Co-operatives UK The Future of Food Retail at the Co-operative Group

1. Co-operatives UKThe Future of Food Retail at the Co-operative Group Sean Toal Chief Operating Officer and Acting Chief Executive

2. What I am going to cover • Our Food Business • The strategic challenges facing our Food business • Our response to these challenges • The plan for growth and success

3. Our food business • We have a great Food business

4. Our food business Our footfall and visit frequency is 2nd behind Tesco We have nearly 4000 Co-operative locations across the country We can own location & convenience

5. Our food business • 14.5 million customers and 20 million transactions • 30% of our customers spend less than £3 • 60% of the UK population shop in a Co-operative every year • A great Food business with opportunities to improve 5

6. Strategic challenges facing our business • We have internal areas of opportunity • The economic back drop is tough • The competition are seeing our market place as an area of opportunity and growth

7. The “external” strategic challenges • There are new entrants to our market

8. The “external” strategic challenges • Customer expectations are changing in Top Up sector

9. The “external” strategic challenges Global growth – IGD The EU forecast has been revised sharply down, in recognition of the current crisis

10. However …. • The convenience market is still in strong growth Grocery channel forecasts to 2016 Source: IGD Research *All stores acquired and retained by Asda as part of the Netto acquisition are classified as small supermarkets from 2011.

11. Where are we now • After a number of successful acquisitions the business must now adjust • The convenience sector remains attractive but the multiples are changing the game • In the market more generally there are growing signs of a move towards a ‘two nation’ society • The business has as broad a customer base as Tesco • But the notion of a ‘one size fits all’ offering is becoming increasingly unsustainable • Day to day, our customers’ top concerns remain value, availability and service 11

12. Research tells us the focus areas Consumer drivers across Top-Up must improve: Quality Price Location Range British Staff Ethical Community Increased focus for top up: Co-operative food attributes we must maintain:

13. Our response to these challenges • Improve the opportunities in customer’s core drivers to build a credible and sustainable platform for growth • Value – Price and promotion • Availability • Range – Right range for the right location • Test and trial “Format” led and exploit the opportunities in our locations • Avoid taking on the mainstream brands at their own game and find our own position – own brand & promotions are key • We can make this business “right” for customers & be the best top up retailer in the UK

14. So in summary what is the plan • Fix the basics: range, availability, service, value • Truly understand our customer and develop our competitive positioning whilst keeping up momentum on own label excellence and ethics • Settle quickly on our approach with regard to price positioning and format-led segmentation and begin pushing the business in this direction • Thereafter, roll out our chosen format-led approach across the estate as quickly as possible • And finally, as soon as we are happy with the basics again, start marketing what really differentiates our customer proposition 14

15. IGD video

16. 2012 -2014

17. Format led Operating Cost Model Fresh (1 – 8k) Core (2 – 14k) Forecourt (0.5 – 3k) Neighbourhood (1 – 3k) Value (2 – 14k) ‘Relative’ Customer Experience 17

18. 2012 Product Strategic Plan

19. 2012 Product Strategic Plan

20. 2012 Product Strategic Plan

21. Acquisitions and Developments

22. David Sands Business Overview • The Business consists of 29 convenience stores in Eastern Scotland. • The Business is listed at number 29 in the Grocers top 50 independents list, and is one of the top 5 largest independent c-store operators available for potential acquisition. • Stores operate in a variety of locations, demographics and formats – a number of these locations are current target towns for the Co-operative Food.

23. David Sands – Example Stores

24. Business Overview - Locations Edinburgh (15 miles)

25. Value “Significant investment in price and promotion over next 3 years”

26. Supply Chain Store Merchandising And Replenishment Transformation Availability Logistics Infrastructure Development Improve Availability Logistics Infrastructure Supplier Benefit Optimised Network Cost Service

27. LIDIA – Fit for Purpose Network • Started LIDIA with 25 legacy sites • Acquired Somerfield, adding 9 sites • When LIDIA is complete, we will have:- 1 National DC- 9 Regional DCs- 2 Stockless Cross-docks Inverness Newhouse Birtley Carrickfergus Lea Green Castlewood Huntingdon Coventry Avonmouth Thurrock Andover Plymouth

28. LIDIA – LISBON • Review the efficiency of every supplier through our Distribution Network • Optimise & balance the network through the NDC and RDCs • Identify which suppliers should deliver through the NDC and which through the RDCs Inverness Newhouse Birtley Carrickfergus Lea Green Castlewood Huntingdon Coventry Avonmouth Thurrock Andover Plymouth

29. SMART– Improving Availability Marketing Buying Space Planning Supply Chain Stores Store Merchandising And Replenishment Transformation

30. SMART– Improving Availability Marketing Buying Merch Supply Chain Stores • Right product • Right shelf • Right time Customers

31. Summary • We have a great Food Business • The economic conditions are challenging • We have the opportunity to grow • We have a solid foundation and plan