TEA AS A PROFIT CENTER Joe Simrany Tea Association of the USA, Inc. George Vukasin, Jr. Peerless Coffee Company

Why Tea? Outside of Water, Tea is the most consumed beverage in the world Outside of Water, Tea is the most consumed beverage in the world It is one of the fastest growing beverages in the United States driven by: It is one of the fastest growing beverages in the United States driven by: –The promise of health benefits –The allure of Specialty Tea –The Convenience & Availability of RTD Tea –The Prospects for high Profitability

Powerful Consumer Trends are Contributing to the Popularity of Tea Concern for Health Concern for Health –A strong motivator for over 35 years and gaining importance with each succeeding year –Prompted by: Greater Consumer Education Greater Consumer Education Fear & Expense of Conventional Medicine Fear & Expense of Conventional Medicine Awareness and Allure of all things Exotic Awareness and Allure of all things Exotic –A trend that has also been in place for many years and has been responsible for spikes in Popularity of: Specialty Coffee/Tea, Wine, Bottled Water, Vinegar, Mustard, Beer, Cheese, Cigars, Spirits, & numerous other foods. Specialty Coffee/Tea, Wine, Bottled Water, Vinegar, Mustard, Beer, Cheese, Cigars, Spirits, & numerous other foods. Consumer Need for Speed of Preparation & Consumption Consumer Need for Speed of Preparation & Consumption –This has resulted in more foods consumed away from home –Smaller Portions and Prepared Foods High Cost of nearly Everything prompts Search for Affordability High Cost of nearly Everything prompts Search for Affordability

Long Term Growth Predicted The Consumer Trends in Place are long term in Nature and will likely continue to Contribute to the Increasing Popularity of Tea The Consumer Trends in Place are long term in Nature and will likely continue to Contribute to the Increasing Popularity of Tea The number of Scientific Research Studies Attesting to the Health Benefits of Tea have increased from 3 per year (globally) back in 1990 to an average of 900 a year for each of the last 3 years! The number of Scientific Research Studies Attesting to the Health Benefits of Tea have increased from 3 per year (globally) back in 1990 to an average of 900 a year for each of the last 3 years!

Long Term Growth Predicted Consumers are becoming Increasingly Aware of the role that they play in Determining their Future Health Consumers are becoming Increasingly Aware of the role that they play in Determining their Future Health Consequently they are constantly searching for ways to improve their diets and/or lifestyles Consequently they are constantly searching for ways to improve their diets and/or lifestyles Tea is one of the simplest and best tasting ways to accomplish that Tea is one of the simplest and best tasting ways to accomplish that Many Consumers are Seeking to reduce Caffeine in their diets and Tea is a way to accomplish without sacrificing the stimulation that they Crave Many Consumers are Seeking to reduce Caffeine in their diets and Tea is a way to accomplish without sacrificing the stimulation that they Crave

Long Term Growth Predicted Consumers Lives Continue to become more Complicated/Stressful as a result of Exposure to an Increasing number of Options brought on by: Consumers Lives Continue to become more Complicated/Stressful as a result of Exposure to an Increasing number of Options brought on by: –Education –High Cost of Living/Second/Third Jobs –Discretional Income/Spending –Awareness –Concern for Children –Other Family Matters –The Economy

Long Term Growth Predicted As a Result, Tea will Continue as a Means of De-stressing an otherwise complicated lifestyle As a Result, Tea will Continue as a Means of De-stressing an otherwise complicated lifestyle

Long Term Growth Predicted The Appeal of Tea as a Specialty Product is only in its Infancy and will be encouraged by: The Appeal of Tea as a Specialty Product is only in its Infancy and will be encouraged by: –The Tremendous number of Specialty Teas that exist, that actually number in the thousands –The increasing number of Specialty Tea Rooms and Coffee Houses that are offering Upscale Teas –Over the last ten years the number of Tea rooms has increased from about 200 to 2,400 Specialty Tea will follow a development path similar to that of the Wine industry and will soon commonly be available by the Estate in which it is grown Specialty Tea will follow a development path similar to that of the Wine industry and will soon commonly be available by the Estate in which it is grown

Tea is Profitable A Little bit of Tea goes a Very Long Way A Little bit of Tea goes a Very Long Way –For every pound of Tea 200 servings may be prepared –Even the most expensive tea is affordable to most consumers on a per serving basis –Specialty Tea is an Affordable Luxury Tea Sales Respond exceptionally well to creative Promotion Tea Sales Respond exceptionally well to creative Promotion –It is “easy” to convert a consumer from buying by the cup to buying by the pot

Size of the Tea Market in U.S $Value by Type 1990 $Value by Type Trad. $0.87 Billion Trad. $0.87 Billion RTD 0.20 “ RTD 0.20 “ Fd Srv 0.50 “ Fd Srv 0.50 “ Special 0.27 Special 0.27 Total $1.84 Billion Total $1.84 Billion –Green $20 Million 2007 $Value by Type 2007 $Value by Type Trad. $1.95 Trad. $1.95 RTD 2.80 RTD 2.80 Fd Srv 1.0 Fd Srv 1.0 Special 1.1 Special 1.1 Total $6.85 Billion Total $6.85 Billion –Green $200+ Million

Change in Tea Consumption by Revenue & Segment

Foodservice Trends Tea is more difficult to prepare than coffee & is often served incorrectly Tea is more difficult to prepare than coffee & is often served incorrectly Operators are starting to do a better job with tea because of the profit potential & consumer demand Operators are starting to do a better job with tea because of the profit potential & consumer demand Some high end restaurants are employing Tea Sommeliers Some high end restaurants are employing Tea Sommeliers

Developments to Watch Foodservice Tea Foodservice Tea –Improved preparation & variety –Improved consumer demand driven by concern for health –Resurgence of loose tea –Increased operator merchandising

Developments to Watch Specialty Tea Specialty Tea –Rapid expansion of tea outlets –Emergence of 1 or 2 National operators –Increased Producing Country involvement in marketing –Greater availability of Estate Teas

Prospects for Future Growth Traditional Tea is expected to stabilize and to begin to realize annual growth in the 2-3% range Traditional Tea is expected to stabilize and to begin to realize annual growth in the 2-3% range RTD Tea will continue to experience robust growth in the range of 15-20% annually RTD Tea will continue to experience robust growth in the range of 15-20% annually Foodservice Tea will experience a resurgence with annual growth in the low to middle single digits Foodservice Tea will experience a resurgence with annual growth in the low to middle single digits Specialty Tea will remain one of the fastest growing segments with annual increases in the 8-10% range Specialty Tea will remain one of the fastest growing segments with annual increases in the 8-10% range

Recommendations to Increase Tea Consumption Domestically & Internationally Tea & Health remains a very powerful tool to increase tea consumption. Consumers are becoming increasingly educated about the role they play in the determination of their own health and adding tea to their lifestyle is a near perfect way to help ensure they are doing the right thing. Tea & Health remains a very powerful tool to increase tea consumption. Consumers are becoming increasingly educated about the role they play in the determination of their own health and adding tea to their lifestyle is a near perfect way to help ensure they are doing the right thing.

Are You Taking Advantage of This Growth Opportunity? Consumer Demand is Up Consumer Demand is Up Long Term Trends are Positive Long Term Trends are Positive Profitability is Excellent Profitability is Excellent Compatible with Current Operations Compatible with Current Operations Responds Well to Creative Promotions Responds Well to Creative Promotions Diversity of Supply Ensures Continued Consumer Interest & Uniqueness of Efforts Diversity of Supply Ensures Continued Consumer Interest & Uniqueness of Efforts To Ignore is to Lose To Ignore is to Lose

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