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Single-Serve Capsule Production in North America Mr. Dennis Paynter Vice President, Mother Parkers Tea & Coffee, North American Coffee Operations, USA Single-Serve Capsule Production in North America

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Page 1: Single-Serve Capsule Production in North America - · PDF fileSingle-Serve Capsule Production in North America ... • Netbase Social Monitoring ... Single-Serve Capsule Production

Single-Serve Capsule Production in North America

Mr. Dennis Paynter Vice President, Mother Parkers Tea & Coffee,

North American Coffee Operations, USA

Single-Serve Capsule

Production in North

America

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Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America

AGENDA

Single Serve Market Explosion

Impact Of Single Serve On Traditional Coffee Sales & Formats

Impact Of Capsule Innovation

The Game Changed September 16, 2012!

Sustainability

Brewer Fueling Growth

Competition Heats Up

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Single-Serve Capsule Production in North America

SOURCE DATA

• Symphony IRI

• Nielsen USA and Canada

• Business Week (IRI)

• Galileo Global Branding Group

• Industry Contacts

• US NDP

• Netbase Social Monitoring

• Media

• Globe and Mail Newspaper

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Single-Serve Capsule Production in North America

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000K-CUP® COMPATIBLE ANNUAL UNITS

11.8 Billion est.

Source: Keurig Green Mountain Reports, Keybanc Reports and internal projections

SINGLE SERVE GROWTH. BEYOND EXPECTATION. ESTIMATED +26% GROWTH OVER NEXT 5-YEARS.

…Looking at At-Home vs. Out-of-Home

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Single-Serve Capsule Production in North America

SLIGHT GROWTH ADVANTAGE TO AT-HOME CONSUMPTION. AT-HOME WILL REPRESENT 89% OF SINGLE SERVE CUPS

10.525 11.300 11.875 12.275 12.625 13.200

1.305 1.360 1.425 1.500 1.575 1.665

2014 2015 2016 2017 2018 2019

Estimated # Cups By Location

Out-of-Home

At Home

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Single-Serve Capsule Production in North America

3 YEAR SINGLE SERVE $ SHARE BY 4 WEEK PERIOD:

UNPRECENTED RISE TO THE TOP

21,9 34,6

37,4 29,7

25,8 22,8

15,0 13,0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%TOTALCOFFEE ALLOTHER

TOTALCOFFEEBAGS

TOTALCOFFEECANS

TTL COFFEESINGLESERVE

Nielsen USA Total USA XAOC March 2014 Dollars

Sept 2012 April 2014

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Single-Serve Capsule Production in North America

3 YEAR SINGLE SERVE $ % GROWTH:

TREMENDOUS GROWTH CONTINUES

157% 169%

45% 28%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

4/1

7/2

010

5/1

5/2

010

6/1

2/2

010

7/1

0/2

010

8/7

/20

10

9/4

/20

10

10

/2/2

010

10

/30

/20

10

11

/27

/20

10

12

/25

/20

10

1/2

2/2

011

2/1

9/2

011

3/1

9/2

011

4/1

6/2

011

5/1

4/2

011

6/1

1/2

011

7/9

/20

11

8/6

/20

11

9/3

/20

11

10

/1/2

011

10

/29

/20

11

11

/26

/20

11

12

/24

/20

11

1/2

1/2

012

2/1

8/2

012

3/1

7/2

012

4/1

4/2

012

5/1

2/2

012

6/9

/20

12

7/7

/20

12

8/4

/20

12

9/1

/20

12

9/2

9/2

012

10

/27

/20

12

11

/24

/20

12

12

/22

/20

12

1/1

9/2

013

2/1

6/2

013

3/1

6/2

013

4/1

3/2

013

5/1

1/2

013

6/8

/20

13

7/6

/20

13

8/3

/20

13

8/3

1/2

013

9/2

8/2

013

10

/26

/20

13

11

/23

/20

13

12

/21

/20

13

1/1

8/2

014

2/1

5/2

014

3/1

5/2

014

4/1

2/2

014

TTL COFFEE SINGLE SERVE TOTAL COFFEE CANS TOTAL COFFEE BAGS TOTAL COFFEE ALL OTHER

Nielsen USA Total USA XAOC March 2014 Dollar Growth

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Single-Serve Capsule Production in North America

Single Serve Now 26% Of Total Ground Coffee

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Single-Serve Capsule Production in North America

SINGLE SERVE DOMINANCE. CANADIAN SHARE IMPACTED BY TASSIMO AND KEURIG.

9

SINGLE SERVE CANS

BAGS

41 Share;

-13% $ Growth

47 Share;

+25%

11 Share;

+11%

ALL OTHER

33 Share;

-10% $ Growth

29 Share;

+42%

25 Share;

-2%

14 Share;

+3%

Nielsen Latest 52 Weeks Total USA and Total Canada Roast and Ground Note: Canadian data shared back to Roast and Ground segment only

47 Share;

+25%

29 Share;

+42%

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Single-Serve Capsule Production in North America

MANUFACTURER FORMATS SHARE

SINGLE SERVE: NOW A CRITICAL ROLE IN LEADING COFFEE BRANDS

Source – Nielsen Total US XAOC 52 Weeks ending March 15, 2014

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Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America

Source: http://www.businessweek.com/articles/2014-03-07/green-mountain-gains-as-starbucks-surges-in-a-crowded-k-cup-market

Business Week

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Single-Serve Capsule Production in North America

CONSUMERS ARE CHOOSING INDEPENDENT BRANDS

Market Share Data

96.0 95.6 93.0 86.3 80.6 77.8 75.1 73.6 72.2

4.0 4,4 7.0 13.7 19.4 22.2 24.9 26.4 27.8

Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 2014 Mar-14

Independent

Licensed

Nielsen Total USA XAOC Ending March 2014 Units

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Single-Serve Capsule Production in North America

GMCR* 42%

FOLGERS 14%

STARBUCKS 13%

PRIVATE LABEL 10%

KRAFT* 8%

EIGHT O'CLOCK

6%

A.O. INDEPENDE

NT 6%

PEETS 1%

Nielsen Total USA XAOC Ending March 2014 Units

Independent Brands

GMCR and Licensed

Brands

UNIT % GROWTH:

March 2014 vs. 2013

17% 6% 53%

433%

950%

277%

67% 54%

SUBSTANTIAL INDEPENDENT BRANDS

UNIT MARKET SHARE:

March 2014 Single Serve

NOTE: Private Label will include a very small percentage of Licensed brands

* Multiple brands

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Single-Serve Capsule Production in North America CANADA K-CUP COFFEE SALES PROJECTIONS

25% GROWTH PREDICTED DUE IN LARGE PART TO TIM HORTONS

VAN HOUTTE 31%

FOLGERS 24%

TIMOTHYS 16%

STARBUCKS 10% GREEN MTN

4%

DONUT HOUSE 3%

All Other Independent

4% ALL OTHER Licensed 9%

Period Ending January 2014

Source: Canadian Nielsen 52 week ending January 2014

2015 Potential

+25% growth

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Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America

CLEARLY, SINGLE SERVE HAS IMPACTED

OTHER FORMATS…

Consumer driven or Manufacturer driven?

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Single-Serve Capsule Production in North America

• Can format used to represent 82% of consumer purchases; since adoption of Single Serve to their routine Cans now represent only 63%

• Regional differences exist – USA: Cans

– Canada: Cans, Bags, Bulk

• In terms of Preparation method, the largest impact was to the Drip Machine

SINGLE SERVE SOURCE OF VOLUME STUDY – NORTH AMERICA

CANS IMPACTED THE MOST BY LAUNCH OF SINGLE SERVE

Single Serve Source of Volume Study; February 2014

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Single-Serve Capsule Production in North America

• Replaced – 34% on consumers switched

from another format

• In Addition – Over ½ on consumers added

Single Serve to their normal coffee routine

• Incremental – 13% of respondents started

consuming coffee as a result of Single Serve

SINGLE SERVE SOURCE OF VOLUME STUDY – NORTH AMERICA

34% OF CONSUMERS SWITCHED TO SINGLE SERVE

Single Serve Source of Volume Study; February 2014

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Single-Serve Capsule Production in North America

18

Price

83% Is the primary

influencer on which format to purchase.

Type of roast/blend

81%

Variety

78%

Premium

54%

Package size

67% Brand name

47%

Sustainability claim

42%

Where from

38%

NB vs. PB

38%

Package design

23%

Attribute importance when shopping for

coffee…

Single Serve Source of Volume Study; February 2014

SINGLE SERVE SOURCE OF VOLUME STUDY – NORTH AMERICA

PRICE, TYPE AND VARIETY ARE KEY INFLUENCERS

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Single-Serve Capsule Production in North America

19

3%

3%

6%

11%

23%

33%

16%

4%

7 or more

6

5

4

3

2

1

Less than 1 cup

Cups of Coffee Per Day

8% drinking

less

67% drinking

same

25% drinking

more

Mean = 3.13 cups per day

Single Serve Source of Volume Study; February 2014 –

SINGLE SERVE SOURCE OF VOLUME STUDY – NORTH AMERICA

SINGLE SERVE DRIVING CONSUMPTION

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Single-Serve Capsule Production in North America

20

5% Less than one month ago

17% 2-3 months ago

17% 4-6 months ago

22% 7-12 months ago

23% 1-2 years ago

16% More than 2 years ago

When New Consumer Added Single Serve Coffee Machine

Mean = 12.31 months ago

Single Serve Source of Volume Study; February 2014

SINGLE SERVE SOURCE OF VOLUME STUDY – NORTH AMERICA

60% OF SINGLE SERVE CONSUMERS STARTED IN PAST YEAR

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Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America

IMPACT OF SINGLE SERVE INNOVATION THE GAME CHANGED SEPTEMBER 16, 2012

New Single Serve Designs

Sustainability

Innovation

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Single-Serve Capsule Production in North America

NEW CAPSULE DESIGNS

• True Clones – Paper Filters

• Pleated and Naturally Pleated Filters

• Single Chamber With Overwrap

• Non Woven Filters

• All Plastic With A Valve

• Some Actually Deliver A Better Cup Of Coffee

• Vertical Integration Cup Thermal Forming

• New Soluble Lines

• Use of PLA

• Multiple Component Capsules

• Injection Moulded Cups

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Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America

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Single-Serve Capsule Production in North America

NEW PLAYERS

• Strum/Bay Valley

• Rogers Family

• Cameron’s Coffee

• Barrie House

• Distant Lands

• Mother Parkers Tea & Coffee

• Melitta

• Club Coffee

• Canterbury Coffee

• Intelligent Blends

• Roaster 1?

• Roaster 2?

• Roaster 3?

• Roaster 4?

• Roaster 5?

In Operation Now Actively Pursuing?

• Victor Allen Coffee

• Boyd’s Coffee

• Nabob Coffee

• Brooklyn Bean

• Kraft

• Touch Brewers

• Beaver Rock Roasters

• Jet Setter Coffee

• Peet’s Coffee

In Operation Now

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Single-Serve Capsule Production in North America

“Doing the right thing”

SUSTAINABILITY

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Single-Serve Capsule Production in North America

SUSTAINABILITY

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Single-Serve Capsule Production in North America

RealCupTM

ICA

K Vue

Barrie House

3.0g

4.0g

5.3g

6.8g

LEAST AMOUNT OF RESOURCES REQUIRED PER SERVING

UpShotTM

6.8g

3 components

4 components

5 components

4 components

4 components

Market Leader &

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Single-Serve Capsule Production in North America

RealCupTM Roll stock In-house cutting

>100 years of coffee expertise

Patented Filter Technology Roll stock format In-house Manufacturing In-house Forming

Roll stock format In-house Manufacturing

Traditional Paper Filter Die-cut filters External Supplier

Pre-formed cups External Supplier

<25 years of coffee expertise

Pre-cut lids External Supplier

Plastic insert (adds .9g)

Meeting The Need For A Better Cup of Coffee Consumer Demanding a Bolder Cup

(Requires Higher Throw Weights!)

Market Leader vs.

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Single-Serve Capsule Production in North America

Market Leader

RealCupTM

FILTER DESIGN

AREA (mm2) WEIGHT (g)

6940 0.278

2043 0.204

RealCupTM non-woven filter design

70 % LESS AREA

26 % LESS WEIGHT

Less Environmental Impact

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Single-Serve Capsule Production in North America

Market Leader vs.

VERTICAL INTEGRATION ADVANTAGE

RealCupTM

• 10x # capsules per pallet position

• Less Packaging Waste, Less Material Handing

• Less Transportation

• Less Environmental Impact

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Single-Serve Capsule Production in North America

OTHER INDEPENDENT CAPSULE INNOVATION

Coffee and Tea Company to Start Selling

Recyclable Single-Serving Pods 500M Media Impressions

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Single-Serve Capsule Production in North America

INNOVATION

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Single-Serve Capsule Production in North America

Convenient to Use Convenient to ‘Do the Right Thing’

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Single-Serve Capsule Production in North America

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Single-Serve Capsule Production in North America

TRENDS – LATTE’S & CAPPUCCINO AT HOME …

New Item – Sticks $5MM

New Item – Seattle’s Best Stand-up Pouch $2MM

+ $21 MM Single Cup

Single Serve Capsules New Formats

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Single-Serve Capsule Production in North America

AND THE GROWTH WILL CONTINUE…

BREWER PENETRATION LEVELS

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Single-Serve Capsule Production in North America

US SINGLE SERVE BREWER SHARE

2013

US K-CUP BREWERS

Source: US NPD Consumer Panel, 12mos ending June 2013

Mr. Coffee 7%

Cuisinart 1%

Hamilton

Beach 2%

Keurig 1.0 90%

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Single-Serve Capsule Production in North America

IT’S HUGE. IT’S NEW. AND IT’S STILL GROWING.

National Coffee Association 2014

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Single-Serve Capsule Production in North America

OLDER DEMOGRAPHIC REFLECTS COFFEE CONSUMPTION… BUT WHAT ABOUT THE NEXT WAVE…

National Coffee Association 2014

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Single-Serve Capsule Production in North America

SINGLE SERVE: THOSE WHO HAVE IT, USE IT!

National Coffee Association 2014

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Single-Serve Capsule Production in North America

SINGLE SERVE: STAYING POWER!

National Coffee Association 2014

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Single-Serve Capsule Production in North America

KEURIG K2.0 BREWER

NEW ENTRY THIS FALL

• 3 models: $129, $149, $169

• Ability to brew different sizes (K-Cup,

K-Mug & K-Carafe)

• Reader technology (only reads format

size and confirms licensed)

• Expected to see a limited launch in

late-2014/early-2015

• Most popular models of K 1.0 brewers

being sold until mid-2015

• The current My K-cup compatible pods

won’t work

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Single-Serve Capsule Production in North America

KEURIG’S JUSTIFICATION OF LOCK-OUT TECHNOLOGY…

“It’s critical for performance and safety reasons that our new system includes this technology.”

- Keurig Green Mountain website

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Single-Serve Capsule Production in North America

AT-HOME BREWER CONVERSION TO 2.0 WILL TAKE TIME .

AND WILL NEVER CAPTURE 100% OF THE MARKET

0

10

20

30

40

50

K2.0

Compatible

K1.02015 2017

2016 2018

2014

Bre

wer

Units (

Mill

ions)

K2.0

Independent

Compatible

K1.0

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Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America

THE COMPETITION IS HEATING UP!!!!!

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Single-Serve Capsule Production in North America

WITH MULTIPLE LAWSUITS FILED, THE BATTLE

WILL CONTINUE IN THE COURTROOMS

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Single-Serve Capsule Production in North America

OTHER COFFEE ROASTERS AND

BRANDS ARE GETTING INVOLVED

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Single-Serve Capsule Production in North America

THE MEDIA IS COVERING THE STORY…

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Single-Serve Capsule Production in North America

HERE IS WHAT THE MEDIA IS REPORTING…

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Single-Serve Capsule Production in North America

CONSUMERS ARE CLEARLY FRUSTRATED AND ANGRY

Source: Actual comments responding to various K2.0 DRM articles.

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Single-Serve Capsule Production in North America

THERE IS EVEN A CONSUMER POLL…

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Single-Serve Capsule Production in North America

AND WHEN BRAND PREFERENCE

IS THREATENED, UPSET CONSUMERS

LET THEIR VOICES BE HEARD ONLINE

Following the K2.0 announcement, Q1 analyst call, TreeHouse lawsuit, etc.

on March 3rd alone there we over 400,000 mentions and nearly 3,000,000 impressions.

Source: Netbase Social Monitoring

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Single-Serve Capsule Production in North America

Source: Globe and Mail April 2014

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Single-Serve Capsule Production in North America

THANK YOU!