51% 96 102 108 109 104 101 87*

63% Reducing Spending; up 27 pts from ’05 & up 18 pts from last June Gas Price Impact Page Nielsen Homescan Surveys Impact higher gas prices had on driving & spending habits? Check all Jun/Jul ‘05 Jun/Jul ‘06 Jun ‘ 07 Jun ‘ 08 Combine errands/trips 61% 68% 68% 78% Eat out less 31% 39% 38% 52% Do more things @ home 30% 39% 39% 51% Reduce spending small degree 26% 33% 29% 37% Buy less expensive grocery brands 17% 22% 19% 35% Use more coupons 20% 24% 21% 32% Shop more @ Supercenters 22% 26% 23% 28% Reduce spending great degree 10% 15% 16% 26% Switch to lower price gas stations 30% 31% 26% 24% Buy Larger, Economy Size 10% 11% 10% 16%

Lower Income Households Making More Drastic Spending Reductions Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes under $20,000 are 32% less likely to reduce their spending a small degree, but are 20% more likely to reduce their spending a great degree. Nielsen Homescan Surveys Retailers & Manufacturers serving lower income households will feel the greatest impact Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Reduce Spending Small Degree 37% 68* 87 97 111 113 116 108 Reduce Spending Great Degree 26% 120* 121 115 106 97 88 68

Saving Money in What & How they Buy & Where They Shop Gas Price Impact Page Nielsen Homescan Surveys Impact higher gas prices had on driving & spending habits? Check all Jun/Jul ‘05 Jun/Jul ‘06 Jun ‘ 07 Jun ‘ 08 Combine errands/trips 61% 68% 68% 78% Eat out less 31% 39% 38% 52% Do more things @ home 30% 39% 39% 51% Reduce spending small degree 26% 33% 29% 37% Buy less expensive grocery brands 17% 22% 19% 35% Use more coupons 20% 24% 21% 32% Shop more @ Supercenters 22% 26% 23% 28% Reduce spending great degree 10% 15% 16% 26% Switch to lower price gas stations 30% 31% 26% 24% Buy Larger, Economy Size 10% 11% 10% 16%

Saving Money in What & How they Buy & Where They Shop Gas Price Impact Page Nielsen Homescan Surveys Trading down & coupon use experienced biggest jump in rank order Impact higher gas prices had on driving & spending habits? Check all Jun/Jul ‘05 Jun/Jul ‘06 Jun ‘ 07 Jun ‘ 08 Combine errands/trips 61% 68% 68% 78% Eat out less 31% 39% 38% 52% Do more things @ home 30% 39% 39% 51% Reduce spending small degree 26% 33% 29% 37% Buy less expensive grocery brands 17% 22% 19% 35% Use more coupons 20% 24% 21% 32% Shop more @ Supercenters 22% 26% 23% 28% Reduce spending great degree 10% 15% 16% 26% Switch to lower price gas stations 30% 31% 26% 24% Buy Larger, Economy Size 10% 11% 10% 16%

Private Label & Lower-Priced Brands Should Benefit from Higher Gas Prices

35% of consumer looking to buy less expensive grocery brands

Up 16 percentage pts from year ago

Manufacturers should be proactive in their defense of their “brand” space

Trading Down is Viable Option for 35% of Households & Similar Response Across Most Income Groups Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes under $20,000 are 10% more likely to buy less expensive grocery brands & private label, while $100k + households are 30% less likely to buy less expensive grocery brands & private label. Nielsen Homescan Surveys The majority of households will be sticking with the brands in their existing portfolio Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Buy Less Expensive Grocery Brands 35% 110* 116 113 113 103 91 70*

Private Label: Inflation Driving Dollar Growth; Unit Sales Flat Until Recent Periods Gas Price Impact Page Source: Nielsen Strategic Planner, Total U.S. Food/Drug/Mass Excluding Wal-Mart Private Label Share of Total Store Dollars for Each 4-Week Period

Greater Absolute PL Dollar Growth in Just One Department, But Greater % Growth In All But Four Gas Price Impact Page Source: The Nielsen Company; Food, Drug, Mass including Wal-Mart; 52 weeks ending 6/28/08 versus prior year Branded versus Private Label Absolute & % Growth Branded $ Growth (000,000) % Growth Private Label $ Growth (000,000) % Growth Total Dept. $14,183.8 3.6% $7,072.5 10.0% Dry Grocery $6,237.3 4.2% $1,690.2 6.9% Frozen Foods $771.5 2.6% $682.9 10.3% Dairy $2,552.8 9.1% $3,392.2 20.2% Deli $383.7 7.7% $254.4 17.2% Fresh Produce $941.0 7.3% $276.3 14.7% Fresh Meat $297.7 13.7% $26.0 6.4% Packaged Meat $375.3 3.5% $53.8 3.5% Non-Food $382.7 0.8% $257.6 3.6% Alcoholic Bev $1,075.8 5.5% -$0.8 -1.0% Gen Merch $249.1 0.7% $11.4 0.4% HBC $917.0 1.8% $428.6 5.9%

Gas Price Impact Page Branded versus Private Label Absolute & Share of Growth Source: The Nielsen Company; Food, Drug, Mass including Wal-Mart; 52 weeks ending 6/28/08 versus prior year 48% of PL Growth From Dairy Department; 44% of Branded Growth From Dry Grocery Branded $ Growth (000,000) % of Growth Private Label $ Growth (000,000) % of Growth Total Dept. $14,183.8 100.0% $7,072.5 100.0% Dry Grocery $6,237.3 44.0% $1,690.2 23.9% Frozen Foods $771.5 5.4% $682.9 9.7% Dairy $2,552.8 18.0% $3,392.2 48.0% Deli $383.7 2.7% $254.4 3.6% Fresh Produce $941.0 6.6% $276.3 3.9% Fresh Meat $297.7 2.1% $26.0 0.4% Packaged Meat $375.3 2.6% $53.8 0.8% Non-Food $382.7 2.7% $257.6 3.6% Alcoholic Bev $1,075.8 7.6% -$0.8 0.0% Gen Merch $249.1 1.8% $11.4 0.2% HBC $917.0 6.5% $428.6 6.1%

Consumer Response Says that 2008 is an Opportunity for Coupon Incentives

One-third of consumers using more coupons to deal with high gas prices

Up 11 pts from YAGO

An opportunity for manufacturers to align coupon drops & trade events in stores serving consumers feeling the greatest impact

Increased Coupon Usage From All Income Groups Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes between $40 & $49.9k are 10% more likely to use more coupons, while $100k + households are 10% less likely to use more coupons. Nielsen Homescan Surveys Should coupons be dropped at middle or end of the month when dollars are tighter or at beginning of the month when all consumers can spend? Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Use More Coupons 32% 91 105 103 110* 106 103 90*

Continued Interest in Shopping Supercenter Format – a Great Place to Save

With continued squeeze on discretionary spending, how can this format drive growth in grocery department sales & still drive sales in general merchandise, apparel & other non-food departments?

Continued Interest in Shopping Supercenter Format – a Great Place to Save

Store expansion has these formats closer to more shoppers, but many shoppers drive great distances to shop

High gas prices reduce the # of quick or fill-in trips within the format

Format retailers need to entice non-core shoppers with stronger earning power to make more trips

Lower Income Households Likely to Shop More @ Supercenters Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes under $20,000 are11% more likely to shop more @ Supercenters, but $100k + households are 28% less likely to shop more @ Supercenters. Nielsen Homescan Surveys Given need to cut spending a great degree, will low income households reduce spending on non-essentials? Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Shop More @ Supercenters 28% 111* 115 114 107 102 93 72*

Gas Price Impact Page Mass Supercenters Draw 31% of Their $ Sales From More Affluent Hhlds versus 41% for Grocery % $ Sales by Hhld Income Source: Homescan®, a service of The Nielsen Company ― Total US — 52 weeks ending 06/28/2008

Gas Price Impact Page But Strongest $ Sales Increase For Mass Supercenters Came From More Affluent Households Annual % $ Sales Growth Affluent households who shop Supercenters are finding increased value as evidenced by their increased spending Source: Homescan®, a service of The Nielsen Company ― Total US — 52 weeks ending 06/28/2008

Opportunity to Leverage Larger, Economy Sizes or Multi-Pack Promotions Gas Price Impact Page Index of Responses to Total Households Nielsen Homescan Surveys *Read as: Households with incomes under $20,000 are 35% less likely to shop club store, while $100k + households are 17% more likely to shop club. With only a 16% response, should retailers shift focus on smaller packs to help consumers manage their total basket ring? Explore options to leverage multi-pack promotions to help w/stock-up trips. Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Buy Larger, Economy Size 16% 92 95 106 116 105 103 92

More U.S. Households Turning to Club Stores & Internet; Carpooling & Public Transportation Helping Few Gas Price Impact Page Nielsen Homescan Surveys 21% of households buying more gas at locations because of incentives tied to spending levels at a grocery store where they shop Impact higher gas prices had on driving & spending habits? Check all Jun/Jul ‘05 Jun/Jul ‘06 Jun ‘ 07 Jun ‘ 08 Use lower grade gas 16% 18% 14% 14% Shop more @ Warehouse Clubs 9% 10% 10% 13% Shop more on Internet 5% 9% 9% 11% Carpool more often 5% 7% Use Public Transportation more 3% 4% 3% 4%

Affluent More Likely to Shop More @ Club Stores Gas Price Impact Page Index of Responses to Total Households Nielsen Homescan Surveys *Read as: Households with incomes under $20,000 are 32% less likely to shop club store, while $100k + households are 20% more likely to shop club. Can other retailers win with permanent or in & out club pack promotions (or multi-pack promos) targeted in stores where more affluent shop? Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Shop More @ Warehouse Clubs 13% 57* 75 90 108 110 132 120*

Jump in Internet Shopping Should Be Wake-Up Call for Manufacturers & Retailers

We will not likely see a big increase in internet food sales, but non-food and health & beauty manufacturers should look for “direct-to-consumer” sales opportunities

Now is the time to step up internet communications to attract shoppers & buyers

Emphasis on value, variety, convenience, & a healthier lifestyle will be prominent in 2008

They also serve 250,000 small outlet purchase occasions like hotels, health clubs, etc. with online orders

Testing Amazon Fresh in Seattle market – 35,000 items including restaurant quality meat, seafood & produce

Minimum order sizes, but no delivery fee & they claim that pricing is competitive with Grocery stores

Average Internet Opportunities Among Middle Income; Above Average Among More Affluent Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes under $20,000 are 20% less likely to shop more on the internet, while $100k + households are 15% more likely to shop more on the internet. Nielsen Homescan Surveys Behaviorally, 2007 on-line sales growth was strongest among households w/incomes < $39.9k Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Shop More On Internet 11% 80* 92 94 105 99 112 115*

Lower Income Households Not Leveraging Gas Savings Tied to Grocery Spend Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes under $20,000 are 11% less likely to buy more gas linked to grocery store where shopped, while $100k + households are 3% more likely. Nielsen Homescan Surveys Now that gas is above $4.00, these are catching the interest of affluent households (87 index in December 2007 survey) Impact higher gas prices had on driving & spending habits? Check all Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ Buy More Gas Linked to Grocery Store Where Shopped 21% 89* 96 97 102 103 109 103*

49% Households Drive > 100 Miles Per Week Drop in Those Driving > 150 Miles Per Week Gas Price Impact Page Source: Nielsen Homescan Surveys

Affluent Households More Likely to be Driving Longer Distances Each Week Gas Price Impact Page Index of Responses to Total Households *Read as: Households with incomes under $20,000 are 99% more likely to drive 1-25 miles per week, while $100k + households are 55% more likely to drive >200 miles per week. Do you know how many miles your retail shoppers or brand buyers are driving? Source: Nielsen Homescan Surveys Weekly Household Miles Driven Total Hhlds < $20k $20 -$29.9 $30 - $39.9 $40 - $49.9 $50 - $69.9 $70 - $99.9 $100k+ 0 miles 5% 345 132 72 44 38 29 28 1-25 miles 10% 199* 145 106 90 74 51 49 26-50 miles 16% 127 138 119 107 92 77 61 51-100 miles 20% 99 112 110 109 103 93 86 101-150 miles 14% 58 96 112 117 110 108 107 151-200 miles 11% 52 78 95 103 114 119 130 > 200 miles 24% 38 53 77 93 114 142 155*

Gas Price Impact Page Summary & Closing Thoughts

2008 & 2009 Will Be Challenging

Record high gas prices, food & beverage inflation, along with declining consumer confidence will cause consumers to do more of what they have been doing:

Combine shopping trips

Eat more meals at home & do more at-home entertaining

Seek the right mix of value, variety, & convenience

BUT AT ACCELERATED LEVELS

SO WHAT ARE YOU DOING DIFFERENTLY?

Those serving lower income groups will be especially impacted:

Discretionary spending will take a hit – particularly in the “nice-to-have” not “need-to-have” departments & categories

Look to value pricing, coupons, private label, & focus on food and household basics to win

Profit pressures will:

Drive increased product downsizing

Negatively impact store expansion & remodeling efforts

But, sustainability initiatives will thrive as retailers & manufacturers look for cost savings

Winners will be those who seize the opportunity to minimize sales risks & maximize sales opportunities:

Ensure presence in trip generating channels & retailers

Store-by-store assortment, pricing & promotions is a must

Align with store trading area shopper income mix

Gas promotions to capture more gas trips or more in-store buying on gas trips will be on the rise

If you don’t offer gas savings, what are your options?

Tie-in grocery spend w/gas vouchers in other retailers or offer savings on other department spending

Winners will be those who recognize the offerings or categories needed to win

Grocers will win with focus on food, but how do they also capture non-grocery, general merchandise & HBA trips?

Mass-Merchandisers will win with non-food & HBA, but how do they maximize food & protect general merchandise, apparel, & household good trips?

Drug retailers will benefit from continued aging population through Rx & HBA, but need to protect food & general merchandise business

Dollar Stores should see a strong year in food & household basics, but nice to have departments will struggle

Conv/Gas will win with vice categories & increased focus on food service, but in-store sales will struggle when gas prices are at highest

Warehouse Clubs will continue to thrive (in-store & on-line)

Winners will be those who:

Focus on flawless execution

Nielsen Economic Impact Segmentation Gas Price Impact Page In April 2008, 47,000 Homescan panelists were surveyed & subsequently scored into 8 segments based on their proclivity to change their shopping behavior across 36 categories during an economic downturn Numbers reflect % of U.S. Households

Economic Impact Segmentation Survey Design

If the economic conditions got worse (e.g. recession and/or inflation) please tell us all the things you would do to save money when shopping for <INSERT PRODUCT>. Please select all that apply.

I will not change how I shop for this product

Switch to generic or store brand

Switch to a less expensive name brand

Stop buying this product

Buy this product less often

Limit use of this product to specific household members

Use coupons whenever I buy this product

Only buy it when it’s on sale

Switch stores to search for savings

Stock-up more when purchasing

I do not purchase this product

Economic Impact Segmentation Survey Design

Margarine

Mayonnaise

Salad dressings

Tea bags

Personal cleansing (soap and body wash)

Hair care (shampoos, conditioners, etc.)

Ice cream

Dry side dishes (rice or pasta based)

Frozen dinners

Hand & body lotions

Antiperspirant/deodorants

Laundry detergents

Cookies

Spaghetti sauce

Peanut butter

Olive oil

Face cleansers, creams & lotions

Household cleaners

Cold ready-to-eat cereal

Soda/pop

Beer or wine

Disposable razors

Diapers

Air fresheners

Fresh meat/seafood

Salty snacks (chips, nuts, etc.)

Canned soup

Canned vegetables

Vitamins or supplements

Personal paper products (tissues, toilet paper)

Yogurt

Coffee

Pet food

Baby food

Pain relievers & cold remedies

Batteries

Gas Price Impact Page 36 product categories in survey

Segmentation Composite Action Scores Gas Price Impact Page * Read as: Recession Indifferent segment would not change how they shop in 22.8 of the 36 categories N = % U.S. Households Recession Indifferent Recession Insensitive Switch to Private Label Light Coupons & Sales Stock-Up & Save Switch Stores for Best Deal Brand Disloyal/ Promo Sensitive Panic Stricken (5,854) (10,100) (5,305) (10,479) (5,868) (3,193) (3,575) (2,657) 12.4% 21.5% 11.3% 22.3% 12.5% 6.8% 7.6% 5.6% Composite Score - 36 Categories Not change how I shop 22.8 10.0 4.5 4.7 1.7 3.3 3.0 1.3 Switch to generic or store brand 1.4 3.3 12.6 3.7 4.0 5.5 15.8 15.9 Switch to less expensive name brand 1.0 3.2 7.9 3.3 4.2 5.6 14.9 17.1 Stop buying this product 0.2 0.9 2.4 1.0 0.7 1.6 1.8 1.7 Buy this product less often 1.7 4.4 4.6 4.6 5.1 6.6 7.9 10.9 Limit use of this product 0.1 0.5 0.7 0.6 0.7 1.0 1.1 2.0 Use coupons 1.0 4.2 3.1 9.7 22.4 14.9 16.8 23.7 Buy on sale 1.4 5.4 4.1 15.2 24.2 18.0 17.9 24.3 Switch stores for savings 0.3 1.4 1.5 1.6 4.4 16.3 3.3 22.3 Stock up 0.7 2.6 1.6 4.1 9.4 6.6 6.5 13.9 Do not purchase 7.3 9.1 6.5 7.9 6.3 7.5 6.3 5.4 Avg Action (excluding not change) 0.9 2.9 4.3 4.9 8.4 8.5 9.6 14.6

Nielsen Economic Impact Segmentation

Recession Indifferent (12%) – are not likely to change how they shop. These consumers are smaller households with higher income. They feel more secure about their financial situation (keeping their job, having enough for retirement) & making major purchases in the next six months. They show no desire to reduce entertainment expenses.

Recession Insensitive (21%) – are slightly more likely to take some action to save money. They are not as financially secure so they are more likely to cut back on entertainment expenses & eat at home.

Switch to Private Label (11%) – would switch to generics or store brands rather than use coupons or sales to save money. They tend to be younger, larger households with lower incomes. They represent the ‘Plain Rural Living’ of ‘Young Bustling Families’.

Light Coupon & Sales (22%) – will take advantage of coupons & sales, but do much beyond that. They are older, smaller households.

Stock-Up & Save (13%) – although they remain loyal to brand names they depend on coupons & sales to stock up when they can. They tend to be ‘Older Bustling Families’ or ‘Empty Nest Couples’ in ‘Affluent Suburban Spreads’ & ‘Comfortable Country’ settings.

Switch Stores for Best Deal (7%) – will switch stores based on the best coupons & sales. They index high in ‘Cosmopolitan Centers’.

Brand Disloyal/Promo Sensitive (8%) – willing to switch to generics or less expensive name brands if on deal (coupon or sale). They tend to be in ‘Modest Working Towns’ or ‘Plain Rural Living’ environments.

Panic Stricken (6%) - these larger ‘Bustling Families’ will do whatever it takes to save money . . . switch stores, brands, take advantage of deals, stock up or use less. They are the least financially secure, will greatly reduce most living expenses, & cut back in all departments across the store.

Gas Price Impact Page The groups range from the relative inaction of Recession Indifferent (‘ I would not change how I shop’ ) to multiple drastic actions of Panic Stricken (‘ I would switch stores to search for savings’ & ‘I would buy this product less often’ ) ( ) = % of U.S. Households

Recession Indifferent – smaller households with higher income who are not likely to change how they shop. They feel more secure about their financial situation & making major purchases in the next six months. They show no desire to reduce entertainment expenses.

Panic Stricken - larger ‘Bustling Families’ will do whatever it takes to save money . . . switch stores, brands, take advantage of deals, stock up or use less. They are the least financially secure, will greatly reduce most living expenses, & cut back in all departments across the store.

Consumer Reaction Varies by Category Gas Price Impact Page The most recession-proof category is laundry detergent - the only category where no household indicated they would stop buying to economize Air fresheners is one of the most recession sensitive categories with 16% of households indicating they would stop buying to economize Percent who would stop buying the category Laundry detergents 0.0 Personal cleansing (soap and body wash) 0.1 Personal paper products (tissues, toilet paper) 0.1 Pet food 0.2 Hair care (shampoos, conditioners, etc.) 0.6 Antiperspirant/deodorants 0.7 Household cleaners 0.9 Pain relievers & cold remedies 0.9 Batteries 0.9 Face cleansers, creams & lotions 5.5 Yogurt 5.7 Salty snacks (chips, nuts, etc.) 9.7 Ice cream 10.4 Soda/pop 10.5 Frozen dinners 10.7 Beer or wine 13.8 Cookies 14.1 Air fresheners 15.9

Household Size Varies by Segment

‘ Recession Indifferent/Insensitive’ & ‘ Light Coupon’ are smaller households

‘ Panic Stricken’ & ‘Switch to Private Label ’ households are generally larger households

Income Influences Segment Membership

‘ Stock-Up & Save’ segment is the most affluent

‘ Switch to Private Label’ segment is the least affluent

Diverse Shopper Profiles Gas Price Impact Page Source: Homescan®, a service of The Nielsen Company Total US—52 weeks ending 03/29/2008

> Private Label Opportunity for Dollar General & Wal-Mart; > Large & Multi-Pack Promotion Opportunities @ Walgreens & Kroger Gas Price Impact Page Source: Homescan®, a service of The Nielsen Company Total US—52 weeks ending 03/29/2008

Gas Impact Survey Design

Nielsen Homescan Surveys fielded:

2 waves (June & July of ’05)

Regular Gas @ $2.17 to $2.31 a gallon*

2 waves (October & November of ’05)

Regular Gas @ $2.72 to $2.26*

2 waves (June & July of ’06)

Regular Gas @ $2.88 to $2.98*

1 wave (June ’07)

Regular Gas @ $3.04*

1 wave (Dec ’07)

Regular Gas @ $3.06* during the 1 st week of the month

1 wave (June ’08)

Regular Gas @ $3.98* during the 1 st week of the month

Gas Price Impact Page * Source: Energy Information Administration

Survey Design – Question # 1

How many miles do you & members of your household drive each week?

Only count miles for vehicles owned/leased by members of your household?

What impact has higher gas prices had on your household’s driving & spending habits?

Reduced spending in other areas to a small degree

Reduced spending in other areas to a great degree

Use public transportation more

Switched to lower priced gas stations

Use lower grade of gasoline

Try harder to combine errands/trips

Do more things at home rather than go out

Shop more at Supercenters where everything we need is in 1-store

Shop more at Warehouse Clubs where everything we need is in 1- store

Buy less expensive brands of grocery items

Buy larger, economy size grocery items

Eat out less often

Are considering a grocery home delivery service

Shop more on the internet rather than visit stores

Use coupons more often

Carpool more often (new on 2007 survey)

Other

None of the above/No Impact on driving & spending habits

Are you and/or other household members buying more gas at locations because of incentives tied to spending levels at a grocery store where you shop?

Added to June 2007 survey

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Gas Price Impact & U.S. Economic Outlook

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