Optimizing Hot & Cold Dispensed Beverages

Sophistication and competition in the hot and cold dispensed beverage categories are changing the business model, which means convenience stores can no longer rely on business-as-usual strategies.

Until quick-service restaurants (QSRs) and Starbucks Corp. came along, convenience stores had a corner on the dispensed beverage market in both convenience and offering. But then McDonald’s Corp. redefined convenience by enhancing its coffee offering and selling its beverages through the drive-thru. What could be more convenient than never having to get out of the car to get your coffee? And we all know the impact Starbucks has had on coffee quality and hot and cold variety, which others such as Dunkin’ Donuts and Tim Hortons have tried to emulate. Even the coffee players are using drive-thrus to up the convenience factor.

So, if the industry has been outdone on the convenience front in dispensed beverages, then what’s left? According to members of the Convenience Store News How To Crew, customization is the king of the category, as is quality, merchandising, branding and marketing.

“It’s all about customization — less range within the variety of bean you are serving and more on the cream, sweeteners, syrups, etc.,” said How To Crew member Joe Chiovera, a former 7-Eleven Inc. foodservice executive who now has his own consulting business, XS Foodservice & Marketing. “Consumers still give us credit that they are able to make their own cup of coffee. We must offer them a quality cup of coffee, while utilizing the proper equipment with plenty of space and variety for them to make it their way.”

The same is true for cold dispensed beverages, although this category is more price-driven than coffee. The days of chasing margin in the dispensed beverage category are long over, he said, noting the industry must be more strategic in what it promotes and, more importantly, when it promotes.

“We are a thirsty-hungry business model, not a hungry-thirsty one,” Chiovera said, noting that 65 percent to 70 percent of all customers go to c-stores to buy something to drink. “You need to be strategic in your planning efforts and not get too greedy and chase margin out of these categories. This category is a traffic driver and should be handled as such.”

Indeed, coffee and fountain beverages are commodities, which means they are price-driven by their very nature. “Everyday low price is the easiest thing to knock off, and why everyone is not doing it is beyond me,” Chiovera said. “It’s probably because someone in the organization is still handling the category from a margin perspective rather than gross profit dollars and cups per day.”

Another retail expert said c-stores should also focus on the experience. “The mindset should shift from a way to get customers in the door to a real experience they can’t get anywhere else,” this How To Crew member said. “You have to be special. Look at the quality of the coffee, the grind and the roast.”

The good news is that c-stores are still top of mind for consumers when they think of places to get a good beverage, according to How To Crew expert Tim Powell of Technomic Inc., who noted that c-stores are one of the top three destinations when consumers are seeking a beverage. But in order to maintain or improve that positioning in the consumer’s mind, c-stores must offer quality beverages — including signature blends — utilizing top-of-the-line equipment. And, of course, execution must be flawless.

C-stores must establish credibility in the category, which includes quality products, equipment, displays and merchandising, as well as marketing and promotions, added Ed Burcher, a former retailer turned consultant and member of the How To Crew. “For hot beverages, quality of the product and how it is merchandised/communicated is the driver,” he said. “For cold dispensed beverages, it is breadth of the offer in carbonated and non-carbonated,” including tea as well as frozen beverages.

QUALITY & BRANDING

Once a retailer has the fundamentals of its beverage programs down, it’s time to elevate the offering, which should include developing a signature blend, branding and marketing. Several experts recommend investing and partnering with a local roaster to develop a unique blend that retailers can call their own and promote heavily as unique.

“Also, partner with an independent lab to select your blends. There are many out there that will help you in this critical process,” one retail expert said.

Branding is also an important step in making the beverage offering unique and experiential, and will help elevate the program image in the eyes of the consumer. “By branding, I really mean make the programs unique to your stores,” said How To Crew member David Bishop, managing partner of Balvor LLC. “Incorporating earth tones or upscale-looking materials around the coffee bar creates a feeling of warmth and a perception of quality that transfers to the product offering.”

However, branding cannot replace execution. “Maintaining the image with consistent execution at store level is critical, especially for coffee,” another retail expert advised. “Customers can get a fresh, hot cup of coffee at 8 a.m. almost anywhere. However, give them a consistent, fresh, hot cup of coffee at 8 p.m. in all stores and you have now become the coffee destination.”

Beverage program branding, which is a retailer’s statement about the quality and uniqueness of its offering, should be carried through to all areas of the program, including on cups, napkins, equipment and department signage, as well as all marketing and promotions.

Investing in new and improved brewing and dispensing equipment is another way to elevate the quality of the beverages and the image of the entire program.

“Understand the functional intent of your program and how your equipment affects your intentions,” said Chiovera. “Darker roasts, for example, have a tendency to get acidic and undrinkable in a shorter time frame, while other blends hang in there a lot longer. Air, time and temperature are archenemies of a good pot of coffee. Be sure to do your homework when purchasing equipment based upon your labor, customer flow and intent.”

Water quality is an often-overlooked element that can make or break the flavor and aroma of both hot and cold dispensed beverage programs. “A simple thing that retailers should do periodically is test the water coming out of the system, as well as from the sink,” said Bishop. “Doing this will help determine the right equipment solution and if any adjustments need to be made. This affects the quality of the ice used in the cold dispensed beverages, too.”

Of course, it goes without saying that equipment needs to be properly maintained and cleaned, because nothing will degrade a program faster than if these important areas are ignored.

Because high heat can often destroy a good-tasting cup of coffee, Bishop said he is noticing an emerging trend toward “soft-heat” systems to extend the shelf life of hot coffee. Conversions to these systems, however, will require operators to move away from promoting that they brew fresh coffee every 30 minutes because the soft-heat systems can maintain product quality longer, which can also help reduce waste.

MARKETING & PROMOTIONS

Cup size is another thing to consider in evaluating programs and how to market them. Most c-store operators offer absolute cup sizes (12-ounce, 16-ounce, 24-ounce, etc.), while QSRs typically use small, medium and large designations, which makes direct price comparisons difficult and allows operators the flexibility to subtly adjust cup size “without drawing attention to it or getting in trouble with the department of weights and measures,” Bishop said.

Operators might also want to consider offering smaller cup sizes even though it might seem counterintuitive to typical retail upselling. “This may help capture an underserved segment of the market as the competition outside of convenience often offers a size less than 16 ounces,” Bishop explained.

Retailers should also explore seasonal limited-time offers (LTOs), which can help keep programs fresh. Every season, offer a new blend of hot coffee, a new hot chocolate flavor and a unique frozen dispensed beverage for a limited time. “McDonald’s is great at doing this,” Powell said. “Coffee is also an addictive beverage and it means that if each customer is given a great cup of coffee the first time, you have a great chance of keeping that customer.”

Once retailers have rolled out their branding or introduced new flavors, it’s imperative to get the word out and utilize all promotion and marketing tools at your disposal, from strong point-of-purchase signage inside the store to effective signage at the pumps, as well as billboard and drive-time radio advertising, if possible. Many retailers are also exploring social media marketing, utilizing Twitter, Facebook, Pinterest and text.

During summer months when coffee sales are slower, pump up breakfast bundling deals to keep coffee customer traffic high and volume up. One retailer said he often promotes coffee with lunch and snack combos, too, adding that “coffee is not just for breakfast.” Conversely, promote cold dispensed beverages in the winter with breakfast, lunch and snack combos.

Still, “the rise of coffee when cool and [the rise of] dispensed beverages when warm should be the focus of promotions,” Burcher said. “It is easier to get a moving train to move faster than it is to get one to start moving.”