Hot Dispensed Evolves with Times

With the abundance of ready-to-drink, cold brew and nitro varieties of coffee and tea trending today, and consumers looking for more varieties and customization, convenience store operators must continually adjust their hot dispensed beverage programs to maintain maximum profitability.

By Marilyn Odesser-Torpey, Associate Editor

While the motivators for beverage consumption remain the same as always—a boost of energy in the morning and a pick-me-up in the afternoon—consumers, especially younger ones, are always looking for new products to satisfy their needs, according to Mark DiDomenico, director, client services for Datassential research firm.

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For some, that could be switching from hot dispensed beverages to ready-to-drink (RTD) from the cooler. For others it might be a new exotic brew or limited time offer (LTO) creamer to add a different flavor to their coffee.

As Millennials and Gen Z consumers take over the primary age demographics, their preferences in food and drink are increasingly driving sales, DiDomenico pointed out.

“These younger consumers are looking for beverage options that combine flavor, authenticity, functionality and a sense of adventure,” DiDomenico said. “That could be anything from kombucha to herbal teas.”

When it comes to coffee, 100% Colombian has been around for a long time, but now a growing number of retailers are becoming more specific, highlighting different geo-specific regions of counties or even specific farms, he explained.

“There’s a mystique about taste and quality that goes along with these coffees similar to wines,” DiDomenico added.

At the same time, some things have stayed the same. For example, French vanilla has been the No. 1 favorite coffee flavor, and hazelnut No. 2, for at least 20 to 30 years. And, people like to experiment with flavors through LTOs. DiDomenico said that as a nod to the preferences of younger consumers, operators may want to add some plant-based milks and natural sugars such as turbinado sugar and Stevia to their coffee bars.

SERVING UP PROMOTIONS
Special deals on coffee can also increase customer awareness and sales of hot dispensed beverages.

At Big 10 Mart, which has 15 locations in Iowa and Illinois, hot dispensed beverage sales were down 14% during the first three quarters of 2018 versus 2017, reported Jacque Hager, director of retail operations for the chain.

“We attributed this to more competition and a hotter summer,” she explained.

To try and combat those declining sales, the company implemented a 99-cent price point on any size coffee on Mondays. As a result, Big 10 Mart saw a 15% increase in hot dispensed beverage sales during the fourth quarter versus the previous year.

The promotion also seems to encourage higher hot dispensed sales during the rest of the week and Big Mart intends to continue the offer for the foreseeable future. Bundling also works well for Big 10. On a regular basis, the stores offer coffee-and-doughnut, coffee-and-fruit and coffee-and-breakfast-sandwich or burrito specials.

At the same time, dispensed iced coffee sales increased 24% in 2018 versus 2017 and the stores saw a 10% lift in RTD cold coffee sold out of the cooler. Hager attributed the higher cooler sales to the addition of Dunkin’ Donuts, McCafé and more Starbucks selections.

To continue to capture more cold coffee sales during this trend, the stores will be moving the RTD products away from the milk door and placing them with the energy drinks. The company is also planning to add STōK cold brew coffee shot singles to its offerings.

While Hager acknowledged that there may be some loss of hot dispensed customers to the cold beverage category, she is also convinced that the cold beverages are appealing to new customers as well.

BEAN-TO-CUP
Big 10 offers four flavors of hot dispensed coffee—Classic, Premium, Dark Roast and Decaf—along with five flavors of Lipton tea bags. To satisfy customers’ desire to customize their coffee, the bar features eight flavors of International Delight creamers including LTO varieties that are rotated in and out throughout the year.

To maintain freshness, coffee is replaced on a strict three-hour schedule. For three of the stores where coffee sales are historically slower, the company is looking at replacing existing equipment with bean-to-cup machines.

RTD and dispensed cold coffee beverages haven’t had an impact at the 35 FastLane convenience stores in Missouri, but, said Kalen Frese, food service director, customers are looking for “fancier and exotic” varieties and customization of hot dispensed beverages with a variety of sweeteners and creamers.

“We’re offering more single-origin coffees and changed the breakfast coffee we had offered for years with one from Costa Rica,” Frese said. “In 10 of our stores we installed bean-to-cup units to assure that customers will always get a fresh cup of regular or decaf during the afternoon and evening.”

For the stores that have embraced the bean-to-cup
technology, the program has been a success.

“When customers come in and see fewer pots of brewed coffee, they might automatically think we’re not committed to our coffee program later in the day,” Frese said. “Our staff has to explain that the technology is there to provide a fresh cup any time of day.”

For the dominant brewed drip program, the stores start with four or five pots in the morning, then scale back as the day progresses. Cappuccino machines have been reduced from eight heads to six or five, depending on the individual store’s sales.

Last year the FastLane hot dispensed areas received a fresh new look and image, Frese said. In some of the stores, the area was given a wood-grain background with tiling. The coffee itself has been given more personality and appeal with creative descriptions. The regular blend, for example, is described as “not too light, not too dark, just good old-fashioned hot coffee.”

“The new look advertises our hot dispensed area and overall stores better,” Frese said.
From October through March, promotions pair hot dispensed beverages with other products such as granola bars, cookies and fruit at special prices.

BUNDLING UP
At its 10 Long Island, N.Y. locations, Busy Bee Convenience Stores keeps its Chock Full ‘O Nuts coffee prices low to encourage customers to come in every day, said general manager Mark Coner. In some of the stores, any size coffee (12-, 16- or 20-ounce) costs only 99 cents.

Bundles also add value to the offering. For example, an egg sandwich that would cost $2.79 alone goes up to only $2.99 when bundled with a cup of coffee.

“When they come in for their coffee the likelihood is that they’re going to also purchase other items,” Coner said. “We generate a lot of sales from coffee and those sales continue to grow from year to year.”

The number of varieties offered varies according to store size, but may include, in addition to the regular blend, the standard favorites French vanilla and hazelnut. There is usually also a seasonal LTO such as pumpkin spice or cinnamon crumb cake.