Co-operatives UK

The Future of Food Retail at the Co-operative Group

Sean Toal Chief Operating Officer and Acting Chief Executive

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

• We have a great Food business

Our food business

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

• The competition are seeing our market place as an area of opportunity and growth

Strategic challenges facing our business

• We have internal areas of opportunity

• The economic back drop is tough

The “external” strategic challenges

• There are new entrants to our market

The “external” strategic challenges

• Customer expectations are changing in Top Up sector

The “external” strategic challenges

Global growth – IGD

The EU forecast has been revised sharply down, in recognition of the current crisis

The EU forecast has been revised sharply down, in recognition of the current crisis

However ….

• The convenience market is still in strong growth

2011Value (£bn)

2016Value (£bn)

Change in Value %

2011-2016

Superstores and hypermarkets

70.3 75.7 +7.7%

Small supermarkets (3,000–25,000 sq ft)

34.1 38.2 +12.1%

Convenience 33.6 42.2 +25.7%

Discounters* 7.0 11.4 +61.9%

Online 5.9 11.2 +89.7%

Traditional retailing 5.9 5.3 -9.8%

Total 156.8 184.0 +17.4%

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.

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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

Research tells us the focus areas

Consumer drivers across Top-Up must improve:

Increased focus for top up:

Co-operative food attributes we must maintain:

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

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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

IGD video

2012 -2014Formats Availability Price and Value Products &

own label Costs &

Structures Service

Now 2012 Format blueprint &

trails Fix the first aisle NOOSE and SV pricing OB Penetration

47%Cut 20% central headcount

Field management consistency

Refits from Q3 SMART roll out & lock-down

Stores to price bands Fresh food quality training

Benchmark v competition

Optimised scheduling

Focus on MM ESM roll out Fewer deeper promotions 1700 new products (900 value)

Revised customer service programme

2013 Step up rollout SC replenishment project

More tertiary and SV lines Regional & local ranging

Develop and recruit

Review store sizes and locations

2 not 3 week promotion periods

Customer endorsed OB

Completion of LIDIA

More supplier funding

2014 £94m investment over 3 years

OB penetration 48%

Reshape to support formats

Desired State

Mission * Vision* Objectives *

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Value(2 – 14k)

Neighbourhood(1 – 3k)

Forecourt(0.5 – 3k)

Fresh(1 – 8k)

Core(2 – 14k)

‘Relative’ Customer Experience

Format led

2012 Product Strategic Plan

2012 Product Strategic Plan

2012 Product Strategic Plan

Acquisitions and Developments

2012 2013 2014 Total

Acquisitions 80 110 130 320

Refits 375 500 500 1375

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.

David Sands – Example Stores

Business Overview - Locations

Edinburgh (15 miles)

Value

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

Supply Chain

ServiceCost

Availability

Logistics

Infrastructure

Development

Improve

Availability

Logistics

Infrastructure

Supplier

Benefit

Optimised

Network

Store Merchandising AndReplenishment Transformation

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

Newhouse

Lea Green

Bir tley

Castlewood

Thurrock

Coventry

AndoverPlymouth

Avonmouth

Inverness

Carr ickfergus

Huntingdon

LIDIA – LISBON

Newhouse

Lea Green

Bir tley

Castlewood

Thurrock

Coventry

AndoverPlymouth

Avonmouth

Inverness

Carr ickfergus

Huntingdon

• 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

Store Merchandising AndReplenishment Transformation

Marketing Buying Space Planning

Supply Chain

Stores

SMART– Improving Availability

Marketing Buying Merch Supply Chain

Stores

Customers

✓ Right product✓ Right shelf✓ Right time

SMART– Improving Availability

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