Presented to: By: Project Number 11489 June 2005

Presented to:

By:

Project Number 11489June 2005

Final Report

The Food-Away-from-Home Beverage Marketplace

I. Introduction

3

Background

The food-away-from-home (foodservice) beverage marketplace represents a large and dynamic portion of total foodservice industry sales. Whether they are hot or cold, these categories represent significant sales and profit to all channel participants. The market experiences dynamics that are not typically found in other foodservice categories:

Beverages represent a disproportionate level of gross profit for operators. Incidence of ordering beverages with a foodservice meal is very high. Beverages transcend every foodservice segment, daypart and occasion. Manufacturer branding and merchandising is highly important in many beverage categories. There is a very high level of new product development. Numerous formats for each beverage type exist. Specialty distribution networks play a major role in the channel. Equipment has major implications on total programs offered in many categories

Technomic knows of no study that evaluates the entire range of beverages in the foodservice industry. It is with this in mind that Technomic undertook such a major common interest study on this topic.

4

Objectives

The objectives of this study are to: Provide a comprehensive assessment of the foodservice market for both hot and cold beverages,

including market size, segmentation, growth prospects, trends and dynamics. Understand consumer attitudes, practices and behavioral patterns regarding beverage selection

and consumption. Assess operator practices, attitudes, selection on beverages within their operations. Better understand status and opportunities for individual beverages To determine the overarching implications of study findings on and opportunities for study

sponsors.

5

Product Scope – Hot Beverages

Hot Beverage Formats

Coffee Whole bean

Ground

Liquid concentrate

Soluble Instant

Hot Specialty Coffee Drink Specialty

Mix

Single serve

Tea Bulk

Single serve bag

Instant/soluble

Liquid concentrate

Hot Chocolate/Cocoa Bulk

Single serve

Mix

6

Product Scope – Cold Beverages

The cold beverages included in the study, along with their formats, are listed in the following table. Alcoholic beverages were excluded from the scope.

Cold Beverage

FormatDispensed/

FountainPackaged Single

Serve (SS) Packaged BulkBottled Water

Carbonated Soft Drink (CSD)

Energy Drink

Frozen Beverage

Fruit Juice 100%

Fruit Juice Drink

Cold/Iced Tea

Iced/Frozen Coffee

Milk – Flavored

Milk – White

Milk – Soy/Rice

Smoothie

Sports Drink

Vegetable Juice

7

Segment Scope

The following table lists the operator segments and relevant sub-segments that were included in the scope of the engagement, relating to volumetrics. Convenience stores, vending/OCS and bars and taverns are excluded, given the different dynamics impacting these segments.

Segment Sub-segments/Examples Segment Sub-segments/Examples

LSR Traditional

Burger Pizza Mexican

Chicken Ice cream/yogurt Sandwich

Business & Industry

Plant/office dining Excludes any vending

LSR Coffee Café

E.g., Starbucks, Caribou Coffee, Tully’s

Education College/University K-12 Schools Excludes any vending

LSR Specialty Smoothie, other specialty beverage shops

Donut shops

Healthcare Hospitals Nursing homes Continuous care retirement centers Excludes any vending

FSR Midscale Casual dining Fine dining

Other Supermarket foodservice Retailers Military Miscellaneous facilities

Travel & Leisure

Recreation Lodging Airlines

8

Methodology

To meet program objectives, Technomic utilized the following multi-step methodology:

Step One: Program Initiation MeetingTechnomic met privately with each sponsor (via teleconference or in person) to review the proposal, discuss background issues, identify proprietary topics and determine study output requirements prior to the start of the engagement.

Step Two: Secondary Source ReviewDuring this step Technomic gathered and reviewed all publicly available information on the subject. Technomic also analyzed beverage offerings of leading chains and independents.

Step Three: Six Focus Group SessionsTo obtain initial qualitative insight, Technomic conducted a series of eighteen mini-focus groups in three geographic markets. For each city, three of these groups consisted of foodservice patrons; three others consisted of foodservice operators. Topics discussed related to attitudes, preferences and behavior. These groups afforded ample time for confidential evaluation of proprietary issues, product/concept testing and other areas of proprietary client research. Sponsors had the opportunity to view the focus group sessions.

9

Methodology

Both the consumer and operator focus groups were held in December 2004 in three major markets, Chicago, Los Angeles and Boston. Nine groups of 4-6 operators (for a total of 51) were conducted in these markets, each lasting 45 minutes. Participants were required to have primary beverage purchasing authority for their foodservice operations; annual food and non-alcoholic beverages purchases must have exceeded $250K. Technomic ensured that each group had “appropriate” representation of beverages offered and segments.

Consumer focus groups were also held in each of these markets and consisted of 4-6 participants, ranging from the ages of 20 to 66. The minimum household income for participants was approximately $30,000. Each group was nearly split by gender, and was represented proportionally by race.

Focus Group Details

Consumer Operator 51 participants (Chicago, Boston, Orange

County CA) Three groups of 4-5 for 45 minutes Minimum household income $30k Represented proportionally by gender and

race

51 participants (Chicago, Boston, Orange County CA)

Three groups of 4-6 for 45 minutes Must have beverage purchasing authority to

qualify Annual purchases exceeded $250,000. “Appropriate” representation of all segments

10

Methodology

Step Four: In-Depth Channel ResearchTechnomic conducted a series of both qualitative and quantitative research with various links in the foodservice channel. The specifics of the sample are listed in the below chart.

Research Target and Type

Number of Completes Description

Structured Internet Consumer Survey

1,562 Consumers must have ordered a beverage AFH at least six times in the last eight weeks.

Demographics: Gender: 46% male, 54% maleRace: 73% White/Caucasian, 11% Black, 9% Hispanic, 4% other, 3% declined to answer Region: 21% East, 23% Midwest, 20% West, 35% South

Structured Internet Operator Survey

498 Sample represented both restaurant and beyond restaurant segments. 102 Traditional LSR, 35 LSR Coffee Cafe, and Specialty, 119 FSR, 65

Hospitals, 58 Schools, 46 Colleges, 30 B&I, 43 Recreation

Qualitative Operator Interviews

100 Focused on major chains and high volume independents. Both in-person and phone interviews were conducted

Qualitative Channel Interviews

50 Included interviews with distributors, DSD suppliers, and manufacturers of targeted beverages

TOTAL 2,210

11

Methodology

Step Five: ReportingAt the completion of all field work, Technomic prepared this report to document study results and conclusions. Report content includes both common interest and proprietary sections. An executive summary presentation has been produced under separate cover. Detailed tabulations of consumer and operator data has also been provided under separate cover.

12

Report Organization

The remainder of this report is organized as follows Beverage Category Overview Consumer Behavior and Attitudes Operator Behavior and Attitudes Competitive Market Shares (Proprietary for Pepsi) Conclusions and Recommendations Appendix: Detailed Category Data

This appendix provides specific volumetric and growth data as well as consumer behavior information on each beverage category studied.

II. Volumetric Overview

14

Total Foodservice Beverage Market

The total foodservice beverage market is approximately $79 billion in 2004 in retail sales equivalent (RSE) terms – or foodservice patron purchases. Cold beverages account for $52.4 billion or 66% of this total, with the balance found in hot beverages.

Hot Beverage $26,580MM

34%

Cold Beverage $52,435MM

66%

Foodservice Beverage Market Sales (RSE)*2004 Total = $79,015MM

*Retail Sales EquivalentSource: Technomic, Inc.

15

Hot Beverage Category Sales

Specialty Coffee

$5,610MM21%

Hot Tea $1,460MM

5%

Hot Cocoa $630MM

3%

Regular Coffee $18,880MM

71%

Foodservice Hot Beverage Market (RSE)*2004 Total = $26,580MM


Regular coffee dominates hot beverage foodservice operator sales, its $18.8 billion representing more than 71% of the total volume. Specialty coffee sales of $5.6 billion account for the second largest share of hot beverages at 21%. The remaining 8% of the category is made up of hot tea ($1.4 billion) and hot cocoa ($630 million).

16

Cold Beverage Category Sales

Bottled Water $3,750MM

7%All Other

$2,940MM6%

Iced Tea $4,735MM

9%Milk

$6,425MM12%

Juice/Juice Drink

$7,435MM14%

CSDs $27,150MM

52%

Foodservice Cold Beverage Market (RSE)*2004 Total = $52,435MM


All Other $MM %

Sports Drink $980 2%

Smoothie 713 2

Frozen Beverage 571 1

Iced/Frozen Coffee 565 1

Energy Drink 111 <1

In terms of the cold beverage category, carbonated soft drinks (CSDs) have, by far, the highest sales. Operators sold a total of $27 billion in carbonated soft drinks, giving CSDs more than half (52%) of all cold beverage share in foodservice. No other single cold beverage accounts for more than 14% of total share.

17

Beverage Sales Share of Operator Segment Sales

Looking at total sales by operator segment, of total sales of LSR Coffee Shops, 80 % come from beverages. At the other end of the spectrum, only 13 % of total Traditional LSR sales come from beverages.

*Donut, Non-Coffee Beverage ShopsSource: Technomic, Inc.

Non-Alcoholic Beverage Sales Share of Total Segment Sales

80%

63%

35%

34%

29%

LSRCoffee

LSRSpecialty*

Travel &Leisure

Education

B&I

26%

15%

13%

5%

Healthcare

FSR

LSRTraditional

Other

18

Beverage Sales By Operator Segment

In total, LSRs represent the highest share of total foodservice beverages sales, at $28.7 billion in sales or 36 %. LSRs represent 43 % of hot beverage sales, and 33 % of cold beverages sales.

Segment

Hot Beverages Cold Beverages Total Beverages

$MM % $MM % $MM %

Limited Service Restaurants* $11,525 43% $17,223 33% $28,748 36%

Full Service Restaurants 8,220 31 11,648 22 19,868 25

Travel & Leisure 2,695 10 7,974 15 10,669 14

Business & Industry 1,390 5 4,556 9 5,946 8

Education 1,130 4 7,176 14 8,306 11

Healthcare 1,025 4 2,995 6 4,020 5

Other 595 2 863 2 1,458 2

Total $26,580 100% $52,435 100% $79,015 100%

*Includes traditional LSRs, coffee cafes and specialty beverage shopsNote: Numbers may not add due to roundingSource: Technomic, Inc.

19

3.0% 3.0%

4.0%

2.5%

Industry Total Beverage Hot Beverage Cold Beverage

Historical Beverage Growth (2001-2004)

Source: Technomic, Inc.

2001-2004 Historical CAGR(Nominal Sales Growth)

Hot beverage growth outpaced cold beverage growth in the three-year period between 2001-2004. Total beverage nominal growth in the 3-year period was 3.0%, and hot beverages bested category growth by a point, reaching 4.0%. Cold-beverage growth at 2.5% was slightly lower than the category growth, however, potentially showing a shift in consumer preferences.

20

Historical Hot Beverage Growth (2001-2004)

Specialty coffee drinks have been helping to fuel the growth of the hot beverage category in the past few years. From 2001-2004, nominal growth of specialty coffee drinks has experienced double-digit growth of 11%, doubling the growth of its closest rival, hot tea, at 4%. Regular coffee has been relatively flat, only growing 2% nominally in the last three years.

*Inflation assumption of 2.6% annuallySource: Technomic, Inc.

Nominal Sales Growth* (CAGR)2001-2004

11%

4%

2%

1%

Specialty CoffeeDrink

Hot Tea

Regular Coffee

Hot Cocoa

21

Trends/Growth Prospects

Regular Hot Coffee

Coffee growth buoyed by growth of specialty/higher-end beans (higher price points). Low quality offerings declining in volume

Significant number of chains and independents are upscaling coffee to meet consumer demand for better quality product

Hot Specialty Coffee Drink

Proliferation of varieties and offerings drives strong growth of this category Many chains, independents and beyond restaurant operators are adding specialty coffee drinks

to their menus

Hot Tea Hot tea is emerging as a specialty hot beverage, with numerous varieties and offerings now available and offered by operators. Chais and green teas are particularly popular

Tea growth is being strengthened by perceived health benefits – lowering blood pressure, reducing cancer risk and increasing metabolism

Hot Cocoa/Chocolate/ Chocolate

Hot cocoa is a highly seasonal product that has been negatively impacted by growth of specialty coffee drinks

Perceived to be a “children's drink,” which limits volume

Hot Beverage Trends

Some of the trends and drivers of growth in hot beverages include the following:

22

*Inflation assumption of 2.6% annually

Historical Cold Beverage Growth (2001-2004)

The fastest growing cold beverages fall into what Technomic calls “New Age,” or those that fit the mold of “trendy” from a consumer standpoint. Soy/rice milk has seen astounding nominal growth of 20% over the last three years, following by bottled water and ice/frozen coffee, which each have been growing by 12% nominally.

While CSDs have only experienced a 1% growth, it is important to note that these products represent more than half of the cold beverage category share, which makes growth more difficult to achieve than the “New Age” products which typically have a small share.

Soy/Rice Milk 20.0%

Bottled Water 12.0

Iced/Frozen Coffee 12.0

Energy Drink 10.0

Smoothie 9.0

Cold/Iced Tea 5.0

Juice/Juice Drink 4.0

Sports Drink 4.0

Frozen Beverage 3.5

Juice Drink 2.5

CSD 1.0

White and Flavored Milk -1.0

2001-2004 – Nominal Sales Growth* (CAGR)

23

Form Trends/Dynamics

Dispensed Category growth has slowed considerably. Reasons include– Proliferation of alternatives– Limited nutritional value issues– Some size downsizing

Among the most profitable offerings an operator provides Operators offering self-service dispensers to promote value and self-customization to consumer

Packaged The packaged format allows operators to offer greater varieties and new products with little effort Packaged products are less profitable than dispensed Growth is inhibited by similar issues as dispensed

CSD Trends/Dynamics

The following chart examines the trends and dynamics impacting carbonated soft drinks (CSDs), for both dispensed and packaged formats.

24


Dispensed Format limits variety potential as the number of dispenser heads is limited in most operations Equipment hassles are seen as a negative Positive health/wellness connotation is a plus

Packaged Significant proliferation of varieties, including juice blends, juice/tea is occurring Positive health/wellness connotation is a plus Boutique brands such as Odwalla, Fresh Samantha and Naked Juice promote social responsibility

Fruit Juice/Juice Drink Trends/Dynamics

The following chart examines the trends and dynamics impacting with fruit juice/juice drinks, including dispensed and packaged formats.

25


Dispensed Often one valve on a fountain is dedicated to cold/iced tea product Limited in number of varieties that can be offered because of only one available valve Dispensed cold/iced tea is highly profitable for the operator

Packaged Higher-end, boutique brands are thriving (SoBe, Snapple, China Mist, Arizona)

Brewed Among the most profitable items offered by operators Often viewed as an acceptable consumer alternative to CSDs, especially in FSR eating occasions Flavor/variety proliferation is occurring

Cold/Iced Tea Trends/Dynamics

The chart below examines the trends and dynamics impacting cold/iced tea in its variety of formats – dispensed, packaged and brewed.

26


Iced/ Frozen Coffee

Growth is being driven by specialty coffee popularity Some consumers view these beverages as an alternative to “snacks” Flavors/varieties are proliferating

Smoothie An “energy booster” which is often a meal substitute Packaged smoothie products are just now making inroads into foodservice

Frozen Beverage

Frozen beverages (ICEEs, Slush Puppy) are perceived to be more of a snack, not something to drink with a meal

Limited nutritional value is inhibits growth

Specialty Cold Beverage Trends/Dynamics

The following table looks at the trends and growth associated with specialty cold beverages, including iced/frozen coffee, smoothies and frozen beverages.

27


White Primary foodservice consumption is still in schools Consumers don’t think about drinking milk when eating out Aggressive promotion of milk as a beverage has stimulated some foodservice sales

Flavored Primary foodservice consumption is still in schools Children’s beverage position limiting further consumption by adults

Soy/Rice Still very niche in nature Most volume is as an ingredient in specialty coffee drinks and in the for college segment

Milk Trends/Dynamics

The chart below examines the trends and dynamics occurring with white milk, flavored milk and soy/rice milk.

28


Bottled Water Strong growth driven by consumer health/wellness demands Flavored waters are just now appearing in foodservice

Sports Drink Sales limited in foodservice to mostly beyond restaurant grab-n-go Not seen as an appropriate beverage to drink with a meal

Energy Drink Low sales in foodservice, but growing considerably Most non-alcoholic beverage applications found in

beyond restaurant segments

Alternative Beverage Trends/Dynamics

The chart below examines the trends and dynamics occurring with what Technomic terms “Alternative Beverages.” These are, bottled water, sports drinks and energy drinks.

III. Consumer Attitudes and Practices

30

Introduction

This section contains consumer attitudes and opinions toward beverages and beverage products in the foodservice context. Data in this section were gathered from a total of nine focus groups conducted in three major markets and the Internet survey of 1,562 consumers.

In numerous areas, consumers were asked to comment about their behaviors and attitudes relating to a number of venues. These are listed below:

Venue Type Trends/Dynamics

LSR Traditional Burger, pizza, Mexican, chicken, ice cream/yogurt, sandwich

LSR Coffee Café E.g., Starbucks, Caribou Coffee, Tully’s

LSR Quick Casual Higher-end fast food Check average $8-12 Examples include Panera Bread, Chipotle, Baja Fresh and Boston

Market.

LSR Specialty Donut shops, such as Dunkin Donuts and Krispy Kreme Snack shops include bagel shops, smoothie shops and other snack-

oriented venues

B&I Plant/office dining Excludes any vending

Hospital Hospital cafeteria operations Excludes any vending

Schools/Colleges College or school cafeteria Excludes any vending

31

Consumer Qualifications

5 or Less47%

6 or More53%

# of Visits to Foodservice in Last Eight Weeks

To qualify for the survey, consumer respondents must have visited a foodservice operation and purchased a beverage at least six times in the preceding eight weeks. A little more than half of the total population qualified under this restriction.

Base All consumers

32

39% 37%30%

88%

19%

10% 12%

91%

TraditionalLSR

QuickCasual

Coffee Café SpecialtyLSR

FSR B&I Education Hospitals

Venues Visited

# of Consumers Visiting

Base: Consumers having visited foodservice operations at least six times in the last eight weeks

Among the qualified respondents, most had visited a traditional LSR or FSR within the last six weeks. Very few had visited a hospital or school/college cafeteria.

33

94% 90%

45%

65%

97%

79%87%

82%

23%

8%

73%

38%

7%

35%26%

36%

TraditionalLSR

Quick Casual Coffee Café SpecialtyLSR

FSR B&I Education Hospitals

Purchase Food & BeveragePurchase Beverage Only

Venues Visited For Beverage Purchases

Consumers tend to purchase a beverage as part of a meal in almost all venues, with the exception of LSR Coffee Cafés. Consumers were asked to indicate in which foodservice venues they have purchased a beverage within the last two months for two distinct “occasions”: 1) As part of a meal; 2) Purchased a beverage only. Traditional LSRs have the highest incidence of beverage purchases as part of a meal at 94%. Quick Casual and Full Service restaurants are also popular venues where beverages are purchased as part of a meal.

The highest incidence of purchasing a beverage only (without an accompanying meal) is in LSR Coffee Cafés. Almost 3/4ths of consumers who have visited at coffee café in the last 2 months have purchased a beverage only during at least one occasion.

% Indicating How Beverages Purchased within Last Two Months(by Operations Visited)

Source: 2005 Technomic Beverage Study Consumer Survey

34

*Includes Traditional, Quick Casual, Coffee Café, and Donut/Snack Source: 2005 Technomic Beverage Study Consumer Survey

Beverages Purchased By Consumers in LSRs

In all limited service restaurants (traditional, quick casual, coffee café, and specialty), soft drinks and coffee have the highest purchase incidence. Of those that have visited an LSR in the last 2 months, 83 % have ordered a dispensed CSD at least once in this time period as part of a meal.

% Consumers Purchasing Beverage in LSR* within Last 2 Months

With MealBeverage

Only With MealBeverage

Only

Dispensed CSD 83% 12% Scratch Cold/Iced Coffee 2 1

Regular Hot Coffee 23 6 Packaged Cold/Iced Tea 2 0

Dispensed Cold/Iced Tea 21 3 Packaged Sports Drink 2 0

Packaged CSD 16 3 Packaged Vegetable Juice 1 0

Bottled Water 13 3 Scratch Smoothie 1 0

Dispensed Fruit Juice 9 1 Flavored Water 1 1

White Milk 6 1 Carbonated Water/Seltzer 1 0

Flavored Milk 5 1 Dispensed Sports Drink 1 0

Packaged Fruit Juice 5 1 Packaged Cold/Iced Coffee 1 0

Frozen Beverage 4 2 Dispensed Vegetable Juice 1 0

Hot Specialty Coffee 4 1 Packaged Smoothie 0 0

Hot Tea 3 0 Energy Drink 0 0

Hot Cocoa/Chocolate 3 1 Soy/Rice Milk 0 0

35


% Consumers Purchasing Beverage in FSR within Last 2 Months

Beverages Purchased By Consumers in FSRs

At full-service restaurants, like LSRs, carbonated soft drinks and coffee are ordered by most consumers. Unlike LSRs, however, dispensed cold/iced tea incidence is high. Few purchase a beverage only in FSR.

With MealBeverage


Only

Dispensed CSD 68% 1% Carbonated Water/Seltzer 2% 0%

Regular Hot Coffee 44 2 Packaged Vegetable Juice 2 0

Dispensed Cold/Iced Tea 40 1 Dispensed Vegetable Juice 2 0

Packaged CSD 15 1 Scratch Smoothie 2 0

Hot Tea 13 1 Frozen Beverage 2 0

Bottled Water 13 1 Packaged Cold/Iced Tea 2 0

Dispensed Fruit Juice 11 0 Flavored Water 1 0

White Milk 8 0 Packaged Sports Drink 1 0

Hot Specialty Coffee 8 1 Dispensed Sports Drink 1 0

Hot Cocoa/Chocolate 4 1 Energy Drink 1 0

Scratch Cold/Iced Coffee 3 0 Packaged Iced Coffee 0 0

Packaged Fruit Juice 3 0 Packaged Smoothie 0 0

Flavored Milk 3 0 Soy/Rice Milk 0 0

36

Beverages Purchased by Consumers in Beyond Restaurant Segments

From a beyond restaurant perspective, consumers tend to purchase a greater variety of beverages. Notably, beyond restaurants tend to draw the highest percentage of consumers who purchase a beverage separately from a meal compared to the commercial sector.

% Consumers Purchasing Beverage in Beyond Restaurants* within Last 2 Months

*B&I, education, hospitalsSource: 2005 Technomic Beverage Study Consumer Survey

With MealBeverage


Only

Dispensed CSD 50% 17% Packaged Sports Drink 7% 4%

Packaged CSD 40 14 Packaged Cold/Iced Coffee 6 2

Regular Hot Coffee 27 13 Packaged Vegetable Juice 6 3

Bottled Water 26 12 Flavored Water 6 3

Packaged Fruit Juice 22 9 Scratch Smoothie 5 2

White Milk 17 5 Scratch Cold/Iced Coffee 5 3

Dispensed Cold/Iced Tea 16 3 Frozen Beverage 4 2

Packaged Cold/Iced Tea 12 6 Energy Drink 3 2

Flavored Milk 10 2 Packaged Smoothie 3 2

Hot Cocoa/Chocolate 10 4 Carbonated Water/Seltzer 3 1

Hot Tea 9 4 Dispensed Sports Drink 2 1

Hot Specialty Coffee 9 5 Dispensed Vegetable Juice 2 0

Dispensed Fruit Juice 9 2 Soy/Rice Milk 1 1

37

Consumer Hot Beverage Consumption/Purchasing Trends

Consumers were asked to indicate if they have purchased each of the individual beverages over the past two years in foodservice venues. Seventy-two (72%) of consumers indicated they have purchased regular hot coffee.

In addition, consumers were asked to indicate if they are consuming “more”, “less” or “about the same amount” of each beverage compared to two years ago. Data suggests that consumers believe they are actually drinking about the same amount as in the past. Using Technomic’s “Net” analysis, consumers believe that their overall hot tea and cocoa consumption is down.

Hot BeverageHave Purchased in

Last 2 Years

Purchasing

“Net”More* Less*

Hot Specialty Coffee 57% 33% 30% +3

Regular Hot Coffee 71 23 24 -1

Hot Tea 47 16 33 -17

Hot Cocoa/Chocolate 47 9 36 -27

*Base: Those consumers who have purchased in last two years. Asked to compare own consumption compared to two years ago.Source: 2005 Technomic Beverage Study Consumer Survey

38

Consumer Cold Beverage Consumption/Purchasing Trends

While the majority of consumers have reported a reduction in consumption in cold beverages, regular bottled water, and cold/iced tea show “net” increases.

*Base: Those consumers who have purchased in last two years. Asked to compare own consumption compared to two years ago **Small baseSource: 2005 Technomic Beverage Study Consumer Survey

Have Purchased In Last 2 Years

PurchasingMore*

PurchasingLess* “Net”

Regular Bottled Water 68% 46% 13% +33

Cold/Iced Tea 71 24 20 +4

Flavored Bottled Water 30 28 27 +1

Diet CSD 62 26 28 -2

Fruit Juice/Juice Drink 61 18 25 -7

Sports Drink 34 23 30 -7

White Milk 39 17 27 -10

Lemonade 58 18 28 -10

Energy Drink** 21 24 34 -10

Smoothie 35 20 31 -11

Flavored Milk 27 15 31 -16

Cold/Iced Coffee 39 19 36 -17

Regular CSD 79 17 35 -18

Vegetable Juice 26 15 33 -18

Soy/Rice Milk** 15 17 36 -19

Carbonated Water/Seltzer 24 15 36 -21

Frozen Beverage 37 13 39 -26

39

54%

67%58%

All Consumers 18-24 Age Group Females

“Free Water” Impact On Beverage Usage Consumption

Free water is having an impact on consumer purchases of beverages. A total of 54% of consumers are increasingly ordering free water away-from-home. Moreover, 66% of 18-24 year-olds, for a variety of reasons, are asking for free water, the highest percentage of all age groups. Females are also more likely to order free water. From a gender standpoint, 56% of females ask for free water, slightly higher than the consumer average.

Focus group insight also indicates that “free water” is competing with other beverages. The demand for free water is growing not for “economic” reasons, rather health benefits is the key driver.

“Its not about the money. Water is just better for you.”

“I am increasingly getting the ‘free water’ instead of ordering a beverage when eating out.”

1 to 7 scale: 1=do not agree at all; 7=completely agreeSource: 2005 Technomic Beverage Study Consumer Survey

Top 3 Box

40

Foodservice Beverage Applications

Technomic analysis indicates that there are five individual consumer beverage purchase “applications” in foodservice. Note, these each are not mutually exclusive; multiple applications can be present for individual beverage purchase occasions.

Meal Complement

Social Companion

Thirst Quencher

Meal Replacement Snack

Source: Technomic

41

Foodservice Beverage Applications

In focus group sessions, consumers were asked to define a what is a beverage. Each of the following comments from these groups illustrate individual applications as developed by Technomic.

"Beverages quench my thirst. Coffee is nice because it gives me something to do with my hands, since I just stopped smoking.“ — Thirst quencher

Coffee or some fancy beverage that costs $4 is something nice to have when I socialize.” — Social companion

"A beverage satisfies immediate taste for the moment and quenches thirst. I like the Vitamin C in orange juice and milk as it gives me a boost..“ — Thirst quencher; Snack

"I tend to associate beverages with thirst and something to wash down food with.” — Thirst quencher; meal complement

“When I’m in a hurry, I’ll have a smoothie for lunch.” — Meal substitute

“In the afternoon, me and my coworkers will go down to get a cappuccino during our break.” — Social companion; snack

42

Beverage Application Specificity

Which beverage do you associate with the following?

Note: Consumer chose up to three beverages for each description; beverages mentioned by less than 10% of consumer not shownSource: 2005 Technomic Beverage Study Consumer Survey

38%

37%

36%

27%

26%

22%

14%

10%

10%

Cold or Iced Tea

Regular CSD

Bottled Water

Diet CSD

Hot Coffee

White Milk

Lemonade

Fruit Juice/Juice Drink

Hot Tea

In the structured survey, consumers were asked to indicate which beverages are associated with each of the specific applications. Overall, there is no consensus in terms of which beverage is best for each occasion. However, bottled water is perceived by the majority to be among the “most thirst quenching”.

“Goes well with food”(Meal Complement)

“Is fun to drink”(Social Companion)

Continued…

28%

23%

23%

19%

18%

18%

15%

14%

13%

10%

Regular CSD

Smoothie

Frozen Beverage

Diet CSD

Hot Specialty Coffee

Regular Hot Coffee

Lemonade

Cold/Iced Tea

Hot Chocolate


43

Beverage Application Specificity

Which beverage do you associate with the following?

“Is a special treat”(Snack)

“Most thirst quenching”


44%

33%

20%

17%

15%

11%

Hot SpecialtyCoffee

Smoothie

Energy Drink

FrozenBeverage

Hot Chocolate

Sports Drink

59%

36%

31%

28%

22%

18%

11%

Bottled Water

Cold/Iced Tea

Sports Drink

Lemonade

Regular CSD

Diet CSD


44

Consumer Beverage Selection

Consumers were asked their beverage preferences by foodservice venue. Technomic learned that beverage choice is not significantly impacted by the type of venue they are visiting and that consumer purchase behavior generally remains constant. For instance:

For all segment purchases, consumers reported that taste for particular beverage is paramount.

Variations among consumers are evident, but only when evaluating specific segments on other factors.

The table below shows the specific factors that consumers were asked to rate in importance when selecting a beverage in each foodservice venue.

Factors Probed

Price Bundled in price of meal Taste for a particular beverage Portability/transportability of the beverage Brand name

Beverages that look new or interesting Health benefits Large portion size Free refills Beverage is being promoted by the establishment

45

Consumer Beverage Choice Drivers

Consumer beverage choices are driven primarily by their preference or “taste” for a particular beverage at the time of purchase. In the consumer survey, respondents were asked to indicate the factors which were most important when selecting a beverage type at a certain venue. In every venue, “taste for a particular beverage” received the most responses.

Price, in most cases, was the second most important reason for choosing a beverage, as is beverage going well with food.

In traditional and quick casual LSR establishments, free refills and bundling shows increasing level of importance.

The following page details data.

46

Consumer Beverage Purchasing Factor Importance

Limited Service Restaurants

Factor TraditionalQuick Casual

Coffee Café

Donut/ Snack FSR B&I

School/ College Hospitals

Price 28% 25% 41% 38% 24% 38% 31% 35%

Beverage is bundled/ included with a meal 33 14 4 10 6 15 14 13

Have a taste for a particular beverage 54 62 81 70 65 58 56 59

Portability/transportation of beverage 12 5 21 22 1 13 11 20

Brand name of beverage 15 16 9 8 15 21 13 20

Beverage looks new or interesting 1 4 13 4 3 1 0 1

Health benefits of beverage 8 13 5 7 11 13 18 9

Large sizes are available 6 4 5 5 3 7 5 9

Free refills are provided 18 26 5 7 31 13 18 10

Beverage is being promoted <1 1 4 2 0 0 1 1

Beverage goes well with food being eaten 23 32 14 28 39 21 32 22

% Consumers indicating as “most important” or “next most important” when making a beverage choice in specific venues

47

Beverage Quality Issues

Consumers address their expectations and preferences of beverage quality by basing them on three different factors: convenience, price and format. Brand names for coffee and soft drinks were mentioned the most regarding quality. Statements regarding quality are written below.

"I can tell when soda is from a fountain dispenser because sometimes it is flat and too watered down. This happens at the Burger King at the airport. I would pay more for a can than the fountain drink, because I feel like the quality is worth it."

"Bottled water odors determine the quality for me. If there is a chlorine smell, that is a bad smell. Trinity brands is supposed to be located near a toxic site, which dissuades me from purchasing their water."

"I like a strong cup of coffee, like Starbucks, with no added sugar or milk. Espresso usually can satisfy my expectations at Starbucks."

"I would not pay more for bottled soda, every now and then you get one from the fountain with too much syrup, but that is not a reason to pay more for bottled soda."

"I don’t like generic brands, it doesn’t taste good if it’s not branded." "Brand name is very important. If I see Nestea at BK, you know the quality." "You get more quality for your money with canned and bottled sodas over fountain and you know

that the Diet Coke will be consistent and taste the same each time." “Brand name is important. You want someone you can trust. I usually choose my restaurant

based on the food, not the beverages that are served. If I want to eat their food, I will sacrifice. I can always drink water at the restaurant.”

“I expect less beverage brand choices in a restaurant, compared with retail. For fine dining, I have lesser options for beverages, compared with a Dunkin Donuts or a Starbucks. For casual dining and takeout, I choose a restaurant based on the brand or type of beverage.”

Source: 2005 Technomic Consumer Focus Groups

48

Variety Influences

Variety plays an important role in consumer venue selection. A total of 71% of consumers indicate that it is extremely important that an establishment offer a variety of beverages. From a venue-specific standpoint, there are differences in satisfaction regarding beverage choices at restaurants. For instance, 65% of consumers are satisfied with the beverages at a “sit down” restaurant, but just over half are satisfied with the choices in “fast food” restaurants.

23%

20%

16%

54%

65%

71%

I'm satisfied with thevariety of beverages

available to me in fast-foodrestaurants

I'm satisfied with thevariety of beverages

available to me in sit-downrestaurants

It's extremely importantthat the establishment

offer a variety of beverages

Top 3 Box

Bottom Box


49

Brand Name Important to Most Consumer in Key Categories

28%

53%

40%

18%

53%

34%

48%

74%

Vegetable Juice

Regular Hot Coffee

Fruit Juice/Fruit Drink

CSD

Top 3 Box

Bottom 3 Box

“It is important to know the brand of _____ that I am ordering.”


Brand name tends to be the most influential in beverage selection with regard to carbonated soft drinks. Seventy-four percent (74%) of consumers believe it is important to know the brand of CSD they order. Brand name is less important in juice and coffee according to consumers.

50

Beverage Promotions/Merchandising by Operators

Consumers usually stick to the brands and products that they know when ordering beverages away from home. They say they often need an incentive, like free samples, a waitstaff suggestion or discounts to purchase a new or unusual item.

"If the product is new and free, I’ll try it. I wouldn’t just order something new because I saw it advertised everywhere.”

“I would drink more beverages away from home if there were more free refills, more sugar free drinks offered, or a description describing new and exotic drinks.”

“If operators focused all their efforts on promoting one juice flavor, I would be apt to try it.” “Television commercials, free trials/giveaways will inspire me to try anything once, or by word of

mouth from someone.” “A day of the week promotion or something special on Fridays is what I look for, cause that is the

day that I treat myself and go out.” “Presentation of a new item like a smoothie on the menu or on a display tray would inspire me to

try this beverage. “ “Price does not affect my decision to order a beverage. I trust the opinions of the wait staff, and

friends to try new beverage options.”

Source: 2005 Technomic Consumer Focus Groups

51

42%

19%

18%

20%

15%

13%

10%

60%Regular HotCoffee


Hot Tea

White Milk

VegetableJuice

Hot SpecialtyCoffee

Hot Cocoa/Chocolate

Bottled Water

Beverage Daypart Associations

Consumers associate breakfast and coffee the most strongly together. For all other occasions, beverage associations are more fragmented.

11%

13%

13%

23%

31%

32%

38%

40%Regular CSD

Cold/Iced Tea

Diet CSD

Bottled Water

Lemonade

Hot Coffee

Milk

Fruit Juice/Frozen Beverage

Breakfast Lunch

“Which beverages do you associate with the following?”

Note: Consumer chose up to three beverages for each description; beverages mentioned by less than 10% of consumer not shownSource: 2005 Technomic Beverage Study Consumer Survey Continued…

52

Coffee Associated with All Dayparts

Dinner All Dayparts

39%

35%

34%

31%

25%

14%

14%

Cold/Iced Tea

Regular CSD

Regular HotCoffee

Bottled Water

White Milk

Hot Tea

Lemonade

42%

39%

38%

27%

20%

20%

13%

10%

10%

Regular Hot Coffee

White Milk

Bottled Water


Hot Tea

Cold/Iced Tea

Regular CSD

Diet CSD

Vegetable Juice

“Which beverages do you associate with the following?”


53

Health and Nutrition Trends Impacts on Consumer Beverage Selection


Health and nutrition is a key trend impacting all of foodservice, and therefore is also having a significant impact on consumer attitudes and opinions with regard to AFH beverages. Almost two-thirds of consumers believe that restaurants should offer “more” healthier offerings. With regard to portion size, more than 40% of consumers believe the sizes of carbonated beverages are too large in limited service (fast food) restaurants.

49%

44%

42%

37%

21%

37%

43%

45%

49%

65%

It's important to know thenutritional content in the

beverages that I order

The sizes of carbonatedbeverages in fast food

restaurants are too large

I should be drinking morevegetable juice when

eating out

I should be drinking morefruit juice when eating out

Restaurants should offermore healthier beverage

offerings

Bottom 3 Box

Top 3 Box

54

Approximately half of all consumers associate vegetable juice, white milk and fruit juice with the terms “healthy” and “packed with vitamins and nutrients.” A total of 58% of consumers indicate they should be drinking more bottled water, while 54% report they should be drinking fewer regular carbonated soft drinks.

Consumer Health Associations Regarding Beverages

“Which beverage do you most closely associate with the following?”

Note: Consumers chose up to three beverages Source: 2005 Technomic Beverage Study Consumer Survey

“Healthy” “Packed with Vitamins & Nutrients”

“I should be drinking MORE of this beverage”

56%

46%

42%

36%

15%

14%

Vegetable Juice

White Milk

Fruit Juice/ Fruit Drink

Bottled Water

Soy/Rice Milk

Hot Tea

61%

45%

46%

19%

14%

12%

Vegetable Juice

White Milk

Fruit Juice/ JuiceDrink

SportsDrink/Gatorade

Soy/Rice Milk

Smoothie

“I should be drinking LESS of this beverage”

58%

29%

30%

21%

13%

Bottled Water

White Milk

Fruit Juice/ Juice Drink

Vegetable Juice

Cold/Iced Tea

54%

29%

26%

Regular CSD

Diet CSD

Regular HotCoffee

55

Beverage Venue Associations

Technomic asked consumers to associate beverages with both the “sit down” and “drive thru” experiences. A total of 60% of consumers associate regular CSDs, followed by diet CSDs (51%) with the drive-thru window. Hot coffee is most associated with “sit-down” meals (51%) followed by Cold/Iced Tea (37%).

White milk and coffee have the strongest associations with company and school cafeterias.“Which beverage do you associate with the following venues?”

Note: Consumers chose up to three beverages Source: 2005 Technomic Beverage Study Consumer Survey

“Best for drive-thru” “Best for sit-down meal”

48%37%

28%21%

20%20%

18%12%

Regular Hot Coffee

Cold/Iced Tea

Regular CSD

Diet CSD

White Milk

Hot Tea

Bottled Water

Lemonade

61%

47%

21%

21%

20%

14%

Regular CSD

Diet CSD

Regular Hot Coffee

Bottled Water

Cold/Iced Tea

Lemonade

“Appropriate in a company or school cafeteria”

35%

34%

30%

26%

26%

24%

23%

White Milk

Regular Hot Coffee

Regular CSD

Cold/Iced Tea

Bottled Water

Diet CSD


56

Containers for Hot and Cold Beverages

Consumers were asked to discuss their opinions on a number of issues related to disposable cups. Based on qualitative responses, there is no consensus on which materials are best.

“I prefer Styrofoam cups for hot drinks because it holds the heat longer. The bigger the drink is, the longer it takes to drink and Styrofoam keeps it warm longest.”

“Styrofoam is easily disposable and doesn’t vary by size.” “I hate the McDonald’s soda cups. They always taste like the cup and disintegrates.” “I liked coated paper for cold drinks. They don’t seep through like cardboard.”

57

Waxed Paper Cups Seen as Best Cold Beverage Material

Consumers were asked to indicate which cup material is best for cold beverage applications. There does not appear to be one preferred type, however, waxed paper cups received the most responses as best.


28%

17% 13% 12%6% 4%

Waxed PaperCup

Clear Plastic Paper Cup Styrofoam Cup One MaterialInside, Another

Outside

Other

Cold Beverage Disposable Cup Preferences

58

62%

22%

7% 5% 3% 0%1%

StyrofoamCup

One MaterialInside,

AnotherOutside

Paper Cup Other Waxed PaperCup

ColoredPlastic

Clear Plastic

Styrofoam Best for Hot Beverages

Over 60% of consumers prefer Styrofoam for hot beverages. “One material inside, and one outside.” (e.g., PerfecTouch) received the second most votes as best for hot beverages.

Hot Beverage Disposable Cup Preference


59

30%

21%17%

11% 9%4%7%

Clear Plastic Waxed PaperCup

ColoredPlastic

One MaterialInside,

AnotherOutside

StyrofoamCup

Paper Cup Other

Frozen Beverages Disposable Cup Preferences

Best Material fro Frozen Beverages


Clear plastic is preferred for frozen beverages by 3 in 10 consumers.

60

Attitudes Toward Disposable Cups

61%

62%

63%

65%

I am generally satisfied with the cups and lids ofhot drinks when I take them to-go

I am less likely to purchase a drink to-go if itdoesn't fit in my car's cupholder

It is important that disposable cups I get areenvironmentally friendly

I am generally satisified with the cups and lidsof dispensed cold drinks when I take them to-go

% Indicating Agreement with Statement(Top 2 Box)

Consumers are generally satisfied with disposable beverage containers they receive in foodservice.

1 to 5 scale used; 1 = do not agree at all; 5 = completely agreeSource: 2005 Technomic Beverage Study Consumer Survey

IV. Operator Attitudes and Practices

62

Operator Research Approach

Structured Research Sample

*Retail Sales EquivalentSource: Technomic

Segment# of Completed

Interviews

LSR Traditional 102

LSR Donut Shops & Coffee Cafés 35

FSR 119

Recreation 43

B&I 30

Education 104

Hospitals 65

Total 498

Bey

ond

Res

taur

ants

Res

taur

ants

A total of 589 operator interviews were conducted. One hundred came from focus groups, telephone and personal interviews. The remaining 498 partook in a structured survey as listed below.

63

General Operator Opinions Regarding Beverages

Beverages represent a sizable portion of operator attention, largely because of their low labor requirements, high sales and high profitability. Operators typically report the cost of offering beverages is very low compared to what they can charge for them, making them a very profitable part of their overall portfolio.

“There is not much labor involved for the high profits reaped with these products. We are always looking to invest more money into the next in-style product that people are looking for.”

“Water is taking off. We took the glasses off of our tables and served bottled water. Sales have been through the roof.”

“Beverages are a huge part of our business. We offer 15 different sodas and isotonic beverages through the fountain.”

“Beverages are helpful with your combo meals. You can add a drink to it and charge a premium.”

In fact, in our survey of operators, 65% of operators agreed with the statement, “Beverages are extremely profitable for our operations.’“

64

Beverages Represent Significant Share of Segment Dollars

On average, beverages represent 19% of segment sales, but between 40- 50% of profits. Travel and Leisure segment beverage sales are the largest in the industry at 35%, with the segment’s profit of 60-70%.

Beverage Composition

Share Segment of Sales

Share of Segment Profit

LSR 19% 35-45%

FSR 15 35-45

Travel & Leisure 35 60-70

Business & Industry 29 40-50

Education 34 40-50

Healthcare 26 35-45

Total 19% 40-50%

Source: Technomic

65

Beverage Gross Margins

Most beverages are highly profitable for operators. From a gross margin perspective, operators report that profitability can be in excess of 85% for dispensed drinks, including CSDs, hot coffee and cold/cold/iced tea. Packaged and bottled drinks, such as milk, juice and bottled water, tend to have gross profit margins closer to 60-70%.

60-70% 70-85% >85%

Milk (flavored, white, soy/rice)

Packaged juice

Packaged tea

Energy drink

Sports drink

Packaged CSD

Bottled water

Dispensed juice/juice drink

Scratch iced/cold coffee

Scratch smoothie

Hot cocoa

Vegetable juice

Frozen beverage

Dispensed CSD

Regular hot coffee

Hot specialty coffee drink

Hot tea

Brewed cold/iced tea

Gross Margins for Operators

66

56%

19% 19%

34%

Traditional LSR FSR LSR Café/Donut Beyond Restaurants

Bundled Meals

Operators increasingly are bundling beverages with meals to promote value to their patrons and to improve overall profitability of the “complete meal.” Incidence of offering bundled meals including a beverage is highest in Traditional LSR, and lowest in FSR and LSR Coffee Café/Donut.

“We offer value meals where the cost of the beverage is bundled with a meal.”


Top 3 Box

67

Hot Beverage Penetration

Among all hot beverages, coffee is offered by the highest share of operators. Eighty percent (80%) of all operators offer coffee to patrons. The penetration is even higher in full service restaurants (94%).

% Operators Offering

Segment Total All LSR FSRBeyond

Restaurants*

Regular Hot Coffee 80% 67% 94% 80%

Hot Tea 67 46 85 70

Hot Cocoa/Chocolate 65 43 72 75

Hot Specialty Coffee 35 28 28 43

*Recreation, B&I, Education, HospitalsSource: 2005 Technomic Beverage Study Operator Survey

68

Variety of Hot Beverages Offered

When offered, operators provide the greatest variety in specialty coffee. On an overall basis, the typical operator offers four varieties of specialty coffee. For operators in the LSR Coffee Café/Donut Shops segment, the average number of varieties offered is 7.7.

Product Varieties TotalTraditional

LSR

LSR Coffee Café/Donut

Shops FSRBeyond

Restaurants*

Regular Hot Coffee 2.2 1.4 13.0 1.6 2.2

Hot Specialty Coffee 4.0 2.0 7.7 3.3 3.3

Hot Cocoa/Chocolate 1.4 1.0 1.4 1.3 1.5

Hot Tea 3.2 1.4 * 2.7 3.9

*Recreation, B&I, Education, Hospitals**Among operators offeringSource: 2005 Technomic Beverage Study Operator Survey

Average # of Flavors/Varieties Offered**

69

Hot Beverage Sizes

On average, 8 oz. size hot beverages are the most common offerings according to 43% of operators, followed by 12 oz. (38%). Hot tea is the most commonly offered 8 oz. beverage, with than half of operators offering it in this size. Specialty coffee drinks tend to skew toward larger sizes.

*Simple averageSource: 2005 Technomic Beverage Study Operator Survey

% Operators Offering Size

Hot Beverage <8 oz. 8 oz. 10 oz. 12 oz. 16 oz. 20 oz. 24 oz. >24 oz.

Regular Hot Coffee 23% 45% 16% 42% 29% 20% 5% 6%

Hot Specialty Coffee 21 34 17 52 47 34 11 7

Hot Tea 29 51 15 27 20 14 6 6

Hot Cocoa/Chocolate 21 41 15 31 19 14 4 4

Average % Offering* 24% 43% 16% 38% 29% 21% 7% 6%

70

Hot Beverage Volume Status

As a whole, operators who carry hot beverages have reported that beverage volume, for the most part, has held steady, except for specialty coffee, where over 40% indicate volume has increased.

Technomic has analyzed each beverage based on net response. Operators were asked to indicate if each beverage’s volume has increased, decreased or stay the same over the past two years. All hot beverages have experienced positive “nets.”

Hot Beverage …Increased …Decreased Net

Hot Specialty Coffee 44% 9% +35

Regular Hot Coffee 19% 4% +15

Hot Cocoa/Chocolate 21 7 +14

Hot Tea 20 6 +14

*Base: Operators offering specific beverageNote: 1-5 scale used: 5+4= Increased; 1+2=Decreased; “Net”=Increased-Decreased

% Operators Indicating Beverage Volume Has…

71

Cold Beverage Penetration

Penetration of white milk is the highest among all beverages followed by bottled water, lemonade and dispensed CSDs.

Segment


Total QSR FSRBeyond

Restaurants*

White Milk 85% 73% 86% 70%

Bottled Water 73 75 60 79

Lemonade 73 66 79 74

Dispensed CSD 71 74 90 61

Flavored Milk 56 48 36 71

Dispensed Cold/Iced Tea 54 54 59 51

Packaged 100% Juice 52 39 34 67

Packaged CSD 41 36 37 49

Packaged Cold/Iced Tea 33 28 30 36

Packaged Fruit Drink 32 24 17 44

Packaged Sports Drink 32 17 7 53

Dispensed 100% Juice 31 19 18 51

Dispensed Fruit Drink 29 30 21 33


continued…

72

Cold Beverage Penetration

Segment


Total QSR FSRBeyond

Restaurants*

Packaged Vegetable Juice 29% 8% 32% 42%

Carbonated Water/ Seltzer 23 16 32 22

Flavored Water 20 14 4 30

Energy Drink 20 10 17 26

Cold/Iced Coffee 19 26 14 18

Prepared Smoothie 18 17 10 22

Frozen Beverage 16 19 11 16

Soy/Rice Milk 12 10 3 22

Dispensed Sports Drink 12 8 4 17

Packaged Cold/Iced Coffee 11 13 4 13

Packaged Smoothie 9 7 1 15

Dispensed Vegetable Juice 2 2 1 3


73

Greatest Cold Beverage Variety Offered in CSDs

The largest variety offered in cold beverage are found in CSDs, both packaged and dispensed. Lowest member of varieties are in bottled water.

Segment Total Segment Total

Packaged CSD 7.7 Dispensed Sports Drink 2.6

Dispensed CSD 6.7 Dispensed Fruit Juice Drink 2.4

Scratch Smoothie 5.9 Energy Drink* 2.4

Frozen Beverage 5.3 Packaged Vegetable Juice 1.8

Scratch Cold/Iced Coffee 4.5 Flavored Milk 1.6

Packaged Fruit Juice Drink 4.4 Dispensed Cold/Iced Tea 1.5

Packaged Sports Drink 4.0 Soy/Rice Milk* 1.4

Packaged 100% Juice 3.9 Regular White Milk 1.4

Packaged Cold/Iced Coffee 3.9 Bottled Water 1.3

Packaged Smoothie 3.6

Dispensed 100% Juice 3.5

Flavored Bottled/Water* 3.0

Packaged Cold/Iced Tea 2.9

*Small base**Among operators offering specific beveragesSource: 2005 Technomic Beverage Study Operator Survey

Average # of Flavors/Varieties Offered**

74

Dispensed/Poured Cold Beverage Sizes

Not surprising, cold beverages skew toward larger sizes than hot beverages. At least on-third of operators offer dispensed CSDs, cold/iced tea or juice drinks in 32-ounce sizes or larger.

% Operators Offering Size for Dispensed/Pour Format

Cold Beverage <12 oz. 12 oz. 16 oz. 20 oz. 24 oz. 32 oz. >32 oz.

Dispensed Cold/Iced Coffee 34% 47% 70% 22% 30% 9% 0%

Dispensed Cold/Iced Tea 25 38 54 33 14 32 17

Dispensed CSD 8 43 61 37 22 50 24

Dispensed 100% Juice 42 39 42 27 9 19 13

Dispensed Juice Drink 26 39 56 27 7 39 16

Vegetable Juice 24 22 14 3 14 25 3

Smoothie 24 27 54 29 2 15 9

Frozen Beverage 23 36 50 28 19 25 13

Dispensed Sports Drink 20 39 49 28 12 35 8

Average % Offering* 25% 46% 50% 26% 14% 28% 11%

*Simple averageSource: 2005 Technomic Beverage Study Operator Survey

75

Cold Beverage Volume Status

Over half of operators offering soy/rice milk and energy drinks report that volume of these products have increased over the past two years.

Few operators report that volume of any cold beverage has decreased over this time frame.

Cold Beverage …Increased …Decreased “Net” Cold Beverage …Increased …Decreased “Net”

Soy/Rice Milk 54% 0% +54 Scratch Smoothie 34% 7% +27

Energy Drink 52 7 +45 Dispensed 100% Fruit Juice 30 4 +26

Flavored Bottled Water 48 7 +41 Packaged Fruit Juice Drink 32 7 +25

Scratch Cold/Iced Coffee 46 7 +39 Packaged Cold/Iced Tea 30 7 +23

Packaged CSD 42 4 +38 Frozen Beverage 28 5 +23

Dispensed Sports Drink 39 2 +37 Packaged Smoothie 30 8 +22

Packaged Cold/Iced Coffee 40 4 +36 Regular White Milk 24 5 +19

Packaged 100% Fruit Juice 37 5 +32 Flavored Milk 22 3 +19

Dispensed Cold/Iced Tea 28 4 +24 Dispensed Fruit Juice Drink 31 12 +19

Packaged Sports Drink 41 10 +31 Packaged Vegetable Juice 15 8 +7

Dispensed CSD 36 7 +29

Bottled Water 34 5 +29

*Base: Operators offering specific beverageNote: 1-5 scale used: 5+4= Increased; 1+2=Decreased; “Net”=Increased-DecreasedSource: 2005 Technomic Beverage Study Operator Survey

% Operators Indicating Beverage Volume Has…

76

Recently Added/Dropped Beverages

In focus groups sessions, operators report they have added many more beverages than they have dropped over the last year, which is a testament to the importance of these products relative to their overall portfolio. In nearly all parts of the country, operators said that the trend is pointing toward more bottled smoothies, isotonic beverages and energy drinks – specifically Red Bull – even though penetration of these products is quite low.

Customer requests, trade shows or new products suggested by “vendors” generally drive the decision to add beverages.

“The most effective process is to have a supplier hook me up with a distributor or vendor and let the customer decide. If the van will bring in the sample, we can then judge if it will sell or not.”

“The 20-somethings love Red Bull. One of my staff members came in looking beat, so he drank one. He was so wound up, he cut his finger two minutes later.”

Source: 2005 Technomic Operator Focus Groups

77

Recently Added/Dropped Beverages

Herbal teas and “upscale” coffee have become increasingly popular, particularly in the B&I and college segments.

“The Arizona brand of herbal and flavored teas have taken off for us.” “We recently added ‘Fair Trade’ coffee because of student demand.” “I’m considering dropping flavored waters. They haven’t been selling too well.”

Based on operator qualitative insights, the following are examples of beverages recently added or dropped. Note, operators are not as aggressive at dropping beverages as they are to add new products.

Recently Added Recently Dropped Bottled smoothies PowerAde Red Bull Bottled Frappuccino Herbal teas (hot and cold) Fair trade coffee Grab-and-go sized beverages

Canned and bottled juice. “These are expensive to carry and don’t turnover as quickly as soda.”

Flavored milk. “It doesn’t sell well.”

78

Route Delivery Plays a Key Role in Hot Beverage Distribution

All Other10%

Direct Route Delivery

35%

Broadliners/ Systems

55%

Note: All figures are midpoints of ranges +/- 5%Source: Technomic

Hot Beverages Distribution

Approximately 55% of all hot beverage volume in foodservice is sourced through broadline and systems distributors. Direct route delivery plays a key role particularly for coffee to independent operators.

79

Cold Beverages Sourcing

Note: All figures are midpoints of ranges +/- 5%Source: Technomic

Cold Beverages Distribution

All Other Sources

7%

Broadliners/ Systems

55%

Specialty Beverage

Distributors7%

Dairy Distributors

6% Bottlers25%

With cold beverages, broadliners and systems distributors play a large role in distribution, with over 1/2 of volume going through this distribution channel. Bottlers play a key role in cold beverage distribution as well.

80

Beverage Sourcing

Operators typically use multiple distribution sources for beverages, depending on the type of beverage they require or the format. Coffee, milk and carbonated soft drinks tend to come from either a specialty supplier or bottler instead of from a broadliner. All other beverages tend to be offered by the latter, however.

“It’s amazing how many different beverage vendors we have. The billing can sometimes be tricky, but it’s not a major problem.”

“We use Coca Cola for our fountain. We can also get the syrup from SYSCO though, and sometimes this is faster.”

“Our milk guy brings us our milk. We also have a separate coffee distributor who also handles the equipment. Most of our stuff comes through US Foodservice.”

“Pepsi delivers our bag-in-box and bottled soda. Our milk, water and coffee come from different sources.”

“Coke, Pepsi, Starbucks, Gourmet Bean. I can get these all through one distributor, GFS. So it works out.”

81

Number of Sources Used by Operators

As mentioned, operators use numerous sources for their beverage purchases. The typical FSR uses anywhere from 2-6 different companies for its beverage needs, and beyond restaurants utilize even more sources. This is due to the large portfolio of beverage variety effort in these establishments.

LSRs use fewer sources because many are chains, they are able to force their main distributor to carry most, if not all, of the required beverage products.

Source: Technomic

Typical # of Beverage Sources Used

LSR 1-3

FSR 2-6

Beyond Restaurant Segments 3-8

82

55% 60% 58%52%

33% 29% 31%

44%

Total LSR FSR BeyondRestaurants

Top 3 Box Bottom 3 Box

Single Sourcing of Beverages

Using multiple sources adds significant complexity to an operator’s business. More than half of all operators are looking for ways to reduce purchasing complexity. Fifty-five percent (55%) indicate they would prefer to purchase all beverages from a single source.

Interestingly, however, the “lowest call” for consolidating beverage purchases come from beyond restaurant operators, who typically use the most number of distributors. Technomic attributes this to more available labor in these types of operations to deal with multiple sources.

“We’d like to be able to purchase all beverages from a single source”

1 to 7 scale: 1=do not agree at all; 7=completely agreeSource: 2005 Technomic Beverage Study Operator Survey

83

Beverage Selection Criteria

Operators utilize a number of criteria when deciding to offer a beverage in their operations. These can be broken-out into three distinct groupings: critical, important and tertiary. Each of these are detailed on the following pages.

84

Critical Beverage Selection Criteria

The most critical selection criteria for selecting a beverage is that the product is great tasting, according to 93% of operators, which obviously drives customer demand. Other critical factors (according to more than 80% of operators) include the ability to sell the product at a reasonable price, appropriate foodservice packaging and high consumer demand and profitability potential.

1 to 5 scale used; 1 = not at all important, 5 = very importantSource: 2005 Technomic Beverage Study Operator Survey

Beverage Top 2 Box Comments

Is Great Tasting “The products got to taste good for

it to sell—that’s obvious.”

Can Be Sold at a Reasonable Price

“Otherwise, you set the price too high and they are too expensive.”

Has Appropriate Packaging

“Beverages need to stay hot or cold, and be transportable.”

Has High Patron Demand “If customers don’t ask for it, we

just replace it with something else.”

Offer High Profit Margins

“We’re always looking for products that are low maintenance but are very profitable.”

93%

85%

85%

82%

84%

85

Important Beverage Selection Criteria

Less critical criteria, but nonetheless important to operators when selecting beverages are brand name, manufacturer support, good equipment programs and the offering of a variety of flavors. More than 70% of operators rated these factors as important.



Has A Strong Consumer Brand

Name

“You can charge a higher price if customers know the brand.”

Company Offers Strong Manufacturer

Support

“Not just promotional programs, but placement ideas.”

Company Offers Strong, Reasonable

Equipment Programs

“If we have a broken fountain system, we want it fixed fast and the first time.”

Offered in a Variety of Flavors

“You want to offer a variety of products to customers. Otherwise, they may not come back.”

78%

77%

77%

75%

86

Tertiary Selection Criteria

Roughly between 50-60% of operators report that the health and wellness trend is important to consider when selecting beverages to offer. More specifically, operators believe the beverage should be rated “healthy” by patrons, and meet nutritional requirements. The “trendiness” of a beverage is also an important criteria to a bit more than half of operators.



Is Rated Healthy by Consumers

“Consumers will pay a premium if they think it is good for them.”

Meets Consumer Nutritional

Requirements

“With the obesity issue hovering, it’s important that we offer healthy options.”

Contains Vitamins and Minerals

“Enhanced smoothies with vitamins added allow us to differentiate our products. We can also charge higher prices.”

Is “Trendy” “Red Bull is popular with 20-

somethings. It’s on-trend.”

61%

61%

52%

51%

87

Impact of the “Healthy” Trend on Beverages

Operators were asked how they are addressing customer desires for “healthy” beverage options. Bottled water, fruit juice, vegetable juice – even teas – were among the mentioned as emerging options that operators said they must keep on the menu.

“Herbal teas are trending toward healthier. There is a migration from decaf coffee to tea and decaf teas.”

“Crystal Light sells very well. It has few calories and artificial sweeteners.” “Bottled waters seem to be a part of the trend, but I think customers also buy it because of the

brand associated with them.” “We switched to organic coffee. That’s what my customers are asking for.” “Labeling becomes important. Consumers read these. If it looks healthy, or packed with healthy

ingredients, consumers will buy it.”

Some operators also commented on the sizes of beverages, and how they have adjusted portion size to address the health trend.

“Customers are shying away from the big 32 ounce cups. We’re now offering an array of sizes in response to their request for smaller serving sizes.”


88

57%

17%31%

79%Top 3 Box Bottom 3 Box

Healthy Option Perspective

Operators indicate that patrons are indeed looking for healthier beverage options in away-from-home occasions. Half of operators believe that “better for you” options are more important for consumers today.

Operators are not meeting consumer demand for healthier drinking by reducing CSD portion sizes.

“Our patrons increasingly are looking for “better-for-you

beverage options”


“We are looking to introduce the size of carbonated

beverage offered”

89

Operator Beverage Associations

Operators were asked to indicate which beverages they believed are associated with a number of statements related to beverage offering criteria. These included:

Easiest to sell Most profitable Most demanded by consumers Highest sales Trendiest Best promotional programs Best manufacturers Biggest headache to manage Most difficult beverage program to executive

For just about every statement, dispensed CSDs, packaged CSDs, bottled water and coffee received the highest number of association indications. Details are provided on the following pages.

90

Operator Beverage Associations: Easiest to Sell

A total of 54% of operators report that dispensed CSDs are the easiest to sell, followed by regular hot coffee at 32% and bottled water at 23%.

“Name brand products are easiest to sell, that’s why Pepsi and Starbucks do very well in our operations.”

Category % Indicating* Category % Indicating*

Dispensed CSD 54% Flavored Milk 3%

Regular Hot Coffee 32 Frozen Beverage 3

Regular Bottled Water 23 Hot Cocoa/Chocolate 3

Packaged CSD 19 Energy Drink 3

Dispensed Cold/Iced Tea 13 Dispensed/Scratch Smoothie 2

Packaged 100% Juice 12 Flavored Bottled Water 2

Regular White Milk 11 Dispensed/Scratch Iced/Cold Coffee 2

Hot Tea 7 Packaged Vegetable Juice 0

Hot Specialty Coffee Drink 6 Dispensed Sports Drink 0

Dispensed 100% Juice 5 Packaged Smoothie 0

Packaged Sports Drink 5 Soy/Rice Milk 0

Packaged Fruit Juice Drink 5 Packaged Iced/Cold Coffee 0

Dispensed Fruit Juice/Fruit Drink 5 Carbonated Water/Seltzer 0

Packaged Cold/Iced Tea 4

*% of operators mentioning beverage; up to 3 beverages allowed to be mentioned Source: 2005 Technomic Beverage Study Operator Survey

91

Operator Beverage Associations: Most Profitable

Almost 60% of operators indicated that dispensed CSDs are one of the most profitable beverages in their operations, followed by coffee.

“Fountain beverage syrup is really inexpensive.” “We mark up our coffee probably 10-15 times the actual cost.”



Dispensed CSD 58% Packaged Sports Drink 4%

Regular Hot Coffee 31 Hot Cocoa/Chocolate 4

Regular Bottled Water 19 Dispensed/Scratch Smoothie 3

Packaged CSD 15 Packaged Fruit Juice Drink 3

Packaged 100% Juice 11 Frozen Beverage 3

Hot Tea 9 Flavored Milk 3

Regular White Milk 8 Flavored Bottled Water 2

Hot Specialty Coffee Drink 7 Packaged Vegetable Juice 2

Dispensed 100% Juice 7 Dispensed Sports Drink 2

Packaged Cold/Iced Tea 5 Energy Drink 2

Dispensed/Scratch Iced/Cold Coffee 5 Carbonated Water/Seltzer 0

Dispensed Cold/Iced Tea 5 Packaged Smoothie 0

Dispensed Fruit Juice/Juice Drink 5 Packaged Cold/Iced Tea 0

92

Operator Beverage Associations: Most Demanded by Consumer

More than half of operators associate dispensed CSDs with the statement “most demanded by consumers.” Regular hot coffee comes to mind for 32% of operators, and bottled water for 22%.

“The products with highest sales obviously mean that the customers want them.”


Dispensed CSD 55% Packaged Cold/Iced Tea 3%

Regular Hot Coffee 32 Dispensed/Scratch Iced/Cold Coffee 3

Regular Bottled Water 22 Dispensed Fruit Juice Drink 3

Packaged CSD 18 Frozen Beverage 3

Dispensed Cold/Iced Tea 13 Dispensed/Scratch Smoothie 2


Regular White Milk 10 Energy Drink 2

Dispensed 100% Juice 8 Hot Cocoa/Chocolate 1

Hot Tea 6 Dispensed Sports Drink 1

Hot Specialty Coffee Drink 5 Packaged Vegetable Juice 0

Flavored Milk 5 Packaged Smoothie 0

Packaged Sports Drink 5 Soy/Rice Milk 0

Packaged Fruit Juice/ Fruit Drink 4 Packaged Iced/Cold Coffee 0


93

Operator Beverage Associations: Highest Sales

A total of 58% of operators report that dispensed CSDs have the highest sales, compared to 32% for regular hot coffee and 21% for bottled water.

“Our fountain soft drink sales are about twice as high as the next highest volume beverage, coffee.” “We can’t fill our cooler fast enough with bottled water in the summer.”

*% of operators mentioning beverage; up to 3 beverages allowed to be mentionedSource: 2005 Technomic Beverage Study Operator Survey


Dispensed CSD 58% Flavored Milk 4%

Regular Hot Coffee 32 Packaged Cold/Iced Tea 4

Regular Bottled Water 21 Dispensed/Scratch Iced/Cold Coffee 4

Packaged CSD 18 Frozen Beverage 3

Dispensed Cold/Iced Tea 14 Flavored Bottled Water 2

Regular White Milk 12 Hot Cocoa/Chocolate 2

Packaged 100% Juice 12 Energy Drink 2

Hot Specialty Coffee Drink 8 Dispensed Sports Drink 1

Dispensed 100% Juice 7 Packaged Vegetable Juice 0

Hot Tea 6 Soy/Rice Milk 0

Packaged Sports Drink 5 Packaged Smoothie 0

Dispensed/Scratch Smoothie 5 Packaged Cold/Iced Coffee 0

Packaged Fruit Juice/Juice Drink 5 Carbonated Water/Seltzer 0

Dispensed Fruit Juice/Juice Drink 5

94

Operator Beverage Associations: Best Promotional Programs

Dispensed CSDs offer the best promotional programs, according to 37% of operators. Regular hot coffee is the second most commonly mentioned at 16%. Beyond these two products, few operators believe there are good promotions.

“Other than Coke, we don’t get many promotions for beverages. We could use more.”


Dispensed CSD 37% Dispensed/Scratch Iced/Cold Coffee 3%

Regular Hot Coffee 16 Packaged Fruit Juice/Fruit Drink 3

Packaged CSD 14 Dispensed Fruit Juice/Fruit Drink 3

Regular Bottled Water 11 Frozen Beverage 3

Packaged 100% Juice 8 Packaged Cold/Iced Tea 2

Regular White Milk 7 Flavored Bottled Water 2

Hot Specialty Coffee Drink 6 Hot Cocoa/Chocolate 2

Dispensed Cold/Iced Tea 5 Packaged Vegetable Juice 0

Hot Tea 4 Dispensed Sports Drink 0

Dispensed 100% Juice 4 Packaged Iced/Cold Coffee 0

Packaged Sports Drink 4 Dispensed Vegetable Juice 0

Energy Drink 4 Soy/Rice Milk 0

Flavored Milk 3


95

Operator Beverage Associations: The Trendiest Beverage Today

Operators mostly associate dispensed CSDs and regular bottled water as “the trendiest beverage today.”


Dispensed CSD 22% Hot Cocoa/Chocolate 4

Regular Bottled Water 18 Packaged Cold/Iced Tea 4

Regular Hot Coffee 13 Flavored Milk 4

Hot Specialty Coffee Drink 13 Dispensed 100% Juice 4

Packaged Sports Drink 10 Frozen Beverage 4

Packaged 100% Juice 10 Packaged Fruit Juice/Fruit Drink 3

Energy Drink 10 Packaged Vegetable Juice 2

Packaged CSD 9 Dispensed Sports Drink 2

Dispensed Cold/Iced Tea 8 Packaged Smoothie 2

Hot Tea 6 Soy/Rice Milk 1

Regular White Milk 6 Packaged Cold/Iced Coffee 1

Dispensed/Scratch Smoothie 5 Flavored Bottled Water 0

Dispensed Fruit Juice/Fruit Drink 4


96

Operator Beverage Associations: Biggest Headaches to Manage

Only a small percentage of operators associated “biggest headache to manage” with a beverage. Dispensed CSDs, regular hot coffee and white milk were the most frequently selected, according to a maximum of 16% of operators. Interestingly, this is divergent from focus group input that suggested that fountain and coffee equipment can be major hassles

“Our cappuccino machine is a pain to clean.” “Our Coke machines malfunction all the time and it takes a while to get someone to fix it.”



Dispensed CSD 16% Dispensed/Scratch Iced/Cold Coffee 4%

Regular Hot Coffee 13 Dispensed Fruit Juice/Fruit Drink 3

Regular White Milk 11 Frozen Beverage 3

Hot Specialty Coffee Drink 10 Packaged Sports Drink 2

Packaged CSD 8 Packaged Fruit Juice/Fruit Drink 2

Regular Bottled Water 7 Packaged Cold/Iced Tea 2


Dispensed 100% Juice 6 Energy Drink 2


Hot Cocoa/Chocolate 6 Packaged Smoothie 1

Dispensed/Scratch Smoothie 5 Soy/Rice Milk 1

Flavored Milk 5 Dispensed Sports Drink 0

Dispensed Cold/Iced Tea 4

97

Operator Beverage Associations: Most Difficult Programs to Manage

Few operators see beverage programs as difficult to administer. A total of only 11%, the highest percentage, reported that hot coffee fits this description. Focus group findings were somewhat different, as many operators discussed training and equipment maintenance as issues for coffee, in particular.

“Training the staff on equipment and coffee preparation takes time. And if we don’t train, the equipment get broken and the coffee tastes terrible.”

“Coffee is difficult to execute. Someone has to make it, pour it and maintain the machine.”


Regular Hot Coffee 11% Packaged CSD 3%

Dispensed CSD 10 Flavored Milk 3

Hot Specialty Coffee Drink 10 Dispensed/Scratch Iced/Cold Coffee 3

Regular White Milk 9 Packaged Sports Drink 3

Hot Cocoa/Chocolate 9 Packaged Vegetable Juice 3

Regular Bottled Water 8 Energy Drink 3

Hot Tea 7 Frozen Beverage 2

Packaged 100% Juice 6 Packaged Cold/Iced Tea 1

Dispensed 100% Juice 5 Packaged Smoothie 1


Dispensed/Scratch Smoothie 4 Dispensed Sports Drink 0

Packaged Fruit Juice/Juice Drink 4 Soy/Rice Milk 0

Dispensed Fruit Juice/Juice Drink 4 Packaged Iced/Cold Coffee 0


98

37% 40%

53%48%

"CSD" "Juice Beverage"

Top 3 Box Bottom 3 Box

Equipment Issues

According to the survey, operators do not see major issues with CSD and juice dispensing equipment.

“__________ dispensing equipment is a major hassle.”


99

Operator Beverage Associations: Best Manufacturer

Operators associate dispensed CSDs “the best manufacturers” according to 46% of operators. And a quarter of operators associate regular hot coffee with excellent manufacturers.

“Coke is great. They give us the equipment, have great promos and work with us to increase sales.”

“Pepsi is very easy to work with. I wish all our suppliers were more like them.” “Superior has a very easy program. They have a route guy who brings in the coffee and services

our equipment. They’re great.”


Dispensed CSD 46% Dispensed Fruit Juice/Juice Drink 4%

Regular Hot Coffee 25 Hot Cocoa/Chocolate 3

Packaged CSD 17 Packaged Cold/Iced Tea 2

Regular White Milk 11 Dispensed/Scratch Smoothie 2

Regular Bottled Water 9 Packaged Fruit Juice/Juice Drink 2

Hot Specialty Coffee Drink 6 Energy Drink 2

Dispensed 100% Juice 6 Frozen Beverage 1



Packaged Sports Drink 5 Dispensed Sports Drink 0

Flavored Milk 4 Packaged Smoothie 0


100

Preferred Beverage Format

In beverages where multiple formats are available, operators tend to prefer dispensed or “scratch” over packaged products. This is due to the perceived higher profitability of this format over packaged.

CategoryDispensed/”Scratch” Bottle Can

NoPreference

Cold/Iced Tea 73% 19% 3% 6%

CSD 65 22 10 3

Sports Drink 63 17 13 7

Smoothie 62 28 4 6

Cold/Iced Coffee 50 28 3 19

Fruit Juice/Juice Drink 38 40 15 7

Seltzer 36 65 0 0

Vegetable Juice 16 39 41 4

Source: 2005 Technomic Beverage Study Operator Survey

101

Operator Sources for Information about New Beverage Products

Operators said they first rely on their distributor sales representatives when learning about new beverage products and recipes in foodservice. Trade shows, industry trade journals and competition also play a role in educating operators of new products/trends.

“Our DSR gives us a lot of information. They’ll bring select people in with my permission. The DSR understands my operation.”

“Everywhere. Traveling, see what the competition is doing. What customers tell you.” “Suppliers, our company. Many times customers tell us.”


102

Preferred Operator Support

Operators said their “wish list” for operator support from manufacturers would include samples, promotions and marketing and consumer research.

New product sampling Want to receive “new products” from beverage suppliers

Drink promotions Seasonal promotions Moneys to offset printing, promotional costs for menu cards, table tens, menus

Marketing programs Marketing advisory teams – trend information Conference support Local support of franchise

Education/training support

Consumer insights Trend and purchasing behavior data

Merchandising materials Coolers with supplier logo on them

103

Perceived Strengths/Limitations of Major Beverage Suppliers

Operators were asked to provide the strengths and weaknesses of ten major beverage suppliers. Their responses are summarized in the table below. As would be expected, a common strength of all the players is the high market awareness of their brands and products.

Supplier Strengths Weaknesses7-Up Strong brand equity Not seen as aggressive in foodservice

Coke contract limitations negatively impact penetration

Perception as being an “older brand” Limited product line Company dispensed business has been

negatively impacted by introduction of Sierra Mist

Coca Cola Strong brand name recognition High foodservice visibility Market penetration Position with major chains (McDonald’s,

Burger King, Wendy’s) Strong foodservice dedicated marketing

Many independent operators report that local support is lacking

Some operators report Coca Cola is slipping somewhat in foodservice stature

104


Supplier Strengths WeaknessesDr. Pepper Strong regional presence (south) Not seen as an aggressive in

foodservice Coke contract restrictions limits

penetration

ICEE Strong partnerships with c-store chains Lack of on-premise penetration beyond c-stores

Product line seems as “unhealthy”

Minute Maid Brand name recognition Coke association Strong penetration in foodservice

Not seen as innovative for term of product offerings

Better synergies needed with other brands of Coke (Dasani, Coca-Cola, fountain)

Pepsi Strong brand/partner with many operators

Good support for equipment, customers Seen as increasingly aggressive in

foodservice Overall, seen as more “hip” than Coke

Perception of “number two” against Coke

Not seen as strong in promotion as Coke

Not as strong as Coke in foodservice

105


Supplier Strengths WeaknessesSnapple Healthy alternative

Small company image

Not marketed strongly in foodservice Expensive

Starbucks Strong brand High awareness Brand/market penetration

Operational standards are too high Focused only on coffee Cost is high to many consumers

Tropicana Brand recognition Strength of product Innovative from a product variety

standpoint

Seen as more of a retail brand than foodservice

V8 Good name recognition Healthy connotation Quality image

High cost (V8 Splash) Limited foodservice presence Category unimportant to many

operators

V. Competitive Market Share(Pepsi Proprietary Information)

107

Market Share Information

In the context of study, Pepsi asked Technomic to determine competitive market share data (on a proprietary basis), on five major categories juices, CSDs, iced tea, bottled water and sports drinks. This information should be viewed in light of the following:

All data are subject to a range of +5% Data is presented in RSE (Retail Sales Equivalent) dollars, not in manufacturer shipments

108

Juices – Competitor Share of RSE*

Minute Maid has the leading share of both dispensed and packaged juices in foodservice. Tropicana’s share is second only to Minute Maid in the packaged juice format.

Distributor Brands $525MM

15%

All Other $1,175MM

34%

Minute Maid

$1,300MM37%

Birdeye $70MM

2%

Ocean Spray

$65MM2%

Vitality $350MM

10% Campbell-V8

$150MM4%

Very Fine $80MM

2%


8%

Tropicana $700MM

18%

All Other $1,225MM

30%Minute Maid

$790MM37%

Ocean Spray

$240MM6%

Welch's $150MM

4%

Dole $315MM

8%

Dispensed Packaged

2004 Sales = $3,485MM 2004 Sales = $3,950MM

*Retail sales equivalent All data subject to a range of +/- 5%. Includes both 100% juice and juice drinks.Source: Technomic

109

CSDs – Competitor Share of RSE*

Coke brands represent the lion’s share of both dispensed and packaged carbonated soft drinks.

Coke Brands

$13,275MM68%

All Other $475MM

4%Pepsi

Brands $5,625MM

28%

Dispensed Packaged

2004 Sales = $19,375MM 2004 Sales = $7,775MM

*Retail sales equivalent All data subject to a range of +/- 5%. Source: Technomic

Coke Brands

$4,200MM54%

Pepsi Brands

$3,250MM42%

All Other $325MM

4%

110

Iced Tea – Competitor Share of RSE*

In the iced tea category, Lipton is the leading player in both dispensed/brewed and packaged formats.

Lipton $1,500MM

39%


10%

Nestle/ Nestea

$900MM16%

All Other $1,115MM

35%

Dispensed/Brewed Packaged

2004 Sales = $3,780MM 2004 Sales = $955MM*Retail sales equivalent**Arrowhead, Poland Springs, Danone, Ice Mountain, Evian and Perrier at all ≈2% each (~$75MM in other category)All data subject to a range of +/- 5%. Source: Technomic

Tetley $30MM

3%

SoBe $20MM

2%

Arizona $50MM

5%

Lipton $430MM

45%

Snapple $75MM

8%Nestle/ Nestea

$170MM18%

All Other $180MM

19%

111

Bottled Water – Competitor Share of RSE*

In the bottled water category, Aquafina and Dasani are the two largest brands in terms of share, each representing over 20% of the category.

Crystal Geyser

$150MM4%

Aquafina $950MM

25%

Operator Brands $300MM

8%

Dasani $775MM

21%

All Other $1,575MM

42%

2004 Sales = $3,750MM


112

Sports Drinks – Competitor Share of RSE*

Gatorade is the leader in both dispensed and packaged sports drinks in foodservice.

Gatorade $65MM

53%

Powerade $75MM

47%

Dispensed Packaged

2004 Sales = $140MM 2004 Sales = $840MM


All Other $20MM

2%

Powerade $220MM

26%

Gatorade $600MM

72%

VI. Outlook, Implications and Recommendations

114

Introduction

Based on Technomic’s analysis of the foodservice beverage marketplace, this section will outline Technomic’s future vision for the categories and positioning as well as implications. In addition, Technomic has developed recommendations to suppliers to take best advantage of opportunities.

115

Beverage Growth and Outlook

Technomic estimates that hot beverage growth will outpace cold beverage growth 5.0% to 3.5% nominally over the next three years. However, cold beverage share will still hover around 65% of total volume compared to hot beverages, through the same period.

4.5% 4.0%5.0%

4.0%

Total Foodservice Total Beverage Hot Beverage Cold Beverage

Hot Beverage

$26.6B34%

Cold Beverage

$52.4B66% Hot

Beverage $30.6B

35%

Cold Beverage

$57.9B65%

Beverage Growth Forecast2005-2008 Nominal CAGR

2004 = $79.0B 2008(F) = $88.5B

116

Hot Beverage Growth

Specialty coffee will experience 12% nominal growth in the next three years, the only hot beverage estimated to achieve double-digit growth. Hot tea will see an increase of 2.9% nominally. In real terms, regular coffee and hot cocoa will actually see declines of -0.5% and -1.9% over the same period.

Hot Beverage

2002-20043-Year CAGR

2005-20083-Year CAGR

Nominal* Real Nominal* Real

Regular Hot Coffee 2.0% -0.6% 2.5% -0.5%

Hot Specialty Coffee 11.0 8.2 12.0 8.7

Hot Tea 4.0 1.4 6.0 2.9

Hot Cocoa/Chocolate 1.0 -1.6 1.1 -1.9

Total Hot Beverages 4.0% 1.3% 5.0% 1.9%

*2001-2004 CAGR inflation = 2.6%; 2005-2008 = 3.0%Source: Technomic

117

Cold Beverage Growth

Soy milk and energy drinks will help fuel cold beverage growth, though their low penetration numbers will have less impact on the market than bottled water. The latter has experienced 12% nominal growth in the last three years (17% in real terms) and its growth is expected to increase to 15%. Carbonated soft drinks are expected to increase only slightly, or 1.3% nominally (-1.7% in real terms.)

Cold Beverage2001-2004

3-Year CAGR2005-2008

3-Year CAGR

Nominal* Real Nominal* Real

Soy Milk 20.0% 17.0% 21.0% 17.5%

Bottled Water 12.0 9.2 15.0 11.6

Iced/Frozen Coffee 12.0 9.2 11.0 7.8

Energy Drink 10.0 7.2 13.0 9.7

Smoothie 9.0 6.2 8.0 4.9

Cold/Iced Tea 5.0 2.3 7.0 3.9

100% Juice 4.0 1.4 6.0 2.9

Sports Drink 4.0 1.4 5.0 1.9

Frozen Beverage 3.5 0.9 3.0 0.0

Juice Drink 2.5 -0.1 1.5 -1.5

CSD 1.0 -1.6 1.3 -1.7

Milk (Whole & Flavored) -1.0 -3.5 -1.0 -3.9

Total Cold Beverages 2.5% 0.4% 4.0% 1.0

*2001-2004 CAGR inflation = 2.6%; 2005-2008 = 3.0%Source: Technomic

118

Hot Beverage Opportunities/Barriers

The major growth opportunities and barriers for hot beverages are listed in the table. Offering new varieties, such as new flavors, will be an opportunity across all beverage types.

Hot Beverages Opportunities Barriers/Threats

Regular Hot Coffee

Higher-end coffee products Addition of flavors, varieties High profit contribution message to operators

Growth of specialty coffee drinks


Additional varieties, flavors at higher price points

New, easier to use equipment Promotion as a “snack”

High labor requirements-preparation New easy-to-use equipment makes product

not “special” to the consumer At a certain point, high price may cause

consumer backlash

Hot Tea Specialty tea products Health positioning Ease of preparation position Chai/green teas very popular

“Stepchild” to coffee Not top-of-mind for many consumers

Hot Cocoa/Chocolate/Chocolate

Children-focused position Addition of new flavors and varieties

Competition from specialty coffee Children-focused position

119

Cold Beverage Opportunities/Barriers

Cold Beverages Opportunities Barriers/Threats

CSD High contribution to profit message (dispensed)

More variety for dispensed Continued strong promotional support Multiple daypart appropriateness Diet/healthier offerings

Some size downsizing Competition form “healthier” beverages Wellness challenges Some equipment hassles (dispensed) Limited number of valves on dispensers limits

variety

Juice Health positioning Flavor/variety expansion Artificial sweetener use for reduces/lower-

sugar offerings

Competition from other beverages Breakfast orientation High perceived cost

Cold/Iced Tea Alternative beverage position Additional flavors/varieties Better-for-you position High profit message to the operator

Competition from other “better-for-you” beverages (bottled water, flavored water)

120


Cold Beverages Opportunities Barriers/Threats

Milk Health orientation Alternative beverage position

Consumers not “thinking” of milk as AFH beverage

Strong children orientation/”school lunch” limits perception

Iced/Frozen Coffee

Alternative coffee beverage for “warm months” Snack positioning – boost sales in snack High profit opportunities

Additional equipment requirements (scratch, dispensed)

Coffee “overload” Health/wellness issues Not seen as appropriate with a meal High product cost

Smoothie Snack, energy boost position Means of increases sales in snack daypart Health/wellness position Possible meal replacement position

Additional equipment requirements (scratch, dispensed)

High price Not seen as appropriate with a meal

121


Cold Beverage Opportunities Barriers/Threats

Frozen Beverage Snack position Close alternative to CSDs

Health/wellness vulnerability Additional equipment requirements Strong competition from healthy beverages Not seen as appropriate with a meal Seasonal

Bottled Water Strong good-for-you connotation Appropriate beverage alternative Flavored products

Lower than average operator profitability

Sports Drink Recreation, colleges, schools appear to be the most appropriate segments

Applications limited to “thirst quenching,” rehydration

Energy Drink Alternative beverage offering Mixer alternative for drinks

High cost Limited appeal at this point

122

Macro Consumer Trends

The major consumers trends impacting beverage growth are health and wellness, variety/uniqueness and the value perception of the product. Beverages that are “on trend” will be the most successful at driving growth going forward.

Demand/Need/Dynamic Description

Health/Wellness “Better-for-you” products More natural, “unprocessed”

Variety/Uniqueness Consumer continually experimenting Want “new and different”

Value Value low price Value = quality at fair price

123

Macro Consumer Trend Impact on Hot Beverages

The table below compares the current macro consumer dynamics/trends with each hot beverage included in the scope of this engagement. Specialty coffee and hot tea most positively correlate to these trends and therefore will most likely have the most positive future. Regular coffee is expected to remain stable, while hot cocoa’s perception as unhealthy and lacking in variety/originality will hinder growth.

Hot BeveragesHealth/

WellnessVariety/

Uniqueness ValueOverallImpact

Regular Hot Coffee +

Hot Specialty Coffee ++ + +

Hot Tea ++ ++ + +

Hot Cocoa/Chocolate — — —

+ = Positive impact = No net effect — = Negative impact

124

Macro Consumer Trend Impact on Cold Beverages

Most of the cold beverages included in the study score well against current consumer trends. Juice and cold/iced teas are perceived as healthy and diverse, while smoothies and frozen coffee are viewed as original and unique.

Hot BeveragesHealth/

WellnessVariety/

Uniqueness Value Overall Impact

Dispensed CSD — — ++ —

Packaged CSD — + —

Dispensed Juice ++ —

Packaged Juice ++ + — +

Dispensed/Brewed Cold/Iced Tea + + + +

Packaged Cold/Iced Tea + + +

Milk (White & Flavored) ++ — — —

Soy/Rice Milk ++ + — +

Iced/Frozen Coffee — ++ +

Smoothie + ++ — +

Frozen Beverage — — —

Bottled Water ++ + +

Sports Drink + + +

Energy Drink — + —


125

Macro Operator Demands/Needs/Dynamics

The macro operator dynamics and needs impacting beverages are the requirement for sales and profitability growth and reducing labor stress and costs. Those beverages that help to meet these needs will be the most attractive to operators.

Demand/Need/Dynamic Description

Growing sales Products that grow sales and are demanded by customers a positive

Higher price points one way of achieving this

Improve profitability Achieved via cutting costs and/or changing offering mix toward higher menu priced items

Reducing labor stress Recruiting, training, retaining competent labor is an issue

126

Macro Operator Demand Impact on Hot Beverages

Specialty coffee and hot tea are most positively impacted by current operator needs and dynamics.

Hot BeveragesImproving

ProfitabilityReducing Labor

StressGrowing

Sales Overall Impact

Regular Hot Coffee +

Hot Specialty Coffee ++ — ++ +

Hot Tea ++ + +

Hot Cocoa/Chocolate —


127

Macro Operator Demand Impact on Cold Beverages

Teas, bottled water and specialty drinks are positioned very well against operator trends.

Cold BeveragesImproving

ProfitabilityReducing Labor

StressGrowing

Sales Overall Impact

Dispensed CSD ++ — — —

Packaged CSD + —

Dispensed Juice + —

Packaged Juice + + + +

Dispensed/Brewed Cold/Iced Tea ++ — + +

Packaged Cold/Iced Tea + + +

Milk (White & Flavored) — — —

Soy/Rice Milk

Iced/Frozen Coffee + — ++ +

Smoothie + — ++ +

Frozen Beverage — — — — —

Bottled Water + ++ +

Sports Drink

Energy Drink


128

Key Findings and Implications: Hot Beverage Category

Implications

Large market size has different dynamics, with both major players and niche competitors participating.

Hot beverages will take share from cold, but not significantly.

Cannibalization of regular by specialty coffee is occurring, taking share from regular.

Higher price-points on specialty over regular means more operators dollars and profit.

Key Findings

Beverages in this study represent $79 billion in consumer dollars spent or about 19% of all dollars spent away-from-home.

Cold beverages volume outpace hot by a 2-to-1 margin, but hot beverages are growing faster than cold.

Hot beverage volume is dominated by regular coffee (71% of sales), but hot specialty coffee is growing, while regular is flat.

129

Key Findings and Implications: Beverage Category

Implications

LSR obviously should be a target by cold beverage suppliers.

Slow growth of cold beverages attributed to slow growth of CSDs, which represents high share of cold beverage.

Overall cold beverage situation driven by CSDs. Overall, ubiquity of cold beverages in every

segment calls for a broad-bases segment strategy

Except for bottled water, all other products are niche in nature. Although growing aggressively they are not expected to overtake traditional beverages in terms of share.

Bottled water is increasingly a threat to CSDs and other cold beverages.

Key Findings

LSR represents over 1/3 of all beverages sold, followed by FSR at 25%.

CSDs still the major cold beverage consumed in foodservice.

In cold beverages, soy/rice milk, bottled water, iced/frozen coffee and energy drinks are growing at an accelerated rate.

130

Key Findings and Implications: Consumer Issues

Implications

Despite consumer health concerns, CSDs will continue to be one of the top beverages of choice.

Diet products are and will continue to benefit from health concerns.

Attention should be focused on the trends responsible for decreased use. (Water perceived to be better for you.)

By tailoring marketing strategies to these drivers and occasions, suppliers have an opportunity to increase beverage penetration in foodservice.

Key Findings

Dispensed regular and diet CSDs are the most frequently purchased beverages by consumers.

Many consumers report reducing beverage consumption of purchased products AFH; consumers are increasingly ordering “free” water.

Consumers purchase beverages for different purposes, or occasions that include: for a snack, meal complement, meal replacement, thirst quencher or social accompaniment.

131


Implications

Paying close attention to what beverages consumer purchase or associate with each venue will allow for more efficient product marketing.

Additional line extensions and innovation may be necessary for suppliers to penetrate certain segments.

There may be an opportunity to work with LSR operators to increase variety.

Key Findings

For all segment purchases, taste for a particular beverage is the primary consumer driver. There are secondary factors that vary by segment.

The variety of beverages offered to consumers often influences venue selection.

While most consumers are satisfied with the variety of beverages at an FSR, slightly more than a third are satisfied with LSR beverage variety.

132


Implications

The threat of private label encroaching in many beverage categories is minimal.

Private label, however, has opportunity in dispensed juice, smoothies and bottled water.

It will be important that suppliers point to the health and nutrition of certain beverages.

Fortified beverages in foodservice may offer opportunities.

Promoting certain beverages as a healthier alternative to snacks (e.g., juice).

Key Findings

Brand name of beverages is important in key categories, especially when selecting CSDs. It plays less importance in other categories.

Consumers report that restaurants should offer more healthy beverage options, but most consumers feel they are already drinking healthy.

133

Key Findings and Implications: Operator Issues

Implications

Operators are very involved in the category and will quickly adjust beverage offerings to meet consumer demand.

Although some problems and complexities are associated with dispensed, high profitability will continue to drive operator involvement.

Many operators (especially in beyond restaurants) will quickly adopt or experiment with new packaged product given ease of incorporation into the operation.

With key operator customers, opportunities exist to establish category management programs to optimize product mix tailored for the customers’ patron base.

Key Findings

Beverages are extremely important to operators, both from sales and profitability standpoints.

Operators are increasingly involved in offering packaged beverage alternatives; this allows for flexibility and variety of offerings.

For most beverages, operators offer numerous varieties and flavors.

134

Key Findings and Implications: Operators Issues

Implications

Broadline distributors will become more involved in beverage distribution as operators demand more products be purchased from their primary source.

It is important for suppliers to market healthier beverage options to the foodservice channel.

More focus on nutritional benefits of specific beverages should be communicated.

Key Findings

Operators use multiple sources for beverages, however, there is a desire to rationalize suppliers.

Operators are realizing the increasing role placed on health and nutrition by consumers.

135

Key Findings and Implications: Operators Issues

Implications

Products successful in retail will be readily accepted since demands already proven. Perhaps some modification, however, for foodservice many be required (e.g., packaging).

Telling the profit story will solidly leverage positioning.

Continually look for new and innovative beverage promotions to drive operator sales and profits.

Operators are willing to deal with equipment hassles because of the profitability performance of dispensed product.

Technology that improves durability and merchandisability of equipment should be explored for possible differentiated positioning.

Key Findings

Assured sales through patron demand/pull and appropriate profitability are key rationale for operators to select particular beverages to offer.

Beverage merchandising and promotions are important to operators; operators don’t see many of these except from carbonated CSD suppliers.

For the most part, operators appear to be satisfied with equipment programs and servicing associated with beverages. A minority of operators do see equipment dispensers as an issue.

136

Recommendations

Based on the findings and Technomic’s analysis of the beverage marketplace, we have developed a number of recommendations for suppliers to exploit the opportunities.

1. Exploit Occasion-based Consumption Patterns

2. Initiate and Develop Operator Category Management Programs

3. Strategically Review the Beverage Portfolio

4. Accelerate AFH Beverage Product Development

5. Exploit Consumer Demand of Healthier Beverages

137

Recommendation #1: Exploit Occasion-based Consumption Patterns

Suppliers would exploit the various occasions when beverages are consumed by consumers in AFH occasions. The five different occasions defined in this study (meal complement, social companion, snack, thirst quencher, meal replacement) call for different targeting and marketing messages to best exploit opportunities. It should also be kept in mind that certain beverages are most associated with specific occasions and these should be exploited. Examples include:

Suppliers should use this report to understand where its beverages are positioned from an occasion standpoint and target messages in these contexts.

Description

Specialty coffee Smoothie

Smoothie Milk

Bottled water Cold/Iced Tea Sports drink

Snack

Meal Replacement

Thirst Quenching

138

Recommendation #2: Initiate and Develop Operator Category Management

Operators of all types offer a wide variety of beverages. Whether or not they are offering the “best” variety/mix based on their patron is a major question. Hence, suppliers should work to develop beverage category management programs for operators. These types of programs will assist individual operators offer the ideal mix of beverage products based on operational characteristics and patron-based profits.

Category management programs would provide empirically-based ideal solutions to operators related to a number of beverage issues:

Types of beverages offered Number/flavor/varieties Appropriate size(s) Merchandising Equipment

139

Recommendation #3: Strategically Review the Beverage Portfolio

Give the proliferation of product and changing dynamics of the AFH beverage marketplace, suppliers should conduct a product-by-product, SKU-by-SKU review of their current beverage portfolio. When reviewing the portfolio, a number factors should be evaluated:

Product offerings Category dynamics Depth/breadth requirements Customer/segments Occasion fit

This type of review will result in a clearer vision of how to tackle the market with products in the future. Products to discontinue Products to add Product to emphasize Products to de-emphasize Appropriate product by segment

140

Recommendation #4: Accelerate AFH Beverage Product Development

The away-from-home marketplace traditionally has been the proving ground for new products. Consumers will experiment with new foods and beverage items in AFH occasions; once accepted, they will incorporate these products into their at home occasion consumption.

This being said, suppliers should step up their product development efforts specifically for the AFH channel, including new flavors, varieties and “recipes.” As consumers are more adventurous in foodservice establishments, trial will be accelerated and fast feedback on the product can be received. Obviously, products successful in foodservice will have potential for success in retail channels.

Conversely, new products proven to be successful in at-home channels should also be made available in foodservice.

141

Recommendation #5: Exploit Consumer Demand for Healthier Options

After numerous years of “talk,” consumers are finally consuming and demanding more healthy beverages. As such, beverage suppliers should look to leverage this trend. Initiatives might include:

Providing detailed nutritionals on most appropriate beverages Developing healthier beverages, or fortified beverages Work with operators to develop a complete nutritional value of a meal containing a beverage

142

Conclusion

Compared to other foodservice categories, beverages enjoy a strong position with the operators. In addition:

Beverages represent a high share of sales and a disproportionably higher share of profits for the operator.

Operators respect beverage suppliers for their marketing sophistication, and because of this, are open to experiencing with supplier programs, products, merchandising and promotions.

Category distribution and equipment dynamics capitalize direct contact between operators and suppliers, which results in stronger relationships.

Retail success often translates into foodservice success and vice-versa.

Beverage suppliers should leverage these advantages to more effectively target and develop effective propositions in the foodservice channel.

Appendix: Detailed Beverage Category Review

Detailed Volumetric InformationHot Beverages

Hot Beverages— Regular Hot Coffee —Definition

Includes both regular and decaffeinated coffee Both lower-end and premium quality bean

products included Excludes specialty coffee drinks such as lattes,

espressos and cappuccino and iced coffee

146

Regular Hot Coffee

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR Coffee Shop $2,200 12%

LSR Specialty 2,400 13

LSR Traditional 2,500 13

FSR 6,720 36

Beyond Restaurants

Travel & Leisure 2,000 11

Business & Industry 1,080 6

Education 780 4

Healthcare 750 4

Other 450 2

Total $18,880 100%

Category Size(RSE - $MM)

$18,880

2%

3%

2001-2004 2005-2008 (F)

Nominal Category Growth (CAGR)

Liquid Concentrate

6%

Roasted/ Ground

91%

Soluble/ Instant

3%

Format Share of RSE

147

Regular Hot Coffee: Consumer Purchase Occasions

% Purchasing % Purchasing by Daypart

With a MealBeverage

Only Breakfast Lunch Dinner Snack

LSR Traditional 23% 6% 77% 22% 17% 16%

Quick Casual 33 2 56 30 43 14

Coffee Café 18 34 54 17 10 52

Specialty LSR 41 26 70 13 8 42

FSR 43 2 57 24 61 5

B&I 25 14 72 35 10 33

Education 23 3 63 26 13 34

Hospitals 34 23 61 30 19 40

Base: Consumers having visited specific venue for a beverage at least once in last two months

Definition

Includes lattes, mochas, espresso, cappuccino and other specialty coffee drinks that are prepared hot

Hot Beverages— Hot Specialty Coffee Drinks —

149


Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR Coffee Shop $3,400 61%

LSR Specialty 350 6

LSR Traditional 150 3

FSR 800 14

Beyond Restaurants

Travel & Leisure 300 5

Business & Industry 210 4

Education 200 4

Healthcare 100 2

Other 100 2

Total $5,610 100%


$5,610 11%12%

2001-2004 2005-2008 (F)


Liquid Concentrate

5%

Roasted/ Ground

75%

Mix/Soluble/20%

Format Share of RSE

150

Hot Specialty Coffee Drink: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 4% 2% 43% 17% 3% 38%

Quick Casual 15 3 38 26 34 34

Coffee Café 27 51 33 15 8 62


FSR 8 1 26 72 56 20

B&I 9 5 53 35 9 47

Education 12 4 * * * *

Hospitals 7 5 * * * *

*Very small baseBase: Consumers having visited specific venue for a beverage at least once in last two months

Hot Beverages— Hot Tea —

152

Hot Tea

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR Coffee Shop $200 14%

LSR Specialty 80 5


FSR 600 41

Beyond Restaurants



Education 50 3

Healthcare 100 7

Other 30 2

Total $1,460 100%


$1,460

4%

6%

2001-2004 2005-2008 (F)


153

Hot Tea: Consumer Purchase Occasions

% Purchasing % Purchasing by Daypart*

With a MealBeverage


LSR Traditional 3% 1% 30% 29% 32% 29%

Quick Casual 12 1 24 36 61 11

Coffee Café 4 8 26 19 14 62

Specialty LSR 5 5 * * * *

FSR 13 1 27 36 66 8

B&I 9 4 46 37 11 38




Hot Beverages— Hot Cocoa/Chocolate —

155

Hot Cocoa/Chocolate

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR Coffee Shop $50 8%

LSR Specialty 30 5


FSR 100 16

Beyond Restaurants



Education 100 16

Healthcare 75 12

Other 15 2

Total $630 100%


$630 1% 1%

2001-2004 2005-2008 (F)


Bulk40%

Single Serve 60%

Format Share of RSE

156

Hot Cocoa/Chocolate: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 3% 2% 47% 21% 11% 19%

Quick Casual 5 1 35 26 29 38

Coffee Café 5 11 34 12 7 56


FSR 4 1 46 25 31 15

B&I 8 6 43 18 10 40




Detailed Volumetric InformationCold Beverages

Definition

Includes both dispensed/fountain and packaged (single serve and bulk)

“Regular” and diet varieties included

Cold Beverages— Carbonated Soft Drinks (CSDs) —

159

Dispensed Carbonated Soft Drink (CSDs)

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR Traditional $11,775 61%

FSR 4,600 24

Beyond Restaurants



Education 525 3

Healthcare 200 1

Other 100 1

Total $19,375 100%


$19,375


1.0%

2001-2004 2005-2008 (F)

160

Dispensed Regular CSDs: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 54% 9% 9% 72% 56% 18%

Quick Casual 41 2 4 66 61 10

Coffee Café 4 5 * * * *


FSR 42 1 7 58 78 8

B&I 24 7 18 79 26 29

Education 32 7 7 65 40 24

Hospitals 23 8 9 77 30 25


161

Dispensed Diet CSDs: Consumer Purchase Occasions



With a MealBeverage


LSR Traditional 32% 6% 8% 70% 53% 18%

Quick Casual 32 1 5 71 63 11



FSR 28 0 8 64 78 9

B&I 21 7 12 71 30 30

Education 23 3 8 84 34 24

Hospitals 20 8 9 63 35 37

162

Packaged CSDs

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $1,600 21%

FSR 500 6

Beyond Restaurants


Business & Industry 1,325 17

Education 1,000 13

Healthcare 400 5

Other 200 3

Total $7,775 100%


$7,775


Single Serve 93%

Bulk (>20-Ounce Size)

7%

Format Share of RSE

1.0%

2001-2004 2005-2008 (F)

163

Packaged Regular CSDs: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 8% 3% 10% 68% 45% 25%

Quick Casual 14 2 5 53 49 25



FSR 9 1 3 46 69 20

B&I 26 15 17 76 22 42

Education 23 10 7 56 28 51

Hospitals 27 12 5 62 24 38


164

Packaged Diet CSDs: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 8% 2% 11% 66% 45% 24%

Quick Casual 11 1 86 59 45 28



FSR 7 0 6 62 63 15

B&I 21 12 6 78 19 59

Education 18 8 6 66 26 54

Hospitals 17 9 5 49 20 44


165

Format/Package Preference: Carbonated Soft Drink

Dispensed65%

Bottle22%

Don't Know/ No Preference

3%Can10%

Operators Consumers

Beverage Purchased From Dispensed Bottled Can

Traditional LSR 90% 7% 3%

FSR 89 7 4

Beyond Rest. 45 35 20

Definition

Cold or frozen coffee drinks prepared by the operator or purchased packaged

Cold Beverages— Cold/Frozen Coffee —

167

Iced/Frozen Coffee Drinks

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $380 65%

FSR 50 9

Beyond Restaurants



Education 70 12

Healthcare 9 2

Other 3 <1

Total $565 100%


$565


Single Serve

9%Scratch/ Dispensed

91%

Format Share of RSE

6%7%

2001-2004 2005-2008 (F)

168

Scratch Iced Coffee: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 2% 1% * * * *

Quick Casual 5 1 15% 50% 35% 38%

Coffee Café 6 19 14 24 17 69


FSR 3 0 20 46 49 14

B&I 5 2 * * * *




169

Packaged Iced Coffee: Consumer Purchase Occasions


With a MealBeverage



Quick Casual 1 0 * * * *



FSR 0 0 * * * *

B&I 5 3 * * * *




170

Format/Package Preference: Cold/Iced Coffee Drink

Scratch/Dispensed

50%

Bottle28%

No Preference19%

Can3%

Operators Consumers



FSR 7 0 93


Cold Beverages— Smoothies —

172

Smoothies

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $385 54%

FSR 15 6

Beyond Restaurants



Education 132 19

Healthcare 12 2

Other 4 <1

Total $713 100%


$713


Single Serve

4%Scratch/ Dispensed

96%

Format Share of RSE

9%10%

2001-2004 2005-2008 (F)

173

Scratch Smoothies: Consumer Purchase Occasions


With a MealBeverage



Quick Casual 6 1 9% 40% 26% 26%



FSR 2 0 * * * *

B&I 2 1 * * * *




174

Packaged Smoothies: Consumer Purchase Occasions


With a MealBeverage






FSR 0 0 * * * *

B&I 2 3 * * * *




175

Format/Packaging Preferences: Smoothies

Scratch/Mix/ Dispensed

62%

Bottle28%

No Preference6%Can

4%

Operators

Cold Beverages— Frozen Beverages —

Definition

Brand examples include ICEEs and Slush Puppy Includes both carbonated and fruit-based

flavors/varieties

177

Frozen Beverages

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $146 26%

FSR 20 4

Beyond Restaurants



Education 100 18

Healthcare 5 1

Other 75 13

Total $571 100%


$571 3.5% 3.5%

2001-2004 2005-2008 (F)


178

Frozen Beverages: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 4% 2% 2% 23% 18% 60%




FSR 2 0 * * * *

B&I 2 2 * * * *




Cold Beverages— Cold/Iced Tea —

180

Dispensed/Brewed Cold/Iced Tea

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $555 15%

FSR 2,400 63

Beyond Restaurants



Education 200 5

Healthcare 50 1

Other 25 1

Total $3,780 100%


$3,780


Brewed65%

Bag-in Box30%

Brewed Liquid

Concentrate5%

Format Share of RSE

5.5%

7.0%

2001-2004 2005-2008 (F)

181

Dispensed/Brewed Cold/Iced Tea: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 21% 4% 4% 74% 51% 15%

Quick Casual 33 2 5 65 64 10



FSR 41 1 5 62 76 5

B&I 13 4 8 80 31 16




182

Packaged Cold/Iced Tea

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $185 19%

FSR 140 15

Beyond Restaurants



Education 75 8

Healthcare 75 8

Other 30 3

Total $955 100%


$955


Single Serve98%


2%

Format Share of RSE

5%6%

2001-2004 2005-2008 (F)

183

Packaged Cold/Iced Tea: Consumer Purchase Occasions


With a MealBeverage






FSR 2 0 * * * *

B&I 13 8 5 81 21 34




184

Format/Packaging Preferences: Cold/Iced Tea

Dispensed/ Brewed

73%

Bottle19%

No Preference5%

Can3%

Operators Consumers



FSR 3 0 97


Cold Beverages— Milk —

186

White Milk*

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $325 9%

FSR 875 25

Beyond Restaurants



Education 1,175 34

Healthcare 550 16

Other 80 2

Total $3,495 100%


$3,495


Single Serve72%

Bulk28%

Format Share of RSE

-1% -1%

*Data shown only includes milk consumed as a stand-alone beverage, not as an “ingredient”

2001-2004 2005-2008 (F)

187

White Milk: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 6% 1% 58% 37% 30% 9%

Quick Casual 7 1 64 38 32 2



FSR 8 0 42 28 43 11

B&I 15 5 60 34 15 5

Education 25 6 64 52 18 9



188

Flavored Milk

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $135 5%

FSR 175 6

Beyond Restaurants



Education 2,100 73

Healthcare 250 9

Other 10 <1

Total $2,895 100%


$2,895


Single Serve92%

Bulk8%

Format Share of RSE

-1% -1%

2001-2004 2005-2008 (F)

189

Flavored Milk: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 5% 1% 34% 46% 34% 20%




FSR 3 0 39 39 44 22

B&I 6 3 * * * *

Education 6 1 32 76 32 16



190

Soy/Rice Milk*

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $10 29%

FSR 3 9

Beyond Restaurants



Education 9 26

Healthcare 6 17

Other 0 0

Total $35 100%


$35


20% 19%

2001-2004 2005-2008 (F)

*Data shown only includes milk consumed as a stand-alone beverage, not as an “ingredient”

191

Soy/Rice Milk: Consumer Purchase Occasions


With a MealBeverage






FSR 0 0 * * * *

B&I 0 0 * * * *




Cold Beverages— Bottled Water —

193

Bottled Water

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $625 17%

FSR 1,000 27

Beyond Restaurants



Education 425 11

Healthcare 200 5

Other 100 4

Total $3,750 100%


$3,750


Regular92%

Flavored3%

Carbonated/Seltzer

5%

Format Share of RSE

12%14%

2001-2004 2005-2008 (F)

194

Bottled Water: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 13% 4% 21% 59% 43% 36%

Quick Casual 21 2 16 61 46 30

Coffee Café 5 11 23 42 31 63


FSR 13 1 15 55 55 23

B&I 28 13 20 65 26 53

Education 30 2 30 58 27 52

Hospitals 19 11 15 55 34 51


195

Flavored Water: Consumer Purchase Occasions


With a MealBeverage






FSR 1 0 * * * *

B&I 6 3 * * * *




196

Carbonated Water/Seltzer: Consumer Purchase Occasions


With a MealBeverage






FSR 2 0 * * * *

B&I 2 1 * * * *




Cold Beverages— Sports Drinks —

Definition

Includes products such as Gatorade and PowerAde

Also know as isotonics

198

Sports Drinks

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $110 11%

FSR 15 1

Beyond Restaurants



Education 270 28

Healthcare 135 14

Other 10 1

Total $980 100%


$980


Packaged85%

Dispensed15%

Format Share of RSE

4%

6%

2001-2004 2005-2008 (F)

199

Packaged Sports Drinks: Consumer Purchase Occasions


With a MealBeverage






FSR 1 0 * * * *

B&I 7 4 * * * *




200

Dispensed Sports Drinks: Consumer Purchase Occasions


With a MealBeverage






FSR 1 0 * * * *

B&I 2 3 * * * *




201

Format/Packaging Preferences: Sports Drinks

Bottle63%Dispensed

17%

No Preference7%

Can13%

Operators

Cold Beverages— Energy Drinks —

Definition

Includes products like Red Bull, Monster Energy and Rock Star

203

Energy Drinks

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $7 6%

FSR 5 5

Beyond Restaurants



Education 20 18

Healthcare 3 3

Other 1 1

Total $111 100%


$111


10%

13%

2001-2004 2005-2008 (F)

204

Energy Drinks: Consumer Purchase Occasions


With a MealBeverage






FSR 1 0 * * * *

B&I 4 2 * * * *




Cold Beverages— Fruit Juice —

DefinitionDefinition

Includes both 100% fruit juice and juice drinks (defined as juice with less than 100% juice content)

206

100% Fruit Juice

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $621 13%

FSR 1,198 25

Beyond Restaurants



Education 678 14

Healthcare 697 15

Other 111 2

Total $4,728 100%


$4,728



6%

Dispensed54%

Single Serve40%

Format Share of RSE

4%

6%

2001-2004 2005-2008 (F)

207

Fruit Juice Drink

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $358 14%

FSR 610 24

Beyond Restaurants



Education 385 15

Healthcare 373 15

Other 59 2

Total $2,537 100%


$2,537


Bulk5%

Dispensed60%

Single Serve35%

Format Share of RSE

3%

4%

2001-2004 2005-2008 (F)

208

Packaged Fruit Juice: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 5% 1% 50% 28% 23% 16%

Quick Casual 7 2 44 31 19 25



FSR 4 1 * * * *

B&I 17 11 47 39 11 29

Education 26 8 32 53 13 43

Hospitals 21 7 56 33 15 24


209

Dispensed Juice: Consumer Purchase Occasions


With a MealBeverage


LSR Traditional 9% 1% 46% 37% 26% 10%

Quick Casual 8 1 57 31 27 14



FSR 11 1 56 28 31 11

B&I 6 3 * * * *




210

Format/Package Preferences: Fruit Juice

Bottle40%

Dispensed38%

No Preference7%

Can15%

Operators Consumers



FSR 15 5 80


Cold Beverages— Vegetable Juice —

212

Vegetable Juice

Segmentation

Segment Sales (RSE)

$MM %

Restaurants

LSR $6 4%

FSR 42 25

Beyond Restaurants



Education 12 7

Healthcare 30 18

Other 5 3

Total $170 100%


$170


Bulk55%

Dispensed11%

Single Serve34%

Format Share of RSE

3%

4%

2001-2004 2005-2008 (F)

213

Packaged Vegetable Juice: Consumer Purchase Occasions


With a MealBeverage






FSR 2 0 * * * *

B&I 5 3 * * * *




214

Dispensed Vegetable Juice: Consumer Purchase Occasions


With a MealBeverage






FSR 2 0 * * * *

B&I 2 1 * * * *




215

Format/Package Preferences: Vegetable Juice

Can42%

Bottle39%

No Preference3%

Dispensed16%

Operators

Presented to: By: Project Number 11489 June 2005

Documents

Transcript of Presented to: By: Project Number 11489 June 2005