To run a convenience-store dispensed beverage subscription plan—or not?
This is topic into which consultant Richard Poye took a deep dive in his talk Are Dispensed Subscriptions Smart Traffic Builders or Unnecessary Traffic Risks? at CSP’s Dispensed Beverages Forum last week in Lombard, Illinois.
Subscription plans are the evolution of the free-refill-cups promotion, such as free refills all summer for $6.99, said Poye, founder of Nashville-based Food Trends Think Tank.
Americans on average spend $924 on subscription services, which can include streaming services, gym memberships and more, Poye said, adding that some research suggests consumers are experiencing “subscription fatigue,” with many feeling they are paying too much for these services.
The most challenging part in a subscription plan for a retailer is building the basket, Poye said.
“If you have somebody come in on a subscription service, get a drink and walk out, that’s tough,” Poye said.
Poye talked about Laval, Quebec-based Circle K’s Sip & Save program, which launched in May 2021 and allowed one beverage per day, incentivizing customers to visit daily to maximize the subscription’s value. Most dispensed beverages were included, appealing to a broad audience, and the $5.99 monthly fee made for a low commitment.
“The affordability and value aimed to attract new customers who may not typically buy dispensed beverages,” Poye said, adding that the thinking was subscribers were more likely to become loyal customers, building a habit of visiting Circle K stores. In addition increased store visits could create opportunities to sell high-margin products such as snacks or prepared foods.
By July 2022, there were 450,000 subscribers, and in November 2022 Circle K said, “Sip & Save was driving traffic,” Poye said. However, in March 2023 Circle K was facing challenges, with the program leading to depressed gross margins across the company, he said.
In January 2024, Circle K raised the monthly fee to $9.99, then discontinued the program in March 2024 and shifted to app-based promotions.
While the Sip & Save program initially succeed in boosting customer engagement and increasing stores visits, “operational challenges and impacts on profit margins led Circle K to reassess its promotional strategies,” Poye said.
Challenges
Challenges to consider in a subscription plan, Poye said, are:
- Profit margins: If a high percentage of customers maximize the plan (redeem drinks daily), the margin on individual beverages might shrink.
- Operational strain: Managing high traffic during peak hours could lead to operational bottlenecks.
- Cannibalization: Existing high-frequency customers who previously paid full price per drink (in fountain and packaged beverages) might shift to the subscription, potentially impacting per-customer profitability.
Cannibalization also can hurt subscription plans two other ways, the first being some customers might choose dispensed beverages over high-margin packaged beverages, Poye said.
In addition, “If the subscription includes basic coffee and fountain drinks, customers may downgrade from more profitable specialty beverages or made-to-order beverages,” he said.
Regarding Circle K’s program, “It was a bold decision that must have produced significant consumer insights,” Poye said, adding that the gain in customer acquisition did not offset the reduced margin.
“One drink per day may have been too restrictive,” he said. “The program was not overtly connected to driving volume to other categories, particularly food.”
Circle K and most other retailers have shifted toward app-based promotions to capitalize on enhanced customer engagement, loyalty building and sales growth, Poye said, mentioning Parker’s Kitchen’s Chewy’s Drink Club, Panera’s Sip Club and Club Pret, from Pret A Manger.
“The promotions are designed to provide personalized, real-time offers and drive both foot traffic and app adoption,” he said.
Customers shop c-stores when they are hungry, thirsty, need energy or want indulgence, Poye said.
“Each of these customer profiles has unique needs and will require unique strategies to integrate with a beverage subscription program,” he said.