SWOT Report

1. SWOT Report

2. Strengths • Growth • Projected FY2017 Member Turnover growth of +12.9% • Successful expansion into franchise liquor and hardware, a direct result of the shift in strategy towards the development of a retail store network – store footprints now sit at 21 and 53 respectively with significant scope for further growth • Independent wholesale/retail growth in KZN • Ongoing expansion within the Sub-Saharan region via the dedicated African export business • Offering • Lifestyle retail franchise: • Model easily adaptable for multiple target market and range scenarios • Continued supplier support for Lifestyle model • Independent wholesale/retail: • Extension of the hybrid store format to wholesale/cash & carry members; resulting in a widening of the shopper profile, reduced dependency on KVI sales, as well as the benefits of retail margins within wholesale operational and cost structures • Secondary brand drive across the Group – movement away from KVI dependence, resulting in significant margin growth. (KVI participation down from 36% to 28%) • Transparent rebate structure generating a high level of group-member trust • Rebates paid out on a 45-day or statement-settlement basis, dependant on membership type • Assertive and focused buying team • Increasing focus on value-added product categories and departments across both independent hybrid and franchise retail operations, resulting in increased competitiveness against majors and incremental margin growth • General merchandise volumes continue to show strong growth

3. Strengths • Operations • Group: • Significant centralised buying power resulting in beneficial trading terms and competitive pricing for members • Robust understanding of commodity pricing management and a corresponding ability to price competitively • Member-owned store structure ensures a direct interest in store performance/profitability • Strong focus on cost containment for optimal profitability • Centralised administration • Growing distribution capability – fine tuning of Gauteng-based regional Group DC to service total Lifestyle Supermarket member base and surrounding wholesale and retail independent members • Enhanced service levels out of the DC • Progress made on enhanced POS and stock management data systems across both franchise and wholesale/hybrid operations • Implementation of broader shared access to pricing information across the Group • Lifestyle franchise: • Strong growth in added-value service offering in Lifestyle Supermarket • Centralised accounts for franchise operations enable efficient financial management • Independent wholesale/retail: • Income streams – 100% of trading terms redistributed back to member base dependent on membership type • No centralised accounts for a significant portion of wholesale/hybrid members – Group financial status independent of members

4. Strengths • Branding/Marketing • Thorough understanding of local and regional purchasing habits and shopper needs • Central marketing strategy initiated and controlled by Head Office • Comprehensive shopper marketing programme in place – primarily underpinned by strong broadsheet distribution and community-driven promotional events • Store level marketing activity in place to complement centralised marketing initiatives • Continued focus on customer relevance and benefit • Four dedicated national retail promotions per year to service the growing retail base • Highly efficient call centres at member level providing continuous engagement with members and customers • Launch of digital shopper loyalty and mobile money offering – clevaPAY™ • Launch of electronic ordering platform • Sustainability • Strong CSR programme focussed on local communities, incorporating both Group and individual member elements

5. Weaknesses • Performance • Stagnant market with minimal volume growth • Group showing Member Sales-in decline of -24.6% during the trading period. • Downward pressure on selling price, increasing cost base and resulting lower margins • Slow-down in the development of the Lifestyle Supermarket franchise model – need for capital influx for investment • Overall decline in member numbers -22.6% from 2015 to 2017 • Declines in member purchasing loyalty levels • Member loss to alternative buying groups • Increased competition from Chinese and other foreign national co-operative buying structures • Difficulties in expanding member base amongst foreign store owners – lack of official documentation and communication issues • Expansion of shopping mall numbers and enhanced shopper expectations in terms of in-store environments, causing a shift in shopper patterns • Expansion of corporate hypermarket formats into wholesale trading (e.g. Pick n Pay Hypers) • ICC retail extension and distribution model has the potential to be become a threat to its own hybrid stores as consumers shop at newly formed retail outlets and traders receive direct shipments from member DCs • Horizontal movement of stock between wholesalers – impacting negatively on supplier (and ICC) understanding of true consumption in the market and the ability to maintain a price point • Round tripping of export stock by supplier • Profitability • Downward margin pressures brought on by an rising cost base and harsh economic climate • High costs associated with the development of added-value service departments (particularly butchery) • Inequitable supplier practice relating to input pricing

6. Strengths • Offering • ICC continues to be perceived as a wholesale operation by suppliers, consequently meeting with barriers in terms of driving retail or secondary brand lines • Shopper Marketing • Difficulties in the coordination of national promotional campaigns resulting from a store network characterised by extensive diversity • Decline in supplier marketing budgets driven by weak sales growth • Operations And Technology • Difficulties in securing finance for new retail franchisees • Xenophobic activities aimed at foreign national members • Lack of supplier prioritisation in terms of stock availability and delivery • Lack of space in store for the efficient roll-out of added-value service departments amongst wholesale/hybrid members • Slow delivery of franchisee development funding through the government enterprise development fund

7. Supplier Opportunities • Growth • Access route-to-market capability driven by the franchise model development • Leverage listing opportunities through the growth of retail franchise • Take advantage of the focus on secondary and retail ranging and the opportunities to drive brand extensions through the membership base • Understand the role of the group regional dc and the opportunities for secondary line extensions through the new distribution structure • Implement a higher level of account management engagement at shop floor with a mandate for decision making • Operations • Ensure you have a clear understanding of ICC’s strategic objectives - take steps to align your customer plan, measurement and reporting • Take advantage of the Gauteng DC for centralised distribution efficiencies • Higher own (or agency) merchandiser standards – attendance, ratio per principal, proficiency • Greater transparencies needed in terms of confidential discounts across the range of customers • Optimise order fill rates and delivery cycles • Provide in-store insights/assistance through layouts and merchandising support • Support of ICC CSI initiatives at either group or store level • Identify if service departments utilise your products and offer sustainable enterprise training / skills development • Marketing • Understand the hybrid-model to effectively promote products and execute marketing at store level, to both traders and consumers • Identify relevant pack sizes and shelf-ready packaging alternatives for ICC’s BoP customers • Understand brand regionality and the specific shopper profile for each store • Store level incentive, promotional and brand activation programmes targeted at assisting individual members to achieve their volume objectives

8. Supplier Opportunities • Marketing cont. • Targeted communication campaigns aimed at specific ethnic groups • Ensure availability of stock on promotion • Complement above-the-line marketing with in-store activity to the end consumer • Leverage increasing data-sharing capabilities for enhanced range strategies and promotional spend • Smarter planning with regard to promotional activity directed at stokvels: engagement with stores should be planned for earlier in the year

9. Supplier Threats • Necessary to budget for both head office and store level promotional support • Developing knowledge and skills levels amongst national accounts personnel, resulting in challenging supplier/retailer relationships • Low service levels at store level / outsourcing of sales and distribution to 3rd party suppliers • Lack of merchandising and category management investment at store level • Insufficient after-sales service at store level, with poor merchandising and lacklustre displays • Lack of understanding pertaining to brand regionality and store level ranging for optimal sales • Horizontal movement of stock within wholesale resulting in diminished supplier understanding of true demand • KVI growth down-trading category values • Limited secondary range extension into the bottom end affecting shelf exposure • Round tripping of stock impacting negatively on supplier margin • Administrative complexities caused by de-centralised invoicing

10. Kate Shirley | New Channels Analust Maryla Masojada | Lead Analyst