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Jewel-Osco and PSI May 27, 2003

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2 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Agenda Introductions Review of ACM performance Study objectives and process Comparison across all three studies (2/23, 3/29, 5/10) Results show success High utilization achieved Enhanced customer service with shorter lines Substantial labor savings and ROI potential Opportunities for further improvements Next steps

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3 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Solid ACM performance over 11 weeks 3/01-5/10 High sales volume Peak - $139,071 (Easter week) and $133,774 (non-peak week) Average = $117,268 or 15.3% of total front-end High number of items processed at ACM lanes Peak = 55,754 (Easter week) and 53,821 (non-peak week) Average exceeded 48,455 or 15.7% of total front -end High volume of customer transactions Peak = 4,844 (Easter week) and 4,980 (non-peak week Averaged over 4,030 per week or 19.3% of total front-end High average order size with any size order any time capability of ACM Average order ACM = 12 items vs. conventional lanes = 15 items Average order $ ACM = $29.10 vs. conventional lanes = $38.58

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4 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ACM weekly performance - Sales

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5 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ACM weekly performance - Items

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6 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ACM weekly performance - Customers

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7 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ACM helps Jewel meet its service objectives Before ACMWith ACM- March Jewels stated Service Objective = 1 Customer being served & 2 in line With ACM- May 90% 1 Customer served and 2 in line 62% 1 Customer served & 2 in line 94% 1 Customer served and 2 in line

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8 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Any size order capability drives total sales Full Orders 37% Short Orders 63% Full Orders contribute 76%of total sales Short Orders contribute 24% Average distribution of ordersAverage contribution to sales Average ACM order distribution 2/23 through 4/6 Short Order = 10 items or less Full Order = 11 items or more

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9 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Any size order capability drives total sales Full Orders 26% Short Orders 74% Full Orders contribute 64% of total sales Short Orders contribute 36% Average distribution of ordersAverage contribution to sales Average ACM order distribution 2/23 through 4/6 Short Order = 15 items or less Full Order = 16 items or more

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10 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 In-store customer survey Review and Results

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11 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Summary of customer line study Goal - determine effects of ACM Self Checkout on store performance Customer line size Labor hours used on the front end Study dates and location Pre ACM study took place during week of 1/19/03 Three post ACM studies: weeks of 2/23, 3/29, 5/10 PSI and IBM conducted studies at Jewel # 3216, Schaumburg, IL In-store observations by PSI and IBM associates Observed/ logged customer line size, associate staffing across front end For a seven-day period, 12 hours per day Observations taken in 15-minute intervals Resulting in nearly 400 individual observations per study Other data utilized included: Weekly labor schedules Terminal Productivity Report from the POS

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12 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Customer service impact measurements Customer service levels measured by customer line size per observed open lane, defining line size into four categories: One or two customers on line(Most desired line size) Three customers on line(Acceptable line size) Four or more customers on line (Not acceptable line size) Zero customers on line at open lane (Not desired line size) Average line size Average number of associates servicing a customer

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13 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Comparisons Across All Three Studies

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14 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Overall, Jewel customer service improves 52% May study shows a consistency in the improvement of three or less on line from 62% in January to 90%

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15 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Conventional lane customer service improvement confirmed Three or less on line improves from 62% to 83% with ACM

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16 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Average line size improves 50% at all open lanes At conventional lanes line size improves from 32%

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17 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Average number of associates servicing a customer reduced by 35% at all open lanes At conventional lanes the number of associates increased 3%

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18 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ROI - Scheduling

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19 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Projected labor savings of 130 hours per week or more ACM throughput of items and customer transactions drive labor savings opportunities PSI recommended fixed ACM hours with baggers (120) provides 100 hours of FE labor savings Actual observed ACM hours (85) provides over 130 hours in savings

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20 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Real labor savings at ACM lanes ACM performance drives labor savings - over 85 hours per week saved with ACM Calculated from 4 week average ACM performance 04/19-05/10 Labor Factors calculated with Jewel formulas.

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21 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Self checkout generates substantial savings- payback in 16 months or less System Investment85 hours 130 hours System Cost (4 lanes)$ 79,000$ 79,000 Installation$ 5,000$ 5,000 Additional Equipment$ 5,000$ 5,000 Total Cost of System$ 89,000$ 89,000 Savings Hours saved per week 85 130 Weeks per year 52 52 Hours saved per year 4,420 6,760 Labor Rate$ 12$ 12 Annual Savings$ 53,040$ 81,120 Maintenance Costs$ (7,200)$ (7,200) Cost of Capital (6%)$ (5,340)$ (5,340) Reduced Recruiting and Training*$ 27,495$ 42,051 Total Savings$ 67,995 110,632 Payback in months 16 10 * Reduced Recruiting and Training based on expense of $4,313 (FMI Retention Study, 2000) to replace and train a new cashier. Reduction of 85 hrs/wk and average of 20 hrs/cashier, headcount reduced by 4.25 cashiers. Assume 50% turnover rate, eliminate need to replace/train 4.25 cashiers a year. 6.4 x $4,313 = $27,495. Reduction of 130 hrs/wk, headcount reduced by 6.5 cashiers, assuming 50% turnover rate, eliminate need to replace train 9.75 cashiers a year. 9.75 x $4,313 = $42.051.

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22 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Opportunities for Continued Improvements

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23 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ACM performance goals to strive for Average weekly sales at ACM lanes $120,000 to $150,000 Average weekly items processed 50,000 to 65,000 Average weekly front-end customers processed at ACM 5,000+ or 25%

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24 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Observations of Best Practices - Schaumburg store continues to improve ACM operations Keeping ACM lanes open, now throughout the night Most ACM lanes open 8 AM through 8 PM Two or more remain open overnight ACM cashier activities are effective When at the lanes, ACM cashiers spend most of their time working with customers in-lane or bagging Conventional lane scheduling meets Best Practices Conventional lanes near ACM were open most of the time. (Lanes #8 and #3 next to the ACM lanes normally open) Appropriate staffing ACM lanes staffed with a trained ACM cashier 78% of the time Assigned ACM cashier performing other duties 24% of the time Frequent use of front end supervision to monitor ACM

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25 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Best Practices - Improvement opportunities Increase hosting Hosting customers at the lanes continues to be performed infrequently and by supervisory staff only Open all ACM lanes at all times ACM lanes were closed down early for balancing One or more lanes were closed as early as 7 PM During observations ACM lanes were open only 90% of available hours Review labor schedules to reduce staff at off peak hours Observations indicate at least two conventional lanes were open at all times Frequently there were more lanes open than volume required 6.5% of the time there were open lanes with no shoppers to be serviced Improve ACM usage at off peak hours ACM lanes are underutilized during early AM and late PM hours Over 40% of the observations with no shoppers at an ACM lane occurred between 8 AM and 11 AM

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26 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Best Practices - Improvement opportunities Continue to train ACM cashiers to remain at the lanes ACM cashier at ACM lanes only 80% of the time Assign baggers to ACM lanes during peak volume hours Utilize Front End Supervision to supervise ACM lanes at Off Peak hours and for breaks Review front end policies and revise with ACM in mind Establish store ACM Best Practices and communicate to store management and associates

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27 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Next steps Review and implement recommendations Install additional ACM stores

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28 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Appendix / Extra Charts

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29 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 ACM weekly performance

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30 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 May observation show ACM cashier on duty at ACM lanes 80.7% of the time 18.3% of the time the ACM cashier is on duty they were not at the ACM lanes Only 1.8% of the time was the ACM cashier observed HOSTING customers at the ACM lanes 45% of their time was spent on indirect customer assistance functions

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31 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Frequency of line size changes per day of week Frequency of zero on line increased with ACM and offers opportunity for labor reduction January - 3.5% March - 20.1% May - 14.7% Frequency of Four or more on line decreased with ACM January - 38.2% March - 6.0% May - 9.7%

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32 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Average Customer Line Size reduced while customer counts were up and observed staff down during study weeks???

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33 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Frequency of line size changes per day of week Frequency of three on line reduced with ACM January - 23.1% March - 14.7% May - 18.2% Frequency of One or two on line increased with ACM January - 35.2% March - 59.3% May - 57.4%

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34 Prepared for Jewel-Osco / Proprietary & Confidential / April 9, 2003 Sample labor scheduling changes, save up to 145 hours per week Labor savings opportunities vary per day Save 17 hours on Friday Save 27 hours on Tuesday Combine ACM lane flexibility and throughput capacity to maximize productivity Multi-tasking at ACM in early AM, late PM and overnight can save 10 hours a week Add baggers at peak hours ( 30 hours a week) to improve throughput