Dear Shareholders:

 

The year 2012 was full of challenges that presented a complex scenario at the world level and particularly in the Eurozone, that witnessed several of its members facing grave economic crises. For its part, Mexico showed signs of political and economic stability in a year that was dominated by the federal electoral cycle that culminated in the elections on the first of July.

 

With respect to Chedraui, in 2012 we were able to capitalize on the opportunities presented by the environment and to harvest what we had sown in prior years, registering greater growth in sales than the overall market, and consolidated our position as the third largest food retailer in the country. Sales in 2012 were $63,944 million pesos and increased by 11.2% with respect to the preceding fiscal period.

 

During the year we also added 24 stores in comparison to 2011 and expanded our number of stores to 243, with an increase of 8.4% in square meters of sales space. It should be noted that this expansion was accomplished in an organic manner in Mexico, where we opened fifteen stores, and in the United States, where we inaugurated a new store and acquired eight more last August.

 

This double digit growth in sales was due in large measure to our strategy of low prices, the comfort of our stores and our efforts to improve our assortment on a store by store basis that resulted in better inventory levels. It is a fact that the effort involved in implementing SAP in our operations in Mexico is beginning to bear the expected results.

 

It should be mentioned that the discipline to utilize SAP and other technological tools has made operations more efficient and increased productivity as well and brought improvements to several of our key indicators such as:

 

• natural gross margin;

• inventory turnover;

• reduced inventory shrinkage;

• on shelf stockout improvement;

• improved assortment store by store, and

• stockout reduction.

 

This technological optimization put in place in recent years, together with the commitment to offer the lowest prices, optimal assortment and most comfortable stores, have been key elements in consolidating the growth we have experienced on an ongoing basis for more than a decade.

 

With respect to the retail business in Mexico, in addition to the new stores inaugurated, we worked on remodeling a total of eight more stores to assure that all our assets are in the best condition. Likewise, four units were converted to Selecto, bringing the total to ten stores that operate under this concept.

 

With reference to our stores in the United States, we strengthened our presence and strategy of serving Mexican consumers in the southwestern area of that country. In 2013, we will seek to consolidate the eight stores we purchased last year with the expectation that these acquisitions will be as successful as those of prior years. We intend to continue growing in our area of influence in the United States because we still see great potential there.

 

Driven by Mexico’s demographic component and level of domestic consumption, together with our appropriate management of shopping centers and good business diversity, the real estate segment continues to maintain notable dynamism in its operations.

 

In Chedraui, we maintain a deep commitment to sustainability and believe that our economic growth must be accompanied by equally solid performance in the social and environmental dimensions.

 

Thus, the Chedraui Foundation contributed to community development through support for social programs in the areas of nutrition, health, housing, wellbeing, support during natural disasters and education. In this latter area, the Liceos de Artes y Oficios, A.C. stand out by having taught more than 35 thousand students since 1995. Other important programs in this respect include the donation of foodstuffs and round-up campaigns in all our stores.

 

As to the environment, we have taken concrete measures in Chedraui to protect it and improve it by saving energy, water, paper and cardboard, recycling campaigns and the appropriate management of wastes.

Our associates are a fundamental part of our Group; we are proud of them, and of having been chosen as one of the Best Companies to Work For by the Great Place to Work Institute Mexico.

 

We know that the results mentioned above and discussed in detail throughout this report would not have been possible without the efforts, professionalism and dedication of our near 40 thousand associates and without the confidence that you, our shareholders, deposited in us again. The Board of Directors wishes to express its deepest gratitude to you in this report.

 

The fiscal year being reported was very positive and we foresee 2013 being a year full of opportunities for Chedraui. We will continue to make a reality of our mission of offer customers the products they want, in all possible locations, and at the best prices in order to continue on the path to growth and profitability to the benefit of our shareholders and all of our stakeholders.

 

 Alfredo Chedraui Obeso 

Chairman of the Board of Directors

 José Antonio Chedraui Eguía

Chief Executive Officer