1. Management Ventures, Inc. Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Where We Are Now… Presented by: Bryan Gildenberg November 2008

2. 2-2 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI A Gathering Storm: Were Going To Party Like Its 1992 You Are Here Wall Street Main Street Storm Track

3. 2-3 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI So, Lets Play The Storm Metaphor Some More ;-) The back eye wall of a hurricane is the worst place to be –All measures would suggest we have just entered this A 3-9 month period of intense turmoil –Increases in unemployment –Mildly catastrophic business results – profits and cash flows down –The wind-down of the asset selloff –Housing searching for a landing place –Troughed consumer confidence

4. 2-4 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI US Consumer Confidence (or Lack of It) Index Source: Pollingreport.com 59.8 58.860.5 September 2008*: *Preliminary #s Consumers More Optimistic About Tomorrow Than Today Consumers More Optimistic About Today Than Tomorrow 35 Year Low

5. 2-5 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Consumer Confidence in Pink, 12-Month Rolling comps In blue… September 2000-October 2008 Source: The Conference Board, MVI Research

6. 2-6 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI 4 Simple Retail Rules (Or, Why Wal-Mart Trumps Target) Needs beat wants –Discretionary purchases will disappear for a while Value beats difference –Some difference is fine, but value has to lead Trip consolidators dominate extra trip retailers –Trip capture obviously important –…but for retailers that are not the highest frequency option in their shoppers portfolio of stores category conversion is the real game Financial conservatism beats financial adventure –Targets credit card business

7. 2-7 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI The Core Real Estate Problem Is Still Regional Which retailers are exposed? Source: RealtyTrac.com

8. 2-8 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Latest Estimates from the Federal Open Market Committee Real GDP growth FLAT in 2009 Unemployment rising until early 2010 –Which cripples consumer confidence Housing market bottoms late 2009 –Until then discretionary purchasing challenged Disinflation and a risk of deflation in 2009 and 2010 –Though with all due respect we may disagree with them a bit on the fate of the dollar in 2009

9. 2-9 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI The Economy Is Personal The Consumers Financial Statements Income Statement Cost inflation – declining dollar Cost inflation – export restrictions Wage acceleration – slower than inflation Tax stimulus – short-term bump Balance Sheet Asset values – real estate price decline Asset values – less opportunistic capital gain Debt – harder to service, harder to get Change in financial strategy (defer, delay, redefine) Cash Flow Challenges (reduce, trade down, trade out)

10. 2-10 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI The Trading Goes Up & Down, But Also In And Out Trade Up Trade Down Trade In Trade Out The New Premium – personal and societal Transparency Preservation Purpose The New Frugality Bulk purchase for cost/oz value Replace high ring purchases/services with lower cost solution DIY vs. DIFM The New Poverty Trip Consolidation Category Rationalization Back to the non-modern trade The New Value: Smaller packs 2 nd tier brands Private Label Promotion responsive

11. 2-11 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Retailer Uncertainty Is Strangely Predictable Uncertan retailers have 2 specific behaviors Profit certainty vs. profit maximization Asset avoidance vs. asset productivity Profit certainty Buy side vs. sell side profits % margin vs. $ margin Fees vs. % of the take Asset avoidance All about inventory minimization – anyone else have a customer thats stopped ordering in 2008?

12. 2-12 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Whats The Way Out? Hard to see the consumer leading us out of this recession –Income statement consumers choked by unemployment –Balance sheet shoppers reconfiguring their wealth perception What can government do? –Somehow help establish a floor for housing values –Direct stimulus/infrastructure spend may only replace what states stop spending –Industrial policy must be aimed at industries that will generate demand and US capital investment –Massive US stimulus plan may be coming (will destroy the dollar, btw)… Its up to business…now, hows that gonna work? –Global sourcing may rebalance markedly if US industrial policy, a weaker dollar and Chinese capacity constraints converge as a perfect storm

13. 2-13 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI A Crisis Is a Terrible Thing to Waste! What an Inverted Yield Curve Means Certainty Time Traditional An average company with short-term uncertainty Winners in 2010-2012 Building FITTER FMCG companies Flexibility Information flow Total economic returns Tribe leadership/conversational marketing Enablers (people, tools) Retailer brand development

14. 2-14 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Key Economic Conclusions Disinflation will be the word for 2009 This means those of us with projected price increases have a tough time ahead Obamas First 100 Days Are Critical 52% of the USA better have been right about this guy! Unemployment has several knock-on effects Fear Wages Time pressure

15. 2-15 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Key Economic Conclusions, Contd Holiday messaging will need to be fine-tuned or overhauled Local economic conditions will drive different regional strategies Tightening credit puts more businesses at risk For highly leveraged retailers your credit teams need to be integrally involved Uncertainty is your reality….

16. 2-16 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Market Evolution Has Many Stages…

17. 2-17 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Gradual Transition Rapid Transition Gradual Transition Rapid Transition MT <20% of mkt T5 MT retailers <30% of MT OT>50% of mkt T5 MT retailers >60% of MT MT <40% of mkt T5 MT retailers <50% of MT MT <30% of mkt T5 MT retailers <40% of MT Pioneers Category Specialists, Hypermarkets, Cash & Carry, and Local Food Chains Adjacent Nation, Primary Formats Discounters & C-Stores = new growth formats; Hypers and C&C largest growth formats Adjacent Nation, Pioneers, and Secondary Formats Traditional Trade now impacted Pure Secondary Formats, Multi-formats Drug, Supermarket, Category Specialists Exploration Concentration Penetration Maturation Regional Variations OT>60% of mkt T5 MT retailers >70% of MT Multi-Format Dominant High-capability Drug, Supermarkets & Category Specialists. Regrowth of Specialty Chains, Mom n Pops with Demographic Focus Post-Modern Market Evolution Has Multiple Phases Developing markets move along a predictable evolution continuum Source: MVI research

18. 2-18 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Overarching Trends Across Markets Very difficult to generalize about markets and their exposure That being said, many markets in Exploration and Concentration mode have banking systems that are decoupled from the global system –Has been a barrier to economic growth historically –However, in this environment? Blessing in disguise Uncertain economic times are often good for the informal/traditional trade –Slower economic growth slows modern trade aspirations –Informal credit often required to get through tough times –Modern trade operators need profits and growth when a pure growth story is unconvincing to investors –Modern trade (especially for discretionary purchases) in many cases leverages purchasing power from remittances, which slow in a global slowdown Declining commodity costs leave many markets exposed to rapid drop in GDP –Particularly acute in oil based economies –Some, like Chile, actually prepared for this… Cash flows more important than profits –Asset avoidance vs. optimization!

19. 2-19 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Exploration Markets: Focus India Indian economy unique for exploration in that it net benefits from falling commodity prices –2/3 of Indias economy is still internal, not global –Rising food prices hurt India domestically more than it helps their export revenue –Indias exports more balanced between materials, goods and services Retailers modernizing India are by and large Indian, well capitalized and patient –In exploration phase, domestic modern operators often lack financial sophistication – not the case here Some strategies making their way into this market earlier –Future Group in particular more aggressive with private label

20. 2-20 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Concentration Phase – Most of Lat Am and Russia Recovery from tough economic times accelerates concentration –Most acquisitions come buying troubled retailers –If downturn werent global, retailers from sound economies could be more acquisitive –Major global consolidators in Lat AM (WMT, CFR) have their issues at home right now Real advantage for Lat Am is previous credit woes –Much stricter banking regulations than most of the developed world leaves their banks relatively solvent right now Price warfare a feature of the concentration phase anyway, so any softening intensifies this Lat Am concentration drivers largely Chilean outside of the globals, so Chiles economy is the one to watch

21. 2-21 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Lat Am Penetration Markets Brazil, Mexico, Argentina, Chile (though Chile is in many ways a post-modern market) –Continued format innovation to expand beyond primary geographies – Dia%, Todo Dia, Bodega –Chile hoping copper prices rebound before their rainy day fund runs out –Brazil, Mexico, Argentina though the global economic crisis is interesting many of their problems are at home – Brazil – weaker peso, government transition – Mexico – crime and linkage to the US economy – Argentina – continued political uncertainty and low consumer confidence Penetration phase for major retailers all about format development and complexity management – this will continue

22. 2-22 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Other Key Attribute of Penetraton Phase Retailers Is Consumer Credit Global credit crunch Consumers turn to retailer credit –Alternative source of revenue –Larger basket –Big ticket items Retailers try to show they understand the hardships shoppers are going through, and offer rewards to help them get through the tough times Manipulate point rewards to keep people spending Source: MVI research, company websites

23. 2-23 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Conclusions: Around The World in 20 Minutes US economy is headed for a short, sharp shock –What happens after that is anyones guess but recovery before 2010 seems unlikely –SENTIMENT CHANGES FASTER IN A NETWORKED WORLD Major challenges for retailers in the USA that sell discretionary purchases based on difference Exploration markets – the revenge of the traditional trade? –India is (like always) almost backward from the conventional wisdom here Concentration markets – intense price competition and acquisition on the way to recovery Penetration markets – smaller formats and consumer credit key drivers of growth

24. 2-24 Corp. Site: MVI-Worldwide.com, Licensed site: MVI-Insights.com © 2008 MVI Bryan Gildenberg Chief Knowledge Officer Global Headquarters: 20 University Road Cambridge, MA 02138 617-588-4124 bryan@mventures.com Management Ventures, Inc. … A Partner in Your Success Thank You!