A Stake in Smoothies Take advantage of increased attention to expand smoothie sales and thank McDonald s later

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1 A Stake in Smoothies Take advantage of increased attention to expand smoothie sales and thank McDonald s later BY ABBIE WESTRA awestra@cspnet.com At least one company was happy with the heat wave that melted the country this summer: McDonald s. It was a fortuitous time to launch a line of fruit smoothies, which rolled out nationwide July 6. Earlier this year, the burger giant trickled out its blended coffee drinks, or frappes, across the country. Both lines further bolstered its iced-drink sales while sending a strong message to other retailers about its interest in beverages beyond the fountain. It s been an absolute hit, Ashlee Yingling, spokesperson for McDonald s USA, told CSP. It s really been an instant success with our consumers and we continue even now, a month later, to see unprecedented customer demand. Yingling also confirmed McDonald s testing of a blended strawberry lemonade, similar to Sonic s signature drink. The test is going really well in markets in Michigan and New York, she said, though the company will not speculate on a national rollout. While the launch helped boost McDonald s U.S. same-store sales by 5.7% in July and started a smoothie war against category leader Jamba Juice (see sidebar on p. 116 for more on McDonald s smoothies and Jamba Juice s retaliatory campaign), c-store retailers aren t too worried about the competition. We ve offered these products for a long time, so it s really nothing new for us. Someone new entering the category to each their own. We don t consider it a threat or an opportunity, says Mike Thornbrugh, manager of public & government affairs for Tulsa, Okla.-based QuikTrip Corp. If anything, perhaps it validates that we made the right choice years ago to introduce these products. QuikTrip s blended ice drinks include f real smoothies, frozen cappuccinos and milkshakes as well as multiple heads of frozen carbonated beverages. It s a category that s not going to go away, says Thornbrugh, and I do think it s a category where there are a lot of opportunities [to] introduce new flavors, and the technology on the machines obviously is going to get better and better. To differentiate its offer, QuikTrip encourages customers to experiment by mixing products from the entire beverage section, including condiments in the stores Flavor Centers. Its website features customer and employee recipes, from the Sunset Breeze (black cherry smoothie, blue raspberry Freezoni, puckerberry Wally Freezoni and juicy orange smoothie) to the Annette Frappacello (frozen cappuccino, amaretto Toolbox Maximizing Smoothie Sales While summer calls for refreshment, winter is a good time to push tropical flavors and immunity boosters. Continue to draw attention to the category with limited-edition flavors. Many who do not drink smoothies say it s because they simply didn t think of it. So plant the seed and then offer value incentives that soften the perception of high price points. Take advantage of our increasingly snack-centric society by positioning smoothies as a filling late-morning or late-afternoon snack. Or bundle them with foodservice items for a complete meal offering. O c t o b e r C S P 115

2 Summer of the Smoothie In early August, about a month after the launch of its fruit smoothie line, McDonald s reported its highest monthly same-store sales increase since January 2009 thanks in part, it said, to sales of smoothies and other cold beverages. Sales in U.S. restaurants open at least a year rose 5.7% in July; globally, they were up 7%. Meanwhile, a nationwide free sample day set for July 22 was canceled after growing concerns it would run out of supplies due to unprecedented demand, according to a company statement. The blended ice drinks are doing much, much better because they are more of a McDonald s-type product, says franchise consultant Richard Adams, referring to the espresso-based drinks it rolled out in 2009, which he calls a huge flop. They are more of a milkshake, McFlurry-type treat than a fancy, espresso-based coffee. Jamba Juice, the nation s largest smoothie chain with 38% of the market share as of October 2009, according to Mintel, has not taken this news lying down. The company launched a retaliatory campaign in July that includes a fake ad about a Cheeseburger Chill Smoothie an idea they mock as about as preposterous as a burger chain entering the smoothie business. It also launched the Great Smoothie Showdown, honoring any McDonald s smoothie coupons in certain markets through Aug. 15. Jamba sees McDonald s entry into the marketplace as having the potential of boosting its own sales, similar to Starbucks CEO Howard Schultz s claims that the McCafé helped his company s sales. [It is] a strong validation of the market s overall growth potential, and [we] think it will drive sales across the industry, Susan Shields, chief marketing officer of Jamba Juice, told CSP. As the category grows, we believe we ll see a positive impact as these newer consumers begin to trade up to the type of better-for-you, whole-fruit smoothies that Jamba offers but first they need to know what Jamba offers and how Jamba stands apart from its competitors. creamer and chocolate syrup). Some analysts believe that McDonald s entry into the category could actually help industrywide smoothie sales, as the McCafé line did for espressobased coffee drinks. McDonald s has such an overall power in terms of marketing. Their budget is so huge that they can just overwhelm the marketplace that they are going to, says Richard Adams, a onetime franchisee who s now a consultant, largely to McDonald s franchisees. [Starbucks CEO] Howard Schultz early on said that he thought that the power of McDonald s marketing has helped the entire specialty-coffee marketplace. Starbucks contends that that helped them. If you look at Starbucks sales through last year, they bottomed out and started improving about the time McDonald s launched their coffee drinks. One c-store retailer that has felt a bit of the halo effect of McDonald s major smoothie campaign is Wawa. It finished its chainwide rollout of Wawa Frozen at the beginning of July, just before McDonalds rollout. I think it s bringing awareness to the overall category, says Michael Sherlock, director of foodservice for the Wawa, Pa.- based chain. I think overall our advertising and their advertising is reaping a lot of awareness in the category. And between their focus on the category and ours, we ve seen other retailers as well react and raise their game in cold beverages overall. Wawa s lineup includes 10 varieties of made-to-order, fresh-fruit smoothies and frozen cappuccinos, including mango and strawberry-banana smoothies and mocha and caramel crème frozen cappuccinos. The drinks are ordered via touch screen and completed by a team member. A cross-functional team at Wawa, including members from marketing, product development, facilities and operations engineers, collaborated on the project to introduce a work cell to all stores that contains an ice machine and blender. The drinks were introduced with a major advertising campaign and a promotional price of $1.99 for a 12-ounce drink and $2.99 for 24 ounces. (McDonald s rolled its smoothies out at $2.29 for 12-ounce smoothies; Jamba Juice s smoothies start at $3.55 for a 16-ounce size.) It s going extremely well, says Sherlock. It s exceeded our expectations. THE SMOOTHIE CUSTOMER Whether McDonald s entry into the market will be a benefit, a threat or a mere blip on the radar, opportunities exist for operators who seek to understand the desires of the smoothie consumer. According to Mintel s December 2009 Smoothie Shop survey, about half (53%) of consumers have eaten smoothies in the past three months. 116 C S P O c t o b e r

3 WHIPPED UP: Wawa's lineup includes 10 varieties of smoothies and frozen cappuccinos, all made to order by a team member. Made-to-order smoothies were the most popular type, followed by readyto-drink options and do-it-yourself. Consumers ages 18 to 34 are the most avid smoothie consumers: 18- to 24- year-olds are traditionally loyal smoothie consumers, while the 25- to 34-year-old set has shown a recent growth in smoothie consumption. (See chart on p. 121 for more demographic details.) For QuikTrip, smoothie shoppers include both regular patrons wanting to spice up their orders as well as customers specifically coming in for a smoothie. Thornbrugh has also noticed shoppers of specialty smoothie shops trying out QuikTrip s product. So yes, it does help bring in customers that we probably had anyway, he says. Hopefully they bought gasoline from us, but they may not have come inside. So it s given us that opportunity. Likewise, Wawa s Sherlock has seen new customers visit the stores for the smoothie offering, as well as regular customers coming in for an additional trip. Smoothies can also help operators expand into different day-parts, especially as consumers spend more calories and dollars on snacking. While Wawa has seen sales of its new drink line throughout the day, it has also been an enticing late-afternoon snack. We re seeing it drive traffic after our lunch day-part. We ve definitely seen customer counts pick up after 2 p.m. as a result of it, says Sherlock. Meanwhile, drink sales have been steady across the day-parts for Quik- Trip, Thornbrugh says during a summertime interview. If anything with the heat wave, you ve got people coming in more frequently, he says. I don t think the time of day has anything to do with it right now. I just think it s the brutal heat. To optimize traffic, Paul Gobel, vice president of sales for f real foods, recommends placing a smoothie offer near the fountain and FCB lineup to capture those customers, or as a standalone destination offering prominently displayed to draw the consumer s attention to this unique offering. O c t o b e r C S P 119

4 Main Reason for Drinking Smoothies In 2009, refreshment edged out health as the primary reason for drinking smoothies. The products convenience factor slipped a bit from Oct. Oct. Dec. Sept Oct They are good for me 27% 33% 30% 28% They are more refreshing or cooling than other drinks 31% 29% 27% 30% They are quick and convenient 13% 12% 15% 12% They give me energy/pick me up 13% 10% 13% 14% They fill me up 10% 10% 10% 11% Other 6% 6% 5% 5% Source: Mintel Orinda, Calif.-based f real s lineup of do-it-yourself frozen treats includes milkshakes, frozen cappuccinos and, most recently, fruit smoothies. While the company s milkshakes are its most popular items, Gobel says, Smoothies are the fastest-growing product line. Lately, with the increased marketing focus of QSR s on smoothies, c-store retailers have been focusing more on reminding their consumers that with our program they have a high-quality, real fruit smoothie, as well as the delicious milkshakes. Gobel also recommends that retailers try bundling the drinks with foodservice items as a dessert, creating a full meal. It s a perfect fit, he says. Additional information from retailers such as QuikTrip and Wawa already slinging smoothies, as well as Mintel s Smoothie Shops study, offers ideas for increasing smoothie sales: Weather Report. As winter nears, now is a good time to push tropical flavors and immunity boosters. Generate attention and excitement with limitededition flavors and proper POP. Functional Food. Fifty-six percent of respondents to Mintel s survey said 120 C S P O c t o b e r

5 Types of Smoothies Consumed While 18- to 24-year olds are the category s most avid consumers, 25- to 34-year-olds have also increased their smoothie consumption. All A fresh smoothie purchased from a smoothie shop, juice bar or restaurant 35% 58% 49% 43% 31% 23% 10% A bottled smoothie 24% 36% 37% 25% 24% 15% 7% A smoothie made at home from scratch (not from a mix) 24% 34% 33% 27% 19% 19% 13% A smoothie made at home from a mix 10% 17% 20% 10% 5% 5% 3% None of the above 47% 24% 31% 40% 51% 60% 74% Source: Mintel. Based on 2,000 Internet users ages 18 and older in September and October Overall [Wawa s] advertising and [McDonald s] advertising is reaping a lot of awareness in the category. they had an add-in the last time they got a smoothie at a smoothie shop. Vitamin supplements are most often used (17%), followed by protein supplements (14%). Meanwhile, other consumers see smoothies as a quick meal solution. For them, offer more substantial varieties such as chunky smoothies. On-Trend Flavors. Fruit with yogurt and frozen yogurt is the most popular smoothie base, according to Mintel; strawberries and bananas top the fruit list. Coffee- and tea-based products also have been stealing more space on smoothie menus, as have superfruits such as açaí and pomegranate. Demographic Tendencies. Hispanics are more avid smoothie users and are enticed with healthy options with tropical flavors, the Mintel survey reports. Further, lactose intolerance is prevalent among Hispanics, so having a dairy-free alternative may help expand your reach. Geographically, consumers the Northeast and West are the most avid smoothie customers. Midwesterners, meanwhile, may be the least apt due simply to a lack of stores selling smoothies in the region. Targeting Families. Smoothie consumption jumps to 69% for households with children thanks to the healthy halo, according to Mintel. Targeting kids will give parents a better-for-you alternative while fostering brand loyalty with their kids. Smoothies aren t necessarily associated only with traditional smoothie outlets, as indicated by the percent of consumers who reported smoothie purchases at other locations. Dairy Queen came in as the second-mostvisited chain for smoothie purchases, after Jamba Juice, and followed by Dunkin Donuts at No. 3. The Nos. 4 and 5 slots were taken by Orange Julius and Baskin-Robbins. Such rankings indicate the c-store s potential for not only smoothie share of stomach, but also share of mind.