Sharon Porter knows how she likes her coffee. Yet when she orders it the same way at one of the coffee chains, it comes out differently each time. So Porter wasn’t completely surprised when, during the 2011 CSP Coffee Bar Development Summit in Houston, discussion turned to the importance of customers being able to customize their coffee to their specifications at c-stores. But she was pleased to have it put out on the table.
“I think we don’t beat our drums enough about the fact that, ‘Hey, Mr. Customer, you can come to our locations, find a great cup of coffee, make it quick and make it the way you want it.’ I think that’s our point of differentiation,” said Porter, director of vendors/business development for Lisle, Ill.-based Royal Buying Group Inc.
That was also the finding of a series of focus groups and surveys shared by WhiteWave Foods Co., Broomfield, Colo., and Perspectives/The Consulting Group Inc., Los Angeles. Joan Vieweger, principal for Perspectives, explained that the research found that drivers for coffee customers to come to c-stores include:
“Make It Fast.” With c-stores competing with QSRs, Vieweger said coffee purchases should take less than 2 minutes. Streamlining to make coffee bars less cluttered and well-stocked can help avert the “paradox of choice,” wherein customers have so many options they can’t find what they want. “Pull everything off, and then start putting it in piece by piece back on the top [of the coffee counter],” Vieweger said. “And say: What do I really need? What’s really fundamental to this?”
“Make It Fresh.” Some components of freshness are simply the “price of entry” to the coffee category, such as can’t taste burnt, not stale and not too much water. According to Vieweger’s research, secondary drivers include characteristics such as not too bitter, well-blended, pleasant aroma, not oily, good temperature, consistency, smoothness and richness, rich and bold, no aftertaste and not acidic.
“Make It Mine.” “This is where you guys really excel,” Vieweger said, confirming Porter’s point. While baristas can help customers customize, “it’s a little more personal if I do it myself; I know exactly how much of everything I want. I get it just the way I want it every single time.”
Numbers Game
Helping consumers realize those points of differentiation should continue to be an important focus for c-stores. According to Adam Clay, manager of client development for Port Washington, N.Y.-based The NPD Group, 31% of unit purchases made in a convenience store were for some type of dispensed beverage— with an average $6.83 basket. (Of the dispensed beverages, he said 33% are looking for coffee, 11% cappuccino or latte and 3% hot or iced tea.)
Clay stressed the value of those dispensed-beverage buyers: “I can guarantee nobody’s buying a $6.83 cup of coffee, so they are buying other products.”
For example, the 45% of consumers who purchase their coffee between 6 and 10 a.m. tend to also purchase doughnuts, gum, sweet rolls, sandwiches, breakfast sandwiches, snack cakes and cookies. “We also see the coffee buyers using the ATM,” Clay said, “and we’ve seen a lot of retailers very successfully reach out with free ATM fees.”
What they are not buying is gasoline, with 64% of coffee/hot-drink buyers actually not purchasing gas. “If you’re looking to distinguish yourself from that gasoline offering, coffee really seems to be resonating with consumers who are going in,” Clay said.
Behind the Brew
Cup size also warranted much discussion, with Clay sharing NPD numbers on the share that each size accounts for in sales:
Small cups (8-12 ounces) are 17%.
Medium cups (16-19 ounces) are 40%.
Large cups (20-24 ounces) are 41%.
Travelers to go (96 ounces) are 1%. According to David Bishop, managing partner of Barrington, Ill.-based Balvor LLC, 53% of retailers carry a three-cup configuration, with the most popular including 16-, 20- and 24-ounce sizes. He pointed out NPD’s 17% estimate for small-cup sales. “Why don’t we serve that market?” he wondered. While retailers are often tempted to raise prices, another possibility is to hold the price and, instead, reduce the cup size.
While retailers might be uncomfortable with downsizing customers, said Bishop, “If bringing something that satisfies approximately 17% of the market will help defend your position and, better yet, grow it, then your profits are going to flow by the pure nature that you don’t have to try to win them back.”
Presenters also discussed roasts, iced coffee, equipment, brands and design.
Roasts. Vieweger talked about optimizing roasts, with regular/house roasts satisfying 50% of consumers. Adding Colombian means satisfying 68% of consumers; a French roast or darker roast bumps it up to 75%, decaf to 78% and hazelnut to 81%. Incrementally adding other roasts might mean one more point each. “It’s not worth what you’re getting when you know operationally what it does to your business,” she said.
Iced Coffee. Vieweger also looked at iced-coffee drinkers, with 40% saying they had iced coffee at least once a week. As for reasoning behind iced-coffee purchases, 64% wanted something cold, 62% liked the taste and 53% said it felt like a treat. Vieweger reported a surge of iced-coffee drinkers during the recession. “This is where they were looking for refreshment,” she said. “This is where they were looking for a treat.” Iced coffee is driven largely by QSR visits, with 41% of consumers saying that’s the channel they turn to (up from 25% two years ago). But c-stores also saw a bump, from 27% to 32% over those same two years.
Equipment. Equipment also plays a role, although Michael Lawshe, president of Fort Worth, Texas-based Paragon Solutions, said he doesn’t care which type you choose: “I don’t care if you have glass pots. I don’t care if you have urns. Operationally, are you delivering the highest quality?”
For example, that glass-pot coffee has a shelf life of about 20 minutes. “If operationally, you are throwing away the coffee and you are brewing fresh, and you are doing what you’re supposed to do, wonderful,” he said. However, “I’d say most that have glass pots don’t.”
Also important is the visual on the equipment. “I would say that for over 50% of the stores that I go to, the equipment is bare,” Lawshe said. “It has no graphics, it has no branding, it has no point of sale, it has no bundling, it has no brand.” He suggested retailers work with their coffee providers to get those visuals in place.
Brands. “If there is a spot that’s not communicating well to the consumer what the product is, if there’s uncertainty, that’s not good,” Lawshe said. “So create that environment in a very positive way, whatever your brand is.”
Brands, he said, can be communicated on digital technology at the pump, point-of-sale signs or on the coffee cup.
Design. “Instead of inserting coffee in an 8-foot section in the middle of an entire foodservice bar, give it the attention it deserves,” Lawshe said. “Separate with materials, separate with lighting, change up everything about that area—and just say this is something different, this is something special.”
Drive-thrus are also worth considering, according to Lawshe. C-store operators who haven’t had success with drive-thrus often have “cut a hole in the wall” and had clerks “running all over the place,” he said. Although he concedes that it’s not easy to have a successful drive-thru, having higher-volume items nearby and inspiring impulse through product displays at the window can help build up drive-thru business.
The biggest challenge in coffee sales, Lawshe said, is customer awareness. “It’s a difficult challenge to get them to know the quality of product that you’re delivering,” he said. “To build that awareness, you have to make a commitment.”
Next Steps
David Bishop, managing partner of Balvor LLC, provided retailers with actions to take when they get back to their stores:
- Ensure stores are executing consistently against their promise.
- Determine what elements need to be refreshed.
- Review the impact of menu descriptors.
- Assess cup set configurations.
- Test different pricing strategies.
- Validate the goal of club programs.
- Evaluate more ways to reach consumers off-site.
Brewing Competition
Retailers need to “take the blinders off, and look beyond the competitor down the street” to other channels, said Paragon Solutions president Michael Lawshe. Turning your eyes to the competition was a recurring theme throughout the summit, with speakers examining our channel’s most visible threats.
Of course there was the nod to the pioneer of casual coffee. Starbucks, said Joan Vieweger, principal for Perspectives/The Consulting Group Inc., is about more than just a cup of coffee: “It’s the whole social experience, it’s a treat for me, it’s something I want to do being with my friends, it’s relaxed.”
Of cost-conscious consumers who said they were going to Starbucks less these days, 43% were turning to c-stores. However, she said, “Once the economic recovery starts, they’re going to get some of those people back who want to return to that.”
But while Starbucks has historically captured our attention—and arguably our thirst to truly embrace coffee as a category driver— another player is stepping up as a coffee superstar: McDonald’s.
The chain, says Vieweger, spent more than $100 million on McCafé. “In doing so, they made all the boats rise in the coffee business,” she said. “People in your segment benefited from that as well.” Prior to launch, she said each location averaged about 20 cups of regular coffee a day. Now each sells 50 cups of espresso, 200 regular cups of coffee and 250 to 300 cups of iced coffee a day.
David Bishop, managing partner of Balvor LLC, said McDonald’s did three things: taught the consumer that they didn’t have to spend a lot of money for a good cup of coffee; raised the low end of the price market; and encouraged more away-from-home consumption. “So it lifted the whole tide for boats,” he said, echoing Vieweger’s statement. “Now the question is: Which boats are ready to float and which ones are actually sinking in the water?”
Lawshe pointed to the success of McDonald’s free-coffee Mondays in getting the word out about its coffee program as something retailers should consider: “I know free is easy to sell, but sometimes you’ve got to do that to get the product in the mouth of the customers.”
Other trends to watch:
Drug channel. Bishop said of Walgreens’ and its Café W program, “They’re like the McDonald’s of drug stores. They have great locations and they have a lot of them. And they also have the reach and leverage to scale up and utilize advertising to really promote their offering, so I think there’s a lot of interesting implications of that.”
Single-cup brewers. This became a $100-million U.S. market almost overnight, with 7% household penetration and 1% per year growth, according to Vieweger. Starbucks is also in that market, putting the brewers and their coffee in hotel rooms.
“Each one of these is a drip, drip, drip that pulls away from other places where someone can get coffee,” she said.
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