Strong Growth for Frozen Dispensed Beverages

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Consumer demand is surging as operators continue appealing to new audiences with new flavors and product innovations.

By Howard Riell, Associate Editor.

Everyone agrees that frozen beverage sales are strong and the outlook for the category remains extremely positive for the next few years.

For 2012, the NACS State of the Industry report found that convenience stores, on average, tallied $900 in frozen beverage sales per month for the year with a dollar margin of $472. The category had a gross margin of 52.54%

But the convenience store operators who are cashing in the most—and not only during the warm weather months—are the ones who combine new and exciting flavors with popular promotions, good equipment maintenance, a strong foodservice offering and a savvy understanding of social media.

Casey’s General Stores Inc. in Ankeny, Iowa, and Dallas-based 7-Eleven are two chains that are leading the way.

Casey’s extensive foodservice program offers a natural boost to its frozen beverage program. “We offer promotional prices on a couple of slices of pizza or a made-to-order sandwich with our frozen and fountain drinks,” said Darryl Bacon, the chain’s vice president of foodservice. “We even let the customer choose which beverage they want so they can always have something different.”

Pricing varies on the particular combo. For example, a six-inch made-to-order sub, frozen drink and cookie starts at about $5. All dispensed beverages are marketed under the Casey’s brand. Frozen drinks are available in 16- and 24-ounce sizes ranging from $1.09 to $2.69. The chain also markets cold and frozen coffees and cappuccinos in mocha and French Vanilla flavors in 12- and 16-ounce sizes. Those range in price from $1.29 to $1.99.

The beverage program, like with Casey’s extensive foodservice program, is backed by outdoor signage and in-store point-of-sale materials.

“It’s not in all of our stores, so we can’t do a global marketing campaign on it,” said Kelli Reinhart, Casey’s foodservice buyer. “But as we get the word out there a little more, we will be able to do more of a global marketing campaign with it.”

Frozen dispensed beverages are currently available in 600 of the chain’s 1,740 stores. The chain is committed to adding frozen to as many stores as possible over the next two years.

“The main plan right now is that we are putting frozen machines in all new stores and all acquisitions where we remodel the store,” Bacon said. “We’ve been under a major remodel program for the past three years. Those come first, and then we pick and choose the different areas.”

Finding the Right Fit
Reinhart continues to receive requests from store managers throughout its eight-state marketing area. “I would say that we are averaging adding machines to about 150 locations a year.”

While successful, frozen appeal does have its limits. “There are some locations where it’s just not a good fit,” Bacon said. “We have found that our northern states do not do as well as our southern states. When you get up into Minnesota and North Dakota—where it’s cold nine months out of the year—it just doesn’t do as well.”

Where it is a good fit, Reinhart said frozen programs require strict attention to detail so the program doesn’t stagnate. “Each store has to rotate flavors and keep it interesting for the consumer,” she said. “Make sure each individual store has a good service program in place on the machines as well so if anything breaks down you can have it repaired quickly.”

Casey’s is now looking at some of the newest auto-fill coffee and cappuccino makers. They are also interested in the latest self-cleaning smoothie machines.

“Those are looking very attractive to us,” Reinhart said. “They’re pretty new in the industry. They sit behind the counter and it helps take away some of the labor involved for our store associates. It’s a pretty smooth mechanism, where you don’t have to do a wash in between. It washes for you, so you can continue to serve the customer without constantly distracting employees.”

#Awesummer
No convenience store operator has had more success with frozen dispensed beverages than 7-Eleven Inc., which every spring generates tremendous excitement surrounding its Slurpee program. This year, the chain kicked off its summer promotion in time for Memorial Day weekend. Its #Awesummer Summer Slurpee Days promotion at participating stores featured a 49-cent medium-sized Slurpee deal to drive consumer interest.

7-Eleven chose to release all of its summer Slurpee flavors at one time in 2012, but this year are hoping to build consumer anticipation by rolling them out individually. For example, from May 18 to June 23 it rolled the Slurpee Lite Sugar Free Sprite and Slurpee Fanta Oddball Orange flavors. From June 24 to Sept. 3 the chain will introduce Slurpee Lite Sugar Free Fanta, Mango Lemonade and Slurpee Fanta Strawberry Lemonshade flavors.

Health benefits, in the eyes of 7-Eleven’s management, are helping to move product. As such, a focus on healthy beverages will be part of its marketing program for the balance of 2013. Sweetened with Splenda, an eight-fluid-ounce serving of the Slurpee Lite Sprite drink contains just 20 calories and is caffeine-free. All the featured summer flavors were created by The Coca-Cola Co. in coordination with its brands, Sprite and Fanta.

“This is the first time 7-Eleven has celebrated Memorial Day weekend with a special offer on Slurpee all weekend long,” said Laura Gordon, 7-Eleven vice president of brand innovation.

To further entice customers, consumers who download 7-Eleven’s smartphone app, available via the App Store or Google Play, can take advantage of #Awesummer mobile coupons for free and learn about value offers all summer long. Each week through Labor Day, exclusive coupons for a variety of items—free Slurpee drinks and Snickers Ice Cream Bars, as well as other special offers—will appear on the 7-Eleven app.

7-Eleven app users with iPhone and Android-powered phones receive twice-a-month text messages notifying them of special deals. In all, said Gordon, morethan 30 coupons for free merchandise plus offers on other popular products are being offered.

Meeting the Demand
While Casey’s is effectively using frozen dispensed beverages to boost food sales, 7-Eleven is craftily using them in concert with other promotional efforts to boost sales of other cold beverages by underscoring for consumers that it is the place to be for liquid refreshment.

“The No. 1 reason that consumers go to a convenience store for foodservice is for the dispensed beverages. This is the primary draw,” said Tim Powell, director of c-store programs at Technomic.

In 2012, cold dispensed beverages sales totaled $2.3 billion, and frozen dispensed beverages drew $410 million, according to Technomic. The slushy/icee category was up 3% from 2008-2012 and it is projected to grow 3.5% from 2012-2015, buoyed by new flavors, including seasonal options.

Frozen coffee beverages is a growing category at c-stores, up 11% from 2008-2012 and expected to see another 11% increase from 2012-2015, according to Technomic. Customers are looking to frozen coffee as a meal replacement, while retailers see it as a daypart extension. After McDonald’s popularized the concept, customers are demanding it and retailers are meeting that need.

Andrew Dun, vice president, marketing, Insight Beverages agreed that frozen coffee—as well as milkshakes—are becoming more prevalent. “I think that one of the biggest areas of growth out there is in frozen coffee. If you look at the success of QSR and what is happening there with frozen coffee, that is going to drive very strong demand and help drive the frozen dispensed beverage category from a growth perspective,” he said.

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