Latest Research – December 2012

Latest Research – December 2012
UK Grocery & foodservice wholesaling 2013 – Sector performance, statistics & forecasts Follow us on

Presentation structure
Sector definitions and structure Summary slides Data is then presented and analysed from three perspectives: 1) Topline performance 2) The routes to market: Primarily cash & carry Delivered grocery wholesalers Delivered foodservice wholesalers 3) The customer groups: Independent & convenience retail Foodservice, catering and hospitality Professional business users

Sector definitions and structure
IGD Methodology The IGD wholesaling market comprises a sector defined by a range of operator types supplying business customers primarily in the retail and foodservice channels, with food as a major component of sales IGD also segments the market by ‘primarily cash and carry’ and ‘delivered’ routes to market. This segmentation is made according the predominant mode of wholesaler operation, by sales Therefore where companies (e.g. Bestway, Booker, Filshill and JJ Foodservice) provide a combination of collect and delivered services, we allocate all sales for that business to its primary operating mode This means that the growing scale of delivered business from traditional cash & carry players is counted as ‘primarily cash & carry’ and not delivered Note - significant parts of both retail and foodservice markets are serviced by channels outside the scope of this research, such as direct purchasing, van sales or specialist wholesalers in areas like on-trade drinks and non-food Source: IGD Research

Foodservice, Catering & Hospitality
Sector definitions and structure The location of wholesaling in FMCG routes to market Foodservice, Catering & Hospitality Food & Grocery Retail Other specialist wholesale (1) Delivered Foodservice Wholesale Primarily Cash & Carry Delivered Grocery Wholesale Direct Purchase (3) Direct Purchase (2) Supply Base Note – areas below are outside the scope of IGD’s wholesale market: Includes BWS specialists such as Matthew Clark, LWC etc. Includes direct supply of BWS products to pub sector and direct purchasing of food handled through distributors, such as Bidvest Logistics and Wincanton, as well through dedicated distributors such as Keystone, supplying McDonalds. Primarily handled through retailer distribution networks, as well as direct delivery. Source: IGD Research

The wholesale sector - quick facts
Summary slides The wholesale sector - quick facts £27.2bn 2.7% £3.0bn £9.1bn £6.5bn 13.8% Total sector value in 2012, growth of 2.3% (+£608m) on 2011 Sales growth in the primarily cash & carry route, represents half of the cash increase in the sector’s value in The total value of this route reached £11.6bn Sales to foodservice customers in the primarily cash & carry route in 2012, with growth of 4% making it the fastest growing sub-segment Delivered grocery value in 2012, representing growth of 2.3% Delivered foodservice value in 2012, with growth of 1.5% Forecast sector growth to 2017, taking value to £31.0bn (CAGR of 2.6%). IGD forecasts the primarily cash & carry route to grow fastest, supported by continuing diversification and the extension of delivery services

Values by route to market, customer group and category, 2012
Summary slides Values by route to market, customer group and category, 2012 Independent & Foodservice, Catering Professional Business Totals £m Convenience Retailing & Hospitality (FCH) Users (PBUs) Food 1,231 1,753 439 3,423 Soft Drinks 334 224 72 630 BWS 974 656 201 1,831 Tobacco 4,395 148 178 4,721 Non-food consumables 226 171 163 560 Non-food durables 22 42 407 471 Total 7,182 2,994 1,460 11,636 1,725 15 - 1,740 420 8 428 605 3,087 51 3,138 212 129 6,178 74 6,252 95 5,460 5,555 629 57 245 35 6,426 6,521 3,051 7,228 10,718 754 861 1,687 1,579 713 2,493 7,482 199 7,859 438 416 1,017 151 77 635 Sub Total 13,455 9,494 24,409 Other Retail 2,802 Grand Total 27,211 Primarily Cash & carry Delivered grocery Delivered foodservice Totals Source: IGD Research & Horizons FS

A £27.2bn market – wholesaler & customer map
Summary slides A £27.2bn market – wholesaler & customer map Routes to market Delivered grocery wholesalers £9,054m* Primarily cash & carry £11,636m Delivered foodservice wholesalers £6,521m** £2,802m £6,252m £7,182m £1,460m £2,994m £6,521m Other retail £2,802m Independent & convenience retail £13,360m** PBUs*** £1,460m Foodservice, catering and hospitality £9,589m* Customer groups *Includes £74m supplied from delivered grocery wholesalers to foodservice, catering & hospitality ** Includes £95m supplied from delivered foodservice into retailers ***PBUs = professional business users Source: IGD Research & Horizons

Wholesaling performance summary, 2012
1) Topline performance Wholesaling performance summary, 2012 Performance Strategic themes 2011 2012 % change Total market £26,603m £27,211m +2.3% Primarily cash & carry £11,333m £11,636m +2.7% Delivered grocery £8,848m £9,054m Delivered foodservice £6,422m £6,521m +1.5% The importance of price and value both to customers and consumers continues to intensify. Wholesalers are targeting value with: Promotions Price guarantees and comparisons Private label development Operators are investing more than ever to drive customer engagement, seeking to build loyalty and up-weight spend by offering value added services and support 2012 has seen a range of acquisitions in the sector as a means of extending customer reach and targeting geographical infill For delivered operators especially controlling costs and maximising operational efficiency are a critical focus for sustaining profitability and competitiveness Open online ordering is now available from all key operators, presenting a new customer dynamic, with growing emphasis on the importance of the online interface and increased transparency enabling easier price comparisons Tough trading and tightening credit have lead to a number of business failures and withdrawals, offering scope for opportunities to operators able to target significant new business despite low overall market growth Sector influences The sector continues to be impacted by weak consumer markets, but is nevertheless supported by significant elements of resilient non-discretionary spending in both retail and foodservice channels The unique capabilities of many operators in servicing their specific customer channels ensures that the sector remains a key route to market for a wide range of business types, including independents and multi-site operators Key categories can be highly susceptible to specific seasonal impacts and in 2012 the notably poor summer has inhibited performance in areas like soft drinks Source: IGD Research & Horizons

Grocery and foodservice wholesaling: size and growth, 2008-2012
1) Topline performance Grocery and foodservice wholesaling: size and growth, The rate of wholesale market growth slowed slightly in 2012; consumer confidence remains low and poor seasonal trading has affected several key categories in particular, while tax and duty effects on tobacco have been notably less marked Nevertheless, the sector remains resilient as the key route to market for substantial segments of independent and convenience retailing as well as the majority of the foodservice channel Source: IGD Research & Horizons

Key category value and growth 2012
1) Topline performance Key category value and growth 2012 + 3.1% + 2.2% + 2.3% + 1.0% -2.1% Food sales, at £10.7bn, represent almost 40% of total sector value, and at 3.1% have grown solidly in 2012, helped by operators’ ongoing investment in the breadth and quality of the chilled offer Soft drinks and BWS have proved the weakest performers, affected especially by the poor summer weather Tobacco continues to prove resilient in value, and has been relatively unaffected by the display ban now imposed in all stores over 3,000 sq ft Source: IGD Research & Horizons

Routes to market, value 2006 - 2012
1) Topline performance Routes to market, value Outperformance of the primarily cash & carry route has been a feature since 2009, however, this has been less marked in 2012 Primarily cash & carry operators have benefited from broader and more resilient customer bases, but have also grown by developing customer delivery services Delivery service from cash & carry operators has grown strongly and is now worth £1.2bn (over 10%) of the segment Source: IGD Research

Summary for 2012 Performance Strategic themes Sector influences
2) Routes to market: Primarily carry & carry Summary for 2012 Performance Strategic themes 2011 2012 % change Total sales £11,333m £11,636m +2.7% Independent & convenience retail £7,036m £7,182m +2.2% Foodservice, catering and hospitality £2,885m £2,994m +3.8% PBUs £1,412m £1,460m +3.4% Major players both national and regional (e.g. Bestway , Costco and Dhamecha), continue to develop new depots to extend their penetration, increasing competition in key urban catchments especially The sale of Makro to Booker has seen the exit of Metro Group, a major international player, from the UK market Cash & carry players continue to emphasise their price proposition with comparisons and guarantees to offer longer term price stability enabling customers scope to plan their business requirements better Operators are extending the service provided to customers, both in depot and through delivery and business support to add value to the relationship Sector influences As the lowest cost option of supply , the cash & carry segment has benefited from tougher economic conditions as independent retailers and caterers have sought to control buying costs Improvement in the offer to foodservice and catering customers has continued to drive outperformance in that segment Though resilient, sales to retailers have been lower than in 2011 due to declining levels of inflation in tobacco Sales in the PBU segment have proved more robust as key players have adapted to the tough trading conditions Implications for suppliers Suppliers should recognise the specific pricing dynamics of small business customers and help support cash & carry operators with longer term pricing guarantees Cash & carry still offers the best sector opportunities for short term, impulse-driving promotions , which can be quickly implemented and supported in depot The role of the depot environment will change as more customers move online for ordering, placing increasing emphasis on websites as the key customer interface with which suppliers need to engage Source: IGD Research

2) Routes to market: Primarily carry & carry
Foodservice, catering & hospitality sales in primarily cash & carry – size & growth, Sales into FC&H customer through the primarily cash & carry route remains the strongest element of growth in the wholesaling sector, with up-weighted spend from existing customers and expanding reach into new groups Though remaining a relatively small segment within the sector overall, it has performed strongly since 2007, with growth driven by improved ranges, coupled with an evolving service offer and a strong focus on value Source: IGD Research

Summary for 2012 Performance Strategic Themes Sector influences
2) Routes to market: Delivered grocery Summary for 2012 Performance Strategic Themes 2011 2012 % change Total sales £8,848m £9,054m +2.3% Independent & convenience retail £6,062m £6,178m +1.9% Foodservice, catering & hospitality £81m £74m -8.6% Other Retail £2,705m £2,802m +3.6% Operators are focused on building a compelling value offer based on the combination of product and service; and investing increased amounts in customer support to drive recruitment and loyalty 2012 has seen significant activity in private label, with extensive relaunches by both Musgrave and P&H, extending the credibility and role of these ranges as platforms of value Operators have sector leading capability in strategic categories such as chilled and fresh, and continued to build on these to drive penetration across their customer bases The opportunity to bring a unique service proposition to non-core customers is key to extending reach to target new sources of growth for the future Sector influences Implications for suppliers Delivered grocery wholesale has had a more stable year in 2012, with no major upheavals amongst multiple customers and sustained overall by the robustness of the convenience market Customers in forecourt retailing are being impacted by high fuel prices, with drivers being targeted with increased levels of fuel promotions at the supermarkets While the poor summer depressed demand in key impulse categories, tobacco sales have proved less volatile than in cash & carry Delivered wholesalers have experienced lesser impact from black market activity in BWS sales The up-weighting of in-house ranges across the segment provides scope for suppliers of private label, but presents a challenge to secondary and tertiary brands in particular Target customers groups are now being widened, and there are increasing opportunities to create solutions to meet product and merchandising needs in the smallest stores, as well as in other sectors The platforms provided by the disciplined symbol groups serviced through this segment offer reliable implementation of promotional activity and scope to develop increasingly sophisticated mechanics Source: IGD Research

Summary for 2012 Strategic Themes Performance Sector influences
2) Routes to market: Delivered foodservice Summary for 2012 Strategic Themes Performance The collapse of DBC Foodservice has highlighted the challenges facing the segment, but has created opportunities for key players to acquire additional business through their ability to step in at short notice Major players are also seeking to extend their customer bases with the acquisition of specialist businesses, though this needs to progress on a rational basis The sector is seeing a renewed focus on developing independent customer bases which offer stronger margin returns and provide scope to offset exposure to more constrained groups The launch of Booker’s Chef Direct, dedicated foodservice delivery division, presents a new challenge to incumbent players, targeting solutions at multi-site customers in particular 2011 2012 % change Total sales £6,422m £6,521m +1.5% Foodservice, catering & hospitality £6,331m £6,426m Independent & convenience retail £91m £95m +4.4% Sector influences Discretionary spending remains restrained as consumers seek to control their spending, and 2012 has also seen downsides from both poor summer weather and the disruption caused by the Olympics in the key London market Public spending cutbacks are now having a significant impact on contract catering customers, with no sign of relief for the coming years Business and industry customers have also seen contraction as operations are rationalised Customers bases cover a wide variety of business types, and there are also elements of growth. Many multi-site customers in casual dining and fast food are gaining ground and continuing to invest in expansion Implications for suppliers Consistency of quality, availability and pricing are critical to foodservice customers: suppliers should seek to support these to engage with the channel As customers evolve a stronger branded identity, differentiation is increasingly important, and the scope to provide unique products through bespoke development can be key to gaining business Convenience and kitchen usability are also key focuses for innovation Customer groups in the public sector have specific targets and data requirements that need to be addressed for ‘nutritional compliance’ and products need to comply to ensure relevance to the segment Source: IGD Research & Horizons

The outlook to 2017 Forecasts to 2017 Delivered Grocery Cash & Carry
2) Routes to market The outlook to 2017 Forecasts to 2017 Delivered Grocery Delivered grocery wholesale is forecast to surpass £10bn by 2017, though its rate of growth will be slower than wholesaling overall Growth in the delivered grocery segment will be sustained by the ongoing strength of convenience retailing, though acquisition by multiple and co-operative operators will put increasing pressure on customer bases Driving like-for-like growth will be key to maximising business with existing customers, requiring continued investment in partnership to create loyalty and up-weight spend Operators will offset customer attrition by broadening the scope of their recruitment as well as seeking to leverage their capabilities in ranging and distribution to extend customer bases to new groups 2012 2017 % CAGR Total Wholesaling £27,211m £30,970m +2.6% Primarily cash & carry £11,636m £13,300m +2.7% Delivered grocery £9,054m £10,249m +2.5% Delivered foodservice £6,521m £7,421m Cash & Carry Cash & carry based operators are forecast to be marginally the fastest growing segment of wholesaling over the next five years, with the value of the segment’s sales projected to reach £13.3bn in 2017 While retailers will remain the largest customer group for the segment, sales growth in the retail channel sales will remain restrained Sales to foodservice and catering customers will grow more quickly driven by an increased strategic focus an improving ranges and service capabilities Growth will also be boosted by the improving outlook for the PBU segment, sustained by the expansion of Costco and new focus at Booker Delivered Foodservice The longer term opportunity for growth in delivered foodservice is likely to be stronger when and as consumer confidence improves. Underlying trends towards eating out remain robust and the sector will benefit when consumers start to trade up again Though remaining smaller than the other segments at £7.4bn in 2017, foodservice business offers stronger margin returns and represents better commercial sustainability than retail, though fuel costs may always be a challenge As a fashion-led business foodservice offers a significant platform for innovation and wholesalers will seek to remain at the forefront of new product development, as well as targeting differentiation with functional convenience to drive the efficiency of customer businesses Source: IGD Research

Summary for 2012 Strategic Themes Performance Sector Drivers
3) Customer groups: Independent & convenience retail Summary for 2012 Strategic Themes Performance Wholesalers are investing more than ever to incentivise retail customers as the means to implementing key strategies As well as continuing to evolve the disciplines of symbol groups wholesalers are also seeking to extend core ranging initiatives and promotional execution across independent retail through promotions clubs and fascia stores Building private label as a key value differentiator is a priority for many wholesalers, and active support is driving penetration with considerable success in some categories Chilled and fresh categories are still a focus for development, and as well evolving more relevant ranges wholesalers are targeting improved service and creating mechanisms to encourage uptake 2011 2012 % change Total sales £13,098m £13,360m +2.0% Delivered grocery wholesalers £6,062m £6,178m +1.9% Primarily cash & carry £7,036m £7,182m +2.1% Sector Drivers Small store retailing remains a resilient customer group, though growth is being constrained by consumer sentiment as shoppers trade down to value alternatives to save money Wholesalers have become increasingly price competitive as retailers seek to control their buying costs. This combined with falling inflation has slowed value growth High fuel prices encourage more people to shop locally on foot, but forecourt sales have dropped off as drivers fill-up at the supermarket The flexibility of buying from cash & carry for value and managing cash flow, plus improving service mean this segment has sustained a moderately higher level of growth than delivered operators Implications for suppliers The channel now offers more platforms to drive sales strategy, but suppliers need to be aware to the differing nuances and dynamics of the mechanisms being used To succeed in chilled and fresh categories it is key to address sector requirements on both pack and case sizes as well as extended shelf life to maximise penetration Price-marking is now ubiquitous in the channel and increasingly multi-dimensional. To meet a wider variety of retailer needs suppliers should offer a range of marked packs to provide different functionalities (including multi-buy mechanics) Source: IGD Research

Wholesale sales to retail, by category, 2012
3) Customer groups: Independent & convenience retail Wholesale sales to retail, by category, 2012 Primarily cash & carry Delivered Total £m % Growth Ambient Food 910 4.6 824 1.6 1,734 3.2 Chilled & Fresh Food 279 5.4 688 2.5 967 3.3 Frozen Food 41 3.5 213 3.1 255 Soft Drinks 334 -1.4 420 -2.6 754 -2.1 BWS 974 -1.2 605 3.9 1,579 0.7 Tobacco 4,395 2.2 3,087 2.7 7,482 2.4 Non-Food Consumables 226 5.3 212 -3.9 438 0.6 Non-Food Durables 22 3.4 129 -3.6 151 7,182 2.1 6,178 1.9 13,360 2.0 Source: IGD Research

Category shares of sales to retailers, 2012
3) Customer groups: Independent & convenience retail Category shares of sales to retailers, 2012 Tobacco plays a big role in cash & carry sales to retailers, representing a major driver of customer footfall, and focus of price competition Temperature controlled lines remain a limited part of the cash & carry offer, though individual products such as milk may do significant volume Supported with dedicated storage and temperature controlled transport, chilled & fresh and frozen forms a bigger part of delivered wholesale sales, and is the focus for driving increased customer penetration Tobacco nevertheless plays a major role for these operators Source: IGD Research

Segment sales to retailers, growth by category, 2012
3) Customer groups: Independent & convenience retail Segment sales to retailers, growth by category, 2012 Category sales in the primarily cash & carry route provide a mixed picture in Solid growth in core food categories was offset by clear downsides in both soft drinks and BWS, while key sales in tobacco were also restrained Cash & carry has suffered notably from the impact of unchecked duty fraud in BWS. Delivered grocery category sales, though still positive, were less buoyant in food and showed greater resilience in BWS in particular, which was boosted by increased customer penetration and lower susceptibility to duty fraud Tobacco sales in delivered were also more resilient, prone to lesser volatility than cash & carry Source: IGD Research

Estimated operator shares: retail customer group 2012
3) Customer groups: Independent & convenience retail Estimated operator shares: retail customer group 2012 Booker has gained marginal share, with growing sales with retail customers underpinned by the successful development of its Premier symbol group P&H’s share in the channel has been weakened by the loss of larger accounts due to consolidation in the convenience market Cash & carry operators such as Bestway and Dhamecha have gained share progressively through ongoing depot openings Delivered operators such as SPAR and Musgrave are having to compete hard to recruit new retailers, and need to drive L4L sales to retain ground Notes Booker and Makro remain separate subject to approval by the Competition Commission Product mixes vary and shares will not always comprise like-for-like category sales Business customers in this channel also purchase from a range of sources beyond the scope of the IGD wholesale market (see slide 4) Source: IGD Research

Retail: segments of routes to market 2012
3) Customer groups: Independent & convenience retail Retail: segments of routes to market 2012 Primarily cash & carry While Booker heads the primarily cash & carry route to retail, Bestway is a significant number two Dhamecha and Parfetts are regionally focused cash & carry players. Despite their modest size they compete effectively with much larger wholesalers In delivered P&H has a diverse customer base including significant multi-site retailers in the forecourt and CTN sector, as well as independent retailers The SPAR network and Musgrave are dedicated national symbol group suppliers (Budgens and Londis in the case of Musgrave) Operator Estimated % Booker 35 Bestway 32 Costco 8 Dhamecha Parfetts 5 Makro 2 Others 10 Delivered grocery Operator Estimated % Palmer & Harvey 40 SPAR 28 Musgrave 21 Filshill 3 Others 8 Notes Booker and Makro remain separate subject to approval by the Competition Commission Product mixes vary and shares will not always comprise like-for-like category sales In ‘Primarily cash & carry’ shares include all operator sales, both delivered and traditional cash & carry Business customers in this channel also purchase from a range of sources beyond the scope of the IGD wholesale market (see slide 4) Source: IGD Research

Foodservice, catering & hospitality summary for 2012
3) Customer groups: Foodservice, catering & hospitality Foodservice, catering & hospitality summary for 2012 Performance Strategic Themes 2011 2012 % change Total sales £9,297m £9,494m +2.1% Primarily cash & carry £2,885m £2,994m +3.8% Delivered foodservice wholesalers £6,331m £6,426m +1.5% Delivered grocery wholesalers £81m £74m -8.6% The collapse of DBC has given leading wholesalers access to new business, temporarily reducing competitive pressures Operators are seeking to rebalance their customer bases to targeting specific areas growth areas, and reduce their exposure to low growth and less profitable areas of trade The launch of Chef Direct by Booker has created a new player to challenge for multi-site accounts, though this is still in start up phase Value is rising up the agenda and wholesalers are focused on revamping and up-weighting private label ranges to provide scope for customers to trade down Sector Drivers 2012 is another year of marginal growth in the foodservice channel, with many customer groups operating in challenging conditions Low consumer confidence is affecting large parts of UK discretionary spend, and while eating out is still popular, consumers are being more selective about where they spend and how much Public spending restrictions are now affecting significant parts of public sector catering, and limited business confidence is affecting demand from commercial customers Fast food and entry level eating out has proved a more resilient customer market, and operators offering targeted solutions to meet these needs are performing more robustly. Implications for suppliers Customer groups and their needs have considerable diversity , taking time to assess and address the specifics of each provides clear points of engagement Catering customers are increasingly seeking innovative menu solutions to offer both convenience and differentiation to help control costs as well as drive sales Despite slow market growth suppliers should target investment to meet these needs to be well-positioned when the market begins to improve again The role of products and brands varies between ‘front of house’ and ‘back of house’, and identifying the location of products is key to understanding their significance to catering customers Source: IGD Research & Horizons

Delivered Foodservice
3) Customer groups: Foodservice, catering & hospitality Wholesale sales to foodservice catering & hospitality by category, 2012 Delivered Foodservice Primarily Cash & Carry Total £m % Growth Ambient Food 1,874 1.3 875 5.1 2,750 2.5 Chilled & Fresh Food 2,397 2.6 728 8.3 3,125 3.9 Frozen Food 1,190 0.9 150 5.8 1,340 1.4 Soft Drinks 629 -2.5 224 -1.1 853 -2.1 BWS 57 11.8 656 0.4 713 1.2 Tobacco 0.0 148 -2.8 -2.9 Non-Food Consumables 245 171 4.1 416 3.1 Non-Food Durables 35 9.4 42 2.8 77 5.7 6,426 1.5 2,994 3.8 9,421* 2.2 *Figure excludes £74m sold by Delivered Grocery Wholesalers to foodservice and £95m sold by Delivered Foodservice to retail. Source: IGD Research 2012 & Horizons

Category shares of sales, 2012
3) Customer groups: Foodservice, catering & hospitality Category shares of sales, 2012 Delivered foodservice wholesalers remain food specialists above all, and the predominance of food categories in segment sales emphasises this Temperature controlled lines play a particular role in supplying the core needs of menus, though ambient products have a significant place in the requirements of the professional kitchen Food is also the critical element of the sales mix in the cash & carry segment, though the composition differs from delivered. A large part of the value of chilled & fresh comprises fresh meat, where depot butchery counters provide a channel for sales However, licensed products also have a notable role to play meeting needs of pubs and clubs Source: IGD Research

Segment sales to foodservice, growth by category, 2012
3) Customer groups: Foodservice, catering & hospitality Segment sales to foodservice, growth by category, 2012 Low overall segment growth is reflected in the low levels of uplift in the key food categories that make up the majority of sales for these operators High levels of outperformance in BWS and non-food durables come off a low base. BWS in particular has traditionally be a notable gap in the ranges of these operators Strong levels of growth in food indicate the growing capability of cash & carry wholesalers in meeting the core needs of caterers Weak growth in the significant BWS category (an important element of supply to pubs and clubs), reflects the impact of duty fraud, though not as great as in the retail channel Source: IGD Research

Estimated operator shares: FC&H customer group 2012
3) Customer groups: Foodservice, catering & hospitality Estimated operator shares: FC&H customer group 2012 The channel contains three big players, ahead of others in scale Both Brakes and Booker have strengthened their positions in the channel in 2012 Brakes benefited from the collapse of DBC; while Booker has launched Chef Direct , too, has made some smaller acquisitions to enhance its position JJ is now a key second tier player and growing fast Overall the channel is notable for a proliferation of smaller players competing with local focus and service Notes Booker and Makro remain separate subject to approval by the Competition Commission Product mixes vary and shares will not always comprise like-for-like category sales Business customers in this channel also purchase from a range of sources beyond the scope of the IGD wholesale market (see slide 4) Source: IGD Research

FC&H: segments of routes to market, 2012
3) Customer groups: Foodservice, catering & hospitality FC&H: segments of routes to market, 2012 Delivered foodservice Below the leading national operators the delivered foodservice route comprises a significant number of smaller, often regionally focused players, as well as category specialists, such as Fresh Direct Fairway, Caterforce and Country Range are consortia of regional wholesalers combining to improve capability in sourcing and even co-operate in servicing major accounts Booker is the largest operator in the primarily cash & carry route, with a growing range of specialist offerings for foodservice customers. Costco targets the customer group with strong value and quality on a limited range Growth in catering is now a strategic target for Bestway, but this remains a limited part of the overall business Operator Estimated % Brakes 24 3663 18 Fairway 6 Caterforce 5 Country Range 4 JJ Foodservice 3 Fresh Direct 2 Reynolds Others 36 Primarily cash & carry Operator Estimated % Booker 42 Costco 10 Makro 7 Bestway 5 Others 36 Notes Booker and Makro remain separate subject to approval by the Competition Commission Product mixes vary and shares will not always comprise like-for-like category sales In ‘Primarily cash & carry’ shares include all operator sales, both delivered and traditional cash & carry Business customers in this channel also purchase from a range of sources beyond the scope of the IGD wholesale market (see slide 4) Source: IGD Research

PBU summary for 2012 Strategic Themes Performance Sector influences
3) Customer groups: Professional business users PBU summary for 2012 Strategic Themes Performance Operators are focused on adapting their offer to reduce exposure to big ticket non-food sales, and to bring greater emphasis to food and other categories to drive customer traffic Costco in particular continues to seek opportunities to expand (its Leicester depot opens soon), seeing long term potential for up to 50 sites in the UK. However, the availability of appropriate sites and planning are a barrier The acquisition of Makro by Booker will bring new strategic focus to this customer group within that business New online services such as Asda Business may be a threat to incumbent players, targeting a range of business needs with bulk packs supported with a delivery service 2011 2012 % change Total sales £1,412m £1,461m 3.4% Primarily Cash & Carry Sector influences Implications for suppliers While sales in the PBU segment have continued to fall at Makro, Costco has successfully sustained its strong growth, despite no new depot openings in the last year Costco’s strong price proposition offers a clear value message to both business customers and end consumers keen to control controls and personal spending Sales of big ticket items remain restrained, but food and smaller ticket non-food has continued to drive traffic and increased frequency Costco represents best in class and its operating model offers the template for success in the segment The scope of products relevant for the PBU sector is wide, but identifying the lines with the greatest volume potential is key to success PBU customers purchase for a wide variety of needs and these may not be met by existing pack sizes, trade or retail. This may mean creating a unique format to achieve penetration in this segment Price is the key to PBU trade, critical to building traffic and impulse and suppliers need to be willing to support this to engage in the segment Source: IGD Research & Horizons

Primarily cash & carry sales to PBUs 2012
3) Customer groups: Professional business users Primarily cash & carry sales to PBUs 2012 Category £m % Change Ambient Food 202 4.7 Chilled & Fresh Food 200 6.0 Frozen Food 37 3.4 Soft Drinks 72 -1.7 BWS 201 2.7 Tobacco 178 0.6 Non-Food Consumables 163 4.1 Non-Food Durables 407 3.8 Total 1,461 Source: IGD Research

Category shares of sales to PBUs, 2012
3) Customer groups: Professional business users Category shares of sales to PBUs, 2012 Sales to PBU customers are distributed broadly across the categories, with just over half of all sales comprising food and drink The key contrast in this segment is the scale of sales in non-food durables, which at 27% are significantly greater than with other customer groups The segment has seen clear positive growth across most categories with soft drinks the only negative Increased focus on faster moving categories at Costco is reflected in strong growth in fresh and chilled food in particular Source: IGD Research

Estimated operator shares: PBU customer group, 2012
3) Customer groups: Professional business users Estimated operator shares: PBU customer group, 2012 Primarily cash & carry PBU customers tend only to purchase on a limited basis from the wholesale sector, and also buy from a wide range of other sources Costco is the most significant player in this market, and continues to grow successfully, attracting a wide range of customer types with its focus on best price quality products Though declining Makro’s PBU customer base remains the largest part of that business, and provides it with very wide reach outside ‘trade’ groups in retail and foodservice, catering and hospitality Operator Estimated % Costco 51 Makro 26 Booker 14 Blakemore 4 Others 5 Notes Booker and Makro remain separate subject to approval by the Competition Commission Product mixes vary and shares will not always comprise like-for-like category sales Shares include all operator sales, both delivered and traditional cash & carry Business customers in this channel also purchase from a range of sources beyond the scope of the IGD wholesale market (see slide 4) Source: IGD Research

What else can IGD do for you?
This Special Analysis was prepared by Patrick Mitchell-Fox Looking for more? askIGD.com or call +44 (0) Follow us on shoppervista.igd.com igd.com Get up to speed on sector developments, >> Visit the Wholesale Channel page on Retail Analysis 1 2 Access UK and international wholesaler profiles >> See the Operators we cover on Retail Analysis 2 Looking for tailored insight to support your wholesaling objectives? >> Contact to find out about IGD’s customised capability 3 Follow us on

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