Convenience stores have been a well-established coffee destination for many years, but with fast-food chains and other foodservice establishments laser-focusing on hot dispensed beverages, retailers need to keep the category in tip-top shape. “This category has the capacity to realize huge margins, which is why it’s really important to convenience stores,” said Jayme Gough, analyst for NACS. “Specialty coffee and espresso drinks are very popular with younger millennials and Generation Z, which gives the category room for innovation and future growth.”

Hot Sales

Hot dispensed beverages offer retailers an opportunity to boost profits with strong sales and great margins. “The most important aspect a convenience store can focus on is delivering on quality and value in their hot dispensed beverage program,” said Chuck McMillan, director of coffee service national accounts for Community Coffee Co.

Hot dispensed beverages represented 4.22% of in-store sales in 2017 and grew marginally in sales per store by 0.7% year-over-year, according to NACS State of the Industry data. The category brought in $83,867 in sales per store, providing an average of $55,039 in gross profit dollars. Within hot dispensed beverages, coffee grabs the lion’s share of sales (58.6%), followed by specialty coffee (18.5%), refills (12.2%), hot chocolate (9.9%), coffee club mugs (0.4%) and hot tea (0.2%).

Sales of hot dispensed beverages have been about the same compared to a year ago at Hogan’s Hut in Stow, New York. At McGill’s Store in Clover, South Carolina, coffee sales vary depending on the weather but have been steady.

For a North Carolina chain of convenience stores, hot dispensed beverages rose 10% year-over-year ending January 2019. “However, we ended the year down 10% in 2018 versus 2017 because of strong discount promotions,” said the manager of food and beverage services.

Hot Expectations

While coffee has become synonymous with convenience stores, retailers have to keep on top of the hot dispensed beverage category to ensure that customers come back for more. “Seventy-nine percent of coffee-buying decisions are made before the consumer has the c-store in his sights, so having a customer experience a quality cup of coffee will go a long way toward earning another visit,” said Chris Wurtzel, regional account manager for BUNN.

Cold [brew] is the new ‘hot’ for today’s younger consumers.

Retailers who understand what goes into a great cup of coffee will be well ahead of the game. Beyond the basics of brewing, equipment and staff training, Wurtzel recommended creating a story around your coffee program. For example, signage telling where the coffee beans come from or who picked the beans can help engage customers beyond what’s in their cup. “Customers love a story, especially if it’s about something they love like coffee,” he said.

Along with the story, retailers need to give customers a way to customize their hot dispensed beverages. “Customers continue to want coffee personalized,” said Gough.

According to the 2018 National Coffee Drinking Trends study, 78% of consumers add something to their coffee. “The key to keeping today’s consumers engaged and happy is to offer a full selection of freshly brewed coffees and a well-stocked condiment bar,” McMillan said. “Giving coffee drinkers the ability to customize their cup of coffee is key to driving satisfaction.”

The easiest way to provide customization options is to stock a variety of condiments, such as creamers, flavors such as vanilla and mocha, and sweeteners. “Condiments are the quickest way to build your own coffee, so retailers should keep it fresh and have healthier options, which the younger generation wants,” Wurtzel said. “Having the ability to make their coffee exactly how they like it is a vital step in drawing return customers.”

McGill’s Store follows that advice by providing hot, fresh coffee daily with three flavors of creamers to allow for customization, according to restaurant manager Tammy McGill. Hogan’s Hut puts out several varieties of creamers as well.

To keep interest in hot dispensed beverages fresh, the North Carolina chain has a refillable mug program as well as a free drink program for loyalty customers. “Refills are only 99 cents with the mug program, and our loyalty customers receive every sixth drink free,” one of the managers said.

Hogan’s Hut also has a coffee club punch card that rewards customers for coffee purchases with a free coffee for every six cups purchased. “This has proven to be a good driver for coffee purchases,” said Leah Stow, general manager.

A Hot Cup

One evolution that has helped to further establish the convenience channel as a coffee destination is bean-to-cup machines. “With bean-to-cup machines, customers pick their coffee and within a minute have fresh-ground, fresh-brewed hot coffee,” Wurtzel said. “This is creating a new niche in the market separate from batch brewing.”

Seventy-nine percent of coffee-buying decisions are made before the consumer has the c-store in his sights.

“With bean-to-cup, consumers know that they will get a fresh, hot cup of coffee every time,” added McMillan. “Bean-to-cup is a trend being embraced by both operators and consumers because it addresses waste and freshness concerns for both. Consumers can be confident they’ll get a fresh, hot cup of coffee any time of the day, and operators can rest easy knowing the machines are helping reduce their waste.”

The North Carolina chain is in the process of converting to bean-to-cup machines and adding origin flavors to its coffee program. “I believe we will see bean-to-cup become the standard,” one of the managers said.

Hot Specialties

Consumers still enjoy a variety of specialty coffee drinks, with sales steadily growing in that subcategory. Specialty coffee drinks have increased its share of the category for the past two years, while espresso-based coffee drinks have surged in popularity recently. According to the National Coffee Drinking Trends 2017 report, espresso-based beverages showed the largest increase in daily consumption rate (year-over-year) in the report’s history, up from 18% to 24%. Other trends in coffee include espresso-based beverages, seasonal flavored coffees, and cold and Nitro-infused cold brews. “Cold is the new hot for today’s younger consumers,” said McMillan.

Condiments are the quickest way to build your own coffee, so retailers should keep it fresh.

While the North Carolina chain has the option of adding iced coffee to its new bean-to-cup machines, the company wants to gauge customer reaction to its new coffee offering first. “We aren’t currently doing espresso drinks but do have flavored cappuccinos such as Hershey and Cinnabon,” one of the managers said, adding that putting other specialty drinks on the menu is under consideration.

Customers expect a certain level of quality when it comes to specialty coffee drinks, so retailers should carefully consider their options before moving into that arena. “It is hard to move into a specialty category for coffee if you’re not already known for great coffee,” Wurtzel said. He recommended retailers become educated on the different specialty coffee options and talk to equipment manufacturers and suppliers to help figure out if adding specialty coffee selections would benefit their customer base.

A Hot Future

While coffee should continue to be a popular choice at convenience stores, retailers need to keep customers coming back for hot dispensed beverages. At Hogan’s Hut, Stow works with the supplier, Green Mountain Coffee, to promote the category to her customers. “They offer great marketing materials; that helps us keep our coffee program fresh and interesting,” she said. “I see hot dispensed beverages remaining a popular category among our customers.”

Overall, retailers who consider ways to improve their basic coffee selections will find an enthusiastic customer base eager to try new blends, specialty drinks and personalization options. “Innovation will continue to drive evolution in hot dispensed beverages, both in the convenience channel and across the entire landscape,” McMillan said.