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Profit pick-me-up

The hot drinks boom in convenience shows no sign of slowing down as it continues to transform the look and feel of stores, and to boost both their footfall and profitability.

Led by coffee, hot beverages has been the overwhelming driver of Ready to Drink (RTD) category growth in recent years. The data is startling. According to Convenience Measures Australia, hot coffee now represents 55% of all beverages sold, and 24% of shoppers who purchase hot coffee do so, on a very regular basis.

While the extra hot beverage spend is obviously very welcome, the category’s most important benefit may be the extra footfall and basket size it drives. Convenience Measures Australia says the average visit frequency for hot coffee shoppers is 3.5 times per week, 67% higher than the convenience average.

The secret then to maximising the potential of hot beverages lies in continuing to draw in new customers, in persuading them to make their coffee stop part of their regular morning routine, and in enticing them to buy other goods while they are in store.

Categories such as tobacco and hot food can clearly benefit from stores attracting more coffee consumers. With food, in particular, good management and good planning can make all the difference in boosting basket size. Having ancillary food items available with the coffee is likely to lead to additional purchases such as pastries, muffins, or cake. Many customers also like to have a coffee with a meal, whether it be breakfast, lunch, or dinner. According to Convenience Measures Australia, 67% of food on the go shoppers buy a beverage with their purchase, and 51% of those purchases are with a hot coffee.

Bundling products with each other, such as a coffee with a muffin, pie, or sandwich to offer consumers a better deal can also be effective in lifting basket size. As stores try to establish themselves as the chosen destination for customers’ daily coffee purchases, they can experiment with their own add-on items such as a food item or a newspaper.

Strong use of point of sale material will also help to drive the communication and visual appeal of the hot beverage is on offer. Branding and activation in high-visibility areas can also be used to generate awareness of other products.

The position of the hot beverage machine in store is also very important. If the machine is in the back corner with no point of sale alerting the customer to its presence, then coffee sales will suffer. Some stores find that having a ‘coffee corner’ concept, that allocates a section of the store to coffee and marketing material works well.

In the battle to entice coffee customers though their doors, convenience stores have become keenly aware of the part price can play. With chains like 7-Eleven offering coffees for as little as $1, intense competition around coffee pricing has made for a challenging environment for smaller operators.

However, price is not the only point of differentiation. As the palate of Australian coffee consumers has become increasingly sophisticated, the quality of the coffee on offer in stores has become an ever more important factor for many.

Market research company, Euromonitor International, said there has been a clear move towards stronger coffee products.

Euromonitor International research analyst Sara Agostino said: “This is attributable in part to the major role coffee plays in the morning routines of Australians, who value the energy-boosting effects of coffee products”.

“Coffee is also seen as an afternoon pick-me-up, as well as a social drink consumed when catching up with friends.”

Grinders Coffee, which is responsible for popular convenience coffee brands such as Romanza and also sells a number of different machines, said convenience stores are embracing the whole ‘in-store’ café concept. It said this is evidenced through the multitude and variety of self-serve and semi-automatic coffee machines available at convenience outlets. Better coffee, it says, normally commands a better style of food offer.

The company believes that the most common forms of convenience-inspired coffee offers are either affordable coffees priced under $3.50, or quality and premium coffees that are emerging in line with the ‘premiumisation’ trend.

Grinders said stores with the more competitively priced coffees typically offer hot food, donut and muffins, while those locations with a more premium offer  may provide a more extensive range of artisan/bakery style products.

The most recent Australasian Association of Convenience Stores (AACS) state of the industry report noted that barista-made quality is also gaining traction among a nation of discerning drinkers.

“While self-serve coffee machines can deliver barista-style coffee via a one-touch button, renovated stores from the larger chains often feature barista-made coffee at a higher price point that is comparable to cafes,” the report said.

“As such, the higher-end barista offer must rival the quality of the café scene, which means that machine selection and bean quality are all the more important to credibly recreate a contemporary café aesthetic.”

While there are few convenience stores around the country that wouldn’t benefit from hosting a decent coffee offer, the sort of machine most suitable for them depends on a lot of individual criteria. Most important of these considerations is looking at a store’s customer base and analysing likely usage. Those stores situated close to tourist hotspots, highways, railway stations, bus stops or sporting venues will do particularly well. Coffee customers are commonly time poor and might include tradies, delivery truck drivers, holidaymakers, or office workers.

While it depends to some extent on the location of the store, coffee sales will tend to be stronger during the week when most people are at work and on the move. Hot drinks will sell in convenience outlets at all times of the day and night, but the mornings before 10am will be among the peak transaction periods.

In making their hot beverage machine decision, stores also need to look at their budgets, consider ongoing operational costs, analyse their bench space, and plan for who will be looking after the area. At a minimum, staff must be able to troubleshoot simple, straightforward fixes and carry out regular cleaning, and handle things like milk refills or spills.

Most new coffee machines are extremely easy to use and maintain, and staff are generally given full operational and cleaning instructions by suppliers. In the vast majority of stores, the machines are set up to be customer self-serve and this reduces staff involvement in the process, making it generally more efficient and more profitable. Nonetheless, consumers buy with their eyes and a workspace that is kept clean and attractive will give the impression that stores are in control, and will deliver high-quality drinks. It is particularly essential that the hot beverage area is clean and well stocked with sundries during the busiest periods, such as the mornings.

In the same way that convenience stores come in a variety of styles, the coffee machines that suit them also vary. The best machine solution is the one that produces consistent quality drinks and fits with the business model of the store. Happily, there are a huge range of options available.

Grinders Coffee sells machines including: the Rancillio Classe 7 which is an espresso machine which uses coffee beans and requires a trained barista; the Rancillio Classe 8 is semi-automatic and uses capsules; and the Egro 1and the Egro Zero, which are both fully automatic and use fresh milk.

The company says the semi-automatic Baby 9 Professional Capsule System is new to the market and is well suited to convenience.

A Grinders Coffee spokesperson said: “It’s attractive to customers wanting an espresso machine look and feel without having a trained barista on hand”.

“It fits into a standard 10-amp power point, has an in-built water tank that holds up to four litres, and delivers professional, great tasting coffee.”

As the machine uses coffee capsules, the coffee can stay fresher for longer, which is particularly valuable in venues where coffee turnover does not justify a fully-serviced espresso machine service.

The Blue Pod Coffee Co is another company that has had great success in convenience.

A Blue Pod spokesperson said: “We have a number of service stations and Ezy Mart businesses that use our Lavazza machines and capsules”.

“Generally speaking they use our Lavazza blue coffee capsules, our hot chocolate powder, and our milk powder, as well as branded paper cups with dome lids.”

The company said the process for customers to self-serve a good cup of Lavazza brand coffee is extremely easy and quick, which is great for people on the go.

“Adding a quality coffee brand to a store, especially an easy and quick to use self-service option, is definitely a benefit,” the spokesperson said.

“It allows customers to get their coffee fix on the way to work and having an instore café offering with a brand name coffee such as Lavazza is certainly a drawcard.”

While coffee is the standout hot beverage performer, other drinks such as tea and hot chocolate have also been selling well, and offer an important alternative to non-coffee drinkers. On most occasions hot chocolate can be dispensed from the same machine as coffee, and selling it allows stores to attract a slightly younger consumer.

The rapid rise of drinks like coffee with ‘pick-me-up’ qualities reflects the increasingly busy lifestyle of Australians and their need to stay mentally ‘switched on’, and there is no reason to think the trend won’t continue.

According to recent IBISWorld data, convenience shoppers now rank coffee as the number two reason that they visit a store. For operators then who are yet to recognise the obvious potential here, it’s most definitely time to wake up and smell the coffee.

* Convenience & Impulse Retailing magazine would like to thank Grinders Coffee, Blue Pod Coffee Co, Euromonitor International, and Convenience Measures Australia for supplying information for this article.

AT A GLANCE

  • The rapid rise of drinks like coffee with ‘pick-me-up’ qualities reflects the increasingly busy lifestyle of Australians
  • Hot coffee now represents 55% of all beverages sold, and 24% of shoppers who purchase hot coffee do so on a ‘very’ regular basis
  • Having ancillary food items available with the coffee is likely to lead to additional purchases such as pastries, muffins, or cake
  • Drinks such as tea and hot chocolate offer an important alternative to non-coffee drinkers

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