IRI Pulse Report Drinks

IRI Pulse Report Drinks Welcome to the Pulse H1 2015 edition for drinks. We hope you find it useful. Please do not hesitate to contact us if you have any questions or comments at EU.Marketing@IRIworldwide.com. H1 2015 IRIworldwide.com

About the Report This drinks report is one of 10 super category reports designed to show high-level comparison and analysis for retail markets across major countries in Europe. This report contains data gathered from around Europe. This market was split into the following categories: 1.) soft drinks, 2.) juices, squashes and syrups, 3.) mineral water, 4.) coffee, 5.) tea and 6.) cocoa. The report highlights key metrics, such as total sales figures, market trends, category shares, and winners and losers for Europe and for individual countries. The data has been sourced from IRI retail databases and Eurostat the statistical branch of administration for the European Commission. The countries included in the report are: France, Germany, Italy, the Netherlands, Spain and the United Kingdom (UK). The market channels used for each country in this report are as follows: Country UK ES DE NL IT FR Channels used Hypermarkets, supermarkets, drugstores and impulse outlets Hypermarkets, supermarkets, hard discounters and drugstores, including the Canary Islands Hypermarkets, supermarkets, hard discounters and drugstores Hypermarkets, supermarkets, hard discounters and drugstores Hypermarkets, supermarkets, small self service, hard discounters and drugstores Hypermarkets and supermarkets For analytical purposes, the data sourced from available retail databases has been consolidated to provide consistent results. However, for some countries it has not been possible to source data pertaining to certain categories. When this has occurred, it has been documented in the Notes section found at the end of the report. 2

On the Radar Overall value sales increased mainly with the help of a momentous increase in coffee sales in Germany. Mineral water also helped growth. ECONOMIC FIGURES INFLUENCING CONSUMER BEHAVIOUR POPULATION IN MILLIONS UNEMPLOYMENT (%) AVERAGE 12 MONTHS INFLATION RATES GDP IN MILLIONS ( ) Jan. 2014 Jan. 2015 Avg. 2014 Jun. 2015 Avg. 2014 Jun. 2015 2013 2014 France 65.8 66.3 10.3 10.2 0.7 0.2 2 116 565 2 132 449 Germany 80.7 81.1 5.0 4.7 0.9 0.4 2 820 820 2 915 650 Italy 60.7 60.7 12.7 12.7 0.3 0.0 1 609 462 1 616 253 Netherlands 16.8 16.9 7.4 7.0 0.5 0.1 650 857 662 770 Spain 46.5 46.4 24.5 26.6 0.0-0.6 United Kingdom 64.3 64.7 Source: Eurostat, June 2015 6.1 5.6 1.7 0.6 1 049 181 1 058 469 2 017 193 2 222 912 3

Euros, in millions PULSE REPORT GLOBAL TRENDS TOTAL DRINKS VALUE SALES AND % CHANGE VERSUS PRIOR YEAR 1.0% -0.7% 1.0% 1.3% VALUE SALES IN MILLIONS ( ) Total EU 44 959 DE 16 858 FR 7 562 UK 8 861* IT 6 084 ES 3 657 NL 1 936 0.1% -1.6% *based on an exchange rate of 1.27 to the pound TOTAL EUROPE 0.3% TOTAL DRINKS VALUE SALES FOR THE PAST SIX QUARTERS 14,000 12,000 10,000 8,000 2 029 1 787 2 216 2 369 1 986 1 969 2 185 2 083 1 775 1 785 2 225 2 033 UK France Germany 6,000 4,000 4 016 4 210 4 266 4 190 4 107 4 296 Italy Netherlands 2,000 0 1 400 1 596 1 626 1 418 1 420 1 621 465 494 492 468 473 503 834 912 1 010 858 851 938 30-mar-14 29-jun-14 28-sep-14 28-dic-14 29-mar-15 28-jun-15 Spain Period Ending 4

Euros, in millions Euros, in millions PULSE REPORT Europe CATEGORY SHARE OF VALUE IN THE PAST YEAR CATEGORY VALUE SALES IN THE PAST YEAR 20.7% 17 559 39.1% 20.6% 9 305 9 266 5 891 1.6% 5.0% 13.1% 2 228 710 Soft Drinks Mineral Water Coffee Juices, Squashes & Syrups Tea Cocoa TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus year ago 17 559-1.5 9 305 9 266 2.1 4.2 5 891 2 228-3.1 0.8 % vs. YA KEY TRENDS After two consecutive years of decline in the drinks category, the first half of 2015 shows a positive growth of 0.3%. In Europe, soft drinks have recorded the highest value sales, but have seen a decline in all the measured European countries apart from France, where the category displays a slight growth of 0.3%. Mineral water has seen positive growth across Europe, where growth is primarily driven by the UK. Mineral water s natural and healthier positioning, and convenience of use, are driving demand for the category. Coffee is the biggest contributor in the growth of the overall drinks category with a value growth of 4.2%, driven by high priced coffee pods. Germany alone contributes approximately 94% to the coffee value growth in Europe. Europe includes: France, Germany, Italy, the Netherlands, Spain and the United Kingdom 5

Europe TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 200 400-300 -200-100 0 Coffee 370.6 Mineral Water 191.2 Tea 17.9-3.9 Cocoa - 190.0 Juices, Squashes & Syrups - 268.2 Soft Drinks CATEGORY INSIGHTS The largest sub-category, soft drinks, dropped further with all the measured countries posting decline (except France where the growth was led by fresh tea). Germany posted the highest loss (mainly from spritzer/water with add-ons and cola) accounting for almost half of the total loss in Europe. The category decline is being driven by lower consumption. With continued focus on health and wellness, mineral water (mainly still water) continued its positive growth in all the measured countries. The UK accounted for approximately 57% of its growth, while Germany and Italy together brought 21% growth for this category. In the UK, the mineral water segment also specifically benefitted from a price hike and has managed to take away sales from soft drink s market. Coffee growth in Europe is almost single-handedly led by Germany as it contributes to more than 90% of its growth. Its growth is helped by heavy promotions and mainly driven by roast & ground coffee and premium priced roasted coffee pods. France and Italy are the only countries which posted decline, while the remaining countries posted growth. Even the Netherlands showed the biggest growth for coffee after years of decline with increased prices in the ground coffee segment and more premium concepts such as cups and beans. Europe includes: France, Germany, Italy, the Netherlands, Spain and the United Kingdom 6

Euros, in Euros, in millions PULSE REPORT France CATEGORY SHARE OF VALUE CATEGORY VALUE SALES 23.6% 2 372 1 784 21.0% 1 589 1 266 31.4% 2.5% 4.8% 16.7% 359 191 Soft Drinks Mineral Water Juices, Squashes & Syrups Coffee Tea Cocoa TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus a year ago 2 372 1 784 1 589 1 266 KEY TRENDS Price wars between retailers is continuing to impact value trend. Creating a nearly 1.5 point growth gap between value and volume trends. No major weather impact for this period. Soft drinks maintain a positive trend in value thanks to fresh tea. A sharp slowdown due to colas with a decline in both volume and value. Mineral water is now growing in both volume and value thanks to new products and an increase of promotional activity. 359 0.3 0.3-2.7-1.4 1.1 % vs. YA 7

France TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 2 4 6 8-100 -80-60 -40-20 0 Soft Drinks 6.8 Mineral Water 5.5 Tea 4.0-5.9 Cocoa - 17.9 Coffee - 43.7 Juices, Squashes & Syrups CATEGORY INSIGHTS Private label continues to decline throughout all of the categories this year, as with all fastmoving consumer goods (FMCG). Juices are always declining, mainly due to private labels and lower priced options. In mineral water, Nestlé Waters and Cristalline explained the growth of the market. The Cristaline brand is demonstrating growth, thanks to its low price positioning and Nestlé activated several levers such as promotion, new products especially Volvic Juicy. Soft drinks Coca-Cola Life (with Stevia) was launched in December with good first results but with a lot of investments (promotions and media). Two products are now in the top 10 of new soft drink products. In the coffee market, pods continue to grow, while other coffees are facing declines. Pods and green teas are always driving growth within the tea sector. 8

Euros, in Euros, in millions PULSE REPORT Germany CATEGORY SHARE OF VALUE CATEGORY VALUE SALES 23.8% 5 742 34.1% 21.0% 4 010 3 540 2 699 1.0% 4.1% 16.0% 693 175 Soft Drinks Coffee Mineral Water Juices, Squashes & Syrups Tea Cocoa TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus a year ago 5 742 4 010 3 540 2 699 KEY TRENDS The overall value sales of drinks increased by 1.3%, whereas the volume declined by 2.6%; the decline in volume is driven by non promoted sales. Coffee has shown substantial growth of 9.5% which was driven by increase in price and managed to increase its share by 1.8 point. The growth in drinks was fueled by national brands, while private labels registered a decline in all categories except coffee and tea. -2.3 9.5 0.5-2.3 693 5.6 The decline in hard discounters was offset by the positive development in other channels contributing to overall growth. % vs. YA Coffee is the major contributor toward growth in drink sales followed by tea while soft drinks and juices, squashes & syrups are in a decline. 9

Germany TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 200 400-150 -100-50 0 Coffee 347.7 Tea 37.0 Mineral Water 18.9 Cocoa 1.9-63.1 Juices, Squashes & Syrups - 133.5 Soft Drinks CATEGORY INSIGHTS Coffee has shown significant growth across all channels. The growth is powered by roast & ground coffee and roasted coffee pods. The growth in roast & ground coffee can be attributed to price increase, while coffee pods have grown due to gain in volume (7.1%). Contribution of promotional sales in coffee is very prominent with 41.9% sales coming from promotions. Growth in tea looks sustainable with all its segments showing positive development. Herbal tea is a major driver of growth followed by black tea. Contribution from promotional sales is limited suggesting the inherent inclination of consumers toward tea. Sales for mineral water have been flat (0.6%). There have been a decline in volume sales (-1.7%) but an increase in prices managed to offset the value decline. Decline in volume is driven by carbonated mineral water and water with little CO². Cocoa managed to register a growth of 1.1%, which was fueled by national brands. Private label pulled down the category growth with declines in both normal and promotional sales. Soft drinks declined across all segments. Water with add-ons and cola observed maximum decline. Energy drinks was the only growing segment in soft drinks. Performance of private label was poor across all segments. Sales for juices, squashes & syrups declined by 2.3% which was driven by private label in hard discounters. The growth from promotional sales was not sufficient to offset the decline in normal sales. 10

Euros, in Euros, in millions PULSE REPORT Italy CATEGORY SHARE OF VALUE CATEGORY VALUE SALES 27.6% 1 857 1 679 1 366 30.5% 22.5% 841 1.1% 4.5% 13.8% 273 69 Mineral Water Soft Drinks Coffee Juices, Squashes & Syrups Tea Cocoa TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus a year ago 1 857 1.1 1 679 1 366 841 273-4.6-1.3-4.0 6.1 % vs. YA KEY TRENDS Italian gross domestic product (GDP) is slightly positive after several years of a negative trend. The FMCG trend is positive both in volume and value despite decreasing promotional pressure. The increase of sales is spread across all sectors, but mainly beverages. The trends have been impacted by temperatures with values above average (in the beginning of the year and May): positive for water, energy drinks, ready-to-drink (RTD) tea, but negative for soft drink categories (colas, orangeades) facing wellness choice in consumer behavior. The Italian market in the first half of 2015 showed a positive trend in the water category thanks to still segments that continue to gain market share (low price and wellness positioning). Negative trends for high price hot beverages such as coffee, with the exception of the pod segment, but a positive increase for tea (less expensive alternative). 11

Italy TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 10 20-100 -60-20 Mineral Water 20.8 Tea 15.6-4.0 Cocoa - 18.1 Coffee - 34.9 Juices, Squashes & Syrups - 80.3 Soft Drinks CATEGORY INSIGHTS In 2015 some positive opportunities come from the economic scenario and FMCG: GDP is slightly positive Low level of inflation rate Positive trend in total consumption (particularly in durable goods) Strengthening of consumer demand FMCG positive trend in the first half of 2015: 2.1% value change and 1.8% in volume In Italy, price and a strong wellness positioning are supporting growth of the still water segment which, in turn, is supporting the overall mineral water category. The carbonated soft drinks (CSD) and juices sector experienced strong decline during the past year. Many segments (colas, orangeades, lemon lime, tonic, Chinotto) recorded negative trends despite a positive beginning to hot season. 12

Euros, in Euros, in millions PULSE REPORT The Netherlands CATEGORY SHARE OF VALUE CATEGORY VALUE SALES 33.9% 882 45.6% 657 0.6% 4.9% 6.9% 8.1% 157 133 95 11 Soft Drinks Coffee Juices, Squashes & Syrups Tea Mineral Water Cocoa TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus a year ago 882 657 157 133 95-1.2 4.1 5.2-3.4 2.1 KEY TRENDS Total drinks is growing in the Netherlands, in value (0.3%), but declining in volume (-4.1%). Price increases and lower promotional pressure have impacted volume negatively. Hot and cold drink sectors saw volume decline due to price increases. Cold drinks also saw sales decline, but value for hot drinks grew because of premium coffee concepts such as cups and beans. Market share of Aldi keeps decreasing despite having Coca-Cola and Fanta in the assortment. % vs. YA 13

The Netherlands TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 10 20 30-12 -8-4 0 Coffee 25.8 Tea 6.6 Mineral Water 1.9 Cocoa 1.0-5.5 Juices, Squashes & Syrups - 10.9 Soft Drinks CATEGORY INSIGHTS The winner is coffee. With price increases in the ground coffee segment and more premium concepts such as cups and beans, the category is growing after years of decline. Tea is also growing in the Netherlands. The largest segment (black tea) only grows in value because of price increases, but segments such as green tea and herbal tea both grew in value and volume. Growth in syrups and squashes continues in the Netherlands. The growth comes along with increased value and volume within water, indicating that consumers might change from drinking soft drinks to drinking lemonades and waters. Sales within juice is declining, mainly driven by the fact that more places offer consumers the ability to tap their own fresh orange juice in-store. There seems to be three major reasons for the strong decline in soft drinks, mainly driven by cola, orange and fruit flavoured still drinks. First, the public discussion about the high amount of sugar in soft drinks. Second, the upcoming competition from beer alternatives (i.e. Radler) with 0% alcohol seems to impact the soft drink turnover. Shoppers seem to switch from soft drinks to these more mature alternatives. And third, the promotional pressure for soft drinks is down versus last year. 14

Euros, in Euros, in millions PULSE REPORT Spain CATEGORY SHARE OF VALUE CATEGORY VALUE SALES 1 875 51.3% 23.0% 19.3% 842 704 0.3% 3.8% 140 83 12 2.3% Soft Drinks Mineral Water Coffee Tea Cocoa Juices, Squashes & Syrups TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus a year ago 1 875 842 704 KEY TRENDS The decline of the soft drink segment has deflated the whole drink industry in Spain. Indian tonic sales continue with a strong increase both in value and volume, due to gin and tonic coming back in fashion. Iced tea, tinto de verano, sport drinks, ginger and energy drinks also experienced a rise in sales both in volume and value. Mineral water had a positive evolution in value and volume, Coca-Cola Co. being the manufacturer that benefits most from the strongest sales increase of the category. Soft Drinks -2.2 4.3 Mineral Water 140 83 0.2 5.6 4.3 Coffee Tea Cocoa % vs. YA 15

Spain TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 10 20 30 40-50 -30-10 Mineral Water 34.4 Tea 7.4 Cocoa 3.4 Coffee 1.4-0.7 Juices, Squashes & Syrups - 42.1 Soft Drinks CATEGORY INSIGHTS In soft drinks, private label has successfully increased sales, but only for value. All manufacturers experienced a decrease in sales both in volume and in value. Hopefully, the rebrand by Coca-Cola Co. will show its effect during the second half of 2015. The Coca-Cola rebrand in Spain focused on the can design and grouped all Coca-Cola products together on the store shelf, not mixing the brand with products from other manufacturers. This should contribute to change colas challenging situation (-2.1% in volume, -1.3% in value for the first half of 2015 versus one year ago). JGC continue with their reduction price campaign, that has implied a further sales growth, both in volume and value for iced tea. Mineral water without gas increases sales in volume (2.2%) and in value (2.5%). Still water continues to increase its sales thanks to manufacturer brands and innovation, both in formats and in flavors. Mineral water with gas have seen faster growth in sales than water with no gas (2.7% in volume and 3.0% in value). Coffee pods are the only segment that show a sales increase in coffee (8.8% in volume and 10.0% in value). During the first half of 2015 there were innovations in juices both in format and formulas, bringing them closer to other segments like energy drinks (Pascual added caffeine and guaraná to Bifrutas, a juice and milk drink) or sport drinks (Orangina Schweppes with its Sunny Sport). 16

Euros, in Euros, in millions PULSE REPORT The United Kingdom CATEGORY SHARE OF VALUE CATEGORY VALUE SALES 56.5% 14.3% 5 008 13.4% 1 263 1 187 2.0% 6.7% 7.1% 630 593 180 Soft Drinks Coffee Mineral Water Tea Juices, Squashes & Syrups Cocoa TOP 5 CATEGORIES: EVOLUTION Value sales ( ) and % change versus a year ago 5 008-0.2 2.6 1 263 1 187 10.2 630 593-7.7-6.6 KEY TRENDS Soft drinks, the biggest segment, has seen growth rate slow down compared to the mineral water segment due to price pressure from discounters, in-store promotions and greater focus on healthier lifestyles. Tea continues to see declines (7.7%) as the growth in fruit, herbal and green teas are not enough to offset the losses in black tea. Coffee is seeing growth (2.6%) as consumers continue to trade up to more premium instant coffees and pods. Mineral water has seen strong value gains (10.2%). Waters natural and healthier positioning, and convenience of use when on the go, are driving demand for the category. Price inflation has helped boost value sales. % vs. YA 17

The United Kingdom TOP WINNERS: VALUE SALES TOP LOSERS: VALUE SALES 0 50 100-60 -40-20 0 Mineral Water 109.7 Coffee 31.7-0.3 Cocoa - 8.2 Soft Drinks - 42.1 Juices, Squashes & Syrups - 52.6 Tea CATEGORY INSIGHTS Pressure from discounters continued in 2015, with both Aldi and Lidl gaining share, putting pressure on the top four grocers. In response to this, grocers are continuing to rationalise their ranges in order to maximise profitability of store space. Therefore the competition for space is shooting up as manufacturers fight to keep all their SKU s (stock keeping unit) on shelf above competitors. Hot drinks remain in volume decline as younger consumers shun traditional black tea and instant coffees in favor of bottled water. However hot drinks have seen value remain stable as consumers switch to more premium sectors. The tea market has seen strong growth from fruit & herbal and green sectors, where the numbers of products available continue to increase, however standard black tea continues to decline dramatically. In coffee pods and super premium continue to see strong growth while the premium and regular sectors of instant coffee continue to decline despite heavy promotions this year. 18

Final Notes Notes on category definitions for countries Due to the diverse products found in individual countries across this market it was necessary to consolidate the available data into the categories in this report. In some cases, it was not possible to align products across all six countries. Those exceptions are listed below: Soft Drinks The UK data in this report does not contain iced tea and other tea based beverages and the other countries do not. Juices, Squashes & Syrups The German data in this report includes smoothies and refrigerated fruit juice; other countries do not. Mineral Water The French data in this report includes flavored mineral water whereas the other countries do not. The Italian data in this report includes flavored sports drinks whereas the other countries do not. 19

Resources To gain insight into opportunities across specific categories, segments, channels or retailers, contact your IRI client service representative regarding custom analyses leveraging the following resources: InfoScan Census is a syndicated retail tracking service that enables manufacturers and retailers to acquire industry insights used to make better business decisions. InfoScan Census utilizes the data that IRI collects from grocery, drug, and mass merchandise retailers to provide the most comprehensive and accurate syndicated data offering in the FMCG sector. With access to accurate, granular detail by category, geography, measure, and time period, clients have the tools needed to develop marketing and sales strategies based on product performance, distribution, and promotion responsiveness. All data about drinks comes from InfoScan Census. IRI Consulting provides strategic insights and advice leveraging a variety of data sources, predictive analytics, enabling technologies, and business analyses to help FMCG manufacturers and retailers address significant sales and marketing issues effectively. FOR MORE INFORMATION Please contact Björn Steinbach, IRI at Bjoern.Steinbach@IRIworldwide.com or +49 (0) 211 36119 150 with questions or comments about this report. About IRI. IRI is a leader in delivering powerful market and shopper information, predictive analysis and the foresight that leads to action. We go beyond the data to ignite extraordinary growth for our clients in the CPG, retail and overthe-counter healthcare industries by pinpointing what matters and illuminating how it can impact their businesses across sales and marketing. Move your business forward at IRIworldwide.eu Arlington Square, Downshire Way, Bracknell, Berkshire RG12 1WA, Tel +44 (0) 1344 746000 Copyright 2015 Information Resources, Inc. (IRI). All rights reserved. IRI, the IRI logo and the names of IRI products and services referenced herein are either trademarks or registered trademarks of IRI. All other trademarks are the property of their respective owners. 20