Dispensed Beverage Evolution

Slurpee Medium Size Paper CupThe last 25 years have seen dispensed beverages grow in importance in the convenience store industry.

By Erin Rigik, Senior Editor

Dispensed beverages—both cold and frozen—have come a long way since 1990, today constituting one of the primary draws to the c-store and representing a veritable goldmine of profitability.

The last two and a half decades elevated the fountain section to a vital foodservice counterpart, essential in bundle meals as well as a stand-alone draw for customers. As customers continue to demand made-my-way, customized food and beverage options, the dispensed category has responded with flavor shots and recent innovations in dispensing technology sure to further revolutionize the category over the coming years.

“It’s a c-store shopping trait that beverage drives foodservice sales in c-stores,” said Sharon Porter, director of sales & marking for Lake Zurich, Ill.-based Insight Beverages Inc. “In other words, a consumer’s first need state is usually thirst as they enter a c-store. Food/foodservice sales follow beverage sales.”

The biggest change to the frozen and cold dispensed category “has come with the evolution of foodservice,” agreed Jerry Weiner, vice president of foodservice for Rutter’s Farm Stores, which has 59 locations in and around York, Pa. “Combo meals have become a big part of that business. Other than that the biggest change has been the addition of so many flavor choices. It was just Coke and cherry for years and then all these new flavors have come out.”

Flavor Fever
Compare that to the options available today. Technomic, a research and consulting firm that monitors the foodservice industry, indicated the top flavors for juices/smoothies in c-stores purchased in 2014 so far are strawberry (56%), pineapple (46%), cherry (45%) and mango (45%).

Flavor shot options on the dispenser began to become popular about 6-8 years ago, Weiner recalled, allowing customers to further customize their drink options. “The shots are used more in the fountain than the frozen. But what I do see people doing with frozen is multiple flavors in the same cup, which is kind of new,” Weiner said.

Donna Hood Crecca, senior director of Technomic, said for 2014, she sees expanded variety and customization, with c-store operators stepping up to satisfy consumers’ dispensed beverage needs.

“Some examples on the flavor front: Cumberland Farms’ Orange-flavored Chill Zone joined the menu, QuickStop rolled out a trending flavor with its blood orange frozen beverage,” Crecca said. Other flavor trend-setters: Wawa with peach additions to its frozen beverage lineup and Rutter’s rolling out cherry pomegranate iced tea.”

Millennials, especially, seem to favor flavor options. “Two-fifths of Millennials (44%) say their beverage preferences change with the season and one-third (33%) say they wish c-stores offered more interesting beverage flavor selections,” Crecca said.

Innovation Station
The desire for more flavor options has led to the emergence of the made-to-order (MTO) trend in c-store beverages.“Smoothies and milkshakes rank as the top two types of beverages for which MTO stations are appealing to consumers. That points to their interest in having a customized smoothie or shake, perhaps with enhancements or toppings. Customization in dispensed carbonated soft drinks (CSD) is also a growing trend, and is appealing to younger consumers in particular,” said Crecca. “The Coca-Cola Freestyle and recently introduced Pepsi Spire both tap into that desire for customized refreshment.”

In 2013, Coca-Cola Freestyle dispensed a total of approximately 1.8 billion eight-fluid-ounce servings. This game-changing innovation now offers some 100 brands and has expanded domestic availability to more than 20,000 placements across 48 states and Puerto Rico, providing greater drink choice to customers, spurring more beverage servings and total restaurant sales, according to Coca-Cola.

Tim Powell, vice president of strategy for Big Red Rooster, agreed that the major trends currently in dispensed beverages include customization, better-for-me, adventure/excitement and dynamic flavors, and Starbucks is to thank for today’s trends. “Starbucks began with the customization of a drink and as time has passed since the 90s, consumers have come to expect a beverage made for them,” Powell said,

While healthier beverages may not be a huge hit in c-stores, the New York law banning soft drink sizes—while shot down for now—brought to the forefront the obesity epidemic. Foodservice and particularly c-stores will be target sites. Smaller sizes, and fewer CSDs will be likely. Also, items that are “exciting,” like functional beverages (energy, relaxation, etc.), will be on trend in 2014,” Powell said.

While dispensed beverages have become a more complex category for c-store operators compared to the 1990s, they have evolved to provided c-stores with a point of differentiation. And the innovation driving that differentiation is expected to continue.

“It’s in the final testing stages, but we’re going to finally have a sugar-free (frozen dispensed beverage) option, which is very marketable in this day and age. I think that is going to be the next big boom in the category,” Weiner said.

Another big change over the past 25 years has been the way dispensed beverages are priced and perceived.

“There was a period of time where people in the industry were afraid to go above $1 a drink on pricing, and that was the norm,” Weiner said. “But thanks to Starbucks, which made beverages worth more, or perceived to be worth more, it really afforded us the ability to get these beverages priced where they needed to be. Pricing has been up, over the past several years, which has added to the profitability of the category.”

In 1990, more c-stores practiced hot pricing to make dispensed beverages more attractive to customers. “When the retail price was 99 cents, c-store operators would promote it at 69 cents or 59 cents, and I think that’s happening less now and the beverages are standing on their own,” Weiner said. “C-store operators are using the bundling of combo meals or two-fors to drive the promotional aspect as opposed to hot pricing today.”

Non-Carbonated Success
Today, dispensed beverage growth is coming from non-carbonated products, according to Weiner. “On the fountain, flavored lemonades and teas are becoming the popular items. CSDs have been flat to down for several years, but no one had the magic bullet, and just by shear tying of things as an industry, we started seeing movement in certain areas over the past couple of years,” Weiner said.

Within the frozen dispensed category (Slushies and others), non-carbonated offerings are currently the growth leaders, Technomic research indicated. As opposed to carbonated beverages, non-carbonated offerings are perceived to be a healthier option by many consumers, Crecca said.

In fact, dispensed beverage consumers are more likely to go for a fruit-flavored beverage. Younger consumers—those aged 18-34—are interested in more exotic flavors.

Bright Future
Over the past 25 years, fountain beverages have become increasingly important as a traffic driver for c-stores. “Six in 10 c-store foodservice customers visit c-stores once a week or more for non-coffee dispensed beverages,” Crecca said.

“I think the next phase is self-service ‘experiential’ machines, much like what the Freestyle machine has accomplished,” Powell said. “While c-stores may ‘complain’ that such a system is either too slow or too expensive, it is nevertheless a breakthrough technology attracting new consumers. The newer dispensers will have a complexity about them (such as multiple flavors), but are exciting and simple for shoppers to use once they have tried them.”




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