Hot Drinks for a Cold Economy

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Hot Drinks for a Cold Economy

By Mehgan Belanger

It may be chilly right now in many parts of the country, but that doesn't mean consumers are necessarily warming themselves with c-stores' hot dispensed beverages. This foodservice segment's sales are coming up a mixed bag for operators, with some reporting flat sales, and others reporting as much as double-digit growth. Add in the troubled economy and some consumers moving to home brewing or trading down, and c-stores' hot beverage picture becomes even more cloudy.

The good news is retailers are finding they can attract and retain former coffeehouse and quick-service customers with promotions, new products and value at the hot beverage bar.

For New England Pantry, operator of more than 50 White Hen Pantry c-stores based in Norwood, Mass., hot dispensed beverage sales are flat, due to lower store traffic counts that have paralleled the drop in the economy. However, out of the total customer count, a higher percentage are buying hot beverages than before, according to director of marketing and merchandising, Chris Brosco, who attributed this to the possibility that customers of other coffee purveyors may be coming in to White Hen Pantry stores for their caffeine fix.

"We are picking up coffee customers. We have to assume these customers are coming from the Starbucks of the world or other places, such as the local cafes that have a similar pricing structure [to Starbucks]," he said.

A timely promotion helped boost cup sales at White Hen Pantry locations. When the winter season began in the northeastern chain's region, half of its stores began a promotion offering any size cup of coffee for 99 cents in an effort to get customers back into the hot coffee mindset after a season of iced and frozen coffee, Brosco said. Evidence of the promotion's success: one location sold 2,000 more cups of coffee during one month.

A unique promotion also worked out well for Indianapolis-based Village Pantry, which reported increases in hot dispensed beverage cup sales compared to year-ago numbers, thanks in part to a cooler winter that spiked coffee and cappuccino sales, according to Chad Prast, director of foodservice for the 190-unit chain.

The promotion offered any size coffee, any single fresh-made doughnut and the local Indy Star newspaper for $1.49. The publication pays for the free papers as long as the retailer achieves a specified lift in sales, and Village Pantry also gets a free advertisement in the publication for the promotion several times per week, Prast said.

"This has been a huge success driving bakery and coffee sales," he said. "We are now looking to expand it into markets where the Indy Star isn’t available with either a local paper or maybe USA Today."

The goal for the promotion was to drive customer habits. "If someone does something for so many days or weeks in a row, it becomes habit," Prast explained. "If we can get them to come in daily for a newspaper, coffee and doughnut at a great price, it will hopefully just become second nature for them each morning."

Prast also said more Starbucks customers are visiting Village Pantry stores for its quality product and bargain price. "With the economy tight that is a big plus," he said.

Meanwhile, the hot beverage competition is much closer in proximity for TravelCenters of America (TA), which operates c-stores that share buildings with competing coffee chains including Starbucks and Tim Hortons. While this can affect hot dispensed beverage sales at TA stores, Kirk Matthews, to-go category manager for the retailer, said consumers are drawn to the value it provides.

"We still see migration back to our stores. Customers would rather pay less for the same quality, and we have a refill program as well," he said, noting "hardcore" Starbucks customers are an exception to this rule -- they like the bold brew and aren't swayed by TA's more "middle of the road," coffee blends.

TA's hot dispensed beverage sales are also coming up flat to slight growth, and TA is in the process of revamping the category to increase performance, according to Matthews. As part of the process, several new products are in store for the chain, including offering limited-time coffee blends on a quarterly basis, including Kona, Ethiopian, Kenyan and sustainable Rainforest Select blends. The chain also upgraded its hot tea offering -- which has continually performed well -- to include green and black varieties.

"People look for something different. Everyone has french vanilla and hot chocolate. We have wedding cake and things you can't get everywhere," Matthews said.

However, one new hot dispensed beverage trend -- energy coffee -- is showing evidence of falling out-of-favor with customers at some c-store chains. Energy blends are flattening in TA stores, according to Matthews, who attributed it to customers health concerns over caffeine and increased competition from the cold vault, with products such as Monster Java, a cold, coffee-flavored energy drink. Village Pantry's Prast voiced the same sentiments, adding the caffeinated products are currently leveling off, and will soon begin to decline.

And while energy coffee did not perform well in New England Panty's c-stores, the chain has hopes for a new 5-store test of functional coffee additives made from herbs and other natural ingredients. Through its coffee supplier, New England Coffee Co., White Hen Pantry stores offers vitamin-enhanced shots such as a metabolism booster, said Brosco.

Rutter's, a more than 50-unit chain of convenience stores based in York, Pa., saw double digit growth in its hot dispensed beverage section, mainly due to the introduction of new items. "We constantly look for new items to keep customers interested," said Jerry Wiener, vice president of foodservice, adding, though, that the bulk of hot beverage volume is from everyday coffee and cappuccino, as well as the "king" of flavors: french vanilla.

New additions to Rutter's coffee bar include fair trade and 100 percent Colombian blends, as well as Sugar in the Raw, a natural sweetener. Weiner is also looking into Truvia, a natural, low-calorie sweetener made from part of the stevia plant, but noted ultimately adding ancillary products such as these is dependent on customer demand.

"We try to pride ourselves on having any conceivable item you could want for your coffee," he said. "As people get into these new offers and want them, I want to be sure we have them."

These efforts position Rutter's to compete successfully against the competition. For instance, one new store location, which was a raze and rebuild that opened in April 2008, saw a Dunkin' Donuts open up late last year. "We didn’t see any impact [from the opening]," said Weiner. "I see one or two cars [at Dunkin' Donuts] at the peak coffee hours in morning. We can definitely compete -- what they have is focus and execution. If we can do the same thing, there's no contest."

Proper execution is one element in a formula to create price value, another key to getting coffee customers to choose c-store brews, according to Weiner, who added price value can be created through visual appeal, variety of offerings, quality, consistency and cleanliness of the store environment. The goal is "whenever customers finish a cup, customers say 'that was worth what they asked me to pay,' regardless of price," he said.