Core Operating Companies’ Strategy Convenience Store Operations

■ Seven-Eleven Japan’s Franchise System ■ Modernizing and Revitalizing Small- and Medium-Sized Retail Stores

through the Franchise System Seven-Eleven Japan Franchisee Seven-Eleven Japan is developing its Gross Profit own franchise system with the aim of Sharing of Gross Profit Seven-Eleven Charge Franchisee’s Gross Income modernizing and revitalizing small- and • Build Product Development • Manage Store Operations medium-sized retail stores. Seven- and Delivery System Recruiting Employees Eleven Japan and its franchisees are • Provide POS Ordering System Ordering Products • Provide Merchandise Information Cleaning up Stores on an equal footing with clear role • Role Provide Consulting Service Customer Service • Cover Cost of Electronic Data Processing • Cover 20% of Utility Cost assignments. The Company employs a Assignment • Provide Accounting Service gross profit-sharing method for • Cover Promotion Cost allocating income. As a result, Seven- • Install Sales Equipment • Cover 80% of Utility Cost Eleven Japan and its franchisees work • Provide Audit Service Franchisee’s Living Expenses together on improving gross profits Accumulation Accumulation of Equity Accumulation of Equity instead of net sales in a mutually of Profit beneficial relationship. Investment for Expansion and Reproduction ■ Contract Types Seven-Eleven Japan offers two types of franchise contracts, as described below. Type A Type C Ownership of land, buildings and other facilities Land and Buildings Franchisee provides Seven-Eleven Japan provides Display cases, refrigerators, computers, etc. Seven-Eleven Japan provides Contract period 15 years Utilities Seven-Eleven Japan 80%; Franchisee 20% Seven-Eleven Charge (Royalty) 43% of gross profit An amount calculated on a sliding scale based on gross profit 5-year incentives and 15-year contract renewal incentives (reductions in franchise fee) are offered Minimum guarantee ¥19 million (annual gross profit, excluding Seven-Eleven Charge) ¥17 million (annual gross profit, excluding Seven-Eleven Charge) Notes : 1. The information for the Seven-Eleven Charge (Royalty) and minimum guarantee applies to stores that are open 24 hours a day. 2. Gross profit is equal to net sales minus net cost of goods sold, which is calculated by subtracting costs of inventory loss, bad merchandise and rebates from gross cost of goods sold. ■ Putting Sound Business Practices First in Store Network Expansion ■ Seven-Eleven Japan takes great care in its operations to ensure that each new store is properly located and operated. (Thousands of yen) (Thousands of yen) ■ The success of these 700 Average daily sales at new stores 700 Average daily sales at all stores 627 efforts is shown by the fact 600 600 that Seven-Eleven Japan 550 500 500 478 has the highest average 420 400 400 daily sales in the industry for both new stores and all 300 300 stores, far and away 200 200 exceeding those of the 100 100 competitors. 0 0 Note: Competitor information is the average of three major listed convenience store chains Seven-Eleven Competitors Seven-Eleven Competitors and excludes Seven-Eleven Japan (FY2006) Japan Japan

24 Convenience Store Superstore Department Store Supermarket Restaurant Financial Services Operations Operations Operations Operations Operations 25 Oven-fresh Bread Annual sales quantity: 820 million Delicatessen Items Annual sales quantity: 670 million 30% 29% st Food Processed Food Fa Convenience Store Operations Store Convenience 28% 13% Nonfood Daily Food Rice-based Items Annual sales quantity: 1,740 million Sandwiches Annual sales quantity: 370 million Strategy These original products make full use of the manufacturers’ make full These original products marketing strength technology and Seven-Eleven Japan’s and have been highly popular among consumers. Recently, Seven-Eleven Japan, which is highly skilled in Recently, many original sales, has actively introduced original product than fast food, such as processed in fields other products with team merchandising foods and nonfood items, through major manufacturers. Seven-Eleven Japan is striving for constant improvement in quality through menu development, in quality through is striving for constant improvement Seven-Eleven Japan ■ ■ enhancement of manufacturing efficiency through raw-material procurement, development of food development procurement, raw-material through efficiency enhancement of manufacturing daily food These original in all manufacturing processes. equipment, and innovation preparation stores. of our significantly to the differentiation contributing are with their superb quality, products, Core Operating Companies’ Operating Core Breakdown of Sales by Product Category of Sales by Product Breakdown (Nonconsolidated, for FY2006) Expanding Original Products Original Daily Food Product Sales Food Product Original Daily for FY2006) (Nonconsolidated, ■ ■ ■ Core Operating Companies’ Strategy Convenience Store Operations

■ Combined Distribution System ■ Seven-Eleven Japan has been developing a streamlined distribution system with the aim of making the retailing business mutually beneficial for customers, franchisees, and manufacturers. As a result of these efforts, a combined distribution system run by third parties solely for Seven-Eleven Japan was established. ■ The combined distribution system allows products from different manufacturers to be Oven- Sandwiches Delicatessen Milk Lunch Boxes Rice Balls Fresh Bread loaded on the same truck for Foods delivery to our stores. Taking

the system one step further, Combined Distribution Center Seven-Eleven Combined Distribution Center temperature-separated Store Three times Three times combined distribution a day a day 5°C 20°C consolidates the shipment of Sundries Alcoholic Beverages Ambient -20 C Three to seven temperature products from ° times per week manufacturers to the stores Once Combined Distribution Center Six times a day Combined Distribution Center at similar optimum per week Tohan Distribution Center temperatures. Foods are fresher because they are Frozen Books and Instant Ice Cream Ice Cubes Confectioneries Soft Drinks efficiently delivered to stores. Foods Magazines Noodles ■ Seven-Eleven Japan completed its switch to consolidated delivery of room-temperature products such as confectioneries, processed foods, sundries, and alcoholic beverages. This has resulted in an improvement in the efficiency of loading and distribution. ■ Number of Dedicated Combined Distribution Centers (As of February 28, 2006)

■ Number of Our temperature-separated Number of Physical Facilities combined distribution Distribution Centers 5°C Centers for refrigerated items 66 Chilled 15 system has become a clear Rice-based items 18 advantage in team 20°C Centers for rice-based items 69 Chilled and rice-based items 51 merchandising with -20°C Centers for frozen items 47 47 Ambient Centers for processed foods, 154 56 manufacturers and also temperature alcoholic beverages, sundries and (including 23 consolidated contributes to greater confectioneries ambient temperature centers) product differentiation at Total 336 187 Seven-Eleven stores. Notes: 1. Numbers of distribution centers are based on the number of product categories handled. 2. Numbers of distribution centers and physical facilities include depots with product relay function. ■ This advanced (deliveries) Number of deliveries per store per day distribution system has enabled Seven-Eleven 70 Japan to reduce the 60 number of daily 50

deliveries to each store, 40

from 70 in 1974 to 9 in 30 2003, dramatically 20 reducing delivery costs 10 and enabling rapid delivery of fast foods. 0 Period ended 75/2 77/2 81/2 82/2 83/2 84/2 85/2 89/2 91/2 96/2 98/2 04/2 06/2 Deliveries 70 42 34 31 26 22 20 15 12 11 10 9 9 26 Note: Numbers of deliveries are the average for regions that made progress in combined deliveries. Convenience Store Superstore Department Store Supermarket Restaurant Financial Services Operations Operations Operations Operations Operations 27 05/12 5.1 South Korea 04/12 12.2 aiwan T 03/12 02/12 9.6 6.0 15.6 U.S.A. & Canada U.S.A. 01/12 32.8 China (Beijing) 00/12 99/12 9.0 29.9 20.9 Hawaii 98/12 ositive same store sales figures for 38 consecutive quarters. ositive same store sales figures for P Fast food sales as a percentage of total sales Fast food sales as a percentage 29.3 Japan 97/12 5 0 35 30 25 20 15 10 (%) 96/12 7-Eleven, Inc. quarterly U.S. same store merchandise sales growth merchandise store same quarterly U.S. Inc. 7-Eleven, 95/12 8 6 4 2 0 (2) (%) 12 10 Convenience Store Operations Store Convenience 2,371 2,470 2,480 2,457 2,432 2,437 1,864 29.8 1,864 2000/12 2001/12 2002/12 2003/12 2004/12 2005/12 2000/12 2001/12 2002/12 32,349 131.5 916,066 105.8 569,343 122.6 2005/12 YOY 1,485,409 111.6 (Millions of yen) (%) Strategy sales portions of the graph represent counter-served drinks such as Slurpees and

coffee. each company there. in other countries or regions. igorous investment in renewal of existing stores investment in renewal igorous 4. percentages, were calculated using total sales that exclude gasoline sales. Hawaii, as well as U.S.A. and Canada Notes: 1. Percentages for each country or region are based on materials disclosed by 2. Figures are based on results as of February 2006 in Japan and December 2005 3. Withdraw slow-moving products and vigorously Withdraw slow-moving products new products introduce Promoting dispersed ordering method at each dispersed ordering Promoting and product-focused precise allows more store ordering. to achieve model program Set up area-based item-by-item management greater Bolster the line-up of fast foods Strengthen opening of franchise stores Strengthen Los Angeles, dominance in strategy of area Strengthen other urban centers and New York, V ■ ■ ■ ■ ■ ■ ■ Operating Strategy Number of Stores Store-Opening Strategy Store-Opening Summary of Performance ranchised stores 3,422 3,508 3,118 3,173 3,276 3,338 ranchised otal 5,799 5,829 5,756 5,829 5,823 5,784 Core Operating Companies’ Operating Core Newly opened stores 120 145 127 95 63 72 127 145 120 stores F opened 2,446 2,377 2,321 2,638 2,656 2,547 Company-operated stores 134 48 42 T 133 67 72 Newly Closed Stores with gas station

Gasoline sales Net sales Operating income Merchandise Net income Rate of exchange — US$1 = ¥110.26 is calculated by using US dollar amounts. YOY ■ ■ ■ ■ 7- Eleven, Inc. (The United States and Canada) (The United States and 7- Eleven, Inc. ■ Core Operating Companies’ Strategy Superstore Operations

■ The Status of Domestic Superstore ■ During the period of rapid economic growth, superstores offering one-stop shopping in everything from clothing and household goods to food products grew rapidly. ■ The low price based on bulk-buying, large-volume sales, and self-service sales used to be popular with consumers. ■ Insufficient adaptation to changing consumer needs after the 1980s, and particularly with the collapse of the bubble economy in the early 1990s, mired many companies in a sluggish performance.

Market Environment Customer Needs Sales Method High-growth period Shortage of products, seller’s market, large consumption Low price Self-service Post-bubble economy Surplus of products, buyer’s market, emphasis on quality Satisfaction with quality Consulting sales ■ Rebuilding Superstore Operations ■ Cost Structure Revision by Ito-Yokado (implemented in February 2006)

Amount Category (Millions of yen) Result Impairment loss 22,912 Decreased book value of fixed assets, lower depreciation costs Provision for doubtful accounts 6,143 Store-closing expenses in the future Additional retirement payments Increase in the ratio of part-time workers and reduction in allowance for early retirement 6,112 personnel expenses

■ Store Development Strategy ■ Developing New Store Format to Meet Changing Markets • Large-scale, mall-type shopping center: “The Ario Mall”—a mall-type shopping center in an urban area ■ Concentrating where its strengths lie •With the high efficiency of existing stores in the greater Tokyo metropolitan area and other major cities as our point of reference, we will focus on store openings in these areas. •In the local regions, we will consider closures of stores which could not compete effectively in the changed commercial environment. [Profile of Ito-Yokado Stores]

Sales floor space Years since store opened Area Number of Composition Number of Composition Number of Composition stores (%) stores (%) stores (%) 13,000 m2~ 38 21.3 30 years~ 27 15.2 Hokkaido 15 8.4 10,000 m2~ 53 29.8 20 years~ 53 29.8 Tohoku 13 7.3 8,000 m2~ 33 18.5 10 years~ 36 20.2 Kanto 115 64.6 5,000 m2~ 38 21.3 5 years~ 41 23.0 Chubu 24 13.5 Under 5,000 m2 16 9.0 1 year~ 16 9.0 Kinki 9 5.1 Under 1 year 5 2.8 Chugoku 2 1.1 (As of February 28, 2006) 28 Convenience Store Superstore Department Store Supermarket Restaurant Financial Services Operations Operations Operations Operations Operations 29 FY2006 FY2005 FY2004 ung Brand ung Brand Yo FY2003 Yo ung Misses ung Misses Private Brand Private Brand Yo Yo FY2002 rel FY2001 Food Casual Appa ung Misses FY2000 Yo Household goods FY1999 Stairwell Sales growth by category by Sales growth FY1998 Seasonal FY1997 ntory risk. FY1996 Hi Misses Hi Misses Misses Misses FY1995 Private Brand Private Brand 0 Misses 800 600 400 200

1,400 1,200 1,000 Misses

(Billions of yen) Superstore Operations Superstore the store image under the directive of adding fashion sense. image under the directive the store Young Slacks, Skirts Slacks, Ladies and men’s casual wear aimed at the thirty-somethings Ladies and men’s casual wear aimed at the Baby-boomer generation Men’s (50s age range) Denim Stairwell Strategy Tops Suits, Jacket Suits, Shirts, Casual Shirts, improve apparel sales, the following sales, the apparel improve In February 2006, we introduced a completely new private In February 2006, we introduced with a high fashion sense. brand of easy-to-match coordinates

Expand purchase on consignment products*; enhance category specialties; reducing mark- enhance category specialties; reducing on consignment products*; Expand purchase downs Examples of Consignment Products Product Development Department newly established; increased markup ratio of basic items by markup Development Department newly established; increased Product overseas production increasing New Brand Development Four Initiatives: Enhanced development;Product Refurbishment of the sales floor; Promotions; Consulting, service sales not clothing items profile, to brand and customer arranged according Reorganization; Store Overview: Established in April 2005, invited external design professionals and made a fresh invited externalOverview: Established in April 2005, design professionals start in merchandising Ito-Yokado experienced year-on-year sales year-on-year experienced Ito-Yokado apparel in food, while the tendency in growth in sales. decline showed a year-on-year To have been initiatives in new apparel FY2006. implemented from • Highly specialized items seasonal wear Short-cycle High inventory value and low turnover products etc. national brand shops, formal wear, men’s Lady’s, etc. jewelry, Accessories, etc. yukata, Swimwear, * Consignment products: Retailer has the right to return products under certain conditions and does not therefore bear the inve Retailer has the right to return * Consignment products: ■ ■ ■ ■ ■ ■ ■ ■ ■ Measures to Improve Gross Profit Margins Profit Gross to Improve Measures SEVEN & i Life Design Institute Co., Ltd. Established SEVEN & i Life Design Institute Ito-Yokado’s Sales Growth by Growth Sales Ito-Yokado’s Category Core Operating Companies’ Operating Core ■ ■ ■ Reforming Apparel Merchandising Reforming Apparel ■ Core Operating Companies’ Strategy Department Store Operations

■ First-Class Sales and Profitability in Japan ■ Sogo has had a distinguished history since its founding in 1830 in Osaka. ■ Leading from its flagship store in Ikebukuro and its other prime Tokyo locations such as Shibuya and Yurakucho, Seibu embodies a metropolitan sophistication.

■ Consolidated Net Sales at major department stores in FY2006 ■ Consolidated Net Sales and Operating Income Ratio in FY2006 Net Sales (Billions of yen) Sogo and Seibu Company Net Sales 1,200 (combined)* (Billions of yen) 945.1 Takashimaya Takashimaya 989.4 1,000 989.4 Sogo and Seibu (combined)* 945.1 Mitsukoshi 842.0 Daimaru 800 821.2 Isetan Mitsukoshi 842.0 760.0 Daimaru 821.2 600 Sogo Seibu Isetan 760.0 468.9 476.1 400 Matsuzakaya 343.9 Hankyu Seibu (nonconsolidated) 476.1 381.2 200 Sogo (nonconsolidated) 468.9 Matsuya 94.7 Source: Public information from each company 0 *With the exception of Sogo and Seibu, all figures are consolidated. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Ratio of operating income to net sales ■ The Path towards Business Restructuring ■ The operational restructuring initiatives called for implementing chain operations, remodeling stores, re-invigorating the corporate culture and reviving the company ethos, and restructuring plans were completed ahead of original plans. Sogo Seibu Restructuring plan Legal administration in accordance with the Private restructuring directed in accordance with Corporate Rehabilitation Law the guidelines for private rehabilitation Implementing the Closed 12 stores, voluntary redundancy, Closed 6 stores, voluntary redundancy, liquidated restructuring plan liquidated subsidiaries and affiliates, subsidiaries and affiliates, dissolved equity dissolved equity partnerships with overseas partnerships with overseas store operators store operators

FY2001-2003 FY2004 FY2005 FY2006

2001/2 2003/6 2004/7

2000/7 2001/1 General business plan 2003/1 2003/2 2003/5 MR group incorporated MR group increased capital 2004/9 2005/3 2005/9 2005/12 (Legal requirement) A requirements) (private A of MR via stock exchange subsidiary Seibu became a wholly owned Ap Conclude restructuring procedures from Sogo,Capital Inc. Completion of restructuring plan brought forward store opened Sogo Shinsaibashi flagship Business tie-up with Seven & i Holdings announced pplication for Corporate Restructuring for Corporate pplication pproval of restructuring plan proval of corporate restructuring plan proval of corporate

Sogo Restructuring Seibu Restructuring

Note: MR is the abbreviation of Millennium Retailing. Sogo, Inc. is the former name of Millennium Retailing. 30 Convenience Store Superstore Department Store Supermarket Restaurant Financial Services Operations Operations Operations Operations Operations 31 137 113 FY2005 FY2006

107 FY2004 57 98.2 19 24.1

Number Net Sales Number Net of Stores (Billions of yen) 102 FY2003

Shiga prefecture is not shown. * One SHELL GARDEN store in * 92

FY2002

— — 3 — — 3 3 3 91 Growth in number of York-Benimaru’s stores York-Benimaru’s in number of Growth FY2001

Principal Locations 150 120 90 60 30 0 okyo area, central locations okyo area, 2. Super Kadoya Co., Ltd. was included in the scope of the consolidation in September 1, 2005. in the scope of the consolidation in September 1, was included Ltd. Super Kadoya Co., 2. Greater Tokyo area, inner suburbs area, Tokyo Greater T ork-Benimaru 91 92 99 104 110 116 110 ork-Benimaru 91 92 99 104 SuperKadoya — — — — — 18 SuperKadoya Notes: 1. Midoriya Super Co., Ltd. was included in the scope of the consolidation in September 1, 2002. 2002. in the scope of the consolidation in September 1, was included Ltd. Midoriya Super Co., 1. Notes: Midoriya Supermarkets Y Supermarket Operations Supermarket

(As of February 28, 2006) 28, (As of February

Category ork efficiency to increase productivity ork efficiency Define and implement the structure needed to offer value-for-money to offer value-for-money Define and implement the structure needed products constantly Build the organization to grow from a 100 to a 200 store operation Strengthening fundamentals to achieve maximum differentiationStrengthening fundamentals to achieve maximum W

7,364 94.4 14,088 98.0 14,170 100.0 FY2006 YOY 314,909 107.8 306,639 107.7 • • • • • • • • • • • • (Millions of yen) (%)

rk Mart store locations rk Mart and SHELL GARDEN rk-Benimaru, York Mart, Mart, York rk-Benimaru,

ork-Benimaru store locations Yo store locations Yo Y Yo and SHELL GARDEN store locations Strategy

With combined sales from each company of 411.6 billion yen, the Group is in the top tier of billion yen, the Group each company of 411.6 With combined sales from domestic sales among supermarket operating companies. Japan’s ork-Benimaru ork Mart General food supermarket area Tohoku General food supermarket 116 289.3

ork-Benimaru Fundamental Operating Policy ork-Benimaru Fundamental ork-Benimaru Consolidated Financial Results ork-Benimaru hnical innovation Y Y SHELL GARDEN Premium food supermarket ork-Benimaru, which will become our wholly owned subsidiary in wholly owned subsidiary which will become our ork-Benimaru, c Location of Seven & i Holdings’ Supermarkets ■ Overview of Seven & i Holdings’ Supermarkets (as of FY2006, nonconsolidated) Major Companies in Seven & i Holdings’ Supermarket Operations Major Companies in Seven & i Holdings’ Supermarket Y Y Net sales Operating income Ordinary income Net income

Revenues from operations Te Promoting individual management store Bolstering product development Thoroughly implementing the four fundamentals Y September 2006, will serve as the core of plans to energize Seven will serve as the core September 2006, supermarket operations. & i Holdings’ Core Operating Companies’ Operating Core ■ ■ ■ Establishing a Core Operating Company in Our Supermarket Operating a Core Establishing Operations ■ Core Operating Companies’ Strategy Restaurant Operations

■ Progress of the Seven & i Holdings Restaurant Operations With Denny’s Japan as a core operating company, the restaurant operations meet the expectations of countless customers and offers a comfortable place to eat.

■ Business Strategy—Improve Taste and Service ■ Offering Superior Service Service lady Counter staff ■ Designated reception staff (all restaurants have Reception Back room

a designated “service lady”) Entrance Customers’ seats Station Kitchen ■ Free refills on non-alcoholic drinks Makes ■ Attention Tray service Demanding Food Safety and a Good recommendations Cooking Dessert Taste Cash register Preliminary Washing-up ■ Layout Procure high-grade ingredients from around the Preparation world Greeting and welcome ■ Stringent hygiene management and employee health care, awarded ISO9001 in April 2006 ■ Menus for Region ■ Changing the perception that all Denny’s are the same ■ In addition to the core menu, all areas have regional specialities. ■ Each restaurant supplements the core menu with local customer preferences and time slots.

■ Store Strategy—Restaurants that Blend in with Their Environment ■ Restaurant Opening Strategy ■ Revise our historical seating criteria from 100 seats per 330m2 to a range of 150–500m2 ■ Accelerate the opening of new restaurants that meet customer needs and fit the local area; flexibility in restaurant design, ambience, number of seats ■ Restaurant Refurbishment and Refitting ■ Vigorously promote the refurbishment of existing restaurants to match the local or the outside environment. In FY2007, 134 restaurants are being refitted or refurbished. Number of Restaurants 700 Denny’s Restaurant Locations (As of February 28, 2006) 600 571 578 582 583 534 550 500

400

20 300 14 10 200 15 10 54 19 6 9 100 61 15 22 98 67 10 0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 153 32 Convenience Store Superstore Department Store Supermarket Restaurant Financial Services Operations Operations Operations Operations Operations 33 04/3 05/3 06/3

tie-up 03/3 contracts Banks with

25 47 68 77 88 verage daily transaction volume per ATM volume per daily transaction verage 02/3 A 0 80 60 40 20 100

ansactions Tr tie-up contracts ansactions Tr Directly to banks with M service fees 5 0 (5) 35 30 25 20 15 10 AT (10) (15) Ordinary profit (Billions of yen) Financial Services Financial 04/3 05/3 06/3 transaction

transfers etc. Deposits, bank Deposits, 03/3 Service charge for

Strategy 1.9 11.5 29.1 47.9 1.9 11.5 64.6 29.1 02/3 Revenues from operations and ordinaryRevenues from operations profit Customer TMs are installed at our Group companies, with particular focus on Seven-Eleven stores. companies, with particular installed at our Group TMs are 0 70 60 50 40 30 20 10 Introduced time deposits in March 2006 in March time deposits Introduced Personal loan service to be launched in Spring 2007 A installed as of the end of May 2006) (11,555 ATMs to banks. The fee is charged fees charged of Seven Bank is service of revenue The main source by a card Seven Bank to a bank with a tie-up contract for the use of the Seven Bank ATM from holder of the bank. The Bank achieved an ordinary profit in the third year after its establishment and cleared its its establishment and cleared year after in the third profit an ordinary The Bank achieved 2006. in March accumulated losses of the pursuit of dramatically as a result has increased The transaction volume of ATMs a major factor in the favorable performance. convenience and service, and this is ■ ■ ■ ■ ■ ■ The Next Step in Expanding New Financial Services Seven Bank’s Principal Source of Revenue: ATM Service Fees from Banks Service Fees from of Revenue: ATM Principal Source Seven Bank’s with tie-up contracts In order to respond to our customers’ needs for ATMs in our stores, we in our stores, for ATMs to our customers’ needs to respond In order to establish a bank. first retailer became Japan’s Performance operations Revenues from (Billions of yen) Core Operating Companies’ Operating Core ■ ■ ■ ■ Seven Bank, Ltd. (Name changed from IYBank Co., Ltd. on October IYBank Co., Ltd. on Ltd. (Name changed from Seven Bank, 11, 2005) Revenues from operations Ordinary profit (12.1) (8.1) 3.0 10.0 19.4 ■