By Jamie Hartford
In the minds of consumers, convenience stores are the places to get frozen dispensed beverages. And that’s good news for operators. With close to a 50% gross margin, frozen dispensed beverages are among the most profitable items convenience stores sell. Icy drinks brought in more than $5,800 in average sales per store in 2010, a 10% increase over 2009, according to NACS State of the Industry (SOI) data. Profit wise, frozen beverages contributed $2,868 to the average store’s bottom line in 2010, up more than 7% from the year before. (2011 data will be released at the NACS State of the Industry Summit April 3 to 5 in Chicago.)
Still, the drinks account for less than 2% of sales in the foodservice category and less than 1% of all in-store sales â€" yet more than 70% of convenience stores sell them. That’s likely because they’re the kind of item that can draw customers into a store.
"To position a convenience retail outlet as a complete beverage destination, frozen beverages are now an essential component of the package," said Don Matlock, senior planning and development manager for Coca-Cola Refreshments.
Reeder’s Service Center, an independent convenience store in Tulsa, Oklahoma, began offering the frozen drinks it calls Snowballs five years ago. To promote them, the store partnered with the local school, offering free SnowÂballs to students to incentivize a reading program. "In the three years we did it, we were giving away about $12,000 a year in Snowballs," said Cheryl Reeder, owner and president.
Though Reeder’s had geared its marketing toward kids, a funny thing happened: Most of the customers coming in for the drinks were adults, Reeder said. That’s not uncommon either. According to the NACS State of the Industry Report, adults between the ages of 18 and 34 are the target demographic for frozen drinks.
Dan Fachner, president of the ICEE Company, agrees that frozen drinks aren’t just for kids. "Our target customer varies greatly by the location that we’re in, but in convenience stores the target customer is the blue-collar male," he said.
With that demographic in mind, the company, which besides ICEE carbonated frozen drinks also manufactures Artic Blast, Slush Puppie, ICEE Slush and Java Freeze lines, is rolling out a larger cup. ICEE hopes the 44Âounce size will appeal to customers with a big thirst for frozen beverages.
But not every customer is looking for a jumbo size. "Consider growing the category with trial sizes, which introduce new consumers to frozen beverages," Matlock said.
Frozen drinks are often impulse buys, and to sell them suppliers say operators need to promote them. "You need to have signage out in front of the customer," Fachner said.
Providers recommend giving machines prominent placement in the store, and Matlock said special cups, dome lids and fun straws can help draw attention to the display. "A two-barrel dispenser placed in the corner is no competition for a colorful, inviting display that appeals to many senses," he said.
It’s also essential to maintain a clean service station. "People have to trust the drink, and the trust for the drink comes from cleanliness," said Mark Truitt, vice president of sales and marketing for Muskogee, Oklahoma-based Henderson Coffee, which sells its proprietary Gorilla Chilla frozen drinks. "People who are successful with it follow a strict cleaning regimen; people who aren’t don’t."
Opinions differ on what to charge for frozen beverages. Some suppliers say low prices entice customers to try, while others believe consumers are willing to pay more for frozen drinks.
Truitt and Fachner advocate for an offering under $1. Henderson Coffee recommends selling a 12-ounce size for 99 cents, while Fachner said some convenience stores serve ICEE products priced as low as 69 cents. "The real key, especially with gas prices going up, is getting that consumer out of the car and into the location," he said.
Overpricing is a surefire way to doom a frozen beverage program, said Schoenberg, CEO of Boynton Beach, Florida-based Steve’s Frozen Chillers. He recently visited a convenience store selling his company’s products, which include slushees, smoothies and frozen coffees. The items were priced at $2.69 for 16 ounces. When Schoenberg asked about sales, the operator responded that the products weren’t moving well. "That’s because he had it priced a dollar higher than it should be," Schoen-berg said.
On the other hand, some suppliers say customers are willing to pay more. "Frozen beverages provide an opportunity to charge a premium price â€" more than c-stores typically do for fountain drinks," said Coca-Cola’s Matlock. To give the products a more upscale image, he suggests distinguishing frozen beverages from cold dispensed drinks with a different cup.
Mike Duvall, owner of Phoenix, Arizona-based Tropical Breeze Frozen Drinks, said what a store charges should depend on its location. "If you’re right across the street from a QuikTrip, you’re going to have to sell it for a lot less than somewhere else where there’s nothing available," he said.
The most popular frozen beverage flavors tend toward the classics. ICEE’s top-selling flavors are cherry, blue raspberry and cola. For Tropical Breeze, blue raspberry is the current favorite. Cherry is also doing well, and before that, strawberry, Duvall said.
But to keep customers interested, operators should change flavors frequently. "Offering at least one barrel that features a new selection every few weeks or monthly increases sales," Matlock said.
The ICEE Company typically introduces three or four new flavors each year, Fachner said. This year the company is debuting lime and banana offerings. Come summer, it will introduce lemonade berry fusion and mango varieties, as well as bring back strawberry lemonade.
Four out of five frozen beverages purchased from convenience stores are carbonated, according to NACS SOI data. Frozen carbonated beverages (FCB) are also more profitable than frozen un-carbonated beverages (FUB), "due to better expansion and higher water-to-syrup ratio," said Coca-Cola’s Matlock.
There are other options, though they only account for only around 1% of frozen beverage purchases in convenience stores, according to NACS SOI data. "Newer entries into the category, such as smoothies, iced coffees and even milkshakes are grabbing attention â€" and a greater share of consumers’ wallets," Matlock said.
Frozen coffees are especially popular, a phenomenon Schoenberg attributes in part to the hefty marketing efforts from both Dunkin’ Donuts and McDonald’s.
"Whatever frozen treat a retailer serves, the big news is that they are ideal for the crucial afternoon daypart," Matlock said. "After school is prime time for frozen sales as a treat occasion for teens, young adults and families." To drive traffic during that daypart, he suggests offering "happy hour" deals on frozen drinks.
But purchasing occasions aren’t limited to the afternoon. Two years ago, Steve’s Frozen Chiller’s rolled out Atomic Energy Drink, a frozen energy drink with vitamins B6 and B12 and taurine but no caffeine. Available in two flavors, orange and raspberryÂpomegranate, the drink appealed to customers in the morning, Schoenberg said. "People started to drink it instead of coffee on their way to work," he said.
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Frozen drink sales tend to peak in the summer months and taper off in winter. Sales from last July were more than three times what they were the previous January, according to NACS CSX data. But savvy operators should see that as just another opportunity to increase frozen beverage sales.
Jamie Hartford is a freelance writer based in Los Angeles. Read more of her work at jlhartford.com.