North America is evolving a retail model that will supercharge the $90 billion global tea market. Investments in tea retail quicken the pace of innovation with convenience foremost. Sales of bagged, bottled and single-serve broken leaf blends are quickly overtaking conventional. High expectations for taste, convenience and no-mess preparation make specialty tea fundamentally different than most consumer packaged goods. Innovation is paramount. Value-addition is invigorating a static supply chain that will cleft with mechanization at origin. High-margin artisan tea harvested by hand will make up 20% of volume and virtually all profits. Value-addition capabilities are aggregating in Dubai, Germany, China and Sri Lanka. “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.” Manjiv Jayakumar, President QTrade Tea & Herbs.

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

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

3. 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)

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

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

6. 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

7. 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

8. 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)

9. Innovations

10. 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

11. 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

12. When sales of the world’s 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
Lipton’s traditional tea sales.
New management made R&D a
hot bed of activity, in 2013
Unilever acquired Australia’s 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

13. “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
world’s 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 year’s 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)

14. 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

15. Innovation in Retail Concepts

16. 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.”

17. 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.

18. 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.
That’s why it’s the perfect
tea mug. We were so
excited.” – Oprah Winfrey

19. 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, it’s any plant, herb or spice that can be infused in water.
It’s all about discovery. We respect tradition but we like to
have fun with it too,” – Co-Founder David Segal.

20. 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

21. 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.

22. 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.

23. Bright Blends

24. 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

25. 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.

26. Ready to Drink Tea
“Other companies now recognize the opportunity and
are hopping on the iced tea bandwagon. That’s fine.
We’ll be where we’ve 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.
Cooper’s 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.

27. Head to Head
Nestlé 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

28. Innovative Hot Brewers
Capresso

29. CO2 crystals in the pod insure precise
carbonation. Coca-Cola’s 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)

30. Cold Beverage Opportunity

31. 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.

32. 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

33. 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.”

34. 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.”

35. 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.

36. Tea Drinkers
With more than 290 billion liters sold in retail and foodservice, tea is the world’s 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?

37. Specialty Coffee & Quick Serve Café
U.S. Cafés: 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)
Peet’s Coffee & Tea: 250 | Caribou Coffee: 560
Independent cafés: 5,000 (+6% sales growth)
Small chain cafés (< 30 units – 5.5% sales decline)
Limited service restaurant sales growth ranking 2013
1. +9.0% Cafés - Starbucks (8%), Dunkin’ Donuts (3.4%)
2. +9.0% Bakery Cafés - Au Bon Pain
3. +8.5% Asian Noodles - Panda Express, Manchu Wok
Technomic, limited=service restaurant ranking 2013

38. 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.
NCA’s 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 JP’s Coffee in Holland, MI.

39. 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

40. 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
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CANADA
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