By Sarah Hamaker
Thereâ€™s nothing like a good cup of Joe â€" and most of your cusÂtomers agree. In convenience stores, coffee is clearly the hot beverage of choice, generating 77.6 perÂcent of the categoryâ€™s sales in 2007.
With such growth potential, itâ€™s probably not surprising that more than half of all Americans older than 18 â€" more than 150 million people â€" drink coffee on a daily basis, according to studies by the National Coffee AssociaÂtion (NCA) and the Specialty Coffee AsÂsociation of America (SCAA). Thirty million American adults indulge daily in a cup of specialty coffee, such as a cappuccino, espresso, iced coffee, latte or mocha. Fortunately, coffee customÂers can easily indulge their craving in convenience stores, as nearly every conÂvenience store (more than 95 percent) offers hot dispensed beverages.
With average monthly sales per store up slightly from 2007 to 2008, hot disÂpensed beverages in convenience stores perform near the top of all categories in gross profit contribution, nabbing the number four spot in 2007, according to NACS State of the Industry data. For retailers, this data represents an opporÂtunity to increase their bottom line by ofÂfering customers a varied coffee service.
Even during a recession, coffee can conÂtinue to be an area of growth for conveÂnience stores. "I believe the dispensed hot beverage category is still on an upÂswing because consumers are increasÂingly pressed for time and trying to find ways to reduce their expenses," said Stephanie Smith, express marketing manager for Java City, which focuses on a line of specialty coffee for conveÂnience stores. "They will be looking for alternatives to coffeehouses for their morning coffee fix."
"Coffee remains a growing commodity, and with todayâ€™s fast-paced lifestyle, the away-from-home segment continues to grow," agreed David Rattray, Van Houtte brand manager for Filterfresh Coffee Services. Filterfresh offers its Van Houtte gourmet coffees, along with espresso-based gourmet coffee beverages, hot cocoa and powdered cappuccino products, to the convenience store market.
Katy Boyd Dutt, director of marketÂing for Boyd Coffee Company, points to coffeeâ€™s history of growth as a good sign to retailers. "Since the late 1990s, the segment has grown exponentially. ConÂsumers are still the driving force of the hot dispensed category," she said. In convenience stores, Boyd Coffee ComÂpany sells coffee, cappuccinos, steamÂers, Chai tea, cider and flavored hot beverages, including ones with ethnic flavors, such as Mexican hot chocolate.
But some convenience store operaÂtors see todayâ€™s economy as a reason to be cautious about coffeeâ€™s continued success. "Category growth with the current state of the economy has been challenging, as consumers just donâ€™t have as much money to spend," said Andrew Baird, vice president of marketing and merchandising for am/pm in Yorba Linda, California.
"The simple fact is our customersâ€™ purchases are largely being dictated by their pocketbooks," said Baird.
To keep the category fresh for consumÂers, retailers should anticipate coffee needs, such as gourmet or specialty cofÂfee. Specialty coffee sales continue to advance by 20 percent annually, acÂcounting for nearly 8 percent of the $18 billion U.S. coffee market, according to studies by the NCA and the SCAA.
"Consumers are demanding a great cup of coffee no matter where they choose to buy it," said Java Cityâ€™s Smith. "Convenience store operators and ownÂers have to upgrade their coffee proÂgrams to ward off competition from coffeehouses and quickservice restauÂrants that are trying to take over mornÂing coffee and breakfast sales."
Filterfresh also sees convenience stores taking advantage of single-cup brewing technology. "As consumers become more accustomed to this type of brewer, there will be an increased relevancy for this type of offer in conveÂnience stores," explained Rattray. "Consumers can receive a variety of beverages brewed custom and fresh while retailers can improve margins by lowering waste."
As with the explosive growth of enÂergy drinks, coffee with a caffeine kick is making a splash in the hot dispensed beverage category. "Since its initial inÂtroduction in 2002, HiRev, our brand of high-caffeine-content beverages, continues to grow year over year," said Boyd Coffee Companyâ€™s Dutt.
am/pm has found that itâ€™s not the caffeine but the temperature thatâ€™s hot, er, cold. "Our research shows the hotÂtest trend in coffee is actually the coldÂest thing in coffee â€" iced coffee-based beverages. Currently, itâ€™s our highest growth sub-category," said Baird.
Good coffee can almost sell itself, but with a little bit of help, retailers may find their coffee sales soaring even higher. "We attract our customers [to our coffee program] with a range of in-store marketing, from window posters to pumptoppers, [which are] a great way to communicate our in-store promoÂtions to customers," said Baird.
According to Rattray, helping retailÂers grow the category is a priority, which is why Filterfresh custom deÂsigns all of its point-of-purchase mateÂrials to "create a destination within the store that receives very good feedback from consumers in terms of coffee quality, ambiance and range of offerings."
In addition, Filterfresh works closeÂly with retailers on a variety of promoÂtions, such as bundling coffee with breakfast sandwiches, pastries, cookÂies, gum and water, and extending the category, such as with iced or frozen coffee-based drinks. The company also runs promotions involving retailers and their communities, such as last yearâ€™s Susan G. Komen Foundation "Breast Cancer Awareness" promotion.
Boyd Coffee Company provides posters, pumptoppers and menu inÂserts to retailers carrying its prodÂucts. "Also, we are starting to see inÂcreased questions from operators who have digital signage capabilities, such as in-store and at-the-pump televiÂsion," said Dutt, adding that they are exploring how to utilize that medium for coffee promotions.
All indicators point to Americans conÂtinuing their love affair with coffee, so retailers with a strong coffee program should experience a bright future in the hot dispensed beverage category.
"The future is very optimistic with continued growth in gourmet, specialÂty and fair-trade and organic coffees," said Rattray. "Retailers, and we as partÂners, must use technology and innovaÂtion to cater to the needs of these conÂsumers as their demand and expectaÂtions continue to grow."
And as quality foodservice offerÂings continue to evolve in convenience stores, "coffee continues to be a strong focus for the convenience store retailÂer," agreed Dutt. "Itâ€™s a great traffic builder with good margin and opporÂtunity for the crossover consumer [coming] from the specialty coffee reÂtail environment."
Java Cityâ€™s Smith thinks that by inÂnovating, convenience stores will capÂture even more of the coffee market share. "Given the extreme amount of competition from a variety of retail channels and consumer demand for great tasting coffee, I see convenience store operators upgrading their coffee programs," she said.
am/pm tries to stay in tune with its customers to keep the category hot. "With the upgrades in dispensing equipment we are currently impleÂmenting at am/pm, we believe that hot dispensed beverages have a very strong future," said Baird. "We have to stay in tune with what our customers want. There may be new flavors and exciting new twists to the category...To stay relevant, we have to listen to what our customers are telling us. The future is really in their hands: Our job is to lisÂten and to give them what they are looking for."Â
Sarah Hamaker is a freelance writer based in Fairfax, Virginia.