Strong Outlook for Frozen Beverages

Fueled by new flavors and supported by high-quality equipment, the frozen category shows unlimited potential.Slurpee, frozen dispensed beverage

By Howard Riell, Associate Editor.

It’s no secret that frozen beverages has been one of the hotter categories in the convenience store industry over the past three years. The good news is that NACS is predicting a sunny forecast for the years ahead.

For one, the beverages are a cost-effective indulgence that naturally complement foodservice programs. Second, the average convenience store enjoys a big 52% margin at its frozen beverage bar, according to NACS 2010 State of the Industry Data.

“The outlook is definitely strong,” said John Notte, category manager for Altoona, Pa.-based Sheetz. “We can expect the category to flourish over the next couple of years.”

There are, Notte said, explanations for that optimism. “I’m pretty tied into the weather. I think 2010 was one of the hottest years in the last 20. I know that we enjoyed some of additional business because of the consistently warm temperatures.”

There may also be a demographic shift taking place among the customer base. “The fountain and frozen are becoming a bigger part of the morning daypart. Coffee is not the beverage of choice for someone who is 24 years old like it was for me,” said Notte, who oversees frozen beverages for Sheetz’s 365 stores across six states.

Advances in technology have also helped. Specifically, frozen beverage dispensing equipment has operated much better as of late. “The equipment is just made better, which means there’s less downtime, better operational capabilities and fewer product issues,” Notte said. “In the old days you used to run out of product and there were no indicators; the unit wouldn’t shut down, and so you’d have a lot of problems if you ran out of product and didn’t replace it right away. That type of innovation has been helpful.”

Product Assortment
New products, flavors and sweeteners have also helped to energize sales. “There has been some innovation in low-calorie and low-carb products that appeal to certain customers. These are not easy products to produce, but with the new sweeteners available manufacturers can produce these low-cal frozen beverages, which have a lot of appeal.”

J.P. Jordan, merchandising manager for Corpus Christi,Texas-based Star Investments Inc., which operates 18 Texas Star c-stores, said one of the biggest challenges in managing the category is keeping the assortment fresh.

“When you’ve got a convenience store you’re always dealing with new products in candy, snacks and packaged beverages,” Jordan said. “Frozen beverages is not an overlooked category. In fact, it’s extremely popular here in Texas, but it needs a little flair or a little spark—something to give it a little bit more excitement to draw customers in.”

While all 18 Texas Star stores feature frozen beverage sales, new flavors aren’t as available as Jordan would like. “The big guy in the frozen carbonated beverages here is Icee. They get all their products from Coca-Cola. It’s a great product, but they’ve basically offered the same flavors for as long as I’ve been in this business, which is five years,” he said. “I haven’t seen any new flavors come across my desk, or been offered.”

Texas Star simply labels its frozen product Coca-Cola, and offers flavors that include Blue Raspberry and Wild Cherry. “We have our own decal and machines, and we label it ourselves, whether Icee or Alligator Ice or one of the other big guys,” Jordan said.

Alligator Ice’s creative slush flavors include Bayou Raspberry, California Strawberry, Creamy Cherry, Georgia Peach, Swamp Water (Lemon Lime), Strawberry Banana, Watermelon Slice, Creamy Pina Colada, Orange Dreamsickle, Banana Split and more.

The chain’s promotions focus on price and daypart, Jordan said. The 16-ounce drinks are normally priced at 99 cents and the 24-ounce cups at $1.19. For promotions, the chain may price any size drink at 99 cents, or even 89 cents depending in the kind of deal it can swing with Coca-Cola. A Happy Hour promotion offers customers a free drink when they purchase one during a couple of designated hours each day. Promotions are trumpeted with signage, but usually not paid advertising, he added.

Texas Star recently changed its traditional frozen drink decal, and is looking to make that section of the store more exciting and comfortable. “We want to entice our customers to walk up to the machine and be presented with a great machine and plenty of variety,” Jordan said. “Appearance is important. The more flavors you offer, the better. And the more different colors of flavors you offer the more exciting it looks, whether it be yellow, blue or red. You don’t have to have all the same colors.”

The chain regularly offers three flavors, and increasing that number would necessitate adding another machine, not an inexpensive proposition. “We’ll rotate those three flavors,” Jordan said. “Once we hit a home run with one and people seem to be coming back for it we naturally hate to take it away, but we still continue to rotate them.”

Jordan urged operators to be creative: on July 4, for example, add a coconut flavor or something else that’s white. That way, with the three barrels they could do red, white and blue to tie in with the season.
“We need to build up the category so it requires less hoopla and is able to attract customers on its own through the strength and quality of the offering,” Jordan said.

Slurpee Nation
To say 7-Eleven’s Slurpee is the granddaddy of frozen beverages is somewhat of an understatement. Slurpee has risen to iconic brand status in the U.S. complete with its own Web site (slurpee.com) and Twitter account (twitter.com/slurpee) and rewards program. As such, members of Slurpee Nation are targeted with direct marketing promotions aimed at the all-important 18-35 crowd.

In 2010, 7-Eleven partnered with Sony for a successful God of War 3 Slurpee promotion. Plans are in place to revisit the promotion in 2011, as well, which will mean more PlayStation-branded frozen drinks during the first quarter. They will be themed after upcoming PS3 blockbusters LittleBigPlanet 2 and Killzone 3. The limited-edition cup will feature a promo code that can be used on the official Slurpee site for a variety of prizes such as strategy guides, premium themes, downloadable content and more. Other successful Slurpee promotions included GI Joe, Guitar Hero and WWE.

7-Eleven is also extending the reach of its Slurpee promotions to those with a smart phone application just for them. A 7-Eleven Slurpee locator app for iPhone and Android provides information on the nearest 7-Eleven stores and goes a step further by providing driving directions.

“Participants can also log which Slurpee flavors they find at each 7-Eleven store for other fans to view through the app,” said Laura Gordon, senior brand director for Slurpee.

Among other things, the app also asks users to create a Slurpee Nation account. “We want to provide fans a convenient way to find their favorite Slurpee drinks, no matter where they are, and easy access to cashing in their Slurpee Nation rewards points,” Gordon said.

More importantly, the company is garnering additional data for more targeted promotions, all from a frozen beverage.

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