Coffee in Convenience Agenda: Coffee in Convenience Overview Industry Leaders Vendor Partnerships: View From a Retailer Perspective C-STORE CHANNEL: OVERVIEW C-store Retailers – Focusing on Inside Sales 2017 14.9% increase in fuel sales due to increased gallons and retails Total Sales (in Billions) 316.8 Total Industry Sales 482.6 349 364.1 Fuel Increased 9.3% YOY after several years of 233 decline 213.4 225.8 237 Inside Retailers focus heavily on inside sales for growth with 1.7 % increase Total 696.1 574.8 549.9 601.1 2014 2015 2016 2017 Source: 2017 State of the Industry/SOI, NACS/CSX Foodservice – The Most Profitable Inside C-store Category 2017 Inside Sales $ 2017 Inside GP $ Beer 6% Beer 6% Tobacco Other 19% Tobacco 17% 34% Other 23% Packaged Beverage Foodservice 16% 34% Foodservice Packaged 23% Beverage 20% Source: 2017 State of the Industry/SOI, NACS/CSX Convenience Innovation 1. Varied levels of indoor and outdoor seating 2. Drive Through 3. Integrated Barista Programs 4. Millennial based customization focus via ordering kiosks and beverage equipment 5. Embracement of technology with frictionless checkout, self checkout, mobile payment. 6. Improved “smart” loyalty programs 7. Use of digital and social medias (Waze; Place IQ; Facebook) C-STORE CHANNEL: BEVERAGES OVERVIEW Beverages Represent 26% of Total Foodservice Sales Hot coffee being the key dispensed beverage driver Sales of top beverage types Traditional hot 10% coffee 3% Dispensed CSDs 26% 7% Beverages vs. Specialty hot coffee 40% food sales Total Frozen non-coffee 14% $11,132MM beverages RSE Iced/frozen coffee Growth Rate Hot beverages growth (2014-16 CAGR): All other • 1.5% $ and 3.9% volume 26% Cold beverages growth (2014-16 CAGR): • 0.9% $ and 3.7% volume Behavior and preferences vary strongly by region. Tailoring beverage offerings to your core customer base can help to ensure you are meeting your customer’s needs and expectations. Source: Technomic AFH Beverage Study, 2017 and Technomic Convenience Store Study, 2017 Foodservice Beverage Growth Expected to be consistent in the coming years Historic and Forecast RSE ($B) $13,264 $11,915 $11,482 $7,045 $6,092 $6,332 $4,174 $4,280 $4,068 $1,612 $1,216 $1,303 2016 2017(f) 2020(f) Frozen beverage Cold beverage Hot beverage Total Source: Technomic, Inc. C-store Beverage Study Frozen Beverages – Smallest Category Projected to achieve the fastest rate of dollar growth Foodservice Beverage Outlook Compound annual growth rate 2016-2020(f) 7.3% 3.7% 3.7% 2.5% 2016-2020(f) CAGR Cold beverage Hot beverage Frozen beverage Total Source: Technomic, Inc. C-store Beverage Study Consumers Would Like to See WHAT DO CONSUMERS WANT TO SEE MORE OF AT C-STORES? Smoothies 25% Lemon/limeades 22% Iced tea 20% Iced coffee 20% Juice / juice drinks 19% Regular soda 18% Cold brew coffee 18% Flavored iced tea 17% Specialty coffee 17% Frozen coffee 16% Flavored waters 16% Source: Datassential Growing/Declining Beverages Omnibus C-store Consumers Purchase Beverages Frequently Across all dayparts, but peak in the afternoon PURCHASE FREQUENCY 80% 71% 67% 61% Top 3 Beverage 60% 56% 49% 51% Occasions 1. PM Snack 40% 2. Lunch 3. Breakfast 20% 0% BREAKFAST AM SNACK LUNCH PM SNACK DINNER LN SNACK Source: Technomic 2017 C-Store Beverage Multi Report; Base: 2,500 consumers ages 16+ Q: How often do you purchase beverages from convenience stores for the following? Results shown for once a month+ HOT COFFEE: MARKET OVERVIEW Specialty Coffee Will Drive Future Growth Hot Beverage Category Total hot beverages 7.0% By beverage category 5 year CAGR Specialty coffee 5 Year CAGR 4.4% 2016-2021 (FC) 2016-2021 FC 5.6% Hot tea 4.8% 3.0% 3.5% Hot cocoa 1.5% 1.6% 3.5% Regular coffee Dollar growth Volume growth 1.0% Dollar Growth Volume Growth Techonomic Away from Home Study, June 2017 Hot Coffee Market Size by Platform Hot Coffee Category* Market Size (Mfr. Ship. $ MUSD) $9,656 $10,000 $7,570 $8,000 $5,295 $6,000 $4,460 $4,361 $4,000 $3,110 $2,000 $0 Drip Coffee Specialty Coffee Total Hot Coffee 2016 Est. 2021 Hot Coffee category is projected to grow by more than 25% by 2021 *Hot Coffee Category includes hot drip coffee and specialty coffee beverages Techonomic Away from Home Study, June 2017 HOT COFFEE: CATEGORY OVERVIEW AFH BREWED COFFEE: LAST CUP What do they add? Where do they get it? (top 10) Coffee shop 20% 66% 44% Donut shop 12% 25% QSR 11% Work 9% Drank it black Sweetener Creamer C-store 9% Regular sugar 56% Flavored liquid 43% Midscale restaurant 4% Splenda / sucralose 16% Half & half 26% Bakery Café 2% Sweet n Low/ saccharin 7% Milk 19% Cafeteria Raw sugar 6% Unflavored liquid 14% 2% Equal / Nutrasweet 5% Unflavored powder 9% Supermarket deli 2% Stevia 5% Flavored powder 5% Casual restaurant 1% Brown sugar 4% Real dairy cream 3% What type of roast? Was it flavored? How many cups? What restaurant What c-store chains? 1% chains? (top 10) (top 10) 7% Not sure Not sure Starbucks 20% 7-Eleven 16% 12% Light roast Dunkin Donuts 19% Wawa 9% McDonald's 16% Circle K 9% 77% Regular 1.5 Burger King 3% Speedway 8% Medium coffee 60% 5 guys 3% Casey's General Store 5% roast With food? Applebee's 2% Sheetz 5% Panera 2% Cumberland Farms 4% 33% Denny's 2% BP 3% Flavored Had it with 20% Dark roast 21% food IHOP 1% QuikTrip 3% coffee Arby's 1% AM-PM 2% Freshness and flavor are crucial attributes for a cup of brewed coffee. Consistency, strength, and aroma are also factors that would likely cause a consumer to go elsewhere for coffee if they were left unsatisfied. AWAY FROM HOME BREWED COFFEE ATTRIBUTE IMPORTANCE top 2 box; 10-pt. scale; n=1308 Good taste / flavor 68% Fresh 64% Always consistent 51% Good strength 48% Good aroma 44% Availability of condiments 39% Piping hot 38% Friendly / helpful staff 35% Brand that you like 31% Attractive color 29% Roasts, specific countries of 24% Selection of different flavors and roasts origin, and location ambiance Ambiance 19% are less important as stand alone attributes. Yet, these attributes Beans are from a specific area 16% could make a positive impact on consumers when paired with Prepared by a barista 15% the essential attributes. Q: Please rate the importance of each of the following when having REGULAR HOT COFFEE AWAY FROM HOME (at restaurants, cafeterias, convenience stores, etc.). BREWED COFFEE DEMOGRAPHICS indexed against total CONSUMPTION BEHAVIOR GENDER REGION DAILY BEVERAGE INCIDENCE BY DAYPART 27% 26% 97 West: 93 N. East: 114 10% Midwest: 101 5% 4% 3% 4% 103 South: 97 Early Breakfast Mid- Lunch Afternoon Dinner Late Morning Morning Night AGE DAILY BEVERAGE INCIDENCE: TRENDED 130 106 44% 45% 46% 46% 46% 46% 70 43 Gen Z Millennial Gen X Boomer + 2012 2013 2014 2015 2016 2017 ETHNICITY HH INCOME SOURCING BY DAYPART White 112 At Home AFH 94% Under $50K 93 89% 85% 89% African American 63 77% 73% 75% Hispanic 81 $50K to under $100K 104 23% 27% 25% 11% 15% Asian 80 6% 11% Over $100K 111 Early Breakfast Mid- Lunch Afternoon Dinner Late Other 87 Morning Morning Night AFH SPECIALTY COFFEE: LAST CUP What do they add? Toppings Where do they get it? (top 10) Whip. Cream 36% Coffee shop 48% Drizzle 19% Creamer 40% Donut shop 11% Spices 12% QSR 6% Crunchy topping 9% C-store 5% Sweetener 31% Extra espresso 8% Bakery Café 4% Extra foam 7% Dessert shop 3% Flavored syrup 16% No foam 7% Work 2% Marshmallows 7% Midscale restaurant 2% Extra hot 6% None 35% Fast casual 2% Latte art 2% Food truck 2% None 29% What type? Was it flavored? How many cups? What restaurant What c-store chains? chains? (top 10) (top 10) Cappuccino 28% 3% Not sure Starbucks 40% 7-Eleven 19% Latte 25% Regular Dunkin Donuts 10% Speedway 13% 39% Café Mocha 15% coffee McDonald's 6% Circle K 10% Macchiato 9% 1.5 Burger King 3% Shell 7% Americano 6% With food? Applebee's 3% Chevron / Extra Mile 4% Arby's 3% Kwik Trip 4% Shot of espresso 5% Flavored 58% Bob Evans 3% Wawa 4% Café au Lait 4% coffee 36% Panera 1% CITGO 3% Had it with Other 5% food Caribou 1% Holiday Station 3% Not sure 3% Chick-fil-a 1% Mapco Express 3% Like brewed coffee, freshness is an absolute must in specialty coffee. Lack of consistency, good aroma, and strength could also deter a consumer from specialty coffee at a specific location. AWAY FROM HOME SPECIALTY COFFEE ATTRIBUTE IMPORTANCE top 2 box; 10-pt. scale; n=1315 Fresh 65% Always consistent 55% Good aroma 51% Good strength 48% Brand of coffee that you like 43% Friendly / helpful staff 43% Availability of condiments 42% Flavors stand up to additives / condiments 41% Piping hot 38% Attractive / appealing color 38% Beans are from an area known for coffee 32% Nice-to-have attributes like sustainability or country of Ambiance 32% origin are not particularly Prepared by a barista 31% important on their own, but could increase appeal of Sustainably sourced 30% coffee if paired with the essential attributes. Low-fat / low calorie versions 25% Q: Please rate the importance of each of the following when deciding whether to order / purchase SPECIALTY COFFEE AWAY FROM HOME (at restaurants, cafeterias, convenience stores, etc.). SPECIALTY COFFEE DEMOGRAPHICS indexed against total CONSUMPTION BEHAVIOR GENDER REGION DAILY BEVERAGE INCIDENCE BY DAYPART West: 128 N. East: 105 112 4% 3% 2% 2% Midwest: 78 1% 1% 1% 90 South: 94 Early Breakfast Mid- Lunch Afternoon Dinner Late Morning Morning Night AGE DAILY BEVERAGE INCIDENCE: TRENDED 158 107 92 13% 11% 11% 11% 12% 11% 53 Gen Z Millennial Gen X Boomer + 2012 2013 2014 2015 2016 2017 ETHNICITY HH INCOME SOURCING BY DAYPART White 97 At Home AFH Under $50K 79 75% 73% 65% 66% African American 89 52% 61% 57% 48% 43%