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.