June 2011 Project Number #14025

1. PLP Partnership2010 Update: Status and Outlook for Iced Tea In Foodservice Prepared by: June 2011 Project Number #14025

2. For Questions, Comments or Additional Information, Contact: • David Henkes • Vice President • dhenkes@technomic.com • Timothy Powell • Director • tpowell@technomic.com • Technomic, Inc. • 300 South Riverside Plaza • Suite 1200 • Chicago, IL 60606 • 312/876-0004 • Fax: 312/876-1158

3. I. Introduction

4. Background • The Pepsi/Lipton Partnership (PLP) is an extremely successful joint venture between Unilever (Lipton) and Pepsico. In 2006, Technomic conducted research into the brewed/dispensed tea category for PLP, which included retail sales dollars for each major brewed format, operator segmentation, growth estimates and other pertinent information. • Going into what promises to be a challenging year in 2009, PLP is looking at a major change in its portfolio, particularly in the liquid concentrate category. From a strategic perspective, PLP needs to update key metrics from this study to better understand its categories, strengthen its position in the categories, and understand the strategic opportunities available to it as it revises its portfolio. • As in the previous studies, the two areas that are of critical importance to PLP are: • Market insights into size and share of the market held by various types of iced tea, and • Competitive insights into supplier share.

5. Objectives of this Engagement • This proprietary study has been structured to address channel and competitive issues required by PLP and will build upon the research and insights already provided to Pepsi and Lipton through the previous in-depth study on tea conducted in 2006. The objectives of this proprietary study are to: • Provide a breakdown of the total sales of the iced tea market by type of product (bag-in-box, fresh brewed, liquid concentrate, bottle/can and frozen/slushy/smoothie); • Evaluate historic and projected growth, overall, and for each type of product based upon retail sales (consumer expenditures); • Develop competitive insights and market share information in retail sales, overall and for each major type of product; • Provide a strategic assessment about the opportunity for PLP’s portfolio, including a possible new liquid concentrate product; and • Provide critical implications and growth recommendations for PLP based upon study findings.

6. Methodology • Technomic used the following step-by-step methodology to achieve the aforementioned objectives: • Step One – Project Initiation • Technomic and Pepsi met to review the proposal, discuss open issues, share background information and finalize a timetable. We formally initiated the study in December 2008. • PLP also provided insights into its current volume (dollars and gallons) in the foodservice channel to help analyze its share within each of these product sub-categories. • Step Two – Secondary Source Review • We gathered and analyzed all relevant published materials on each segment, including a thorough review of trade publications focusing on each segment (i.e., Foodservice Director, Food Management, etc.). We also scanned relevant information from other trade publications, available market research and Technomic non-proprietary studies. In addition, any information PLP had developed to date was analyzed for inclusion in this report.

7. Methodology • Step Three – Interview Guide Development • Prior to initiating field work, Technomic developed surveys and discussion guides which were used in quantitative and qualitative interviews. These were shared with PLP for review and approval. • Step Four – Quantitative Operator Interviews • Technomic conducted 793 quantitative interviews within each segment included in the scope of this study. The primary purpose of these interviews was to obtain insights on what was currently being sold, historic and expected growth in each category, and trends/dynamics that impact iced tea overall and by type of iced tea.

8. Methodology • Step Five – Qualitative Operator Interviews • Beyond the quantitative interviews, Technomic gained more in-depth insights into each segment through qualitative interviews. These interviews were intended to gather information relative to outlook and trends within the individual iced tea categories. In total, we conducted 20 qualitative interviews with key users. • Step Six – Competitive/Supplier Interviews • To confirm/validate market size and share estimates, Technomic conducted five (5) interviews with suppliers active in the iced tea category. Technomic interviewed Coca Cola, Nestea, B.W. Coopers, Luzianne and Harris Tea. These interviews served to confirm/validate competitive presence and focus, discuss trends and outlook, and otherwise address key issues included in the scope of this study. At no time was PLP’s sponsorship of this study revealed. • Step Seven – Analysis and Report Preparation • With the field work complete, Technomic has delivered this draft report. Our analysis built upon and leveraged the work already conducted on behalf of PepsiCo. Our market sizing process included triangulating multiple sources of input, including the previous beverage study, current research with the operator community, and data from our supplier/competitive interviews.

9. Project Scope • Below are the examples of iced tea included in the scope of the study.

10. A Note About Market Volumetrics • All market sizes and competitor shares in this report are estimates based on channel-reported volumetric data. Market size and share estimates were constructed using input and feedback from operator and distributor sources, and were confirmed/validated via in-depth interviews with competitive suppliers within each of the relevant categories. • In light of this, all volumetric estimates are subject to a range of +/- 5%. In addition, all growth forecasts are subject to a range of +/- one percentage point unless a range is provided. Preliminary estimates are developed through the process of operator and distributor Interviews • Operator research • Product penetration • Average unit volumes • Brands purchased • Types purchases • Distributor research • Product penetration • Average sales volumes • Number of SKUs (types, suppliers, etc.) Final market size values are refined through a process of probinginterviews among competitive suppliers used to validate findings and assessing Pepsi/Lipton data and input.

11. Report Layout • The remainder of the report is structured as follows: • Executive summary and recommended steps for Pepsi/Lipton • Iced tea category overview • General iced tea findings • Competitive images • Appendix: Quantitative operator survey results • Fresh brewed iced tea • Fountain/dispensed • Liquid concentrate iced tea • Packaged iced tea • Frozen/slushy iced tea

12. II. Executive Summary and Recommended Action Steps

13. Introduction • This section provides an executive summary of the following: • Total size and growth of each category • Summary of Fresh Brewed • Summary of Fountain • Summary of Liquid Concentrate • Summary of Packaged • Summary of Frozen • Key competition • PLP position in the category • Technomic’s overall assessment • Recommended action steps

14. III. Market Overview

15. Category Overview – Size of Iced Tea in Foodservice • The total size of the iced tea category in foodservice is approximately $5.9 billion in 2008 consumer dollars. Total Consumer Expenditures 2008 $5.9B 2006 $5.5B

16. Overall Iced Tea Category Growth Growth in Iced Tea — Overall Foodserviceby Format(Nominal) Source: Technomic

17. IV. Overall Ice Tea Channel Findings

18. Winnie Section • xxx

19. Brand Switching • Most operators do not switch brands of iced tea frequently. They point to the hassles of installing/replacing new equipment, as well as the time it takes to develop a new relationship. This is why operators said that the current brand/supplier must be drastically underperforming before they will consider a move, such as poor service, dramatic price increases or consistent product shortages. Additionally, if operators saw dramatic cost savings from another brand, they may consider making the switch. • Important to Lipton/Pepsi is that franchisee pressure and consumer demand led one account to switch to Gold Peak. Coca Cola has been very active in converting its current CSD accounts into Gold Peak customers as well. • “We don’t switch often. In fact, I’m not sure of the last time we switched brands or why we would have.” • “We don’t switch much. We lump it in with our coffee program and send out RFP’s for new contracts every two to three years.” • “We don’t switch and wouldn’t switch unless there is a major issue prompting us to switch – such as really poor service. If we were able to see we could save some money, we would consider switching though (current user of Lipton iced tea and Global Brands in bottles).” • “We switched from Lipton to Gold Peak for varieties based on franchisee and customer request, which led to greater customer satisfaction. Iced tea sales are up.”

20. V. Competitive Situation

21. Key Foodservice Iced Tea Competition • Looking at the iced tea category from a broad perspective reveals that Lipton is the most dominant brand, across all formats included in the study. Only Coca Cola, with its Gold Peak and Nestea brands offers the broad “solution” of iced tea formats similar to Lipton. Total Category = $5.9 Billion Source: Technomic