To the Last Drop
Consumer, supply-chain shifts affecting the way you sell coffee.
A photo of a precious little girl flashes on the screen. Standing in a slight clearing on a dirt road, she is shadowed by coffee trees and other tropical vegetation. Her red sailor-style shirt stands out among the green foliage. In her right hand is a tiny box with a butterfly flapping inside. Look too quickly and you could miss her presence altogether.
This is not the image most people have when drinking their daily coffee. But it’s what John Notte thinks about. And this little girl—photographed during a trip to an El Salvador coffee farm—was the lasting image he left with attendees of CSP’s Coffee Bar Development Summit after speaking about the importance of engaging in the coffee supply chain.
“That was a big thing for me, to understand the farm, spend time with the people,” said Notte, manager of coffee concepts for Altoona, Pa.-based Sheetz Inc. “It’s a very laborious job, and it’s very mutually rewarding to meet each other and understand what our needs are.”
Notte wrapped up the two-day summit, held April 18-19 in Portland, Ore., by sharing his experiences both at Sheetz and in his previous role as a coffee roaster traveling to coffee-producing countries, most recently to El Salvador with supplier Farmer Bros. He urged attendees to keep an eye on trends such as certification and direct-trade coffees, which may be a niche practice now but is one that consumers are increasingly aware of, especially in our fragmented culture.
“The consumer of yesterday was a lot easier to educate,” Notte said. “There was a lot more low-hanging fruit.”
To say there’s more to coffee than meets the eye doesn’t do it justice. The rising prices retailers and suppliers have stomached in the past few years only began to peel back the layers of environmental, social and economic issues encompassing the humble bean. What’s more, our global coffee reserves are notably low, and a single crisis in, say, Brazil, would quickly leave us coffeeless and cranky.
Increased awareness has led retailers such as Notte and a growing number of consumers to want to know the story of the little girl in the photo, her family, her community. Are they being paid fairly and treated respectfully? Do they have the infrastructure to continue producing coffee and the means to start rebuilding our global reserves so that you’re guaranteed a product to sell at a reasonable price?
These questions are key to the future of the coffee trade, but the truth is there are a mountain of steps between most retailers and sourcing special coffee direct from farmers. Before knowing your farmer, you really should know your customer.
Kids These Days
C-store coffee consumers are valuable. Collectively, they made 1.1 billion convenience-store product purchases last year and are second only to beer buyers in terms of frequency, according to The NPD Group. In the fourth quarter of 2011, coffee customers accounted for 18% of all c-store traffic.
And increasingly, they are young adults. The number of 16- and 17-year-old c-store-coffee buyers increased by 4% last year; 18- to 24-year-olds spiked 9%. This adolescent-to-college age demographic is crucial to your coffee’s long-term viability, said Adam Clay of consumer-research firm NPD.
“We’ve really seen an evolution in who the coffee customer is,” said Clay, the Port Washington, N.Y.-based firm’s manager of client development. “How are they going to look at a c-store differently and your coffee differently?”
Attendees shared ways they’ve seen young customers define coffee—blended mochas, bottled coffee beverages, even energy drinks—and shifts in when these customers consume their daily joe.
“Our millennials are keeping some really weird hours,” said Jim Matorin, a self-described “business catalyst” who presented on trends in mobile marketing, such as QR (quick-response) codes, near-field communication and apps. “This is all going to become obsolete come Monday,” he joked.
Matorin, who runs marketing resource company Smartketing, shared some numbers reflecting the increasing presence of mobile marketing in our lives. Among them: 53% of the world’s population owns a smartphone, and 62% of 18- to 29-year-olds have smartphones. The average person spends 2.7 hours per day on his or her smartphone—twice as much time as we spend eating.
One mobile tool Matorin urged attendees to examine is QR codes—but only if used correctly. Be sure to have a mobile-friendly site if you’re going to direct consumers to it via QR codes, and—simple as it sounds—make sure.
Manufacturing, shared that her company has QR code printing capabilities and has tested it on all packaging.
What excites Matorin most about the potential for mobile marketing in the c-store space is the “game-ification” of the online experience: Foursquare, SCVNGR and other apps that get consumers in stores and buying products through some sort of competition, such as being “checked in” at a location or solving riddles.
One program, Shopkick, is being tested by some summit attendees, including Bolla Oil in Garden City, N.Y., and E&C Enterprises in Woodbridge, Va. Seif Abdraboh of Bolla says the company is testing Shopkick, which rewards customers for simply walking in the door, specifically to attract younger consumers.
According to Wayne Cox, senior category manager for dispensed beverages for The Pantry, Cary, N.C., said a new text-message loyalty program based around the chain’s coffee program has already attracted upwards of 100,000 participants. The Pantry is adding fountain soda to the program this year.
Regardless of the tool, Matorin advised retailers to focus on loyalty. It’s why he’s “real negative” on Groupon, Living Social and other daily-deals sites: “It just doesn’t pay back; you don’t get repeat customers.”
When asked whether our keychains full of loyalty tags will soon go the way of the VHS, Matorin said, “It’s going to be all in their phone.”
If You Build It
Of course, it’s all for naught if you don’t have a quality coffee program, and Clay of The NPD Group stressed the importance of the brand for c-store coffee buyers: 31% always go to the same chain. Only purchasers of milk had higher numbers.
“We call that the equity, the touchy-feely,” Clay said of brand importance.
How do you capture that loyalty? Quality.
C-store coffee customers told NPD that the most important factor when deciding to open their wallets is product quality. And those customers who said quality was most important were also more likely to purchase foodservice items compared with other customers.
As grateful as you should be for those loyal coffee consumers, Starbucks and McDonald’s continue to drive competition and consumer quality perception. And then there’s the “elephant in the room,” as Clay calls Dunkin’ Donuts.
According to NPD/CREST data, doughnut-segment traffic is up 7% for all QSR meal and snack occasions. C-store traffic is up 3%, and the gourmet-coffee segment is up just 2%.
Here’s the kicker: Dunkin’ customers are close to buying more coffee than doughnuts. With $6.1 billion in sales and a 3% increase in store count last year, Dunkin’ is big, even for an elephant.
One upside, according to Clay, is the “deal occasion”: A special promo for the morning actually entices customers to spend more than they had planned. A deal check averages $3.37 in c-stores, compared to $2.98 for a nondeal check.
The difference between many c-stores and their coffee competition is investment. “Few if any of us thought that Starbucks would be competing with McDonald’s,” said Bruce Milletto, president of Bellissimo Coffee Advisors. McDonald’s succeeds because it puts the time, money and labor into McCafe, he said.
Echoing Clay, Milletto stressed the importance of quality. “Nobody really expects to get this from a c-store,” he said, pointing to a photo of a beautifully prepared latte with an intricate design on its foamy head. “But what they are expecting is great coffee.”
Milletto worked with Sheetz as a consultant when the chain added its crew-serve coffee program to stores. He emphasized the chain’s commitment to staff training as a crucial element in the program’s success.
Milletto marveled at what Sheetz has accomplished: “I can’t even imagine what these stores would do on the West Coast.”
He further urged retailers to better advertise their coffee programs outside the store. “Most c-stores, from the moment you pull into the parking lot, you don’t know they have coffee,” he said. “They probably do, but you wouldn’t know it.”
When asked whether crew-served espresso programs are the future of c-store coffee, Milletto said it could be, but it depends on the brand and its demographics.
“But before they do that, they have to get the rest of their coffee right,” he said. “Then you start talking about putting an espresso machine in.”
The People’s Brew
While coffee continues to evolve in c-stores, the coffee supply chain is changing, too. Certification programs such as Rainforest Alliance and Fair Trade are becoming more commonplace, and while Sheetz is not directly sourcing coffee from producers, Notte sees it as a big trend on the horizon.
“You’ll see a lot more marketing of that, a lot more talking about that,” he said.
He recommended retailer attendees ask their coffee suppliers what they are doing to make investments in the future of their producer partners (such as planting new coffee trees, which take more than five years to even begin producing berries with “beans” inside).
Notte admits he doesn’t think the average North American today cares about Fair Trade or similar coffee practices, but it’s about more than marketing. It’s about ensuring there’s affordable, quality coffee 30 years from now. And it’s about understanding where the product comes from.
“Even if you meet that farmer once,” he said. “I won’t ever forget it.”
Weather: it’s not just a pain in the butt; it’s also a business opportunity. Knowing how the temperature affects coffee sales can help you prepare for the ups and downs of the seasons. And according to Richard Woolley, nearly 90% of coffee sales are in some way affected by the weather.
Woolley, senior vice president of operations and chief meteorologist for Weather Trends International, shared insights his firm gathered from two years of coffee unit-sales data from a national c-store chain.
His key finding: For every degree colder, you sell 1.4% more coffee. For every degree warmer, you sell 1.4% less. “If you knew week 52 was going to be cold, what would you do?” he asked. “Maybe not promote it as much, since the demand will be there.”
Another key tool for coffee retailers is seasonal starts. Woolley explained that the coffee season may begin at about 65 degrees in the Southeast, but it’ll slow down once it gets back to 55 degrees because we’ve become more tolerant to cold than we were in October.
What can retailers take from weather forecasts? Prepare for temperature drops with a well-stocked coffee bar, and go easy on any deals. Then, get ready for temperature increases by scaling back brewing cycles and stocking coffee alternatives such as energy drinks, soft drinks and iced coffee drinks.
A final tip: Woolley is expecting a colder winter this year compared with the 2011-2012 season, so expect national coffee sales to increase by 2.2% come November and upwards of 5.6% in February.
Ten takeaways from the 2012 CSP Coffee Bar Development Summit:
- Young coffee drinkers (ages 16 to 24) are on the rise.
- Brand and product quality are key attributes for c-store coffee drinkers.
- Dunkin’ Donuts customers are buying almost more coffee than doughnuts.
- C-stores need to better promote their coffee program outside the store.
- Loyalty cards will soon go the way of VHS, and everything will be stored on smartphones.
- For every 1 degree colder outside, you sell 1.4% more coffee. For every 1 degree warmer, you sell 1.4% less coffee.
- Coffee season starts when the temperature drops to about 65 degrees, but it ends at 55 degrees.
- Coffee is a destination purchase at the c-store; only 10% buy it on impulse.
- That said, your coffee must be so good that people will change their habits to stop at your store every day.
- Unless your budget allows, do not try to do everything a great coffee bar does. It’s not expected.