Winning with Coffee

Scott McKinney
August 28, 2018
CSD Staff
Whether it’s served by a barista, or made by a well-designed brewing machine, good coffee helps c-store sales flow.
The U.S. retail value growth for ready-to-drink coffees is projected to reach nearly $1.6 billion between 2017 and 2022, according to Euromonitor International. Conversely, cold brew has experienced 150% revenue growth in the past year.
Despite those impressive growth tracks, quality hot coffee programs are helping drive convenience store foodservice sales.
Fresh coffee remains a hot prospect in convenience stores, even in the face of newer innovations in the packaged coffee arena, according to industry experts and convenience store managers.
In 2017, hot dispensed beverages were the second largest category in foodservice at 14% of sales, according to data from the National Association of Convenience Stores (NACS) State of the Industry Report for 2017. Coffee continued to lead this category, making up 58.6% of sales, followed by cappuccino (18.5%) and refills (12.2%). Competition for convenience store retailers in hot dispensed beverages comes primarily from quick-service restaurants (QSR).
The cappuccino subcategory has performed strongly between 2015 and 2017, and it showed improvement in 2017 in average store sales, gross profit dollars and gross margin percentage. Customers want their coffee fresh, affordable and consistent, according to NACS.
Specialty hot coffee is also a rising star in the coffee world, according to data from the Specialty Coffee Association (SCA). The market share of specialty coffee, in cups, increased from 40% in 2010 to 59% in 2017, with an average of three cups consumed per day, per drinker.
RAISING THE BAR
Coffee consultant Bruce Milletto, president of Portland, Ore.-based Bellissimo Coffee Advisors, sees a tremendous opportunity for convenience stores to tap into the specialty coffee market.
“In the last five years, convenience stores have raised the bar on quality of coffee they serve,” said Milletto. “They’ve seen the many advantages of premium coffee given the fact that people will stop in to get coffee, and end up getting something else.”
Milletto noted that coffee provides a high-profit margin way to draw traffic into the store, but emphasizes the importance of quality and freshness in convenience store coffee.
“Once a customer has had a great cup of coffee, their palate remembers that, and they aren’t going back to drinking poorly made coffee that’s been left out for hours,” said Milletto.
In fact, a quality hot coffee bar is a way to draw more customer traffic to the convenience store.
“What I think the c-store would like to capture would be the person that is making a stop—oftentimes for gas in the morning—coming in the store, buying their coffee there, and having it be high enough quality that it is competitive with what they’d get at a professional coffee bar. They can do that by setting standards: how they brew their coffee, and with good quality beans,” said Milletto.
Yet, he noted that the only place he’s seen full blown espresso machines work is in large convenience stores. Considering space, training and cost, it doesn’t make sense for smaller stores, like the corner convenience store, to offer a full espresso bar.
“What I’ve seen convenience stores do is go to a professional brewing system, into a pump pot—generally self-service, but not always. Many also put timers on them, so when they’ve been out for a long period of time, they can replace them,” he said.
A competitive source for beans, such as a good local roaster, is an added bonus.
“If you own a convenience store in a major city, and you’re using a local roaster, from a marketing standpoint, it’s a huge advantage.”
BEAN-TO-CUP
Greg Parker, president and CEO of Savannah, Ga.-based Parker’s, said that customers are becoming more educated and knowledgeable about the coffee they like.
“The biggest hot coffee trend we’re seeing at Parker’s is that customers expect a consistent, robust, fresh cup of coffee 24/7,” said Parker. “The company invested in bean-to-cup machines that deliver a fresh-ground and fresh-brewed coffee on demand, and buys 100% Arabica coffee. We are willing to spend more in order to offer the best cup of coffee. The response from our customers has been extremely positive.”
Parker’s operates 52 convenience stores across Georgia and South Carolina.
There is also a demand for premium convenience store options that are competitive with professional, barista-made espresso drinks, Parker said.
“We’ve experimented with espresso drinks and with nitrogen-infused coffee at individual stores, but have not taken either concept company-wide,” he said. Parker asserted that his coffee is half the price of Starbucks, yet better quality.
TAPPING SPECIALTY
Foxtrot Market currently operates four stores in Chicago. Its business model blends e-commerce, on-demand delivery and a striking brick-and-mortar experience to meet consumers’ shopping needs for quick, quality goods and foods.
Foxtrot Market features local ingredients on their menu, artisanal items such as fresh pastries from neighborhood bakeries, a bevy of wines, microbrewed beers, healthy waters other convenience merchandise and locally-brewed coffee. The chain also offers a selection of house-made sandwiches and other foods.
When it comes to coffee, Foxtrot Market has garnered a loyal following among city residents, based partly on its employment of baristas. In the last few years, the company has also expanded its coffee offerings, which has boosted its bottom line, said Spencer Young, the c-store’s retail manager.
“With the addition of our Wicker Park location, we have seen—despite the somewhat anticipated summer slump—for hot coffee sales, an overall growth within that space,” said Young. “Each summer we see a rapid expansion of our cold brew and iced coffee sales. However, including our espresso bar, hot coffee transactions are consistently high across all of our locations.”
In its quest to become a coffee destination, the company has made its stores as inviting as possible with Wi-Fi, spacious seating and healthy snacks.
“Foxtrot Market’s coffee strategy has been to provide an elevated coffee experience, on par with dedicated third-wave cafes within our convenient retail space,” said Young. “It creates a Third Space, which differentiates us from other local c-stores in that we are encouraging customers to stick around and work, relax or otherwise enjoy our offering. All of this is served through our baristas, as we do not have any self-serve coffee options.”
Young said Foxtrot Market has plans to tweak its coffee program going into 2019.
“We are in the process of expanding our partnership with our coffee roaster for a selection of exclusive and new offerings, as well as expanding our current retail coffee offering to see a new rotating menu of additional coffees and coffee roasters,” Young said.