In the pre-pandemic world, Mark Ericson stopped for coffee at a neighborhood convenience store on his morning commute to the office. Once he began working from home, he dug out his single-serve coffee machine to produce his own java.

But within a few months, he’d established a pattern of leaving the house around 2 p.m., driving to the same store and buying a latte. “It’s the highlight of my day,” Ericson said. “If I don’t get out of the house in the afternoon, I’ll go stir-crazy. And by that time, I’m needing something with enough caffeine to get me through the afternoon.”

COVID-19 and Coffee

The U.S. coffee industry is a $96 billion business, according to Statista, and 62% of American adults drink coffee daily, reports the National Coffee Association (NCA). That makes hot dispensed beverages a cool category for convenience retailers.

The hot dispensed beverage category represented 4.17% of c-store sales in 2019, slightly down year over year, generating $93,401 in sales per store and providing $58,875 in gross profit dollars, according to Jayme Gough, research manager, NACS.

The majority of hot dispensed sales were coffee (65.0%), while specialty coffee (25.2%), refills (6.0%), hot chocolate (3.6%) and coffee club mugs (0.3%) made up the remainder.

Approximately 62% of Americans drink coffee daily.

“Hot dispensed beverages had the largest gross margin percentage of any foodservice category—63.03% in 2019,” Gough said. “And it’s the largest beverage foodservice category. Among foodservice categories, hot dispensed beverages had the second-
largest percent of sales (17.7% in 2019), behind prepared food (62.6% in 2019).”

Then the pandemic began, followed by store closures, lockdowns and work-from-home directives. “This impacted the category in a major way, since much of those sales come from commuters,” said Gough.

When consumers began working from home, “hot dispensed beverages took a large dip that has yet to surpass 2019 numbers based on CSX data for 2020,” Gough added. “The three largest subcategories—coffee, specialty coffee and refills—all followed the same trend. Despite being a small percentage of sales, refills had the largest dip, which is understandable considering many retailers encouraged customers to not use refills to mitigate the spread of COVID-19.”

Some retailers have experienced a continuation of the “specialty beverage occasions, which occur mostly in the afternoon,” said Mark DiDomenico, director, customer success, Datassential, a food and beverage research company. “People are at home, but that doesn’t mean that they aren’t going out. In the afternoon, they may want a treat or need to run errands, and it’s easy to stop at a convenience store for that little indulgence.”

Morning coffee traffic has seen only a slight increase from when COVID first impacted dispensed sales.

According to NACS State of the Industry data, regular coffee remains the top sales contributor in the category, but specialty coffee appeared to be gaining ground in 2019. “Innovation in specialty coffee machines has allowed for greater customization for consumers looking for something like a cappuccino or latte,” Gough said.

The NCA reports that the consumption of espresso-based beverages is increasing, with the most popular drinks being cappuccinos and lattes, followed by frozen blended, espresso, mocha, macchiato, Americano and flat white, respectively.

Like most c-store retailers, Virginia-based GPM Investments, which operates or supplies about 3,000 convenience stores in 33 states and Washington, D.C., under the Arko Family of Community Brands, is still seeing soft sales during the morning and has not experienced a higher percentage of customers drinking coffee in later dayparts.

“Morning coffee traffic has seen only a slight increase from when COVID first impacted dispensed sales,” said Jim Rastetter, category manager, GPM. “Although the morning daypart from 6 a.m. to 10 a.m. still represents more than 50% of coffee sales.”

Hot Options

Seven in 10 Americans drink coffee at least once per week, according to the Specialty Coffee Association. With that in mind, Rutter’s, the 78-store chain based in Pennsylvania, continues to offer limited-time coffee flavors and offer breakfast deals to attract morning customers.

“If we can get the customer in the door in the morning, there is a good chance they’ll grab a cup of coffee,” said Chad White, category manager for foodservice, Rutter’s. “We began to see some pickup in hot beverages with the cold weather, and we’re seeing good sales with the afternoon customer coming in for food or quick treats.”

Pandemic or no, consumers still crave variety, and GPM recently enhanced its beverage offerings with the addition of a Brazilian blend that is 100% Rainforest Alliance Certified.

“Having a new flavor of coffee at the peak of the season is important and an expectation of customers,” Rastetter said. “Offering this blend is an important factor in keeping the current core GPM hot-dispensed beverage customers engaged.”

New Category Definitions Released!

NACS Category Definitions & Number Guide Version 8 was released in early 2021. Developed by the NACS Research & Technology Committee, this new version reflects significant updates to the last broad iteration (version 7.0 released in 2010). To view the latest updates, visit www.convenience.org/categorydefinitions.

Oat milk will be bigger than people have expected because it’s an ingredient everybody knows.

Creamy Add-ons

While 20% of Americans drink coffee black, reports the NCA, the trend of adding creamer to coffee is on the rise. Sales of liquid coffee creamers jumped 9% in 2019, according to Nielsen, compared with 2% growth across the food industry overall. In fact, creamer sales have increased faster than total food sales for the past four years.

Rutter’s stays on top of that trend. “We’ve continued to build on what we have done in the past with LTO creamers,” said White. “Silk Almond creamer and our Rutters Dairy fresh products are always available.”

DiDomenico predicts that the demand for plant-based coffee enhancers, such as soy, almond and oat milks, will flourish. “I think oat milk will be much bigger than people have expected because it’s an ingredient everybody knows,” he said. “And it’s got a great profile.”

Enticing customers back to the beverage bar depends on many things—quality, variety and especially cleanliness, which sends a reassuring message of safety.

“For the immediate future, consumers are going to be leery of anything that has multiple individuals interacting with it—not just beverages—and doesn’t seem clean,” said Chris Wurtzel, strategic account manager for BUNN, maker of dispensed beverage equipment. “Promoting the fact that there are still quality beverages available and dispensing them safely is a top priority and will help drive consumers back to the hot beverage station.”

“The convenience industry has done a good job of addressing the safety concerns related to COVID,” said DiDomenico. “The problem that consumers have is not with operators but with other consumers, and that’s hard for operators to address. Those concerns are going to be in place at least for the first half of the year, but when the morning commute picks up again, I think people will embrace that English coffee cappuccino like a warm blanket.”

The Power of CSX Data

CSX, the engine behind category metrics and NACS State of the Industry data, provides current and customizable tools for financial and operational reporting and analysis in the convenience industry. Retailers can measure their company by any of the myriad metrics generated via our live database. Contact Chris Rapanick at (703) 518–4253 or [email protected] for a complimentary executive walkthough.