Conscious Tea DTTC hosts the 4th Global Tea Forum, Dubai, UAE 2,500 words (15 minutes

timed)

v5/4/5/2012

TITLE SLIDE: Introduction

Good morning one and all. It is my great privilege to be here to discuss the vibrant Canadian and U.S. tea market. North America in my view is the most desirable target in the world for export-minded suppliers. Not just because the market for quality tea is undeveloped. Not because retail sales of tea are rising briskly and consumer cash is once again piling high on the counter. And certainly not because it is easily accessible. Marketing can be extremely expensive and the beverage segment is highly competitive with significant barriers to distribution. I recommend it because North America is the most diverse beverage market in the world. Currently there is great upheaval in the 30 billion gallon refreshment beverage segment and consumers there reward innovation. In our marketing sessions yesterday we discussed the importance of innovation. of entering the market with something different, something compelling. If you are developing such a product products like the new Japanes cold-brew green tea in a bottle This is the time.

OVERVIEW: Conscious Tea

North America is awakening to the taste of fine tea and investors are seizing the opportunity. While most consumers reach for tea without thinking, growing numbers are making a conscious choice. As in the past the majority prefer the convenience of tea bags and bottled teas. What has changed is their preference in the tea itself: They want healthful, sustainable, environmentally friendly, flavorful tea not just flavored iced tea.

SLIDE ONE: Aspirational Motivation

Americans want suppliers of quality tea to be successful reaching this market. [RIF] My talk today is aspirational. I want to leave you with a strong desire to achieve something, to be successful in this market. My motive is entirely selfish because in making you richer we will have regained something more valuable and that is our health.

SLIDE ONE: Game Changer in Foodservice

This year marks the 7th year in a row that the volume of carbonated soda has declined. CSDs have fallen to 46% of the liquid beverage market. This opens an unprecedented opportunity for alternatives. Sweetened teas have seen huge gains in fast-food restaurants. Botanicals are emerging. Water as a replacement simply wont do.

[RIF] Americans will drink just about anything. We embrace time-tested teas as diverse as matcha and rooibos. Then mix it in smoothies to make it our own. As tea sales take off expect favorable winds for tisanes and botanicals in foodservice, already a big seller in package goods. The Martin Bauer acquisition of Beverage House holds great promise. More on that in a minute

SLIDE ONE: Tipping Point

The number of tea drinkers is growing, but what has changed is their wiliness to pay more for tea. Major investors believe the tipping point is near and will speed it along through mergers & acquisitions. Companies like Coca-Cola have 75% to 85% of their revenue tied to CSDs. That is why Coke is pumping money into Honest Tea. The brand not distributes 100 million bottles nationally and has great potential overseas.

[RIF] Lots of money is moving into new product development and acquisition of beverage companies. Recent acquisitions include Sweetleaf/Tradewinds by Nestle Waters North America and Tea Forte by Sara Lee and Talbott Tea by 750-store Jamba Juice. Teavana, a chain of 200 retail stores newly listed on the New York Stock Exchange earned $168 million in revenue in the last fiscal year, growth of 35% and a market valuation of $800 million which is greater than several established coffee chains. Two weeks ago at the Starbucks opening of its first juice retail shop which is called Evolution Fresh not many noticed that one of the spigots in the innovative digital juice wall is for TAZO tea

SLIDE ONE: The Opportunity

The opportunity lies in convenience and in educating consumers to develop their personal taste preferences.

[RIF] I developed a couple of slides for this program using the USDA Global Agricultural Trade System Database [GATS]. It records the declared value against volume of imports and you will see big spikes like the 24% jump in value of imports from China; a 30% jump in value of Japanese imports and a 27% jump in value of S. Korean imports which is compelling evidence for my point that value-added teas can find a market in North America.

SLIDE ONE: Timing is Now.

The timing is now. The recession raised awareness of health and drove home value. Tea is both.

[RIF] David Barenholtz is one of several dozen American tea retailers that routinely inform me of sales trends. On Mar. 20 he couldnt contain himself. He sold $17,000 worth of tea that day and his American Tea Room will likely top $1.5 million in gross sales again in 2012. This is equal to the top-earning coffee houses in America.

SLIDE TWO: Five Key Market Facts

America is one of the top three tea import market in the world, surpassing Britain in (2010) after three hundred years and growing faster than Russia (CIS) the current import leader.

ASIDE: ITC released its full-year calculations and Britain regained the title in 2011 by 200 metric tons both countries are at 127,000 metric tons and I must note that UK now sends the U.S. and Canada 5,700 metric tons slightly more than thirsty Ireland (5,500 mt) Russia imported 174,000 metric tons last year and Pakistan 126,000 mt. Five in six Americans drink tea, per capita use is now half a kilo in Canada and nearing that in the U.S. Consumption by volume is now 6th worldwide after China, India, Russia (CIS), Turkey and Japan. Ready-to-drink tea was the fastest growing (11.5%) beverage segment in the U.S. gaining share against market leading soft drinks and fruit beverages. In 2011 volume was up 4.8% and growth exceeded bottled water. Sales of 100% juice are down 4% and sales of fruit drinks, some blended with tea are up 2.1% and now represent 46.4% of the juice market. The declared value of imported teas rose 10% on steady volume. Trading partners like Japan and China showed big gains in the value of the tea they shipped. Convenience: Sales of RTD beverages were $6.5 billion in 2011, 5.2%. They are now present in 46% of US homes. Investors are working feverously to develop new products and build retail infrastructure with unprecedented cash in hand to develop tea. Marketing will soon follow.

SLIDE THREE: Egalitarian Tea

[RIF] Powerful market drivers health and convenience are in place, long-term and growing stronger. There is growing evidence Americans, the most diverse beverage drinkers in the world, are becoming more discerning. Eighty-five percent of the tea consumed in America is iced, most sweetened and flavored. Market leaders are bagged, instant and from concentrates in cans and bottles. The first-choice among hot tea drinkers is herbal infusions. 60% prefer sweet fruit-flavored tea 37% prefer organic/sustainable tea to conventional Green tea imports are up 200% in 10 years, now worth $1.5 billion share of the market (2010) This has led the world to assume America has no taste for quality tea.

SLIDE FOUR: TREND Evolving Market

This month Molson Coors Brewing will introduce Ice T Beer with 4 percent alcohol and no caffeine. It follows Anheuser Buschs announcement they are rolling out 19th Hole, a mix of tea and hard lemonade. Not to be out done, Samuel Adams is expanding distribution of Wicked Tea. [RIF] (EXAGGERATED JOKING TONE) The real opportunity lies in the fact this is a continent of well educated, high-minded individuals who make notoriously bad beverage choices. You guys are in a position to help cure what ails us. (PAUSE) and perhaps save us from ourselves. You can teach us and help us regain consciousness.

SLIDE FIVE: TREND Beer Iced Tea

Americans and Canadians are world leaders in many things but we know next to nothing about quality tea. Here the sale begins with education. We are still unsure how to prepare greens. We know oolongs taste great but we dont know why. Fewer than one tenth of one percent of the public has sipped a splendid white. The above has been true for several decades. Whats different today is timing.

SLIDE SIX: TREND Imports are Up

The rapid acceleration of teas import value is evident in this slide. Content to drink uniform blends for a century, the American marketplace is now demanding much higher quality tea. The acceleration is dramatic. The Department of Commerces Department of Foreign Trade Statistics draws its numbers from bills of lading. (The tea category does not include herbal infusions, but does include teas blended with herbs and florals). These FAS numbers are available on line on the Global Agricultural Trade Systems (GATS) website (www.fas.usda.gov/gats) There is no charge. As you can see tea imports were flat at 212 metric tons last year. Value jumped 10 percent to $642 million up $59 million between January and December of last year. A closer look demonstrates this trend is concentrated on the fewer producers of quality tea. The 50 metric tons imported from Argentina last year is in line with the past. The value declared by American importers was $71.6 million, averaging $1.40 per kilo. Last year the Canadians sold 58.9 metric tons of tea to the United States, mainly from Sri Lanka, India and China earning $110 million at an average $1.87 per kilo. China however sold us 29 metric tons direct valued at $114 million and this tea was valued at $3.93 per kilo more than double that of the importers of Argentine tea. The Japanese, however, outdid them all earning 34 million on 1.5 metric tons or $22 per kilo. Indias direct sales totaled $69 million a 12 percent increase over 2010. But the real story is demand for superior teas. We are paying $340 per kilo for a white Darjeeling, the rest more in the $200 range. We are ordering several first flushes. I will be in Japan to inspect the first flush Sincha on sight in late April and we will be bringing in both white and slightly more oxidized first flushes from Darjeeling. Our prices for pre-rain Long Jing are $35 to $80 for 100 grams. We have been fortunate to sell more than 40 kilos of various first flush between May and July (when we usually run out). We would buy more but much of the finest and rarest first flush goes to Germany so it is not so easy to get the quality we want. Our Arya Pearl was extraordinary last year. It really helped out with sales. David Barenholtz, founder of American Tearoom in Beverly Hills, Calif.

SLIDE SEVEN: TREND Tea Incline

It took investors 15 years to award Starbucks with the funds it needed for rapid growth. In January 2000 there were only 1,996 Starbucks in the entire country. Eight years later, after averaging two new store openings a day during the peak of its domestic expansion, the mighty mermaid had constructed 11,567 stores its all-time high. Consumers fell in love with lattes in the 1980s but it took another 20 years for investors to supercharge the category. Executives realize the business opportunity in beverage retail includes herbals, botanicals, premium juices, yerba mate, tulsi, kombucha and tea. Consumers shun carbonated soda and are no longer enamoured solely with coffee. Coffee retailers introduced the consumers to highly specialized beverage selections, preparation techniques and customization that characterize the segment. Now it is time for tea.

SLIDE EIGHT: Value of Tea Imports from China SLIDE NINE: TREND Value Up SLIDE TEN: PART II Investment Opportunity SLIDE ELEVEN: Investment Activity/Opportunity SLIDE TWELVE: TREND Teavana Consolidated SLIDE THIRTEEN: TREND Barriers to Entry Lower SLIDE FOURTEEN: TREND Concentrates SLIDE FIFTHEEN: TREND Martin Bauer-Beverage House SLIDE SIXTEEN: TREND Healthy Beverage Format SLIDE SEVENTEEN: TREND Jamba Juice & Talbott Tea SLIDE EIGHTEEN: TREND Argo Tea SLIDE NINETEEN: TREND Specialty Retail Drivers SLIDE TWENTY: PROFILE Urban Success (Samovar)

SLIDE TWENTY ONE: PROFILE DavidsTea SLIDE TWENTY TWO: PROFILE Camellia Sinensis, Montreal
Three founders visit 200 gardens annually personally selecting several hundred teas.

SLIDE TWENTY THREE: PROFILE American Tea Room

American Tea Room is the new face of North American Tea

SLIDE TWENTY FOUR: PROFILE American Tea Room SLIDE TWENTY FIVE: TREND Specialty Tea Growth SLIDE TWENTY SIX: END Thanks for Attending
American Tea Room is the new face of North American Tea SLIDE SIX: TEA EMPORIUM Located in a one of the largest grocery stores in North America SLIDE SIX: TEAVANA Sales of $1000 per square foot of retail SLIDE SEVEN: ARGO TEA Tea lattes head-to-head with Starbucks SLIDE EIGHT: TALBOTT TEA Jamba Juice These charts make it clear we are ready to listen and learn. We are ready to pay for something that tastes good and is good for you. We are ready to catch up with a world that has made tea the most popular prepared beverage on earth. Here it ranks number five well behind beer, milk. It is closing in on juice but xxx billion gallon short of soda. A modest 175 million North Americans will sip tea today. The tally consists of 157 million Americans and 14 million Canadians about 85 percent will do so unconsciously. The tea will arrive cold, heavily flavored, overly sweet and in a tall fast-food cup of ice. They will not know or care that it was grown in Argentina or India, Indonesia or Vietnam. Convenience is a consideration.

Price is a consideration. Wal-Mart sells 22 percent of all the tea in America. Grocery stores sell xxxxxxxxx. Packaged facts. Health is a concern. Iced tea servings topped xxxxxxxxxxxx in foodservice last year because it is inexpensive, convenient and a national facing an epidemic of diabetes is turning away from soda for something less sweet. (Honest tea introduction) Well financed and newly energized competition is heating North American beverage retail to a boil. Specialty tea is poised for a growth spurt rivalling coffee in the 1980s. Here are examples where tea is aggressively stepping into the retail mix, consider: Atlanta-based Teavana, which has now opened 196 company-owned stores in 39 states, is a hot stock pick following the NYSEs first pure-play tea retail IPO. Third quarter net sales increased 35 percent to $33.4 million and fourth quarter sales topped $66 million. The company projects annual sales of $162 to $166 million. Starbucks named dynamic Global Marketing Director Annie Young-Scrivner as president of $1.3 billion Tazo Tea in July and soon after hired respected tea retailer Charles Cain to head operations. In late November the company announced it will relocate the entire Tazo staff from its 80,000 sq. ft. manufacturing facility in Portland, Ore. The move to Kent, Wash., is to accommodate planned expansion and consolidate distribution to 25,000 retail outlets. Across the continent, Canadians turning on their favorite TV programs the past six weeks saw prominent Toronto-based coffee chain Second Cup pitching tea. The 350-store specialty coffee franchiser revamped its tea program, trained staff and introduced a new line-up that has invigorated the firms beverage program, attracted new customers and boosted store sales while returning great margins. In November grocery giant Loblaw Companies Ltd., made room for specialty retailer The Tea Emporium instead of an in-store coffee shop it its newest Toronto supermarket. The company calls the 85,000-sq. ft. complex its "crown jewel. The Tea Emporium is the first tea store to have a dedicated footprint inside a grocery chain-store of this scale. In December DavidsTea, the largest of Canadatea merchants opened two s new shops in downtown New York City signalling that retailers view the continent as a single market. Coffee isnt cooling in the U.S., consumption among previous-day drinkers is steady according to the National Coffee Association but volume has plateaued just as tea begins its rapid ascent. Foodservice and retail sales of coffee topped $37.9 billion in 2011, up 10 percent over the previous year's sales of $34.5 billion and the highest annual growth of the past five years, according to market research firm Packaged Facts. The coffee market is five times larger than tea and continues to grow but it is the coffee

drinkers preference for more expensive premium coffeenot volumethat drives annual sales increases. EMBED URL: http://www.packagedfacts.com/coffee-tea-market-c471/ Specialty tea on the other hand is making inroads among young coffee drinkers; it is equally popular with young men and women and its popularity with boomers and Millennials means tea now accounts for 5.4 percent of the refreshment beverage market, and it is growing at a much faster pace than specialty coffee. Tea sales topped $6.5 billion in 2011 according to Market Research firm Packaged Facts. EMBED URL: https://www.packagedfacts.com/Tea-Ready-Drink-6210935/ U.S. tea imports rose 25 percent in the past 10 years and were up 4.7 percent to a record high in 2010. That was the first time in history U.S. tea imports surpassed the United Kingdom. The U.S. now represents 9 percent of the global market and import totals through June as reported by the International Tea Committee indicate 2011 will break the import record again. The $4 billion market for tea concentrates and ready-to-drink tea is expanding. According to the Tea Association of the USA, around 80 percent of the 270 million pounds of tea imported annually is consumed as fresh brewed ice tea. More than half of that volume is brewed in traditional industrial brewing machines and sold in various foodservice outlets. In Canada, the dollar share of specialty tea has grown to 57.2 percent of the total market and was up 7 percent in 2010. Conventional teas lost 2 percent market share last year. In terms of tonnage, regular tea accounted for 76.6 percent volume while specialty teas grew 8 percent in 2010 to gain 23.4 percent volume share. Sales of herbal teas are up 11 percent compared to last year (rooibos is doing exceptionally well) and specialty black teas (blends) grew 27 percent compared to 2009. Matcha imports are up 25 percent. In its Tea and Ready-to-Drink Tea in the USA report, released in October, Packaged Facts estimated tea sales grew 5.2 percent in 2011 and will reach $9.3 billion in the next five years. Some estimates range as high as $15 billion. More significant is the rate of growth, Packaged Facts estimates an acceleration from 6.6 percent in 2012 to 8.7 percent growth in 2015, far outpacing specialty coffee. EMBED URL: https://www.packagedfacts.com/Tea-Ready-Drink-6210935/

Expansion of Seattles Best to 30,000 outlets in the past 12 months tripled the 2011 Starbucks Coffee Company domestic store count of 10,787. McCafs, now approaching 15,000 locations, compound the glut of availability. Coffee sales at convenience stores average $66,337 per store and those offering cappuccino and specialty coffee add another $11,435 per store. Beverage sales account for 33.5 percent of total sales and 95.4 percent of the nations 144,541 convenience stores now dispense hot beverages, according to Jeff Lenard, VP Communications at the National Association of Convenience Stores. Americans now find a lot of latte wherever they turn. In contrast specialty tea sales are concentrated at fewer than 4,000 stores.