More than half of consumers who step foot in the hot-dispensed section of your stores are leaving without buying a thing. And for the 45% who do buy something, it takes them only 34 seconds to fill up and get out, leaving very little time to convince them to upgrade from drip coffee or add a bakery item to their basket.
Insights such as these, from a VideoMining study tracking the behavior of 50 million c-store shoppers nationwide, gave attendees plenty to ponder during CSP’s eighth annual Hot Dispensed Beverages Meeting, held in March in Rosemont, Ill.
Addressing dozens of heavily caffeinated c-store beverage, marketing and foodservice directors, Rajeev Sharma spoke about the challenges and opportunities to further engage the beverage consumer.
“Fifty-five percent of customers who visit your coffee bar spend some time throughout the day doing something there and not buying,” said Sharma, founder, chairman and chief analytics officer of State College, Pa.-based VideoMining.
“But these people are already in your store, meaning there’s an opportunity if you understand who they are, what they need and what they want.”
Hot beverages are a pillar of the c-store business. With $5.8 billion in annual industry sales, it makes up the largest chunk of the $19.5 billion c-store foodservice category, according to Chicago-based Technomic.
C-stores continue to overindex on hot-dispensed- beverage sales compared to the overall foodservice market, averaging 55% of dollars to the industry’s 33%.
But the good news cools down when factoring in that consumers have more options than ever when it comes to finding a tasty hot drink. Of the $52 billion total foodservice market, c-stores represent about 11% in hot-beverage revenue.
That places convenience fourth on the list of 19 major hot-beverage segments, behind limited-service coffee shops ($15.1 billion), quick-service restaurants ($10 billion) and full-service restaurants ($8.7 billion).
Wake Up: It’s Afternoon!
Seventy-five percent of c-store coffee buyers make purchases before 11 a.m., according to VideoMining data. The same holds true for retailers such as West Des Moines, Iowa-based Kum & Go, which achieves 77% of its hot-dispensed-beverage sales by noon, said category manager Connie Kelehan.
That’s great news and not-so-good news. There’s still another huge part of our day, and it’s called p.m. “Part of the reason we were able to increase cups per store per day is because we got back into keeping coffee out in the afternoon,” Kelehan said.
C-stores should start thinking more in terms of occasions than day-parts, said Joe Pawlak, managing principal for Technomic. “On different occasions, consumers give themselves permission to have certain beverages,” he said.
“Meal complement” purchases account for about 70% of overall hot-dispensed-beverage volume, Technomic reports. Specialty coffee drinks and hot cocoa rank high as a treat, providing an opportunity to cross-promote with indulgent bakery items—because about 68% of consumers buy something with their hot beverages, according to the VideoMining study. Bakery is the top cross-purchase with hot beverages (tied with cigarettes at 11%), though Sharma said there’s plenty of room to exploit this habitual pairing.
Because consumers associate specialty and regular tea with relaxation, there’s also the potential to grab consumers leaving work with “a relaxing beverage for the drive home.” Tea accounts for just 1% of hot-dispensed-beverage gallonage, but “the margins on tea—hot and iced—are through the roof, 98% excluding the cup,” Pawlak said.
Caffeinated Youth
Pawlak also urged retailers to capitalize on younger generations’ growing penchant for c-store hot dispensed beverages.
“You may be sick of hearing about them,” Pawlak said with a laugh, “but millennials are an important group to target.” At 90 million strong, this group of 18- to 34-year-olds will continue to grow in purchasing power as its members advance in their careers. About 18% say they drink coffee—the highest percentage of any generation.
Even more important, he said, they’re “heavy users of regular and specialty c-store coffee.” Almost two-thirds of millennials (64%) said they’re buying more regular and specialty coffee beverages from c-stores this year than last year, compared to 36% of overall c-store guests.
And the proliferation of coffee shops around the country reflects the increased expectations of younger generations raised on $4 specialty coffee from Starbucks.
“Commodity coffee programs reside more with older generations,” said Marc Hubble, national sales manager of Smyrna, Tenn.-based Franke Coffee Systems, which has about 700 c-store customers nationwide.
For retailers such as United Dairy Farmers (UDF), Cincinnati, targeting more millennials has meant making a serious investment in Franke machines in its nearly 200 locations.
“With the equipment and time investment ... we’re not even close to hitting the break-even point on espresso,” said UDF fresh foods category manager Chuck Kronyak. “But I’d rather invest now that my drip business is strong. … In time, we’ll see espresso take over, but getting started now means I can defend my business down the road.”
UDF opted to untether the espresso program from its drip coffee, positioning the machine in prime real estate near the entrance “right up in the customer’s face when they walk in,” Kronyak said.
The Coffeehouse Experience
With hundreds of ways to tailor beverages at consumers’ fingertips, Franke taps into the growing expectation of customization—a hallmark of the coffeehouse experience, said Levi Andersen, beverage product specialist for Kerry Insights.
“Coffee shops offer endless customization,” he said. “If you have a good barista, like a good chef or bartender, there’s someone in control who can make anything happen.”
For c-stores looking to gain a reputation for a more serious coffee program, Andersen suggests a well-stocked condiment bar of syrups, milks (not just dairy) and spices, coupled with baristas. And you don’t even need to spend a fortune for a good beverage maker.
“There are a lot more kids nowadays who are looking for barista training,” and some coffee roasters and suppliers will provide training booklets and branded aprons as part of vendor agreements, he said. “Even just explaining how you selected your single-origin roast will show them you care about it.”
Tackling a Redesign
Transitioning from its self-described Neanderthal-esque roots—its original branded coffee was dubbed JavaMan Evolution—Madison, Wis.-based Stop-N-Go created a more inclusive Jo 2 Go coffee brand and redesigned its hot-dispensed bar in 2011.
The name came from an employee contest, with the winner receiving $1,000. And yes, it’s Jo with no “e” at the end, said marketing director Bill Ripley, “so we wouldn’t offend any more women.” With the help of Middleton, Wis.-based Food Concepts Inc., the hot-dispensed bar was redesigned to be more visually appealing, incorporating Jo 2 Go design elements and separating the condiment bar for better flow.
The results? Same-store unit sales soared 15% in 2011, with more modest increases in subsequent years (2% to 4% from 2012 to 2014).
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