Roundtable Report: Gaining Grounds

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Reality check: Espresso has less caffeine than a cup of black coffee—a surprise detail that came out amid many questions raised at the CSP Hot Dispensed Beverages Meeting held in Rosemont, Ill., in March.

While convenience stores’ coffee efforts on the whole continue to lag behind that of traditional coffeehouses and doughnut shops, speakers at the gathering encouraged operators to maximize inherent advantages in convenience and customization.

Mark DiDomenico, director of business development for Chicago-based Datassential, opened the forum of 75 attendees with results from monthly surveys of 1,000 coffee drinkers.

At 22%, c-stores rank behind doughnut stores (36%), coffeehouses (35%) and quick-serve restaurants (24%) on a combination of coffee elements, including taste, temperature, freshness and levels of service.

“While c-stores lose on quality,” DiDomenico said, “they win with these customers on convenience and customization.”

Other session speakers delved into issues of sourcing, marketing and product development, with several retailers talking about their newest programs—including Kwik Trip, La Crosse, Wis., and Family Express, Valparaiso, Ind., which are delving into self-serve espresso.

DiDomenico also cited larger hot-dispensed-beverage trends:

• Demand for medium roasts is shrinking and dark roast is up slightly, while the biggest increases have been in light or “blonde” roasts.
• About a third of coffee consumers were dissatisfied with coffee away from home, with some attributes being product served too hot, slow service or not having the preferred sweetener or creamer. “You’re going to win the game in the weeds,” he said, believing that store-level execution can make the difference.
• Provide a story. Explaining ingredients, where the product came from, who grew it—these were all elements of a story that appeals to coffee customers.
• Some of the important adjectives to best sell coffee today include “fresh,” “aroma,” “rich,” “whole-bodied” and “pure.”
• However, while “fresh” is an important descriptor, it’s also overused. So be sure to include multiple cues to support the idea of fresh, be it an open kitchen where people see items being made or serving product within proper freshness times or dates.

Re-emphasizing a c-store’s convenience advantage, DiDomenico said retailers need to consider the complexity of any new offer, even if it’s a potential growth category such as espresso drinks.

“To snag millennials [for instance], they want convenience,” he said. “[But] even espressos take time. Don’t put up roadblocks. Waiting an extra minute could be a deal breaker.”

Brewing Trends

Further exploring trends of beverage quality and the threat of cross-channel competition, Adrienne Nadeau, senior consultant for Technomic Inc., Chicago, said c-stores play a significant role in overall foodservice—representing 2% of the aggregate $11 billion market—but have significant barriers to overcome before surpassing the competition.

“There’s a tremendous amount of money and potential,” she said. “But the challenge is to overcome perceptions around cleanliness and quality.”

That goes particularly for women. In surveys assessing multiple foodservice attributes, women overindex, or are more sensitive to issues of quality and cleanliness with regard to c-stores, Nadeau said.

“Some may say women are hard to please, but you could also say they’re more discerning,” she said. “Those attributes are a barrier to entry, making women reluctant to go through your doors.”

For consumers overall, c-stores face in an uphill battle in changing perception. A Technomic study prepared exclusively for the CSP meeting showed that price is the only attribute for which respondents felt c-stores had the upper hand (over coffee shops and fast-casual restaurants). The other segments performed equally or outpaced c-stores in taste, quality and availability of add-ins.

Nadeau was surprised by the statistic on accoutrements, pointing out that c-stores normally have a greater selection of sugars, creams and sweeteners than coffee shops. The consumer responses, she thought, may reflect perception over reality.

Nadeau pinpointed the morning day-part as a specific coffee “battleground.” Retailers sell 68% of regular hot coffee and 60% of specialty hot coffee in the morning, she said.

Describing “breakfast wars” occurring across channels, she said established players are offering a variety of new menu items, while a growing number of cross-channel competitors are now entering the game, such as Taco Bell recently launching a coffee offer.

“When people look at c-stores, they may think of a strong hot beverage program, but if they want breakfast, their needs are different,” said Nadeau. “You have to be making sure you’re not losing coffee sales to McDonald’s—not because of the coffee, but the food.”

Many players, such as Dunkin’ Donuts, will have a range of offers. “You can have an indulgence with a great doughnut or something healthier like a multigrain egg-and-cheese sandwich,” she said.

Another competitive element to consider is a drive-thru, she said. According to Technomic statistics, 44% of beverage-only customers prefer drive-thrus, with 73% of regular coffee and 74% of specialty rings being beverage-only occasions.

Other food for thought:

• Millennials and the Gen Z population are value-focused, having grown up in an age of Groupon. They expect coupons, bundles and combos.
• Thirty percent of smartphone users are ready to digitally purchase items immediately, Nadeau said. While certain digital strategies may not work for c-stores, social media and location-based methods represent low-hanging fruit, she said.
• While coffee is still a strong morning draw, coffee-flavored food or drinks are spreading across the entire day, evolving into snacks or meal replacements. And an interesting retailer anecdote: Many of his customers are opting for higher-calorie, whipped-cream-topped coffee beverages in the afternoon as a replacement for lunch, Nadeau said.
• With the Chipotle model plowing across foodservice retail, consumers are increasingly interested in customizing their drinks, something that’s ideal for many existing c-store beverage programs.
• A trend in the restaurant channel is offering “secret menus” that only customers “in the know” will be privy to.

“It makes people feel good, especially millennials,” she said.

CONTINUED: Menu Labeling Looms

Menu Labeling Looms

While retailers are eager to learn about new trends, some may be surprised that a looming legal mandate hasn’t yet made their radar screens—despite the deadline being Dec. 1.

That mandate involves menu labeling. In a session involving cappuccino and flavored-powder dispensers, Guy Strayer, director of foodservice for Country Fair, Erie, Pa., said concerns arise on a number of fronts, one being printing and professionally affixing labels to equipment.

Another issue comes with the menu items themselves. For instance, when consumers realize how many calories are in their favorite sandwich, they may opt out.

Certain QSRs and c-store retailers have taken different approaches, Strayer said. Some try to rework the item recipes to substitute lower-calorie or better-for-you ingredients, hoping the effort won’t significantly raise the item’s cost.

Another option is to do nothing, presuming that customers essentially won’t care, especially if the item was already considered an indulgence. A third route could be decreasing portion sizes.

Condiments pose another worry, especially with packets and “flavor shots” out on the sales floor. “How do we satisfy compliance when we offer customization?” Strayer said.

Self-Serve-Espresso Frontier

While menu labeling presents retailers with unknowns, at least two retailers at the conference discussed what is relatively uncharted territory for c-stores: self-serve barista-style drinks. These options include espressos, lattes, cocoas and teas served hot or cold, with milk or cold foam.

For Stephen Zirschky, marketing category manager for Valparaiso, Ind.-based Family Express, the need to invigorate the chain’s stagnant brewed-coffee sales and to attract a younger demographic led to the consideration of a more high-end dispenser. The device, produced by Smyrna, Tenn.-based Franke USA, creates any number of hot and cold flavored coffees, teas and hot chocolate drinks, with the ability to add milk, syrups and cold foam to any choice.

Once acclimated to the device, customers use a touch screen to select a beverage, place a plastic or foam cup beneath the spout and watch the machine create the order.

While expensive—starting at about $20,000 for a single device—the machine solves many of the company’s goals regarding quality, touch-screen technology and the ability to offer “signature” drinks, Zirschky said. Average monthly sales in the category increased 19.5% in the first five months of the program, he said.

Another retailer, Paul Servais, retail foodservice manager for Kwik Trip, was equally pleased with the company’s implementation of the Franke machine and its new espresso program, rolled out last year to all 455 stores. (See graphic.)

Kwik Trip leadership encountered the Franke device in 2013, almost immediately taking to the concept of a self-serve barista-style coffee option. To Servais’ admission, he knew little about espresso in September 2013, but within months he was fluent. And throughout last year, Kwik Trip rolled out the machine chainwide while facing the daunting task of training 14,000 employees on a complicated device.

“You’re only as good as your third shift,” he said.

Through a combination of value pricing, ongoing menu development and in-store engagement with staff , the program has met initial goals, with Servais hoping to achieve 50 cups per store per day in the coming months.

The overarching goal was to beat the Golden Arches. “You’re not going to beat Starbucks and its [customers’] loyalty,” Servais said. “But we are going to get good at this and beat McDonald’s.”

Telling a Quality Story

Part of a robust coffee program is the narrative, says Kyle Newkirk, vice president of global sourcing and innovation for S&D Coffee & Tea, Concord, N.C. Newkirk and others explained to attendees that millennials especially value ideas of sustainability and providing proper compensation to coffee farmers abroad. And it’s incumbent upon retailers to communicate those messages, they said.

Detailing the global nature of the world’s coffee crop, Newkirk also explained the perils of supply and demand and how Wall Street hedgers have played a role in creating almost constant volatility for coffee prices. (See sidebar at left.)

For Nadeau of Technomic, offering “food with a story” is a trend that retailers can’t ignore. Millennials and females value knowing what the ingredients are, where they’re grown and how they’re brought to market.

“With trends like ‘handcrafted offerings’ or ‘hyperlocal’ produce, we’re talking about developing an emotional connection,” she said.

CONTINUED: You Don't Know Java

You Don’t Know Java!

Retailers at CSP’s Hot Dispensed Beverages Meeting asked panelists a number of enlightening questions:

Q: How do I get more profıt from my coffee program?

A: George Shoemaker, The Biz of Coffee: $1 per pound to get a better quality cup, it will resonate with your customers and you’ll be able to charge more. The math will work out. Also, you need to boost customer perception. Give them a story; tell them where the coffee comes from.

Q: What do you do when someone is confused about the espresso machine and holds up the line?

A: Paul Servais, Kwik Trip: Our associates wear headsets and when they see a confused guest, they tell each other, “I see Franke (the name of the equipment manufacturer),” which is a signal for someone to go up and help that person.

Q: If you’re taking out decaf for lack of sales, what do you tell the customer who wants it?

A: Shoemaker: You might want to tell them to go with an espresso. A 2-ounce cup of espresso has less caffeine than a 12-ounce cup of brewed coffee.

Attendees of CSP’s Hot Dispensed Beverages Meeting

March 17-19 in Rosemont, Ill.

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