CHICAGO —Over the past year, fountain beverages have been hit from two sides.
For one, an ever-expanding array of packaged beverages in convenience stores’ coolers is providing heavy competition. Meanwhile, this spring, the COVID-19 pandemic forced many operators to shut down their self-serve fountains due to local and state health restrictions. According to preliminary NACS State of the Industry figures, sales of cold dispensed beverages fell 6% in 2019.
However, with cold and frozen dispensed beverages offering healthy profit margins, operators are working to breathe new life into the category, to encourage consumption and attract new customers.
Rutter’s, York, Pa., has kept the self-serve fountain beverage stations open throughout the pandemic, with increased cleaning and sanitizing.
“We were able to maintain fountain sales, which is pretty good as it was struggling,” said Chad White, foodservice category manager for Rutter’s. “The core flavors continue to drive fountain business, but if we can see a 1% or 2% lift from those ancillary flavors, that’s what we’re targeting.”
Almost two years ago, Rutter’s changed up its fountain offerings. It kept the core Pepsi and Coca-Cola products but also added craft drinks from Houston-based Sunny Sky Products’ Pure line. These small-batch beverages, which contain no high fructose corn syrup, include homestyle lemonade, cherry limeade, ginger beer, and cucumber-lime and blood orange options. Rutter’s also offers its private-label tea and Rutter’s Birch beer at the fountain, along with cherry, lime, lemon and vanilla flavor shots.
Much of the momentum on the fountain is coming from noncarbonated beverages.
“The fastest growth is in noncarbonated: juices, teas, cold-brew coffee, nutraceuticals,” said Neil Kelley, vice president of sales for Houston-based Sunny Sky. Sparkling water is also doing well, he points out. “Consumers are looking for things with a health halo.”
Craft drinks are doing well in general, Kelley said. Sunny Sky has its own line, Pure Craft Beverages.
“‘Craft’ is a loose term and we try to define it as products made with real sugar and natural ingredients, natural preservatives,” he said. This trend is buoyed by unusual flavors such as watermelon, hibiscus, cucumber-mint and simple lemonade made with real ingredients. With these products, Kelley said, “you’re telling your consumer this is fresh and clean,” and it helps elevate the store’s offerings overall.
Convenience stores may also want to consider adding healthier options to their fountain dispensers. According to the 2019 Q2 C-Store Consumer MarketBrief from CSP sister research firm Technomic, 59% of consumers said they’d like to see more healthy beverages.
“Today’s consumers increasingly are seeking variety and healthier refreshment,” said Gary Hemphill, managing director of research, Beverage Marketing Corp., New York. “And many are adventure seekers, looking for the next hot and interesting product to try out.”
Rotten Robbie stores in Northern California discontinued its fountain beverage program during the coronavirus pandemic and will likely reopen at the end of California’s shelter-in-place order, which as of press time was slated to last through May.“It really would have been such a big undertaking to dedicate the manpower to operate those machines and follow the guidelines,” said Daniel Moran, category manager for the stores, which are owned by Robinson Oil Corp., Santa Clara, Calif.
“The core flavors continue to drive fountain business, but if we can see a 1% or 2% lift from those ancillary flavors, that’s what we’re targeting.”
Fountain is a category the stores have struggled with, Moran admits, although “there’s always going to be a customer that wants the freshness of that fountain beverage.” The difficulty is the innovation in packaged beverages, which is hard to compete with in fountain, even with a 12-head machine, he said. “You can only create so much with 12 flavors.”
For Rotten Robbie, the best sellers are the standard drinks such as Coke and Pepsi, but it has also had some success with Mexican beverages from PepsiCo’s El Nino line, including horchata and hibiscus-flavored options, Moran said: “We try to put variety in there to see what resonates.”
Other c-store retailers have been busy innovating with better-for-you dispensed beverages. Enmarket, Savannah, Ga., offers 32 flavors at its fountain, including fresh-brewed tea and zero-calorie Sobe Lifewater, as well as chewable ice.
Global Partners, Waltham, Mass., launched its Alltown Fresh concept in January 2019 with a focus on healthy products, including better-for-you and functional offers at the fountain. Dispensed beverages include organic carbonated products and flavors such as lemongrass soda, raspberry seltzer and cardamom-mandarin.
At Rutter’s, the strongest sales growth before the coronavirus hit came from frozen carbonated dispensed beverages. All stores have four to six flavors available, with Coke a big driver, along with cherry and blue raspberry and Mountain Dew. “We rotate in LTOs in the six-barrel stores, and they bring some excitement,” White said. According to NACS figures, c-stores sales of frozen dispensed beverages rose more than 14% in 2019.
Frozen dispensed beverages “are probably the one thing customers are asking for more of,” Kelley said. And while there are noncarbonated and carbonated versions, the latter are winning out. Plus, the flavors are endless, allowing guests to customize. These are great for retailers, too, he points out, with 85% margins not uncommon. And while sales peak between Memorial Day and Labor Day, these products sell well year-round.
Some Rotten Robbie stores have a four-head ICEE machine; Moran plans to test double that.
Rotten Robbie stores offer standard flavors ,but Moran said ICEE “does a great job with rolling out LTO flavors,” which keeps excitement up. “ICEE comes out with about four different LTOs per year, and we always run them.”
Offering fountain beverages “is an expensive investment,” said Frank White, owner of White Knight Marketing, a retail marketing process partner in West Des Moines, Iowa, and former foodservice director for Yesway. But, “when managed properly and priced properly, fountain beverages can get you between a 50% and 70% margin. And every time someone comes in and buys a fountain beverage, they also buy other things, so you’re looking at a $3 to $7 ring.”
Offering frozen carbonated dispensed beverages is more expensive, with often more maintenance and sometimes significant downtime on machines, White said. However, the category brings some theater to the store, plus customization capabilities with flavor shots. Frozen carbonated beverages command a higher price point than cold dispensed options, he said, with prices around $1.49 to $2.
“There’s always going to be a customer that wants the freshness of that fountain beverage.”
Promotions help boost sales of fountain beverages and frozen dispensed drinks. At Rutter’s, White runs Fountain Fridays, with 2 cents off any fountain drink or slushy. He gets the word out at the pumps, through digital signage and social media.
After years of running promos on fountain beverages, Moran of Rotten Robbie has stopped. “We’d see a small bump and we’d do really aggressive pricing and full signage in the forecourt, but that bump wouldn’t continue after the promo,” he said.
Darren Tristano, CEO of Foodservice Results, Chicago, suggests retailers consider more traditional promos such as receipt couponing and suggestive selling at the register, and selling cups near the register “for consumers who may spontaneously decide to purchase a beverage.”
Pairing foodservice items with a fountain beverage has been successful for Rutter’s, White said, and he’s looking to offer more of these promotions.
“Bundling fountain drinks with foodservice items and/or snacks has been a proven way to increase sales,” said Steven Montgomery, president, b2b Solutions, Lake Forest, Ill. “One of the errors we see is retailers often only post signage regarding the bundle in the non-fountain area. Given that the thirst occasion is why many customers come into the store, there should also be signage in the fountain area.
“Every store with foodservice should always have a bundle with fountain,” he continues. “Go outside the box on bundling. Fountain and pastry or breakfast items are more effective than coffee and food bundles.”
And once coronavirus-related restrictions lift, consultant White suggests offering LTO refillable cups. Customers buy the cup and get a refill price every time they use it, or they get a free drink every Friday. “This way the customer is part of a special club the retailer has created,” he said.
Retailers can also draw fuel customers inside the store for a fountain purchase. White points to Family Express, Valparaiso, Ind., which has advertised that its fountain beverages are served at 32 degrees. Other ideas are highlighting the brand with callouts on pure filtered water, crushed or cubed ice, he said. He also points to Circle K, which years ago began offering 69-cent fountain beverages. “Bring in the customer with a hot price on cold drinks,” he said.
What does the dispensed beverage category look like post-pandemic? White of Rutter’s thinks “it will evolve back.” His chain always has a store employee dedicated to helping customers with coffee and fountain beverages but that person, he said, is now “ultra-focused.”
Montgomery of b2b Consulting is not so sure. “Consumers will be cautious about fountain drinks,” he said, though using dispensers for cups and lids can circumvent this. “Retailers who develop a specific fountain drink safety strategy with both employee handling and how customers interact with the equipment can create a winning position and obtain increased loyalty.”
Tristano of Foodservice Results said, “Any messaging that can be placed near the fountain that communicates the intent of the retailer to maintain a safe and sanitary environment would be beneficial and welcomed by consumers.”