The May issue of NACS Magazine included an article by Jerry Soverinsky, excerpted here, written with support from Whirley DrinkWorks!, a NACS Hunter Club Member. Research for this article was conducted by the NACS Shopper Panel, part of the Convenience Tracking Program. The complete article is available here.
It’s no secret that in-store sales and the foodservice category in particular are critical growth areas for retailers. While commissary and freshly prepared are garnering significant attention — both as non-traditional convenience store fare as well as those offering healthy profit margins — not to be overlooked are the ubiquitous convenience store staples: fountain drinks and coffee.
“Our research shows that dispensed beverages, which includes soda and coffee, not only deliver great margins but are tremendous traffic drivers,” said Leroy Kelsey, director of industry analytics for NACS. “In fact, more than half (51%) of the respondents in our Convenience Tracking Program (CTP) cited them as the main product they intended to purchase [upon entering the store].”
In addition to offering equally generous returns as their more ambitious culinary siblings, carbonated soft drinks (CSD) and hot dispensed beverages (HDB) require far less specialty equipment and labor to manage, making them attractive convenience store staples.
But it’s not a simple matter of, “If you pour it, they will come.” Indeed, when it comes to soda, consumption in the United States recorded its tenth consecutive year of decline in 2013, falling 1% to 12.76 billion gallons, according to Beverage Marketing Corp., a management consulting and research firm to the beverage industry. Some historical perspective illustrates just how far the category has fallen.
The news is dispiriting to convenience store retailers, who have confirmed that hot dispensed beverages and cold dispensed beverages are failing to pull their weight in the trending up foodservice category. According to recently released NACS State of the Industry (SOI) data for 2014, sales of the duo both registered a meager 0.8% rise in 2014, the weakest performers in the foodservice category, trailing prepared food (up 7.7%) and commissary (up 9.8%).
The numbers and shopper data reveal both an opportunity and a challenge: With their inherently healthy profit margins (according to SOI data, HDBs and CDBs contribute more than 50% in gross margin percentage.), CDBs and HDBs present critical income potential for convenience store retailers, especially as regulations force a shift in the channel’s strongest performers. “Given the demand destructions occurring in motor fuels and cigarettes in recent years, foodservice remains a priority for convenience operators,” wrote NACS in its State of the Industry Report of 2013 Data. Indeed, the mission for retailers is clear: maximize their sales.
It’s a straightforward challenge with at least one solution that traces its roots back more than 30 years: a refillable mug program.
“A refillable mug program can be a very easy way to build customer loyalty explained Jacqui Cintron, vice president of marketing for WhirleyDrinkWorks!, a manufacturer of custom products (including refillable mugs) for the food and beverage industry. “When well executed, a refill program can help retailers achieve their fountain and coffee category objectives”
While for some retailers, those ubiquitous commuter mugs carry a modest, 10-cent discount — an eco-friendly gesture that retailers consider a tradeoff for the price of a paper cup — a robust, refillable mug program goes much further.
Through strong brand identify and generous price incentives, a strategic refillable mug program can increase trip frequency, loyalty and basket size while tapping new demographics, Citron said — a Holy Grail of convenience store retailing. “The opportunities are huge, with the ability to drive store traffic and even sales of ancillary categories,” performance boosts that are finding a strong reception among retailers.