How to Drink in More Dispensed Beverage Profits

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How to Drink in More Dispensed Beverage Profits

By Bob Phillips - 06/10/2016

Variety, so goes the saying, is the spice of life. In the convenience store universe, nowhere is diversity more prevalent than across dispensed beverages. From crazy flavors in the frozen dispenser to red-hot coffee, tea, lattes — and everything in between — there quite literally is something for everyone. And the fact that dispensed beverages are easy on customers’ pocket-books can play a significant role in making your stores a destination.

“Customers seeking more bang for their buck will always find value in dispensed products,” explained Convenience Store News How To Crew retailer Ryan Krebs, director of foodservice for York, Pa.-based convenience store chain Rutter’s Farm Stores. “The main ‘callout’ to customers is the 99-cent, any-size price point from QSRs [quick-service restaurants]. So, if you charge according to size, make sure the ‘value’ of your products is greater than that offered by the competition.”

Indeed, there are several factors to consider when designing and executing a dispensed program. For starters, determining the proper equipment for your locations.

“It’s essentially a function of space, money and store traffic,” explained How To Crew member Chad Prast, senior category manager of fresh foods and dispensed beverages for Murphy USA Inc.’s convenience store portfolio. “Putting 24 heads into a lower-volume store can result in lots of spoilage.” For high-volume locations, Prast recommends a 16- to 24-head fountain as the optimal arrangement, provided space is available.

MUY CALLENTE!

Coffee bars are a staple in the convenience trade, offering up piping-hot coffee, hot chocolate, hot tea and barista-style beverages in a self-serve format. Customers have their choice of adding milk, cream, sugar and syrups among other options.

According to How To Crew expert David Bishop, managing partner of Balvor LLC, a sales and marketing firm, males are currently the primary target for c-store hot dispensed beverages “mainly because males are the dominant segment making in-store shopping trips in c-stores,” he said. “But, in fact, females who shop inside c-stores are just as likely to purchase hot beverages.”

A new demographic helping to drive sales of hot dispensed beverages at c-stores is millennials. This group of consumers is loyal to products that suit their beliefs and lifestyles. They are not as affected by pricing as other groups and they want their product of choice quickly, noted Tim Hume, director of sales and marketing for B.O.V. Solutions Inc., a pioneer in Bag On Valve technology and manufacturing.

“The quality of coffee at convenience stores has improved dramatically, and coupled with the amount of offerings available, the millennial can make a quick choice and have it quickly. Many c-stores are offering a social setting, Wi-Fi and a more relaxed experience. This is attractive to those who are active in social media and can review the products before they purchase — again, millennials,” Hume continued. “Other c-store chains are increasing the size of their stores. This offers [millennials] the opportunity to purchase a coffee while they shop for more products.”

While hot dispensed beverages rule the roost during the morning daypart, they can be top sellers throughout the day (and night) as well.

“Popular belief is that c-stores sell the most hot beverage cups per hour from 4 a.m. to 11 a.m.,” said How To Crew member Larry Miller, president and founder of Sanford, Fla.-based Miller Management & Consulting Services. “Then, Starbucks, Gloria Jean, and Peet’s Coffee & Tea came along and showed us that hot beverages can be sold all day long.”

Cup volume does drop off after the morning drive, however, and according to Miller, fresh-brewed coffee has a relatively short shelf life (approximately 30 minutes). “Many operators don’t want to waste coffee, so they only brew it at certain times. In order to sell hot beverages all day, you first have to build a reputation for having fresh coffee at all hours,” he emphasized.

Speaking of fresh coffee, Prast points out that younger consumers are trending toward single-cup machines that grind and brew their coffee on the spot. “Right now, the technology is slow and doesn’t always do the size of cup the customer wants. But as that gets better, this could easily be the next wave that cuts shrink to almost nothing and allows for fresh coffee each time.”

Another emerging trend in coffee is cold brew, which despite its name, can actually be enjoyed hot or cold. Smooth, flavorful and with less bitterness or acidity, cold brewed coffee is growing at a pace of 120 percent annually compared to regular brewed coffee at 4 percent annually, according to Hume of B.O.V. Solutions.

Convenience store retailers can use cold brew to differentiate from the competition.

“7-Eleven is the only c-store that I am aware of that offers a cold brewed, cold coffee option. The quality of the cold brewed is second to none,” Hume said. “Liquid coffee (cold brewed) is the coffee of the future due to better taste and less waste.”

THE STONE-COLD TRUTH

While the fountain beverage dispenser is usually considered the domain of younger consumers, it’s important for c-store operators not to limit their target for cold dispensed beverages (CDBs), ‘less you risk cutting off your nose to spite your face.

“Your typical consumer [of cold dispensed beverages] depends on your store’s brand and location,” said How To Crew expert Tim Powell, vice president of Q1 Productions, a Chicago-based consulting firm. That said, the core consumer of CDBs is male, between 18 and 35 years old, and skews Hispanic.

“If you have kept up with innovation and you offer a large variety, all your customers are potential refreshment customers,” noted Miller. On the other hand, he said, “If you have the same equipment and offer from 10 years ago, then chances are you have already lost most-all of your dispensed beverage business to a competitor.”

While convenience stores face an enormous amount of competition in the foodservice arena from virtually every other channel, particularly QSRs, c-store operators can win the war for the dispensed beverage dollar by offering more variety than the guy down the street.

“Certainly anyone in your immediate area that sells dispensed beverages is the competition,” explained Rutter’s Krebs. This is where differentiation, variety and customization come into play. “It’s imperative to stay on trend with dispensing systems [Coca-Cola Freestyle, Pepsi Spire, Cornelius Pro Touchscreen] that offer visual appeal, more variety and customized flavor offerings.

” The competition is everyone, from QSRs to Walgreens to big-box and club stores, agreed Miller, who also adds home beverage systems like SodaStream and the Primo Flavorstation Home Beverage Maker to the list of competitors for the c-store dispensed beverage dollar. “Even some dollar stores are adding cold and hot dispensed beverages to their footprints,” he pointed out.

THE HEALTH OF FROZEN BEVERAGES

Switching gears to frozen beverages, current trends in this segment somewhat surprisingly lean toward “better-for-you” consumption. This opens the door for flavors such as green tea and pomegranate, which also helps attract female consumers. Of course, younger consumers are still going to be attracted by the less-healthful sweet flavors such as bubble gum and root beer float. So, it’s important to not limit what you’re offering at the frozen dispenser.

“Find out what programs are available from DSD suppliers like Slush Puppie, Gator Ice, ICEE distributors and smoothie programs,” advised Miller. “The key is determining what you can do to set your stores apart from the crowd.”

Variety is very important, echoed Murphy USA’s Prast. “Blue, red and cola flavors will usually make up 80 percent of frozen sales, but after that, the more flavors you can add, the more sales you will bring in. It also helps to do in-and-out flavors to keep the area exciting.”