Flavor of the Month? Retailers, suppliers debate adding new flavors, specialty brews to coffee bar

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1 Flavor of the Month? Retailers, suppliers debate adding new flavors, specialty brews to coffee bar By Steve Holtz Tom Schneider of Ed s FastBreak Convenience Stores says they re his sacred cows. Jennifer Vespole of Quick Chek calls them the chain s signature varieties. They are the respective chains flavored or specialty coffees, brews that, if discontinued, would create panic in the streets and complaints too numerous to count. We rotate varieties throughout the year to change up the offer, Vespole says, but the signature varieties are there every day. For Whitehouse Station, N.J.-based Quick Chek, these include chocolate macadamia nut, hazelnut, hazelnut decaf and vanilla crème. Then we start rotating flavors, Vespole says. Drawing Battle Lines Not long ago, however, flavored coffees were nearing the endangered-species list in some markets. As Starbucks, Caribou, Dunkin Donuts, McDonald s and others advertised the quality of their primary coffees, that became the battleground. And convenience stores found it necessary to follow suit. That s one of the places where our guests told us they want us to deliver a premium product, says Sherri Scott, public relations manager for RaceTrac CSP April

2 Demand Index: Flavored Coffee in U.S. Markets Average Demand = 90 Are Flavored- Coffee Sales Growing? Some suppliers say yes; some say no. But all agree a retailer should understand his or her market before adding or removing a product or product line. Various takes on the subject: We have seen a decline in our channel as retailers are focusing on offering the core items and scaling back or discontinuing flavors. They [instead] give customers the option to flavor with creamers or syrups. Executives at S&D Coffee Inc. say that flavored-coffee sales are declining in general. However, this heat chart provided by the coffee supplier shows demand is the highest and most likely to grow in southern portions of the United States. Nancy Repko Category management analyst, national accounts S&D Coffee Inc. Convenience Stores. And we ve done that. It s 100% Arabica beans. In 2009, The Pantry, led by a new CEO focused on improving the offer inside the company s Kangaroo Express stores, knew the first line of transformation would come from the coffee pot. If we do coffee right, it gives us permission to do all of those other higher-order things, senior vice president of marketing John Fisher told CSP in 2010 [CSP Jan. 11, p. 36; or cspnet.com/insidejob11]. But slowly, the arena is changing as flavored coffees once again become a draw, for some as an add-on to that primary brew and for others as a play for a completely different consumer. [We want] to help operators see the strategic opportunity with their consumers and use these [flavor] programs to attract a new consumer, says Andrew Dun, vice president of business development for Insight Beverages. Because the hot-beverage consumer is a distinctly different consumer than the coffee consumer. Lake Zurich, Ill.-based Insight Beverages develops and manufactures proprietary beverage solutions for the convenience-store channel. The hot-beverage consumer and the coffee consumer have different motivations; it s a different person, Dun says. And it s the [hot-beverage including hot chocolate, hot tea and cappuccino] person that the c-store industry needs to attract, because if they do, it s a more loyal customer to the channel. (See related sidebar on p. 100.) The Cream on Top With its newer store designs of 5,000 and 6,000 square feet Atlanta-based RaceTrac has expanded its coffee space. We have six different flavors, and the best part about it from our guests perspective is that there s infinite ability to customize, Scott says. We have all kinds of fresh creamers and sugars. It s funny we ve found a lot of people like good old-fashioned half & half or milk, but we offer it all. That s no surprise to the folks at White- We are seeing growth come back into flavored coffee after years of gradual decline of anywhere from 3% to 6% annually. Sean Bredt Vice president of coffee and allied products, general manager Mother Parkers Coffee & Tea We have seen fairly flat trends over the past 4 years. Katy Boyd Dutt Director of Marketing Boyd Coffee Co. Flavored coffees are undergoing something of a conversion. You see a lot more syrup programs, a lot more mixology programs that mix cappuccino, cocoa, syrup and coffee to allow consumers to create their own specialty coffee beverages. Andrew Dun Vice president of business development Insight Beverages 96 CSP April 2012

3 Coffee Talking Points Coffee is the third-most-consumed beverage in the world behind water and soda. 150 billion cups of coffee are consumed in the United States every year. Consumers average 12 coffee drinks per week. Only 11% of consumers say they never drink brewed coffee. One-third of coffee consumers drink it multiple times per day. The specialty-coffee segment is growing at 20% per year. 85% of those who drank a brewed coffee in the past day drank an unflavored coffee, while 18% drank a flavored coffee. Sources: WhiteWave Foods Co.; S&D Coffee Inc. Wave Foods Co. The Broomfield, Colo.-based maker of International Delight coffee creamers and other products reports that 77% of consumers put cream in their coffee at least occasionally. Similarly, S&D Coffee Inc. reports that 67% of coffee drinkers Circle 123 on reply card 98 CSP A pr il Coffee by the Foot: The largest Quick Chek coffee sets cover 19 feet of counter space and include 12 dispensers. add half & half, milk or a creamer; 15% use a liquid nondairy creamer flavor. WhiteWave also reports that the specialty-coffee segment is growing at 20% per year. And based on a WhiteWave study, consumers have three demands for a coffee offering: Make it fast, make it fresh and make it mine. Schneider of Ed s FastBreak adds to that: Don t let it get tired. We have three sacred cows in our lineup of cappuccinos: Hi-Rev mocha, French vanilla and hot chocolate. We then use the other two heads of our standard five-head machine for seasonal and new flavors (such as pumpkin spice, peppermint twist, cinnamon bun, caramel macchiato), he says. We feel that this strategy not only feeds the regular traffic base with what they expect and have come to love, but also entices new customers that may be looking for something a little more edgy. Ed s FastBreak, a chain of 16 convenience stores in eastern Oregon and Northern California, gets most of its edgy inspiration from its coffee supplier, Boyd Coffee Co., Portland, Ore. They are very good at offering up different ways to add value to the coffee program through new LTOs (limited-time offers) of gourmet coffees, cappuccinos, flavored creamers and granitas, Schneider says. Among Boyd s recent additions are flavors such as Red Velvet Mochaccino and Irish Crème Cappuccino. We try to understand what makes the cappuccino consumer happy, says Katy Boyd Dutt, director of marketing for Boyd Coffee. We did a survey of consumers, and they stated that if the operator had more seasonal offerings and interesting flavors, they would be more apt to purchase [a hot beverage]. We ve been doing a lot of

4 Coffee vs. Hot Beverage A retailer typically sells more coffee than specialty hot beverages, but that specialty customer may be more loyal to the store. Andrew Dun, vice president of business development for Insight Beverages, tells us who these people are and why they re not one and the same. The hot-beverage consumer and the coffee consumer have different motivations; it s a different person, Dun says. And it s the [hot-beverage] person that the c-store industry needs to attract because, if they do, it s a more loyal customer to the channel. Coffee Its motivation is built around function: I need something to pick me up in the morning. It s part of my habit. It s part of my routine. Specialty Hot Beverages If you look at cappuccino and cocoa and other products like that, it tends to be more of a treat; taste becomes a bigger part of the equation. It can be looked at as an indulgence. It s driven off taste; there s much more variety-seeking within that sector than there might be on the coffee side of it. Bottom Line Pretty much anybody is going to be selling two-thirds coffee, one-third specialty products. line extensions as limited-time offerings based on that survey. LTOs Lead the Way Quick Chek also sees strong interest in LTOs. Working with supplier S&D Coffee Inc., Concord, N.C., the chain of 120 c-stores has offered a wide variety of flavored coffees and cappuccinos. During the holidays, we ll have pumpkin pie or harvest spice. In the warmer months, we have Jamaica Me Crazy, caramel, toasted marshmallow, says Vespole. We ve also offered Kris Kringle, Hawaiian hazelnut, blueberry. We ve got a raspberry cookie crumble out right now. Occasionally, customers have complained when the limited time has lapsed on a flavor they enjoy and it s removed. But Vespole found a way to make lemonade out of those lemons (or coffee out of beans of discontent). We had customers yell at us: Why did you take the Kris Kringle away? she says. We typically only offer that at Christmas time, and a customer wrote in and suggested we have a Christmas in July program to bring it back. We did, and it worked pretty well. A Quick Chek coffee set can cover up to 19 feet of counter space and include 12 pots, including three regular pots. Its marketing efforts are very much the opposite, however. We don t specifically advertise flavors, Vespole says. We focus our message around the quality of the product, and when the customer comes in the store, they get the message [that we have flavors] as soon as they walk up to the department. It s pretty obvious what we offer. Since relaunching the coffee section this past year with a move from glass pots to BUNN s ThermoFresh Server system and marketing the improved coffee offer our flavored-coffee business has jumped. Our trend right now over the year is about 29%, Vespole says. The way it s displayed is that the customer perceives that there s more variety than what we had before, though it s the same and, in some stores, actually less variety. The widely marketed revamp of QC s 100 CSP April 2012

5 Have an honest assessment of your operation. If you can t make flavored coffees work operationally, just don t do it. coffee section also brought feet through the door, Vespole says. We let our customers know the quality of the coffee was our main focus, and that we actually improved the quality by changing to this new system, she says. The two enemies of coffee are direct heat and air. So now you ve got this encapsulated area where it s keeping the coffee hot and it s not changing the integrity of the product because [outside heat and air can t get at it]. Knowing Your Limitations But variety isn t everything. In fact, coffee suppliers generally encourage operators to offer fewer flavored or specialty hot beverages rather than more. Often having three or four [types of coffee] might be better than having eight if you re throwing out lots of coffee or it s not getting done properly, getting stale or burning, says Sean Bredt, vice president of coffee for supplier Mother Parkers Coffee & Tea, Ft. Worth, Texas. It will do more damage to your business than good. Dutt of Boyd is even more cautious. Fewer [flavors] is better, she says, one or two at most. This is mostly for the sake of keeping the operation simple. But there is one big caveat, she says: Consumers have other ways to flavor their beverages either through powdered cappuccino machines or personalized beverage centers with a collection of syrups, powders and creams to build your own beverage. Ultimately, it comes down to knowing your store or chain s limitations. Have an honest assessment of your operation and what you can physically do, or not do, says Bredt. There is no point in adding complexity if you cannot [make it work]. If you can t do it operationally from day to day, just don t do it. n Coffee Talks For more on flavored-coffee best practices, scan this QR code with your smartphone, or visit cspnet.com/coffeeflavors12. CSP April