1

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Private-labelgoodscaptureaminorityshareoftheUSgrocerymarket,buttherearefivespecificfactorsthatcouldboostsalesoftheseproducts:

1) Risingfood-priceinflationmaypromptAmericanshopperstotradedownfrombrandedgroceryproducts.

2) ExpansionofgrocerydiscountersAldiandLidlintheUScouldfuelcompetitioninprivatelabel.

3) Amazon’sacquisitionofWholeFoodsMarketcouldjump-startAmazon’sgroceryprivate-labeloffering.

4) Retailerscouldcapitalizeonheightenedconsumerdemandformorefresh,organicandnaturalfoods.

5) Privatelabelscouldcapturegrowthinthemeal-kitmarket.KrogerandAlbertsonsaretwogroceryretailersthatarealreadytappingthiscategory.

Deep Dive: Private Label in

US Grocery— Five Drivers of

Growth

Deborah Weinswig

Managing Director

FGRT

deborahweinswig@fung1937.com

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

2

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

TableofContents

ExecutiveSummary.........................................................................................................................................3

Introduction:PrivateLabelsinUSGrocery......................................................................................................4

PrivateLabelsCaptureJustOneDollarinSevenSpentonGroceries................................................................4

ThreeReasonsPrivateLabelCapturesSuchaSmallShareofGrocerySalesintheUS......................................61. PrivateLabel’sShareIsDistortedbyGroceryDiscounters.................................................................................62. Private-LabelDevelopmentReflectsSectorConcentration................................................................................73. WalmartIsaHouseofBrands............................................................................................................................9

FivePotentialDriversofGroceryPrivate-LabelGrowth...................................................................................91. RisingFood-PriceInflation..................................................................................................................................92. GroceryDiscountersSettoGrowRapidly.........................................................................................................103. AmazonandWholeFoods:NewChannelsandNewProducts.........................................................................124. DemandforFresh,OrganicandNaturalFoods................................................................................................125. RidingtheMeal-KitTrend.................................................................................................................................14

KeyTakeaways...............................................................................................................................................15

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DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

ExecutiveSummaryInUSgrocerystores,retailers’privatelabelscaptureonlyaminorityshareoftotalgroceryspending.Lastyear,private-labelproductsaccountedforjust14.5%ofallUSspendingonconsumerpackagedgoods(CPGs),accordingtoresearchfirmIRI.Thisequatedto$115billionofprivate-labelCPGsalesinthechannelsIRItrackedin2016.

Privatelabel’sshareofgrocerysalesisalsomuchlowerintheUSthanincomparablemarketssuchastheUK,GermanyandFrance.Weseethreereasonsforthis:

1. Thepresenceofgrocerydiscounterspushesupprivatelabel’sshareofthetotalgrocerymarket—andtheUShasaverysmalldiscountersegmentrelativetocomparablemarkets.

2. TheUSgrocerymarketisunusuallyfragmented,andfragmentationinhibitsthedevelopmentofsophisticated,tieredandinnovativeprivate-labelranges.

3. WalmartisbyfarthegroceryleaderintheUS,andispositionedasa“houseofbrands.”Thispositioningispartlyduetothefactthattheretaileroriginatedasageneralmerchandiserratherthanasafoodretailer.

Wealsoseefivetailwindsforgroceryprivate-labelgrowthintheUS:

1. Risingfood-priceinflationin2017.Privatelabelperformsmorestronglyinaninflationaryenvironmentbecausepriceincreasestemptshopperstotradedownfrombrandedproducts.

2. Expansionofgrocerydiscounters.AldiisgrowingitsUSstorenumbersandLidlhasjustenteredtheUSmarket.Bothareoverwhelminglyprivate-labelretailers.TheirgrowthcouldleadtototalUSdiscounterprivate-labelsales(groceryandnongrocery)ofaround$37.7billionin2020.

3. Amazon-WholeFoodssynergies.WeexpecttoseetheWholeFoodsMarketacquisitionjump-startAmazon’sgroceryprivate-labeloffering.

4. Heightenedconsumerdemandformorefresh,organicandnaturalfoods.Thisdemandcanserveasaspringboardforprivate-labelgrowth,becauseprivate-labelmarketsharealreadyoverindexesinfreshfoodcategories.

5. Meal-kitmarketgrowth.Groceryretailers’expertiseinofferingaverywiderangeofprivate-labelfoodproductsacrossfreshandambientcategoriesmeanstheyareuniquelywellpositionedtocapitalizeonthemeal-kittrend.

Privatelabel’sshareofgrocerysalesismuchlowerintheUSthanincomparablemarketssuchastheUK,GermanyandFrance.

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DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Introduction:PrivateLabelsinUSGroceryPrivatelabelsallowshopperstoenjoylowerpricesandretailerstoenjoyfattermargins.Theyareawin-winoffering—unlessyouhappentobeabrandownerthatislosingsalestoretailers’ownlabels.Despitetheirappeal,privatelabelsmakeuponlyaminorshareoftheaveragegroceryshoppingbasketintheUS.

Inthisreport,welookatthescaleoftheprivate-labelsegmentinUSgrocery,discussthreereasonsprivate-labelpenetrationratesarerelativelylowintheUSandoutlinefivedriversforgrowthingroceryprivatelabel.

Source:iStockphoto

PrivateLabelsCaptureJustOneDollarinSevenSpentonGroceriesAmericanswillspendaround$1trilliononfood,beveragesandothergroceryproductsthisyear.Alargemajorityofthatspendingwillflowtobrandownerslargeandsmall.Lastyear,private-labelproductsaccountedforjust14.5%—orapproximatelyonedollarinseven—spentonCPGsintheUS,accordingtoresearchfirmIRI.

Thisequatedto$115billionofprivate-labelCPGsalesin2016,basedonIRI’stotalcoverageuniverse,whichincludesmostfoodstorechains,massmerchandisers,warehouseclubs,dollarstoresanddrugstorechains,butexcludessomechainsandsmallerretailers.

AccordingtofiguresfromthePrivateLabelManufacturersAssociation(PLMA)andNielsen,2016salesofprivate-labelgoodsacrossallcategories(includingnongrocery)totaled:

• $60.2billionbysupermarketretailers

• $49.6billionbymassmerchants,warehouseclubsanddollarstores

• $8.3billionbydrugstorechains

Acrossthesetypesofstoresintotal,privatelabelcaptured17.5%ofvaluesalesand21%ofunitsalesin2016,accordingtothePLMAandNielsen.

Lastyear,approximatelyonedollarinsevenspentongroceriesintheUSwasspentonprivate-labelproducts.

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DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Figure1.US:Private-LabelSalesasShareofTotalSales,2016(%)

Allcategoriesdataareforallproductssoldthroughtrackedsupermarkets,massmerchandisers,warehouseclubs,dollarstoresandchaindrugstores.CPGsdataareforsalesattrackedmultioutletandconveniencestores,whichtotaled$795billioninthe12monthsendedSeptember22,2016.Source:PLMA/Nielsen/IRI

Retailersthathavebuilthighlysuccessfulprivate-labelrangescomfortablyexceedtheseindustryaverages.TwoexamplesareCostcoandKroger.Costco’sKirklandSignatureprivatelabelmakesupaboutone-quarteroftotalcompanysales,permanagementstatements.Byvalue,Krogerseesprivatelabelcaptureasimilarshare,asshownbelow.

Figure2.Kroger:Private-LabelSalesasShareofTotalSales(%)

ShareofKrogersalesexcludingautomotivefuelandpharmacysalesSource:Companyreports

17.5

14.5

21

17.1

AllCategories CPG

Value Volume

24.0%

25.5%26.0% 26.0%

27.0% 27.1%

28.0% 28.0%

2013 2014 2015 2016

Value Volume

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DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

TheUStrailsanumberofcomparableWesternmarketsintermsofprivate-labelgrocerypenetration.FranceandtheUKhavegrocerysectorsthat,liketheUS,arefocusedonlargesupermarketsandhypermarkets,yetprivatelabelsaccountformuchhighersharesofCPGsalesinthosecountries.

Figure3.SelectedCountries:Private-LabelSalesasShareofCPGValueSales(%)

Dataarefor2015,exceptfortheUS,whicharefor2016,andtheUK,whichareasofJuly2017.Italydataareforhypermarketsandsupermarketsonly.USdataareformultioutletandconveniencestores.Source:IRI/KantarWorldpanel

ThreeReasonsPrivateLabelCapturesSuchaSmallShareofGrocerySalesintheUS1. PrivateLabel’sShareIsDistortedbyGroceryDiscountersThepresenceofgrocerydiscounterssuchasAldiandLidlhasameaningfulimpactonprivatelabel’sshareofacountry’soverallgrocerymarket.ComparedwithanumberofEuropeancountries,suchasGermany,theUKandFrance,theUShasaminorharddiscountsector.Aldihadjusta1.3%marketshareintheUSin2016,perEuromonitorInternational,andLidlenteredtheUSmarketonlyinthesummerof2017.Thisrelativelysmallpresenceofharddiscountersdepressesprivatelabel’sshareoftheoverallmarketintheUS.However,oncegrocerydiscountersarestrippedout,themajorEuropeaneconomiesseerelativelysimilarlevelsofprivate-labelshareastheUSdoes,ataroundone-quarterofCPGsales.

14.5%

51.0%

38.4%34.1%

17.2%

US UK Germany France Italy

TheUStrailsanumberofcomparableWesternmarketsinprivate-labelgrocerypenetration.

ThepresenceofgrocerydiscounterssuchasAldiandLidlhasameaningfulimpactonprivatelabel’sshareofacountry’soverallgrocerymarket.

7

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Figure4.SelectedEuropeanCountries:Private-LabelSalesasShareofCPGValueSales,2015/2016(%)

UKexdiscountersdataexcludeMarks&Spenceraswellasharddiscounters.Dataarefor2015,exceptforUKincl.discounters,whichareasofJuly2017.Source:IRI/KantarWorldpanel

2. Private-LabelDevelopmentReflectsSectorConcentrationThegrocerysectorisunusuallyfragmentedintheUS,withonlytworetailersenjoyingdouble-digitmarketshare.WalmartisbyfarthemarketleaderinUSgrocery,witha26%sharein2016,accordingtoEuromonitor.Itsclosestcompetitor,Kroger,hada10%sharelastyear.Thisfragmentationlimitsthepotentialfortiered,innovativeandwell-knownprivatelabelsthatconvinceshopperstoswitchfrombrandedgoods.Inothermarkets,retailerswithaverysubstantialmarketsharehaveusedtheirscaletodevelopsophisticated,tieredprivate-labelranges.

Figure5.TheImpactofGrocerySectorConcentrationLevelsonPrivateLabel’sShareoftheGroceryMarket

Source:FGRT

Thecorrelationbetweenprivate-labelmarketshareanddegreeofconcentrationingroceryretailingappearstobeconsistentacrosscountries.

51.0%

38.4%34.1%

28.2%24.5% 27.7%

UK Germany France

Incl.Discounters ExDiscounters

TheUSgrocerysectorisunusuallyfragmented.

GroceryRetailConcentrahon

Private-LabelQualityandInnovahon

GreaterConsumerAcceptanceofPrivate

Label

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DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Figure6.SelectedCountries:Private-LabelCPGValueSharevs.TopFourGroceryRetailers’AggregateMarketShare(%)

Source:PLMA/IRI/KantarWorldpanel/EuromonitorInternational

14.5%

51.0%

38.4%34.1%

17.2%

45.3%

70.9%67.4%

51.4%

31.2%

US UK Germany France Italy

Private-LabelCPGValueShareTopFourGroceryRetailers’AggregateMarketShare

9

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

3. WalmartIsaHouseofBrandsMarketleaderWalmart’slong-standingstrategytobefirstandforemostahouseofbrandsappearstohavelimitedprivate-labeldevelopmentintheUSmarket.Thecompany’soriginsasageneralmerchandiser,ratherthanasafoodretailer,naturallyledtoitsmorebrand-focusedpositioningrelativetomanycompetitorsinthegrocerysector.

Source:iStockphotos

DavidCheesewright,PresidentandCEOofWalmartInternational,saidinaJune2016earningscall:

[I]fyoustartedlifeasafoodretailer,youviewprivatelabelastheplaceyoustart,andbrandisthethingthatyouonlysellifyoucan’tcreateaproperprivatelabel.Becauseifasignsayswesavepeoplemoney,thenwhywouldyouwanttosellsomethingthatcostsmoreforthesamequality?Ifyoustartingeneralmerchandise,Ithinkyoutendtoviewthingsasahouseofbrands.

However,onanApril2015earningscall,Walmartmanagementsaidthatitwasthelargestprivate-labelplayerintheUS.

FivePotentialDriversofGroceryPrivate-LabelGrowthPrivatelabelisnotafast-growingsegmentinUSgrocery:infact,in2016,privatelabellostshareoftotalUSCPGsales,accordingtoIRI.However,weseeseveraltailwindstogrowth,includingtheexpansionofgrocerydiscounters,innovationfromAmazonandWholeFoodsMarket,andthepopularityofmealkits.

1. RisingFood-PriceInflationPrivatelabelperformsmorestronglyinaninflationaryenvironmentbecausepriceincreasestemptshopperstotradedownfrombrandedproducts.Wethinktheveryweakfood-priceinflation—andsporadicdeflation—seenintheUSin2016wasaprincipalreasonbehindtheabovementionedweaknessinprivate-labelCPGsaleslastyear.

MarketleaderWalmart’slong-standingpositioningisasahouseofbrands.

Privatelabelperformsmorestronglyinaninflationaryenvironmentbecausepriceincreasestemptshopperstotradedownfrombrandedproducts.

10

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

In2017,foodandbeveragepriceinflationhasstrengthenedeachmonth,climbingfromdeflationof0.1%inJanuarytoinflationof1.1%inAugust(latest),accordingtoS&PCapitalIQandtheUSBureauofLaborStatistics.

Below,wecharttherelationshipbetweenconsumerpricesinflationinfoodandbeveragesandtheperformanceofprivatelabelrelativetototalgrocerysales,accordingtoIRI.Thehigherfood-priceinflationseensofarthisyearsuggestsimprovedprivate-labelgrowth—andanyfurtheruptickinpriceswouldlikelybenefitprivatelabels.

Figure7.US:GroceryPrivate-LabelPerformanceRelativetoTotalCPGMarketvs.ConsumerPricesInflationinFoodandBeverages

*ThroughAugust31,2017Source:S&PCapitalIQ/IRI/FGRT

2. GroceryDiscountersSettoGrowRapidlyGermany’sAldiandLidlaresettogrowtheirpresenceintheUSmarket,whichwillboosttotalUSprivate-labelsalesandlikelyspursomeestablishedrivalstostrengthentheirownprivate-labelofferings.Around90%ofLidl’sUSproductofferingisprivatelabel,acompanyspokesmansaidinJune2017,andasimilarproportionofAldi’sUSrangesarereportedtobeown-brandgoods.

LidlopeneditsfirstbatchofUSstoresinmid-June2017.Thecompanyhadstatedearlierthatitintendedtoopen20storesintheUSoverthesummeracrossthreeeasternstates:NorthCarolina,SouthCarolinaandVirginia.WhenwecheckedtheLidlwebsiteonAugust23,itsaidthatthecompanywasoperating22storesintheUS.

WeestimatethatLidlwillgrowitsUSpresencetoapproximately300storesbytheendof2020andgeneratealmost$4billioninUSsalesinthatyear.

PrivateLabelOutpacesMarket

PrivateLabelKeepsPacewithMarket

PrivateLabelUnderpacesMarket

PrivateLabelKeepsPacewithMarket?

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2014 2015 2016 2017YtD*

Food

and

BeverageInflaho

n

Around90%ofLidl’sUSproductofferingisprivatelabel.

11

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Source:iStockphotos

RivalGermandiscounterAldihasbeenintheUSfor40years,butisnowacceleratingitsexpansionprogram.InJune2017,thecompanyannouncedthatitwouldinvest$3.4billiontogrowitsUSstorecountfrom1,600to2,500by2022.

• Aldi’sUSsalesstoodat$13.1billionin2016,accordingtoEuromonitor,whilerivalTraderJoe’sturnedover$13.4billion.

• IfAldiandTraderJoe’scontinuetogrowrevenuesatthesamepaceastheydidfrom2011through2016(perEuromonitor),theywillgeneratesalesof$19.5billionand$18.6billion,respectively,in2020.

• Thosesales,combinedwithLidl’sestimatedsales,suggesttotalUSharddiscountersalesof$41.9billionin2020.

• Withprivatelabelaccountingforapproximately90%ofsalesattheseharddiscounters,totalprivate-labelsales(includingnongrocerysales)throughdiscounters’USstorescouldpotentiallyreach$37.7billionin2020.

Thispotentialboosttoprivatelabelisonlythedirectimpact.TheremayalsobeindirectimpactsascompetitionfromAldiandLidlpromptsestablishedgroceryretailerstooverhaultheirownprivate-labelofferings.

12

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

3. AmazonandWholeFoods:NewChannelsandNewProductsWeexpecttoseetheWholeFoodsMarketacquisitionjump-startAmazon’sgroceryprivate-labeloffering.InAugust,AmazonannouncedthatitwouldmakeWholeFoods’privatelabels,includingits365EverydayValueandeponymousWholeFoodsMarketlabels,availableforpurchaseonAmazon.com.BylateSeptember,manyWholeFoodsprivate-labelproductswereofferedtothoseshoppersabletopurchasefromtheAmazonFreshserviceorthroughAmazonPrime.

Source:Amazon.com

WeexpecttoseetheWholeFoodsacquisitionprovideaparticularboosttothefreshfoodrangesavailablethroughtheAmazonFreshdeliveryservice,asprivatelabeltendstooverindexinfreshfoodcategories.

Amazonalsohastheoptiontoextenditsownprivate-labelgroceryoffering.Itsstill-smallWickedlyPrimegroceryrangenumberedjustafewdozenproductswhenwecheckedinlateSeptember.AmazonfeaturedWickedlyPrimeproductsprominentlyduringitsJuly2017PrimeDayevent.

OtherInternet-onlyretailersarepushingintoprivate-labelgroceries,too.InlateSeptember2017,Walmart-ownedJet.comannouncedthatitwouldbelaunchinganewprivatelabel,UniquelyJ,acrossarangeofnonperishableitemssuchaslaundrydetergent,coffeeandoliveoil.

4. DemandforFresh,OrganicandNaturalFoodsGroceryretailersareseeingasteady,incrementalconsumershifttowardfresh,organicandnaturalfoodsandawayfrompackaged,processedproducts.Thisisatrendwehavediscussedatlengthinseveralpreviousreportsfocusingon,respectively,millennials’groceryshoppingbehavior,growingconsumerdemandforhealthierfoodsandmajorfoodcompanies’responsestoconsumers’shiftinggrocerypreferences.

USorganicfoodsalesjumpedby8.4%in2016,accordingtotheOrganicTradeAssociation.Thiscomparedwitha1.8%increaseintotalfoodanddrinkspendingin2016,pertheUSBureauofEconomicAnalysis.TheOrganicTradeAssociationsaidthatthisstrongperformanceledtoorganicsaccountingformorethan5%oftotalfoodsalesintheUSforthefirsttime.

Consumers’shifttonaturalandorganicfoodscanserveasaspringboardforprivate-labelgrowth.Private-labelgoodsalreadyoverindexintermsofmarketshareinfreshfoodcategories,asweshowbelow.Fruitandvegetables,fish,meat,anddairyproductsaretypicallycommoditygoodsratherthanbrand-ledcategories,andthisboostsprivatelabel’sshareofsalesinthosecategories.

WeexpecttoseetheWholeFoodsMarketacquisitionjump-startAmazon’sgroceryprivate-labeloffering.

AccordingtotheOrganicTradeAssociation,USorganicfoodsalesjumpedby8.4%in2016.

13

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Source:iStockphoto

Figure8.US:PrivateLabel’sValueShare,byCategory,2015(%)

Source:IRI

Anumberofretailershaveledthewayindevelopingnaturalororganicranges.AsidefromWholeFoodsMarket,Krogerisaprominentexample:itsSimpleTruthrange,whichfocusesonnaturalandorganicproducts,rackedupsalesof$1.7billionin2016,andKrogerstatesthatitisthebiggestnaturalandorganicbrandinthecountrybyvolume.

Wethinkthestrengthofprivatelabelinfreshfoodsgivesretailersanaturallystrongpositionfromwhichtodevelopnaturalandorganicranges.Moreover,becausetheUSgrocerymarketisfragmented,therelativelyfewretailersthathavesubstantialscalehavethechancetorunwiththebaton,andgainaheadstartonbothbrandsandsmallerretailers.

0.1

3.3

10.1

11.0

12.5

17.2

18.7

20.0

31.1

AlcoholicBeverages

Confechonery

PetFood

NonalcoholicBeverages

PersonalCare

AmbientFood

Household

FrozenFood

ChilledandFreshFood

14

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

5. RidingtheMeal-KitTrendMealkitsarethetrenddujouringrocerye-commerceandtheyarenowmovingintostoressuchasKrogerandAlbertsons,too.BrandssuchasBlueApronandPlatedofferconsumersalltheingredientstheyneedinonekittocreateselectedmeals.Whetherconsumerdemandforthesekitswillremainrobustoverthemediumisuncertain.Wethinkthetypicallyhighpricesofsuchmealkits,coupledwiththegrowthofmoreconventionalgrocerye-commerceintheUSmarket,coulddepresscategoryperformance.

Source:Plated.com

Nevertheless,therelooktobenear-termopportunitiestotapthismarket.Groceryretailershaveexpertiseinofferingaverywiderangeofprivate-labelfoodproductsacrossfreshandambientcategories,whichmeanstheyareuniquelywellpositionedtocapitalizeonthemeal-kittrend.

• KrogerlauncheditsownrangeofmealkitsunderthePrep+ParedprivatelabelinMay2017.InSeptember,KrogerannouncedthatitwasextendingitsPrep+Paredofferingtomorethan50storesacrosstwocities—Cincinnati,OH,andLouisville,KY—anditsRalphssupermarketchain.

• InSeptember2017,privatelyownedAlbertsonsannounceditsacquisitionofmeal-kitfirmPlated.NewssiteTechCrunch.comreportedthedealtobeworthbetween$175millionand$200million.

• AmazonlauncheditsMealKitsrangeinJuly2017.

• BlueApronisthebiggestnon-private-labelUSmeal-kitbrand.Weseebarrierstoentryforfurtherentrantsinthecategory,however,assuccessfulbusinessesinthesectorneedexperienceinsourcingawiderangeoffoods—fromfreshmeattovegetablestopreparedcookingsauces—atscale.

Groceryretailershaveexpertiseinofferingaverywiderangeofprivate-labelfoodproductsacrossfreshandambientcategories,makingthemuniquelywellpositionedtocapitalizeonthemeal-kittrend.

15

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

Source:Blueapron.com

Beyondmealkits,e-commerceprovidesfurtherpocketsofopportunitytoboostprivate-labelsales.Onlineretailershavemorecontroloverwhatshopperssee,andwhattheyrecommendtoshoppers,thandoofflineretailers,asin-storeshoppersarepresentedwithaislesofcompetingproductsinphysicalstores.Retailerscanusethatpowertopushtheirownproductsandencouragetheircustomerstoswitchfrombrandstoprivatelabels.

KeyTakeawaysRetailerscantakeadvantageofseveraltailwindstoboostprivate-labelgrocerysales:

• Higherinflationinfoodpricesthisyearthanlastyear.

• Consumerdemandformorefresh,organicandnaturaloptions.

• Thepopularityofmealkitsandconsumers’shifttoe-commerce.

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DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

October19,2017

DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst

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