Spanish food retail market overview

Spanish food retail market overview

95,000 90,000 85,000 80,000 75,000 70,000 0.08 0.06 0.04 0.02 0-0.02-0.04-0.06 Spanish food retail market and GDP recent evolution Food retail market evolution 2005-2014 EUR mn GDP evolution 2006-2014E - % YoY constant prices 4.1% 3.5% 1.4% 0.9% 0.0% 0.6% -1.2% -2.1% -2.9% -3.8% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 CAGR 5.2% Food market % CAGR -1.3% CAGR -0.9% Food retail per capita - international benchmark EUR France United Kingdom Germany Italy Portugal Spain Russia In 2014, the total food retail market in Spain experienced a decrease of 2.9% YoY according to KPW. The GDP declined by 0.9% CAGR in the 6 year period 2008-2014) The food retail market has followed a similar pattern and has decreased by 1.3% CAGR, losing c.eur7 bn from the 2008 peak. Poland Turkey Source: Ine, KWP (2014) and Euromonitor 2

Food inflation evolution vs. CPI Total CPI and FPI evolution YoY change % 8.0 6.0 4.0 2.0 0.0-2.0-4.0 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 2008 2009 2010 2011 2012 2013 2014 CPI FPI Food inflation has been significantly negative in the central part of 2014 and started to recover after the summer. The drop in oil prices seems to have reverted the trend again and FPI ended the year in negative territory Source: Ine 3

Evolution of key sectors 2008-2013 Main consumer segments evolution 2013 vs. 2008-5% -22% -27% -37% -43% Furniture Electronics Apparel and Footwear Restaurants and bars Food Food has been substantially more resilient during the crisis than other main consumer segments which plunged at double digit since their peak in 2008 Source: Ine 4

Traditionals still play a major role in the Spanish market Organized and traditional MS 2013 international benchmark Traditionals MS evolution 12% 88% 17% 19% 21% 83% 81% 79% 27% 28% 32% 73% 72% 68% 51% 69% 32% 33% 33% 32% 32% 31% 31% 31% 30% 29% 29% 28% 27% 49% 31% +4.6pp UK Germany France Portugal Spain Italy Poland Russia Turkey 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Organized Non-organized Fresh consumption evolution - % on total food 2006-2013 Weight of traditional channel by type of product 2013 - % 46.9% 45.3% 45.2% 44.6% 44.8% 44.4% 44.3% 44.3% 52.4% 16.5% 17.0% 16.6% 16.3% 17.3% 16.9% 16.6% 17.3% 7.7% 7.0% 6.3% 6.3% 6.3% 6.2% 6.1% 6.0% 27.4% 22.8% 21.4% 22.2% 21.9% 21.3% 21.3% 21.5% 21.0% 9.1% 2006 2007 2008 2009 2010 2011 2012 2013 Total Fresh Rest Meat Fish F&V Fresh products Spain lags behind other top Western European countries in terms of penetration of modern players: traditionals still represent c.27% of the total food retail market. In the last 12 years, the share of non-organized players has only declined by 4.6pp. The main reason behind that is the strong weight of fresh produce in the total food consumption (c.44%) which is still mostly bought (c.52%) in open markets and specialized players. Source: Ine, Magrama and Ali 5

Food retail supply and demand Supply and demand evolution - MGD sales and sqm - % YOY 5.2% CAGR 2.0% 2.1% 2.6% 2.5% 2.0% 1.5% 1.4% 1.9% 0.0% 0.1% 0.4% 2008 2009 2010 2011 2012 2013-1.8% CAGR +0.1% Supply % Demand % During the period 2008-2013, supply has significantly outpaced demand: the MGD sqm have progressed by 2.0% CAGR in the period while MGD has only increased by 0.1%. This indicates strong pressure on LFLs of organized players and explains the serious difficulties faced by several Companies (Eroski, El Corte Inglés, El Arbol...) Source: Alimarket 6

SQM evolution 2010-2013 Top10 During the 2010-2013 period, Top10 Spanish retailers in terms of sqm opened represented c.83% of the total new selling space, being Mercadona the most active player, accounting for c.27% of the new sqm, well above Auchan, Dia, Carrefour and SPAR SQM evolution 2010-2013 Top10 Player Sales 2013 EUR mn Stores opened 10-13 SQM opened 10-13 % SQM opened MERCADONA 18,197 157 218,788 27.3% AUCHAN 4,490 116 87,901 11.0% DIA 4,500 237 83,531 10.4% CARREFOUR 8,416 151 65,278 8.1% SPAR 1,306 216 62,347 7.8% FROIZ 522 27 31,558 3.9% SEMARK AC 376 31 31,513 3.9% ALDI 611 28 30,385 3.8% EROSKI 5,881 38 29,618 3.7% AHORRAMÁS 1,396 48 24,428 3.0% Top10 45,696 1,049 665,347 82.9% Source: Companies and Alimarket 7

Market share by segment international benchmark Compared to the average of our international benchmark, Spain has a much stronger weight of supermarkets (68% of MGD sales compared to an average of 42%) and a significantly lower participation of hypermarkets and discounters. Modern convenience is a marginal segment in Spain representing less than 2% of the MGD MS by retail channels international benchmark 2013 - % of MGD sales 3% 4% 0% 10% 15% 26% 43% 13% 27% 52% 23% 22% 2% 2% 3% 11% 13% 17% 14% 29% 6% 19% 22% 30% 9% 51% 22% 4% 2% 3% 2% 4% 5% 5% 22% 18% 17% 30% 18% 19% 20% 31% 45% 16% 40% 32% 49% 57% 45% 34% 34% 49% 62% 68% 58% 26% 34% 25% 48% 35% 52% 21% 37% 42% Russia France Germany Italy Portugal Spain Turkey United Kingdom Poland Czech Republic Hungary Slovakia Ukraine Romania Bulgaria Average Supermarkets Hypermarkets Discounters Convenience Source:Euromonitor 8

Top5 MS on MGD international benchmark TOP5 MS in total MGD market 2013 international benchmark 18% 26% 28% 30% 36% 41% 52% 59% 60% 82% 74% 72% 71% 64% 59% 48% 41% 40% Germany France UK Portugal Spain Poland Italy Russia Turkey % Top 5 MGD % Other MGD The food retail market in Spain is still more fragmented than many of the top Western European countries. Unlike other European countries, where most regional operators have disappeared or have been acquired by national or international players, regional food retailers play an important role in Spain and are well adapted to their local markets and enjoy (in many cases) solid financials. Source: Companies info and Euromonitor 9

Sales evolution benchmark Apart from Mercadona, which has increased its net sales by 26.4% in the period 2009-2013, only regional players (+16.9%) and discounters (+14.7%), have showed positive sales growth, while national chains have faced a substantial decline Sales evolution 2009-2013 - % 26.4% 16.9% 14.7% 0.7% -1.2% Mercadona Regionals Discounters MGD Market National without discounters and Mercadona -17.5% Source: Companies and Alimarket 10

Sales densities international benchmark Spain is a very competitive market with c.316 sqm of MGD selling area per 1,000 inhabitants, in particular in the supermarket segment where the Country has the highest sqm density of our benchmark SQM densities per 1K inhabitants benchmark 2013(*) Hyper 149 102 98 73 68 62 Average 75 SQM densities per 1,000 inhabitants benchmark 2013(*) Total France UK Germany Poland Spain Italy Russia Turkey 28 10 423 393 SQM densities per 1K inhabitants benchmark 2013(*) Super 316 292 272 257 183 Average 278 193 177 162 137 134 Average 118 76 73 64 129 Spain Germany France Turkey Italy Poland UK Russia Germany France Spain Italy UK Poland Turkey Russia SQM densities per 1K inhabitants benchmark 2013(*) Discount 146 62 58 46 44 33 33 Average 63 15 Note(*): Average excluding Spain Germany Poland France Spain Italy Russia Turkey UK Source: Companies and Beragua 11

Sales densities evolution 2009-2013 - Top15 Sales densities evolution 2009-2013 TOP 15 EUR sqm 9,656 8,088 4,865 4,843 6,059 3,571 4,817 5,471 3,919 4,522 3,223 2,860 3,242 2,560 4,333 4,802 MERCADONA CARREFOUR EROSKI AUCHAN DIA ECI LIDL CONSUM AHORRAMÁS MAKRO SPAR GADISA MIQUEL EL ARBOL CONDIS Top 15 9% 3% 3% 4% 9% 0% -17% -1% -11% -20% -2% -18% -8% -1% -11% -4% Sales densities of TOP15 Spanish food retail players have declined by 5% in 2009-2013. Price oriented players (Mercadona, Lidl and DIA) along with Consum and Gadisa have been the only companies increasing their sales densities in the period 2009-2013, while hypermarkets, C&C and El Arbol have faced the strongest declines. Source: Companies and Alimarket 12

Main regional/family owned operators 9 Alimerka 11 Semark AC 7 Uvesco 2 Gadisa 10 Froiz 3 BonPreu 4 Condis 6 Bon Area 1 Ahorramás 12 Hiper Usera 14 Juan Fornes 8 Coviran 15 Luis Piña 13 G. Hermanos Martin 5 Dinosol Note(*): Numbers refer to the sales ranking of the regional players Source: Companies and Alimarket 13

Factors of store selection 2013-2006 Reasons for buying in a particular store - % of customers 54.0% 54.8% 62.1% 55.5% 67.2% 66.7% 58.3% 44.3% 45.1% 59.3% 40.4% 51.9% 62.7% 50.9% 64.1% 55.3% 47.8% 35.3% 2006 2008 2010 2011 2012 2013 Quality Price Proximity Price sensitiveness has substantially increased during the crisis period in Spain (reaching its peak in 2012 when it surpassed Quality as a main reason for shopping). In 2013, Quality recovered its position as #1 driver of shopping for customers. Source: Magrama 14

PL penetration Virtually every company in all food retail segments are increasing the participation of PL on their sales. Notably Mercadona, with c.56% of its sales made through PL, has reached similar figures or even higher than soft discounters such as DIA PL penetration* 2012-2013 % 78.3% 79.6% 56.8% 56.4% 52.9% 54.5% 37.0% 35.2% 26.3% 28.7% 29.3% 28.4% 26.3% 27.7% 25.9% 25.7% 21.0% 21.9% 18.9% 19.3% Lidl Mercadona Dia Eroski Super Consum Eroski Hiper Ahorramas Carrefour Hiper Caprabo Alcampo 2012 2013 Note(*): Includes Food, H&B, Baby and Pet food Source: Kantar Worldpanel 15

Price positioning 2014 Cheapest banner = 100 Cheap basket Cheapest banner = 100 Standard basket ALCAMPO 100 S. DANI 100 MAXI DIA 110 ALCAMPO 106 LIDL 112 MERCADONA 111 GADIS HIPER EROSKI ALDI MERCADONA SUPERM. CONSUM CARREFOUR 115 115 116 116 118 120 BON ÀREA GADIS HIPER CARREFOUR GADIS SUPERSOL 111 111 111 113 113 AHORRAMÁS 120 FROIZ 113 DIA MARKET 122 SUPERM. CONSUM 113 CONSUM BASIC 122 MAXIDIA 114 SIMPLY MARKET 122 CHARTER 114 EROSKI CENTER 122 HIPERUSERA 114 CAPRABO 125 E. LECLERC 115 GADIS LUPA CARREFOUR MARKET E.LECLERC FROIZ COVIRÁN 126 126 126 128 128 152 HIPER SIMPLY DIA MARKET ALIMERKA AHORRAMÁS SORLI DISCAU 115 115 115 115 129 SORLI DISCAU 169 HIPERDIRECT 131 ALTOARAGÓN 171 TU DESPENSA 132 SÁNCHEZ ROMERO 194 SÁNCHEZ ROMERO 160 NOTE: The study of the OCU 2014, includes a total of 1,165 stores with two types of baskets: The standard Basket: branded products with a direct comparison of 146 identical products. Cheap basket: 79 products, always the cheapest, regardless of manufacturer The study excludes promotions and benefits to loyalty cardholders Source: OCU 16

Franchising is very important in the Spanish food retail market Franchising is very important in the Spanish food retail market: there are 50 chains using this system with a total of c.8,500 stores (c.40% of the total number of shops) Evolution of number of franchisors 2008-2013 Food retail Evolution of number of franchised stores 2008-2013 and % on total market 38 40 41 44 50 50 8.293 5% 8.568 8.237 8.523 8.095 7.897 40% 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Fuente: Tormo, AEF and Beragua 17

Still room for further consolidation Still room for consolidation The consolidation of the Spanish market has progressed at a very slow pace. DIA has become the most active consolidator. We believe the process has not concluded yet and we anticipate further movements in the near future as well as a renewed appetite of financial investors for the sector (as seen in the acquisition of La Sirena by OpCapita) National consolidations The acquisition of Caprabo by Eroski (2007) has been the most sizeable national consolidation in Spain in the recent years. In October 2012, Dia acquired Schlecker (German discount specialist in cleaning and health and beauty products) in Spain and Portugal for c.eur70 mn. In 2014 the Company acquired El Arbol for c.eur120 mn and 140 Eroski stores in the Madrid region. Regional consolidations and assets operations Few regional consolidations: Acquisition of Ercoreca by Uvesco (2011). Galerias Primero was bought by Group EL Árbol in 2008. Assets operations: Disposal of hypermarkets in Madrid by Eroski sold to Leclerc. Disposal of supermarkets in Madrid by Eroski sold to DIA. Fallen angels International players: Intermarché (acquired by Bonpreu in 2010) and Plus (acquired by Dia in 2007) have abandoned the Spanish market. Eroski and Vidal have been forced to sell assets (Eroski) or have gone vast (Vidal). Dinosol was sold in parts: Peninsula and C&C to the Lithuanian Group Maxima and Canary to a group of investors. 18

Recent developments in the Spanish food retail market While discounters are moving towards supermarket formats In the last few years, traditional discounter retailers present in the Spanish food retail market, such as Lidl or Dia, are moving towards supermarket formats: Lidl has introduced assisted meat and fish counters in some of its stores (leased to third party specialists) and has improved bakery and frozen sections while it keeps to focus its advertising in quality and freshness. Dia has started to offer assisted meat in its new format of proximity stores Dia Market outlets. Both retailers have developed a premium private label, with gourmet products ( Deluxe for Lidl and Delicious for Dia) and its is especially used in Christmas. Dia has recently acquired the regional supermarket chain El Arbol and its plans include to create an hybrid concept with discount-type assortment in dry groceries and H&B and traditional fresh sections (assisted and local assortment) in fish, meat and charcuterie. On the other hand, several new price-oriented players have entered the Spanish market: new price-oriented players have entered the market Supeco Carrefour introduced its first Supeco hard discount store in 2012. As of today, the Company has 12 stores in the country, with a selling area ranging from 1,500-2,000 sqm. Dealz Last summer, the British fix price retailer Poundland, opened its first store in Spain under the Dealz banner. Each shop offers c.3,000 SKUs at EUR1.5, with a mix of 40% food and 60% non-food products. Currently the Company operates 5 stores (2 of them in Madrid). Costco On May of 2014, the American Warehouse Club retailer opened its first store in the city of Seville. The Company plans to reach a total network ranging from 10 to 50 stores in the country. Mercadona is changing its approach to Fresh products Mercadona is starting to change its approach to fresh (the Company removed several years ago all the assisted sections except fish and approached F&V in the same industrial way as discounters) in two ways: Reintroducing assisted meat counters. Changing the industrial approach to F&V to a more local and short-life cycle oriented model. 19

Calle Triana 31 28016 Madrid Telephone: +34 91 535 75 18 Fax: +34 91 536 28 95 info@beragua.com www.beragua.com