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WHAT IS RETAILING Retailing is a distribution channel function where one organization buys products from supplying firms or manufactures

the product themselves, and then sells these directly to consumers. A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a consumer purchases products. In the majority of retail situations, the organization from which a consumer makes purchases is a reseller of products obtained from others and not the product manufacturer. Volume growth down in 2009 in Asia Throughout the Asia region, countries experienced a lower level of grocery sales growth in 2009 compared to the very strong performance in 2008. Discounting the effects of lower inflation on absolute sales dollars, volume growth was significantly lower in many markets. The strongest performing markets in 2009 were India and Vietnam, where sales values increased by nearly 15% compared to 2008.In China and Indonesia, markets that had consistently enjoyed doubledigit growth over the last 5 years, the growth rate slowed down to +3% and +5% respectively. China has seen a strong recovery though since Q4 2009 and is now back to 11% growth in Q1 driven by a strong demand for food categories. In the more developed markets of Hong Kong, Singapore and Korea, where grocery sales had benefited from the economic difficulties as consumers spent less on eating out, we saw growth rates slowing down in the 2nd half of 2009 as consumer sentiment became more positive. In Singapore where the sales of basic groceries such as cooking oil grew strongly in 2009 we are now seeing growth switching back to personal care, health and more premium products. The 2000s - a decade of change for grocery retailing in Asia Over the last 10 years we saw a massive change to the grocery retail business across Asia, driven by retailer investment in new stores. The number of modern trade stores has been growing by over 16,000 stores a year with the total store count increasing from less than 50,000 to close to 220,000. Modern trade on the rise: Across the region, the modern trade now accounts for 53% of the packaged grocery sales tracked by Nielsen, from the 35% share in 2000. Hypermarkets are the strongest modern trade channel accounting for 28% of packaged grocery sales. Korea was another market where the speed of change has been rapid. Again, this is a market where Hypermarkets occupy a very strong 31% share of trade. Convenience stores have also expanded rapidly, achieving a 12.5% share and increasing from 3,000 to nearly 17,000 in numbers.

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Traditional grocery stores have suffered most in Korea, with a closure rate of 5% per year or more than 50,000 stores during the decade. The speed of change has generally been slower in South-East Asia, ranging from 0.6% in the Philippines, the only market in the region where there has been no significant foreign investment, up to 1.9% in Malaysia. Hypermarket growth, at 40% per annum, has been the biggest driver of change in Malaysias grocery shopping scene. However, unlike China or Korea, we have not seen the same level of store closures for the traditional trade with overall store numbers only down by a few thousand, and over 70% of shoppers still using them as frequently as 2 to 3 times per week. Indonesia was the second fastest developing market in South-east Asia with an annual share change of 1.6%.This is likely to continue to grow at a fast rate with modern trade still accounting for less than 40% of sales. The fastest growing channel in Indonesia has been the mini-market, led by local giants Indomaret and Alfamart. Over the decade, store numbers increased from just over 2000 to more than 11,500. It is now difficult in many cities to stand on a corner and not see at least 2 of these stores!! The impact of mini-markets on where people shop has been significant as their share of trade has increased nearly six-fold to over 17%. Indonesia is also a market where Hypermarkets have grown strongly but where there is still room for expansion with only 43% of shoppers using one on a regular basis. 2010: The start of the male shopper decade? Across the Asia region, the proportion of men claiming to be the main shopper increased on average from 14% to 22%.The only exception was in China where the proportion of male main shoppers remained relatively flat at just 15%. In South and South-East Asia, men are generally more likely to be grocery shoppers in most countries, we now see male shoppers accounting for more than 25% of the main shopper pie. Malaysia leads the way with 38% followed by the Philippines and India. There are still two countries though, where things remain a little more traditional Korea and Vietnam. While there are signs of change in Korea, likely due to the development of Hypermarkets, only 11% of men claim to be the main shopper for their families. In Vietnam, where only 3% of main shoppers are males (from 1% a decade ago), the traditional Wet Market dominates with only 11% of packaged grocery sales going through the modern trade channel. Housewives no longer dominate the (shopping) aisles: As male shoppers become more involved in grocery shopping, the popular perception that grocery shopping is mainly done by stay-at-home housewives is now only applicable to a couple of markets. In particular, India and Indonesia are the only markets where more than 60% of the main shoppers claim to be housewives. RETAIL IN SOUTH EAST ASIA Page 2

At the other end of the spectrum, China has the lowest number of shopping housewives at just 10%, followed by Thailand at 27%. With a high proportion of working women in these markets, a key challenge for retailers is to provide even more convenient solutions. In Thailand, we have seen very strong growth over the last 12 months of smaller formats, particularly convenience stores that now account for over 16% of packaged grocery sales. Hypermarket growth stalls: a short term effect? One of the clear effects of the 2009 economic downturn was a halt in the forward march of Hypermarkets in many countries. In a number of countries such as Korea and Taiwan, we saw Hypermarkets lose as much as 1% share as shoppers used them slightly less frequently. This was quite possibly an effort from shoppers to try to save money by avoiding the larger stores where they are faced with more non-discretionary spending temptations. At the same time, many countries saw a growth in the usage of smaller supermarkets or mini-markets, stores that offer shoppers a more convenient local grocery shopping option and lower travelling costs. In Korea, the number of shoppers who used supermarkets as their main channel increased from 17% to 23%, reversing a declining trend we had seen for more than 10 years. Regular use of Supermarkets also increased for the first time in many years in Taiwan, Indonesia and Thailand, markets that have had strong development of Hypermarkets. Whether this trend continues through 2010, as consumer confidence returns and shoppers start to increase their spending, remains to be seen. It is possible that Hypermarkets may find growth harder to come by in a number of markets, with retailers continuing to invest in smaller formats, offering shoppers more convenient top-up shopping. In many cases the smaller formats are being opened by the leading Hypermarket chains in an effort to expand their footprint to smaller catchment areas that cannot support a larger store, or to capture spending from different shopping trips other than the main stock-up trip. The development of this multi-format strategy in Asia follows a retail trend we see being implemented globally. Shoppers become more focused on value in 2009 A prominent impact of the economic downturn on shoppers behavior was an increased focus on value across all markets. This was partly due to the economic downturn, but was also retailer driven with the amount of retailer promotional activity increasing sharply in a number of markets. The proportion of shoppers who claim to be promotion seekers increased noticeably, particularly in some of the developing markets such as Vietnam, India and China. Malaysia was another market where promotions became even more important despite it already having one the highest proportions of promotion-sensitive consumers. RETAIL IN SOUTH EAST ASIA Page 3

In Korea, 34% of shoppers choice of stores to patronize is influenced by the stores promotional leaflets, nearly 20% more than the average for the region. The story is different in Indonesia, where shoppers were less inclined to buy based on promotional offers. As sales dropped sharply, shoppers were more likely to focus on buying the brands that they trusted rather than risking their money on products they were not familiar with, even if these were priced competitively. Indonesia is also the country where the highest proportion of shoppers (81%), claims to choose stores purely based on convenience (store location). This may well be due to the preponderance of conveniently located mini-markets. Information Exchanges The use of electronic data exchange (EDI) is becoming increasingly common between large chains and their major suppliers in different regions, particularly dry goods supplies. The EDI system of Wal-Mart has been and is a model for the industry, allowing Wal-Mart to send out orders, verify the receipt of orders by suppliers, schedule delivery, and provide data on sales to enable suppliers to manage inventory. Internet exchanges are also used by chains globally to reduce coordination costs and outsource logistics operations. Similar to the way they outsource physical procurement logistics through wholesale distributors, retailers may now outsource produce transactions, distribution, and inventories through Internet exchanges. These may include Internet business-to-business (B2B) exchanges, and e-procurement and logistics services. Globally, there are several main general Internet B2B exchanges into which large retail chains made major investments during the late 1990s and early 2000s (see box on World Wide Retail Exchange). Each exchange has a perishables exchange component, generally strengthened by a joint venture with an exchange specializing in perishables. As day-to-day management of perishables transactions is costly, Internet exchange services specializing in fresh produce may likely grow.

JUST IN-THE LATEST NEC unveils next generation retail solutions

Leading network and IT solutions provider NEC India unveiled a range of latest retail solutions, including the innovative compact POS terminal with self-check-in system, thermal printer and customized retail and billing solutions, at the recently held India Retail Forum 2011. These solutions are aimed at segments like food and beverage, large format retail, cineplex and hospitality. Till date, NEC supports approximately 15,000 locally and globally-linked retail stores across various industries in Japan, US, China, and Southeast Asia, Middle RETAIL IN SOUTH EAST ASIA Page 4

East and remains as the leading retail solutions provider in Japan. NEC has a strong presence in the Indian retail market presently and is associated with wellknown retail brands. ''We recognize the growing demand for technology and solutions in the Indian retail sector. Looking at this trend, NEC is offering a wide range of end to end retail solutions to address the Indian consumers preferences,'' said Amit Bhatia, head of retail solutions at NEC India. ''We have expanded our retail solutions portfolio with Box POS printer & billing solutions, which will offer a more comprehensive and enjoyable shopping experience. Govt. considers raising FDI ceiling in single-brand retail(New Delhi-The Times of India: October 13, 2011)

Government is considering increasing FDI ceiling for single brand retail. "We are seriously considering raising the bar further - that means to allow increased FDI...how much it is, only when we take the decision you will get to know," commerce and industry minister Anand Sharma said on Tuesday, on the sidelines of a CII-ET Dialogue Luxury event here. India allows 51% FDI in single-brand retail sector at present. The government had proposed to expand FDI in the sector to 100% and had placed the proposal before a joint government-industry task force. "You bring in FDI or partnership, surely it will be a game-changer," Sharma added. As luxury market in India is booming, foreign retail players are bullish on India. The Indian luxury market grew at 20% in 2009-10 as compared to the previous year, and is expected to grow at over 25% in 2011-12. Global luxury brands like Jimmy Choo, Salvatore Ferragamo, Burberry said they are keenly awaiting the raising of FDI cap in single brand retail. "If we have the possibility to control 100% of the company, of course, the return on investment is more favorable. So we could be keen to invest more in India," said Salvatore Ferragamo chief executive officer Michele Norsa. "The colours you can see in India is probably more than anywhere else. You visit Varanasi; see the powders (rangoli) and sarees from pink to red. There's no other place you can see this variety. This depicts the style, fashion sense in India," Norsa added. PRESENT SITUATION India currently has 203.1 million online shoppers in its country. When Indian online users do shop online, they, like the rest of the region's shoppers, overwhelmingly prefer to use credit cards, with 60% of them saying they were their most preferred form of online payment, the next popular method being debit cards (24% of users).

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Indian online shoppers are more opportunistic than anyone else in the region, with 30% of frequently making impulse purchases, compared to around 10% in Singapore, South Korea and Australia, for example. The items they tend to snap up on impulse are home appliances and electronic products (63% of users) and airline tickets (54%). Nearly all Japanese Internet users shop online - the country has an online shopping penetration rate of 97%. More so than anyone else in Asia, the Japanese prefer paying for goods online with their credit cards over any other form of payment method, with 70% of them saying that was the case. Online shopping is the second most favoured online activity in Japan, after email. South Koreans love to shop online. Among those who have Internet access, 99.9% have used it to buy something - the highest online shopping penetration rate in the world. South Korea's Cyworld is the world's second largest music and video retailer after iTunes. South Korean's online music download market has grown to such an extent that now more music is sold online than traditional offline channels. Creating that first positive shopping experience is key in order to capture loyalty and money - Malaysian online shoppers tend to stick to the shopping sites they are familiar with, with 60% of saying they buy mostly from the same site. Malaysian online shoppers mainly buy airline tickets or book travel reservations over the Internet (55% of users) make tour / hotel reservations (41%) and buy computer hardware (22%). Singaporeans love shopping: 80% of them have shopped online. Singaporeans are also amongst the highest online spenders in Asia, spending on average US$3,480 online over the period of one year, ahead of Japan, South Korean and Hong Kong. Singaporean online shoppers like to plan their purchases rather than buy on a whim, with only 10% of them making frequent opportunistic purchases. Fashion and beauty are the two dominant segments in Taiwan's online shopping market, with compound average growth rates of 88% (fashion) and 49% (beauty). WHAT TO EXPECT Retailer concentration will increase very much at the same rate that we saw over the last few years, shifting by 1 to 2% annually. The occasional bigger changes will be driven by mergers and acquisitions as retailers strive to drive profitability through size. The traditional trade will remain an important retail channel in most developing markets, although they will lose share at a rate of about 1% per year. For the

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region, this is likely to be slower than the preceding decade as there will not be the same size of impact from China. While India will have a lot of focus from a regional perspective with investment being ramped up again over the next few years, the speed of change is unlikely to bear much resemblance to what was experienced in China. While we still saw 16% growth in modern trade stores in 2009, it was definitely a year of consolidation and the overall share of sales these stores account for remained at only 5%. Only 30% of urban shoppers use supermarkets or hypermarkets regularly, with only 14% claiming to use them as their main store. During 2009 the average number of different chains used on a regular basis actually dropped from 2.4 to only 1.8. India has probably the strongest traditional trade with its Kirana stores successfully meeting shoppers needs for convenience and personal service. As well as competition, there are a number of other issues modern retailers will need to overcome to be successful, particularly the development of an efficient and cost effective supply chain.

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