Tim Mason - Investis CMS

Tim MasonChief Executive Officer

Home Office, El Segundo27 November 2007

Agenda

• The fresh&easy team• Our speakers:

Simon Uwins Building the brandJohn Burry Developing a unique product offerTony Eggs Creating our store networkDoug Rutledge Applying the Tesco operating modelRemco Waller Economics of fresh&easy

Core purpose and values

A great place to work

• Flexible and fun• Magic Monday• Life skills, technical and leadership training• Competitive salary, bonus scheme and benefits• Staff satisfaction survey

A fresh&easy place to shop

A good neighbor

Environment

Issues Americans care about

• Loss of neighborhood• Loss of neighborly values• Jobs that provide good benefits• Food deserts• Obesity• Global warming

Simon UwinsChief Marketing Officer

Home Office, El Segundo27 November 2007

We listened to people.

We tested our understanding

We used a grass-roots approach to establish

the brand....

Strong, simple branding

Our own media

Talking to our neighbors

We appear to be on the right track97% 96% 95% 94% 93% 90%

74%

93%

0%

20%

40%

60%

80%

100%

Source: Fresh & Easy Insight Unit

Overallshopping

experienceStock levelCheckout

Friendly&

helpfulFreshness Quality

Ease ofshopping Prices

% fairly / very satisfied customers

John BurryChief Commercial Officer

Home Office, El Segundo27 November 2007

Product ranging

• c. 3,500 SKU’s• Covers all regular household needs• Includes major brands in each category

Great food you can trust

• No artificial colors• No artificial flavors• No added trans fats• Limited use of preservatives• Strong organic range

Design and packaging

Design and packaging

• Extensive use of display ready packaging• Custom designed returnable crate system• Highly productive• All outer packaging recycled or reused

Need images – inc recycling logo on packaging

The supply base

• Recruiting the right buying team• Innovative, committed suppliers• UK Investment on key fresh food

• Wild Rocket Foods (Produce)• 2 Sisters Food Group (Meat and Poultry)

• Implementing and maintaining quality and technical standards

The fresh&easy kitchen

• Prepared fresh foods – unique• 20 years of UK experience• World-class production facility adjacent to our

Riverside depot – owned and operated by us• Fresh supply chain is a vital component

Tony EggsChief Real Estate Officer

Home Office, El Segundo27 November 2007

A great opportunity

• Clean sheet of paper• Sophisticated market• Unbelievable amount of real estate• Good ratio of real estate price versus

spending power

A flexible and fast approach

• Small stores• Open-minded about location

Blue = hard corner

Magenta = end cap

Yellow = back of strip mall

A flexible and fast approach

• Freeholds, ground lease and leaseholds• Buy more land than required if necessary• Larger buildings can create income stream• Disciplined but simple process to allow us to

move quickly

What we have done

• Reinvented site identification• Shared our strategy with brokers• Removed real estate executives from initial

site finding• Gained trust, knowledge and speed• Substantial number of sites approved

Our developers

Invested in new technology

• Quickbase data system to track project progress

• Accessed by consultants and internal teams• Reliability paramount due to volume and

speed of roll-out

Infrastructure

• Hawthorne developed as training and merchandising center

• Home office fitted-out• 88 acres acquired in Riverside • Developed in record time to allow launch in

four markets

Property management and maintenance

• Lease administration and facility management

• Outsourced to Jones Lang LaSalle

The future

• Solid pipeline – sustainable for many years• Around 200 stores planned by end February

2009• Acquisition and development teams ready

to grow

Doug RutledgeChief Information Officer

Home Office, El Segundo27 November 2007

Tesco operating model

Japan Turkey

China

fresh&easy operating model

• Based on Tesco operating model• Mature set of systems and processes

Enabling us to focus on what’s important

• Getting the right property• Delivering a great shopping trip• Being a good neighbor• Great place to work

Utilising our Tesco expertise

• Fresh food ordering system and processes• Space, range and merchandising tools• Point of sale software• Warehouse management and distribution systems

Tailoring the fresh&easy model

• Tesco operating model was refined to:• Ensure legally and fiscally correct• Remove complexity built in for running multi-format,

large SKU businesses• Add kitchen systems to run food manufacturing

business

Tailoring the fresh&easy model

• Goal of being a 21st century retailer and good neighbor:• Internet to attract and recruit our people• Automated administration processes• Electronic portal for policies and procedures

A collaborative effort

• Tesco people from eight countries• Partnered with IBM, Oracle, NCR and

Retalix• 18 processes and systems – 7 new to Tesco• Tesco service center (HSC) to support

finance, HR and IT back office

What it’s all about

• Delivering a fresh&easy shopping trip which is simple to operate and gets things right first time

Remco WallerChief Financial Officer

Home Office, El Segundo27 November 2007

Key economic drivers

• Strong sales densities supported by competitive pricing

• Sales mix driving gross margin• Low cost operating model• Grow store portfolio to utilise infrastructure• Capital efficient stores• High inventory turn

Sales density

Sales per sq ft per week 2006 ($)

0

510

15

20

2530

35

1 2 3 4 5

Source: MVI, UBS

Supercenters Supermarkets fresh&easyDrug Stores Trader Joe’s

8.1 8.7 9.4

35.0

Measuring up to our competitors

Competitive whilst maintaining margin

• Prices typically 10 – 25% lower than supermarkets

• Supermarket-type gross margins• Delivered through:

• High fresh participation• Own brand around half of SKU count• High sales per SKU

Low cost operating model

• Simple and efficient processes in store:• No service departments and flat structure• Shelf-ready packaging• One touch replenishment / deep shelves• Conforming layouts

• State-of-the-art systems and processes• Fully automated replenishment• All performed on the shop floor• Assisted self checkout• Integrated information systems

• Payroll as % of sales well below the supermarkets and close to club operators / Aldi

• Use the Tesco service center (HSC) in India for back office processes to reduce support costs

Driving our store network

• Small format requires significant central infrastructure investment

• Distribution network designed to enable quality fresh offer

• Our format facilitates rapid roll-out so we can penetrate in a selected market

• Ink-spot strategy after first DC / kitchen• Capacity of our Riverside DC:

• Several hundred stores• Larger capacity for Kitchen with Kitchenette

Managing capital costs

• Stores – conformity can drive our costs down• Currently the market is predominantly leasehold• Efficiently managing our inventory

0

5

10

15

20

1 2 3 4 5 6

Source: MVI, UBS, fresh&easy

Inventory turn

SFW SVU KR PBX WFM f&e

Tesco in the United States 2007

Certain sections of the presentations by Tesco PLC (“Tesco”) and Fresh & Easy Neighborhood Market Inc. (“Fresh & Easy”), a wholly owned subsidiary of Tesco, contain forward-looking statements that are based on management’s expectations about our future operating or financial performance. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates,”“will,” “may,” “continuing,” “ongoing” and variations of these words and similar expressions are intended to identify forward-looking statements.

These statements are based on our current expectations and involve certain risks and uncertainties, which are difficult to predict and may be beyond our control, as well as assumptions. If assumptions prove to be incorrect or if known or unknown risks and uncertainties materialize into actual events or circumstances, actual results may differ materially from what is forecast due to a variety of factors.

All forward-looking statements speak only as of the date of our presentations. Neither Tesco nor Fresh & Easy undertake any obligation to update or distribute any revisions in forward-looking statements to reflect events, circumstances or changes in expectations after the date of these presentations.