Dollar Tree Should Enter Mexico Through a Joint Venture with Calimax

A Vision of Value: Planting roots in Mexico Evan Benkert, Kristen Busby, Isa Eugenio Hunter Gray, & Joey Padgett Dollar Tree should enter Mexico through a joint venture with Calimax Approach Partner Position Prosper Partner with Calimax Rollout multi-price point Profitably increase market stores in the Baja region share over 3 year period Bottom Line Dollar Tree could realize profits of approximately $190K and capture 18% of Baja’s discount store market in 3 years, setting up a possible buyout of Calimax 2 Partner Position Prosper Partner with Calimax Rollout multi-price point Profitably increase market stores in the Baja region share over 3 year period 3 Partner Position Prosper Dollar Tree has experienced successful growth and expansion Number of Stores Open 5000 190 Deals stores 2012 year end 4000 140 Dollar Tree Canada stores 3000 2012 year end 2000 Expand into 1000 Mexico 0 4 2008 2009 2010 2011 2012 Source: Dollar Tree Partner Position Prosper Low labor costs & fast retail industry growth makes Mexico attractive for expansion Hourly Compensation Wages, 2012 Retail Industry Growth, ‘09-’16 $160 Norway Switzerland $140 Germany Canada $120 United States United Kingdom $100 Singapore Argentina $80 Portugal Slovakia Billions of USD Billions $60 Brazil Estonia $40 Taiwan Hungary $20 Mexico Philippines $0 0 10 20 30 40 50 60 70 2009 2010 2011 2012 2013 2014 2015 2016 5 Source: U.S. Bureau of Labor Statistics, International Labor Comparisons, August 2013 Source: USDA Foreign Agricultural Service, 2010 Partner Position Prosper Joint venture presents optimal entry into Mexican market Acquisition JV Greenfield Total Control DT can gain from Gains Local Knowledge market knowledge and risk mitigation in a new environment Share Risk Gov. Restriction JVs can decrease capital requirement while creating Risks Share Profit better government relations Initial Investment 6 Source: Deloitte Partner Position Prosper Dollar Tree should Partner with the small grocery store chain Calimax Industry selection Grocery store selection Retail Small to medium size chain Consumer products 1. Convenience stores 2. Department stores 3. Grocery stores Value division opportunity opportunity division Value Small to medium ì Willingness to work with a US Company grocery store chain 7 Source: Team analysis, Company websites Partner Position Prosper Calimax de Valor adds value by combining strengths of each company Current Position Within Mexico Established Brand Real Estate Knowledge Supplier Network Distribution Network de alor Access to Capital Economies of Scale “Menos es mas con Valor” “Dollar” Industry Experience Infrastructure 8 Source: Dollar Tree; Calimax websites Partner Position Prosper Position Partner Prosper Partner with Calimax Rollout multi-price Profitably increase market share over 3 year period point stores in the Baja region 9 Partner Position Prosper Calimax de Valor should adopt a multi-price point strategy Price products differently to Use precision to reduce Value based costing to satisfy different preferences perceived cost reach 3 price points Calimax % Offer multiple price Eight Case Studies Testing: Waldo’s “Charm” Prices vs. Rounded de Valor Undercut points $9.99 vs. $10.00 9.95 13.60 27% More product Result: “Charm” Prices 50% diversification 14.95 29.60 Sales 39.95 59.00 34% Satisfy more 24% customer preferences 10 Source: Waldo’s website & Facebook page, Book: Priceless by William Poundstone, Cornell, Bain Partner Position Prosper Baja California’s maquiladora economy offers a large, low income target market % of Baja Population Supported by Maquiladoras 4000000 40% 35.5% by Maquiladoras % Supported 3500000 35% 3000000 700+ maquiladoras 29.2% 30% are Baja’s primary 2500000 employers 24.9% 25% Baja California Population Baja Population California 2000000 20.76% 20.6% 20.5% 20% 1500000 1000000 15% 11 2006 2008 2010 2012 2014 2016 Source:Journal of Borderland Studies, INEGI, CBRE Partner Position Prosper Dollar Tree should concentrate store rollout in Baja California 5 1 5 2 Tecate Mexicali 1 Tijuana San Luis Rio Rosarito Colorado 5 Store allocation to each city determined by Ensenada GDP, population, and poverty level 1 San Felipe 12 Sources: “International Market Expansion…”, Baja.gov, BajaCalifornia.gov Partner Position Prosper Dollar Tree should utilize high growth with fewer initial stores to test markets Calimax de Valor Store Rollout 70 16 Dollar Tree 14 60 Growth: Canada is 12 50 Openings ~30% on average 10 and we assume 40 similar rate 8 30 Stores 6 20 Payless Case 4 Study: 10-20 initial 10 2 stores allows scalable potential 0 0 2014 2015 2016 2017 2018 to be investigated 13 # of Stores Openings per year Sources: Dollar Tree, Payless Shoesource, Wright.edu Partner Position Prosper Prosper Partner Position Partner with Calimax Rollout multi-price point Profitably increase stores in the Baja region market share over 3 year period 14 Partner Position Prosper Dollar Tree should focus on three key location pools in the first five years 2014 2015 2016 2017 2018 Construction & Hiring Promotion & Training TIjuana Opening Construction & Hiring Promotion & Training Ensenada Ensenada Mexicali & Opening , Construction & Hiring Promotion & Training Rosarito Opening , San Felipe Felipe , San Key: San Luis Rio Rio Luis San Colorado, Tecate Setup Re-Evaluate Current Promotion Operations Concentrate on Growing Execution Markets & Consider Begin to expand 15 Calimax buyout beyond Baja Sources: Reuters; Forbes Partner Position Prosper Timing risk of being early adopter: - More risks and uncertainty - Potentially higher cost - source: american Marketing association Calimax de Valor would hold approximately 30% of the Baja discount market by 2018 100% 90% 80% CAGR: -33.4% 70% 60% 50% 40% % MarketShare CAGR: 30.0% 30% 20% 10% CAGR: 3.4% 0% 2013 2014 2015 2016 2017 2018 Waldo's Calimax de Valor Other 16 Source: McKinsey, Waldos, and USDA Foreign Agricultural Service Partner Position Prosper Buying out Calimax after three years could provide long-term benefits at short-term costs Dollar Tree Net Income w/o Dollar Tree Net Income w/ Buyout Buyout $4,000 $8,000 $3,000 $6,000 $2,000 $4,000 $1,000 $2,000 $- $- 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Net($1000s) Income $(2,000) Net Income ($1000s) $(1,000) $(2,000) $(4,000) $(6,000) $(3,000) Worst Expected Exceptional Worst Expected Exceptional Expected potential NPV in Expected potential NPV in perpetuity of $16M perpetuity of $31M 17 Source: Dollar Tree, CBRE, Bloomberg, CMO Survey Partner Position Prosper Appendix Partner PositionPosition Prosper Framework Grocery Low Income Market Entry Dollar Tree 5 Forces: Dollar Options Shoppers Failure Growth Tree Past JV Success in Product Population Financial SWOT: Dollar Alignment Concentration Assumptions Tree Mexico Don’t Acquire Walmart Price- Need for Value Waldo’s Based Costing Stores Projected Sales SWOT: Calimax Post-Entry Multinational Expansion Convenience Projected Net Suppliers Shopping Income STEEP: Mexico Speed McDonald’s Payless Expansion Transportation Market Share Partnership Infrastructure Analysis Speed 50/50 JV has Price Point best chance Validation JV’s make use of Synergies 18 JV & Collaboration Grocery stores considered for partnership -More than 606 stores -183 stores -Holding company -57 branches with 200 stores in -Grocery and -Publicly traded Mexico department retail Mexican grocery -One stop shop chain store and department -Owns 50% of Costco store chain de Mexico through JV Emphasizes that it Aprecio focuses on is Mexican-owned providing the best Presence of Food and operated, Family run prices for low Club and Top Care business, already Mercado Soriana purchasing power lines target lower has four store offers low pricing consumers through income spenders formats scheme a narrower range of products 19 Source: Company websites Joint ventures in Mexico have proven successful - Joint venture with Grupo Axo - Greenfield venture in Canada - Expect to open 41 stores in - Joint venture in Mexico with Mexico within first 3 years Home & More - 300 stores long-run - 50% equity holder - Past success with - Kept Home & More name for partnerships in 10 other Latin over 2 years then rebranded American countries stores to Bed Bath & Beyond 20 Source: Payless Source: Bed Bath & Beyond Dollar Tree should not acquire Waldo’s to enter Mexico Potential for local resistance to Dollar Tree’s takeover Large capital Acquisition of all stores investment (~150M, would not allow for which is 3X the cost of gradual entry Canada acquisition) Dollar Tree should not acquire Waldo’s Waldo’s pricing strategy Would miss out on is set at multiple price cultural knowledge from points insiders Government intervention and regulations 21 Dollar store shoppers have lower incomes than non-dollar store shoppers Shopper’s Household Annual Income Non-Dollar 20 28 21 11 7 5 8 store shoppers Dollar store 30 34 17 8 5 3 3 shoppers 0 10 20 30 40 50 60 70 80 90 100 Percentage Under $25,000 $25,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $124,999 $125,000 to $149,999 $150,000 and above 22 Source: Deloitte 2011 American Pantry Study, n = 4,086 size, survey conducted in November 2011 Calimax de Valor would utilize Dollar Tree’s relationships with multinational suppliers 23 Source: Dollar Tree and company websites Strong retail segments in Mexico align with popular dollar store products Categories with Top selling Products available strong growth in products in US at Waldo’s Mexico Dollar stores Office/school supplies Home and garden Consumer

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