Category Project: Liquid Tea Jason Call & Lauren Dockery

Overview Who buys tea? Category Role Leading Brands Audit Summary Store Demographics Strategy and Tactics 2007 Audit Comparison

Category Snapshot ★ Enjoyed by all lifestyles

Demographics Variables and Measures Demographic Variables % Total $Index Race of Head of Household White67.2%97 Black13.1%109 Hispanic13.7%111 Asian3.9%91 Other2.1%97 Number of Persons 1 Person17.2%63 2 Persons32.8%101 3 Persons19.0%117 4 Persons16.7% Persons14.4%130 Household Income Under $10,0007.1%90 $10,000 - $19,9999.3%80 $20,000 - $29,9999.8%86 $30,000 - $39,9999.5%90 $40,000 - $49,9998.8%95 $50,000 - $74, %100 $75,000 - $99, %115 $100,000 - $149, %120 $150,000 or More10.3%128

Category Role Sales Volume (US) = $1.1 Billion Sales Volume (West South Central) = $100 Million From our data: Average $ Gross Margin = $0.87

Product Penetration #1 #2 #3

New Products in Region since 2007 ●Arizona Rx Energy ●Honest Tea ●Lipton Pure Leaf ●Milo’s ●Tazo ●Turkey Hill

Leading Brands: Total Sales US: 1. Lipton - $430M 2. Arizona - $230M 3. Snapple - $180M Region: 1. Lipton - $52M 2. Red Diamond - $19M 3. Arizona - $14M 2/3 of total sales

Leading Brands: % Repeat Buyers US: 1. Milo’s – 56.7% 2. Arizona – 55.3% 3. Lipton – 54.1% Region: 1. Red Diamond – 55.1% 2. Lipton – 54.8% 3. Sweet Leaf – 44.7%

Leading Brands: Loyalty US: 1. Lipton – Red Diamond – Arizona – 41.6 Region: 1. Lipton – Red Diamond – Sweet Leaf – 39.2

Deal or No Deal? Most probable tea buyers? Struggling Urban households Modest working households Older couples Families with children and non-working spouse Market Related Factors: Moderate purchasing cycle (30 days) High household penetration High loyalty Recent recession

Audit Summary Store#SKU% of Category Walmart Supercenter % Flash Market (Sp)118.03% Flash Market (Fay) % Phillips % Walmart NM (Fay) % Walmart NM (Sp) % Harps % Murphy Express118.03%

Category Scorecard

Neighborhood Market #5738Harps #124 Demography 2 mile Ring % HHsHHs Index% HHsHHs Index Race of Head of Household White42.9%6283.4%121 Black3.7%316.8%57 Hispanic42.9%3424.7%38 Asian8.1%1902.4%56 Other2.4%1062.7%118 Number of Persons 1 Person20.4%7536.3%134 2 Persons20.2%6235.1%108 3 Persons15.7%9714.8%91 4 Persons15.7%1198.4%63 5+ Persons27.9%2515.4%49 Household Income Under $10, % %264 $10,000 - $19,9998.8%7918.2%162 $20,000 - $29, %1409.7%89 $30,000 - $39, % %100 $40,000 - $49, %1538.3%93 $50,000 - $74, %9512.2%68 $75,000 - $99,9998.2%697.4%63 $100,000 - $149,9996.9%5610.6%86 $150,000 or More2.1%243.2%35

Neighborhood Market #5738Harps #124 Demography 2 mile Ring % HHsHHs Index% HHsHHs Index Age of Head of Household Age % %515 Age % %205 Age % %96 Age %8911.3%56 Age %5410.1%52 Age %435.1%39 Age 75 or More4.9%454.1%39 Age and Presence of Children Age < 613.0%1767.0%94 Age %1357.4%40 Age < 6 & %2517.5%113 No Children45.5%6778.2%116 Housing Tenure Own40.2%6236.4%56 Rent59.8% %181 Education of Head of Household Not a High School Graduate36.2%2786.2%47 High School Graduate25.5% %55 Some College19.5%6836.9%129 College Graduate11.4%6025.3%133 Post College Degree7.4%5417.7%129

Category Strategy Both Flash Market Gas Stations have high gross margins in teas that are sold in smaller oz. Larger grocery stores have a higher saturation of tea product and a large number of varieties within a manufacturer’s brand Variety leads to increased profits Gas stations more interested in traffic building Grocery stores more interested in profit and cash generating

Audit Summary StoreLocation#SKU Unique SKUsAudited By WM SupercenterMLK456Call Flash MarketSpringdale111Call Flash MarketWedington174Dockery Phillips 66Fayetteville157Call Walmart NMWedington294Dockery Walmart NMSpringdale6115Call HarpsWedington6330Dockery Murphy ExpressFayetteville115Dockery High % Unique SKUs

Category Tactics Increase use of Private Label Small perceived quality gap - “Quality Equivalent” No switching cost Expand Private label depth Flavors Expand Private label assortment 6 pack bottles (Kroger)

Category Review 2007 Audit SKUs - 56 US Sales - $1.3B No P/L data 2014 Audit SKUs US Sales - $1.1B (15%) P/L - 3 SKUs (Great Value) Increased average loyalty

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