June 2011Project Number #14025

Prepared by:

PLP Partnership2010 Update: Status and Outlook for

Iced Tea In Foodservice

2

For Questions, Comments or Additional Information, Contact:

David HenkesVice President

dhenkes@technomic.com

Timothy PowellDirector

tpowell@technomic.com

Technomic, Inc.300 South Riverside Plaza

Suite 1200Chicago, IL 60606

312/876-0004Fax: 312/876-1158

I. Introduction

4

Background

The Pepsi/Lipton Partnership (PLP) is an extremely successful joint venture between Unilever (Lipton) and Pepsico. In 2006, Technomic conducted research into the brewed/dispensed tea category for PLP, which included retail sales dollars for each major brewed format, operator segmentation, growth estimates and other pertinent information.

Going into what promises to be a challenging year in 2009, PLP is looking at a major change in its portfolio, particularly in the liquid concentrate category. From a strategic perspective, PLP needs to update key metrics from this study to better understand its categories, strengthen its position in the categories, and understand the strategic opportunities available to it as it revises its portfolio.

As in the previous studies, the two areas that are of critical importance to PLP are:

1. Market insights into size and share of the market held by various types of iced tea, and

2. Competitive insights into supplier share.

5

Objectives of this Engagement

This proprietary study has been structured to address channel and competitive issues required by PLP and will build upon the research and insights already provided to Pepsi and Lipton through the previous in-depth study on tea conducted in 2006. The objectives of this proprietary study are to:

1. Provide a breakdown of the total sales of the iced tea market by type of product (bag-in-box, fresh brewed, liquid concentrate, bottle/can and frozen/slushy/smoothie);

2. Evaluate historic and projected growth, overall, and for each type of product based upon retail sales (consumer expenditures);

3. Develop competitive insights and market share information in retail sales, overall and for each major type of product;

4. Provide a strategic assessment about the opportunity for PLP’s portfolio, including a possible new liquid concentrate product; and

5. Provide critical implications and growth recommendations for PLP based upon study findings.

6

Methodology

Technomic used the following step-by-step methodology to achieve the aforementioned objectives:

Step One – Project InitiationTechnomic and Pepsi met to review the proposal, discuss open issues, share background information and finalize a timetable. We formally initiated the study in December 2008.

PLP also provided insights into its current volume (dollars and gallons) in the foodservice channel to help analyze its share within each of these product sub-categories.

Step Two – Secondary Source ReviewWe gathered and analyzed all relevant published materials on each segment, including a thorough review of trade publications focusing on each segment (i.e., Foodservice Director, Food Management, etc.). We also scanned relevant information from other trade publications, available market research and Technomic non-proprietary studies. In addition, any information PLP had developed to date was analyzed for inclusion in this report.

7

Methodology

Step Three – Interview Guide DevelopmentPrior to initiating field work, Technomic developed surveys and discussion guides which were used in quantitative and qualitative interviews. These were shared with PLP for review and approval.

Step Four – Quantitative Operator InterviewsTechnomic conducted 793 quantitative interviews within each segment included in the scope of this study. The primary purpose of these interviews was to obtain insights on what was currently being sold, historic and expected growth in each category, and trends/dynamics that impact iced tea overall and by type of iced tea.

Segment CompletedLSR 175

FSR 175

Hotel/Lodging 76

Recreation 72

B&I 77

K-12 75

Colleges 67

Hospital 76

Total 793

8

Methodology

Step Five – Qualitative Operator InterviewsBeyond the quantitative interviews, Technomic gained more in-depth insights into each segment through qualitative interviews. These interviews were intended to gather information relative to outlook and trends within the individual iced tea categories. In total, we conducted 20 qualitative interviews with key users.

Step Six – Competitive/Supplier Interviews To confirm/validate market size and share estimates, Technomic conducted five (5) interviews with suppliers active in the iced tea category. Technomic interviewed Coca Cola, Nestea, B.W. Coopers, Luzianne and Harris Tea. These interviews served to confirm/validate competitive presence and focus, discuss trends and outlook, and otherwise address key issues included in the scope of this study. At no time was PLP’s sponsorship of this study revealed.

Step Seven – Analysis and Report PreparationWith the field work complete, Technomic has delivered this draft report. Our analysis built upon and leveraged the work already conducted on behalf of PepsiCo. Our market sizing process included triangulating multiple sources of input, including the previous beverage study, current research with the operator community, and data from our supplier/competitive interviews.

9

Project Scope

Below are the examples of iced tea included in the scope of the study.

Format Comments/Examples

Fresh Brewed Tea that is brewed fresh from tea leaves. Typically found in a 1 oz. or 3 oz. tea bag.

Iced Tea from a Fountain Iced tea served out of a valve on a soda fountain. Typically in a bag-in-box product.

Liquid Concentrate Iced Tea

Iced tea that is typically served from another type of dispenser.

Similar to fountain, this is also a liquid concentrate product.

Packaged Iced Tea Packaged iced tea in all varieties. Bottles, cans and PET packaging included.

Slushy / Frozen Iced Tea Frozen iced tea drinks.

10

A Note About Market Volumetrics

All market sizes and competitor shares in this report are estimates based on channel-reported volumetric data. Market size and share estimates were constructed using input and feedback from operator and distributor sources, and were confirmed/validated via in-depth interviews with competitive suppliers within each of the relevant categories.

In light of this, all volumetric estimates are subject to a range of +/- 5%. In addition, all growth forecasts are subject to a range of +/- one percentage point unless a range is provided.

Operator research Product penetration Average unit volumes Brands purchased Types purchases

Distributor research Product penetration Average sales volumes Number of SKUs (types,

suppliers, etc.)

Preliminary estimates are developed through the process of operator and distributor Interviews

Final market size values are refined through a process of probinginterviews among competitive suppliers used to validate findings

and assessing Pepsi/Lipton data and input.

11

Report Layout

The remainder of the report is structured as follows:

Executive summary and recommended steps for Pepsi/Lipton

Iced tea category overview

General iced tea findings

Competitive images

Appendix: Quantitative operator survey results

– Fresh brewed iced tea

– Fountain/dispensed

– Liquid concentrate iced tea

– Packaged iced tea

– Frozen/slushy iced tea

II. Executive Summary and Recommended Action Steps

13

Introduction

This section provides an executive summary of the following: Total size and growth of each category Summary of Fresh Brewed Summary of Fountain Summary of Liquid Concentrate Summary of Packaged Summary of Frozen Key competition PLP position in the category Technomic’s overall assessment Recommended action steps

III. Market Overview

15

Category Overview – Size of Iced Tea in Foodservice

The total size of the iced tea category in foodservice is approximately $5.9 billion in 2008 consumer dollars.

Total Consumer Expenditures

Fresh Brewed $2.9B53%Liquid Concentrate

$388MM7%

Bottle / Can $1.1B20%

Frozen / Slushie $53.8MM1%

From Fountain $1.1B18%

Fresh Brewed $3.1B53%

Liquid Concentrate $450MM8%

Bottle / Can $1.1B20%

2006 $5.5B

2008 $5.9B

16

Overall Iced Tea Category Growth

Fresh Brewed

From Fountain

Liquid Concentrate

Packaged

Ice-Based

Total

0-1%

(1)-0%

4-5%

0-1%

3-4%

1-2%

3.8%

2.1%

7.7%

1.5%

3.9%

3.3%

Historic CAGR 2006-2008 Projected CAGR 2008-2011

Growth in Iced Tea — Overall Foodserviceby Format(Nominal)

Source: Technomic

Overall, iced tea is viewed as a healthy product and a very popular AFH beverage.

The overall drop in AFH dining will hamper growth.

Fresh brewed is perceived as the gold standard by consumers, but its equipment/labor intensity will hamper growth.

Fountain is easy and convenient but its quality lacks that of fresh brewed and liquid concentrate.

Liquid concentrate’s quality is second to fresh brewed and is easy to prepare, but it is also expensive.

IV. Overall Ice Tea Channel Findings

18

Winnie Section

xxx

19

Brand Switching

Most operators do not switch brands of iced tea frequently. They point to the hassles of installing/replacing new equipment, as well as the time it takes to develop a new relationship. This is why operators said that the current brand/supplier must be drastically underperforming before they will consider a move, such as poor service, dramatic price increases or consistent product shortages. Additionally, if operators saw dramatic cost savings from another brand, they may consider making the switch.

Important to Lipton/Pepsi is that franchisee pressure and consumer demand led one account to switch to Gold Peak. Coca Cola has been very active in converting its current CSD accounts into Gold Peak customers as well.

“We don’t switch often. In fact, I’m not sure of the last time we switched brands or why we would have.”

“We don’t switch much. We lump it in with our coffee program and send out RFP’s for new contracts every two to three years.”

“We don’t switch and wouldn’t switch unless there is a major issue prompting us to switch – such as really poor service. If we were able to see we could save some money, we would consider switching though (current user of Lipton iced tea and Global Brands in bottles).”

“We switched from Lipton to Gold Peak for varieties based on franchisee and customer request, which led to greater customer satisfaction. Iced tea sales are up.”

V. Competitive Situation

21

Key Foodservice Iced Tea Competition

Looking at the iced tea category from a broad perspective reveals that Lipton is the most dominant brand, across all formats included in the study. Only Coca Cola, with its Gold Peak and Nestea brands offers the broad “solution” of iced tea formats similar to Lipton.

Company Iced Tea Brands Key Products

American Beverage Co. Arizona Packaged, Liquid Concentrate

B.W. Coopers Bazza Fountain, Liquid Concentrate

Coca Cola Gold Peak Liquid Concentrate, Packaged

Harris Freeman Harris Fresh Brewed

Reilly Foods Luzianne Fresh Brewed, Liquid Concentrate

Nestle (Coke joint venture) Nestea Fountain, Fresh Brewed, Liquid

Concentrate, Packaged

Sara LeePickwick,Paradise,Superior

Fresh Brewed

Tata Sons Tetley Fresh, Liquid Concentrate

Total Category = $5.9 Billion

Source: Technomic

All Other21%

Nestea12%

Lipton41%

Tetley4%

Luzianne5%

Gold Peak1%

Private Label11%

Sara Lee4%

Arizona2%