Overview of the Retail Grocery Market in the Southeast United States. September 2008

Overview of the Retail Grocery Market in the Southeast United States September 2008 The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information. This report is intended as a concise overview of the market for those interested in its potential and is not intended to provide in-depth analysis which may be required by the individual exporter. Although every effort has been made to ensure that the information is correct, Agriculture and Agri-Food Canada assumes no responsibility for its accuracy, reliability, or for any decisions arising from the information contained herein. Please address any comments or suggestions you have on this report to: Ben Berry - berryb@agr.gc.ca

Overview of the Retail Grocery Market in the Southeast United States Table of Contents Overview... 3 Southeast Region... 4 Alabama... 5 Florida... 6 Georgia... 7 Mississippi... 7 North Carolina... 8 South Carolina... 9 Tennessee...10 Retail Grocery Market Overview...11 Store Redesigns...11 Smaller-Format Convenience Segment...11 Current Economic Conditions...13 Supermarkets...14 Convenience Stores...15 Mass Merchandisers...16 Warehouse Clubs...16 Dollar Stores...17 National Consumption Trends and Opportunities...18 Healthier Options...18 Larger-Sized Formats...18 Ready-Made Meals...18 Ethnic Food...19 Specialty Food...19 Organics...20 Key Target Markets...20 Ethnic Consumers...20 Hispanic Consumers...21 African American Consumers...21 Asian American Consumers...22 Halal and Kosher Food Markets...23 Mediterranean Food Market...23 Market Access...23 Conclusion...25 Key Resources...25 Overview of the Southeast Retail Grocery Market 2

Overview of the Retail Grocery Market in the Southeast United States UPDATE NOVEMBER 2008: The Southeast economy, like much of the US, continues to struggle through a downward cycle with the national economy teetering on a recession, from the housing crash, credit crunch and the evaporation of consumer confidence tied to energy costs and financial market uncertainty. Essentially, the financial markets on the whole are seeing large fluctuations on a near daily basis, making firm forecasts difficult, but not impossible. Recent trends have seen a sharp drop in energy prices as well as a drop in key commodity prices, all of which should have a positive impact on the economy as a whole in the long term, but to-date consumers have not returned to their pre-2007 habits and experts believe that recent events were in many ways a wake up call, not simply a blip in long term consumer habits. The information contained in this report takes into account the economic situation and the forecasts available during this time period, but information will be further updated once long term stability returns to this key market. Overview The Southeast United States, comprised of the states of Alabama, Florida, Georgia, Mississippi, North & South Carolina, and Tennessee, offers strong export opportunities for Canadian agri-food companies. The Southeast states form a dynamic and growing market that is home to 3 of the US top 10 retail markets, and is rich in ethnic diversity with a consumer base of over 55 million people, more than 18% of the total American population. The Southeast region offers strong export opportunities to Canadian food companies. The majority of growth in the region lies in Florida where the retail grocery market is highly competitive between large supermarket chains and independent retailers. In terms of grocery sales, Florida ranked third in the nation, followed by North Carolina in eighth, and Georgia which ranked tenth for top grocery sales in the country. Competition in the retail food industry continues to rise with the increasing presence of mass merchandisers and alternative grocery store formats. Overall, the retail grocery market is fairly mature, yet it continues to diversify its offerings and formats in order to continue to meet changing consumer demand. Quick Facts National retail grocery sales totalled over US$963.9 billion (includes convenience store sales of US$306.6 billion, excluding gas) in 2007 and are projected to grow nearly 18% from 2007 to reach just over US$1.1 trillion by 2012. Supermarkets accounted for roughly 43% of the American retail grocery market, followed by convenience stores (32%), mass merchandisers (15%), warehouse clubs (10%), and dollar stores (1%) in 2007. Mass merchandisers and specialty grocers (i.e. retailers specializing in the sale of one main food or beverage category, such as a bakery, butcher, fish and seafood store, greengrocer, wine store, etc.) are the fastest-growing channels in the American retail grocery market, and are expected to see 33% and 19% growth, respectively, between 2007 and 2012. Overview of the Southeast Retail Grocery Market 3

The Southeast region was home to 7,228 retail grocery outlets as of July 2008, roughly 3.6% of the nation s total. Publix accounted for about 19% of the region s retail grocery stores, followed by Food Lion (15%), Wal-Mart Supercenters (15%), and Winn-Dixie (10%). Major growth areas in the retail grocery market include ready-made meals, particularly healthier offerings; better-for-you, functional and ethnic food; and specialty grocery products. The Southeast region s GDP was valued over US$2.2 trillion in 2007, 16% of the nation s total. Southeast Region The Southeast region s retail grocery market is large, dynamic and extremely competitive; it offers numerous opportunities for niche products that meet consumer demand for convenience, variety and price. Canadian agri-food exporters should note that even a single niche opportunity in the Southeast region could be compared in size to a popular market trend in Canada. Florida is one of the United States' retail sales leaders as it is a high-population, large-economy state. Florida has the most urban centres in the region, with over 400 cities home to about 89% of the state's population. The state also holds the most cities with populations over 100,000 in the Southeast region; 19 in total. Miami, Fla., is the fourth largest metropolitan area in the United States and its population is projected to reach 6,518,100 by 2012; a 17% increase over 2007. Food consumption in the Southeast region is affected largely by time pressures of dual-income households and growing demand for healthy and portable meal solutions. Major trends currently impacting the retail grocery market include healthy ready-made meals, portion-controlled snacks, and better-for-you, functional and ethnic food. The Southeast region remains an important export market for Canadian agri-food companies, largely due to Florida s presence in the region Canada s eleventh-largest American export destination followed by Georgia as fourteenth, and Florida as the eighteenth-largest American export destination. The Southeast region purchased over $1.4 billion or 8% of all Canadian agri-food exports to the United States in 2007. Georgia accounted for 27% of this total, followed by Tennessee at 25%, and Florida at 23%. Top exports to the region included prepared bread, pastry, cakes, and biscuits at $296.3 million or 21% of the total; canola oil worth $154 million or 11% of exports; and food preparations totalling $116.3 million or 8% of agri-food exports. Vegetables such as peppers, tomatoes, and potatoes; as well as chocolate accounted for $100 million and $99.4 million or 7% of exports. The following table outlines the Southeast states respective importance to Canadian agri-food exporters. Demographic, retail grocery market and trade profiles are also highlighted. Southeast Region - Importance to Canadian Agri-Food Exporters State/Region Population (2007) Population as Percentage of Region Total Retail Grocery Sales (2007-08) Canadian Exports to State (2007) Exports as Percentage of Region Alabama 4.6 million 8.4% US$9.5 billion $36.2 million 2.5% Florida 18.3 million 33.3% US$32.8 billion $328.9 million 22.9% Georgia 9.5 million 17.3% US$19.1 billion $389.2 million 27.1% Overview of the Southeast Retail Grocery Market 4

Mississippi 2.9 million 5.3% US$5.5 billion $13.3 million 0.9% North Carolina 9.1 million 16.5% US$17.7 billion $206.9 million 14.4% South Carolina 4.4 million 8.0% US$8.1 billion $106.9 million 7.4% Tennessee 6.2 million 11.3% US$10.5 billion $353.7 million 24.6% Southeast 55 million 100% US$103.2 billion $1,435.1 million 100% United States 301.6 million US$535.3 billion $17.3 billion Sources: Population Division, U.S. Census Bureau; The Shelby Report of the Southeast, February, March, June, July, August, 2008*estimate The Southeast region s retail grocery outlets generated roughly US$103.2 billion in sales in 2007-08, and accounted for approximately 19% of the national retail grocery sales total. The states with the largest grocery sales were Florida (32%), Georgia (19%), North Carolina (17%), and Tennessee (10%). The country s largest retail grocer players, Publix, Wal-Mart Stores, Food Lion, Winn-Dixie, and Kroger, all have a strong presence in the Southeast region with their many retail banners. While the top three retailers in the Southeast region as a whole remain Wal-Mart Supercenters, Publix, Winn-Dixie, Kroger, Bi-Lo, Ingles, Sweetbay and SuperTarget; key players and market shares vary from city to city and state to state. Alabama Alabama s 694 retail grocery outlets (i.e. the fifth-largest number of grocery stores in the Southeast region) made up a US$9.5 billion market in 2008. Top five retailers: Wal-Mart Supercenter (88 stores with a 47% market share), Winn-Dixie (73 stores with a 12% market share), Bruno s (58 stores with an 7% market share), Publix (30 stores with a 5% market share), and PW Alabama (85 stores with a 4% market share). As of July 2008, nearly 31% of Alabama s retail grocery market share was supplied by wholesalers. Birmingham, AL, is home to the majority of Alabama s retail grocery outlets, i.e. 159 stores or 23% of the state s outlets, which account for just over 25% of the state s total retail grocery sales. 2007 population: 4.6 million, ranking the state 23 rd in the nation. 2007 GDP: US$165 billion, positioning Alabama 25 th in the country. 2006 per capita income: US$21,270 2006 median household income: US$38,160, ranking Alabama 47th in the nationwide. Alabama was Canada s sixth-largest export market in the Southeast region of the US in 2007, having imported $36.2 million of Canadian agri-food products. Top exports included grains such as wheat totalling $13.7 million or 38% of the total; bread, biscuits and cakes at $8.9 million or 24% of total exports; and bottled whiskies at $3.4 million or 9% of exports. Edible vegetables and swine accounted for $1.9 million and $1.6 million or 5% and 4% of exports, respectively. Alabama s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Wal-Mart Supercenter 88 46.88% (0.58) 2. Winn-Dixie 73 11.96% (0.05) 3. Bruno s 58 7.49% (0.11) Overview of the Southeast Retail Grocery Market 5

4. Publix 30 5.00% 0.14 5. PW Alabama 85 4.12% (0.59) 6. C&S/So. Family Market 20 2.14% 0.10 7. Kroger 10 2.49% 0.15 8. SuperTarget 6 1.84 0.36 9. L&L Services 13 1.10 (0.07) 10. Military 4 1.04 - All Others 230 10.96% *(0.01) Total 694 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 Florida Florida s 2,121 retail grocery outlets (i.e. the largest concentration of grocery stores in the Southeast region) made up a US$32.8 billion market in 2007. Top five retailers: Publix (666 stores with a 40% market share), Wal-Mart Supercenter (157 stores with a 24% market share), Winn-Dixie (358 stores with a 14% market share), Albertsons (93 stores with an 4% market share), and Sweetbay (107 stores with an 3% market share). As of July 2008, 11% of Florida s retail grocery market share was supplied by wholesalers. Collectively Miami, Tampa and Jacksonville account for 50% of Florida s grocery retail outlets and 50% of grocery retail sales. 2007 population: 18.3 million, ranking the state 4 th in the nation 2007 GDP: US$734 billion, positioning Florida 4 th in the country. 2006 per capita income: US$25,297 2006 median household income: US$45,038, ranking Florida 33 rd in the country. Florida was Canada s third-largest export market in the Southeast region of the US in 2007, having imported $328.9 million of Canadian agri-food products. Top Canadian exports included bread, pastry, cakes, and biscuits totalling $55.6 million or 17% of the total; fresh/or chilled vegetables at $46.4 million or 14% of total exports; and wheat worth $41.5 million or nearly 13% of exports. Bottled whiskies and beer as well as preparations of vegetables, fruit and nuts accounted for $34 million and $29.6 million or 10% and 9% of exports, respectively. Florida s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Publix 666 40.30% 0.58 2. Wal-Mart Supercenter 157 23.67% (0.65) 3. Winn-Dixie 358 13.64% (0.28) 4. Albertsons 93 4.06% (0.10) 5. Sweetbay 107 2.91% 0.01 6. SuperTarget 34 2.45% 0.14 7. Wall-Mart Neighbourhood 18 1.26 0.08 8. Save-A-Lot 76 1.23 (0.03) 9. Military 10 0.82% (0.02) 10. Sedano s 29 0.68% (0.02) All Others 543 8.45% *0.42 Total 2,121 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 Overview of the Southeast Retail Grocery Market 6

Georgia Georgia s 1,146 retail grocery outlets (i.e. the third-largest concentration of grocery stores in the Southeast region) made up a US$19.1 billion market in 2008. Top five retailers: Wal-Mart Supercenter (123 stores with a 32% market share), Kroger (173 stores with a 24% market share), Publix (173 stores with a 16% market share), Ingles (73 stores with a 4% market share), and J.H. Harvey (62 stores with a 2% market share). As of July 2008, nearly 17% of Georgia s retail grocery market share was supplied by wholesalers. Atlanta, GA., is home to the majority of Georgia s retail grocery outlets, i.e. 579 stores or 51% of the state s outlets, which accounted for just over 49% of the state s total retail grocery stores. 2007 population: 9.5 million, ranking the state 9 th in the nation 2007 GDP: US$396 billion, positioning Georgia 10 th in the country. 2006 per capita income: US$23,716 2006 median household income: US$48,388, ranking Georgia 22 nd in the nation. Georgia was Canada s largest export market in the Southeast region in 2007, having imported $389.2 million of Canadian agri-food products. Top Canadian exports included wheat totalling $139.3 million or 36% of the total; food preparations at $69.7 million or 18% of total exports; and cocoa preparations worth $37.1 million or nearly 10% of exports. Sugars and sugar confectionery; as well as boneless bovine cuts and swine cuts accounted for $29.3 million and $25.1 million or 8% and 6% of exports, respectively. Georgia s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Wal-Mart Supercenter 123 32.46% (0.17) 2. Kroger 173 23.89% 0.28 3. Publix 173 16.06% 0.19 4. Ingles 73 3.90% (0.03) 5. J.H. Harvey 62 2.36% (0.07) 6. Winn-Dixie 22 1.83% (0.04) 7. Food Lion 40 1.44% (0.06) 8. Bi-Lo 26 1.37% 0.02 9. SuperTarget 10 1.31% 0.04 10. Military 10 1.10% (0.09) All Others 370 10.54% *(0.06) Total 1,146 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 Mississippi Mississippi s 382 retail grocery outlets (i.e. the seventh-largest number of grocery stores in the Southeast region) made up a US$5.5 billion market in 2008. Top five retailers: Wal-Mart Supercenter (58 stores with a 55% market share), Kroger s (31 stores with a 12% market share), Winn-Dixie (16 stores with a 5% market share), R&M Foods/The Roberts Co. (16 stores with a 2% market share), and Food Giant/Hartford (12 stores with a 1.5% market share). As of July 2008, nearly 27% of Mississippi s retail grocery market share was supplied by wholesalers. Overview of the Southeast Retail Grocery Market 7

Jackson, MS., is home to the majority of Mississippi s retail grocery outlets, i.e. 59 stores or 15% of the state s outlets, which account for just over 19% of the state s total retail grocery sales. 2007 population: 2.9 million, ranking the state 32 nd in the country. 2007 GDP: US$88 billion, positioning Mississippi 35 th nationwide. 2006 per capita income: US$18,165 2006 median household income: US$34,343, ranking Mississippi 51 st in the nation. Mississippi was Canada s seventh-largest export market in the Southeast region of the US in 2007, having imported $13.3 million of Canadian agri-food products. Top exports included bottled whiskies totalling $3.1 million or 23% of the total; preparations of grains and pasta at over $2.6 million or 20% of total exports; and potatoes worth $1.6 million or 12% of exports. Glues or adhesives, and boneless bovine cuts accounted for $1.4 million and $1.2 million or 11% and 9% of exports, respectively. Mississippi s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Wal-Mart Supercenter 58 55.09% (0.49) 2. Kroger 31 12.12% 0.76 3. Winn-Dixie 16 4.75% (0.12) 4. R&M Foods/The Roberts Co. 16 1.48% 0.02 5. Food Giant/Hartford 12 1.46% 0.04 6. Ramey s Supervalue 14 1.36 0.07 7. Triple V Stores 8 1.16-8. HGR 8 1.14% (0.03) 9. Food Giant/Sikeston 12 1.09% 0.01 10. Brookshire Grocery 4 0.96 (0.03) All Others 157 13.31% *(0.33) Total 382 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 North Carolina North Carolina s 1,342 retail grocery outlets (i.e. the second-largest concentration of grocery stores in the Southeast region) made up a US$17.7 billion market in 2007. Top five retailers: Food Lion (497 stores with a 26% market share), Wal-Mart Supercenter (101 stores with a 30% market share), Harris Teeter (125 stores with a 15% market share), Lowes (100 stores with a 6% market share), and Ingles (65 stores with a 5% market share). As of July 2008, nearly 20% of North Carolina s retail grocery market share was supplied by wholesalers. Charlotte, NC, is home to 237 retail grocery stores, respectively, or 18% of the state s outlets, and account for 19% of the state s retail grocery sales. 2007 population: 9.1 million, ranking the state 10 th in the nation 2007 GDP: US$399 billion, positioning North Carolina 9 th in the country. 2006 per capita income: US$22,945 2006 median household income: US$41,616, ranking North Carolina 40 th in the country. North Carolina was Canada s fourth-largest export market in the Southeast region of the US in 2007, having imported $206.9 million of Canadian agrifood products. Top Canadian exports included potatoes totalling $36.6 million or 18% of the total; malt at $30.4 million or 15% of total exports; and Overview of the Southeast Retail Grocery Market 8

tomatoes, peppers, and potatoes worth $27.3 million or nearly 13% of exports. Glues or adhesives; and preparations of bread, pastry, cakes, and biscuits accounted for $20.9 million and $19 million or 10% and 9% of exports, respectively. North Carolina s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Food Lion 497 26.49% (0.60) 2. Wal-Mart Supercenter 101 30.47% 0.83 3. Harris Teeter 125 14.87% 0.15 4. Lowes 100 5.73% (0.29) 5. Ingles 65 4.49% (0.11) 6. Bi-Lo 43 2.62% (0.04) 7. Kroger 19 2.25% (0.05) 8. SuperTarget 8 1.38% 0.20 9. Military 6 1.06% (0.03) 10. Aldi 43 0.84% 0.09 All Others 317 9.14% *(0.16) Total 1,342 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 South Carolina South Carolina s 664 retail grocery outlets (i.e. the sixth-largest concentration of grocery stores in the Southeast region) made up a US$8.1 billion market in 2007. Top five retailers: Wal-Mart Supercenter (61 stores with a 36% market share), Bi-Lo (132 stores with a 17% market share), Food Lion (143 stores with a 13% market share), Publix (41 stores with an 8% market share), and PW Carolina (81 stores with a 6% market share). As of July 2008, nearly 34% of South Carolina s retail grocery market share was supplied by wholesalers. Greenville, SC, is home to 81 retail grocery stores, respectively, or 23% of the state s outlets, and account for 14% of the state s retail grocery sales. 2007 population: 4.4 million, ranking the state 24 th in the nation. 2007 GDP: US$152 billion, positioning South Carolina 28 th in the country. 2006 per capita income: US$21,875 2006 median household income: US$40,583, ranking South Carolina 42 nd in the country. South Carolina was Canada s fifth-largest export market in the Southeast region of the US in 2007, having imported $106.9 million of Canadian agrifood products. Top Canadian exports included durum wheat totalling $23.1 million or 22% of the total; preparations of bread, pastry, cakes, and biscuits at $15.2 million or 14% of total exports; and bottled whisky worth $11.8 million or nearly 11% of exports. Cigarettes and chocolate accounted for $8.8 million and $8.2 million or 8% of exports, respectively. South Carolina s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Wal-Mart Supercenter 61 35.98% 0.17 2. Bi-Lo 132 17.36% (0.24) 3. Food Lion 143 13.17% 0.24 4. Publix 41 8.29% 0.28 5. PW Carolina 81 6.33 (0.22) Overview of the Southeast Retail Grocery Market 9

6. Ingles 36 4.71% 0.13 7. Kroger 12 2.68% (0.19) 8. Harris Teeter 9 2.02% (0.10) 9. Military 5 1.27% (0.04) 10. McLeod s PW 12 1.25 (0.01) All Others 110 5.86% *(0.02) Total 664 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 Tennessee Tennessee s 839 retail grocery outlets (i.e. the fourth-largest number of grocery stores in the Southeast region) made up a US$10.5 billion market in 2007. Top five retailers: Wal-Mart Supercenter (102 stores with a 39% market share), Kroger (119 stores with a 25% market share), K-VA-T (60 stores with a 7% market share), Food Lion (65 stores with a 3% market share), and Publix (20 stores with a 3% market share). As of July 2008, nearly 24% of Tennessee s retail grocery market share was supplied by wholesalers. Nashville and Memphis, TN., are home to 205 and 137 retail grocery stores or 24% and 16% of the state s outlets, and account for 23% of the state s retail grocery sales. 2007 population: 6.2 million, ranking the state 17 th in the country. 2007 GDP: US$243 billion, positioning Tennessee 19 th nationwide. 2006 per capita income: US$22,074 2006 median household income: US$40,696, ranking Tennessee 41st in the nation. Tennessee was Canada s second-largest export market in the Southeast region of the US in 2007, having imported $353.7 million of Canadian agrifood products. Top exports included canola oil totalling $119.5 million or 34% of the total; preparations of bread, pastry, cakes, biscuits at $55.7 million or nearly 16% of total exports; and chocolate worth $51.8 million or 15% of exports. Chewing gum and food preparations accounted for $26.1 million and $16.2 million or 7% and 5% of exports, respectively. Tennessee s Top 10 Retail Grocers, July 2008 Retailer Number of Stores Market Share Change in Market Share 1. Wal-Mart Supercenter 102 39.44% (0.38) 2. Kroger 119 24.72% 0.13 3. K-VA-T 60 7.08% (0.05) 4. Food Lion 65 3.33% (0.03) 5. Publix 20 2.78% 0.03 6. Bi-Lo 24 2.31% 0.03 7. Houchens 62 1.75% (0.03) 8. Ingles 20 1.51% 1.00 9. Schnuck Markets 11 1.51% (0.03) 10. Wal-Mart Neighbourhood 6 1.30% (0.04) All Others 307 - *(12.50) Total 839 100% *Approximate change; Source: The Shelby Report of the Southeast, July 2008 Overview of the Southeast Retail Grocery Market 10

The Southeast region retail grocery stores that have consistently grown over the past year are Publix with 930 stores, Kroger with 364 stores, and SuperTarget with 58 stores. Each of these stores has consistently had positive growth over the past year and maintained a strong level of the market share. Whilst Wal-Mart Supercenter still holds the highest market share in most of the Southeast states with 714 stores; their market share has decreased in Alabama, Florida, Georgia, Mississippi, and Tennessee. Retail Grocery Market Overview Store Redesigns A number of significant trends are currently impacting the United States retail grocery market. Perhaps one of the largest developments is the vast number of retailers across all grocery segments that are revamping their outlets and businesses to provide better product selections and store designs, as well as greener operations. Market leaders are developing energy efficient buildings, and adopting greener business practices from the production process through to distribution and at the retail store level. For a detailed look at how the green trend is impacting the retail grocery market, consult Going Green: The Future of the Retail Food Industry report on the Agri-Food Trade Service Web site at http://www.ats.agr.gc.ca/us/4351_e.htm. Retailers are also enhancing store layouts and merchandising to make it easier and more inviting for consumers to shop at their outlets, as well as boost sales. Piggly Wiggly, for example, recently launched its first new concept store tailored to how consumers intuitively shop. Shoppers can now find all fresh, frozen and canned fruit and vegetables in one section; bread, cereal, milk, peanut butter and jam all within one location; and cross-merchandising throughout the store that offers consumers quick, complete meal solutions (e.g. a display with sausages, buns, fresh corn and beer). The store also features a convenient meal assembly centre (i.e. Dream Dinners, a meal preparation outfit that helps consumers make up to four weeks of freezer- and oven-ready dinners at a time); Starbucks outlet; a warm, home-like feel with its hardwood flooring, soft lighting and open floor plan; and environmentally-friendly features. Safeway has also been converting its locations into Lifestyle concept stores over the past several years. Having opened its 1,000 th Lifestyle store in November 2007, Safeway s new formats represent roughly 60% of the retailer s store count and offer an array of high quality prepared food, organic and natural products and expanded grocery selections tailored to local tastes. Depending on the local market, Lifestyle stores feature a gelato station, sushi bar, fresh nut counter, wine selection with over 2,000 varieties, and even shopping carts with drink holders for those outlets that house a Starbucks kiosk. Smaller-Format Convenience Segment One of the most recent trends to greatly impact the American retail grocery market is the development of smaller-format stores that focus on high quality, fresh and convenient food. As mass merchandisers and supermarkets are increasingly seen as impractical for quick shopping trips, a number of retailers are beginning to experiment with new smaller-format outlets to capitalize on the consumer trend for healthier and easier meal solutions in a convenient shopping format. Although new to Overview of the Southeast Retail Grocery Market 11

the American market, this concept has seen great success in the United Kingdom, where market leader Tesco now operates some 700 of such convenience stores, and continues to open an additional 50 outlets annually (Business Monitor International, 2008). While retailers such as Tesco, Wal-Mart and Safeway are launching convenience store-sized stores in the US, the Southeast region is not being used as a test market. Tesco rolled-out its Fresh & Easy Neighborhood Market banner in the United States in November 2007. The banner offers healthy and convenient products at affordable prices. An additional 140 store openings are projected from July 2008 to February 2009, for an estimated 800 outlets by 2012. While the Fresh & Easy Neighborhood Markets have yet to reach the Southeast region of the United States, they will likely have an influence on the retail grocery market in the region in the future. Wal-Mart is also launching a convenience store-sized market concept. Industry experts have suggested that the new Marketside banner is in response to Tesco s rollout of Fresh & Easy Neighborhood Markets. Although the first Marketside stores will not be located in the Southeast region, these new stores will likely have a significant impact on the American grocery industry in general, as well as the convenience store segment s competitive landscape, due to Wal-Mart s economies of scale and real estate expertise in the United States. Supermarket giant, Safeway, is also testing the convenience market by launching the Market by Vons banner, a smaller-format grocery store, through its Vons subsidiary. The first test outlet was opened in Long Beach, California, in May 2008; three other outlets are slated to open over the next year. If successful, Safeway plans to rollout as many as 50 Market by Vons stores annually in neighbourhoods that cannot support full-size supermarkets. While Safeway s presence in the Southeast region is smaller than other parts of the country, this grocery giant has a strong influence on trends in the grocery industry more generally. Although retail grocery giants such as Tesco, Wal-Mart and Safeway see great potential in developing smaller-format, convenience grocery outlets, some industry experts caution that the concept may not enjoy the same success as it has in the United Kingdom. Given that the United States has a smaller population concentration than the United Kingdom, the convenience format may only be as popular in large urban areas where consumers are more likely to walk to local retailers for their groceries (Business Monitor International). Furthermore, most Americans drive to retail grocers, especially mass merchandisers for one-stop shopping; therefore, the appeal of smaller, limited-assortment grocers may be limited (Business Monitor International). However, given the current economic situation in the United States (which is projected to last up to 18 months in many areas of the country), Americans are not driving as far as they once did to make staple purchases. Therefore, the industry s return to a certain level of smaller, local grocery formats may fill a key niche. In fact, large, successful chain stores, such as Costco and Wal-Mart, may even see some of their price advantage eaten away by a lack of proximity to consumers, particularly in large urban areas. Early indicators of consumer behaviour have shown that consumers may not be willing to drive the extra mile to shop for groceries at lower prices, at least for the foreseeable future. Regardless of whether a retailer is Overview of the Southeast Retail Grocery Market 12

designed for walk-in traffic or not, new, fresh-looking retail formats offering high quality products in the neighbourhood could see an increase in business simply based on rising fuel costs. Current Economic Conditions The current economic downturn in the United States, intensified by higher energy and food prices, a drop in consumer confidence, and a weakened housing market, is affecting how shoppers spend their money, particularly on groceries. Industry analysts have noted that basket sizes are increasing but trips to retail grocers are declining. Consumers continue to look for bargains and stretch their dollars, a sign that rising fuel prices are also beginning to take a toll on consumers wallets. Current statistics estimate that consumers will make less than two grocery trips per week in 2008, down from an average 2.2 outings in 2005. Americans are making subtle but impactful changes to their shopping patterns, such as opting for white meat instead of red; swapping a restaurant meal for a frozen, ready-made meal at home; buying private label products in place of premium goods; using coupons more often; and purchasing club-pack sized products. In fact, warehouse club retailers, such as Costco, are reporting increased sales as consumers turn to more cost-effective shopping formats. The retailer saw US$6.5 billion in net sales in the five weeks ending April 6, 2008, an 11% increase over the same period in 2007, as well as US$41.3 billion in year-to-date net sales ending April 6, 2008, a 12% increase over 2007 totals. Findings from the Food Marketing Institute s (FMI) U.S. Grocery Shopper Trends 2008 report greatly reflect these market trends. Roughly 71% of Americans are dining at restaurants less often in favour of cooking at home, and the average number of family meals eaten at foodservice establishments has dropped to 1.2 times per week, down from 1.3 outings in 2007 and 1.5 occurrences in 2006 (FMI, 2008). Furthermore, 67% of consumers are purchasing less premium food, while 60% report buying more store brand products; not surprisingly, 58% of Americans state they are consuming more leftovers (FMI). The retail grocery segment has quickly responded with a number of special programs to encourage consumer spending at their outlets. Major retailers are offering more promotions and discounts, enhancing store merchandising, and pushing fresh food sales (do to current demand for healthier products) to boost sales. The Kroger Co., for example, recently launched a gift card program to help cashstrapped shoppers manage rising energy and food costs. Available throughout all of the company s banners, the promotion allows shoppers to transfer the value of their economic stimulus cheque onto a Kroger gift card that is topped up with an additional US$30 to US$120, depending on the value of the government-issued tax rebate. The program, which runs from May through July 2008, is also open to consumers who do not receive tax rebates with the purchase a gift card. Other retailers to similarly follow suit include all Supervalue banners, Big Y, Hy-Vee, Roundy s, Safeway, Wal-Mart and Winn-Dixie. Wal-Mart accounted a net sales increase in June 2008 of 11.5% to $39.9 billion to the government s economic stimulus payments. Overview of the Southeast Retail Grocery Market 13

Having heavily focused on expanding their private label offerings over the past few years, many retail grocers are now also well-positioned to offer Americans considerable savings through their high quality store brand products. Almost 99% of retailers offer private label food, of which roughly 65% sell multiple tiers (i.e. basic to premium store brand goods) that target various consumer segments (FMI). It is also important to note that there was a noticeable push within the American consumer segment to prepare and eat more meals at home prior to the current economic downturn. Although some may have viewed this trend as an early indicator of the coming economic slowdown, it still holds true that Americans are increasingly preparing meals and dining at home, supported by the idea of maintaining healthier diets. The economy s performance has since increased the attractiveness of cooking and eating at home, on a number of levels, to a greater number of consumers. Retail grocers have raised the prices of many food products over the past several months in an effort to combat the higher prices manufacturers are charging; that is despite efforts to delay the increases. Inflation reached 5% in June 2008, the highest rate in the United States since 1991, and has most affected manufacturers who paid an additional 14% to 70% for bulk, intermediate and consumer-ready products from April to June 2008. Manufactures have since passed much of these increases on to retailers. Industry experts continue to debate exactly when the next wave of product price increases will be introduced at the retail grocery level. Although many grocers are taking a wait and see approach to raising their prices as they want to be the last retailer to do so, more price hikes are inevitably on the way. Supermarkets Supermarkets are the largest segment of the retail grocery market and are dominated by chains. American consumers prefer these outlets due to their wide selection, convenient locations and longer hours of operation (Euromonitor, 2008). In fact, Americans believe that supermarkets offer the best selection of products they need to maintain their health (FMI, 2008). Faced with increased competition from large mass merchandisers (e.g. Wal-Mart Supercenter and SuperTarget which offer one-stop shopping solutions and everyday low prices for a broad selection of groceries) and other major segment leaders, supermarkets continue to remodel stores and enhance product offerings to improve consumers shopping experiences. While supermarkets had heavily focused on expanding their non-food offerings, in order to compete with mass merchandisers, over the past several years, this trend now seems to be reversing as food products reclaim lost shelf space in many outlets. Supermarkets dominate the United States retail grocery sector; sales reached US$411.8 billion in 2007 comprising 43% of the market, a 15% increase over 2004. Chain supermarkets makeup 94% of total supermarket sales, while independent grocers account for the remaining 6%. Supermarkets are staying competitive by offering private label lines. Recent industry estimates suggest that private label products offer 10% to 15% higher margins than those of national brands, and that store brands can account for 15% to 25% of total store sales (Euromonitor, 2008). Supermarket gas stations have also helped retailers generate more store traffic. It is estimated that more than half of American consumers purchase gasoline at supermarket gas bars (Food Marketing Institute, 2008). Overview of the Southeast Retail Grocery Market 14

Kroger is the largest supermarket chain in the United States with an approximate 18% market share, followed by Safeway (11%), Albertsons (8%), Publix (7%) and Food Lion (6%) (Euromonitor, 2008). The United States was home to 45,581 supermarkets in 2007. Convenience Stores Having traditionally relied on tobacco and gasoline sales as primary traffic-builders, convenience stores have transformed themselves into grab-and-go outlets to meet consumer demand for prepared convenience goods. With supermarkets, mass merchandisers and warehouse clubs increasingly selling gasoline, and consumers turning to lower-priced competitors for tobacco products, the convenience store segment faces considerable competition. To overcome this obstacle, convenience stores are remodelling and tailoring their product offering to meet local demand. Many outlets now offer a variety of healthy and portable prepared food. Refrigerated coolers that house perishable food are also being added to drive sales. An additional factor affecting convenience store sales is the increased availability of pay-at-the-pump options for purchasing gasoline. Petrol is the main draw for consumers at many convenience stores, and with the option of paying at the pump the need to go into a convenience store is lessening, and therefore drastically cutting into traditional impulse buys. A number of chains continue to drive in-store customer traffic by offering snack or meal promotions, as well as by incorporating popular foodservice chain express kiosks (e.g. Jack in the Box, Dunkin Donuts) or entertainment. Many gas station convenience stores in Nevada, for example, operate video lottery terminals. Although large gas station convenience store chains dominate the segment many regional and independent retailers are present in the Southeast. Their success is attributed largely to understanding and meeting the needs and demand of local consumers, while offering convenient, fresh and ready-made products. The country s 146,294 convenience stores generated US$308.8 billion in sales (not including gas) in 2007. Ten per cent of Americans purchase a food product from a convenience store every two weeks. Approximately 80% of convenience stores offer food prepared on-site. Sandwiches, pizza, chicken, hamburgers and Mexican food are the most popular menu options at foodservice kiosks in convenience stores. 7-Eleven is the largest convenience store chain in the United States with an approximate 4% market share, followed by Alimentation Couche-Tard s Circle K banner (2%), Shell Oil Co s Shell Shop banner (1.4%), BP America Inc s Amoco FoodMart banner (1.3%) and Marathon Oil Co s Speedway SuperAmerica banner (1.3%) (Euromonitor, 2008). California is home to the second-largest concentration (after Texas) of convenience stores nationwide, i.e. nearly 10,300 outlets or 7% of the country s total. Although gas station convenience stores dominate the market, nearly 84% of the segment s market share was accounted for by other convenience store retailers, the majority of which are considered independent (Euromonitor, 2008). The top 10 selling convenience store products (excluding fuel) include cigarettes, non-alcoholic bottled beverages, beer, foodservice products, other Overview of the Southeast Retail Grocery Market 15

tobacco, candy, salty snacks, general merchandise, milk and packaged sweet snacks. Mass Merchandisers While retail grocery market leaders are experimenting with new smaller-format stores, mass merchandiser-type outlets remain extremely popular with consumers as many offer one-stop shopping solutions. Mass merchandisers continue to challenge the supermarket segment for grocery sales by expanding their food selections; offering competitive, everyday low-prices; and opening new outlets. In fact, many of such retailers are increasingly converting into supercenters that offer a wide assortment of grocery items and an in-store pharmacy, along with typical mass merchandiser products. With their key competitive advantage being aggressive pricing, and consumers increasingly looking to complete all of their shopping in one location, mass merchandisers market share was valued at 15% or US$141.7 billion in 2007. The country s 3,038 mass merchandiser outlets generated US$141.7 billion in sales in 2007. Approximately 31% of a mass merchandiser s outlet is allocated to grocery items (Euromonitor, 2008). Grocery sales remain an important part of mass merchandisers business; major retailers, such as Wal-Mart Supercenter and SuperTarget continue to improve their private label offerings to increase profit margins (Euromonitor, 2008). Wal-Mart Supercenter dominates the segment with an approximate 78% market share, followed by Meijer (6%), SuperTarget (6%), Ahold USA Inc s Super Stop & Shop banner (5%), and Kroger Co s Fred Meyer Stores banner (2%) (Euromonitor, 2008). Warehouse Clubs Warehouse clubs are an important player in the United States retail grocery market as they offer high quality food products and regular merchandise in large package formats at low prices. This segment is a strong competitor for mass merchandisers and supermarkets that offer club-pack sizes. In fact, a number of supermarket retailers have expanded their offerings to include value or club-pack aisles to attract shoppers that regularly purchase multipacks. Warehouse clubs are also well known for their treasure hunt appeal; shoppers must search aisles for limited-time bargains that are not advertised. Although such outlets have a more limited and variable selection of products, they offer competitive pricing for multipacks which appeal to high-volume buyers. In order to remain competitive, many warehouse clubs have expanded their product offerings in recent years, particularly fresh food selections and store brand product lines. Costco, the segment leader, has especially benefited from such developments and positioning itself as an upscale discounter in recent years. The retailer offers a wide range of high quality merchandise, fresh food and a large private label line, Kirkland. Costco also marks-up products no more than 14%, in comparison to the 25% mark-up standard in the supermarket category, which gives the retailer a competitive edge (Euromonitor, 2008). Sam s Club, the second-largest wholesaler in sales terms, but first in the number of outlets, is currently expanding its affordable luxuries offerings, with focus on Overview of the Southeast Retail Grocery Market 16

gourmet food and wine (Euromonitor, 2008). As a Wal-Mart subsidiary, Sam s Club benefits from large economies of scale, a strong distribution network and real estate expertise; however, many outlets tend to be situated in rural areas, whereas, Costco targets more urban consumers. The country s 1,152 warehouse club outlets generated US$101.5 billion in sales in 2007. Costco, Sam s Club and BJ s Wholesale Club (which only operates in the eastern United States) dominate the segment, having accounted for roughly 94% of national wholesale club sales in 2007 (Euromonitor, 2008). More than half of Americans shop at warehouse clubs. Grocery sales account for approximately one-third of warehouse club sales; top selling goods include dairy, meat, produce and ready-made meals. The Southeast region s major warehouse club retailers are Costco and Sam s Club with 46 and 149 locations in 2008, respectively. Dollar Stores Dollar store retailers have revitalized themselves over the past decade with better quality merchandise and increased product variety, resulting in large channel growth. More recently, there has been a shift toward adding food aisles and convenience goods to increase sales. Many retailers are adding refrigerated and/or frozen food sections for fresh produce and frozen, ready-meals, positioning dollar stores as one of the main threats to traditional grocery retailers. Dollar General, for example, recently launched its Super Dollar General concept in addition to its Dollar General Market banner, both of which sell a greater selection of grocery items and are similar to Wal-Mart Supercenters, but on a much smaller scale. Large national retailers from other channels, such as Wal-Mart, Target, Kroger, Albertsons and Walgreens, are also trying to benefit from dollar store sales by experimenting with dollar store aisles in their stores. As retailers such as Target and Costco make bargain hunting trendy, dollar stores have increasingly become frequented by upper-income households along with their main consumer segment of low- to middle-income families. In fact, store growth within the dollar store channel is unparalleled by any other retailer. Top dollar store chains, including Dollar General, Family Dollar, Dollar Tree, Fred's and 99 Cents Only, have added more than 5,900 new outlets since 2001. For more detailed information on this retail segment, consult the Overview of the Retail Dollar Store Market in the United States report on the Agri-Food Trade Service Web site at http://www.ats.agr.gc.ca/us/4356_e.htm. The dollar store segment was estimated at US$27.5 billion in 2005, a 9% increase over 2004. As of 2006, over 19,000 dollar stores were operational, a large increase from the 5,458 that existed in 1996. In 2006 alone, the dollar store channel increased its total store count by 1,100. More than 8,000 new outlets are expected to open by 2010. While there are over 800 dollar store companies in the United States, the top five dollar store chains, Dollar General, Family Dollar, Dollar Tree, Fred's and 99 Cents Only, saw combined sales of US$22.4 billion in 2006 and represented a little more than two-thirds of total dollar store channel sales. The Southeast region s major dollar store retailers include Dollar General (2,794 stores), Family Dollar (over 250 outlets), and Dollar Tree (more than 150 stores). Overview of the Southeast Retail Grocery Market 17

In 2006, 65% of American households shopped at dollar stores, up from 55% in 2000. Candy and snacks ranked in the top 10 selling products category at convenience stores in 2004, i.e. first and seventh place, respectively. Annual household trips to dollar stores grew to 12 outings in mid-2006 from an average of 10 in 2000. The average basket size of a trip to the dollar store grew to US$13 in mid- 2006 from US$11 in 2000. National Consumption Trends and Opportunities Healthier Options As the number of Americans with health problems and/or a general concern for living a healthy lifestyle grows, dietetic, better-for-you, functional, and high quality products are projected to see strong growth. Retailers continue to introduce products with reduced fat, sugar and salt content; added vitamins, herbs or nutraceuticals; and those that are portion-controlled or cholesterol-, gluten- and lactose-free. With a number of consumers turning to healthier and more affordable meals at home, product opportunities will continue to grow for manufacturers. In fact, 91% of Americans reporting that they eat healthier at home in comparison to dining out (FMI). Therefore, combined with burgeoning demand for convenience products, this trend should create more market opportunities for healthier ready-made meals (e.g. fresh, better-for-you, functional and premium prepared meals). Larger-Sized Formats The trend toward healthy eating in the United States is significant, but it fails to offset the traditional perceived value and popularity of products promoted with larger product packaging and larger product portions. As much as healthy eating is a trend amongst the average consumer, the effort to eat healthier could easily be described as casual, with healthy eating choices being incorporated into less than healthy diets. While dieting consumers are huge targets, this is not a growing segment of the population; the percentage of adults on a diet in the United States has decreased significantly since 1990. A wide range of larger-sized products are available in the American retail grocery market and include product lines such as Hungry-Man s prepackaged high-calorie dinners which are marketed to individuals with larger appetites. Many snack foods, such as potato chips and cookies, are also commonly offered in larger-portion formats. Increasing obesity rates within the United States may indicate that demand for super-sized products is growing. The national obesity rate increased to 26.3% in 2007 from 16.5% in 1997. Obesity rates are slightly lower in the Southeast region than nationally, which may suggest stronger regional demand for fresh and healthier products. Ready-Made Meals The American ready-made meal market (i.e. including frozen, chilled, dried and canned meals) has seen considerable growth over the past few years, as consumers increasingly lead busier lifestyles. According to FMI, nearly 95% of all retail grocers now offer ready-made meals for time-constrained shoppers. Fuelled by demand for quick meal solutions, the segment increased roughly 16% from 2002 to total more than US$23.1 billion in 2007 (Euromonitor International, Jan. 2008). Further Overview of the Southeast Retail Grocery Market 18

development of healthy, portable, premium, organic and ethnic options will continue to drive segment growth. In fact, manufacturers are expected to continue to roll-out more restaurant-quality ready-made meals and frozen pizzas to offer consumers quick, high quality meal solutions. The ready-made meal category is projected to reach over $24.9 billion by 2012, close to a 4% increase over 2007 totals (Euromonitor International, Jan. 2008). Ethnic Food Due to increased ethnic diversity and global travel in recent years, the burgeoning North American ethnic food sector has moved out of the specialty food category and into the mainstream food industry. In fact, 75% of ethnic food consumption in the United States is now supported by the mainstream population, fuelling a US$75 billion annual industry that accounts for US$1 out of every US$7 spent on groceries (Euromonitor International, 2006). Research has also shown that the majority of ethnic food and beverages are consumed by Caucasian consumers in the United States, and that such products are largely purchased by mainstream shoppers and those of other minority groups (Datamonitor, 2005). Ethnic food products currently makeup more than 12% of all retail food sales and are seeing 5% annual growth. Recent trends point to Caribbean, Mediterranean, Indian, halal and kosher food markets as developing an increasing consumer base. While consumer demand for healthier food and exotic flavours is driving interest in these areas, rising immigration levels are also playing a key role. The United States is expected to see a visible minority population of 123.1 million (i.e. roughly one in three Americans) by 2020, a 30% increase over the country s 2006 population of 94.4 million. The majority of this increase (i.e. roughly 59%) is expected to be driven by Hispanics, followed by African Americans (i.e. 23%) and Asian Americans (i.e. 18%). Specialty Food Bolstered by the popularity of food television networks, celebrity chef cooking shows, exotic cooking classes, and the introduction of upscale retail grocers (e.g. Whole Foods Market) that sell a variety of premium products, Americans are becoming more knowledgeable about food preparation and are trading up, using high quality ingredients when cooking. Retailers are increasingly expanding their gourmet food offerings with artisan cheese, bread, dips, oils, spreads, condiments and confectionary; freshly-prepared meals and desserts; greater ethnic and international food assortments; premium tea and coffee; and larger wine selections to cater to such consumer demand. Store redesigns (e.g. Piggly Wiggly and Safeway s projects) are also being used to create inviting upscale shopping environments for consumers. According to Specialty Food Magazine s The State of the Specialty Food Industry 2007 report, the American specialty food market was estimated at US$38.5 billion in 2006, and accounted for 10% of all retail grocery sales (2007). Specialty food sales have increased 103% since 2001 and are currently outpacing general food sales by 17%; general food sales increased nearly 5% in 2006, while that of specialty food rose 22% (Specialty Food Magazine). As of 2006, the largest specialty food categories were condiments; cheese; coffee and cocoa; chips, pretzels and snacks; and carbonated, functional and ready-to-drink (RTD) tea and coffee beverages (Specialty Food Magazine). The magazine also identified energy bars and gels as the fastest-growing specialty food category, having seen 269% growth between 2004 and 2006, followed by shelf-stable juices and functional drinks (107%), shelf-stable Overview of the Southeast Retail Grocery Market 19

meat, poultry and seafood (105%), water (90%), and RTD tea and coffee beverages (58%). Organics Fuelled largely by the burgeoning green trend in North America, the American organic sector has seen dramatic growth in recent years and is now one of fastgrowing segments of American agriculture. Consumer awareness and demand for organic food and beverages has also greatly increased since the USDA Organic standards logo and certification program was introduced in 2002. Grocery retailers have responded by expanding their organic product offerings, especially by developing store brand organic food lines. In fact, 82% of retail grocers now offer natural or organic options and 62% of which sell private label organic products (FMI). According to the Organic Trade Association s 2007 Manufacturer Survey, organic food sales totalled US$16.9 billion in 2006, a 22% increase over 2005 values. Organic food accounted for roughly 3% of national retail grocery sales in 2006, up from 2.5% in 2005, and 1.9% in 2003. Key Target Markets Ethnic Consumers The world s largest ethnic food market is expected to see its ethnic consumer base continue to grow. Ethnic consumers are forecast to account for 52% of the American population by 2050 or 219.7 million consumers, an impressive 78% increase over the country s estimated 2020 population. These trends are, in turn, creating new and increasingly attractive opportunities for Canadian agri-food producers and exporters. Distinct retail grocery and foodservice trends exist in each region of the United States. Age, race and income demographics vary from state to state and impact regional flavour profiles. The Southeast United States, for example, has a large African-American community in states such as Georgia and Florida. The following table outlines the Southeast region s ethnic consumer markets respective importance to Canadian food exporters. Southeast United States Ethnic Populations, 2007 State/Region Hispanic Population African American Population Asian American Population Ethnic Population Ethnic Population as % of Nation s Alabama 0.111 million 1.209 million 0.046 million 1.366 million 0.5% Florida 3.643 million 2.779 million 0.393 million 6.815 million 2.3% Georgia 0.696 million 2.794 million 0.255 million 3.745 million 1.2% Mississippi 0.046 million 1.087 million 0.022 million 1.155 million 0.4% North Carolina 0.597 million 1.892 million 0.163 million 2.652 million 0.9% South Carolina 0.149 million 1.238 million 0.047 million 1.434 million 0.5% Tennessee 0.188 million 1.012 million 0.076 million 1.276 million 0.4% Southeast 5.430 million 12.012 million 1.002 million 18.444 million 6.1% United States 44.2 million 37.1 million 13.1 million 94.4 million 31.3% Source: U.S. Census Bureau, 2007; *The total ethnic population is an estimate based on the total Hispanic, African American and Asian American populations. Some overlap may exist between the populations in each of these groups. This total does not include ethnic consumers from other groups. A brief overview of major ethnic consumer markets in the United States is provided below. For more in-depth information, please consult the United States Ethnic Food Overview of the Southeast Retail Grocery Market 20

Market report on the Agri-Food Trade Service Web Site at http://www.ats.agr.gc.ca/us/4489_e.htm. Hispanic Consumers The Hispanic consumer segment is the largest ethnic group in the United States, making up nearly 15% of the population or 45.5 million consumers in 2007. By 2030, it is projected that this segment will account for one out of every five Americans, with an estimated 73 million Hispanics living in the United States. Furthermore, apart from the country s close proximity to Mexico, a recent influx of Hispanic consumers in non-traditional Hispanic markets, such as Utah, has been aided greatly by friendly municipal and state governments seeking key consumer groups to boost local populations and economies. Hispanic buying power is expected to reach US$1 trillion in 2008, nearly doubling from US$581 billion in 2002, to achieve the highest level among ethnic groups in the United States. Roughly US$55 billion of this total is allocated to food annually. Hispanics make more shopping trips, spend more on groceries, and eat more at home than their mainstream American counterparts. The segment has a preference for using fresh ingredients when cooking, and therefore accounts for much of the produce sales in the retail grocery market. Hispanics average 26 shopping trips per month or twice as many outings as mainstream shoppers, and spend an average US$133 per week on groceries compared to non-hispanic shoppers typical US$93 weekly purchases. This is also due in part to Hispanic families being larger than the national household average; Hispanic households have an average 3.34 residents, while that of the general American population is 2.57 persons. Furthermore, more than 43% of Hispanic homes have four or more people residing in them, versus 22% of non-hispanic households. It is therefore not surprising that mass merchandisers, such as Wal-Mart and Target, are most frequently shopped by 61% of Hispanics. In fact, a 2005 study found that roughly 36% of Hispanics identified Wal-Mart as their favourite store. The retail giant recently announced a partnership with Pollo Campero, the largest Latin American chicken restaurant chain, to attract more Hispanic consumers to Wal-Mart stores. Roughly 500 Pollo Campero restaurants are forecast to open in the United States by 2012, some of which will be located within Wal-Mart outlets. Brand names with high recognition and popularity among the Hispanic community include Badia, Bimbo, Bustelo, Cacique, Coca-Cola, Doña María, Faraón, Gamesa, Ganzito, Goya, Guerrero, Herdez, Iberia, Jarritos, Juanitas, Jumex, Knorr, La Cena, La Costeña, Maggi, Maseca, Nestlé, Pilon, Productos Maya,Tampico and Vitarroz. African American Consumers Apart from the growing Hispanic market, the country s African American population is also an attractive consumer segment. Estimated at US$847 billion, the African American consumer market s level of purchasing power is the second-highest among ethnic groups in the United States. This value has seen a compound annual growth rate (CAGR) of almost 6% since its 2002 value of US$645 billion. African Americans comprised almost 13% of the American population or 38.7 million consumers in 2007, an 8% increase over the 2000 population of 35.8 million. By 2030, it is projected that this segment will account for 14% of Americans, with an estimated 50.4 million African Americans living in the United States. Overview of the Southeast Retail Grocery Market 21

The African American consumer market is generally made up of native born African Americans and immigrants from a variety of Caribbean and African countries. This naturally influences African American cuisine, which incorporates a blend of cooking flavours and traditions from these regions. Bold flavoured options, such as Jamaican jerk chicken, fried plantains, rice and bean dishes, and stews (e.g. Brazilian feijoada) are popular. Authentic cooking ingredients are also important to African Americans, who generally spend 27% more on such items than the average American shopper. African Americans are highly brand loyal consumers and hot food promotional tastings at retail grocery outlets have proven effective in targeting new products to this segment. Brand names with high recognition and popularity among the African American community include Allens, Bull Dog, Bush s Best, Colonial, Country Post, Far West Meats, Franco American, Glory Foods, Grace, Hoffy, Homepride, Jiffy, La Fe, Louisiana, Luck s, Old Bay, Success, Sunbeam, Sylvia s Soul Food, Taystee, Texas Pete, Tropical, Uncle Ben s, Uncle Lou s and White Lily. Asian American Consumers In addition to the country s largest ethnic consumer groups, there is strong emphasis on addressing the needs of the expanding Asian American population. Currently estimated at 13.3 million consumers or nearly 4.5% of the population, this consumer segment is projected to become the fastest-growing ethnic group in the United States from 2010 to 2050, and see a 135% population increase over the period. Asian Americans are also the most affluent market segment in the United States with an average household income of US$51,908 in 1999, over 14% higher than that of Caucasians, 54% larger than that of Hispanic consumers, and 76% greater than that of African Americans. While unofficial, recent 2008 reports have stated that Asian Americans now hold the highest per capita income of all consumer segments in the United States. According to AC Nielsen, Asian food sales at retail grocery outlets (excluding those at Wal-Mart) increased 4.5% over 2005 levels to total US$1.1 billion in 2006. Asian Americans generally prefer fresh food over processed or packaged goods, and typically shop for groceries four to five times a week. Staples in almost all Asian American diets include rice, noodles and vegetables. Brand names with high recognition and popularity among the Asian American community include Ajinomoto, Bin Bin, FOCO, Food Island, God of Fortune, Golden Phoenix, Hinoichi, Homal, House Foods, Huy Fong Foods, Indo Mie, Kewpie, Kian Guan, Kikkoman, Kirin Ichiban, Meiji, Mitsukan, Nestlé, Nong Shim, S&B Curry, UCC, Vitamalt and Yamamotoyama. Asian cuisine, particularly Chinese, Japanese and Thai food, has long been enjoyed by mainstream American consumers, while other varieties, such as Vietnamese and Korean, are becoming increasingly popular. Traditional Asian dishes are also influencing the flavour profiles of many mainstream products; Asian-inspired sauces and seasonings to snacks, appetizers and ready-made meals are now widespread in the American marketplace. In fact, sales of two-food frozen entrées (i.e. ready-made meals that contain two separately packaged types of food to be consumed together, such as chow mein and rice) saw the most growth in the Asian food category, increasing 26% from 2002 to reach US$85.5 million in 2006. However, the largest portion of the Asian food market remains the one-food frozen entrée segment, which totalled US$379 million in 2006. Overview of the Southeast Retail Grocery Market 22

Halal and Kosher Food Markets The large and growing Muslim and Jewish consumer populations in the United States also present considerable opportunity for Canadian food manufacturers looking to enter new markets. With its population of eight million to 11 million Muslim consumers, the United States offers a lucrative halal market estimated at US$12 billion. The kosher food industry, while not new to North America, also continues to grow with its 5.2 million Jewish consumer base in addition to a number of non- Jewish consumers that are increasingly buying kosher products for numerous reasons. The American kosher food industry was estimated at over US$7 billion in 2006, and has seen roughly 102,000 food and beverage products enter the marketplace over the past 20 years; approximately 2,500 products were certified kosher alone in 2007. Some industry experts have even suggested that nearly 50% of all packaged food produced in the United States is kosher, and that most major brands are certified kosher as well. With such growth in the kosher food industry, many grocery retailers are now devoting entire sections of their stores to kosher food. Kosher bakeries, delis, meat departments, frozen food sections, general merchandise aisles and even sushi bars can be found in many of Supervalu s 13 grocery banners locations, as well as in Wegmans, Shop Rite, and Tops Markets outlets among others, while mass merchandisers Wal-Mart and Kmart continue to expand their kosher food product offerings. The number of grocers offering kosher food sections is likely to expand as retailers continue to place more importance on ethnic food merchandising. Furthermore, as consumers continue to become more health conscious, especially in the wake of recent worldwide food scares and the burgeoning green movement, they are increasingly purchasing halal and kosher food (i.e. meat and other food products slaughtered or processed according to Islamic and Jewish law). Such food is appealing to a growing number of consumers outside of the Muslim and Jewish communities, whether it be due to humane animal treatment concerns, demand for vegetarian or lactose-free products (i.e. kosher food only), or a perception that such products are healthier or safer. Mediterranean Food Market Mediterranean food (i.e. particularly Greek, southern Italian and Spanish), cited as a major emerging ethnic cuisine in the North American marketplace, gained huge popularity in 2007. The consumer trend toward wholesome, boldly-flavoured ethnic food has grown considerably in recent years, largely due to Mediterranean cuisine having been marketed as a healthy diet option in the United States since 1993. A Mediterranean diet symbol for packaged food was released in the United States in April 2007 and has helped further drive the popularity of this cuisine. Market Access The United States remains a destination of constant trade and investment interest for foreign investors, and holds strong potential for Canadian companies wanting to enter the export market. To facilitate successful market entry, Canadian exporters are encouraged to develop market entry strategies that include working with local Overview of the Southeast Retail Grocery Market 23