Coffee’s Popularity Surges

You wouldn’t think something as simple as coffee could prove to be so complex a phenomenon—or one so indispensable to Americans.

Turns out America can see its reflection in a cup of coffee—its economic worries, its desires for variety and small-scale luxury, and even its hopes for a brighter future. All of that swirls together inside a disposable cup they pick up at their local convenience store.

The news out of New York and London in August, however, was less inspiring. JM Smucker announced it had raised its retail prices of coffee by 9%, even as wholesale costs had just reached a 12-year high, according to the Financial Times. “With unemployment still above 9%,” the Financial Times wrote, “it is uncertain whether retailers will pass along those increases to consumers, or whether an emphasis on private label brands will increase.”

Since early June, wholesale prices of Arabica coffee have risen more than 30%, a leap that analysts and category observers believe will continue.

Still, it’s a staple. National Coffee Association (NCA) figures released earlier this year showed that more than three out of four adult Americans drink coffee daily or regularly with convenience stores a preferred destination. So while the likes of Starbucks, Dunkin’ Donuts and McDonald’s are focusing a lot of their marketing dollars on coffee programs, convenience store are holding their own in this important category.

“Consumers stop to buy coffee more than they fill up their cars, providing convenience stores with a great opportunity to build loyalty and repeat sales,” NCA noted in its coffee report. The association, in conjunction with the Specialty Coffee Association of America (SCAA), found that more than 150 million Americans aged 18 and older drink coffee on a daily basis, with 65% of coffee drinkers consuming their hot beverage in the morning.

“Considering these stats, it’s no wonder that coffee is the No. 1 hot beverage of choice among convenience store customers, generating about 78% of sales within the hot dispensed beverages category,” said Don Montuori, publisher for Packaged Facts, a marketing research firm.

Packaged Facts found in 2010 that upscale coffee sales continued to be strong because consumers consider them a relatively inexpensive luxury.

“With the advent of the so-called ‘Great Recession’ in 2008, the central question facing the coffee market was whether a product that saw sales growth through upscaling could continue to progress in the face of a severe economic downturn,” Montuori added. “By and large, the answer is yes. Even if marketers must now scuffle for every percentage point of sales growth they get.” While the shift to upscale and specialty coffees diverges from overall trends of the economic downturn, “they interact with each other as customers circumvent cheap ground coffee, and instead make tradeoffs to stay within budget while indulging in premium beverages.”

Presentation and Offering
Given that coffee is such a high-growth category that represents strong profit potential, it should be no surprise that the industry’s leading retailers are focusing a lot of effort to solidify their offerings. More often than not the program begins with studying what customers want.

“To me, coffee is about presentation and offering,” said Jerry Weiner, vice president of foodservice for Rutter’s Farm Stores in York, Pa. “That’s what it is. You create price/value, and you don’t have to get into these hot price battles with McDonald’s. In this market, over the past year they were promoting all cup sizes for just 69 cents— and then they went to $1 for any cup for the balance of the colder months. A lot of the competitors here went down into that valley to try to compete with them, and I just was not going to go there.”

Instead, the 55-store chain took a different approach, finding ways to add value proposition. “We wanted to get the price/value in the consumers’ minds, and that’s where the triple rewards came about,” Weiner said. “That proved to do the job, and of course now we’ve expanded that.”

Selling coffee effectively, Weiner insisted, is about visual presentation. “I’m constantly looking at ways to enhance the visual and make sure that we have a rather extensive offering, which I’m a big believer in.”

Both product and condiment offerings must be sizeable. “I think we’ve reached an era of customization in which people really want to have it the way they want to have it. It’s not just light and sweet anymore,” Weiner said. “They want to really add a lot of things to their coffee, and it isn’t just about having sugar and Sweet n’ Low. It’s long past those days.”

In order to differentiate your coffee program from your competitors’ and enhance your overall brand image, you need to be aware of and capture the emerging trends, said veteran foodservice operator and consultant Arlene Spiegel, president of Arlene Spiegel & Associates in New York City. Guests value, and will pay more for, products that clearly showcase these attributes:

• Quality, as evidenced by its single origin.
• Mindfulness, such as fair trade considerations.
• Occasions, which can be anytime during the work day—the key reason why the brew program must always be served fresh.
• Community. Some companies have found strong sales spikes when they tie in community programs, such as donating a quarter to a local food bank for every cup of coffee sold.
• Health. Chains like Quick Chek and Rutter’s regularly advertise they use only fresh, filtered water in their coffee programs.

Furthermore, bundling coffee is a proven motivator for consumers. “Coffee needs to be positioned as a reward and piggy-backed with a great baked goods offering,” Spiegel said.

Community, as Spiegel defined it, can prove a major part of the blend. Throughout 2010, 7-Eleven has been collecting what will end up being more than $2 million to charities via its Coffee Cup with a Cause campaign. The charity-focused coffee campaign includes limited-edition 20-ounce coffee cups designed by entertainment and sports celebrities nationwide.

Customers are encouraged to fill those cups with any 7-Eleven hot beverage with the knowledge that proceeds will benefit the charity of the featured celebrity’s choice. According to Rita Bargerhuff, the chain’s chief marketing officer, the program “allows customers to directly support charities and causes that make dramatic changes to so many people’s lives.”

7-Eleven is providing a guaranteed $250,000 minimum donation to each charity.

Promoting Coffee
Earlier this year, Knoxville, Tenn.-based Pilot Travel Centers kicked off a “best on the interstate” coffee promotion that integrated social media messaging. The company placed messages on its fleet of tankers heralding its first Facebook fan page and a new Twitter account, both aimed at promoting the company’s 2010 coffees.

“We are trying to tell the world about our great coffee program,” said Tim Purcell, Pilot’s director of merchandising. “Social networks are just another new method we are using to deliver our message.”

For a limited time, visitors to Pilot’s Facebook page could download a coupon for a free hot beverage and vote for their favorite Pilot coffee blend. Pilot had concomitantly introduced an in-store sweepstakes to further promote i
ts coffee, with winners receiving free coffee for a year.

“I’ll tell you the truth,” said Weiner, “our biggest effort was when we did a triple rewards promotion and tied it into our rewards program, which is really about cents off a gallon of gas.”

Rutter’s customers always received a penny off gasoline when they bought the coffee, but when they went to a triple points reward aimed at increasing fuel gallons sold, it had a dramatic impact on coffee sales.

“Coffee sales based on cups sold per day spiked by more than 20%,” Weiner said. “We did that in January and February, but the important note was that we’ve had a residual impact of about 7% so far, and that’s been holding relatively true.”

Rutter’s first triple-reward program was so well received by customers that the results helped established a new strategy for the company.

“It actually was so successful that we followed it up with a breakfast sandwich promotion with triple rewards that did equally as well,” Weiner said. “And then we followed that up with a triple promotion on the f’real milk shake products. That also did equally as well. We’ll have more of them coming.”

And Rutter’s customers undoubtedly will be ready.

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