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TescoinAsiaNovember2008TescoinChinaKenTowle,CEO3Agenda•China–arecap•Howarewedoing?•TescoChinaStrategy–Aquality,fast-growthbusiness–TescoOperatingModelprovidestheplatform–Regionalapproachthatleveragesscale–FreeholdShoppingCentres–Integratedsupplychainandsourcing•Shenyang4Oneoftheworld’slargestandmostdynamiceconomiesSource:NationalStatisticsBureau,EIU•ChinaGDPwas24.7trillionyuan(GBP2.02trillion)in2007•GDPgrowthhasbeeninexcessof10%•Thiswillslow,butisstillexpectedtobehealthy•ChinaisprojectedtoovertakeJapantobecometheworld’ssecondlargesteconomyby2015Urbandisposableearnings(andwagecosts)seeingongoingrapidgrowth•Disposableincomeshaveincreasedby115%inlast8years•Projectedtodoubleagaininthenext5yearsChinaEconomy10.110.411.611.99.88.58.7891011121320042005200620072008(F)2009(F)2010(F)RealGDPgrowth(%)4006008001000120020002001200220032004200520062007GBPPerCapitaAnnualDisposableIncome5Source:SSB/StatisticyearbookTherelianceonbicyclesisgivingwaytocars•CarownershipislowinChinawith2carsper100population(cf.25inCentralEurope)•Butcarownershiplevelshavedoubledinthelast4years•Andtheycontinuetogrowinexcessof15%perannumAruralsocietyseeingrapidurbanisation•Currently600millionofChina’s1.3billionpopulationlivesincities•Recenturbangrowthequatesto13millionpeoplemovingintocitieseachyear•By2020afurther90millionpeoplewillhavemigratedtocitiessuchasShenyangChinaPeople202530354045501995199719992001200320052007%UrbanPop'n200250300350400450500550600650Pop'n(m)%UrbanPopulation(m)01020304050607080200420052006200720082009TotalcarsonChina'sroads(m)6Inthetop15cities,hypermarketsnowaccountfor1outofevery3RMBspentongrocerySource:TNSWorldpanelChina15citiesChinaRetail•Hypermarketsarethemostsuccessfulmoderntradeformat–marketshareofgroceryhasincreasedfrom20%to30%overthelast6years•Buttraditionalwetmarketsarestillpartofpeople’severydayshoppingroutine–about60%ofTescocustomersalsousewetmarketsregularlyforfreshproducts293028202228322620161317397200120042007OthersSupermarket/CVsHypermarketGrocery/FoodStWholesale7Howarewedoing?•Increasedshareto90%(from50%)inDecember2006•EnteredSouth2006•Re-brandedthebusinesstoTescoin2007•MemberCard2007•TescoOwnBrand2007•FreshDC2007•EnteredBeijing2007•ExpressTrial200831DCs21,00011,000Team32Regions50Express5825Hypermarkets15m7mSalesperweek(GBP)3.7m2mCustomersperweek200820048TescoChinaStrategy•Aquality,fast-growthbusiness•TescoOperatingModelprovidestheplatform•Regionalapproachthatleveragesscale•Freeholdshoppingcentres•Integratedsupplychainandsourcing9•Tesco“Yourlocalstorethat’spartoftheTescofamily”•Deliveringonthecustomerpromises•Locationsthatsucceed–downtownandinnewgrowingareasAquality,fast-growthbusiness10Locationsthatsucceed11•Tesco“Yourlocalstorethat’spartoftheTescofamily”•Deliveringonthecustomerpromises•Locationsthatsucceed–downtownandinnewgrowingareas•Hypermarketdesignedtobeeasytoshopandgivecustomerswhattheywant•Mallsthatcomplementthehypermarket•Strengtheningnewstoreprogrammefocusedonorganicgrowth•Deliveryonthepeoplepromises–toensurewehavethepeoplereadyforfastergrowthAquality,fast-growthbusiness12Thecustomerpromises•Thepricesaregoodforme•IcangetwhatIwant•IcantrustwhatIbuy•Shoppingispleasantandeasy•Idon’tqueue•Thestaffaregreat13Thecustomerpromises14•Standardsuiteofoperatingsystems;integratedwithstandardoperatingprocesses•SupportedbyOrganisationDesignBlueprints•DevelopedandimplementedbyGroupexpertsbutwithcountryaccountability•ChinaimplementedPhase1in2007–samesystemsandwaysofworkingacrossallstoresandregions–centralisedFinanceandIT–developedchangemodelforPhaseII•Enablessignificantproductivityinpeopleandcapital•CustomersaretherealwinnersTescoOperatingModeltheplatform15Customersaretherealwinners16•Benefitsofacountrywiththechallengesofacontinent•RegionalVicePresidentwith‘country’teamaccountableforgrowthandresultsRegionalapproachthatleveragesscale17Regionalapproachthatleveragesscale18•Benefitsofacountrywiththechallengesofacontinent•RegionalVicePresidentwith‘country’teamaccountableforgrowthandresults•SharedservicesacrossChina•Leveragingscaleona‘firstamongequals’principle•Everyoneisconnectedtothecustomer•In2009wewillalsobepresentinShandongandFujian•Shandong94mpeople,GDPofRMB2,589bn,GBP212bn–Firststorein2009,willemergeas4thregion•Fujian34mpeople,GDPofRMB755bn,GBP62bn–Firststorein2009Regionalapproachthatleveragesscale19Regionalapproachthatleveragesscale20Regionalapproachthatleveragesscale21Regionalapproachthatleveragesscale22•Astep-changefromtheleaseholdbusiness:–Conformingstore–Destinationmallanchoredbythehypermarketwithretailandleisurefacilities–Carparksthatwillcopewithrapidgrowthincarownership–Mixed-useschemestosecuresitesasnecessary•Asister-companyrunandresourcedbypropertyprofessionals•Pro-activeapproachwithlocalauthoritiesandcityplanners•Complimentsleaseholddevelopmentandunderpinsstep-change•Customersaretherealwinners•TakeatourFreeholdShoppingCentres23•AcorerequirementoftheOperatingModel•Enablesmuchbettercontrolofrange,quality,inventoryandcosts•Providestransparencyandfacilitatespropersegregationofduties•Enablesdirectsourcingatcountry