Luis Amaral Entrepreneurship November 2017 Eurocash. The Power of Modern Entrepreneur. 1
1. Where I started? Just an ordinary CV 1984: Graduate of Management at Catolica-Lisbon, School of Business & Economics 1984-1989: Trainee at Unilever Portugal 1989-1994: Nissan Portugal, initially Head of the Marketing Department, then Board Member responsible for sales, marketing and logistics 1995-1999: General Manager of Jeronimo Martins in Poland July 1999: July 2000: Promoted to Member of the Executive Committee of HQ of Jerónimo Martins in Lisbon Moving to South America, as a partner at the AntFactory investment fund (Brazil, Mexico and Argentina) 2001: Joined the LAEP Brasil private distressed assets fund 2003: MBO of Eurocash from Jerónimo Martins and... I started again from the very beginning... Eurocash. The Power of Modern Entrepreneur. 2
1. Project Poland What I knew about Poland? Far and cold country 38 million inhabitants Still wild east Different habits Noone speaks English Eurocash. The Power of Modern Entrepreneur. 3
1. Poland has never been an easy market Many global chains that disappeared from the Polish market Some are still there... and these were the International Chains who failed with their strategy and they were forced to withdraw! Eurocash. The Power of Modern Entrepreneur. 4
1. You need a strategy How to enter highly competitive market? Do market research and understand the market Design business formats adapted to the market Be creative - don t copy anybody Be quick in expansion Be leaner and more agile than your competitors Eurocash. The Power of Modern Entrepreneur. 5
1. Understand the market before you start Quick diagnosis of the Polish shopper & spirit Poles like locality & neighbours small flats = small fridges 60% of population in villages & small towns Poles want to enjoy life & save time Poles do shopping almost every day Poles are entrepreneurial Eurocash. The Power of Modern Entrepreneur. 6
1. It can be easier with a local partner Acquisition of existing operations to start faster 1994 1990 1995 1996 1997 1998 1998 Acquisition of Eurocash 48 C&C stores Development of hypermarkets 363 stores Development of Biedronka chain Eurocash. The Power of Modern Entrepreneur. 7
2. But sometimes you need a break Brasil 2000 2003 From Venture Capital to Distressed Assets Fund AntFactory investment fund starting offices Brazil, Mexico and Argentina LAEP Brasil distressed assets Eurocash. The Power of Modern Entrepreneur. 8
3. Back to Poland Bet on Traditional Trade FOCUS DISPOSAL Jeronimo Martins decided to Focus on development of Biedronka Eurcash that time had sales of EUR 250m and losses Main clients were small Polish Grocery stores Nobody believed in Traditional Trade MBO of Eurocash Cash&Carry with ex-collegues Sales EUR 250m 80 compact Cash&Carries Key Clients: Small Polish Grocery Shops Eurocash. The Power of Modern Entrepreneur. 9
3. New strategy for Eurocash Become the reference wholesaler through consolidation of inefecient competitors Eurocash Group sales evolution (PLN bn) 23 22 20 20,0 20,3 18 16,6 16,6 16 14 12 10 8 6 4,7 6,1 6,8 7,7 10,0 4 3,2 2 1,3 1,5 1,7 0 C&C Delikatesy Centrum Tobacco&Impulse Food Service Alcohol Distribution EC Distribution Other Eurocash. The Power of Modern Entrepreneur. 10
3. Building scale by acquisitions We invested into Small Format Market Eurocash. The Power of Modern Entrepreneur. 11
3. Where are we today? International Retailers bet on big box stores has failed Biedronka Eurocash Lidl Tesco Kaufland Auchan Carrefour Intermarche Żabka Metro (Makro C&C) Dino Selgros 0 3 3 1.7 3 4 5 5 5 7 6 7 6 6 7 8 9 9 9 9 11 11 10 10 10 10 11 14 17 19 23 32 Ranking of FMCG distributors (2016 sales, PLN bn) 2016 2013 2009 44 Eurocash. The Power of Modern Entrepreneur. 12 0 5 10 15 20 25 30 35 40 45 50
3. Where are we today? Largest player on wholesale market in Poland FMCG wholesale market in Poland Eurocash. The Power of Modern Entrepreneur. 13
3. Where are we today? Today, still over 40% of the FMCG retail market is Independent Retail! Share of distribution channels in food sales in Poland LTM July 2017 FMCG market growth by channel YoY, July YTD 2017 27,8 % 44,2% Small format (<300 m2) Supermarkets (300-2500 m2) Hypermarkets (>2500 m2) 11,0 % Discounters 2.7% 2.5% -0.1% 5.8% 16,9 % Small format (<300 m2) Supermarkets (300-2500 m2) Hypermarkets (2500+ m2) Discounters Source: Nielsen Source: Nielsen Eurocash. The Power of Modern Entrepreneur. 14
3. Where are we today? Independent Retailers survived thanks to 3 key factors Key Success Factors Polish entrepreneurship Demographics & shopper habits Total population: 38.5 MLN Strong wholesale player rural locations, 40% - avg. shopper does grocery shopping 255 times annually - proximity to home is the key store choice driver Eurocash. The Power of Modern Entrepreneur. 15
4. Eurocash Group Eurocash scale and effective logistics keep small format stores competitive Main focus: smallest stores (groceries and convenience) Growth prospects: Focus on cost efficiency C&C under restructuring Ongoing consolidation on stable markets & organic growth Specialized Tobacoo and Alcohol Distribution 7.8 bn PLN 38% Cash&Carry 4.3 bn PLN 21% Distribution to Small Supermarkets 5.4 bn PLN 27% Retail 2.4 bn PLN 12% Other 2% Main focus: small supermarkets (independent, franchised and own) Growth prospects: Further M&A opportunities Rolling out a nationwide platform for perishables distribution to small stores Developing innovative retail formats for future growth Eurocash. The Power of Modern Entrepreneur. 16
4. Eurocash Cash&Carry Support for small stores and abc loyalty scheme 189 Compact Cash&Carry stores Negative working capital, strong cash-flow 60% of sales to 8.5k abc franchise stores 200 180 160 140 120 100 80 60 94 96 No. of Cash&Carry stores 158 148 137 129 111 117 102 168 187 189 Map of C&C stores Efficient supply chain for smallest stores 40 20 Number of outlets close to saturation 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q 2016 Map of abc stores 2000 sqm - avg. area of Cash&Carry store 60 sqm - avg. area of abc store 9000 8000 7000 6000 5000 4000 3000 2000 No. of abc stores 5451 4652 3990 3424 2164 2416 2494 2836 6133 6997 7658 8425 1000 Source: Eurocash 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q 2016 Eurocash. The Power of Modern Entrepreneur. 17
4. Delikatesy Centrum Hard franchise system with increased supply chain efficiency Map of Delikatesy Centrum stores Small Franchised Supermarkets Own retail chain with CAPEX and store management outsourced to franchisees Expansion & New Categories (Fresh) Basis to build nation-wide supermarket chain 250 sqm - avg. area of DC stores 1200 1000 No. of Delikatesy Centrum stores 875 1003 1076 800 773 600 400 200 193 235 295 376 465 561 650 Source: Eurocash 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Eurocash. The Power of Modern Entrepreneur. 18
4. Eurocash Dystrybucja Soft franchise systems and active distribution to small supermarkets Eurocash Dystrybucja (Tradis) 4. Nation-wide efficient logistics to small supers 4 700 franchise stores with potential to increase loyalty Map of Eurocash Dystrybucja franchisees 5,000 4,000 No. of ECD franchise stores 4,114 4140 4,325 4,362 4554 3,000 2,000 1,000 Source: Eurocash 0 2011 2012 2013 2014 2015 Eurocash. The Power of Modern Entrepreneur. 19
4. Tobacco and Alcohol specialized delivery Market leadership in key categories Specialized distribution of alcohol and tobacco Market leadership in key categories for small-format stores Dedicated logistics and sales force to supply small stores with full assortment Tobacco distribution low margin business 173 ECS branches and 47 ECA stores Eurocash. The Power of Modern Entrepreneur. 20
4. Moving from Wholesale into Retail Own retail chain improves our ability to support our Franchisees Mila locations + EKO + Delikatesy Centrum PLN bn, 2016 Retail sales (est.) No. of Stores Delikatesy Centrum Franchised stores Delikatesy Centrum own stores Stores EKO (owned) 4.0 981 0.8 118 0.9 227 MILA (owned - pending) 1.5 188 Total retail sales (owned + franchised) 7.2 1 514 Eurocash. The Power of Modern Entrepreneur. 21
4. Where are we going? Innovative Retail Formats Faktoria Win & Piwne Terytoria Wine and Beer shelve successfully brought back wine category to small stores Duży Ben Potential to create first nationwide specialized liquor chain in Poland abc na kołach Grocery truck chain niche dedicated for small villages and older customers Frisco.pl E-grocery store for big cities 1 minute 1st Convenience chain in Poland Kontigo Omnichannel cosmetic chain with makeup & beauty care products and services Eurocash. The Power of Modern Entrepreneur. 22
Thank you. Eurocash. The Power of Modern Entrepreneur. 23