Guide to Opportunities & Challenges in a Changing C-Store Marketplace

Guide to Opportunities & Challenges in a Changing C-Store Marketplace

C-Store Operators Find Opportunities and Challenges in a Changing Marketplace Are c-store customers changing? Yes, says Mitch Morrison, vice president and group editor at CSP (Convenience Store Petroleum), but they re changing more in a way of expanding the clientele rather than replacing it. The older customer is still coming in, but now you ve also got the Gen X and Millennials, and this has produced a couple of important changes. According to Morrison, who has been covering the c-store industry for over 15 years, this emerging younger audience presents a number of opportunities for convenience stores. CSP recently partnered on a study examining consumer behavior and surveyed over 1,500 c-store customers. Morrison s comments and insight in this White Paper are drawn from this study as well as his own observations. Opportunities in Foodservice and Beverage Stations A key finding, according to Morrison, is that 18-40 years old are more likely than older customers to purchase prepared and fresh food at a convenience store. This presents a real opportunity because Gen Xers and Millennials have become very comfortable buying their breakfast or lunch at a c-store rather than a fast food outlet. They don t feel like they re compromising, he adds. However, Morrison offers a caveat: The food has to be good. You have to really be committed to foodservice. If your food is sub-par, it will impact all areas of your store including your coffee. Potential c-store growth also exists in the drink area, which has remained relatively untapped. In fountain and coffee stations, there is a really big opening for operators to add on to what they have, he explains. Whether you re a small operator or a big chain, there may be an opportunity to expand to maybe 12 spigots or more, Morrison adds. The whole idea of customization is important to the customer, including having at least five coffee flavors and maybe doing seasonal offerings like a harvest blend around Halloween or Thanksgiving. The food has to be good. You have to really be committed to foodservice. If your food is sub-par, it will impact all areas of your store including your coffee. He cites Franke s FoamMaster espresso equipment as an excellent customization opportunity since it offers a wide range of specialty coffee creations, including lattes and cappuccinos. FoamMaster also provides a great margin opportunity for retailers, he adds. But this opportunity also comes with caveats. Your freshness and water quality must be outstanding, Morrison says. He has heard about a multi-unit operator who said he does not drink his store s coffee because the water in many of his locations is not filtered. 3

The Coffee Challenge A monumental shift is taking place in consumer attitudes towards coffee, and it centers around espresso, says Gus Olympidis. The founder of the 60-unit Family Express chain witnessed this change first-hand as his coffee sales kept slipping. We lowered prices and introduced exotic drip flavors but could never get sufficient traction, he recalls. Studies show that this transition is led by Millennials (18-34) and females who want hot and cold premium beverages. We were losing this audience and had to change our thinking, explains Olympidis. Dataessential numbers from 2013 and 2014 confirm this. They reveal that only 17% of consumers choose convenience stores for quality coffee. Coffee shops come in at 47% and doughnut shops at 41%. As Olympidis acknowledged, the transition to a younger convenience store audience has impacted coffee sales. These consumers are looking for premium hot and cold beverages that they can get from coffee shops. To win customers back, many operators are putting renewed emphasis on specialty coffee as part of their foodservice offer. In addition, chains like Family Express and Kwik Trip have gone the extra mile with FoamMaster. The problem presented an opportunity that Family Express seized. The company enhanced its coffee program with a Franke FoamMaster and upgraded its food program with new items including an expanded bakery case. It s paying off in higher sales. Make Them Feel Welcome Something that is becoming increasingly important and relevant to c-store customers is the overall experience. More than being your customer, people want to feel like you are their friend, Morrison adds, Retailers must ask themselves: Do I make my customers feel like family? Loyalty programs are good but are you loyal to your customers? Communications is important. Don t underestimate the value of knowing your customers preferences and also greeting them with a cheery Hi or Good morning or How can we help? I ll give you a good example of this, he says. About three times a week, Morrison stops at a local donut shop and also at a nearby c-store. I always get coffee and by now they should know my flavor profile. But the donut shop has no clue, he explains. The c-store, on the other hand, 4

is a great example of loyalty. They know me, they know my kids and they create a welcoming experience. When Morrison s children were small, he d take them into the c-store. One of the long-time employees would sometimes give each of the kids a small piece of candy like a Peppermint Patty at no charge. That was such a positive experience for my son that today, as a 15-year old, he goes there regularly for a bite to eat or a drink. He considers it to be his store, explains Morrison. That kind of experience is becoming increasingly important. Going the Extra Mile As a long-time observer of the c-store scene, Morrison lives in what he says is a very competitive market with some independent c-stores and plenty of good chains, including Quick Chek, a New Jersey based chain with 139 units. When Wawa (over 645 stores) moved into Northern New Jersey, Quick Chek responded by improving the quality of their design, he explains. They also did something unusual they added a small training area for their employees. When Morrison asked why they would dedicate roughly 700 feet of much-needed space to training, the Quick Chek people told him, We discovered that when customers see our employees taking training classes, it tells them that the company is striving to be great. We get good feedback on this from our customers. C-stores that upgrade their signage inside and out are also helping to create an experience that tells the customer, Hey, we really want you here. We really want you to come into our store. Aware that 70% of people who buy gas at the pump don t come into the store, Olympidis knew that had to change things at Family Express. How would people know, unless you told them, that you were offering superior high quality specialty coffee? The chain got busy building a comprehensive promotion to tell customers about their new European Café. This initiative included television spots, movie theater promotions, radio ads, social media, signage at the pump and more. We are very happy with how the coffee program is going, he says. We think we ve just scratched the surface. Talking C-Stores & Coffee With Gus Olympidis. Family Express founder and CEO shares his insights: Is there a new coffee audience? Yes, studies say it is Millennials (18-34), females and the more affluent. Adding flavors and dropping price points on drip coffee wasn t reaching them. We had to change our thinking. What do these new customers want? More high quality, hot and cold premium drinks what they get at coffee shops or Starbucks for example. What about espresso? The migration to espresso is here forever, and it s only going to accelerate, espresso is not an elective with today s audience. Should c-stores abandon drip? No, drip is still very important to your male audience. We ve enhanced it in our upscale European Café to bring it closer to a coffee house experience. What are some coffee opportunities? I can t emphasize enough the importance of getting females and millennials into the store. A solid espresso program can enable you to boost your drip offering! We went from $0.99 to $1.19 for a 16-ounce drink. With an espresso program like FoamMaster, you ll see increased coffee sales, higher margins and more people in the store. Why FoamMaster? The touch screen was a big selling point because it was second nature to today s younger audience. To improve coffee sales, we knew that the quality had to be superb, or the discriminating espresso consumer would not fall in love with it. FoamMaster gave us that quality. Final Thoughts? Don t waste your time studying this espresso program with FoamMaster. Just do it. You ll differentiate yourself, capture market share and gain new customers. This is important - you ve got to promote your brand heavily to get people to realize what kind of coffee you re serving. 5

Tobacco Still #1 According to recent data published by the Centers for Disease Control & Prevention (CDC), cigarette smoking among U.S. adults dropped from 20.9% in 2005 to 17.8% in 2013. Despite this decline, cigarettes continue to be the number one magnet in c-stores. This is important to understand because there is a lot of talk in the industry about preparing for a generation where cigarettes will not be relevant, Morrison explains. Some feel that the emergence of e-cigarettes could eventually exceed cigarettes sales. The reality is this is extremely far from the truth, Morrison says. All the research shows that cigarettes, at least for the next decade, will remain the leading category in the convenience business. Cleanliness Matters Never overlook sanitation in your c-store. That s sound advice for every operator, especially with today s younger audience. For example, CSP s survey found a high correlation, especially among the younger generation, towards c-store acceptance and clean bathrooms. And not just clean, Morrison adds, but as touch free as possible because of having food in the store. With young people, there is also a very strong awareness of germs. Some operators are even putting in touch screen hand sanitizers. This tells the customer that we care about you, Morrison says. Coffee Stats Research shows: Premium coffee can increase coffee revenue by 77% Specialty coffee wins new customers, both young and female 30% of these customers only want specialties like Latte, Cappuccino and Mocha. Affordable beverage prices from c-stores attract new price-sensitive coffee customers away from coffee shops As brew coffee drinkers age, consumption is significantly dropping Franke s FoamMaster delivers: Immediate cash flow impact Higher per cup sales Margins above 60% ROI in about a year at 20-30 cups a day A consistent, café quality beverage every time Markets May Vary But Quality Prevails Frequently on the road visiting stores, Morrison recently returned from a four-state tour. Every market has very different consumer needs and there will always be a certain amount of localization, he says. Take coffee programs I found in the Southeast that they usually prefer something a little less robust than they do in the Northeast. You re going to have those variations. Regardless of market variations, a quality coffee program will bring in the customers. That s what happened with the 437-Kwik Trip chain and its specialty coffee program. As owner, Mark Zietlow, says, With the coffee expertise of Franke, Kwik Trip built the signature espresso brand, Karuba Gold. This is how we make our guest s day wonderful every day, whenever they or their cars need fuel. 6

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