Innovation in Tea Rising Consumer Expectations Challenge North American and British Tea Brands to Innovate Dan Bolton STiR Tea & Coffee Industry International

Tea Lollypops (US) On a health lick. Bottled Bubble Tea (UK) AriZona Tea Flavored Water (US) Tea for Kids (US) Tea Innovations

Note: Download 24 examples of tea innovation at www.dmcc.ae Blending Innovations Black & Green (UK) Cocoa Cabernet (US) Tattle Tea Chai (US) QTrade Tea & Herbs (US) Kilogram Tea (Intelligentsia US) Watermelon Mint (US)

Note: Download 24 examples of tea innovation at www.dmcc.ae Packaging Innovations Practical Packaging Educational Message Clever Concepts Clean Design

Note: Download 24 examples of tea innovation at www.dmcc.ae Marketing Innovations Limited Yellow (US) Liptons 1st Global Campaign Small holder advocacy (Africa) Folk art favorite (US) TV Tie-ins (US-UK) Marketing to kids (US)

Note: Download 24 examples of tea innovation at www.dmcc.ae Tea Drink Innovations Coconut Mango Sakura (US) Slushies (US)Granita (US) Spiked tea 4% ABV (UK) Milk Tea (Taiwan) Green Tea Red Bean Frappe

Note: Download 24 examples of tea innovation at www.dmcc.ae Functional Tea Innovations Lose Weight Stop Smoking Keep Calm Boost Energy (75 mg/8 oz. caffeine) Build Immunity Aid Digestion

Note: Download 24 examples of tea innovation at www.dmcc.ae Teaware & Gadgets Updated enamel Disposable Filters (Japan) Tasting cups (US-UK) Compartment travelers (GER)High tech Innovative design (Luyu Tea)

Innovations

Take Aways Note: Download 24 examples of tea innovation at www.dmcc.ae $1 Billion Bet on Tea Retail Creative concepts are ready for rapid expansion Innovative tea drinks and food raise average ticket Convenience is Key to Growth Ready-to-drink accounts for 75% of U.S. tea segment Single-serve tea in capsules and pods is in its infancy Disloyalty Drives Tea Innovation Declining brand loyalty encourages experimentation Recession bolsters private label manufacturing

Multiple Ingredients C. Sinensis Herbals Nutraceuticals Fruit Blends Juice Fusions Flavored Teas Multiple Formats Loose Leaf Artisan Pyramid Sachets Single Serve Food Service Iced Tea Ready-to-Drink Innovation Where is innovation occurring? Multiple Channels Retail | Big Box Supermarket Specialty Beverage Food Service Convenience Stores Amazon.com Note: Download 24 examples of tea innovation at www.dmcc.ae

When sales of the worlds most valuable tea brand stalled stagnation was attributed to a lack of innovation. Lipton lost the top spot in U.S. convenience outlets to AriZona Tea. In Canada specialty sliced into Liptons traditional tea sales. New management made R&D a hot bed of activity, in 2013 Unilever acquired Australias T2 retail chain and teamed with Disney Pictures to launch its first global marketing campaign. Lesson Learned We will continue to accelerate our innovations, backed with competitive support, to build long term growth and value. Unilever CEO Paul Polman Lipton/Unilever

In a world filled with high- stress wild-in-the-street types like Animal, you have to take time to enjoy life and 'Be More Tea. '" Kermit Be More Tea Lipton is second only to Coke as the worlds most widely consumed prepared beverage. Global sales: $2.7 billion (2012) Lipton/Unilever 43 million Oscar night viewers; 5.5 million YouTube downloads. The global revamp will cost Unilever $40 million, double last years ad spend. The goal is to make Lipton into the global iconic brand it deserves to be. Wisdom of Kermit (Banjo Serenade) Wisdom of Kermit (Rainbow)

Take Away 1 Big Bet on Tea Retail Ready for rapid expansion 3,500 > 5,000 tea shops Tea increases avg. sale After hours food & drink We are going to elevate the tea experience in the same way we did for coffee, Starbucks CEO Howard Schultz told investors, We are going to reinvent and create an opportunity for a new source of revenue and profit. Bloomberg BusinessWeek , March 20, 2014

Innovation in Retail Concepts

Teavana Fine Tea + Tea Bar Founded:1997|366Stores|U.S.,CanadaandMexico This is a bold and inviting modern vision of tea retail. Success rests on three consumer desires: A desire for a third place away from home and office that evokes conversation and calm a respite amid urban congestion. A desire to learn more about tea, its history and health benefits. A desire to sample and explore tea beverages in a setting that encourages experiment, customization and service. Starbucks CEO Howard Shultz promised to bring breakthrough innovation to the tea category in the U.S. and Canada.

Teavana Fine Tea + Tea Bar 150 Teas | Tisanes Teavana operates 366 stores with plans to open 1,000 more in the U.S. and overseas within five years. Adding 5 stores a week is easy. Starbucks has 20,000 locations in 64 countries and opens 1,500 coffee shops a year.

DAVIDsTEA 150 Teas | Tisanes Tea-to-go hot or cold Clever, colorful packaging Teaware designed in-house A new tea every month Limited Edition Collections Updated Seasonally The cup has the infuser inside with a top on it. Thats why its the perfect tea mug. We were so excited. Oprah Winfrey

DAVIDsTEA Founded: 2008 | 107 Stores in the U.S. and Canada When it comes to blending we like to think outside the cup. Tea can be so much more than the leaves of a tea plant for us, its any plant, herb or spice that can be infused in water. Its all about discovery. We respect tradition but we like to have fun with it too, Co-Founder David Segal.

Love at First Sip: Cha2O A California nightclub marketed to kids aged 12-16 and open from 10 a.m. to 1 a.m. Boba Tea: To subdue those soft-balls cravings. Bakery: For your sweet-craving taste buds. Restaurant: Appease your grumbling tummy. Lounge: Relax, ease frustrated muscles. Drinks come in two sizes: Standard $3.15/16oz Greedy $5.99/32oz

New Tea Drinks Coconut Mango Sakura Allure $5.95/24oz. Blackberry Mojito Lime Cooler $3.95/24oz. Coco Caramel Sea Salt Latte $5.95/16oz. Milk Tea Laughing Budda Cold Shoulder Pom Pom Peach All $5.99/32oz. Green Tea Red Bean Frappe (Venti) $SGD7.70/$6 US Cha2O, Artesia, Calif. Teavana Fine Tea + Tea Bar, New York City, Starbucks Singapore. Teavana photos by Linnea Covington.

Trendy Tea Food Breakfast Rice Porridge, Scallions, Toasted Garlic Nori, Cilantro Sriracha, Tamari $12 Paleolithic Wild Salmon, Smoked Duck, Squash, Kale Salad, Steamed Beets $20 Lunch French ham and spinach over roasted tomato on store-baked four-cheese flatbread - $8.95 Samovar Tea Lounge, San Francisco. Teavana Fine Tea + Tea Bar, New York City. Teavana photos by Linnea Covington.

Bright Blends

Take Away 2 Note: Download 24 additional slides with innovation examples at www.dmcc.ae Convenience is Key to Growth Ready-to-drink accounts for 75% of U.S. tea segment Single-serve tea is in its infancy Cold tea brings a huge amount of dynamism to this market, and opens up a new consumption occasion, and access to a much younger consumer. Winfried Hopf, Unilever Executive Vice President Beverages Chairman T2

Convenience America is a land where convenience counts. Making tea is messy, requires some precision and takes time to steep. This is why RTD teas make up nearly 75% of the entire U.S. tea market. RTDteasalesgrewto$5.1billionin2013,upfrom$4.8billionin2012. Convenienceoutletssold1.2billionRTDteaunitsearning$1.23billion. Consumptionhasrisento5gallonsperyearforeveryoneover18. Premiumbottledbrewedteasandspecialtyshowedthegreatestgrowth. Unsweetenedicedteain2012grewmorethan16%indollarsales. Sources: CSP 2013 Beverage Report SymphonyIRI Group Soft Drinks in the US, Euromonitor International, July 2013 AC Nielsen, 2012. Adult population: 240 million (2012) Thanks Colleen Norwine, BW Coopers.

Ready to Drink Tea Other companies now recognize the opportunity and are hopping on the iced tea bandwagon. Thats fine. Well be where weve always been -- out front, leading the way. Barry Cooper, founder of Cooper Tea Co., is a pioneer in the expansion of premium RTD tea in convenience stores. Coopers bottled teas and concentrates are unique in the market for their extensive certifications. He explains the 8.6% increase in unit sales in c- stores in 2012 is two-pronged: 1) a reflection of consumer demand for convenience 2) the increasing focus on health and wellness. The non-GMO movement is likely to have an increasing impact on the RTD market, according to Cooper.

Head to Head Nestl Nespresso - $4.4 billion Dominates Europe ($300 million| 3% U.S .) Keurig Green Mountain - $4.4 billion Dominates North America (0% Europe) All major brands in the segment: Top five earned $100 million* Lipton | Celestial$32 | KGM$29 | Bigelow$12 | Snapple$11 Million U.S. household penetration 15% Canadian household penetration 20% European household penetration 20% Coffee preparation at home (past day) 29% drank single serve | 53% drip brew National Coffee Association 2014 National Coffee Drinking Trends Study; NCA Market Research Series; Euromonitor International. *IRI Total U.S. Multi-Outlet w/C-Store (Supermarkets, Drugstores, Mass Market Retailers, Gas, Select Club 52 Wks. End Jan. 26, 2014. Single Serve Harney & Sons

Innovative Hot Brewers Capresso

CO2 crystals in the pod insure precise carbonation. Coca-Colas portfolio of 575 beverage brands includes: Teas (26) FUZE Tea | FUZE (fortified juice) Gold Peak Tea Honest Tea (No. 1 organic) Nestea | Lipton Pure Leaf Juice (Minutemaid - Hi-C) Juice Drinks (Honest Fizz) Energy Drinks (Enviga Burn NOS) Sports Drinks (Powerade) Enhanced Waters (Glaceau)

Cold Beverage Opportunity

Innovation is valued in every category But North America has recently launched some unusually clever and creative retail and packaged beverage concepts. The result is that tea availability per capita in the U.S. has climbed to 9.3 gallons (2011) which is the highest level since 1918 when consumption peaked at 11.3 gallons. USDA ERS North America is the 4th largest tea importer. Why? Disloyalty.

Take Away 3 Disloyalty Drives Tea Innovation Declining brand loyalty encourages experimentation Recession bolsters private label manufacturing Consumer expectations for conventional tea brands are raising the stakes for North American retailers. Customers who purchase tea are more likely (55%) to stay with a familiar brand than most categories but almost half think nothing of changing brands for something new. Hartman | FMI Research

Brand Loyalty Declines Brand loyalty declined in 2013 for the third straight year in a broad market survey of 350 brands in 28 product categories. Private labels are thriving: 88% of those surveyed say private label brands are just as good as national brands. Consumers are much more frugal. Only 27% say they will revert to national brands when the economy gets better. Deloitte American Pantry Study. In January 2013 Deloitte surveyed 4,047 respondents in 28 product categories and more than 350 brands. P at Conroy, vice chairman and U.S. Consumer Products Leader said that one of the most notable year-over-year trends in the study is how embedded frugality has become due to the recession. Prudent consumers and improving perceptions about store brands are squeezing national brands position. The gap between the few must have brands on shoppers lists and others on the shelf may be widening.

Constant Innovation Cycle Specialty tea is in a constant innovation cycle that is attracting a lot of money, with acquisitions leading to expansion of existing lines and bold, new experiments in formulation, ingredients, packaging and retail outlets. The retail segment has attracted $1 billion investment in the past 18 months, clear evidence that investors see huge demand and huge growth opportunity. ManjivJayakumar,PresidentQTradeTea&Herbs Innovation is the key to opportunities in tea.

How Big is the Opportunity? One trillion cups consumed each year. Euromonitor International estimates the global tea market at $87.5 billion. Bottle tea and coffee is expected to generate $125 billion by 2017. U.S. Tea Market: $10 billion Canadian Tea Market: $4 billion U.K. Tea Market: $1.3 billion Euromonitor. Global Tea Market. MarketsandMarkets, revenue from tea and coffee has grown10.9% since 2011 when RTD sales were estimated at $69 billion globally.

Tea Drinkers With more than 290 billion liters sold in retail and foodservice, tea is the worlds most consumed beverage, outpacing bottled water, carbonates, beer and coffee. Euromonitor (2012) U.S. Tea Pop. 313.9 million Per capita: .5 lb. 79 Billion servings 44% Drink tea daily 65% Use tea bags 14% Loose leaf 84% Black 15% Green 6-10% Herbals* 15%Hot|85%Iced 25% Drink RTD Pods: 15% homes Canada Tea Pop. 34.88 million Per capita: 1.1 lb. 9.7 Billion servings 54% Drink tea daily 96% Use tea bags 20% Loose leaf 57% Black 25% Green 18% Herbals* 97%Hot|3%Iced 11% Drink RTD Pods: 20% homes U.K. Tea Pop. 63.23 million Per capita: 4.3 lb. 60.2Billionservings 87% Drink tea daily 96% Use tea bags 4% Loose leaf 98% Black 2% Green 5% Herbals* 99%Hot|1%Iced 5% Drink RTD Pods: 5% homes Mintel International. Euromonitor International. Tea Associations Canada, Tea Association of the USA, British Tea Council. Calorie Lab Daily Mail So How Do You like your cup of tea?

Specialty Coffee & Quick Serve Caf U.S. Cafs: 26,500 | Breakfast: 12.5 billion visits +3% Starbucks: 13,279 (US) 1,324 (CAN) | $57 billion sales Dunkin Donuts: 7,600 | Tim Hortons: 859 (US) 3,588 (CAN) Peets Coffee & Tea: 250 | Caribou Coffee: 560 Independent cafs: 5,000 (+6% sales growth) Small chain cafs (< 30 units 5.5% sales decline) Limited service restaurant sales growth ranking 2013 1. +9.0% Cafs - Starbucks (8%), Dunkin Donuts (3.4%) 2. +9.0% Bakery Cafs - Au Bon Pain 3. +8.5% Asian Noodles - Panda Express, Manchu Wok Technomic, limited=service restaurant ranking 2013

Coffee Shop Opportunity Tea Drink (16-oz) Tea Price Cup Lid Ingredients Cost Profit Margin Iced Tea (loose-leaf) .09 2.25 .09 .03 $.12 (Sweetener/Ice) .33 $1.92 85% Tea Latte (w/skim) .09 3.25-4.25 .09 .03 .024 x 13 oz = $.31 .52 $2.73 84% Tea Latte (w/whole) .09 3.25-4.25 .09 .03 .027 x 13 oz = $.35 .55 $2.70 83% Chai (brewed w/h&h) .20-.30 3.95-4.25 .09 .03 .031 x 7 oz = $.22 .64 $3.31 84% Chai (mix w/water) 1.15 3.95-4.25 .09 .03 Water 1.15 $2.80 71% Tea Drink (12-oz) Tea Price Cup Lid Ingredients Cost Profit Margin Bulk Tea + t-sac .09 1.90-2.75 .07 .03 Water .19 $1.71 90% Teabag .13 1.50 .07 .03 Water .23 $1.27 85% Pyramid Sachet .43-.48 1.90-2.75 .07 .03 Water .53 $1.37 72% Daily consumption is high at 61% with 79% of adults drinking coffee in one form or another. NCAs drinking trends survey shows a pronounced shift to gourmet/specialty with 34% partaking daily. The Canadian Coffee Association shows 65% drank coffee the past day and 37% drink tea daily. There is no comparable report on past day tea drinkers in the U.S. but 158 million Americans (51%) reported drinking tea in the past year. National Coffee Association Drinking Trends Survey, January 2013. Canadian Coffee Association national survey of past day coffee drinkers (2013) Specialty Coffee Retailer April 2011 Steeping in Profits. Going from bagged to loose-leaf teas doubled our sales, says JPs Coffee in Holland, MI.

Tea is Undervalued Despite accounting for 29% of global beverage volume tea commands only 13% of value. That is the point that makes us at Unilever so excited, because there is a real opportunity to uptrade this category. Tea is the hottest beverage in the beverage landscape." - Winfried Hopf, Unilever Executive Vice President of Beverages - Chairman T2

Dan Bolton STiR Tea & Coffee www.stir-tea-coffee.com dan@stir-tea-coffee.com Tea Biz Blog Better Business Insight www.tea-biz.com dan@tea-biz.com Mystic Media 1108-21 Roslyn Road Winnipeg, MB R3L 2S8 CANADA 204 788-1359 (office) 204 230-7125 (mobile) Skype: dwjbolton