January 11, 2003

Global Tea Industry

Lenore Weich

What is Tea?

Tea Market Overview

Tea Consumers

Tea Producers

A World of Tea

Bibliography

8

13

16

21

3

24

Table of Contents

WHAT IS TEA?WHAT IS TEA?

Tea Definition

…a beverage produced by steeping in freshly boiled water the young leaves and leaf buds of the tea plant, Camellia sinensis. Two principal varieties are used, the small-leaved China plant (C. sinensis sinensis) and the large-leaved Assam plant (C. sinensis assamica)1

Tea…

Major Tea Categories2

…for example

Black: Assam, Darjeeling, Ceylon

Green: Bancha, Gyokuru, Oolong

Instant: Granulated Black Tea

Herbal: Chamomile, Mint

Flavored Earl Grey

Specialty Digestive/Medical

Preparation Methods

• Infused (Hot)• Iced (Cold)• Instant*• “Ready to Drink”*

*Manufactured

Processing Tea Leaves3

PLUCKING WITHERING ROLLING

FERMENTATION

DRYING

all tea leaves

Fermentation is the critical stage—

except for green tea

Black, Oolong, Pouchong

Green Tea

PACKAGING, etc

Oolong

Pouchong Black

Processing Time

Source: Encyclopedia Britannica

Alternatives to Tea4

U.S. Beverage Per Capita Consumption (gal)

0

50

100

150

200

250

1995 1996 1997 1998 1999 2000

Others

Distilled Spirits

Wine

Tea

Fruit Beverages

Bottled Water

Coffee

Beer

Milk

Carbonated Soft Drinks

• While total per capita beverage consumption remained flat, per capita tea consumption declined 8% from 1995-2000

• In contrast, Bottled water consumption grew 50% over the same period

Equitable global data not uncovered Source: Food Processing

2001 World Tea Production5

India: 840

Data in thousands of metric tons

China: 670

Sri Lanka: 290Kenya: 290 Indonesia: 180

Turkey: 130 Japan: 100

South America: 70

Bangladesh: 60

USSR: 10

Vietnam: 30

Others: 240

Total: 2.9 million metric Tons!Source: Tea Basics

TEA MARKETTEA MARKET

Global Tea Sales, by region, 1993-19976

Global Tea Sales, 1993-1997

0

2,000

4,000

6,000

8,000

10,000

12,000

1993 1994 1995 1996 1997

$US

D (

Mill

ion

s)

Latin America

Australasia

Africa

Middle East

Eastern Europe

North America

Japan

Asia

Western Europe

•14% Growth Rate of Global Tea Market Size from 1993-1997•17% Growth Rate of the North American Tea Market Market Size

Source: Euromonitor

Global Tea Consumption, by Type

World Tea Consumption by Type, 1997

Black Tea73%

Green Tea20%

Specialty1%

Flavored0%

Herbal5%

Instant Tea1%

Black 32%

Green 18%

Herbal 51%

Instant 24%

Flavored* 16%

Specialty* 26%

GLOBAL 32%

Volume Growth Rates1993/1997

* Growth rate 1995-97

Volume consumed growing faster than Value of market

Source: Euromonitor

“The green tea market has been growing more slowly than the black tea market in recent years, with the result that green tea represents a declining proportion

of demand for leaf tea as a whole.”

Top Tea Consuming Countries, 19978

0

100

200

300

400

500

600

700

800

900

Me

tric

To

ns

(000

)

Other 0 21.1 0 0 12.26 0 44.6 0 21

Herbal 14 23.2 9.5 1.6 1.9 4.1 5.3 7.4 0

Green Tea 50 245 17.8 0.02 0.04 9.3 43.7 0.93 38.7

Black Tea 713 42.7 134.7 146.2 127.1 115.1 30 81.7 10.7

India China Russia UK Turkey Egypt Indonesia US Japan

India consumes the most black tea by volume; China consumes the most green tea

Source: Euromonitor

Market Growth Projections (US)9

29.2

34.7 36.9 41

0

100

200

300

400

500

600

700

800

1997 2001 2002 2006

Ma

rke

t S

ize

(00

0 M

etr

ic T

on

s)

Other hot beverages

Tea

Coffee

Global growth data not found

1997 – 2001 Growth: 19%2001 – 2006 Projected Growth 18%

US Market growth stagnant, perhaps declining—mature market

Source: Euromonitor

TEA CONSUMERSTEA CONSUMERS

Tea - Global Consumer Profile10

• A drink for the ill• Staple Beverage• Loose leaf predominant• Black, with Sugar/Lemon

• A drink for any time of day• Black, with milk/sugar• Tea bag predominant• Loose leaf considered “old”

• Staple Beverage• Green Predominant

• Tradition-driven• Green• Ready-to-drink emerging• Second to Coffee

• Black, Sugar/Lemon• Ready to Drink popular• Pockets of Specialty/Organic

United States

United KingdomJapan

China

Latin AmericaIndia

Source: Euromonitor

Tea Consumer Facts11,12

•On an average day, 62% of US women drank tea, compared with 59.5% for ground coffee and just 24.2% for instant coffee.

•Consumption of all hot drinks is lowest in the West, due partly to the increased popularity of healthy diets in the region and warmer climates for most of the population.

•Tea tends to be perceived as a premium beverage, with consumption highest among the wealthiest consumers with an income of above US$75,000.

•Tea has been gaining increasing acceptance among US consumers, who have turned to the sector as a lower caffeine alternative to coffee. The proliferation of herbal and medicinal teas has also played a major role in tea sale increases recently. A continuation of these trends is expected to drive volume growth

12. Source: HOT DRINKS IN THE USA (JULY 2002), Euromonitor

•…Tea is increasingly acquiring a more sophisticated image in Europe and North America.

13. Source: INTERNATIONAL MARKET REVIEW: WORLD MARKET FOR TEA (NOVEMBER 1998), Euromonitor

TEA PRODUCERSTEA PRODUCERS

Tea Supply Chain—Macro View

Growers

Distributors

Manufacturers

Retailers

Consumers

Cultivate,Process

Import/ Export

Package, Market, Retail

Distribution Sell

Drink

Tea Competitive Landscape13

Tata Tea9%

Others49%

Mai2%

Cay-Kur4%

Shemto3%Beijing Tea

Admin2%

Tetley3%

Sara Lee2%

Unilever26%

Company Country of Origin

Unilever Netherlands/UK

Tata Tea India

Cay-Kur Turkey

Shemto Egypt

Tetley UK

Beijing Tea Administration

China

Sara Lee US

Mai Russia

•The tea market is fragmented and region-specific, with multiple companies comprising 49% market share

•Unilever is the largest manufacturer of tea world-wide with 26% market share

Tea Global Market Share, 1997

Source: Euromonitor

Unilever Profile14,15

Source: Hoovers, Yahoo Finance

• One of the top global consumer product companies in the world

• Dually operated by two holding companies (for tax reasons): Unilever PLC (UK) and Unilever N.V. (the Netherlands)

• 2001 Revenue: $45.9B

• 279,000 Employees

• Besides Lipton (tea), manufactures Dove, Sunlight, Country Crock, Hellman’s, Lever 2000, Degree, Surf, others

• Organized Geographically, then by food and non-food

• Currently working to consolidate brands

General

Africa & Middle East4%

Latin America

6%

Asia/ Pacific17%

North America

21%

Europe52%

Unilever Global Presence2001 Revenue Distribution

Market Cap $27B

Gross/Net Margins 49%/4.8%

Current Ratio 1.61

Debt/Equity 3.58

52-week low:$28.82 (Jul 02)

52-week high:$39.64 (Nov 02)

Unilever—Tea Facts17

• Global tea brands include Lipton, PG Tips (UK) Brooke Bond (India)

• Small portion of Unilever’s brand portfolio (between 5-9%)

• Overall Lipton brand grew 6% in 2001

• Japan market for ready-to-drink tea grew strongly

• Lipton Cold Brew rolled out in the US

• Central Asia market declined due to competition with Indian tea

• Ready-to-drink product expansion to Europe quoted successful

• Green tea launch continues in North America and Europe

• Recent marketing campaign “Paint the World Yellow” continues to raise awareness of Lipton Brand

Source: Unilever 2001 Annual Report

A WORLD OF TEAA WORLD OF TEA

Recent Facts

Industry “Alliances” – both in the “ready to drink” sub sector of tea

• Unilever joint venture with Pepsico to market/distribute Brisk in the Americas17

• Coke and Nestle joined forces to market “Nestea”18

“The tea tradition is sustaining the established markets, but there is increasing competition from soft drinks…”16 Euromonitor

Ready-to- Drink Teas Gaining Momentum in the US: According to Beverage Digest, the category’s volume increased 1.8%, year to year, to 637 million gallons. Retail sales of ready-to-drink teas advanced 3.8% to $3.31 billion in 2001 from $3.19 billion in 2000.19 --Standard and Poor

Current Marketing Strategies:20

• Tetley—market tea as healthy, to attract younger drinkers

• PG Tips (Unilever) responds with “Slice of Life” and “Tea Moments” to consolidate tea’s role in our lives

Tea linked to many health benefits• Rehydration• less caffeine• powerful antioxidants

Future Trends

Tea is predicted to be the fastest growing sector in volume terms over the forecast period, gaining 11.1% between 2002 and 2006, to reach a level of 41 thousand metric tons in 2006.21 Euromonitor

Products like iced chai and bubble tea in the US promise to add further variety and vitality to tea selling.22

--Restaurant Business

Bubble tea is tea with Tapioca “bubbles” and

optional flavoring added

BIBLIOGRAPHYBIBLIOGRAPHY

Bibliography (1/2)

1. Encyclopedia Britannica, “Tea.”2. Tea Basics; Rasmussen, Rhinehart; 1999.3. Encyclopedia Britannica, “Tea Production”4. "Beverages Were Healthier in 2001," Food Processing, August 20025. Tea Basics; Rasmussen, Rhinehart; 1999.6. INTERNATIONAL MARKET REVIEW: WORLD MARKET FOR TEA

(NOVEMBER 1998) Euromonitor7. Ibid.8. Ibid.9. HOT DRINKS IN THE USA (JULY 2002), Euromonitor10. INTERNATIONAL MARKET REVIEW: WORLD MARKET FOR TEA

(NOVEMBER 1998) Euromonitor11. HOT DRINKS IN THE USA (JULY 2002), Euromonitor

Bibliography (2/2)

12. INTERNATIONAL MARKET REVIEW: WORLD MARKET FOR TEA (NOVEMBER 1998) Euromonitor

13. Ibid.14. Hoover’s Online Profile: Unilever, accessed Jan 200315. Yahoo Finance Online Profile, accessed January 200316. INTERNATIONAL MARKET REVIEW: WORLD MARKET FOR TEA

(NOVEMBER 1998) Euromonitor17. Unilever 2001 Annual Report18. European Report, Sept 29, 2001 p344 “COCA-COLA-NESTL? DEAL

PRODUCES NO STORM IN COMMISSION'S ICED TEA CUP”19. Standard and Poor, Food and Non-Alcoholic Beverages Industry Survey, Dec

200220. Marketing, Oct 31, 2002 p13 “BRAND HEALTH CHECK: Tetley - How can

Tetley sell the virtues of drinking tea?”21. INTERNATIONAL MARKET REVIEW: WORLD MARKET FOR TEA

(NOVEMBER 1998) Euromonitor22. Restaurant Business, “SPECIAL-TEAS,” Feb 15, 1999, JAMES SCARPA.