The Co-operative Group has a large food retail business facing strategic challenges from competitors. Their plan is to improve value, availability, and range through a format-led approach. They will focus on fixing basics, truly understanding customers, rolling out chosen formats across stores, and marketing their differentiated proposition. This will be supported by significant price investment, supply chain optimization, and £94M in store investments over 3 years.

1. Co-operatives UK
The 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. • We have a great Food business
Our 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. 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

6. • 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

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

10. However ….
• The convenience market is still in strong growth
2011
Value (£bn)
2016
Value (£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.

11. 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

12. 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:

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. 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

15. IGD video

16. 2012 -2014
Formats 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 *

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

18. 2012 Product Strategic Plan

19. 2012 Product Strategic Plan

20. 2012 Product Strategic Plan

21. Acquisitions and Developments
2012 2013 2014 Total
Acquisitions 80 110 130 320
Refits 375 500 500 1375

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
ServiceCost
Availability
Logistics
Infrastructure
Development
Improve
Availability
Logistics
Infrastructure
Supplier
Benefit
Optimised
Network
Store Merchandising And
Replenishment Transformation

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
Newhouse
Lea Green
Birtley
Castlewood
Thurrock
Coventry
AndoverPlymouth
Avonmouth
Inverness
Carrickfergus
Huntingdon

28. LIDIA – LISBON
Newhouse
Lea Green
Birtley
Castlewood
Thurrock
Coventry
Andover
Plymouth
Avonmouth
Inverness
Carrickfergus
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

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

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

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