Keeping pace with the rapidly changing European retail market

1. Keeping pace with the rapidly changing European retail market • Presented by Ethan S. Sinick • MVI • November 2008

2. European retail growth is slowing • Current MVI forecasts, excluding the effect of currency changes, indicate that the European* retail** market will see growth decline from 5.9% in 2008 to 4.1% in 2009 • Excluding Russia, MVI projects the European retail market to slow from 4.7% growth in 2008 to 2.8% growth in 2009 • MVI expects the first half of 2009 to see market contraction with some recovery in the second half on the back of weak comparative numbers *Geographic Europe including all of Russia ** Excluding automobiles Source: MVI analysis

3. Discounters will grow to 17% of MVI measured grocery sales 4.6% 4.8% 4.9% Sales in Constant EUR Billion 6.6% 7.4% 7.2% Square Metres Million Number of Stores

4. Quick service restaurants are performing well by offering an accessible premium • McDonald’s year to date life for like sales are up 10.7% across Europe • Dominos in the UK and Eire has seen like-for-like sales for through September 2008 up 10.5% • YUM brands has recorded year-to-date growth of 12% in Europe

5. Tesco is trying to change the perception of its brand by attacking the discounters New Strap Line Expanded price matching to discounters Private label instead of own label to match discounters Source: MVI photos

6. Healthy brands are improving their value to try and regain momentum « L'innovation Danone continuera d'animer le marché. Nous réfléchissons aussi à la façon de couvrir le spectre entier du pouvoir d'achat, sur tous nos pays, y compris les plus matures comme la France ou l'Allemagne. » « The innovation of Danon continues to change the arket. Wealsoconsider the need to cover the entirespectrum of purchasing power in all countries incrlind the very mature marketslike France and Germany » Franck Riboud, PDG Danone 28.07.2008 “Oranges are cheaper than mangoes, passionfruits and blueberries…We’re going to make the average price cheaper over the next year or two on our core smoothies so we can get them into peoples’ weekly shopping trolley.” Innocent Drinks Co-Founder Richard Reed 28.10.2008 Danone ECO Pack launched July 2008 GBP 1.89 with nearly constant promotion in Tesco for the past few months GBP 2.88 with nearly constant promotion in Tesco for the past few months Sources for quotes: Le Figaro and the Financial Times

7. The current environment gives retailers a chance to attack 75% to 80% of their costs Source: MVI research

8. However, the market is changing • We are moving from record levels of inflation to potentially record levels of deflation • Deflation in the retail market will come from two areas: • Fundamental changes in commodity and transportation costs • Pricing actions designed to attract shoppers back into retail outlets

9. The deflationary cycle will be as sharp as the recent inflationary spikes • The rise in prices was driven by a steady growth in demand from emerging markets which was largely reflected in prices through the end of 2006 • Speculative investments in 2007 and 2008 took prices well above the rates of normal demand growth • We now have the double impact of a collapse in speculation and a slowdown in demand • The markets should correct over the next 12 months

10. Deflation will allow retailers to begin profitable price reductions

11. Conclusions • The economic crisis is changing shape • Retailer and manufacturer strategies will follow • Consumer opinion changes more slowly than the fundamentals • We are still dealing with inflation although fundamentals have already begun to change • Build a strategy that breaks 2009 into quarters as the consumer begins to see the changing nature of the economic crisis

12. Conclusions • There are some obvious growth strategies for retailers in the meantime • Aggressively correct your value proposition if it is out of line with the marketplace • If you have a good price position, emphasize quality of life • Focus on building sales through traffic and frequency at the expense of weight of purchase until the consumer again feels purchasing power returning to their pockets • Reduce costs and reduce the range to free up cash flows as credit lines tighten

13. Conclusions • There are some obvious growth strategies for manufacturers in the meantime • Follow the discounter channel growth • Shift distribution into retailers who have a strong price image with consumers irrespective of their channel (discount supermarkets) • Adapt your trade marketing programmes to promotions that reduce the emphasis on basket building and look more for increasing frequency and capturing more shoppers • Find profitable ways to close the price gap with own label

14. EMEA Headquarters 6 More London Place Tooley Street London SE1 2QY +44.207.031.0251 esinick@mventures.com Ethan Sinick Managing Director, EMEA MVI