Dispensed Beverage Sales Show Promise

Cold and frozen beverages continue to be a mainstay of the convenience store offering—something consumers expect, enjoy, and increasingly want to tailor to their own individual tastes.

Others have noticed.
McDonald’s, for example, is making smoothies and other cold beverages part of its strategy for expanding its beverage offerings. Beginning in March, the burger giant began to introduce iced frappés—CEO Jim Skinner credited the move with a 3.8% same-store sales increase in June—bringing it into more direct competition with the convenience store channel.

Smoothies are also being phased in as part of the effort to raise the average check and bolster traffic in the afternoon. Morgan Stanley Analyst John Glass called the beverage program “the biggest thing McDonald’s has done since it rolled out breakfast.” The addition of frappés and smoothies could raise its revenue from specialty beverage sales to $2 billion annually which, according to Glass, would make it the third-largest specialty beverage retailer in the U.S.

Few companies are more adept at using frozen beverages to their advantage than 7-Eleven. In July, the chain not only offered free semi-frozen carbonated Slurpees on July 11—a play on the 7/11 date, but kicked off its Operation Chill program, through which uniformed police officers handed kids “tickets” for free Slurpees. The program rewards good behavior as it builds sales.

“Operation Chill continues to be one of our most popular community projects,” said Mike Suppe, 7-Eleven’s loss prevention manager for Southern California. Also on July 11, 7-Eleven kicked off its Slurpee Battle of the Bands contest, in which several musical groups showcased their talents at four regional concerts.

Era of Personalization
“There has not been that much new innovation in the category for a while,” said Jerry Weiner, vice president of foodservice for Rutter’s Farm Stores in York, Pa. “The one thing we’re doing which is somewhat out of the norm is that we have flavor shots. That’s been very popular as far as creating a variety of frozen taste offerings.”

The liquid flavor shots were introduced about 18 months ago. What Rutter’s executives have seen during that time is that the move to greater personalization—as with food, where consumers find an almost bewildering number of options—has caught on in both fountain and frozen beverages.

Rutter’s flavor shots are either what Weiner calls flavor-oriented—Vanilla and Cherry being the most popular—or items containing additives for energy or alertness. There is no charge for them.

There has been some mild surprise when it comes to exactly who is using the flavor shots most. “You would think it’s the younger people, and that’s who I see doing it. But I’m amazed at how many people in the older age group, the 30-to-40-year-old group, are actually going over and mixing it up. It’s more on the coffee side for them, but even on the fountain,” Weiner said.

Rutter’s offers nine flavored creamers for coffee, plus a collection of syrups and toppings like cinnamon and chocolate.

The flavor shots are dispensed through a valve on the fountain unit. As Weiner explained, “A person gets a medium-sized fountain cup and as they go along the fountain they’ll put in Sprite, Mr. Pib and Dr Pepper, then go over to the flavor valve and add some Alert and Vanilla. They just mix it all up and get all these different flavor profiles. Consumers are really into it now. It’s all about personalization of whatever they consume, be it food or beverage.”

Coffee shots helped drive additives in other categories. “The more products you offer customers to put into coffee, the more they seem to appreciate it and mix up all these phenomenal drinks,” Weiner said. “We decided to take that same approach with the colder beverages—just seemed to me to make logical sense.”

To that end, allowing customers to indulge in this era of personalization not only allows them to be creative, but lets them feel empowered by the control they have.

“Everybody is into making his own taste profile. I don’t know how they make it come out the same on each visit—they probably don’t—but they enjoy getting creative over there,” Weiner said.

Flavor shots are also an extension of Rutter’s personalized foodservice program. The chain has long encouraged customers to personalize items thanks to touchscreen ordering.

“It’s always been easy to get into hundreds of different varieties of the same ham and cheese sandwich. The coffee was actually the one that led the way on the beverages, way ahead of the fountain and even the frozen. There are just so many options to put into coffee, or any hot beverage,” Weiner said. “Just watch people: they’ll come over and add a little French vanilla cappuccino, they’ll take some of the highly caffeinated coffee, they’ll add some Colombian to it, go over to the condiment bar and put in three different types of creamers and some syrup and some whipped cream and sprinkle on some chocolate shavings and away they go. It’s just unbelievable.”

Bottles and Cans
Not everyone is convinced that fountain beverages are the way to go.

“We go strictly with bottles and cans,” said Eric Huppert, president of Spring Valley, Wis.-based Team Oil Co., which removed its fountains units three years ago. “We’re actually planning on adding foodservice next year. We haven’t decided exactly what type of foodservice program we’re going to do yet—it may or may not be sit-down service—and even with that we still don’t see any reason to do a fountain.”

Huppert explained his strategy by pointing to current trends. “Look at Subway, for instance. Subway was always sandwiches and a fountain. And now Subway has that great big refrigerator right next to its counter filled with 20-ounce bottles. It seems to me that everybody is on the go, and they simply prefer something they can throw the cap back on and take in the car,” he said. “Combine these solutions with a frozen program and you have an around-the-clock solution for just about everyone.”

According to Huppert, only a small percentage of customers—no more than one or two a week—have voiced any negative reaction over the lack of a fountain. “They may come in each week and say, ‘What, no fountain pop?’ and they’re disappointed. But, for the most part, I think everybody likes those bottles with the screw caps,” he said.

Indeed, the only people who have voiced any serious objection to the lack of a fountain machine have been people who were coming into the stores for cups of free ice.

“It’s hard to make money off those people because they want a cup and ice to chill whatever beverage they have in their car,” Huppert said. “Those are the only ones who come in and ask where the fountain is. Honestly, they won’t even spend the $1.30 to buy a bag of ice, so I’m not too concerned about their complaints.”

On the frozen side, Team Oil offers a rotating assortment of Slush Puppie beverages.

“If it wasn’t so expensive, I think carbonated Slush Puppy things would be a cool thing to do, too,” said Huppert, “But I don’t know if it would ever pay for itself in our market. We have a three-head Slush Puppie machine, and we do really well with that. We also have a Flavor Bur
st ice cream shake machine, and that’s got eight flavors plus vanilla.”

Those drinks have a loyal following in the summer, Huppert said, but fall off dramatically in Wisconsin’s cold winters.

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