Hot Beverages Heat Up, Prepared Food Cools Down

Foodservice sales growth once again outpaced merchandise sales growth at the average c-store

Foodservice continues to be a growth engine for the convenience industry. Even though the category lost a bit of steam in 2010 compared to the previous year, foodservice sales growth once again outpaced merchandise sales growth at the average convenience store.

Foodservice sales per store increased last year by 4.8 percent, going from $158,829 to $166,483 — not quite the level of growth seen in 2009 when the category's sales increased 5.5 percent per store. By comparison, though, merchandise sales per store rose just 1.7 percent last year.

During much of 2010, CSNews heard from retailers that they were still feeling the effects of the strained economy, as customers continued to spend less and visit their stores less frequently.

Despite this, many operators invested in their foodservice offerings so they would be well-positioned when consumers loosened the purse strings. One subcategory, in particular, where c-store retailers placed a renewed focus was hot dispensed beverages.

This subcategory took a hit in 2009 when per-store sales grew just 1.5 percent, vs. 7.0 percent in 2008. Unemployment reached record highs, meaning once-core customers were out of work and no longer making their usual morning commute — or their daily coffee stop. Coupled with that, c-stores faced increasing coffee competition from quick-service restaurants such as McDonald's, doughnut shops such as Dunkin' Donuts, and gourmet coffee houses such as Starbucks.

In 2010, the convenience channel said “no more,” and fought back to secure its share of the hot beverage market. CSNews reported on many new retailer initiatives. Among them:

■ 7-Eleven revamped its coffee to better attract the millennial generation. Changes included switching from glass pots to urns, introducing a new look and layout for the coffee bar, redesigned cups and coffee branding, and youth-focused promotions.

■ Wawa also switched from glass pots to thermal containers. Its “Coffee Unplugged” makeover was the company's first major reinvestment in coffee in a decade.

■ The Pantry, as part of its new “Fresh Initiative,” relaunched its Bean Street Coffee program with an improved taste and enhanced coffee serving stations. Stores also added hospitality associates.

■ QuikTrip started rolling out its next-generation stores, which feature a specialty beverage bar where associates prepare made-to-order hot, cold and frozen beverages, in addition to an expansive self-serve coffee and cappuccino area.

These initiatives and others like them apparently paid off, as hot dispensed beverage sales increased by 5.0 percent last year, going from $42,282 to $44,412 — a gain of $2,130 per store. Of the four segments that make up the foodservice category, hot dispensed beverages had the second highest sales growth in 2010 on both a percentage and dollar basis.

Taking the top spot for strongest percentage growth was cold dispensed beverages, which posted a 5.2-percent sales increase per store last year, compared to a 5.8-percent increase in 2009. On a dollar basis, this segment gained $690 in sales per store, placing it No. 3 out of four.

Innovative promotions and new products helped boost cold dispensed sales in c-stores. For instance, Quick Chek last summer started hosting its daily Happy Hour events where customers can go to any store between 3 and 7 p.m. and enjoy half-priced fountain drinks, Quick Freeze frozen beverages or hot and iced coffees. Around the same time, Kum & Go held a “Name Our Cup Contest,” which asked customers to submit a name for its fountain drink. The contest also featured a summer-long price of 59 cents for 32-ounce fountain drinks.

2010 marked the first time in the last four years of the CSNews Industry Report that the prepared food subcategory did not post the highest percentage sales increase among the four foodservice segments. However, it still ranked first in terms of dollar growth.

Sales of prepared food did increase last year, although not as robustly as in previous years. Per-store sales rose 4.7 percent, for a gain of $4,491. In 2009, prepared food sales increased 7.3 percent — contributing an additional $6,571 in sales to the average c-store.

As for why prepared food saw such a slowdown in growth, industry insiders believe c-store retailers were forced to set prices lower to drive traffic. Value and discounting continue to play a huge role, in prepared food especially.