1 planetretail.net Strategic Preview: Q3 Aug 2013 – Nov December 2013 DAVID GRAY Retail Analyst

1.Expectations for the Quarter 2.UK: Q3 Strategic Changes 3.Global: Q3 Strategic Changes 4.Outlook 5.What’s new at Planet Retail Strategic Preview: Tesco Q3

3 Tesco Express roll-out continues apace. Meanwhile, Group Brand Director announces departure.  Tesco Express is currently on track to meet the full-year target of opening 150 stores, taking the estate to more than 1,700 outlets.  The continued rapid growth of the Express convenience format is good news for Tesco – considering it remains the second-fastest growing bricks and mortar channel in the UK after the discount sector.  The swift expansion of Express has been driven by Tesco’s continued flexibility on site selection, such as opening outlets in former public houses, along with new mixed-use retail and residential sites such as a recent development in Mitcham, London (right) which opened several months ago.  Tesco Group Brand Director, Carolyn Bradley, is to step down following a career spanning more than 20 years.  There’s no doubt the exit of Bradley, a seasoned Tesco veteran, is a loss for the company – although there is no shortage of internal talent to take her place. She joins a number of high-level departures in recent months as part of a widescale restructuring of the business, particularly the marketing department, in preparation for an increasingly multi-channel future.  We feel the departure of senior Tesco executives, while necessary, can create difficulties in the short term. In this respect, Tesco needs to be measured in undertaking this restructuring. At the same time, targeting a few high-level individuals is likely to save greater staff numbers further down the management chain. © Marketing Week

4 Round-up of other markets…  Switzerland & Gibraltar: In partnership with Swiss retailer Coop (CH), F&F has recently opened seven new stores in the Zürich area with plans to open more stores in the country in the future. F&F has also opened two outlets in Gibraltar in conjunction with franchise partner Pisa International.  There’s no doubt that Tesco’s F&F roll-out is gaining momentum – with openings in Gibraltar and Zurich adding to those in the Middle East – bringing the total F&F franchise estate to 32 outlets. While franchising means Tesco has less control over outlet standards and overall customer experience, it is an effective way of swift expansion in multiple countries at limited cost. Yet franchise operations need real scale if they are to generate significant income for Tesco, considering it will likely sell products to franchisees at wholesale prices.  We foresee more F&F openings in new markets as Tesco looks to turn F&F into a global fashion brand. It would be difficult to achieve such a status without taking the franchising route. Also, clothing businesses do not have the same supply chain challenges as food, making franchise models more suitable. For example, clothing does not need temperature-controlled delivery vehicles, which are a vital part of food business operation.  Additionally, margins on private label clothing are wider than many other non-food and some food categories, making expansion highly attractive and likely to benefit the bottom line in the long run. © Tesco.com

5 Tesco’s One Stop convenience fascia is forecast to reach GBP1 billion (USD1.5 billion) in sales by Tesco UK: One Stop Banner Sales, 2012e-2017f (GBP million) Note: f – forecast, e - estimate. Source: Planet Retail 2012e-2017f CAGR 6.5%