Tea in licensed and non-licensed K-Cups and Nespresso style capsules will account for 10% of all bagged and loose leaf sales in the U.S. in 2015, up from 6.5% in 2013 and growing at a faster pace than coffee. Tea retailers, grocers, wholesalers and distributors need to understand the competitive advantages of offering tea in this format and the limitations it imposes. By Single Serve: Tea in an Instant Speaker: Dan Bolton, managing editor STiR Tea & Coffee International; president, Mystic Media; Editor Tea Biz Blog; contributor World Tea News

1. Thursday, May 7 (Rm104B)
8:00am - 9:30am - Single Serve: Tea in an Instant
Speaker: Dan Bolton, President, Mystic Media/Tea Biz Blog
Managing Editor STiR Tea & Coffee International
Tea in capsules will account for 10% of all bagged and loose
leaf sales in the U.S. in 2015, up from 6.5% in 2013 and
growing at a faster pace than coffee. Tea retailers, grocers,
wholesalers and distributors need to understand the
competitive advantages of offering tea in this format and
the limitations it imposes.

2. Tea in an Instant
By Dan Bolton
Managing Editor
STiR Tea & Coffee International
How tea in portion packs changed the game

3. Tea Takeaways
Huge potential growth depends on new flavors, formats and function.
Watch for advances in bottles, cans, cold brewers and concentrates.
Portion pack systems have advanced sufficiently to deliver tasty tea.
Sell premium. Use quality ingredients. Sit out the race to bottom pricing.
Tea growth hinges on innovation
Convenience drives sales
Technology triumphs
Profitability is paramount

4. U.S. Tea Market
Tea is narrowing soda’s lead for share of throat.
• Women drink 9 cups (2.2 liters) of total beverages daily. Men average 13
cups (3 liters). Half of their intake was once soda. Today only 29% of adults
reported drinking soda the previous day. Americans have responded
to the advice of medical professionals by also reducing sugary juice.
• To achieve health benefits, studies suggest men and women drink at least
1.5 cups of tea daily. During the past decade per capita consumption of
tea rose annually from 7.8 gallons in 2000 to 8.9 gallons in 2012.
• Tea consumption during the past day is at 43%, surpassing bottled water.
Juice now ranks 6th, with a new low of 28% daily consumption.
• When it comes to drinking coffee or tea, young people are now evenly
divided at 42%. A surprising 51% of full-time workers who drink coffee
daily also report drinking tea at work during the past seven days.
SOURCE: PACKAGED FACTS 2015 OFFICE COFFEE | NATIONAL COFFEE ASSOCIATION 2015 NATIONAL DRINKING TRENDS SURVEY

5. Brewer Insights
About half of brewer owners make hot tea and a quarter iced tea.
• The National Coffee Association in 2014 presented the owners of single-
serve brewers a list of beverages and asked them to indicate which they
make regularly and which occasionally.
• Forty-five percent brew tea. Seventeen percent of single-serve brewer
owners brew hot tea regularly and 28% brew hot tea occasionally.
• Twenty-three percent use the brewers to make iced tea with 16%
indicating they do so occasionally and 7% “regularly.”
• Five years ago single-cup drinkers complained of limited variety and gave
low scores for taste. Today 61% rate single-cup coffee as “excellent” or
“very good” and only 12% call it “fair” or “poor.”
• Those aged 25-39 are most likely to own brewers. Owners often trade up
to better coffee making brewers “the gateway to gourmet.”
SOURCE: PACKAGED FACTS 2015 OFFICE COFFEE | NATIONAL COFFEE ASSOCIATION 2014 SINGLE SERVE REPORT NATIONAL DRINKING TRENDS SURVEY

6. Then…
SOURCE: VOLPAK STATE OF THE ART TEA BAG

7. • Single-serve brewers are now
found in 32 million U.S. homes
(27% household penetration)
• Beverage makers will ship 14
billion capsules in 2015 with
about 71% filled with coffee
– and 20% tea
• A 12-ct box of K-Cups filled
with tea sells for an average
$8.78 or about 65 to 75 cents
per capsule. Premium brands
sell capsules for $1 or more
Now…
SOURCE: NATIONAL COFFEE ASSOCIATION 2015 COFFEE DRINKING TRENDS SURVEY | IRI INFOSCAN REVIEWS, TOTAL U.S. MULTI-OUTLET W/ C-STORE (SUPERMARKETS, DRUGSTORES,
MASS MARKET RETAILERS, GAS/C-STORES, MILITARY COMMISSARIES AND SELECT CLUB & DOLLAR RETAIL CHAINS)

9. Keurig Green Mountain Licensed K-Cups
Nespresso
Caffitaly
VueVersimo
Special.T
SolaBev
Dulce Gusto
EcoCup
Unlicensed
Rogers Family
New Formats

10. Keurig sold 40 billion K-Cups between
2009 and 2014. Capsule sales growth
has slowed from 30% to 13%.
1.94
3.28
5.92
8.1
9.88
11.8
0
2
4
6
8
10
12
14
2009* 2010* 2011* 2012* 2013* 2014**
Numberofpacksinbillions
SOURCE: KEURIG GREEN MOUNTAIN; TREFIS.COM; ID 326392 | FURTHER INFORMATION REGARDING THIS STATISTIC CAN BE FOUND ON PAGE 8

11. $5
billion
2014
Sales of Keurig portion packs grew 13% in 2014
2013 – Global sales of tea pods estimated at $300 million
2014 – Starbucks shipped 100m pods in December ($1b in 2015)
2015 – One-third of adults had a single-serve drink yesterday
2015 – 75% know about and 12% expect to buy a home brewer
$8.6
billion
2018
$132
million
2008
SOURCE: TREFIS NCA 2015 NCDT SURVEY | PACKAGED FACTS/MARKETRESEARCH.COM TEA AND READY-TO-DRINK TEA IN THE U.S.: RETAIL & FOODSERVICE MARCH 2014

12. $82
million
2014
Sales of bagged/loose tea grew 3.92% last year
2013 – Capsule sales reached 6.5% share of loose leaf market
2013 – U.S. tea pod sales grew an estimated 20% vs 2012*
2014 – Top 4 tea brands earned $75 million (105 million pods)
2015 – Pods will exceed $150 million** of $2.6 billion dry tea sales
$150
million
2015
$55
million
2013
SOURCE: PACKAGED FACTS/MARKETRESEARCH.COM TEA AND READY-TO-DRINK TEA IN THE U.S.: RETAIL & FOODSERVICE MARCH 2014 | *EUROMONITOR INTERNATIONAL
PROJECTS WHOLESALE TEA SALES AT $10.41 BILLION IN 2014. **THE $150 MILLION SALES ESTIMATE IS BASED ON A RANGE FROM $130 MILLION TO $206 MILLION
(ESTIMATE BY DAN BOLTON). PRECISE SALES FIGURES THAT INCLUDE BOTH KEURIG GREEN MOUNTAIN AND NON-LICENSED CAPSULES ARE UNAVAILABLE.

13. Disruptive…
• Globally 29 million home brewers were sold in 2014 up 11%.
U.S. households now buy 10 million a year.
SOURCE: DANIEL GRIMSEY, SENIOR RESEARCH ANALYSIT, EUROMONITOR INTERNATIONAL
• In the U.K. loose leaf sales have fallen 2% per year since 2009.
Unit sales of kettles fell by 1 million from 2010 to 2014.
Capsule sales are up 26%.
• In Japan kettles are the largest kitchen appliance category.
Sales declined 6% last year while single-serve sales increased.
• U.S. kettle sales declined to fewer than 2 million last year.
Sales of drip coffeemakers peaked in 2006. Capsule sales rose
from $132 million in 2008 to $5 billion last year.

14. SOURCE: PODPACK BATON ROUGE, LA | INTELLIGENT BLENDS, SAN DIEGO
• There are two kinds of capsules: open mesh (ring or cup) and
sealed capsules (generally packed in nitrogen).
• Plastic manufactures such as LBP make billions of empty
capsules sold by the pallet for about15 cents per capsule.
• Co-packers spend millions on equipment that fills hundreds
of capsules a minute, adding 5 cents.
The Basics…
• Capsules are nested in standard boxes
to save space. Standard cartons hold
12, 18 or 24 K-Cups. Mesh capsules
must be individually enclosed in bags.
• Total cost: 30 to 55 cents per capsule

15. Tea Blending for Capsules
SOURCE: Q-TRADE TEAS & HERBS | SOLABEV (ORANGE ILLUSTRATION)| ECODUP | KEURIG GREEN MOUNTAIN (K-CUP DIAGRAM)
• Blenders recommend 500-pound lots,
enough for 28,350 (8-gram) iced tea capsules
or 56,700 (4-gram) capsules used for hot tea
• Inclusions must be fine with uniform density
• Production runs are shorter as a competitive
advantage with minimums as low as 15,000
It is now possible to replicate existing product
offerings and deliver an excellent cup.
- Manjiv Jayakumar, President Q-Trade Tea & Herbs
“ ”

16. Blending Advice Keurig’s brew cycle is 30-45 seconds
which requires adjustments in cut,
throw weight and even packing such as
vacuum conveying instead of augers
that can damage fragile leaves. The
result is cups as close as possible to the
bag teas people have used for years.
Filters have a range of specialized
properties. Choosing the correct
material delivers the best infusion,
aroma, color and flavor. We test many
filter papers for particle retention
properties to get the right dissolvable
solids in the cup.
- Jeff McIntosh, R&D Intelligent Blends
“
”
“

17. • First generation machinery produced
hundreds of capsules a minute and cost
more than a million dollars.
• The latest generation capsule fillers use
augers to deliver the dry tea and pack
with inert gas. These machines fill 100
capsules a minute for less than $100,000
• Manual fill and seal units can now be
purchased for $7,500 to $12,500.
Filling Machines
SOURCE: RYCHIGER . PICTURED IS A FS 200 CAPSULE FILLER (TOP RIGHT) AND CAPSULE SEALER (LEFT) | PBI OFFERS A $7,250 FILLER AND SEALER.

18. Environmental Concerns
https://youtu.be/uRGiGbX9lIo

19. Capsule Recycling
SOURCE: MOTHER JONES: “YOUR COFFEE PODS’ DIRTY SECRET,” MARCH 2014 | THE ATLANTIC: A BREWING PROBLEM, MARCH 2015| KILLTHEKCUP.ORG
• Keurig sold 9.8 billion K-Cups last year, enough capsules to circle
the globe 12.5 times. Cumulative totals approach 100 billion.
• K-Cups utilize a four-layer blend of #7 polypropylene which
is BPA-free but most are neither recyclable or biodegradable.
• Non-licensed designs are 60% to 80% recyclable with 5% (Vue
Packs) using a mail-back system.
• The most promising designs are made of #5 polypropylene and
bio-plastics but regardless of plastic used, a formidable challenge
is that in order to be recycled most cups must be disassembled
into components that include tea, paper or nylon filters, plastic
and metal or foil.
• Keurig has pledged to make only recyclable capsules by 2020.

20. Protection from Air and Water
SOURCE: RYCHIGER | TRENDS IN FLEXIBLE PACKAGING APPLICATIONS, BY HENKY WIBAWA, TECHNICAL DIRECTOR, AMCOR FLEXIBLES INDONESIA, MARCH 2012
ALUMINUM
Protective Lacquer
Protective Lacquer
PP - Polypropylene
EVOH (Ethylene vinyl alcohol
PP – Polypropylene
PP – Polypropylene
PP – Polypropylene
PET – Polyester Polyethyleneterephthalate
EVOH - Ethylene vinyl alcohol
Protective Lacquer
ALUMINUM

21. Capsule Compostability
SOURCE: CLUB COFFEE | BPI | SUSTAINABILITY REPORT CARD, CANTERBURY COFFEE ONECOFFEE TM
Compostable capsules are challenging as bio plastics do not
withstand heat and are less efficient barriers. Club Coffee makes
the only 100% compostable bio-based capsule with a ring made
of coffee chaff – the skin shed during roasting. The capsule is
undergoing tests by the Biodegradable Products Institute prior to
certification. Club just opened a $50 million capsule filling plant.
Science shows that composting is an effective and conscientious
solution to this growing environmental problem. Recycling isn’t a
convenient or well-developed solution because hot pods full of
coffee grounds must be carefully separated and cleaned before
collection. And biodegradation is too slow of a process,
taking centuries to break down the billions of pods
in landfills. - John Pigott, CEO Club Coffee
“
”

22. • Are smaller, colorful and more sophisticated
• Steep at temperatures more suitable for tea
• Accept licensed and non-licensed capsules
• Range from $49 to $300 in department stores
• Make many
sizes:
Home Brewers:
SOURCE: FROM LEFT, ONE TOUCH | FLEXBREW | COFFEE BEAN & TEA LEAF | KRUPS |REMINGTON OPUS SPIN BREW | TOP, KEURIG 150

23. Special.T
• Nestle’s tea brewer precisely
adjusts temperatures and steep
times for 25 premium teas.
• The $145 machine filters water
stored in a 1.5 liter reservoir
• Introduced in France in 2010, it
is now sold in Austria, Belgium,
Luxemburg, Switzerland,
Germany and Japan (2013).

24. • The strong majority (78%) of coffee drinkers
who value beverage selection are passionate
about their workplace offering single-serve.
• 51%offull-timedailycoffeedrinkersalsodranktea
atworkinthepastsevendays.
Office Brewers
SOURCE: PACKAGED FACTS 2015 OFFICE COFFEE SERVICE
SOLABEV OFFICE BREWER | INTELLIGENT BLENDS
KEURIG BOLT COFFEE SYSTEM
For office coffee providers this is
good news , as tea can be
positioned as a complement to
coffee service. Beyond wellness,
the tea opportunity in the
workplace should focus on
customization.
–PackagedFacts
“
”

25. Tea in Licensed K-Cups Dollar Sales % Chg Share Units Sold % Chg
Keurig Café Escapes Tea $30,273,848 4.72 2.27 3,423,269 9.04
Celestial Seasonings Tea $23,514,876 (25.43) 1.76 2,863,454 (22.32)
Snapple Tea $10,832,507 (16.60) .81 1,122,356 (14.48)
Bigelow Tea $10,394,118 (16.77) .78 1,234,794 (19.16)
Tea Capsules Total $75,015,349 5.62 8,643.872
Source: TREFIS
Keurig 2014 2015 2016 2017 2018 2019 2020
Capsules 11.8b 13.6b 15.5b 17.4b 19.1b 21.1b 23.2b
Revenue $5.08b $5.96b $6.90b $7.86b $8.62b $9.91b $11.12b
Unit Price 32.3¢ 32.8¢ 33.6¢ 34.4¢ 35.3¢ 36.2¢ 37.1¢
SOURCE: IRI INFOSCAN REVIEWS, TOTAL U.S. MULTI-OUTLET W/ C-STORE (SUPERMARKETS, DRUGSTORES, MASS MARKET RETAILERS, GAS/C-STORES, MILITARY
COMMISSARIES AND SELECT CLUB & DOLLAR RETAIL CHAINS) LATEST 52 WEEKS ENDING MAR 22, 2015
Top Selling Capsule Brands
Keurig Green Mountain (tea & coffee capsules combined)

26. • The slogan made from the best stuff on earth was the focus of a
2009 media campaign shortly after the firm went public. The DPS
brand was one of the first to introduce iced tea in K-Cups (May
2013) and continues to sell at a higher price point than rival teas.
List price is $20.97 for 22-ct (95 cents each on Amazon)
• The teas mix green and black leaves with natural extracts and
sugar. Snapple recently signed a three-year agreement to produce
capsules for Keurig’s cold brewing system.
• During the past 52 weeks Snapple sold $10.8 million
K-Cups in grocery and department stores delivering
1,122,356 (12-ct) units at an average price of $9.65
per unit, down 25 cents from the previous year. The
average price per capsule was 80 cents.
Case Study:
SOURCE: IRI INFOSCAN, TOTAL U.S. MULTI-OUTLET W/ C-STORE (SUPERMARKETS, DRUGSTORES, MASS MARKET RETAILERS, GAS/C-STORES, MILITARY COMMISSARIES
AND SELECT CLUB & DOLLAR RETAIL CHAINS) | LATEST 52 WEEKS ENDING MAR 22, 2015

27. Chris Savage

28. Case Study: True Honey Teas
• To scale up he convinced 180 donors
to contribute $7,000 via Kickstarter.
He designed a filling machine with
the money and with his parents
worked night and day to make and
mail boxes of capsules to donors.
• Chris Savage is a 27-year-old engineer who graduated from George
Mason University in 2011 and went to work for Northrup Grumman
aerospace. In 2013 he launched a tea company with three flavors.
• Initially he made capsules by hand, filling them with tea and locally
sourced honey at a cost of about 50 cents each. He sold them for 83
cents, grossing $1,500 to $3,000 on weekends at farmer’s markets.

29. • Grossed $60,000 during first year on initial
$50,000 investment ($7,000 from Kickstarter)
• Unit sales of 5,000 per month. Currently offering
8 varieties online. Intends to develop 14 flavors.
• ETSY and Amazon are top selling retail sites. The teas are
also sold in local grocery stores. Cartons sell for $18.99 to
$19.99 on Amazon where the teas have a four-star rating.
• Challenges: Made fresh the honey remains liquid and gently
dilutes as hot water enters to sweeten the brew but over
time honey can become hard and will not dissolve.
• Revenue estimate for 2015: $300,000
SOURCE: WORLD TEA NEWS | AMAZON | INTERVIEWS WITH CHRIS SAVAGE
True Honey Teas

30. Summary
SOURCE: PACKAGED FACTS/MARKETRESEARCH.COM TEA AND READY-TO-DRINK TEA IN THE U.S.: RETAIL & FOODSERVICE MARCH 2014
Single-serve pods represent the only category where
sales have grown in supermarkets, drugstores, and
other non-restaurant outlets. Whole-bean, ground,
“
”and jarred instant coffee sales are all flat or falling.
– Ric Rhinehart, President, Specialty Coffee Association of America
Just as coffee has seen whole bean and ground coffee sales
thwarted by single-cups, so, too, may the tea market see declines
in bagged/loose tea—on top of existing declines in instant. While
single-cup margins are a marketer’s dream, this assumes that the
particular marketer has a foot in the single-cup space—or the
dream may become a nightmare. – Packaged Facts
”
“

31. Dan Bolton, Managing Editor
STiR Tea & Coffee International
dan@stir-tea-coffee.com
Thank You
Questions? Feel free to contact me at:
1108-21 Roslyn Road
Winnipeg, MB R3L 2S8
Canada
(204) 788-1359
(204) 230-7125 (cell)
Skype: dwjbolton

32. END
SLIDES