Chris Brown. Head of Ethical and Sustainable Sourcing ASDA Stores Ltd

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1 Chris Brown Head of Ethical and Sustainable Sourcing ASDA Stores Ltd

2 Our Purpose To make goods and services more affordable for everyone

3 What we are doing? We have a plan and strategy that is working Rebooting our business to meet the new customer agenda Staying true to what we are Championing EDLC

4 Long term grocery growth trends Market growth slows slightly despite inflationary pressures 8 7 % change vs last year Grocery Market 12we 08 Grocery 12we 05 Oct 2008

5 Food Inflation Rate of increase has started to slow Change Year on Year % Jan 24-Feb 23-Mar 20-Apr 18-May 15-Jun 13-Jul 10-Aug 07-Sep 05-Oct Inflation Average Price Paid Per Pack Grocery 12we 05 Oct 2008

6 Market shares and growth rates Value oriented retailers still leading the pack in spend growth Till Roll Market Share % Tesco Asda 12.4 Sainsbury's 11.4 Morrisons 8.1 Co-Op 3.1 Somerfield 2.8 Waitrose 2.7 Aldi 2.2 Lidl 1.7 Iceland 1.2 Netto Till Roll Market Year on Year Sales Growth % Aldi Iceland Lidl Morrisons Asda Sainsbury's Tesco Netto Co-op Waitrose Somerfield Till Roll 12we 05 Oct

7 Slight skew to less affluent shoppers but ASDA is essentially a mass market retailer Till Roll Demographics Ranked on Social Class - 4 w/e Jul Spend Profile % Waitrose M & S Sainsbury Tesco Tot Grocers Aldi Asda Morrisons Lidl Somerfield Total Co-op Tot Indepts Netto Farm Foods Iceland Source: TNS Till Roll 13 July 2008 Class AB Class C1 Class C2 Class D Class E

8 ASDA large family bias but almost 50% spend is from 1 2 persons households Spend Profile % Till Roll Demographics Ranked on Household Size - 4 w/e Jul Asda Iceland Tesco Tot Grocers Netto Farm Foods Morrisons Sainsbury Aldi Lidl Somerfield Tot Indepts Total Co-op Waitrose M & S Source: TNS Till Roll 13 July Member HHs 2 Member HHs 3 Member HHs 4 Member HHs 5+ Member HHs

9 ASDA also bias to families but almost 60% spend is from households without children Spend Profile % Till Roll Demographics Ranked on No. of Children - 4 w/e Jul Asda Iceland Tesco Tot Grocers Netto Farm Foods Morrisons Sainsbury Aldi Somerfield Tot Indepts Total Co-op Lidl Waitrose M & S No Children 1 Child HHs 2 Child HHs 3+ Child HHs Source: TNS Till Roll 13 July 2008

10 Looking outside the ASDA bubble we are now in recession UK Inflation +5% 1.8m people unemployed 1.2m homes in negative equity risk House prices down 15%

11 impacting businesses close to us

12 Despite some reprieve in mortgage, fuel and food prices customer confidence is still low Source: Pulse of the Nation

13 However grocery basket size continues to grow; but on a backdrop of fewer trips across a bigger number of stores Yr on Yr Growth % Store Repertoire Trip Frequency Basket Size Items per basket Source: TNS

14 Meal preparation and consumption has become more fluid and less formal % eating or drinking, in or out of home, by time of day, all days, 7.00am to Midnight 35% % 25% 20% 15% 10% 5% 0% 6.00 am 7.00 am 8.00 am 9.00 am am am Noon 1.00 pm 2.00 pm 3.00 pm 4.00 pm 5.00 pm 6.00 pm 7.00 pm 8.00 pm 9.00 pm pm pm Midnight Source: BBC/National Statistics/nVision Base: 545/654 adults in households with children

15 Cooking from scratch is a widely held aspiration and people report it rising substantially over the last four years 4.0 No. days per week No kids Kids Make a meal entirely from raw/fresh ingredients No kids Kids Cook from a recipe No kids Kids Eat takeaway in the evening at home Source: Future Foundation Base: 1,210 adults aged 16+, UK, 2007

16 But people mean different things by scratch

17 People still believe that food is becoming less healthy The reality is different but the impression persists The food people eat is less healthy than it used to be % who agree 90% 80% % 60% 50% 40% 30% 20% 10% 0% Total Male Female ABC1 C2DE Source: nvision Research Base: 1,000-1,230 respondents aged 15+, GB

18 Environmentalism has grown quickly over time I m concerned about what I personally can do to help protect the environment % agree/strongly agree 80% 70% 60% 50% 40% 30% 20% 10% 0% All Male Female AB C1 C2 DE Source: nvision Research Base: 1,200 aged 16+, UK

19 However, let s get this in perspective ethics & environment is not a significant driver of decision-making Ethical or environmental concerns influencing last purchase of food 14% 12% 11.5% 10% 8% 6% 7.0% 7.4% 4% 3.7% 2% 0% All AB Source: nvision Research Base: UK, 1,200 aged 15+, 2007 C1C2 DE

20 Fundamental Customer Truths My children must have a better life than me My family's health comes first Wasting money in the current climate is a crime Money problems divide families, divide communities, divide the nation Nobody should compromise quality for price

21 Fundamental Business Truths Customers define and shape business strategy in a recession Value operates at all levels of customer needs Experiential businesses fail or succeed on truth not spin doctoring If colleagues don t believe, customers never will

22 YouGov Survey Results - 22 nd Sept 08 Who do you think the UK food industry puts first, profits or customers? 88% said profits 1% said customers The UK food industry thinks obesity is a problem 5% strongly agreed The UK food industry puts profit before health 75% agreed The UK food industry should have stricter limits on the amount of unhealthy food they produce 63% agreed Supermarkets are putting their prices up more than necessary as they have the excuse of food inflation 73% agreed 5% disagreed Since the onset of the economic crisis, do you trust supermarkets more or less? 40% said LESS 0% said MORE

23 Key Questions for the food supply chain Are we being responsible and adjusting our costs vigorously? Are we trying to tactically trade our way through this recession, or are we strategically adjusting our business? Are we trying to manage price perception, or genuinely saving people money?

24 Do we care about child obesity, or are we worried about the sales impact? Do we believe sustainability saves money and lowers prices, or is it charitable donation?

25 Our Collective Cause Customers are doing without we need to make sure they don t EDLC is not a tactic, it is a vocation Value is a democracy Saving people money is our social responsibility Rebuild confidence in the food industry

26 Supplying ASDA some thoughts Value - what is the expected selling price of the product in Asda actual retail is an ASDA decision). How will the product be positioned? Accreditation - has you got the correct technical accreditation especially in high risk areas eg chilled food? Packaging - is the product in retail ready packaging (rrp), is it in a reasonable case size? Lead time - how often can the product be ordered - once every 2 weeks production on a fresh product is not ideal. Ensuring availability is critical. Minimum order quantity - if the minimum is 1 pallet then we may struggle to ever trigger an order point Budgeting on advertising and generally getting the products launched, up and running and to drive volume.

27 The ASDA way We are committed to our purpose We have created a vocational culture of EDLC We are winning new customers We believe sustainability saves money, and lowers price

28 Customer Views Consumers feel overwhelmed & want business to help: Global warming perceived as the most immediate threat to life on earth after terrorism After government, big business is considered to have the greatest responsibility for doing something to stop global warming. (Source: Tesco Internet Survey (Nov 2006) among 1030 adults, UK (incl. 256 opinion formers) Packaging Waste is the 2nd highest concern for GB consumers Source: Nielsen Homescan survey February 2007 Great Britain 11% of household waste in the UK is plastic, 40% of which comes from the 15M plastic bottles used everyday. Source: % of consumers felt it would be good if packaging contained recycled plastic (Source: M&S / WRAP)

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30 What do customers really care about? No 1 Th e n e e d to r e c y c le % m e n t io n in g Clim a te c h a n g e Th e u s e o f c h ild la b o u r Th e n e e d f o r r e n e w a b le e n e r g y Fo r e s t d e s tr u c tio n ( O th e r ) e x p lo ita tio n o f w o r ke r s in Th ir d W o r ld c o u n tr ie s Ex c e s s iv e p r o f its o f la r g e c o m p a n ie s M e n W o m e n Us e o f p e s tic id e s G e n e tic m o d if ic a tio n o f f o o d O v e r - f is h in g /d e p le te d s to c ks Fa c to r y f a r m in g ` Fo o d m ile s ' ( ie th e d is ta n c e f o o d tr a v e ls f r o m p r o d u c e r to s h o p )

31 Business Imperative Lower costs Enhanced reputation Reduced risks Legislation proofing

32 Food Industry concerns Current sources not consistently viable Supply more variable top-ups post crop failure Novel logistical solutions Novel legislation

33 Greenhouse Gases and Food Fruit and Vegetables (2.5% total) Trending to increasing GHG Intensive produce Air freighted Unseasonal protected Pre-prepared - fragile / spoilable Meat and Dairy (8% total) Mainly at livestock stage methane and nitrous oxide

34 Food Miles Simple Solution? There are trade-offs to consider agricultural production manufacturing efficiency energy sources storage waste Is the answer today robust for 10 years time?

35 Air Freight bad guys?

36 Air Freight on one hand The most GHG intensive form of transport Kenyan green beans 20 times more GHG intensive than seasonal UK beans Food is the fastest growing air freighted commodity Influence of climate change on air freight use

37 Air Freight on the other? Other supply options equally GHG intensive (eg. Glasshouse production in EU) Or impractical - greenhouse green beans? BUT These systems are changing biomass CHP Broader debate on supply optima and market demand

38 And again.. Top 20 air freight importers by volume are nearly all less developed countries million people dependent on export horticulture in those countries Often smallholder suppliers in Sub Saharan Africa (up to 120,000 directly employed)

39 Asda Organics Share movement YoY by Business Unit 12 w/e % Share w/e 09 Sep w/e 07 Sep Total Organic Edible Grocery Fresh Meat & Poultry Produce Frozen Dairy Chilled Bakery

40 Total Organics (12 weekly trends) 12 w/e Market & Retailer Growth 90 TOTAL MARKET Total Tesco Total Asda Total Sainsbury's Total Morrisons Somerfield Total Waitrose M&S 80 Expenditure Growth (%) W/e 02 Dec W/e 30 Dec W/e 27 Jan W/e 24 Feb W/e 23 Mar W/e 20 Apr W/e 18 May W/e 15 Jun W/e 13 Jul W/e 10 Aug W/e 07 Sep w/e Period

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42 Milk dairy farm C footprint System g CO2 equivalent per litre milk % Contribution from CO2 % Contribution from methane % Contribution from N2O Conventional Average Conventional Top 25%

43 Packed Potatoes Supply chain Growers (inc on farm storage) Packhouse (grading and packing) Tot GHG as CO2 eq per tonne of potatoes % % % CO2 per tonne of potatoes ASDA Depot % Transport % Total ASDA sales packed potatoes Total CO2 cost = 40kt

44 Key Points The carbon footprint varies significantly between farms so a standard footprint for milk cannot be applied. The contribution from direct sources for milk production is relatively modest at 20-25%. For ruminant production the contribution due to methane is the largest component. Efficiency of production on farm is the key driver to reducing the carbon footprints. By measuring some simple key measures on farms we could account for the majority of the carbon footprint and this should enable bench marking and sharing of best practice to become possible on farms.

45 Kgs CO2 produced per hen place for different egg production systems Cage Free Range Respect ful Rearing Organic Laying Packing and Distribution External Total KG's carbon per hen Index against cage

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48 Summary Awareness is growing and concerns about climate change are widespread, if confused General feeling of powerlessness about the issues in consumers minds which products or retailers are good or bad on green issues How will this develop? Growing understanding of the real issues. Customers asking for and rewarding those who meet their requirements NPD for low carbon products

49 The decisions we take in the next 12 months will define the future of our businesses, and the food industry, for the next 10 years Only Doing the Right thing will restore confidence in our industry