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Convenience Store Impulse Merchandising Study

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Key Issues Facing Convenience Retailers z NACS State of the Industry Report identified that pre-tax

profits had rebounded in 2003, after 3 years of declines and for the first time in many years actual store counts were down z Pay at the pump and shrinking gasoline margins are a

sizeable industry threat z Traditional high volume tobacco sales continue to decline

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z Labor costs on the rise z Household penetration is flat as is shopping frequency z Drug stores targeting the Convenience trip Source: MVI, Retail Forward;DHC. 1

Opportunities For Channel Growth z Expansion of Food Service offerings z Understanding the impact of changing consumer

demographics z Driving more gas purchasers into the store z Drive up the size of the market basket z Focusing on product mix to maximize your most Generic Presenation/4-25-05/N:ppt

profitable categories z Sharing merchandising best practices

Source: MVI, Retail Forward; DHC. 2

With Penetration And Frequency Flat, Expanding Market Basket Is A Key To Success Convenience Stores % Household Shopper Penetration

45%

45%

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2001

2004 Mid-Year

Shopping Frequency # Of Trips Per Year 15

2001

15

2004 Mid-Year

z Helping Convenience store operators expand the average

basket size is the primary goal of the Convenience Store Study Source: Nielsen Household Panel – Mid-Year 2004. 3

Candy, Salty Snacks, And Sweet Snacks Are Important Categories To C-Stores Percent Of In-Store Sales – Excluding Food Service & Gas

4.3%

0.3%

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Frozen Foods

z

0.4%

0.7%

Perishable NonGrocery Edible Grocery

0.9%

1.1%

1.4%

Alternate Packaged Edible Snacks Ice Cream/ Grocery Novelties

2.0%

Packaged Sweet Snacks

3.0%

Milk

3.6%

Salty Snacks

Candy/ Gum

Cigarettes, Packaged Beverages, and Beer represent 67% of C-Store sales (excludes Food Service)

Source: 2004 NACS Fact Book; DHC Analysis. 4

Single Serve Snacks Generate $13.9 Billion In The Convenience Store Class Of Trade Projected C-Store Single Serve Snacks* Dollar Sales

Single Serve Snacks % Of Total In-Store Sales

$13.9 Billion

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7.3%

Annualized Single Serve $ Sales per Store = $105,299 x 131,584 C-Stores = $13.9 Billion

* Snacks include: Confectionery, Salty Snacks, Baked Goods, Meat Snacks, Nut/Seeds, Nutrition/Energy Bars, Cookies, and Crackers. Source: C-Store Study 6 months ending September 2004. 5

Convenience Stores Dominate Single Serve Confection Sales Convenience Stores Share Of F/D/M/C* Single Serve Confection $ Sales

69.9% 59.5%

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Total Single Serve

Confectionery

62.3%

Total Candy

59.7%

Candy NonChocolate

CandyChocolate

55.7%

Gum

52.4%

Mints

z Convenience stores want to maintain/grow their share of

Confectionary sales * F/D/M/C = Food/Drug/Mass Merchandisers (minus Wal-Mart), and Convenience Source: IRI 2004 YTD thru November 28, 2004. 6

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Leadership

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Key Elements Of Leadership

z Retailer/manufacturer partnerships can improve results

for all stakeholders z Leadership is based on an understanding of consumer

shopping behavior z Leadership means turning learning and ideas into

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executable in-store solutions

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Leadership Starts With Partnership Formation of a leadership council including the following manufacturers: z Masterfoods USA, a Division of Mars, Incorporated z The Wm. Wrigley Jr. Company

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In partnership with Dechert-Hampe & Company, an independent research and consulting firm

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Mission Of The Group To work in partnership with retail customers and other stakeholders to improve store performance and enhance consumer satisfaction through: z New learning and consumer knowledge z Developing benchmarks and Best Practices

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z Innovative solutions to optimize in-store merchandising

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Consumer Based In-Store Solutions Consumer as Purchaser

Understand consumer attitudes and purchase behavior

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Understand retailers’ marketing strategy and business issues

Design format specific selling strategies

Implement In-Store Solutions

Retailer as Business Partner 11

Convenience Store Merchandising Study

Objectives z Gain new insights on consumer attitudes and buying

behavior in Convenience Stores, especially regarding Single Serve Snacking items, to expand consumer purchase rates z Develop channel performance benchmarks

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z Identify merchandising “Best Practices” of Single Serve

Snacking to expand size of basket to maximize sales and profits

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Convenience Store Merchandising Study

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Study Scope z

National Audits of 1,100 Convenience Stores to profile current merchandising practices

z

Worked with five Convenience Store Retail Groups

z

Consumer interviews to gain insight on attitudes and buying behavior in C-Stores (900 consumer interviews)

z

Consumer observations to track movement throughout the store and outside the store (1,300 observations in store, 2,600 observations outside the store)

z

Store audits (200 stores) to reflect merchandising activities and space allocation

z

Collect retail sales data from 200 stores for all Single Serve Snacking UPC’s

Source: MVI, Retail Forward. 13

The Study Included Information On 14 Single Serve Snacking Categories Single Serve Snacks (items with UPC’s) Candy Gum Mints Salty Snacks

Nuts/Seeds Baked Goods Cookies Crackers Nutrition/Energy Bars Meat Snacks

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Consumer information was also available for: Cigarettes Tobacco Accessories Carbonated Beverages Non-Carbonated Beverages Bottled Water

Magazines Batteries Film/Cameras Razor Blades

Source: MVI, Retail Forward. 14

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Consumer Learning

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Convenience Stores Consumer Findings Summary z Consumers shop C-Stores frequently but are not necessarily

loyal to anyone store z Primary reason for visiting store was to purchase Beverages

and Gas z Some customers that pay at the pump enter the store z Primary reasons for buying a snack were: as a treat (40%), for

energy (25%), to satisfy hunger (24%) z Beverages are a destination category z Many stores do not carry Confections at the checkout counter Generic Presenation/4-25-05/N:ppt

z Candy & Gum are the items most frequently purchased with

Beverages z Candy, Potato Chips, and Gum are the snacking categories

that have the highest penetration, frequency of purchase 16

C-Store Consumers Will Shop Frequently, But At Multiple Stores How Often Do You Shop At This Store?

What Percent Of Your C-Store Trips Are At This Store? % Of Respondents

84%

29%

34% 22% 15%

13% Generic Presenation/4-25-05/N:ppt

3% Once A Week Or Several Times A More Month

Once A Month