Category Project: Liquid Tea

Jason Call & Lauren Dockery

Overview

• Who buys tea?

• Category Role

• Leading Brands

• Audit Summary

• Store Demographics

• Strategy and Tactics

• 2007 Audit Comparison

Category Snapshot

★ Enjoyed by all lifestyles

Demographics

Variables and MeasuresDemographic Variables   % Total $ IndexRace of Head of Household     White 67.2% 97 Black 13.1% 109 Hispanic 13.7% 111 Asian 3.9% 91 Other 2.1% 97Number of Persons     1 Person 17.2% 63 2 Persons 32.8% 101 3 Persons 19.0% 117 4 Persons 16.7% 126 5+ Persons 14.4% 130Household Income     Under $10,000 7.1% 90 $10,000 - $19,999 9.3% 80 $20,000 - $29,999 9.8% 86 $30,000 - $39,999 9.5% 90 $40,000 - $49,999 8.8% 95 $50,000 - $74,999 18.1% 100 $75,000 - $99,999 13.5% 115 $100,000 - $149,999 13.7% 120 $150,000 or More 10.3% 128

Category Role

Sales Volume (US) = $1.1 BillionSales Volume (West South Central) = $100 Million

From our data:Average $ Gross Margin = $0.87

Product Penetration

#1

#2

#3

New Products in Region since 2007

● Arizona Rx Energy● Honest Tea● Lipton Pure Leaf● Milo’s● Tazo● Turkey Hill

Leading Brands:Total Sales

US:

1. Lipton - $430M

2. Arizona - $230M

3. Snapple - $180M

Region:

1. Lipton - $52M

2. Red Diamond - $19M

3. Arizona - $14M

2/3 of total sales

Leading Brands:% Repeat Buyers

US:

1. Milo’s – 56.7%

2. Arizona – 55.3%

3. Lipton – 54.1%

Region:

1. Red Diamond – 55.1%

2. Lipton – 54.8%

3. Sweet Leaf – 44.7%

Leading Brands:Loyalty

US:

1. Lipton – 54.4

2. Red Diamond – 49.2

3. Arizona – 41.6

Region:

1. Lipton – 68.0

2. Red Diamond – 63.4

3. Sweet Leaf – 39.2

Deal or No Deal?

Most probable tea buyers?• Struggling Urban households• Modest working households• Older couples• Families with children and non-working spouse

Market Related Factors:• Moderate purchasing cycle (30 days)• High household penetration• High loyalty• Recent recession

Audit Summary

Store #SKU % of Category

Walmart Supercenter 45 32.85%

Flash Market (Sp) 11 8.03%

Flash Market (Fay) 17 12.41%

Phillips 66 15 10.95%

Walmart NM (Fay) 29 21.17%

Walmart NM (Sp) 61 44.53%

Harps 63 45.99%

Murphy Express 11 8.03%

Category Scorecard

Category Scorecard

Category Scorecard

Neighborhood Market #5738 Harps #124

Demography

2 mile Ring 2 mile Ring

% HHs HHs Index % HHs HHs Index

Race of Head of Household        

White 42.9% 62 83.4% 121

Black 3.7% 31 6.8% 57

Hispanic 42.9% 342 4.7% 38

Asian 8.1% 190 2.4% 56

Other 2.4% 106 2.7% 118

Number of Persons        

1 Person 20.4% 75 36.3% 134

2 Persons 20.2% 62 35.1% 108

3 Persons 15.7% 97 14.8% 91

4 Persons 15.7% 119 8.4% 63

5+ Persons 27.9% 251 5.4% 49

Household Income        

Under $10,000 11.1% 145 20.2% 264

$10,000 - $19,999 8.8% 79 18.2% 162

$20,000 - $29,999 15.3% 140 9.7% 89

$30,000 - $39,999 16.8% 165 10.2% 100

$40,000 - $49,999 13.8% 153 8.3% 93

$50,000 - $74,999 17.0% 95 12.2% 68

$75,000 - $99,999 8.2% 69 7.4% 63

$100,000 - $149,999 6.9% 56 10.6% 86

$150,000 or More 2.1% 24 3.2% 35

Neighborhood Market #5738 Harps #124

Demography

2 mile Ring 2 mile Ring

% HHs HHs Index % HHs HHs Index

Age of Head of Household        

Age 18 - 24 8.3% 198 21.7% 515

Age 25 - 34 27.2% 180 31.0% 205

Age 35 - 44 25.6% 148 16.7% 96

Age 45 - 54 17.8% 89 11.3% 56

Age 55 - 64 10.5% 54 10.1% 52

Age 65 - 74 5.7% 43 5.1% 39

Age 75 or More 4.9% 45 4.1% 39

Age and Presence of Children        

Age < 6 13.0% 176 7.0% 94

Age 6 - 17 25.1% 135 7.4% 40

Age < 6 & 6 - 17 16.5% 251 7.5% 113

No Children 45.5% 67 78.2% 116

Housing Tenure        

Own 40.2% 62 36.4% 56

Rent 59.8% 171 63.6% 181

Education of Head of Household        

Not a High School Graduate 36.2% 278 6.2% 47

High School Graduate 25.5% 100 13.9% 55

Some College 19.5% 68 36.9% 129

College Graduate 11.4% 60 25.3% 133

Post College Degree 7.4% 54 17.7% 129

Category Strategy

• Both Flash Market Gas Stations have high gross margins in teas that are sold in smaller oz.

• Larger grocery stores have a higher saturation of tea product and a large number of varieties within a manufacturer’s brand

• Variety leads to increased profits

• Gas stations more interested in traffic building

• Grocery stores more interested in profit and cash generating

Audit Summary

Store Location #SKUUnique SKUs Audited By

WM Supercenter MLK 45 6 CallFlash Market Springdale 11 1 CallFlash Market Wedington 17 4 DockeryPhillips 66 Fayetteville 15 7 CallWalmart NM Wedington 29 4 DockeryWalmart NM Springdale 61 15 CallHarps Wedington 63 30 DockeryMurphy Express Fayetteville 11 5 Dockery

High % Unique SKUs

Category Tactics

• Increase use of Private Label

• Small perceived quality gap - “Quality Equivalent”

• No switching cost

• Expand Private label depth

• Flavors

• Expand Private label assortment

• 6 pack bottles (Kroger)

Category Review

2007 AuditSKUs - 56

US Sales - $1.3B

No P/L data

2014 AuditSKUs - 136

US Sales - $1.1B (15%)

P/L - 3 SKUs (Great Value)

Increased average loyalty

Thanks for Listening!

Any Questions?