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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
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
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
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
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
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
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
Single-Serve Capsule Production in North America
Single Serve Now 26% Of Total Ground Coffee
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%
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
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
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
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
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
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?
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
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
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
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
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
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
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
Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America
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
Single-Serve Capsule Production in North America
“Doing the right thing”
SUSTAINABILITY
Single-Serve Capsule Production in North America
SUSTAINABILITY
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 &
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.
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
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
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
Single-Serve Capsule Production in North America
INNOVATION
Single-Serve Capsule Production in North America
Convenient to Use Convenient to ‘Do the Right Thing’
Single-Serve Capsule Production in North America
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
Single-Serve Capsule Production in North America
AND THE GROWTH WILL CONTINUE…
BREWER PENETRATION LEVELS
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%
Single-Serve Capsule Production in North America
IT’S HUGE. IT’S NEW. AND IT’S STILL GROWING.
National Coffee Association 2014
Single-Serve Capsule Production in North America
OLDER DEMOGRAPHIC REFLECTS COFFEE CONSUMPTION… BUT WHAT ABOUT THE NEXT WAVE…
National Coffee Association 2014
Single-Serve Capsule Production in North America
SINGLE SERVE: THOSE WHO HAVE IT, USE IT!
National Coffee Association 2014
Single-Serve Capsule Production in North America
SINGLE SERVE: STAYING POWER!
National Coffee Association 2014
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
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
Single-Serve Capsule Production in North America
THE MARKET IS OPENING FOR INDEPENDENT BREWERS
THESE ARE ALL LAUNCHING IN 2014
These are all Independent brewers capable of brewing all K-Cup® compatible cups.
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
Single-Serve Capsule Production in North America Single-Serve Capsule Production in North America
THE COMPETITION IS HEATING UP!!!!!
Single-Serve Capsule Production in North America
WITH MULTIPLE LAWSUITS FILED, THE BATTLE
WILL CONTINUE IN THE COURTROOMS
Single-Serve Capsule Production in North America
OTHER COFFEE ROASTERS AND
BRANDS ARE GETTING INVOLVED
Single-Serve Capsule Production in North America
THE MEDIA IS COVERING THE STORY…
Single-Serve Capsule Production in North America
HERE IS WHAT THE MEDIA IS REPORTING…
Single-Serve Capsule Production in North America
CONSUMERS ARE CLEARLY FRUSTRATED AND ANGRY
Source: Actual comments responding to various K2.0 DRM articles.
Single-Serve Capsule Production in North America
THERE IS EVEN A CONSUMER POLL…
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
Single-Serve Capsule Production in North America
Source: Globe and Mail April 2014
Single-Serve Capsule Production in North America
THANK YOU!