Set for the Beverage Season?

C-stores hope consumers choose to beat summer’s heat with cold and frozen beverage offerings.

By Anne Baye Ericksen, Contributing Editor

Twenty-two years ago, 7-Eleven rolled out “Operation Chill.” The community outreach program partners the national c-store chain with law enforcement agencies to solicit goodwill via Slurpee citations. Over the past two decades, more than 19 million coupons for free Slurpees have been handed out to children who officers caught in the act of doing something good. This summer, approximately 1,000 law enforcement agencies have been supplied with more than 1.33 million Slurpee coupons.

Positive community presence pays off year-round; however, summertime promotions have become particularly important for convenience stores when it comes to the cold and frozen beverage category. Not only does the category boast delectable profit margins, but is a perfect go-to for U.S. consumers during the travel season between Memorial Day and Labor Day.

According to a National Association of Convenience Stores (NACS) survey, nearly 30% of consumers thought they’d do more driving in June, an 11-percentage point increase over 2016 numbers.

C-store operators depend on summer temperatures to entice people with cold and frozen dispensed beverages. An overwhelming majority of retailers house beverage centers with soda dispensers as a focal point. Plus, more than 70% of retailers serve frozen beverages, according to more NACS data.

“The warmer weather and the events that come with it draw more people out of their homes and onto the road,” said Steven Montgomery, president of b2b Solutions LLC, a Lake Forest, Ill.-based consulting firm. “That, coupled with an increasing desire for a refreshing beverage that naturally increases during warmer weather, drives sales of cold and frozen beverages.”

However, beverage sales from Memorial Day weekend came in weaker than anticipated. The 4-5% increase reported by Wells Fargo Securities was slightly depressed compared with last year’s summer-kickoff holiday boost.

“Sales are down compared to last year, which was the highly promoted 50th anniversary of 7-Eleven’s Slurpee and included the introduction of exciting new flavors,” said Ray Zeiher, category manager for Alon Brands, part of 7-Eleven Inc. Alon, based in Dallas, operates more than 300 stores in Texas and New Mexico.

Despite the season’s soft opening, c-store owners and operators remain positive about all beverage sales for the next few months. NACS reports that 80% of retailers are optimistic that in-store sales this summer will show improvement over last year. Additionally, 43% of c-store owners and managers believe cold and frozen fountain beverage sales will increase during the summer season.

CARBONATED COMPETITION
Not surprisingly, more retailers continue to gear up for the anticipated spike in customers’ demand for cold drinks.

“Overall, units are growing slightly. We have over 200 locations with Coca-Cola Freestyle machines and have seen good growth in those stores,” said Joe Brumfield, category manager, dispensed beverages, for CST Brands. Part of Alimentation Couche-Tard Inc., San Antonio-based CST Brands operates 1,178 retail sites in nine states, including the Corner Store convenience chain.

In many ways, convenience stores always have been a drink destination. Dispensed drinks fall within the foodservice category, which, according to the NACS’ 2016 State of the Industry report, represents more than one in every five in-store purchases. During the summer, however, cold and frozen beverages assume greater profit potential. As a subcategory, slushes and other frozen options deliver an average profit margin of 46%. But they also serve as impetus for other impulse purchases.

“Cold and frozen beverages are considered drivers in the business, and therefore create add-on in-store sales,” said Zeiher.

At his stores, Brumfield highlights drinks on large die-cut pole signs, featuring coffee, fountain and frozen options depending on the season. This summer he plans to promote limited-time offers and other beverage promotions with window and building signs along with pumptoppers.

“Also, we continually promote beverage and food combos,” Brumfield said.

While c-stores have focused on growing the foodservice category to compete with quick-service restaurants (QSRs), those same businesses have keyed in on appealing to consumers who just want a cold soda, which is a demographic that traditionally popped into convenience stores to quench their thirst in a hurry.

“C-stores have historically been more focused on the drink occasion than QSRs,” said Montgomery. “However, the QSR industry has discovered that drinks can drive traffic to their locations. A prime example will be McDonald’s current $1 price for any size fountain drink. We can anticipate other QSRs will consider this type of promotion in the future; if not to compete with c-stores, then to compete with other QSRs.”

Carbonated fountain selections also face pressure from water. Earlier this year, bottled water sales exceeded carbonated sodas for the first time. Now that rivalry is apparent at fountains. Last month, Coca-Cola added viatminwater to its dispensers. The beverage giant expanded its soda dispenser footprint, too. Freestyle machines began offering Barq’s Crème Soda, Minute Maid Sparkling and Mello Yello in June.

FOCUSED ON FROZEN
While consumers may crave frozen drinks during colder months, sales for this segment peak this time of year. Unlike sodas that tend to illicit brand loyalty, anecdotal feedback and industry research indicate people react positively to frozen drink introductions. According to recent data from Coca-Cola, nearly two-thirds of customers prefer to choose between traditional and new flavors, and 73% stated they’d welcome monthly rotation of options. Additionally, more than one-third of teens and Millennials say they select retailers based on the option to mix frozen flavors.

“Today’s customers expect to be able to customize their drinks,” said Montgomery. “We recently spoke with a retailer that has fountain equipment with 16 heads. This type of approach helps set a retailer’s dispensed beverage programs apart from others and makes their stores a destination for cold and frozen dispensed beverages.”

“We have anywhere from three to nine barrels of frozen carbonated beverages (FCBs) in most of our locations. All of our new builds currently include an eight-barrel FCB program,” said Brumfield. “This year we made some significant changes in our frozen beverage program by adding Fanta products almost exclusively. The improved taste and the Fanta brand recognition has given us a nice boost in FCB sales.”

In fact, there are several new Fanta flavors, including grape, watermelon-lime, and winter white berry. Coca-Cola also announced Powerade, Minute Maid and HI-C uncarbonated frozen beverages.

Other brands released new flavors for summer 2017. 7-Eleven’s Slurpee will feature chrome cotton candy and sugar-free watermelon-lime. Both dessert and tropical profiles remain popular, too.

OPTIMIZING OPTIONS
Sodas and slushes aren’t the only cold beverages with which customers can cool off. More c-stores offer milkshakes in their dispensed beverage centers.

“We have over 200 stores with f’real milkshakes, and all new builds have the large f’real blending bar,” said Brumfield.

Many more stores have expanded coffee centers to include iced or cold-blended caffeinated drinks.

“We have a premade frozen coffee offering that allows us to compete with coffee stores today,” said Zeiher. “We are in the process of expanding that offering with 7-Eleven’s new fresh-made coffee program later this year. Customers will be able to customize their iced coffee the same way they can customize their coffee at our coffee bar today.”

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