Competition in the Market Place

Comparison of Coffee, Tea in the Global Beverage Market

Judith Ganes-ChasePresident

J Ganes Consulting, LLC

Competitor Beverages Flourishing

• Soft drink consumption is still huge despite some resistance due to association with obesity and diabetes resulting in a decline in usage.

• New products and markets for functional drinks:– Water has become a flavored, vitamin infused beverage– Sports drinks marketed to athletes– Energy drinks offer massive amounts of sugar and caffeine,

along with guarana, ginseng, taurine, and many others– Small “energy shots” offer concentrated caffeine and other

chemicals to provide instant boosts of energy

Global Beverage Market

2004/05 2005/06 2006/07 2007/08

Coffee -0.5% 1.6% 1.0% 1.6%Bottled Water 7.2% 7.1% 6.1% 5.6%Sports Beverages 25.2% 10.6% 5.6% 1.5%Tea 2.2% 3.9% 3.3% 4.8%Carbonated Soft Drinks 1.0% 4.2% 1.3% 3.3%

Change in volume

Coffee Use Still Growing Though

millions of 60 kg bags

Producer Coffee Demand Growing

• More and more cafes are being opened in producing countries, promoting coffee consumption domestically.

• These campaigns have been met with success in Brazil, India, Colombia, El Salvador and elsewhere.

• Consumption in producing countries and emerging markets expected to continue to see faster growth than more traditional markets overall, despite the weaker economy. However, as the recession drags on some countries are particularly vulnerable to a slow down. The actual loss in bags is limited.

• Educational programs and emphasis on health benefits helping to maintain demand.

Water No Longer Just Water

• Flavored and enhanced water is a growing market, adding to the huge demand for bottled water.

• These beverages are again marketed to health conscious consumers. Many products include not only flavoring but also vitamins and minerals, leading to the phrase “enhanced water.”

• Many of these water products also contain sugar, which places a fine line between these enhanced waters and other types of beverages.

Sports Drinks Promise Multiple Benefits

• Sports drinks target the active lifestyle consumer, promising hydration along with a myriad of flavors.

• Behind North America, Asia Pacific is the second largest consumer of sports drinks, with over 70% of this volume generated by Japan and China alone.

• Recent products are moving toward a sport-energy drink hybrid, capitalizing on the demand for energy drinks. These may include the same ingredients as traditional energy drinks, but also many natural components focused toward a healthy body.

• These beverages continue to add multiple benefits to the consumer, packing various vitamins and minerals into every drink.

Tea Remains a Global Player

• Tea is still widely consumed. In fact, second to water, it is the world’s most consumed drink.

• United Kingdom is still the largest consumer, with 165 million cups consumed daily, compared to 70 million cups of coffee.– Tea consumption estimated to have increased by 3% in 2009, after decades

of stagnation and decline.

• New bottled teas market toward those looking for an alternative to soft drinks.

• Green and white teas are focused toward health conscious consumers, offering antioxidants and nutrients not found in other bottled beverages.

Source: UK Tea Council

Tea Gains Footing as a Healthy Drink

• Tea becoming viewed as a smart and natural healthy drink option.• Many scientists are researching the various health benefits of tea,

including reducing the risks of cancer.• Specialty teas are a quickly expanding subset of global tea

consumption. Sales of specialty teas now outpace regular tea in countries like Canada.

• The United States has seen a huge growth of the tea industry in the last 20 years. In the US, approximately 85% of tea is consumed as iced tea, a competitor more to sodas and waters than generally hot drinks such as coffee.

Source: Tea Association of Canada, Tea Association of the United States

Health Benefits Drive Marketing

• New RTD products emphasize teas’ antioxidant content and the benefits of flavonoids.

• Snapple recently retooled its formulas and redesigned product labels to promote the healthiness of its tea blends.

• Green tea used to flavor and “enhance” appeal of other beverages, like the new and popular Canada Dry Green Tea Ginger Ale.

• White, red and chai teas also drawing attention.– In 2009 NESTEA introduced NESTEA Red Tea, made from the leaves of

the South African Rooibos plant.

Tea Sales Increase Despite Economy

• Prices have surged as consumption growth has outpaced the increase in production by 3.4%.

• In some developing markets like Russia, demand has shifted from more fashionable, expensive drinks to traditional, lower-quality tea.

• In developed countries, gourmet tea has been an “affordable luxury” and sales have remained strong.– 2,600 specialty tearooms in the U.S. and growing.

U.S. Tea Consumption Growing

1990 2008

Traditional Market $0.87 $1.95R-T-D Market $0.20 $2.80Foodservice Segment $0.50 $1.0Specialty Segment $0.27 $1.1

Estimated Wholesale Value of the US Tea Industry (billions of dollars)

U.S. Tea sales expected to grow 20% by 2013 – Business Monitor International

Source: Tea Association of the United States

U.S. Tea Market

2007 2008 2009 2010 2011 2012

RTD canned/bottled 47.3% 46.8% 46.0% 46.2% 46.9% 48.2%Bagged/loose 28.5% 29.1% 29.8% 29.5% 28.8% 27.5%Instant 12.3% 11.9% 12.1% 11.9% 11.7% 11.2%RTD refrigerated 11.8% 12.2% 12.1% 12.3% 12.7% 13.1%Total Market Value (billions) $2.49 $2.49 $2.43 $2.46 $2.53 $2.67

Sales Composition

Source: Mintel

U.S. Tea Market

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12RTD canned/bottled 22.6% -1.3% -3.9% 1.4% 4.5% 8.6%Bagged/loose -0.1% 1.8% -0.1% 0.3% 0.4% 0.8%Instant 2.3% -3.6% -1.0% 0.0% 0.7% 1.7%RTD refrigerated 15.7% 2.4% -2.3% 2.7% 5.6% 9.4%Aggregate 11.8% -0.2% -2.3% 1.1% 3.0% 5.7%

Sales Growth Forecasts

Source: Mintel

Convenience is King

• With time becoming a limiting factor in today’s society, coffee must adapt to this same lifestyle.

• Instant, or soluble, coffee is a good start to compete with these new easily accessible beverages.

• Starbucks is trying to capture this market with introduction of VIA Ready Brew Instant Coffee.

• One of every three cups of coffee consumed in the world is instant coffee. The instant coffee market has potential to be transformed away from traditional small glass jars and tins.

• Liquid coffee also makes the product more convenient to put in more retail locations with ease of use.

Home Brewing Innovation

• Home brewing has become a growing industry, especially due to recent economic conditions.

• Some home coffee pots imitate the single cup feeling by having many different flavors of coffee in single-serve brew capsules or pods. These usually brew in less than one minute per cup, faster than waiting in line at the local café.– Dozens of coffee and tea options for each system.

• Pyramid teabags and powdered teas enjoying a resurgence.

Are Energy Drinks a Threat?

• In many contexts, energy drinks compete more with soda than traditionally hot beverages like coffee and tea.

• Invoke a macho, hardcore lifestyle, appealing to a younger demographic not typically associated with coffee drinking.– The National Coffee Association of USA found that the average age of

specialty coffee drinkers is 43.

• Frequently (and controversially) used as mixers in alcoholic beverages in a way coffee and tea aren’t.

• Youth still drinking coffee.– Young adults who drank coffee consumed 3.2 cups per day in 2008 as

compared to 2.5 in 2005.

Energy Shots More of an Issue

• Energy shots’ appeal comes from their simplicity and convenience – they are a quick boost in a small package.

• Unlike most other energy drinks, they are most popular with mature consumers who need a caffeine fix to help them handle their busy schedules and stay awake during the day.

• Energy shots could very well be a preferable alternative to coffee in such settings.

• Many shots are even marketed as containing “as much caffeine as a cup of coffee.”– 7-hour shots have as much caffeine as a “large” cup of coffee.

U.S. Consumption Demographics

All 18-24 25-34 35-44 45-54 55-64 65+Hot Tea 68% 62% 65% 63% 70% 77% 71%Fresh Iced Tea 68% 62% 70% 65% 72% 77% 63%Bottled Iced Tea 52% 61% 61% 55% 55% 51% 31%Canned Iced Tea 43% 53% 53% 45% 45% 42% 22%Instant/powdered iced tea 42% 48% 49% 41% 39% 42% 32%Tea-based “smoothie” 17% 29% 26% 16% 16% 12% 6%

Tea usage by age, February 2009

Source: Mintel

U.S. Consumption Demographics

2004 2006 200845% 48% 51%

Incidence of drinking RTD iced tea among teens, 2004-08

Source: Mintel

U.S. Consumption Demographics

All 18-24 25-34 35-44 45-54 55-64 65+More coffee than last year 17% 37% 29% 22% 11% 9% 5%Less coffee than last year 21% 34% 23% 17% 22% 23% 16%About the same as last year 61% 28% 48% 62% 67% 68% 79%

Coffee consumption compared to last year, by age, September 2009

Source: Mintel

Coffee and Tea Prices

Source: IMF Primary Commodity Prices

Cents per kg/pound

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