Im ThirstyWhats Up With Beverages?

Moderator
Gene Gerke
ggerke@gerke.com

Cooler Beverages
Percent of Sales
26.4% Cooler Beverages

73.6% All Others

Source: NACS State of the Industry, 2003

Cold Vault Survey 2003

214 Retailers 53,000 Stores

Source:

CI

CONVENIENCE INSIGHTS

Cooler Conundrum
Growing Dynamic New Items Limited, Inflexible Space Suppliers
Multi-Line Single-Line

Cooler Management Strategies --Importance of Each

In-stock product Clean product area Product variety Cold product New products POS signage Inside store Merchandising programs Displays Inside store - Warm POS signage Outside store Price signs Displays Inside store - Cold Discount pricing Displays Outside store 0.00 0.50 1.00 1.50 1.67 2.00 2.50 3.00 3.50 4.00 4.50 5.00 2.23 2.18 2.91 2.81 3.43 3.24 4.09 3.90 3.84 3.73 4.62 4.42

Low

Medium

High

Source:

CI

CONVENIENCE INSIGHTS

Cold Vault Survey 2003, Sample: 214 Retailers, 53,000 Stores

Panelists
Dave Campbell
Coca Cola Enterprises

Doug Adams
Prime Consulting, inc.

Andy Steel
Shell Oil Products US

IM THIRSTY WHATS UP WITH BEVERAGES?

THE NEW UNIVERSE TOP 10 TRENDS A CUTE STORY

THE OLD UNIVERSE

NEW

WATER

TEA NEW NEW SODA

NEW JUICES MILK NEW ISOTONICS NEW

THE NEW UNIVERSE MILK CSD ENERGY COFFEE SODA

NEW ISOTONICS

TEAS

JUICES WATER

Categories are smashing into one another Melding or morphing of categories Larger players are getting more nimble and brand acquisition activity has increased Larger distributors/retailers are creating control brands End usersthe customers dont really care .just as long as they keep coming

New items are the lifeblood of our industry Creates new categories and distribution networks Job Security!!! Customers changing lifestyles require them

The end result of all this is that trends emerge Speed is important in identifying them and more importantly reacting to them

#1 WATER It is the ultimate product Doesnt spoil Isnt messy Readily available Healthy image No carbs!! Cheap/Value/Margin Demand Strategic cornerstone of most coolers and programs Lifecycle has gone from every supplier in the game to a few large players Desperate low ball pricing is out there Multi-pack and take home is a must Per capita consumption is up to over 21 gallons (Soda 54, Beer 22)

#2-ENERGY IN A CAN New beverage category came out of no where Number of brands available is over 100....and growing 16 oz size is offering value as a point of difference Sugar free and diets emerging as well as multi packs

Expanding beyond CSD energy Juice,Tea, Milk and Isotonic all exist today

Segmenting into targeted lifestyles

#3 LOW CARB LIFESTYLE Werent carbs a good thing? Terms like net effect and contains no juice and are becoming common. Label reading is occurring more and more What defines low carb?

PROOF: -Michelob Ultra Success -Bud Light bigger brand than Bud -CSD bright spot is diet -NACS new items -NY school system

Ive just gotten tired enough lately to try these energy drinks out of desperation. Imagine my surprise when this green can actually tasted good! I would have tried something like this sooner if I had known they taste this good. And the low Carbs for my Atkinswhew! Posted on the Bevnet Bev board 9/19/03 by Goldengirl

#4 SINGLE SERVE MILK Milk is now cool or at least it packaged that way Packaging is driving acceptance Being marketed in a more packaged beverage way Aggressive programs to gain shelf presence Up selling customer to a premium size and retail Flavor profile is widening

#5 IMPORT BEER GROWTH

Single serve is now very viable for imports Package innovation Growing beyond the six pack Image wise imports are the micro brews of 90s Badge phenomenon Importesque offering Malternatives steadily declining

#6 THE WEATHER 2002 was an above normal year for temperature across the U.S.

2002 was slightly wetter than normal in the Mid U.S. and slightly drier in the Western U.S.

2003 numbers arent out yet but it is looking like a tough weather year. 2004 could be positioned to be a very good year relative to 2003 weather

#7 LIMITED EDITION DRINKS

Event driven marketing and packaging Beverage companies are hedging their bets Get them while they last Highly promotionally priced Concentrated effort/resources New product not required

#8 KID MARKETING Previously undesirable space is now very profitable Kid targeted packaging Not cheap!!! Collectibles creates repeat purchases Becoming an organized segment of many categories Mainstream distribution is occurring

#9 ORGANIC Hearing a lot of support for SOY High price perception Packaging innovations Will it taste good? Will demand reach critical mass?

#10 SUPPLIER/DISTRIBUTOR/RETAILER RELATIONSHIPS Understanding of decision trees needs to be clearer Speed to market is crucial Introduction and exit plans need to be agreed upon Possible retailer involvement in product design Punitive CMA/CDA agreements must eventually go away

He called me Mr.!!!

Doing more than I asked for

He made me a proactive offer Thanked me

Convenience Retail A Road Map To Beverage Consumption

David Campbell Coca-Cola Enterprises Inc. October 14th, 2003

Confidential (1)

Agenda

Consumer Beverage Segmentation Applied Learning's

Confidential (2)

Consumer research shows convenience store outlets are missing beverage sales. 1 in 5 customers who plan to buy a beverage leave empty handed.

25% of your customers just GAS AND GO!

27% of thirsty customers do not buy a beverage from you.

You loose 20% of Planned Beverage Purchases

Lost Beverage Sales =

LOST PROFIT

SOURCE: 2002 C&P Consumer Segmentation Study

Confidential (3)

Beverage Need States

Satisfied by dairy-based beverages in the morning to provide lasting energy, proteins, vitamins and minerals. Natural/Nutritious

Substantial Nutrition

Health and Wellness

Satisfied by Beverages that offer health benefits.

Enjoyable Indulgence

Usually consumed by adults in social situations who are seeking a rich-tasting, Indulgence rejuvenating and mood-enhancing beverage.

Pure Hydration

Hydration
Health-conscious consumer looking to quench their thirst.

Convenient Refreshment

Convenient packaging and wide availability make these beverages Convenient Complement appropriate for a variety of occasions.
Source: Coca-Cola Beverage Landscape Study Confidential (4)

Convenience Retail Need States

Consumers beverage choices are split between beverage needs states.

Hydration 15%
Water Isotonics

Convenient 32% Refreshment

Soft Drinks

Indulgence 19%
Coffee & Teas Alcohol

Nutrition 20%
Dairy
Source: Coca-Cola Beverage Landscape Study

14% Juice and Juice Drinks

Health & Wellness

Product Composition (% Volume)

Confidential (5)

Convenience Retailer Example

Total Store Weekly Dollar Sales Beverage Day Part Dollar Sales
4.7% 11.40% 10.5%

Day-Part Sales

Overnight Late Evening Evening Late Afternoon Afternoon Lunch

Other Categories 69%

Beverage Category 31%

10.1% 14.3% 21.3%

27.7%

Morning

Source: Transactional Data

Confidential (6)

What Can We Do to Bring Beverage Opportunity to Life?

Confidential (7)

Recommendation: Soft Beverage Cold Vault Flow Based on need states and local relevance
Convenient Refreshment CSDs - Faster Selling, Profitable, SKUs near the front of cold vault Indulgence - RTD Teas/Coffee and Energy - Innovative items of varying dimensions, should be worked near most flexible door. Substantial Nutrition - Dairy - Stable lineup, ties in with Morning Occasion Health and Wellness - 100% Juices/ Juice Drinks Stable lineup, offers refreshing wellness oriented variety all day long. Hydration - Isotonic and Water - Emerging as the next big performer in the cold vault
Dairy Alt

RTD Tea

Water
Confidential (8)

CSD

Energy

Isotonics

RTD Coffee

Juice/Drink

15% of impulse decisions are made

when driving up to the gas pump IMPULSE PURCHASES = INCREMENTAL PROFIT
72%

of all impulse decisions are made outside, and on the path from the car to the register Women are 40% more likely to buy on impulse than men!

Base = C&P Consumers Who Purchased A Key Beverage On Impulse (96) Q16a2 Telephone Survey: Exactly where were you when you decided to buy a beverage? Did you decide (Read List) Key Beverage = CSD and non-carbs = fruit drink, fruit juice, bottled water, iced tea, frozen, sports/energy drink.

Confidential (9)

while at the pump THE RIGHT MESSAGE MAKES IT HAPPEN

19% of impulse decisions are made

Remind

your customers that they are thirsty and entice them with something extra. Deals drive people to your store!

Base = C&P Consumers Who Purchased A Key Beverage On Impulse (96) Q16a2 Telephone Survey: Exactly where were you when you decided to buy a beverage? Did you decide (Read List) Key Beverage = CSD and non-carbs = fruit drink, fruit juice, bottled water, iced tea, frozen, sports/energy drink.

Confidential (10)

Beverages are the #1 reason people go inside the outlet*

CO-BRANDED PROMOTIONS GET RESULTS Coca-Cola has the partners your customers love NASCAR, Planters, Hersheys, Nabisco, Blockbuster.and many more.

Base = C&P Consumers Who Purchased A Key Beverage On Impulse (96) Q16a2 Telephone Survey: Exactly where were you when you decided to buy a beverage? Did you decide (Read List)

Confidential gas * After paying for (11)

23% of impulse decisions are made just inside the front door or on the way to the register

NEW FLAVORS DRIVE STORE EXCITEMENT

New

introductions like Vanilla Coke, Diet Vanilla Coke, Sprite Remix

Base = C&P Consumers Who Purchased A Key Beverage On Impulse (96) Q16a2 Telephone Survey: Exactly where were you when you decided to buy a beverage? Did you decide (Read List) Key Beverage = CSD and non-carbs = fruit drink, fruit juice, bottled water, iced tea, frozen, sports/energy drink.

Confidential (12)

Snapshot of Consumer Demographics

Total Frequency % of Consumers Gender Demo Average Age Income N/A 100% 40% Male 60% Female Light 1-4/Mo. 39% 31% Male 69% Female Medium 5-16/Mo. 44% 39% Male 61% Female 38% White 33% Blue Collar 35 $42K Heavy >16/Mo. 17% 52% Male 48% Female 31% White Collar 42% Blue Collar 33 $38K

39% White Collar 41% White Collar 32% Blue Collar 26% Blue Collar 36 $41K 38 $43K

Confidential (13)

Snapshot of Consumer Demographics

Total Frequency % of Consumers Gender Demo Average Age Income N/A 100% 40% Male 60% Female Light 1-4/Mo. 39% 31% Male 69% Female Medium 5-16/Mo. 44% 39% Male 61% Female 38% White 33% Blue Collar 35 $42K Heavy >16/Mo. 17% 52% Male 48% Female 31% White Collar 42% Blue Collar 33 $38K

39% White Collar 41% White Collar 32% Blue Collar 26% Blue Collar 36 $41K 38 $43K

Confidential (14)

FOCUS ON A LARGE CONVENIENCE OPPORTUNITY THE MEDIUM USER PERCEPTION

Who is the medium user 61% are women in their 30s White collar Averages 10 visits per month Heavy User Why is she so important Fastest growing contributor to store sales Most likely to make an INCREMENTAL purchase ON IMPULSE
Medium

I.

users prefer core national brands.

Confidential (15)

Thank You

Confidential (16)

Im Thirsty Whats up with beverages?

Doug Adams Prime Consulting Group, inc.

2275 Half Day Road, Bannockburn, IL 60015 Phone 847.945.1155 www.Primeconsulting.biz

October 14, 2003

Agenda
The Beverage Universe is Growing Opportunities with Milk got milk? for Home got milk? On the Go got milk? Flavors

Americans are consuming more and more beverages each year.

Non-Alcoholic Packaged Beverage Set(1) 1997 - 2002
+3.2% +2.4% +1.4% +1.7% +2.5%

+2.8%

31,186

31,616

32,155

32,973

Millions of Gallons

29,508

30,463

CAGR 97/02: +2.2%

1997

1998

1999

2000

2001

2002

(1) Includes milk, CSDs, fruit beverages, bottled water, RTD tea, sports beverages

Source: MilkPEP

Milk has traditionally been a Take Home package business.

Single-Serve vs. Multi Serve (Take Home) Packaging 2002
12.0 45.3 62.7 78.3 88.0 54.7 37.3 21.7
Sports Beverages RTD Tea CSD Fruit Beverages Bottled Water

Share of Volume

62.9 87.4

37.1 12.6
Milk

Single Serve

Multi Serve

Source: MilkPEP

The milk category is really two categories . . . like most other beverages.
TAKE HOME ON THE GO

KEY CHARACTERISTICS

Mostly Private Label White Planned Purchase Very Frequent Purchase

Mostly Branded White & Flavored More Impulsive Innovation, New Varieties

Milk Growth Driven by Flavored Milk

Total U.S. Year-to-Date
+10.0%
Equiv. Gallons vs. Year Ago

Chocolate Strawberry Vanilla Coffee

+ 9.8% 3.9 64.7 47.8

+0.3%

0.0%

TOTAL MILK

White

Flavored

Source: MilkPEP

got milk? for Home

Opportunities for C-Stores
Fill-in shopping study done with Avg. shopper buys 2.7 gallons of Milk a week across all outlets. Milk was 3rd most frequent reason for shopping at C-Store. 15.5% of consumers made the trip primarily to buy Milk.
% of Shoppers
Gas Cold Beverage Milk Groceries Cigarettes Snack/Meal Alcohol/Beer HBC 26.0% 21.4 15.5 9.3 7.8 6.5 3.3 2.6

45% of the time Milk was the only item purchased.

Source: MilkPEP

Milk is bought on 38% of Fill-in Trips; 18% of All Trips

How often is Milk* purchased as part of the fill-in trip?

Underdeveloped is <30% of fill-in baskets Average is 30-50% "Best practice": 3 out of 4 fill-in trips include milk
53.6
52.8
41.4
37.5

50.9

50.6

47.6

# of "fill-in" trips per 100 trips

40.4

23.5 14.5 17.6 18.3

got milk

5.9
A

7.6

AVG

11%
Source: MilkPEP

14%

36%

43%

46%

74%

38%

got milk? for Home

Recommendations
Drive Store Traffic with Fill-in Milk Purchases
45% of Milk is purchased alone. Average ring when buying Milk with other items = $9.44 Milk fill-in baskets yield strong profits for retailers.

Advertise at the Pump or on Store Window

Reach the 35+% of shoppers who pay at the pump and leave. Milk ranked 3rd on list of items purchased as impulse.

Development Sequence
First, develop milk image Best Practice = 74% of fill-in trips include Milk. Consumers will buy more Milk in C-Stores and will switch stores for greater value. Then, encourage consumers to add to their "Milk Only" basket Opportunity = Adding $1,272 annually per customer.
Source: MilkPEP

got milk? On the Go

Opportunity for C-Stores Single-Serve Growth Fueled by Packaging Plastic Resealable
Shelf Stable
Total U.S. Millions of Gallons

Flavored Milk is a Growth Engine

+10% +17%
102 87

+1%
103

+8%
111 122

Flavors

New Flavors Innovative Marketing

1999

2000

2001

2002

2003 Est.

Source: MilkPEP

Flavored Single-Serve Milk is an Important Growth Engine

Compared to PET water and energy drinks
Highest Order Benefits
Higher Growth
CSD Line Extensions PET Water Isotonics Energy Drinks Premium RTD Teas

Higher Value

Organic Milk

e.g. Sobe, Snapple Elements

New Age Fruit Juice New Age Fruit Drinks

Branded, SS Flavored Milk

Innovative

Traditional

White Gallon Milk

Core CSD Brands Traditional Fruit Juice e.g. Lipton, Nestea Vegetable Juice Traditional Fruit Drinks

Flavored Multi-Serve Price Milk RTD Teas

Lower Growth
Source: MilkPEP

Lower Value

Basic Attributes

got milk? On the Go

News is Growing Consumer Attitude is Improving
Teen girls (71%) and boys (75%) like the taste of chocolate milk. Nutritional value is embraced by 60+% of teens and adults.
26.7 28.1 29.0

Share of Stomach is Rising in important teen segment

Teen Per Capita Milk Consumption Change 2000-2003 est.
7.8% 6.8%

2001

2002

2003

Age: 1317

Consumption is Rising

2.8%

2001

2002

2003

Source: MilkPEP

got milk? On the Go

Competitive Channels are Capturing the Opportunity
Vending Schools Dedicated placements are accelerating Adding resealable bottles and venders
100
500,000

Milk Aided Ad Awareness Fourth Quarter 2002

Percent of Respondents
98 97 96 95 93

Milk Mustache Mobile Event Participation 19982002

400,000

Event Attendees

300,000

200,000

100,000

Adult Females
Age 18-24

Adult Females
Age 25-49

Teen Girls Teen Boys

Moms

Kids

1998

1999

2000

2001

2002

Consumer Awareness is Growing While less than 1% of milk is vended today, over 1/3rd of teens are aware of milk vending. got milk? milk mustache campaign generates extraordinary awareness.
Source: MilkPEP

got milk?
Opportunity Summary Fill-in Opportunity is Large
Are you focused on building fill-in trips and baskets? Milk can drive other take home items.

Flavors
Acceleration is happening. Consumers are thirsty for more more flavorful nutritious milk. Are you focused on maximizing flavored single-serve milk?

Im Thirsty Whats up with beverages?

For More Information

www.MilkPEP.org
800945MILK
(6455)

October 14, 2003