Point of Purchase Execution Report

1. Point of Purchase Execution Report

2. Point of Purchase Execution Store Formats

3. Point of Purchase Execution Product Listing and Buying – Independent Wholesale Listing • National and certain regional listings take place at Head Office • A number of members list at store level – national brands tend to be listed at Head Office, while local / regional brands from local suppliers are listed at member level Buying / Ordering • No buying of stock occurs at Head Office level; HO is focused on the negotiation of trading terms and pricing, as well as of promotional activity – approximately 80% of all negotiations occur at Group level • Although the ICC Buying Group does not hold central supplier accounts for its member base, the Group underwrites each member’s account, standing as guarantor • Group level negotiation is headed up by Merchandise Executive Shane Colloty, supported by Kevin Barrett & Karen Herselman • Structured according to product category: • Kevin Barrett - General Merchandise • Edibles & non-edibles split between Karen Herselman and Shane Colloty • In addition: • Shane Colloty - major commodities – sugar, rice, maize and hot beverages • Karen Herselman – Cold Beverages

4. Point of Purchase Execution Product Listing and Buying – Independent Wholesale Deal Negotiation - Member Level • Store-level deal negotiation conducted over and above that at a national level - approximately 20% • Extent of member-level negotiation dependent on member volume/value (i.e. what the store is able to offer the supplier over and above that of the Group) Buying and ordering – Member level • All buying and ordering of stock occurs at store level • Members hold own accounts with suppliers, the Group does not host centralised supplier accounts • For constructive negotiation at a store level, it is advantageous for suppliers to have a strong understanding of regional/local brands and price points as well as be observant of POP drivers in-store

5. Point of Purchase Execution Product Listing and Buying – Lifestyle Franchise Listing • 60% of new product listings take place at Head Office level. The franchisee has discretion (approximately 40%) in terms of listing of new suppliers, dependent on the ranging needs of that store, as well as the competitor range offering • Each franchisee is provided with a suggested stock list by Head Office to which the franchisee may add new lines • Implementation of new IT system - IQ Retail - will be used to drive uniformity in listings across the Lifestyle Franchise product range Buying / Ordering • No buying of stock occurs at Head Office; as with the wholesale operation, HO is focused on the negotiation of trading terms, deals and promotional /advertising activity • Where the franchisee has an existing terms contract with any one supplier – that will fall away to be taken over by the ICC Buying Group • All buying and ordering of stock occurs at franchisee / store level • Majority of product ordered directly from the local Cash & Carry (ICC member) or from the member’s DC. If the product is unavailable, the store will source from an alternative (non ICC) C&C • Exceptions – major suppliers of cold beverages, dairy, tobacco, snacks and frozen goods where the order goes direct to the supplier • 90% of ordering to the ICC C&C is via a manual ordering system (email). Orders are generated by way of the IQ Retail POS system

6. Point of Purchase Execution Product Listing and Buying – Lifestyle Franchise Buying / Ordering (cont.) • Direct ordering to suppliers takes place primarily via telephone on scheduled order days, via the supplier call center (supplier call center usually contacts the store for orders) • Although the order number is generated by the store, authorization is needed from ICC HO who facilitate each supplier account • Alternatively, ordering takes place in person with the supplier representative, e.g. for Coke or BAT (through the BAT van delivery system) • Average lead time - 2 days • ICC Buying Group holds central accounts for its Lifestyle Supermarket franchisees with these suppliers (a full debtors department for the Lifestyle Supermarket franchise division now operates from the ICC H/O) • Where the new franchisee holds a current account with a supplier – that account is maintained by the franchisee • No central accounts are held by the group for Lifestyle Liquor members

7. Point of Purchase Execution Ranging – Independent Wholesale • ICC Buying Group members in the wholesale sector carry between 6,000-14,000 active SKU’s • Ranging is dependent on the demographic makeup within the catchment area, and takes into account store location, size and competitive set • The ICC Buying Group does not dictate ranging to member stores, but rather provides expertise in guiding the members on optimal product ranging • Basic commodities are usually the main driving lines e.g. maize, flour, sugar, rice, soap powder, eggs & IQF chicken • However, a sharper focus on higher margin categories e.g. personal care, confectionary, perishables has emerged amongst wholesale C&C members recently, as well as on added-value service departments such as butchery, bakery and fresh produce (while maintaining the typical low cost operating model) Standard Categories: • Groceries (food and non-edibles) • Perishables (significant investment in refrigeration facilities) • Butchery, bakery • Toiletries • Cell phones – prepaid cards and handsets • Hardware, plastic ware, crockery, glassware, small appliances, pots / pans, stationery, toys, DIY etc. • Music, electronic goods • A growing General Merchandise offering

8. Point of Purchase Execution Ranging – Independent Wholesale • Vast trading spaces allow for extremely wide category ranging • However, the depth of range within each category is generally narrow, dependent on the member store and shopper profile specifics – e.g. a wider distribution area requires greater brand depth, + brand regionality will differ

9. Point of Purchase Execution Ranging – Independent Wholesale • With the shift towards hybrid trading within Wholesale C&C members, it is vital that suppliers understand the profile of each member store - pack sizing and line items by shopper type differ significantly - to ensure appropriate product ranging

10. Point of Purchase Execution Ranging – Independent Wholesale • Certain member stores focusing strongly on a “departmental” ranging strategy (butchery, bakery, deli, etc.) with the objective of adding value to their cash & carry offering

11. Point of Purchase Execution Ranging – Lifestyle Franchise • Lifestyle Franchise Supermarkets offer a full supermarket offering, together with added-value service departments, with an emphasis on of food, perishables, personal and home care products • Primarily a retail offering (95%), with some wholesale trade (5%) on average • Pack sizing primarily in singles, with some bulk on offer • From inception, each new Lifestyle franchisee receives range selection assistance from the ICC Buying Group • 90% of existing stores that are converted to the Lifestyle brand are understocked and under-ranged • Ranging is designed to meet the specific customer needs within the catchment area • Although Group level input is received, final decisions as to ranging is at the discretion of the franchisee • Typical ranging: • 4/5 brands per category, including the best selling brand • 5,000 sku’s on average per outlet • Growth currently originating in categories such as plastic-ware, back-to-school items and value-added service departments Added-value service departments: • Strong focus currently on the expansion of high margin value-added categories such as butchery, bakery and hot foods-to go • Involvement from suppliers in terms of training and upskilling of staff assists with the growth and success of these categories • Butchery: • Full butchery offering in a number of stores (dependent on store size & capacity) • All cutting and packaging completed in store • Generates between 10-20% of total store sales via 12% of trading space on average

12. Point of Purchase Execution Ranging – Lifestyle Franchise Added value service departments (cont.): • Fresh: • Full fresh produce offering in the majority of stores • All fresh fruit & vegetables delivered direct to store • Product often sourced from local small scale farmers or from the local fresh market • 90% loose, 10% pre-packed • Generates between 2.5-3% of total store sales via 10% of trading space on average • Bakery: • Basic range – bread rolls and small amount of confectionary (cream cakes are often a primary seller) • All product baked on site • Generates between 3-4% of total store sales on average • In general, there appears to be is a shortage of skilled added-value service department staff within the retail trade in SA – presents a training opportunity exists, supplier driven or otherwise

13. Point of Purchase Execution Merchandising and Category Management – Independent Wholesale Merchandising • The majority of in-store merchandising is conducted by internal member staff, although some supplier merchandising does occur – primarily for the larger suppliers. Members are open to an increased degree of supplier merchandising • Products merchandised in cases, shrinks and units on a single shelf • Pallet-based merchandising, based on broad principals of forward share, applies across the majority of members. Smaller pack sizes are merchandised at eye level, while larger packaging and shrinks are merchandised above • Sales volumes determine forward share – allows for powerful displays for individual brands • Catering sized packs also available, predominantly merchandised at floor level • Single pack size merchandising less predominant due to high shrinkage levels, however with the shift towards hybrid trading, single units are finding their space on shelf • High value items often merchandised behind the counter / in a kiosk e.g. personal care, cellular, medicinal etc. Category Management • Category management is conducted through supplier agreement and is driven by regional brand strengths, as well as on-shelf availability • ICC Buying Group members tend not to utilise formal category management principles frequently in-store, particularly for the wholesale section of a hybrid trading environment. However, there is movement towards supplier-driven space planning initiatives with certain suppliers. Members are open to this type of initiative if developed in conjunction with the member. True regional and store level understanding on the part of the supplier, in terms of customer product needs and buying patterns, is key • The Group offers a category management principal implementation and store-relay service for its member base, as well as merchandising support service

14. Point of Purchase Execution Merchandising and Category Management – Lifestyle Franchise Merchandising • The majority of in-store merchandising is conducted by Lifestyle store employees, although some supplier merchandising does occur – primarily for the larger suppliers and those that are supplied by direct drop shipment by the manufacturer • New franchise entry agreements with the ICC Buying Group include a store re-lay, departmental refurbishment & retro-fitting of service departments • Upgrades included in the fresh, clean new look for Lifestyle Supermarket stores, are new exterior & interior signage, sturdier & higher shelving, fully stocked shelves, staff uniforms and branded trolleys & plastic bags • Product is merchandised in typical supermarket style, primarily in singles. Excellent use of spatial planning through each store results in a shopping trip that is easily navigated and convenient • Consistency evident in respect of store layout, departmental signage, aisle demarcation, price cards & promotional signage in store - look & feel is clear and coherent Category Management • The ICC Buying Group offers a category management principal implementation and store-relay service for its member base, as well as merchandising support service • An in-house category management teams works out the layout for each new Lifestyle store • Plannograms for every new store are provided, based on a unique store design devised by the Group • Adjusted according to the specific ranging needs of that outlet/customer base • Supplier input into planogram design is welcome – however, needs to be based on an excellent understanding of the ranging and shelf management needs of each particular outlet • Post launch, supplier-driven category management is conducted through supplier agreement and is based on regional brand strengths & customer needs • Franchisees are extremely open to approach by supplier in this regard

15. Kate Shirley: New Channels AnalystMaryla Masojada: Lead Research