In the way counting sheep leads many to a good night’s rest, convenience retailers wondering why their coffee programs are keeping them up all night may need to start counting cups—especially if they really want to track how their strategies are doing.
The trends surrounding hot beverages—from coffee metrics to order customization—continue to evolve for convenience retailers, according to session speakers and retailers present at CSP’s Hot Dispensed Beverages Meeting held in Chicago in March.
“When we introduced our new coffee program, our managers started feeling inspired, invigorated,” said Greg Lorance, dispensed beverage category manager for Cumberland Farms Inc., Framingham, Mass. “They felt like they had a real chance to fight the coffee wars.”
Lorance was one of several retailers at the three-day conference who shared stories about what they did to improve their coffee. But for Lorance and others taking the podium, the challenges were great—and continue to be.
Addressing about 100 attendees, speakers said cross-channel headway and customers’ financial concerns may affect the way convenience retailers have to approach the hot- and cold-dispensedbeverage categories.
In terms of the economy, David Henkes, vice president of Chicago-based Technomic Inc., did not paint a rosy picture. He said Technomic’s survey numbers from January 2014 show consumers are still spending less than hoped. “When they do spend,” he said, “they’re careful to search for value and indulge only when it makes sense.”
Political gridlock, Obamacare and an uncertain job market have created distress, he said: “When you talk to consumers, there’s still not that optimism.”
On an individual level, primary concerns include household financials, grocery prices, health care and gas prices, Henkes said. It’s a malaise that can stifle any new initiative.
And yet a number of trends bode well for c-stores, especially for hot dispensed beverages. Henkes named several:
- Hot beverages are big business. The numbers are strong for all channels.
- Beverages drive traffic. It’s what many customers come into the store for.
- Hot beverages provide incremental sales and profit growth. Data is showing that coffee drinkers spend more than the average customer.
- Higher-end hot beverages help c-stores compete with other channels. Moves in this direction are proving successful on many levels for convenience retailers.
- The morning day-part is critical, but others are emerging. Customer are pushing the demand for coffee beyond traditional time frames.
- Hot-beverage customization is appealing and becoming an important preference.
- “Branded” coffees, including c-stores’ own proprietary brands, are growing.
- Consumers want flavor, another important ingredient in a successful program.
- Seasonality affects hot-beverage sales. As in other categories, seasonal offers are a means of increasing sales, variety and customer appeal.
- Sustainability resonates. Such messages mean something to customers, but retailers have to discover what this trend means to them.
C-stores have a unique advantage, according to Joe Chiovera, a principal consultant at XS Foodservice and Marketing, Lewisville, Texas. Unlike other channels, c-stores can create environments in which customers can comfortably make a cup of coffee to their own unique tastes, with coffee-dispensing and condiment-mixing areas giving them the necessary room.
“C-stores can take back the coffee customer,” Chiovera said. “But they have to understand the competitive market, cater to and meet the demands of [their] core customer and continue to understand the needs of desired customers.”
State of Hot Dispensed
In terms of hot-dispensed coffee purchases made at retail, the c-store channel has a strong foothold, taking 15% of the 2.8 billion gallons of finished product sold, according to Technomic’s “Omnibus Foodservice Beverage Study 2013.” The channel placed third behind full-service restaurants (16%) and limited-service restaurants (39%). (See chart.)
Unfortunately, the percentage dropped when looking at the segment’s $50.3 billion in retail sales, where c-stores took only 11% of the pie vs. full-service at 16% and limited-service at 47%. Henkes said the disparity is probably due to c-stores offering a less-expensive cup.
Still, the foodservice subcategory is profitable for the channel, he said. Technomic numbers put cold, frozen and hot dispensed beverages at more than 70% gross margin for c-stores, compared to prepared sandwiches and fresh fruit in the range of 40% to 60%.
And clearly the category is strongly linked to the overall success of the store, because it affects customer count and market-basket ring.
In Technomic’s studies, high-quality beverages are either important (44%) or very important (43%) to why customers go into a convenience store. In addition, coffee and specialty-coffee drinkers index much higher than typical c-store customers in terms of spending. In its C-Store Consumer Survey of 1,000 people, Technomic data showed c-store customers who buy coffee index 70 points over all users in terms of spending. In contrast, customers ages 18 to 24 index only 17 points over average, with males specifically over only 7 points.
So what exactly is selling? Among hotdispensed beverages at c-stores, coffee is king, with 73% of share, according to the Technomic study; specialty hot coffee had 24%, hot cocoa 2% and hot tea 1%. In a different study of 750 consumers 18 years and older who purchased coffee from c-stores once a month or more often, Henkes said a vast majority—79%—bought brewed regular hot coffee over other coffee options. Machine-dispensed hot specialty coffee came in second at 40%, and canned or bottled coffee beverages came in third at 31%. (See chart.)
And, looking ahead, Henkes said coffee will maintain its strong trajectory, predicting a 2.5% increase from 2012 to 2015, compared with growth of 1.5% from 2008 to 2012. Trends fueling that continued surge include “higher-end coffee, private-label and organic and fair trade [trends],” he said.
Retailer Input
Retailers at the meeting echoed much of what the statistics showed. But they delved more into the “how” of programs, speaking to the components necessary for success.
For Linda Schultz, her chain’s focus on execution and accountability are important steps on the path to success. Schultz, director of dispensed beverages for Mapco Express, Brentwood, Tenn., laid out several important steps, including management and employee training, checklists and brewing schedules, and ways to oversee the program in the field.
Her operational essentials:
▶ Quality product and taste.
▶ Being in-stock at all times, including brewing any particular blend when asked for, even if it isn’t on the master schedule.
▶ Working equipment.
▶ A clean, organized, fresh environment.
Other retailers emphasized quality of product. Ryan Razowsky, general manager of eight-store Rmarts LLC, Deerfield, Ill., said his company’s new store concept, which features a high-quality coffee offer, targets the millennial generation.
Razowsky said an important step for his small company was to find the right partner, saying “there’s value in local relationships and cross-branding opportunities.”
After conducting trials with different local and regional suppliers, he eventually partnered with Chicago-based Metropolis Coffee Co. and saw a 20% increase in sales in each of the first two years.
For Cumberland Farms, the journey was similar in terms of trial and reinvention. For the chain, 2008 was a turning point, the year it initiated development and trial of a more refined, yet value-priced, cup of coffee.
Up until then, the company had faced declining coffee sales and competition from McDonald’s and Dunkin’, which had both recently revved up their coffee programs. After six months and more than 250 potential blends and recipes, the company felt it had a winning brew. When it launched, just about every aspect of the program, from equipment to cups, was revamped.
After that launch, which involved billboards, signage in the store and ads on delivery trucks, as well as several free-coffee giveaways, the results far exceeded goals.
The success led to yet even greater word of mouth for the regional chain. The company’s iced-coffee promotion went viral after using TV’s “Baywatch” star, David Hasselhoff, as its comedic spokesperson. People would steal 6-foot cutouts of “The Hoff ” from stores and take pictures of themselves in crazy places, such as at weddings, in their saunas and posing with their cats. The social media storm helped the company far exceed its initial goals.
Starting With the Basics
For any retailer trying to present a quality coffee program, basic rules apply, said Lu Lyall, a technology product consultant brought to the roundtable by Wilbur Curtis Co., Montebello, Calif.
The key to a quality cup is the perception of freshness, he said, which starts with good ingredients, including the beans, the water and the grounds. Water with heavy chlorine, for instance, will affect the taste of the coffee. The balance of water to coffee grounds is also important, as is the stability of temperature during holding times.
Beyond the actual product itself, retailers have to realize customers move through several “zones” within the store that communicate the quality and freshness of their coffee program, said Kevin Higar, a Dallasbased author and foodservice consultant. Some of these zones include the exterior of the store, the interior lobby, the coffee bar itself, the seating area (if one exists) and even the payment process.
He mentioned the North Salt Lake, Utah-based Maverik chain, which goes to extremes to create an adventure motif in its stores, appealing to a youthful, energized customer with actual mannequins outfitted and posed on snowboards and in canoes.
Higar also pointed out how Whitehouse Station, N.J.-based QuickChek has a timer situated next to its stores’ brewing and coffee holding areas, which is for internal use but communicates to customers that someone changes the coffee every 20 minutes.
The importance of these details emerge when retailers confront the “squeeze” of quick-service restaurants, fast-casual dining and other retail sectors getting into the coffee space, Higar said.
“You’ve got to ask yourself, ‘What’s going to be the difference?’ ” he said. “Is it products? People?”
Customization: A Given
Beyond the basics of the overall coffee strategy, a number of trends are influencing customer expectations. Higar agreed with many of Henkes’ and Chiovera’s points, especially coffee customization.
The ability to customize a coffee purchase with mixes, toppings and condiments is on trend, almost to the point of it being an expectation. And the pressure is coming from all sides. As an example, he cited a retail store that specializes in hot chocolate, with customers able to develop any number of options, including a s’mores drink.
In addition, customers appreciate offers they can relate to, Higar said, citing an idea he called the “satisfaction gene.” He spoke of a food-truck operation that took photos of customers’ dogs and created weekly specials around a particular dog’s personality (CSP—Feb. ’14, p. 36). While elements such as appealing flavor profiles are important, so is knowing the customer and making him or her feel “like you’re their best friend.”
In the c-store, customization comes in many forms, said Henkes of Technomic. One is variety. In a 2014 survey of 500 c-store customers, different flavor profiles appealed to a large number of customers. One survey question asked, “What flavors would go well with hot or iced coffee?” The top answer was chocolate/mocha (60%), followed by vanilla (57%), caramel (54%), hazelnut (45%) and cinnamon (35%).
C-stores also did well at offering variety on a basic level, at least compared to other non-restaurant channels. In another 2013 Technomic survey, the research firm found that the median number of hot-coffee flavors offered at c-stores in the study was three, compared to travel-and-leisure locations at two and “traditional” limited-serve restaurants at two. But compared to limited-service restaurants specializing in coffee or doughnuts, that number was five.
Chiovera of XS Foodservice said 87% of c-store customers want to customize their coffee, citing a 2012 study by WhiteWave Foods, Denver. C-stores are probably the single most acknowledged retail space where customers expect to fashion their own cup of coffee, he said.
Seasonality is another trend playing into personalization. Chiovera said that 44% of respondents (50% of consumers ages 18 to 34) in a 2014 study by Management Science Associates, Pittsburgh, said their beverage preferences tend to change seasonally. Specialty coffee showed a strong seasonal trend in that study, with fourthquarter sales being 95% higher than third-quarter sales.
Technomic statistics support this view. In its 2014 study of 500 respondents, it asked, “How important is it to you that c-stores offer seasonal beverages and flavors?” Fifty-eight percent of respondents in the 18-to-24 age group said it was important, and 64% of 25- to 34-year-olds did, too. Those in the 55-to-64 age group were less enthusiastic, at 29%.
“Seasonality resonates with younger consumers,” Henkes said. Yet another trend that younger survey respondents appear to favor is sustainability, said Henkes of Technomic. But that can mean different things to different people. For some it can mean recyclable cups; for others, it means offering fair trade products.
Taking a larger view of sustainability, Tracy Ging, director of corporate social responsibility and sustainability for S&D Coffee, Concord, N.C., gave attendees an international perspective. She told stories of individual farmers and their levels of capability to best grow and harvest coffee. She spoke to concerns about poverty and crop choice. More important, she cited that global demand for coffee is expected to exceed supply in the coming years, which puts the future of these Third World farmers in this country’s best interest.
The brand experience is potentially the larger message, according to Ed Burcher, president of Burcher Consulting, Oakville, Ontario. Whether the message encompasses sustainability, customer service or quality coffee, customers ultimately make decisions based on a confluence of elements.
Burcher worked with Mississauga, Ontario-based Petro-Canada in its development of the foodservice-focused c-store concept Neighbours. The building was designed to look nothing like its fueling facilities, having more of a homey, fast-casual vibe using earth tones and stone facades. Customer service was a focus as well, tying the brand to an overall experience.
“We allowed guests to customize all of the coffee, food and prepared beverages,” he said. “A key proposition for Neighbours was, ‘Fresh … Your Way.’ ”
Counting Cups
One of the concerns consultant Joe Chiovera has with retailers’ coffee programs is measurement—not in terms of waste or how much coffee grinds to put into a brew, but how c-store operators account for and measure their coffee profitability.
“They’re in a retail [accounting] environment,” said Chiovera. “And they look at movement in terms of [dollars].”
A better way to measure how a retailer is doing with coffee is to count daily cup throughput, he says. While he wouldn’t speculate on what an average, base-level amount of cups per day would be due to tremendous regional and market differences, he says counting cups takes the pricing issue out of the equation.
For example, because many companies set their coffee goals in terms of dollars, a manager may see that, midway through the quarter, the store is not making its numbers. A move in price may change things up—not necessarily helping the retailer know if the company is actually selling more or less coffee than the year before, just adjusting dollar figures so they match preset dollar goals.
Bean Counting: Coffee by the Numbers
The importance of a strong coffee program to c-store sales is apparent in numbers provided at CSP’s Hot Dispensed Beverages Meeting. With its potential for margin and the higher-than-average spend of coffee drinkers, the case for a successful coffee program is as strong as a dark cup of joe.
| How important are each of these in influencing your decision to stop at a c-store? | Percent of respondents saying “important or “very important” |
| Convenient location | 90% |
| Taste and flavor of the food | 90% |
| Quality of the beverages | 87% |
| $50.3 Billion Retail Sales of Hot Beverages in 2013 | |
| Limited-service restaurants | 47% |
| Full-service restaurants | 16% |
| C-stores | 11% |
| 2.8 Billion Gallons of Hot Beverages Sold | |
| Limited-service restaurants | 39% |
| Full-service restaurants | 16% |
| C-stores | 15%* |
| Gross Margin Comparison | |
| Hot, cold, frozen dispensed beverages | Greater than 70% |
| Prepared sandwiches, fresh fruit, soup | 40%-60% |
| Hot Dispensed Beverage Breakdown of Purchases at C-stores in 2013 | |
| Coffee | 73% |
| Specialty hot coffee | 24% |
| Hot cocoa | 2% |
| Hot tea | 1% |
| Which of the following types of coffee do you purchase from convenience stores at least occasionally (about every 90 days)? | |
| Brewed regular hot coffee | 79% |
| Machine-dispensed hot specialty coffee | 40% |
| Canned or bottled coffee beverage | 31% |
| Brewed cold or iced coffee | 25% |
| Machine-dispensed cold or iced specialty coffee | 23% |
| Made-from-scratch specialty coffee | 22% |
| Scratch cold or iced specialty coffee | 16% |
Source: Technomic
* Note: The disparity in price over volume may indicate that c-stores serve less expensive cups of coffee, according to Technomic.
Good Brew?
Brewing coffee is a science, but one that retailers can master if they prioritize several key aspects, according to Lu Lyall, a consultant brought in to speak at CSP’s roundtable by Wilbur Curtis Co. Inc., Montebello, Calif.
▶ Good coffee starts with freshly ground beans. (Stale beans do not brew as well as fresh ones.)
▶ Water quality is important, because water with too much chlorine, for instance, can throw off the brew’s overall taste.
▶ Brewing is the art of balancing the blend of water and coffee extraction. A well-balanced brew stays fresher longer.
▶ Proper brewing temperature is 190 to 202 degrees Fahrenheit.
▶ Brewing time takes 3 to 8 minutes, depending on the grind.
Attendees
of CSP’s Hot Dispensed Beverages Meeting, held March 11-13 in Chicago:
| Retailers | |
| BP ampm | Wayne Wills |
| Certified Oil Co. | Kathleen Mejia |
| Circle K | Larry Brueggemier, Brittainy Kuhn |
| Country Fair Inc. | Guy Strayer |
| Cumberland Farms Inc. | Greg Lorance |
| Douglass Distributing Retail Co. | Diane McCarty |
| Family Express | Ashraf Abuaita |
| Forward Corp. | Lundy Edwards |
| Giant Eagle/GetGo Convenience Stores | John Notte |
| Hess Corp. | John Judy |
| Kum & Go LC | Brian Cook |
| Kwik Chek | Jim Hebert |
| Love’s Travel Stops | Michael Roberts, Michael Schmitt |
| Mapco | Linda Schultz |
| Murphy USA | Wesley Price |
| Pilot/Flying J Travel Centers | Scott Stuart |
| Rmarts LLC | Ryan Razowsky |
| Speedy Stop Food Stores | James Angott |
| SuperAmerica | Kraig Elliott |
| The Kroger Co. | Phill Oliver |
| Thorntons Inc. | Barbara Nova |
| Top Star Express | Megan Cardine |
| TravelCenters of America | Kirk Matthews |
| Tri Star Energy LLC | Ken Hagler |
| Vitners Distributors | Tracee Danchak |
| Suppliers, Speakers and Guests | |
| Boyd Coffee Co. | Vickie Grimes, Cynthia Hswe |
| Burcher Consulting Inc. | Ed Burcher |
| Capitol Cups Inc. | Tina Belfance, Clare Craig, Leslie Williams |
| Core-Mark International | Tim Barry |
| Domino Foods Inc. | Steve Saunders |
| Domino Sugar | Becky Serafini |
| Flying Feathers Publishing | Kevin Higar |
| Insight Beverages | Steve Colnitis, Bill Flack, Sharon Porter |
| J.M. Smucker Co. | Scott Gosselin, Jim Westerman |
| Kerry Americas | Anthony Ferris, Brenda Turner |
| Lyall Turbosonics | Lu Lyall |
| Paramount Coffee Co. | Zach Olsen, Rich Schaafsma |
| Revolution Tea | Pat DeCrona, Ed Doyle, David Enser |
| S&D Coffee Inc. | Tracy Ging, Jennie Jones, Dale Lozier, Jennifer Megison |
| Technomic Inc. | David Henkes |
| WhiteWave Foods | Jacob Berning, Ricky Hamm, Craig McMurray, Jeff Vorst |
| Wilbur Curtis Co. | Steve Bradley, Frank McCarter, Dan Schneider |
| XS Foodservice and Marketing | Joe Chiovera |
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.