1. Effectiveness
of store clustering
by consumer life style
Jointly Presented by
August 2008

2. Company Profile Project Partner
LOTTE GROUP LOTTE Mart Global Biz Plan by 2018
ㆍThe Affiliate Companies : 44 Companies VRICs
ㆍLOTTE Group’s Total Sales in 2007 : USD 35 Billion
• China 200 stores
Russia China • Russia 30 stores
LOTTE Shopping co., LTD • India 50 stores
ㆍ89th rank retailer in the world (2006) by NRF survey • Vietnam 25 stores
India Vietnam
ㆍ1st rank retailer in Korea (2007) : USD 11 Billion
Major Types Hypermarket Department Store Supermarket
Sales (2007) USD 3.8 billion USD 5.2 billion USD 0.8 billion
Miscellaneous • 3rd Largest in Korea • 1st Largest in Korea • 2nd Largest in Korea
• 57Stores • 21Stores • 79Stores
2

3. Company Profile Project Partner
Natural Fresh Foods Company Business Strategy
Core Business
B to B • Market leader(M/S No.1) in Tofu, Sprout,
Refrigerated Noodle in Korea
Foodmerce
• Created synergy through core competence
in sourcing, manufacturing & logistics
• Net revenue is USD 0.8 billion in 2007
Lead Pulmuone’s globalization
• Developed US market since 1991
• Acquired Wildwood which is American style
B to C Pulmuone Wildwood Tofu manufacturing company in 2004
• Planning to enter into Chinese market
Domestic Global
3

4. Refrigerated Noodle Category Definition
[ Market Trend ]
The main ingredients, grain and starch, takes over USD 150 million won in the market place
and grows over 10% yearly
200
are shaped and processed, than 200 180
combined with sauce (meat brew) and 159
garnish, kept and shipped by the Cold
100
Chain system and arranged in a 100
refrigerator
7
0
'05 '06 '07 '08 '09
stored in a cold storage below 10℃,
℃
period of circulation within 45 days
Fresh Cold Noodle With Fresh Cold Noodle With
Premium Dongchimi Broth Spicy Seasoning Broth
4

5. Contents
1. Project Overview
– Background & Objective
– Methodology
– Schedule
2. Achievements
– Store Clustering
– Assortment & Arrangement
– Promotion
3. Key Benefits
4. Next Step
5

6. Project Overview Voice of Consumer
Stores don’t satisfy each consumer’s needs
Problem is…
Category management is based on only sales rate,
not by consumer’s changing life style
6

7. Project Overview Background & Objective
Differentiated stores should be able to satisfy consumers
Background Objective
Consumers have not been able to What is the
1
Assortment find the products needed, ending regional
up buying a different product or characteristics
shopping at a different store of the
All store arrangements have consumers?
been assorted by sales
criteria, not consumer’s needs. What is the right
2
Retailers and manufacturers end up
products for the
with a lot of ‘out of stock’ and too
consumers'
much stock.
characteristic?
What is the right
Consumer’s didn’t respond to the
3 promotion for
Promotion the consumers'
promotion, and when not intention characteristic?
Under a very competitive purchase, didn’t purchase again
circumstance, promotions
have been focused on sales
rate, not consumers • Store clustering by consumer’s
For retailer the promotion was
characteristic characteristic
useless and for manufacturers
there were excessive products • Differentiate products and
promotion by cluster
7

8. Project Overview Project Effect
Eventually consumer’s satisfaction leads to increasing efficiency
Purchase the product
needed.
Store and brand
Consumer satisfaction
Re-visit and re-
purchase rate increase
Create
Shopping Value
Sales increase by less Sales increase by less
out of stock products out of stock products
Expense reduce by Expense reduce by
stock reduce Retailer Supplier stock reduce
Consumer’s Brand loyalty increase
satisfaction and
loyalty increase by
store clustering.
8

9. Project Overview Methodology
What we have done….
Hypothesis Implementation Evaluation
Shoppers’ Differentiated
Store Clustering Evaluation Next Step
Behavior Research Implementation
• Plan for store
Research on Execute roll-out
customers’ Differentiated
Research & analyze • 2nd Decade
purchase Assortment
surrounding environment Project Plan
decision tree &
of stores
Arrangement
Project Define
Organi Differentiated Project Evaluation
zation Criteria
Research on
consumers’ Execute
Analysis on consumers’ Differentiated
purchase pattern
characteristics Promotion
when facing
stock-outs
• Plan for store
• Shoppers’ purchase • Cluster Result Summary • Differentiation Result • Executive Summary
roll-out
pattern analysis report • Cluster Mapping Report
• Next Project
• New Principle
Plan
9

10. Project Overview Schedule
10-month pilot test and 3-month roll-out to other stores
Schedule
Tasks ‘07 ‘08
11 12 1 2 3 4 5 6 7 8 9 10 11
Research on consumers’ purchase pattern
Shoppers’ when facing stock-outs
Behavior
Research Research& Analyze purchase decision
tree
Research & Analyze Store Environment
Store
Clustering
Store Consumer Analysis
Define differentiated Criteria on
Assortment &Arrangement, Promotion
Implementation
Apply and evaluate differentiation on
Assortment& Arrangement, Promotion
Evaluate cluster characteristic
Evaluation Store
expansion
Measure Test effect plan
Next Step Planning of expansion
10

11. Contents
1. Project Overview
– Background & Objective
– Methodology
– Schedule
2. Achievements
– Store Clustering
– Assortment & Arrangement
– Promotion
3. Key Benefits
4. Next Step
11

12. Achievements Key Message
Consumers’ satisfaction recipe through collaboration
Consumer’s Satisfaction Recipe
Store Managing Recipe
Promotion Source
Reduce
Stock Holding Days Consumers’ Tastes
Reduce Assortment Source
Out-of-Stock
Product
Development
Consumers’ Satisfaction
service level Improved Refrigerated Noodle
12

13. Achievements Shoppers’ Decision Tree
Shoppers’
Store Clustering Differentiated Implementation
Behavior Research
Consumers belong to 3 different groups in terms Research on customers’ purchase
decision tree
Research on consumers’ purchase pattern when
facing stock-outs
Research & analyze
surrounding environment of stores
Analysis on consumers’ characteristics
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
Promotion
of decision buying tree Shoppers’ purchase
pattern analysis report
Cluster Result Summary
Cluster Mapping
Differentiation Result report
Decision Tree 1st 2nd 3rd 4th
research result
A Group Brand Price
44% Cooking Family
30% 24% 18% 14%
B Group Cooking Family
48% Price Brand
40% 22% 20% 10%
C Group Family Price
46% Cooking Brand
30% 23% 21% 10%
* Research Period : ‘07 Nov ~ Dec
* N=5,300, Lotte Mart 53 stores, for consumers having purchased refrigerated noodles
13

14. Achievements Shoppers’ Reaction to Stock-out (1/2)
Shoppers’
Store Clustering Differentiated Implementation
Behavior Research
Stock-outs leads consumers’ to choose Research on customers’ purchase
decision tree
Research on consumers’
Research & analyze
surrounding environment of stores
Define
Differentiated
Criteria
Execute Differentiated
Assortment
different brands or not to purchase at all
Execute Differentiated
purchase pattern when facing Analysis on consumers’ characteristics
Promotion
stock-outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
9
Consumers’ purchase pattern
22 21 when refrigerated noodles are out-of-stock
37.2
25
8
Manufacturer Retailer
18
15
10 Buy different products Delay purchase
25 39.7% 37.2%
12 28.2
19
20 Do not purchase
Substitute 20.4%
20.4
43 Same brand 11.5%
32
21 11.5
+
Substitute Buy at another store
2.6
Cosm etic Sham poo Snack Refrigerated
Different brand 28.2% 2.6%
Delay purchase Noodle
Substitute Different brands In case of refrigerated noodles, when out of stock,
Do not purchase
Substitute same brands
the rate of not buying the product and changing
Buy at another store brands are higher than other products.
* Research Period : ‘08 Jan ~ Feb 14
* N=1,000, consumers intending to purchase refrigerated noodles at Lotte Mart

15. Achievements Shoppers’ Reaction to Stock-out (2/2)
Shoppers’
Store Clustering Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
Research on consumers’
Invisible out-of-stock should be managed
Execute Differentiated
purchase pattern when facing Analysis on consumers’ characteristics
Promotion
stock-outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Supply Chain Management Course of out-of-stock
Vendor Manageable Stock-outs Unmanageable stock-outs
management
Disuse Inventory
KPI management • Non-entered • Disuse
• A large amount of sales • Non-arranged
Loss loss • Non-assorted products
Production
Planned Error • far to seek
A large Demanding
amount of Forecasting Error
sales
Non-arranged
Non-assorted products Non-Delivery
far to seek
15

16. Achievements Key Finding
Shoppers’
Store Clustering Differentiated Implementation
Behavior Research
Store differentiation strategy increases level of Research on customers’ purchase
decision tree
Research on consumers’ purchase
pattern when facing stock-
outs
Research & analyze
surrounding environment of stores
Analysis on consumers’ characteristics
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
Promotion
consumer satisfaction Shoppers’ purchase
pattern analysis report
Cluster Result Summary
Cluster Mapping
Differentiation Result report
“Consumer’s purchase pattern
is effected by their life style”
“Product assortment according to
consumer’s life style can minimize
the rate of out of stock.”
“The consumer is satisfied when stores
are clustered and managed by
consumer’s life style.”
16

17. Achievements Voice of Consumer
Shoppers’ Store Clustering Differentiated Implementation
Behavior Research
Consumers purchase products based on Research on customers’ purchase
decision tree
Research on consumers’ purchase
Research & analyze
surrounding environment of stores
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
their life styles
pattern when facing stock- Analysis on consumers’ characteristics
Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Is it easy and convenient? By myself? With my family?
HOW
‘ how will I eat ?’ WHO
‘ who will I eat
WHEN with?’
‘when will I
eat?’
How
Much
Weekday? Weekend? ‘ expensive?
Cheap?’
buy promoted product?
WHAT buy according to brand?
‘What will I
eat?’
17

18. Achievements Refrigerated Noodle Market Trend
Shoppers’ Store Clustering Differentiated Implementation
Behavior Research
Ready-to-cook product sales have been Research on customers’ purchase
decision tree
Research on consumers’ purchase
pattern when facing stock-
Research & analyze
surrounding environment of stores
Analysis on consumers’ characteristics
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
increasing
Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
76
Pre-prepared food
74
72
Crossing Over
70
Ready-to-Cook
68
66
64
62 Pre-prepared food Ready-to-cook
<TNS Purchase Pattern Research>
60
2005/04/24 2005/07/17 2005/10/09 2006/01/01 2006/03/26 2006/06/18 2006/09/10 2006/12/03 2007/02/25
• Pre-prepared food: Noodles and sauce are packed together. Easy to cook without additional ingredients.
• Ready-to-Cook : Noodles and sauce are separated Mix-n- match by personal taste or purchase them individually
• TNS Research : Consumer purchase pattern data, POS data analyze specialist company
18

19. Achievements New Category Segmentation
Shoppers’ Store Clustering Differentiated Implementation
Behavior Research
Refrigerated noodles can be categorized by the Research on customers’ purchase
decision tree
Research on consumers’ purchase
Research & analyze
surrounding environment of stores
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
type of convenience
pattern when facing stock- Analysis on consumers’ characteristics
Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Refrigerated Noodle
Convenience
Ready-to-cook Pre-prepared food
Subcategory
Spaghetti Udon Oriental noodle Spaghetti Udon Udon
noodles noodles sauce
Size
1 2 3 4 1 2 3 4 1 4 6 1 4 6
Noodles and sauce are packed together. Noodles and sauce are separated. Mix-n- match by
Easy to cook without additional ingredients. personal taste or purchase them individually
19

20. Achievements Store Clustering (1/3)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Surrounding environment of stores have an Research on customers’ purchase
decision tree
Research on consumers’ purchase
pattern when facing stock-
Research & analyze
surrounding environment of stores
Analysis on consumers’ characteristics
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
influence on consumers’ purchasing type
Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Store location Sales rate by product convenience
Apartment complex district (over 50%)
Ready-to-cook Pre-prepared
food
58%
42%
Office, shopping district (over 50%)
Ready-to-cook Pre-prepared
51% food 49%
Private home district (over 50%)
Ready-to-cook Pre-prepared
41% food 59%
* Lotte-Mart Location Analysis (08’ Jan ~ Mar) 20

21. Achievements Store Clustering (2/3)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Consumers’ occupations have an influence on Research on customers’ purchase
decision tree
Research on consumers’ purchase
pattern when facing stock-
Research & analyze
surrounding environment of stores
Analysis on consumers’ characteristics
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
their purchasing type
Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Consumer’s occupation Sales rate by product convenience
Office worker
Ready-to-cook Pre-prepared
food 42%
58%
Self-employed
Ready-to-cook Pre-prepared
51% food 49%
House-wife
Ready-to-cook Pre-prepared
41% food 59%
* Lotte-Mart members card customer’s information Analysis (08’ Jan ~ Feb) 21

22. Achievements Store Clustering (3/3)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Family size of consumers have an influence on Research on customers’ purchase
decision tree
Research on consumers’ purchase
pattern when facing stock-
Research & analyze
surrounding environment of stores
Analysis on consumers’
Define
Differentiated
Criteria
Execute Differentiated
Assortment
Execute Differentiated
their purchasing type
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Consumer’s family size Sales rate by product size
Single
1 portion
67%
Small
20%
17%
Small Family
21% 2~3 Portions
58% Medium
29%
Large Family
12%
4-5 Portions
22%
54% Large
* Lotte-Mart members card customer’s information analysis (08’ Jan ~ Feb) 22

23. Achievements Store Clustering Summary
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
3 Clusters of consumers’ life style
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary Differentiation Result report
pattern analysis report Cluster Mapping
Definition of Characteristic of
Characteristic of Purchase pattern
Consumer’s life style Major Consumer
• Progressive person who
refuses traditional values • Single men, women
• Westernized and trendy and newly-weds in
High rate of purchasing convenient noodles
Cluster A • Not interested in realistic their 20’s
and 1 portion meals
problems • Mostly apartment
• Interested in leisure and residents
dilettante life
• Very Traditional • Consumers in their
• A family oriented person 30’s~40’s
High rate of purchasing 4 portion meals and
Cluster B Interested in health, children, • Big families
discounted products
relationship • Mostly house
• Waits for sale seasons residents
• Technology oriented but not
leading, rather following and • Married women in
family oriented their 20’s~30’s High rate of purchasing inconvenient noodle
Cluster C • Interested in shopping • Apartment, house and big portion meals
• Interested in income and residents
savings
* Lotte-Mart members card customer’s information analysis (08’ Jan ~ Feb) 23

24. Achievements Store Mapping
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
3 Types of clustered stores
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary Differentiation Result report
pattern analysis report Cluster Mapping
Cluster B
Cluster A
Office Cluster
A 20 Stores
Cluster C
Cluster
B 24 Stores
Apartment
Environment
Cluster
C 13 Stores
Factory
24

25. Achievements Quick-win Implementation
Shoppers’ Store Clustering Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
We have focused on …
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
- Category Management Process -
1. Category Definition
Arrangement
2. Category Role
2008’s
Assortment
Project
3. Category Assessment
8. Category Review
Promotion
Product Development
4. Category Scorecard
Space
5.Category Strategies Store Lay out
Communication
6. Category Tactics
Merchandising
7. Implementation Store Development Program
25

26. Achievements Differentiated Criteria
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiate
Research on consumers’ purchase d Criteria
Differentiation by convenience level of cooking
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
To- Be Arrangement Assortment
Ready-to-cook Pre-prepared
+
Ready-to- Pre-prepared
-
Cluster A 60% food 40%
cook food
As- Is
All stores
Ready-to- Pre-prepared Ready-to- Pre-prepared
Only one Cluster B cook 50% food 50% cook food
Plan-O-gram
Ready-to- Pre-prepared
-
Ready-to-
+
Pre-prepared
Cluster C cook 40% food 60% cook food
26

27. Achievements Assortment Implementation (1/4)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
Cluster A Group
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Before After
Out-of-stock Out-of-stock
Out-of-stock Out-of -stock
Out-of-stock Out-of-stock
Out-of-stock
All stores only one Plan-O-gram Cluster A Group Plan- O-gram
Cool Oriental Spicy Cool Oriental Cool
Spicy
Pre-prepared food
Pre-prepared food
Ready-to-cook
Ready-to-cook
60% 40%
* Lotte-Mart Suji store 27

28. Achievements Assortment Implementation (2/4)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
Cluster B Group
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Before After
Out-of-stock Out-of-stock
Out-of-stock Out-of-stock
Out-of-stock
Out-of-stock
Out-of-stock
All stores only one Plan-O-gram Cluster B Group Plan- O-gram
Cool Oriental Spicy Cool Oriental Cool
Spicy
Pre-prepared food
Pre-prepared food
Ready-to-cook
Ready-to-cook
50% 50%
* Lotte-Mart Bupyeong store 28

29. Achievements Assortment Implementation (3/4)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
Cluster C Group
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Before After
Out-of-stock Out-of-stock
Out- of-stock
Out-of-stock Out-of-stock
All stores only one Plan-O-gram Cluster C Group Plan- O-gram
Cool Oriental Spicy Oriental
Spicy Cool Cool
Pre-prepared food
Pre-prepared food
Ready-to-cook
Ready-to-cook
40% 60%
* Lotte-Mart Geumcheon store 29

30. Achievements Assortment Implementation (4/4)
Shoppers’ Store Clustering
Differentiated Implementation
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
Differentiated assortment has a positive effect
Research on consumers’ purchase
Analysis on consumers’ Execute Differentiated
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Key Performance Indicator
SHD OOS
Sales Stock Holding Days Out of stock
+ 25% - 25% - 28%
Cluster A
- + - + - +
+ 20% - 18% - 29%
Cluster B
- + - + - +
+ 35% - 12% - 31%
Cluster C
- + - + - +
*POS data by Cluster, compared to previous year
30

31. Achievements Voice of Consumer
Preferred types of promotion differ by consumers’ life style
Free
20% Household Buy 1 Get
Discount item 1 Free~
31

32. Achievements Differentiated Criteria
Shoppers’ Store Clustering
Differentiated Implementation
DC coupon
Behavior Research
Research on customers’ purchase Research & analyze Execute Differentiated
decision tree surrounding environment of stores Assortment
Define
Differentiated
Criteria
Research on consumers’ purchase Execute Differentiated
Analysis on consumers’
Differentiated promotions make different results?
pattern when facing stock-
characteristics Promotion
outs
Shoppers’ purchase Cluster Result Summary
Differentiation Result report
pattern analysis report Cluster Mapping
Additional
Main Product same product
Cluster A ?
Additional
alternative product
+ = Cluster B ?
Additional
household item
20% Discount
Cluster C ?
* Implementation Period (08’ Jun ~ Jul) 32