THE MIDDLE C L A S S : S TAT E OF MIND OR SHARE OF WA L L E T ? SPENDING FLEXIBILIT Y IN IREL AND IN INFL ATIONARY TIMES OCTOBER 2013

SPENDING FLEXIBILIT Y IN IREL AND DURING INFL ATIONARY TIMES IRELAND • Income alone does not dictate spending considerations, spending flexibility is key too • 61% of Irish respondents claim they only had enough to spend on essentials the past year • Two thirds of Irish respondents (66%) indicate they cannot afford a rise in food prices without making difficult choices elsewhere • Alcohol, Confectionery and Soft Drinks spending likely most hit by any rising food prices • 47% say they will shop more at Discount stores in times of rising prices • Convenience channels and local stores are most vulnerable in times of rising prices • 47% say they will shop more Private Label if food prices increase, versus 11% say they will shop more brands • On a more positive note, however, 56% of Irish consumers will consider experimenting with new brands

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ABOUT THE NIELSEN GLOBAL SURVEY OF INFLATION 2013 The expanding middle class meets rising food prices. The convergence of these two mega trends is set to dramatically and permanently reshape the consumer landscape. With the global middle class growing by 70 million each year, and food prices expected to more than double within 20 years, the world is entering into an unprecedented period of rising demand, economic pressures and inspirationally-driven buying behavior. However focusing solely on the middle class, which is often defined by income parameters that are either too high or too low for universal acceptance, is unlikely to fulfill economic growth expectations for business. New findings from Nielsen reveal that differences in buying intentions for food products with regard to what we buy, where we shop, and our perceived spending flexibility is driven more by aspirations and cultural norms than by income. The Nielsen Global Survey of Inflation Impact polled more than 29,000 Internet respondents in 58 countries to understand how respondents around the world of all income ranges were coping with rising food prices. The study identifies the countries, categories and retail channels that were more insulated to weather hard economic times and those which were more vulnerable. Tactics and strategies are necessary to reach consumers across the world in these demanding and changing times.

RISING PRICES ARTICLE - IRELAND

RISING PRICES CAN AFFECT THE CONSUMER LANDSCAPE Innovation is vital to sustaining profitability and building a strong platform for growth. Tactics that align with how consumers think, plan and shop is vital for success. In Europe, consumers have less discretionary income and we see that price inflation may be driving shoppers from local stores to discount stores and supermarkets, so understanding pricing and promotional scenarios are important. In Ireland, the survey revealed that if food prices were to rise, Irish consumers say they would increase price hunting in-store, take advantage of deals by stocking up, reduce number of shopping trips and amount spent per trip, plus shop more in discount stores and look for deals online.

INCOME IS RELATIVE WHEN IT COMES TO MEASURING BUYING POWER When evaluating the impact of inflation among respondent households that earned incomes reflective of middle-class income parameters*, Nielsen found that in times of rising food prices, no single group is immune from the pain. The buying sentiment for both discretionary and non-discretionary food and beverage categories among “middle-class” households compared with all other households, on average, was not dramatically different.

47% OF IRISH RESPONDENTS SAY THEY WOULD SHOP MORE AT DISCOUNT STORES IN TIMES OF RISING PRICES

In other words, a closer look at buying propensity by standards other than income was necessary to better measure financial stability. The Nielsen survey revealed that the notion of spending was relative to many factors, which include household composition, spending flexibility and opportunities, aspirations and cultural diversity.

*as defined by the Organization for Economic Co-operation and Development [OECD]

Copyright © 2013 The Nielsen Company

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SPENDING FLEXIBILITY IS IMPORTANT A key measure of buying power is spending flexibility, or the elasticity in the household budget to afford a rise in food prices without having to make difficult spending choices elsewhere. In the survey, Nielsen segmented respondents into three spending capacities; • THOSE THAT HAD ENOUGH MONEY TO SPEND FREELY • LIVE COMFORTABLY • OR JUST HAD ENOUGH MONEY FOR SHELTER, FOOD AND BASICS For Ireland, the effects of the tough recession are reflected in the survey results, as the majority of Irish respondents report only having enough money for the essentials. 61 percent indicate, in the past year, they have only had enough money for shelter, food and basics (versus global average of 44%, Europe average of 52%). Just under one third of Irish respondents (31%) say in the past year they were able to live comfortably and bought some things just because they liked them. Only 9 percent say they were able to spend freely (versus a global average of 14% and a Europe average of 11%) indicating the Irish household budget is still under pressure.

SPENDING FLEXIBILIT Y? Q: PLEASE SELECT THE ONE OPTION THAT BEST REFLECTS YOUR VIEW ON YOUR SPENDING … 5%

11% EU 37% AVERAGE 52%

32%

FRANCE 63%

26%

GERMANY

9%

12%

15%

59%

39%

GB

49%

31%

IRELAND 61%

In the past year I’ve only had enough money for shelter, food and basics In the past year I’ve been able to live comfortably, and bought some things just because I liked them In the last year I’ve been able to spend freely Source: Nielsen Global Consumer Confidence Topic - Ireland Q1 2013

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RISING PRICES ARTICLE - IRELAND

ELASTICITY IN THE HOUSEHOLD BUDGET 9 of the top 10 global countries in the Nielsen survey with the least spending flexibility actually hailed from Europe, reflecting the recent EU troubles. More than three-quarters of respondents ‘not able to afford a rise in prices’ were from Greece (87%), Croatia (82%), Romania (81%), Hungary (77%), Ukraine (77%) and Bulgaria (77%) while two thirds of Irish respondents (66%) indicate they cannot afford a rise in food prices without making difficult choices elsewhere (ranking 18 out of 58 countries surveyed).

FLEXIBILIT Y IN THE BUDGET? Q: IS THERE ENOUGH FLEXIBILIT Y IN YOUR HOUSEHOLD BUDGET TO AFFORD A RISE IN FOOD PRICES WITHOUT MAKING DIFFICULT SPENDING CHOICES ELSEWHERE?

EU AVERAGE 35% 65%

FRANCE 24% 34%

76%

GERMANY

IRELAND

43%

66%

57%

GB 44% 56% YES

NO

Source: Nielsen Global Consumer Confidence Topic - Ireland Q1 2013

Copyright © 2013 The Nielsen Company

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HOW DOES RISING FOOD PRICES AFFECT THE SHOPPING BASKET? When it comes to rising food prices, nearly everyone feels the pain; 85 percent of all global respondents say that higher costs impact their choice of grocery products. Grocery products are not the only areas of spending affected. The top ways that Irish respondents would change spending habits because of increased food prices include snacking food (59%), new clothes and accessories (59%), dining out (57%), beverages at home (42%), travel/vacation (33%), paying for recreation and entertainment (32%).

CUTTING TACTICS IF FOOD PRICES RISE Q: IF FOOD PRICES RISE, PLEASE IDENTIFY THE TOP 5 AREAS WHERE YOU WOULD CHANGE YOUR SPENDING … - IREL AND RESULTS 59% 59%

SNACKING FOOD NEW CLOTHES AND ACCESSORIES FOR SELF

57%

DINING OUT (RESTAURANTS, PUBS, ETC.)

42%

BEVERAGES AT HOME

33%

TRAVEL/VACATION RECREATION AND ENTERTAINMENT ( CONCERTS, MOVIES, SPORTS, ETC.)

32% 28% 25%

COMMUNICATIONS SERVICES (MOBILE PHONE, LANDLINE, INTERNET, CABLE TV, ETC.) HOME IMPROVEMENT AND DECORATING MAIN MEAL FOOD AT HOME

23%

SAVINGS/INVESTMENTS

23% 22% 21%

COSMETICS AND TOILETRIES ELECTRONICS/APPLIANCES ROUTINE TRANSPORTATION (CAR, GAS, COMMUTING, NON-VACATION, ETC.) PAY DOWN DEBT HOUSING (RENT, MORTGAGE, UTILITIES, ETC.) MEDICAL (DOCTOR/DENTIST VISITS, MEDICINES, VITAMINS) NEW CLOTHES AND ACCESSORIES FOR CHILDREN OTHER EDUCATION CHILD CARE

20% 14% 13% 10% 9% 5% 4% 2%

Source: Nielsen Global Consumer Confidence Topic - Ireland Q1 2013

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RISING PRICES ARTICLE - IRELAND

VULNERABLE CATEGORIES DURING INFLATIONARY TIMES Just as Irish consumers are now shopping around, they will also make trade-offs. For manufacturers and retailers alike, determining which categories have staying power and which ones are more vulnerable is critical as tough in-store decisions are made. While buying more of anything is a challenge when wallets are tight, there are categories that are likely to be hardest hit when it comes to reacting to rising food prices, and others that show resilience to inflation. Categories most vulnerable during inflationary times, and the ones that at least half of Irish respondents say they would buy less frequently were; alcohol, convenience food, soft drinks and confectionery. Three quarters say, on making decisions around buying product categories, if food prices increased, they would be likely to buy less sweets & chocolate (73%), while two thirds indicated less purchasing on crisps/snack foods (67%), food-on-the-go (62%), and for alcohol and carbonated drinks, 58% and 57% respectively.

RESILIENT CATEGORIES DURING INFLATIONARY TIMES The more resilient categories for Ireland, where more than half of respondents had no plans to change their shopping routine, were for the staple categories like; dairy products (78%), fresh fruit & veg (64%), meat and poultry (67%), bread and bakery goods (68%), packaged foods (68%) and fish and seafood (58%).

Copyright © 2013 The Nielsen Company

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However interestingly, 12 percent of respondents also indicate they would buy more fresh or frozen fruits and vegetables if food prices increased. Plus canned fruits and vegetables and packaged foods (eg coffee, pasta etc) were also stock-up essentials among 7 percent and 8 percent of all respondents, respectively.

CATEGORY DECISIONS Q: IF FOOD PRICES INCREASE, WHAT CHANGES WILL YOU MAKE WHEN BUYING THE FOLLOWING PRODUCT CATEGORIES?

45

57

67

62 78

48

BREAD & BAKERY

CANNED FRUITS & VEG

2

4

2

NOT APPLICABLE

17 4

6

3

BUY LESS

25

16

26

22

50 64

BUY SAME

5

5

9

73

68

28 12

22

55 65

67

FOOD ON THE GO

7

CRISPS & OTHER SNACK FOODS

4

22

CONVENIENCE/PREPARED FOODS

3

26

CARBONATED BEVERAGES

3

BOTTLED WATER

25

19

58

FISH & SEAFOOD

31

ALCOHOLIC BEVERAGES

20

51

DAIRY (MILK, CHEESE, YOGHURT, ETC.)

68

19

28

31 58

8

18 5

8

5

16 2 SWEETS & CHOCOLATE

16

PREPARED MEALS

9

PACKAGED FOODS (COFFEE, PASTA, ETC.)

19

PACKED CEREAL PRODUCTS (BREAKFAST CEREALS)

26

16

ORGANIC PRODUCTS

14

MEAT & POULTRY

21

FRESH OR FROZEN FRUITS & VEG

19

BUY MORE

Source: Nielsen Global Consumer Confidence Topic - Ireland Q1 2013

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RISING PRICES ARTICLE - IRELAND

SO ARE GROCERY PRICES INCREASING IN IRELAND? In looking at the top selling 20 categories in Ireland (alcohol and tobacco excluded) in latest Nielsen retail sales data, it appears over the long-term and short-term this is the case;

LATEST 4 WEEKS PRICES UP

LATEST 12 WEEKS PRICES UP

LATEST 52 WEEKS PRICES UP

+1.9%

+2.5%

+2.5%

WITH 15 OF THE 20 CATEGORIES RECORDING A PRICE INCREASE

WITH 16 OF THE 20 CATEGORIES RECORDING A PRICE INCREASE

WITH 17 OF THE 20 CATEGORIES RECORDING PRICE INCREASE

Source: Nielsen Scantrack data, w/e 8th September 2013

On the latest 12 weeks, staples like breakfast cereals, packaged bread and milk prices are up higher than the overall average (+6.5%, +3.9% and +5.0% respectively), while pre-packed bacon and take home ice-cream are the only categories in the Top 20 which have not seen the average price increase over these time periods. ₂

Copyright © 2013 The Nielsen Company

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PRICE FLUCTUATIONS LATEST 4 WKS

LATEST 12 WKS

LATEST 52 WKS

BABYMILKS / MEALS AND RUSKS 8.7% 8.3% 11.2%

BISCUITS CRACKERS CRISPBREAD 3.5% 4.6% 5.2%

BREAKFAST CEREALS 5.2% 6.5% 7.7%

CARBONATED DRINKS 2.7% 1.0% 2.9%

CELLOPHANE BAGS 3.9% 4.3% 3.9%

COUNTLINES 5.5% 4.3% 5.2%

CRISPS 3.4% 3.1%

-8.4% 6.2%

ENERGY DRINKS -4.1%

FRUIT JUICES 500ML + 7.4% 5.3% 6.7% MILK 1.8%

PACKAGED BREAD 4.3% 3.9% 3.1% PREPACKED SAUSAGES 5.9% 6.8% 6.3% SNACKS 3.4% 4.3%

MARGARINE 5.5% 2.9% 0.6% -0.6%

4.1% 5.0%

6.8%

TOILET TISSUE 0.1% 0.4% 0.2%

0.1%

0.0% -0.7% -0.5% -2.3% -0.2%

-5.1% -3.9% -0.6%

-1.1%

MINERAL WATER 0.6% 2.1% PREPACKED BACON

PREPACKED SLICED MEAT 0.6% TAKE HOME ICE CREAM

YOGURT & YOGURT DRINKS 3.7% 1.4%

TOTAL TOP 20 CATEGORIES 1.9% 2.5% 2.8% Source: Nielsen Ireland Scantrack data, w/e 8th Sept 2013

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RISING PRICES ARTICLE - IRELAND

RETAILERS POISED FOR SUCCESS – BEST BET RETAILERS IRELAND RANKS

With finances under pressure and less discretionary money to spend, consumers continually look for ways to stretch their budgets and find the best value for the money. Retailers poised for success during inflationary times are those with competitive prices often difficult to beat.

THIRD HIGHEST

Many Irish respondents indicate they will continue to shop at Supermarkets and Pharmacy, with 35 percent indicating they would increase shopping frequency at Supermarkets. However, a high 47 percent of Irish respondents say they would shop more at Discount stores in times of rising prices. Ireland currently sees strong and continuous advertising by the main Discounters, which will only help increase awareness of these retailers and their keenly priced offers.

14% 9%

50%

55%

WOULD SHOP MORE AT DISCOUNT STORES, ONLY (48%) AND SOUTH

Q: IF FOOD PRICES INCREASE WHAT CHANGES WILL YOU MAKE IN WHERE YOU PURCHASE FOOD PRODUCTS? – IREL AND RESULTS

10%

SAYING THEY

BEHIND SINGAPORE

STORE SWITCHING IF FOOD PRICES INCREASE

14%

GLOBALLY IN

KOREA (47%).

12%

8%

23%

48%

30%

NOT APPLICABLE SHOP LESS SHOP SAME

60% 35%

29%

47%

5% SUPERMARKETS

CONVENIENCE STORES

5% DISCOUNT STORES

PHARMACY

SHOP MORE

33% 12% LOCAL NEIGHBOURHOOD STORES

Source: Nielsen Global Consumer Confidence Topic - Ireland Q1 2013

Copyright © 2013 The Nielsen Company

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Conversely, retailer formats most vulnerable during inflationary times include convenience stores and speciality retailers. 55 percent and 48 percent of all Irish respondents, respectively, say they would shop at these retailers less often. Ireland results on these scores show vulnerability versus a lot of other countries (versus 40% and 27% global averages). Channel switching from convenience and local shops to low-price outlets/supermarkets is evident, so messaging for these retailers that focuses on trust, differentiation and good value is important.

BRANDS VERSUS PRIVATE LABEL IN INFLATIONARY TIMES Some good news is that the majority of Irish respondents report being willing to try new brands. When asked ‘thinking about food brands to buy over the next year’, 56 percent indicate they would experiment with new brands. Notably, Ireland ranks 5th highest globally on this score, behind Brazil (64%), Greece (61%), Philippines (60%) and South Africa (57 %). This indicates opportunity for new areas of growth and innovative NPD from brands.

STRONG BRAND MESSAGES AND NPD IMPORTANT Q. THINKING ABOUT THE FOOD BRANDS YOU BUY OVER THE NEXT YEAR ‘I EXPECT TO‘… IREL AND

56%

INDICATE WILLINESS TO EXPERIMENT WITH NEW BRANDS

63% LIKE WHEN MANUFACTURERS OFFER NEW PRODUCTS 60% WAIT UNTIL A NEW INNOVATION IS PROVEN 60% BUY NEW PRODUCTS FROM FAMILIAR BRANDS 59% LIKE TO TELL OTHERS ABOUT NEW PRODUCTS

CONSUMERS WILL RESPOND TO STRONG

NPD ADVERTISING / PROMOTIONS

Source: Nielsen Global Consumer Confidence Topic Ireland Q1 2013

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Source: Nielsen Global Consumer Confidence New Products - Ireland Q3 2012

RISING PRICES ARTICLE - IRELAND

However on the flip side, as shoppers increasingly look for value, private-label brands have a potential advantage as shoppers become more discerning and lower-priced alternatives proliferate. In regions where private label is well established, the Nielsen survey results showed the potential power of private label brands during inflationary times. In developed European countries, 35 percent would shop more for private-label brands, compared with only 8 percent saying that they would buy more national brands. For Ireland that number was higher at 47 percent saying they would buy more private label if food prices increased, compared with only 11 percent saying they would buy more national brands.

47%

Copyright © 2013 The Nielsen Company

SAYING THEY WOULD BUY MORE PRIVATE LABEL IF FOOD PRICES INCREASED, COMPARED WITH ONLY 11 PERCENT SAYING THEY WOULD BUY MORE NATIONAL BRANDS.

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BRANDS VS. PRIVATE LABEL Q: IF FOOD PRICES INCREASE, WHAT CHANGES WILL YOU MAKE IN THE T YPE OF FOOD PRODUCTS YOU PURCHASE? – IREL AND RESULTS 47% 35%

11% 39%

13%

46%

6%

5%

PRIVATE LABEL

BRANDS

NOT APPLICABLE

SHOP LESS

SHOP SAME

SHOP MORE

Source: Nielsen Global Consumer Confidence Topic - Ireland Q1 2013

Today in Ireland, private-label products account for roughly 22 percent of FMCG sales (worth €2.3billion), according to Nielsen’s latest figures₁. Conditions remain good for private label growth, and private-label brands have been shouting loud with strong advertising. The price must be right and marketing must be effective for privatelabel brands to be successful. Packaging impacts trust and quality perceptions especially when private labels extend beyond commodity or low-risk product categories. Sales of private label in Ireland are reaping rewards, reporting year on year growth of +2% (value) latest year to June 2013, (versus -0.8% for Branded), according to latest Nielsen data₁.

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RISING PRICES ARTICLE - IRELAND

PRIVATE LABEL IN NUMBERS THE MAT VALUE SALES OF PRIVATE LABEL = €2.3 BILLION

THE RATE OF VALUE GROWTH OF PRIVATE LABEL YEAR ON YEAR = +2%

THE VALUE SHARE PRIVATE LABEL CURRENTLY HAS IN TOTAL MARKET = 22%

BRANDED PRODUCTS WORTH €8.3 BILLION

BRANDED DECLINING AT -1.2% VALUE YEAR ON YEAR

BRANDED NOW PLAYING IN A 78% ARENA

Source: Nielsen Strategic Planner Data to June 2013

NIELSEN RESEARCH SHOWS THAT IRISH SHOPPERS SEE OWN BRAND AS BEING OF SIMILAR QUALITY AND A VIABLE ALTERNATIVE TO BRANDS. SWITCHING TO OWN BRAND IS ONE OF THE MAIN WAYS THAT CASH STRAPPED SHOPPERS IDENTIFY TO SAVE MONEY. IN RECENT YEARS CONSUMERS HAVE INCREASED THE NUMBER OF STORES THEY VISIT EACH WEEK, AND THERE ARE CLEAR INDICATIONS THAT THEY HAVE ADDED A DISCOUNTER STORE TO THEIR SHOPPING ROUTINE. AS SHOPPERS HAVE BEEN FORCED TO FIND VALUE TO STRETCH THEIR BUDGET, THEY HAVE MOVED TO BUYING MORE AND MORE FROM LIDL AND ALDI OR BY SWITCHING INTO PRIVATE LABEL ALTERNATIVES. MANY IRISH SHOPPERS HAVE SWITCHED THEIR MAIN SHOP TO A DISCOUNTERS AND THEN TOP-UP IN THE MORE TRADITIONAL MULTIPLES, A REVERSE OF THE COMMONLY ACCEPTED NORM. SHANE DALY, RETAILER SERVICES, NIELSEN IRELAND

Copyright © 2013 The Nielsen Company

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TACTICS TO DEPLOY AND MARKETING LEVERS TO PULL Certain strategy responses from consumers resonate with strong consistency around the world, such as the increased propensity to purchase only sale-priced items (42 percent for Ireland). 61 percent of Irish respondents also say they would stock up on regular-use items when they were on sale (compared with 41 percent global average and 48 percent Europe average). Purchasing larger pack sizes was a strategy favoured among 40 percent of Irish respondents (again trending higher than either global or European averages (28% and 29% respectively). Notably, the speed and efficiency of online methods proved to be the platform of choice for saving money among two-fifths (41%) of Irish respondents, while over one quarter (28%) use social media to find specials. With the rise in smartphone ownership and mobile usage, looking for deals online is only likely to increase in the search for money-saving deals. With consumers looking for value online, this does mean retailers have fewer opportunities to interact. Retailers need to capture consumers through various mediums, not just in-store, as may see them less often than they have before. On those shopping strategies likely to decrease; 67 percent say they will cut down on amount spent per trip while 57 percent indicate they would decrease trips to the store. While the strategic response to consumer buying behavior may be consistent across regions, market-by-market tactical variations are essential. Knowing how to scale goods and services across the world can be challenging when consumer diversity must factor into the marketing mix. Understanding brand position within the category demand landscape allows for a tailored food inflation response that will protect the most profitable shoppers with optimum efficiency.

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SHOPPER SAVING TACTICS IF PRICES RISE Q: IF FOOD PRICES INCREASE, WHAT CHANGES WILL YOU MAKE WITH THE FOLLOWING ACTIONS?

67%

WILL DECREASE SPEND PER TRIP

57%

WILL DECREASE TRIPS TO THE SHOP

42%

WILL PURCHASE ONLY SALE ITEMS

41%

WILL LOOK FOR DEALS ONLINE

40%

WILL PURCHASE LARGER PACKS

28%

WILL USE SOCIAL MEDIA TO FIND DEALS

20%

WILL SHOP MORE ONLINE

RISING PRICES ARTICLE - IRELAND

ABOUT THE NIELSEN GLOBAL SURVEY The Nielsen Global Survey of Inflation Impact was conducted between February 18 and March 8, 2013, and polled more than 29,000 consumers in 58 countries throughout Asia-Pacific, Europe, Latin America, the Middle East, Africa and North America. The sample has quotas based on age and sex for each country based on their Internet users, and is weighted to be representative of Internet consumers and has a maximum margin of error of ±0.6%. This Nielsen survey is based on the behavior of respondents with online access only. Internet penetration rates vary by country. Nielsen uses a minimum reporting standard of 60 percent Internet penetration or 10M online population for survey inclusion. The Nielsen Global Survey, which includes the Global Consumer Confidence Survey, was established in 2005.

ABOUT THE GLOBAL SURVEY METHODOLOGY The findings in this survey are based on respondents with online access across 58 countries. While an online survey methodology allows for tremendous scale and global reach, it provides a perspective only on the habits of existing Internet users, not total populations. In developing markets where online penetration has not reached majority potential, audiences may be younger and more affluent than the general population of that country. Additionally, survey responses are based on claimed behavior, rather than actual metered data.

ABOUT NIELSEN Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence and mobile measurement. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com. Copyright © 2013 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies. 13/7004