bringing down the coffee house

The National Coffee Association (NCA) reportsthat coffee and gourmet coffee beverages are enjoyedby adults of all demographics. Recent studies haveshown that less than one-third of those coffee drinkerspurchase their java from fast food restaurants and doughnut/bagel shops. In fact, in 2005, 73% of coffee drinkers purchased their coffee from other sources such as c-stores—a13% increase from the prior year.

As the competition for coffee sales gets more intense, sinceconvenience stores have the largest market share, they havethe most to lose. And the preliminary numbers for 2006 indicate that some consumers are opting to go back to fast foodrestaurants and bagel shops for their caffeine fix. Kelly Traw,vice president of marketing for Espresso Specialists Inc.,believes the reason is due to various markets finally realizingthe demand for economical gourmet coffee beverages thathave become a staple at the majority of convenience storechains over the past three or so years.

“It’s come to the point where people expect most stores tosell these types of drinks,” Traw said in reference to typicallynontraditional venues—such as fast food restaurants—tryingout gourmet coffee and hot beverage programs.

Gourmet coffee programs are no strangers to the c-storemarket. However, the popularity of these drinks has eruptedonly in recent years. “A 2005 NCA survey showed that over20% of adults questioned had an espresso-based drink in theprevious week,” Traw explained. “That number was way lessthan 10% several years before.”

Because so many different retail channels are capitalizingon the country’s growing desire for these drinks, c-storeshave little choice but to keep up with the competition andsecure the coffee consumers they’ve worked so hard to earn.

In the past few years, powder-based machines have typically been the standard solution, however, this equipmentleaves a gap to fill when it comes to customers looking for amore traditional “coffee house” experience. While the easyto-maintain, powder-based machines have etched a strongfoothold in the c-store industry and have generated stronggross profit margins, there are many retailers that feel a more authentic approach to their gourmet coffee program is the way of the future. Famima is one of those companies.

Service with aSmile
When Famimaopened its stores in the U.S., it knew that the way to succeed in the coffee market was to go authentic. To do this, the company implemented self-serve espresso machines that grind whole beans,brews them internally and finishes the cup with freshlysteamed milk. This worked well, however, Famima was worried that customers may not realize just how authentic thecoffee truly was. That’s when it took a new approach.

“When we opened our fifth store, we started serving thecoffee to our customers so they wouldn’t get our coffee confused with a powdered product,” said Hidenari Sato, executive vice president of marketing and merchandising forFamima, the 10-store Torrance, Calif.-based subsidiary ofJapan’s FamilyMart Co. “Not only does the customer seethat they are getting fresh coffee made with fresh milk, butwe also noticed that the customer enjoys being waited on aswell.”

While the gourmet coffee offering is currently limited tocafé Americanos, espressos and lattes, the store offers customers a self-service pump syrup bar that allows them to easily personalize their drinks with flavors like vanilla, peppermint and ginger, to name a few.

While the young chain’s offering is limited—including avariety of Republic of Tea branded teas—it has plans inmotion to increase its product mix to include drip coffee andother hot beverages, and even a cold coffee offering.

“Our coffee business is picking up,” Sato said. “We wantto be a store that you can stop by and pick up your coffee, and also pick up other things, such as muffins and pastriesthat you can find at other stores, as well.”

Out with the Old, In with the New
While stores like Famima are offering their customersauthentic whole bean coffee programs, other chains, such asYork, Pa.-based Rutter’s Farm Stores, have found ways tosatisfy its customers by revamping its traditional drip coffeeoffering.

“We realized that to give our customers what theywant, we had to not only upgrade from the quality of ourtraditional coffee, but also introduce new flavors as well,”said Brian Matlock, who has an extensive coffee brewingbackground thanks to developing his family’s own coffeeproduct before joining Rutter’s as vice president of foodmanagement.

Going from a traditional offering of just regular or decaf,Matlock and Rutter’s developed an entirely new proprietarycoffee program. Doing away with the typical glass pot/hotplate system, the store brought in new brewing systems andtested with literally hundreds of different flavor profilesbefore it establishedthe current varieties: Traditional, Premium House, Dark Roast, Vanilla Hazelnut and the potent HighVoltage, which features 50% more caffeine than a regular cup.

The new coffee brews just rolled out this past Octoberand are complemented by an extensive condiment bar,which features everything from whipped cream and flavoredsyrups to caramel and chocolate sauces, and more.

On top of its new coffee offering, Rutter’s has also introduced its new Numi-brand of teas, featuring eight flavors tocustomers seeking a hot beverage other than coffee.

“Starbucks has really made the average coffee consumermore aware of what’s out there,” Matlock noted. “The typical, traditional convenience store coffee program isn’t goingto be enough to keep up, meaning that we really need tobecome more on trend with our products.”

Boosting Drink Sales

While chains like Rutter’s use coffee and frozen beverages to complement its foodservice offerings, there are some chains that take the opposite approach, such as Moyle Petroleum’s Common Cents stores. The store is based out of Rapids City, S.D. with 35 locations spread across a five-state marketing area.

For example, the chain sells four varieties of the ICEE brand FCB at all times, and to complement that, they use Windsor Foods’ Jose Ole Grillquitos. The Grillquitos, which come frozen and heat up on a hot dog roller grill, make up for a large portion of the store’s food offering according to

Darcy Paluch, marketing director for Common Cents.

“We sell about two Grillquitos to every three hot dogs,” said Paluch.

Because of the variety and low cost of the Windsor Grillquito, the store makes a good profit by doing two for one promotions that blend well with FCB sales.

“People come and can get two Grillquitos and a drink for less than $2, and it’s a heck of a lunch,” suggested Paluch.

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