1 Copyright © 2005 ACNielsen a VNU business China Retail Market Development

2 Copyright © 2005 ACNielsen a VNU business Objectives 2004 Retail Census Findings Does Retail universe continue to expand? How big is our key channel (modern trade) as of today? Any changes to the composition of modern trade outlet?

3 Copyright © 2005 ACNielsen a VNU business Retail Development As of 2004 Retail Market Study (Census)

4 Copyright © 2005 ACNielsen a VNU business China Retail Market Dynamics China experienced strong economic growth in 2004 vs. 2003; GDP climbed 9.5% Retail Sales grew by 10.2% Retail & Consumer Price indices grew at 2.8% & 3.9% respectively China fully opened up its retail market on Dec 11th, 2004 in line with the WTO commitments vigorous development will continue across 2005

5 Copyright © 2005 ACNielsen a VNU business China Market - Summary China’s key economic indicators provide a favorable outlook for the overall market development, however… Despite strong growth in these indicators there are more significant challenges for the retail market Modern Trade continues to grow > 30% in terms of store count, far greater than the growth in retail sales This has resulted in further downward pressure in comparable store sales Intensified competition has & will continue to increase pressure on retailer and manufacturer margins Implication to Retailers: Now, more than ever it is essential to understand your positioning in the market To do so means knowing your shoppers needs better than your competitors today Furthermore, to keep abreast of their evolving needs is now not ‘nice to know’ it is ‘ESSENTIAL TO KNOW’ Implication to Manufacturers: High pressure for sales team to catch up with rapid outlet expansion

6 Copyright © 2005 ACNielsen a VNU business 2004 ACNielsen Retail Market Study (Census) The 9th national study Covered over 1 million FMCG outlets in 165 cities & 236 towns in China (villages excluded) 400+ sample points selected out of cities & towns based on stratified, disproportionate, systematic, random method. Estimate the size, structure and sales turnover in the universe of outlets

7 Copyright © 2005 ACNielsen a VNU business 2004 ACNielsen Retail Market Study Key Findings Transformation from Traditional Trade to Modern Trade continuous Continuous strong double-digit growth seen in MT Polarization apparent in MT : Hypermarkets & CVS led the growth ! Number of Grocery and Kiosk declined ! Declining trend consistent across different city types

8 Copyright © 2005 ACNielsen a VNU business Modern Trade Continuously Recorded Strong Double-digit Growth In Store Count & Turnover While Groc/Kiosk Started to Decline ! Modern Trade includes hypermarket, supermarket, minimarket & convenience store G/K MT Others 4,480,940 4,661,623 4,658,256 # FMCG Stores + 44% + 35% -8%-1% +2% +4% -4%0% 40,620 38,481 36,205 Monthly FMCG ACV ( Million RMB) +5%+6% +21%+18% -1%+2% 0% +6% National

9 Copyright © 2005 ACNielsen a VNU business MT Accounted For Over 1/3 Of FMCG Turnover Nationally ; Groc/Kiosk Still Sizeable But Declining Trend Apparent Modern Trade includes Hypermarket, supermarket, minimarket & convenience store G/K MT Others # FMCG Stores (%) FMCG ACV (%) National

10 Copyright © 2005 ACNielsen a VNU business In A cities, not surprising that MT became even more dominant Modern Trade includes Hypermarket, supermarket, minimarket & convenience store G/K MT Others # FMCG Stores (%) FMCG ACV (%) A Cities

11 Copyright © 2005 ACNielsen a VNU business While in BCD Cities, G/K despite its dominance also losing ground to MT which accounts for ¼ of the market Modern Trade includes Hypermarket, supermarket, minimarket & convenience store G/K MT Others # FMCG Stores (%) FMCG ACV (%) BCD Cities

12 Copyright © 2005 ACNielsen a VNU business In short, MT aggressiveness is continuous even in pioneer city like SH  MT would not be saturated (in store count) in near future Store count ACV ACV/Store

13 Copyright © 2005 ACNielsen a VNU business SH & GZ even outperformed other cities with positive growth in per store turnover

14 Copyright © 2005 ACNielsen a VNU business Modern Trade expanding across regions, what about the store type composition within this channel? Any insights?

15 Copyright © 2005 ACNielsen a VNU business Polarization In MT where H’mkt & CVS led the growth in value sales, in addition.. # FMCG Stores Monthly FMCG ACV FMCG ACV per store

16 Copyright © 2005 ACNielsen a VNU business Spend Most Money (%) Use Regularly (P7D) (%) Use P4W (%) Occasionally Use (%) Used Past Year (%) Consider Using (%) Non considerers (%) Hypermarket & Supermarket Leverage 2003 vs Ref: Q3a-d, 5a-b Frequency & Spend strengthen w/i H’mkt to the detriment of S’mkt, lifestyle trends appear to be impacting store choice HYPERMARKET SUPERMARKET Base: Random samples - All respondents (n=3372) Source: 2004 ShopperTrend

17 Copyright © 2005 ACNielsen a VNU business Spend Most Money (%) Use Regularly (P7D) (%) Use P4W (%) Occasionally Use (%) Used Past Year (%) Consider Using (%) Non considerers (%) Convenience & Personal Care Leverage 2003 vs Ref: Q3a-d, 5a-b Spend & Visits grow significantly also impacting the Supermarket format, little change however for Personal Care format. CONVENIENCE STORE PERSONAL CARE Base: Random samples - All respondents (n=3372) Source: 2004 ShopperTrend

18 Copyright © 2005 ACNielsen a VNU business Trade Sector Average Number of Visits Per Month Base: Visited in Past Year Ref: Q6 Growth in spend translates into increased shopping frequency at H’mkt & CVS. S’mkt & more traditional channel visits experienced little or no gain 43.5% 26% Source: 2004 ShopperTrend

19 Copyright © 2005 ACNielsen a VNU business Hypermarkets Continue Playing Crucial Role In MT ; Development Of CVS Adversely Impacted Not Only On Traditional G/K But Also Mini-markets Supermarket Hyperrnarket Minimarket # FMCG Stores (% to Total MT ) FMCG ACV (% to Total MT) National CVS

20 Copyright © 2005 ACNielsen a VNU business Traditional Stores Became More “Specialized”… In Order To Survive Under Severe Pressure From MT # FMCG Stores Monthly FMCG ACVFMCG ACV per store

21 Copyright © 2005 ACNielsen a VNU business Loyalty to specific brands remains low or in decline except cigarettes Base: Random samples - All who buy the products regularly Ref: Q16, 18, 20, 22, 24, (26, 28, 30) Purchase Behavior in Event of Unavailability Q. If you were buying from your usual store and it’s not available, would you…..” %

22 Copyright © 2005 ACNielsen a VNU business Conclusion In the recent ACNielsen Retail Market Study, retail universe reported a marginal decline (-4%) in store count resulted by the shrinkage of Groc/Kiosk (-8%) in which Modern Trade (+35%) rapid expansion is believed to be key drive. As a result, transformation from Traditional Trade to Modern Trade continues. Modern trade accounts for 1% of store count while 33% of total FMCG sales value turnover. Modern Trade aggressiveness observed across city layers even Shanghai which is perceived as pioneer city, modern trade expansion is still evidenced and didn’t seem saturated. At the same time, polarization appears in modern trade: In store count, H’mkt & CVS led the growth Consumer study (2004 ShopperTrend) illustrates the increased frequency of visits and also tendency to spend most H’mkt/CVS Lastly, chinese consumers are having low brand loyalty that majority will switch to other brand when the ideal one is out-stock.