Our Profile in Ireland

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OUR PROFILE IN IRELAND

SPAR operates in Ireland through its ownership of the BWG Group – the market leader in convenience retail in Ireland, with approximately 12% total grocery market share, and over 40$ share of the convenience channel.

In South West England, through Appleby Westward, we service 288 (2017: 285) SPAR stores. The BWG Group operates a multi-brand retail strategy, which includes SPAR, MACE, XL, Londis and Value Centre Cash and Carry. The acquisition of 4 Aces added the Gala convenience group and the acquisition of Corrib Food Products, expanded our oﬀering in fresh and frozen poultry and other frozen foods this year.

SPAR Ireland has a three-tier house brand strategy with S-Budget (entry level), SPAR (emphasis on value and quality) and SPAR Select (a premium offering). We also offer a Fresh Choice brand for fruit and vegetables and the Glenmor brand for fresh meat and poultry. There are three main offerings within the SPAR brand, namely SPAR, SPAR Express and EUROSPAR.

SPAR provides neighbourhood shopping, with central locations and extended shopping hours to maximise convenience.

EUROSPAR

EUROSPAR provides comprehensive supermarket shopping, oﬀering a broad range of groceries and general merchandise, fresh produce, in-store bakery, butchery, deli and ready-to-eat products and home-meal replacements.

SPAR Express

The SPAR Express format is used exclusively on forecourt sites.

Londis

Londis has a mix of store formats from neighbourhood supermarkets to small convenience stores. Our recent development plans and recruitment of new stores have dramatically changed the look and feel of the Londis brand. The brand promise of ‘Local Like You’ is about a family philosophy that permeates throughout the group.

MACE

MACE is the longest-established convenience shopping brand in Ireland, and includes community stores and forecourt shopping, with a total of 216 stores around the country.

The XL brand is concentrated on a rural spread of smaller, independent stores that are serviced by the Value Centre Cash and Carry network.

Value Centre

Value Centre has a network of 20 Cash and Carry branches (excluding the recent 4 Aces acquisition) servicing over 20 000 customers across the independent retail, licensed and foodservice trades.

BWG Foodservice specialises in product innovation and the supply of multi-temperature products to all sectors of the foodservice industry and has about 3 000 customers.

Gala

Following the acquisition of the 4 Aces wholesale business, BWG Foods now supplies 34 Gala retail stores in Ireland.

AWARDS FOR 2018

BWG Group and the SPAR brands have a strong reputation following many top industry awards over the years, with individual SPAR stores also regularly featuring among the best in their categories.

Recent awards for the BWG national distribution centre facility in Kilcarbery include the following:

We have also garnered digital technology awards for Best B2B Technology from Eir Spiders in 2017 and the Tech Excellence Awards for the Private Sector Project 2018.

SPAR Fermoy won the Best Convenience Store Award for Stores 2 500 – 4 000 Sq ft at the ShelfLife National C-Store 2017 Awards.

The Londis advertising campaign won a range of innovation awards from the Institute of create advertising and design.

Cash and Carry Manager of the Year, Garry O’Callaghan from the Value Centre, Limerick, was selected by ShelfLife for a Grocery Management Award.

SPAR - all rights reserved. 2018 | 3 UNDERSTANDING OUR OPERATING ENVIRONMENT Since the deep recession 10 years ago there has been a structural change in consumer behaviour towards value-conscious choices. Although Irish consumers are positive about their spending outlook, the shopping habits developed during the recession have not been forgotten. This has led to smaller average basket sizes and a greater level of promiscuity as shoppers spend across a wider range of store options.

Online options made it easier for consumers to seek out value, which in turn change how they engage with stores. Christmas 2017 was a victim of this, with deep Black Friday discounting disrupting consumer spend in a key trading period in terms of revenue and proﬁt generation.

Groceries however remain predominantly a ‘bricks and mortar’ channel with low but growing penetration of online.

The grocery sector overall returned to growth this year and the persistent gap between sales value and sales volume growth started closing in recent months. This would suggest that retailers are ﬁnally beginning to extract some value growth from what has been a highly competitive, price-obsessed market over the last decade.

There has been sustained grocery deﬂation in the Irish market with the cost of food decreasing. This is putting ongoing pressure on wholesale and retail margins. On the upside, in many cases where deﬂation has occurred because of changes in the €/£ exchange rate, the lower cost of goods yielded a dividend to retailers as retail pricing did not always track the lower cost of goods.

In the supermarket sector, the three largest competitors have very similar levels of market share and continue to vie for top position. Competition remains intense and geared towards discount options. Consequently, BWG Foods has had to invest in pricing support to EUROSPAR retailers to ensure that they remain competitive within the supermarket segment.

BWG invested in the wholesale pricing of key impulse categories such as soft drinks and confectionary to ensure competitive pricing on the best-selling lines on our wholesale price from the distribution centre. Competitor prices are tracked weekly and our prices amended accordingly to match the lowest competitor price. This ensures that the distribution centre is aligned to its key competitor set – an important guarantee to retailers and an assurance that they are consistently able to buy at the very best prices available on categories where proﬁtability is key to the retail model.

The Kantar Worldpanel, a world leader in consumer knowledge and insights based on continuous consumer panels, describes Ireland as ‘Europe’s most competitive grocery landscape’. To match or outperform the market in terms of growth will continue to be a signiﬁcant achievement for BWG Group.

In the UK market we saw several acquisitions of competitors by the large multiple supermarket operators.

Food inﬂation is forecast to rise with uncertainty over Brexit, the value of the sterling and weather impacts following a wet winter and an exceptionally hot summer putting pressure on the agriculture sector. Half of Britain’s food is imported, with 30% from EU countries. Food prices have varied by commodity type, with an average 2.9% like-for-like inﬂation during 2018. Forecast for food prices post Brexit vary widely.

SPAR - all rights reserved. 2018 | 1 Above-inﬂationary increases in labour rates – resulting from government-introduced changes to the National Living Wage and National Minimum Wage – impacted overall wage costs for wholesale and retail businesses.

Regulatory changes remain a signiﬁcant threat to total category sales in Ireland, particularly related to the alcohol category. The Public Health (Alcohol) Bill was signed into law by the President on 17 October 2018; each module within the legislation requires activation by the responsible Minister and no activation has yet been triggered.

There has been a long period of consultation on the Alcohol Bill and the structural separation element has been substantially diluted from the original draft bill. In terms of minimum unit pricing (MUP), this is unlikely to be introduced in the near future based on the uncertainty of the seamless border and the need to balance pricing across the island of Ireland.

The potential impact of legislative and other tariff or duty changes post Brexit remains significant and unquantifiable at this stage, based on the uncertainty of the final solution post March 2019.

Buoyed by a long spell of ﬁne weather, sales in the Irish retail sector grew by 2.8% in 2018.

Retail categories such as grocery, DIY and hardware, and fuel beneﬁted strongly from the sustained spell of warm weather during June. From a grocery perspective, there was particularly strong demand for seasonal products such as soft drinks, beer and wine, ice cream, BBQ food and fresh food categories, with the spike in demand pushing retailer supply chains to the limit during summer.

Once-oﬀ events such as the football World Cup and the royal wedding in the UK provided a welcome boost to trade for retailers, with sales of soft drinks, alcohol, and magazines beneﬁting most.

This trend reﬂects a broader move towards event-led retail in recent years as retailers seek to leverage such events to help promote consumer spend.

All BWG retail brands showed growth in 2018 and either maintained or marginally grew their market share. According to Nielsen Scantrack statistics, the convenience market grew by 3.7% year-on-year and the supermarket channel grew similarly by 3.7%.

Londis was the strongest performer among the BWG Group brands, with sales growth of 5.9%. SPAR, as our largest brand, increased sales by 4.1%. EUROSPAR outperformed the supermarket channel by achieving 4.3% sales growth. There is no empirical track of wholesale or cash and carry channel sales but based on volume and value sales growth over the last 12 months, combined with supplier feedback, we are conﬁdent that Value Centre has grown its market share in the wholesale channel, as has BWG Foodservice.

STORE PERFORMANCE OVERVIEW

EUROSPAR operates in the supermarket sector of the Irish grocery trade, which remains highly competitive in nature. EUROSPAR delivered wholesale sales growth of 1.79% – consistent with that achieved over the past number of years –despite strong sterling weakness-induced deﬂationary headwinds. EUROSPAR store numbers also continue to grow, with four new EUROSPARs opened. We continue our focus on executing the EUROSPAR strategy by developing the brand’s ‘Famous for Fresh’ credentials. These manifest in the delivery of quality, in-store prepared, ready-to-eat and ready-to- cook fresh foods, and accompanying in-store consumption facilities.

Sustainable retailer proﬁtability is also top of mind for EUROSPAR management, who aim to deliver sales and proﬁtability improvements to its retailer base.

SPAR - all rights reserved. 2018 | 1 SPAR sales were strong with overall wholesale growth of 3.04%. Performance was challenged by the loss of seven SPAR Stores from the Pelco group in January. After a challenging start to the year on new business recruitment, 19 new SPAR stores started trading in 2018.

MACE wholesale sales grew by 4.4% this year with new format stores performing well ahead of expectations. Although store number growth is a key challenge, 12 new stores opened. In terms of category performance, Fresh foods, particularly coﬀee to go, and alcohol, saw very strong growth.

Notwithstanding the fact that new store growth remains a challenge, the XL retail brand continues to grow strongly at 44.5% year-on-year through increased loyalty and a focus on fresh food categories.

Londis delivered growth ahead of the current market trends with wholesale sales increasing by 4.9%. Key weather events played a part in this performance and challenged our supply chain. Our continued focus on fresh food categories, combined with retailer profitability workshops, is having a positive effect on profitability and business mix. The signing of six new stores affirms our ability to attract new retailers to our brand.

The retention of stores remains paramount: the loss of four stores has been financially driven rather than the result of competitive interference. There is, however, a significant increase in retailer enticements from our competitors. With the expected initiation of retirement conversations with several retailers in the coming year, we are confident in finding suitable successors from within the overall BWG estate.

BWG Foodservice continues to show strong double-digit growth, particularly in chilled, fresh and frozen food categories. This growth has been driven by new customer ‘wins’ and expansion of ranges to existing customers. The BWG Foodservice business remains one of the fastest growing parts of the BWG Foods business.

Value Centre Cash and Carry had an exceptional sales year and continues to outperform the competitor set by increasing its market share.

SHOPLINK: OUR BESPOKE, BEST-IN-CLASS RETAIL SOLUTION

The development and deployment of the Shoplink platform was a major success factor for the year. Shoplink is a bespoke, best-in-class solution to increase simplicity in stores and to drive retailer eﬃciency when ordering stock from BWG Foods. It enables 24/7 order placement, allows customers to review the full range of BWG products and deals, as well as selecting the best promotions. As a B2B platform, it enables complete integration between BWG and in-store EPOS systems for live sales updates and complete order histories.

Shoplink is deployed to the entire BWG Group retail symbol estate, which opens options for supply chain transformation, route optimisation and demand shaping. Shoplink is being deployed in the Value Centre Cash & Carry division. There has been a signiﬁcant migration of customers to the platform, resulting in higher value sales across a wider product range, delivering a higher margin.

The Shoplink platform was awarded Best B2B Technology 2017 at the prestigious ‘Eir Spiders’ Awards. In the ‘Tech Excellence Awards’ it was recognised as the winner in the category Private Sector Project 2018.

Improvements in our distribution centre capabilities this year included the deployment of digital shelf edge displays in the chilled warehouse environment. This has dramatically reduced the daily grid creation process from one hour to one minute. The technology is currently being deployed for other areas of the operation where dynamic signage or labelling requirements can beneﬁt from improved accuracy and timeliness.

The retail foodservice and the quality of the fresh food oﬀers in stores are crucial for successful and proﬁtable retail operations. We established a new retail support team who are responsible for identifying and tracking new food trends and providing a retail response to satisfy the changing needs of our customers.

Our Retailer Benefit Programme has grown year-on-year in terms of the financial pool generated by supplier support for the core ranges. This is now a very important part of the overall retail profitability model. Now in its fourth year of operation, several changes are planned, including a full review of the core ranges, and the opportunity for retailers to adapt the programme to better match the profile of their store sales. This change will be available for 2019 and aims to recruit additional retailer support for the programme.

Within Appleby Westward, The Retailer Club was introduced to drive additional sales through selected lines. For the retailer, this provided the opportunity to earn additional discounts based on purchase volumes and to beneﬁt from additional margins on SPAR branded lines.

We also created an aﬃnity deal for retailers on credit card charges. With almost 800 members since launching this initiative three years ago, average store savings on fees are signiﬁcant.

The programme of company-managed ATM rollouts has proven to be a great ﬁnancial success for the

SPAR - all rights reserved. 2018 | 3 BWG Group and its retail customers. This is the ﬁrst venture by SPAR Ireland into ﬁnancial services. 53 new ATM facilities were installed this year and a further eight are planned.

INNOVATION IN 2018

BWG Foods launched a consumer loyalty app for SPAR. The app allows the delivery of tailored, highly personalised oﬀers to key customers. We also continued to trial innovative solutions in ordering apps for the deli and lunchtime sector, which is delivering signiﬁcant insights about consumer behaviour and ordering patters.

BWG Group’s loyalty and rewards programmes continue evolving for the retail brands SPAR, EUROSPAR and Londis. At EUROSPAR a new initiative was launched targeting lapsed SuperEasy Rewards members and attracting them back to EUROSPAR stores with bespoke oﬀers and tactical promotions.

There is continued rollout of Londis Smart Rewards across the Londis estate, with 25 Londis stores having the programme in place. Londis Smart Rewards has more than 20 000 fully registered members.

A new bakery range was launched under the O’Dwyers brand. It oﬀers a range of everyday bread and cakes, while the more premium Kake & Co brand will deliver high quality and seasonal products. A total of over 40 new stock-keeping units were launched within the new bakery range.

The BWG Wines & Spirits business features a range of exclusive wines that are sourced on behalf of its retailers: these are key to oﬀering a very strong consumer value proposition and delivering a good retail margin. The continued popularity of these wines, based on great quality at very competitive retail pricing, has been essential in driving the growth of the BWG alcohol business by over 5.5% in 2018.

In Appleby Westward a new SPAR brand wine range was launched. Following several winetasting events with retailers and distribution incentives, these products were successfully launched in stores.

The Irish market is heavily weighted towards pre-packed fresh produce lines. Fresh Choice is the house brand for fresh produce in BWG Foods. It allows us to consolidate our volumes under one brand and gives us better buying power when agreeing tenders and promotions. Fresh Choice is a signiﬁcant part of our total fresh produce turnover and is used for pre-packed lines only. All Fresh Choice lines are packed at source by our produce category partners to guarantee freshness and quality.

All subcategories within our produce business have pre-packed Fresh Choice lines, including fresh cut fruit, nuts and seeds, prepared bag salads and produce-based meal solutions. We have been successful in winning several national foods awards for lines in our prepared grab-and-go ranges.

The Glenmor brand for fresh meat and poultry had a successful year of sales growth, including signiﬁcant uptake of the barbeque range. This is despite a challenging and competitive market. The focus with all suppliers is on maintaining sales growth through development of new product options and smaller case sizes for retailers.

Monitoring and mitigating There is an ongoing dialogue with government and trade bodies to the risk of Brexit understand and appreciate the changing dynamics of the ongoing negotiations. There is also extensive consultation and dialogue with suppliers on contingency strategies to ensure that stock is available for retail and wholesale groups in the rest of Ireland post Brexit in March 2019. We are assuming that there will be no sales from the Value Centre Cash and Carry wholesale business to the UK/Sterling area because of new legislation, borders, and tariffs in 2019. We will continue The acquisition of 4 Aces is complete, and the full integration process investigating potential is underway. The acquisition of Corrib Foods was completed in acquisition opportunities September 2018. Corrib Foods is a foodservice business which will be complimentary to the existing BWG businesses. Corrib Foods will continue to operate as a stand-alone business for the next twelve months. Continuing to support BWG Foods has a significant co-investment commitment with retailers to achieve like-for- retailers and will make further capex co-investment in the next year. like top-line growth and success in the retail business Continuing growth of the BWG Foodservice is one of the fastest-growing parts of the BWG BWG Foodservice business business. Double digit sales growth has been driven by new through new contract wins customers and an expanded product offer. The acquisition of Corrib Foods business will consolidate this growth and will add to our foodservice credentials. The acquisition will provide greater scale in key areas of foodservice and provide access to new commodity sourcing for BWG. Looking forward, BWG Significant capital investment across the BWG distribution and Group’s capital investment information technology (IT) functions included the upgrade and will focus on an expansion of renewal of the physical IT structure and transport fleet. This was the chilled product prioritised over the expansion of the chilled product facility – the distribution facility original project is in planning for the coming year. at Kilcarbery

BWG PRIORITIES FOR 2019

Integration of the 4 Aces wholesale acquisition and delivery of synergies Commence the communication and roll-out of the new SPAR strategy for 2019 and beyond Delivery of the business plan for 2019, including • Mitigation of the Brexit risk to the business • Continued like-for-like top-line growth • Continuing to support retailers to achieve top-line and profitability growth • Completion of the Corrib Foods acquisition in foodservice Innovation and differentiation around retail foodservice are key elements of the BWG Foods offer to its retail estate. The business has invested in new resources to create an innovation team whose focus is to identify new food trends and to create new foodservice offers to satisfy the changing needs and tastes of consumers.

SPAR RETAILERS’ TOP PRIORITIES FOR THE NEXT YEAR

Delivering like-for-like sales growth Maintaining net proﬁtability levels Management of the labour challenge in a full employment economy Ensure business continuity post Brexit

Retail is Ireland’s largest industry, the largest private sector employer, and a critical contributor to the country’s economy.

As a market leader, the BWG Group has established operating policies that govern our engagements with major stakeholders and comply with all relevant legislation.

OUR EMPLOYEES AS AN ASSET

At SPAR Ireland we believe that the hard work and commitment of our employees – our most valuable asset – must be respected. We are committed to providing a working environment that is not only safe, but also conducive to personal well-being and growth. BWG Group is a signiﬁcant employer (both directly in its wholesale and retail operations, and indirectly through its extensive retail store network) and is fully compliant with all labour legislation. BWG Group maintains positive relations with the two recognised unions – the Services, Industrial, Professional and Technical Union (SIPTU) and the Mandate Trade Union – and no signiﬁcant labour issues occurred during 2018.

The full employment economy is resulting in more pronounced employee risks, compounded by limited rental accommodation in urban centres. There has, for example, been a signiﬁcant change in the availability of weekly waged employees, which has manifested itself in a drain of experienced pickers and qualiﬁed warehouse employees from the national distribution centre and a shortage of drivers across the wider market. Attracting skilled IT resources is also a challenge. BWG Foods is a well-established local employer that works hard to recruit, train and retain talented individuals across the business.

The core skills required by our management team include the ability to manage and integrate new acquisitions, service orientation and innovation. Our training focus this year was on negotiation skills.

SPAR Ireland is committed to employee learning and development, and continues to train all employees to ensure that they are adequately equipped to carry out tasks eﬃciently, safely and according to required standards.

Read more about our employees in the section on material relationships.

The health and safety of on-site employees is a highly regulated aspect of our business.

In terms of wellness initiatives, we do health screening for employees and have an Employee Assistance Programme that facilitates activities for head oﬃce employees such as pilates and gym session, running groups and nutrition talks.

All sites have passed the BWG Foods internal audit.

FOOD SAFETY

As a food retailer, the BWG Group implements best practice to ensure the safety and quality of all our products. This is measured according to six key areas:

Industry standards, emerging issues and liaising with government bodies Allergens Supplier approval

Retail employee training Food safety manuals Store audits

SPAR Ireland’s community investment policy is to raise awareness of and funds for a few deserving charities and organisations within its communities.

These relate, among others, to cystic ﬁbrosis, homelessness, hospice services, heart health and suicide prevention services. Our collaboration with Food Cloud, across BWG Group’s wholesale and retail businesses, connects our surplus food to nearby charities that need it, through an app and a website.

Through major sponsorships, the SPAR brand receives large-scale exposure and is associated with health and wellness.

BWG Foods, its employees and the wider retailer communities have been involved in several volunteer and charity initiatives this year:

Business in the community Mizen to Malin cycle in aid of cystic ﬁbrosis

Pieta House Cycle Howth to Bray Walk

We continue introducing innovative initiatives to make our operations more environmentally friendly.

Energy-reduction projects have been implemented in the retail and wholesale businesses. LED warehouse lighting is a key investment for the group, along with a similar replacement programme of store lighting. We provide a fully funded solution for retailers looking to reduce their carbon footprint and electricity bill.

The scheme aims to replace ineﬃcient lighting systems with LED systems. The up-front capital is funded by the electricity provider and savings in electricity costs are shared between the parties. The funds paid out in 2017/2018 were used to fund new projects, of which 30% related to new schemes in Value Centre premises and the national distribution centre as well as planned refurbishment work in retailer premises.

Typical savings are approximately 20% on the total bill. In addition to this, there are reductions in yearly maintenance costs.

In terms of electricity usage, BWG is working on a tender for combined electricity volumes under an aﬃnity deal to its retail customers. Participation in the scheme will deliver average savings of about 5% per annum on total electricity charges.

Emissions are not measured, but all vehicles are Euro 6 rated, which means they all contain BlueTEC ECO technology, which delivers superior fuel eﬃciency.

Recycling of dry mixed recyclables and food waste, food composting and cardboard and plastic bailing takes place at all BWG Group sites. All cardboard and plastic waste generated by the national distribution centre is bailed for recycling.

Further initiatives to support sustainability and cost savings include:

A pilot of ‘compressed natural gas’ fuel for the transport fleet A move to compostable cups across the BWG Foods coffee programme Active membership of Repak, the umbrella organisation for recycling and waste management. Repak is a not-for-profit company set up by Irish business and owned by its members. Repak charges fees to its members in accordance with the amount and type of packaging they place on the Irish market. These fees are used to subsidise the collection and recovery of waste packaging through registered recovery operators across Ireland so that the individual member companies are exempt from this requirement.