April 2017

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Respect the Ritual

Your coffee customers will never settle for a lackluster cup of Joe.
Chris Blasinsky

Johann Sebastian Bach loved coffee so much that he wrote the “Coffee Cantata,” a moral treatise on the place of coffee in daily life. Ludwig van Beethoven reportedly counted out precisely 60 coffee beans to make his morning brew exactly how he wanted it. And before Bach and Beethoven was Pope Clement VIII, who essentially “baptized” coffee in the 16th century. The pope’s advisors asked him to ban the beverage, which he refused to do until he tried coffee for himself. After his first sip, the pope declared, “This devil’s drink is delicious. We should cheat the devil by baptizing it.”

By the late 1800s, a love of coffee had spread worldwide, and women workers in the United States went home twice a day to take care of household chores and drink a cup of coffee, institutionalizing the coffee break. Folks eventually grew tired of going home to grab their coffee, so they began bringing their hot beverage with them. As drinking beverages on the go became more commonplace, automakers eventually accommodated this cultural shift with the cup holder.

With historical accounts supporting its place in the world, coffee also has a place in the hearts and minds of convenience store customers. A Long Island, New York, 7-Eleven store first introduced coffee to go in 1964. Since that first cup left the store, coffee now generates nearly 80% of total hot dispensed beverage category sales annually, per the NACS State of the Industry Report of 2015 Data (the latest report of 2016 data will be available for purchase in June).

In its earliest days, c-store foodservice began with coffee, and to this day hot dispensed beverages are the second highest foodservice revenue generator in convenience retail.

Creatures of Habit

Like Beethoven, coffee customers are highly ritualistic. Insights gleaned from the NACS Convenience Tracking Program (CTP), based on interviews from more than 10,000 c-store shoppers, reveal that 79% of coffee purchasing decisions originate before the c-store is even in sight. Given that the path to purchase is premeditated, c-stores must ensure they remain relevant in the minds of consumers who have plenty of options during the morning occasion.

NACS CTP data found that one out of three coffee shoppers were loyal to a specific c-store site, and 44% were brand loyal to a specific c-store chain. “Shoppers who indicated that their main category driver is coffee were 75% brand loyal to a specific chain—underscoring the fact that a highly differentiated coffee experience is more critical than ever,” said Leroy Kelsey, NACS director of industry analytics.

Kelsey noted that the average convenience store shopper frequents a c-store 2.4 times per week, while the average coffee shopper visits three times per week. “Coffee can deliver significant lift [to foodservice] through frequency of shopping trips and high-margin attachments,” he said. And despite strong loyalty, 8% of c-store coffee purchasers indicated that they plan to buy food somewhere else and within the next 30 minutes.

King of the Throne

Coffee makes up more than 75% of hot dispensed sales in U.S. convenience stores, with more than 60% of Americans drinking coffee every day.

As the anchor of the hot dispensed beverages category, coffee’s command did take a slight dip in 2015, per NACS SOI data. Hot tea lost 0.2 percentage points in 2015, while the remaining subcategories stayed relatively flat. Coffee and hot tea make up nearly 89% of the hot dispensed beverage category. While refills comprise about 7.5%, the remaining subcategories make up less than 5% of the hot dispensed beverage category.

“I believe many c-store retailers, including us, have been trying to build those subcategories with little or no traction with consumers,” said Joe Hamza, COO of Worchester, Massachusetts-based Nouria Energy Corp. “Coffee is and will remain king of the hot beverage category.”

Competitive Intel

While every c-store may not have a robust coffee program, nearly all c-stores sell coffee. However, with QSRs like McDonald’s and Burger King, drugstore chains and even dollar stores making strides in the coffee business, the increased competition has had a strong impact on the coffee retail universe.

While loyal to their favorite c-store coffee offer, shoppers are lulled by dedicated QSR coffee programs, with one out of four c-store shoppers saying that they purchased coffee from a QSR in the past two weeks, per NACS CTP research.

Amid the competition, La Crosse, Wisconsin-based Kwik Trip builds excitement around its hot dispensed beverages program by tapping into its marketing prowess. The c-store chain promotes $1 lattes, mochas and iced coffee every Monday. One week per month Kwik Trip promos its hot dispensed drinks for $1.99 (iced $1.49), and monthly texts alert customers to buy-one-get-one offers. To help drive these promos, Kwik Trip uses social media and in-store signage.

For c-store operators looking to succeed in a very crowded coffee market, especially in areas of the business where innovation and marketing reach are limited, Hamza suggests that “they need to continue to focus on the total value proposition: good quality of service and product, fair price and convenience. We might be a ‘me too’ industry when it comes to coffee innovation, but we can certainly win on our value proposition.”

Let’s Talk About Cold Brew

Per NACS Category Definitions, bottled ready-to-drink cold brew coffee would fall under packaged beverages, but it’s likely many retailers would classify cold brew coffee made inside the store as cold dispensed beverages.

The National Coffee Association (NCA) says that cold brew coffee has exploded in popularity, and 2017 should be no different. Citing a Mintel report, NCA says cold brew sales jumped 580% between 2011 and 2016. And while a large part of these sales has been at coffee shops, some c-stores are considering whether to add cold brew to their portfolio.

Jennie Jones, vice president of sales and marketing at S&D Coffee & Tea, believes that the jury is still out on whether cold brew will be a trend for convenience stores, more so because curiosity is fueling the demand. But if you’re going to offer cold brew, “it must be authentic and consistent,” she said, noting that it should be properly brewed or from a high-quality concentrate that gives the appearance of being freshly made.

So what separates cold brew from traditional iced coffee? Per the NCA, iced coffee brews just like standard hot coffee, which is then chilled and served over ice. Instead of heat, cold brewing uses time, where the beans are soaked in water for 12 hours or more, which then turns the water into coffee.

In September 2016, Altoona, Pennsylvania-based Sheetz announced the launch of its cold brew coffee offerings, which begins with fresh coffee ground in-house and later infused in cold water for 10 hours. “With millennials drinking more specialty coffee than any other generation out there, we hope to fill more of their cups and also introduce other coffee drinkers to cold brew,” Ryan Sheetz, director of brand strategy for Sheetz, said in a press release.

Starbucks also serves cold brew coffee, but accelerated the trend with its Nitro Cold Brew. Like pouring draft beer, Starbucks begins the process with a small keg of chilled cold brew coffee and infuses it with nitrogen for a smooth, creamy texture. The Nitro Cold Brew is poured cold right out of the tap, unsweetened and served without ice.

Paul Servais, retail foodservice director at Kwik Trip, says it’s probably a matter of time before the likes of McDonald’s and other QSRs catch on to cold brew, and noted the generational appeal. “Millennials and Gen Z are looking for cold brew, but the boomers may not know what it is.”

Getting Techy

In January, Starbucks reported financial results for its 13-week fiscal first quarter that ended January 1, 2017, citing achievements in the mobile space, as well as a few operational challenges brought on by the rise in technology.

While mobile order and pay represented 7% of U.S. company-operated transactions (up from 3% in the prior year), and mobile payment reached 27% of U.S. company-operated transactions, the increase in mobile ordering has caused many stores to experience congestion at the counter. While lines at the register were short, incoming customers would see the crowd and leave without making a purchase.

Call it an unintended consequence of mobile ordering, but don’t call it a problem Starbucks won’t be able to fix. The Seattle-based coffeehouse chain will continue leading innovation in the mobile ordering space while it continues to address this challenge head-on—a learning c-stores could eventually adopt.

For the c-store industry, where time and speed of service are paramount, technology could be an asset to hot dispensed beverages. “An app that allows guests to order their drink on their smartphone and pick it up at the store is the next step,” agreed Servais of Kwik Trip, adding that incorporating a customization feature would also be unique.

Until mobile ordering becomes more ubiquitous in the convenience retail space, c-stores can meet consumer demand without a high-tech digital component. “Most new c-stores today are designed with the consumer in mind. They are bigger, more attractive and with more trained staff on hand to serve customers faster,” Hamza said. “And in many cases our coffee quality is comparable or better than that of the QSRs, and offered at much lower prices.”

Don’t Forget the Basics

While there are certainly innovations hitting the hot dispensed beverages category, a successful program doesn’t have to be complicated. And don’t think it’s just for the larger operators.

Smaller operators can take the core concepts put forth by the larger chains “and tell their own coffee story,” Jones at S&D suggested, by focusing on the three basic core coffees, explaining where the blends are sourced from and utilizing limited time offers to build excitement around the coffee bar.

However, no program will succeed if a retailer isn’t laser-focused on this necessity: “The biggest deal-breaker for any coffee program is neglecting the condiment bar,” Jones said. “Sugars, creamers and cups  must complement the core coffee offer.”

Chris Blasinsky

Chris Blasinsky is the NACS director of editorial projects. She loves coffee but doesn’t have the patience to grind her own beans.