Fountain Fortune

In the wake of positive fountain data, retailers and suppliers look to bundling opportunities.

Steve Holtz, Editor in Chief, CSP Daily News

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The soda fountain has held a high-profile position in most convenience stores for years, even decades. Rare is the store that doesn’t have one (though they do exist). As an expected piece of the c-store landscape, it can be difficult to think of the fountain as a growing and developing element of a store’s retail offer.

But when the results of the NACS State of the Industry Report of 2010 Data showed the bulk of growth in the foodservice category came on the back of cold dispensed beverages, it became clear that there are ways to grow not just fountain sales, but also sales of other items paired with the fountain.

‘Greatest Opportunity’

“With the industry’s strong growth in beverages, retailers must challenge themselves to leverage that activity in cold dispensed beverages to introduce and to grow food programs in your stores,” John Zikias said during the April NACS State of the Industry Summit as he presented preliminary statistics. “This can and will be one of the industry’s greatest opportunities and challenges as we go forward.”

The final SOI data shows cold-dispensed- beverage sales grew by 14.6% in convenience stores in 2010. More recent NACS/CSX data reported during CSP’s Outlook Conference in August shows sales of cold dispensed beverages up another 7.3% for January through May 2011, compared to the previous year.

Zikias is heeding his own words in the Thorntons convenience stores he oversees. As vice president of sales and marketing for Thorntons Inc., Louisville, Ky., Zikias has worked with suppliers to offer combo meals—in one store, a roller-grill entrée, chips and a fountain drink; in another, a 20-ounce Coca-Cola product and a hot dog or bagel—as well as developed his own take on the “combo meal,” notably a 44-ounce fountain drink and a bag of chips packaged in a Thorntons Quick Café-branded bag. (Zikias chose not to expound on the new bundled offers.)

The Coca-Cola bundle, which comes in the form of a manufacturer’s coupon for 75 cents off, is part of a longstanding promotion in which the beverage maker has partnered with candy and snack suppliers to bring value to retailers and consumers.

“Convenience retailers have shown a lot of interest in our bundling programs, which pair Coca-Cola beverages with products from Kraft, Procter & Gamble and Hershey,” says Coke’s Russell Baker. “Such bundles enable us to activate the biggest day-part occasion within c-stores: the p.m. snack occasion.”

The offers, which are available to and used by many retailers in the industry, leverage fountain’s strength to drive sales across other categories, including salty snacks, confectionary and food offerings, says Baker, group director of channel planning and development— convenience, drug, value & specialty retail for Coca- Cola, Atlanta.

“By leveraging the power of the p.m. snack, we have been able to increase basket size and profits for our retail partners,” he says. PepsiCo, Purchase, N.Y., also pairs its beverage with other products, taking advantage of its sister company Frito-Lay whenever it can.

“Branding is the foundation of PepsiCo marketing, not just because we have world-class brands, but because consumers continue to vote with their pocketbooks,” says Doug Allison, vice president of industry relations & communications for PepsiCo Foodservice. “When you can combine leading brands with value, you have a winning proposition in the mind of the consumer.”

Allison says pricing and promotional activity can drive consumer behavior to the fountain or cold vault, depending on a retailer’s preference. “We usually see a shift between the beverage type (fountain or package) when the promotion is of strong perceived value by the consumer,” he says.

Either way, the payoff is a pretty healthy sales lift, he says: “In fountain-dispensed beverages alone, a study to determine the impact that promotions have on beverage sales concluded a more than 40% increase in units sold during promotional weeks vs. during non-promotional weeks.”

At Dr Pepper Snapple Group, Plano, Texas, bundled promotions are sometimes orchestrated by the supplier and other times through legwork on the retailer’s part, says Ron Jeans, vice president of national accounts.

“A combo meal might be a CSD (carbonated soft drink), a sandwich and chips … and they brought several suppliers together to make that happen,” he says. “And we have programs that we do internally with other organizations that we take to the retailer, our occasion-based programs. It may be a scenario where at the vault, if you buy a 20-ounce Dr Pepper, you get cents off a Hershey product.”

Packaged vs. Fountain

What’s significant about these bundles is they just as often include a packaged beverage as they do a fountain drink, thereby giving consumers multiple options.

Dr Pepper Snapple Group works with retailers to develop bundled packages that produce the best results for their stores, in one recent example crossing that line between the fountain and the cold vault.

“We did something with QuikTrip where you buy a fountain drink and you get [a certain percentage] off on a Snapple bottle,” Jeans says. “If they’re getting a fountain drink, how can you get them to take something home with them? … Provide some sort of financial incentive for that consumer to take home another package to drink later; then the retailer wins because they’re selling two beverages on one occasion.”

It’s just one example of how Dr Pepper Snapple Group is trying to bridge that gap between dispensed and packaged beverages. “We, like most organizations, [are split that way],” he says. “But we have constant communication, and we try to do more and more selling together.”

While bundling two beverages sounds unorthodox, Baker of Coca-Cola says most anything can be packaged together if the bundle meets certain criteria.

“[We focus] on creating bundles with the highest traffic/highest margin products for our customers,” he says. “Based on our experience with combo offers in the QSR segment, we believe the most effective bundles offer a discount of about 10% on the combined purchase price. This level of discount is enough to entice the shopper and preserve profitability for the retailer.”

Making the Conversion

So who’s easier to convert—a fountain customer to a packaged drink, or vice versa? Research conducted by Dr Pepper Snapple Group with LG&P Research in 2010 suggests it’s the former.

“The average packaged-CSD shopper does not interact as much with fountain purchases, whereas the average fountain purchaser has more interaction with packaged CSDs and other bottle/can beverage types,” the study concluded. More than one-third of carbonated fountaindrink purchasers also bought a packaged beverage on the same trip, according to the report. Specifically:

  • 53% purchased gasoline.
  • 39% purchased gum or candy.
  • 39% purchased salty snacks.
  • 38% purchased lottery tickets.
  • 35% purchased a packaged CSD.

For consumers purchasing a packaged CSD, the results were relatively similar, with the exception of very few customers also purchasing a fountain drink. In fact, fountain drinks didn’t even register in the data, which shows other products bought by customers purchasing packaged CSDs:

  • 41% purchased candy or gum.
  • 39% purchased gasoline.
  • 37% purchased lottery tickets.
  • 36% purchased salty snacks.
  • 34% purchase tobacco products.

“It really goes down to need states,” says Jeans. “The fountain station can be a destination. People know they’re going in to get a fountain product.” But, he says, they can be persuaded to purchase a packaged beverage via the offer of a deal, point-of sale signage and, of course, bundling.

That’s the main reason Coca-Cola is looking into expanding the bundling programs it provides to retailers.

“Because bundles are well-received by shoppers and retailers, we are exploring opportunities to expand our program with other consumer packaged goods companies,” Baker of Coca-Cola says.

Coke is also planning to enhance the structure of its offers. Baker says, “In the future, you’ll see more pervasive, sustaining bundle offers, which eliminate the hassle of paper and coupon redemption.”

For example, a retailer might offer a Coca-Cola product and a candy bar for a set price for an entire year, he says: “This will allow our convenience retail partners to offer more compelling value meal structures, similar to the QSR sector, which has demonstrated the tremendous power of sustaining bundle deals for many years.” 

Bubbling Up

In convenience stores in 2010, cold dispensed beverages:

  • Accounted for 11.59% of foodservice sales contribution.
  • Saw sales grow by 14.6%.
  • Experienced a gross-margin increase of 1.1 percentage points.
  • Saw gross-margin dollars increase 17.34%.

Source: NACS State of the Industry Annual Report of 2010 Data

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