By Howard Riell, Associate Editor.
Frozen beverages are widely regarded as a high-growth category, and convenience store operators looking for more of a good thing are complementing their traditional sets with frozen dairy beverage programs.
“Dairy is a big topic in beverages, in part, because of the increase in yogurt consumption,” said Bonnie Riggs, a restaurant industry analyst for The NPD Group’s foodservice division.
The opportunity for c-stores is real, since research proves that Americans like frozen dairy beverages. “It’s been a solid growth area,” Riggs said. “The growth is primarily centered on snack occasions, but that is a big part of the convenience store industry’s business.”
NPD’s research reveals that iced and slushy coffees together, which have been growing by double digits for the last five years, rose by a healthy 10% during the 12-month period ended May 31, 2013. Iced coffee alone was up 7%, while frozen slushy coffee sales increased by 14%.
As for daypart, it is the afternoon snack occasion that is showing the biggest gains. At the same time, she pointed out, food snacking has shown some declines. “So I would say there has been some cannibalization there because (iced and slushy coffees) are very substantial products. They are very filling,” Riggs said. Hence, consumers haven’t hesitated to use them in place of traditional snack items.
Interesting, as well, is the fact that while the frozen beverages enjoy broad appeal, the biggest single demographic group purchasing them is women between 18-34 years of age, which is typically a demographic c-stores have struggled to attract on a regular basis.
Based on the research findings NPD has gathered, Riggs concluded that convenience store operators should endeavor to play to consumers’ desire in several ways, the first of which is making the most of snacking opportunities. “Offer competitive pricing to attract customers and don’t be afraid to offer targeted marketing to women,” she said. “Realize that there is growth here, and put some merchandising and marketing muscle behind it.”
If there is one caveat to the frozen beverage category it is that it has to be high quality. That means the product must taste great, the equipment must operate flawlessly and
employees must emphasize cleanliness. These are all standards that consumers have come to expect and demand. “For your customers, it’s not always about price. Value is important, but they are very focused on freshness and the quality of the product. They insist upon fresh ingredients, good taste, quality and then they will willingly pay a price that is reasonable and affordable,” Riggs said.
Founded on Dairy
High’s of Baltimore in Hanover, Md., a subsidiary of the 105-year-old, family-owned Carroll Independent Fuel Co., has done very well with diary frozen beverages.
“We started off as a dairy company with dairy and ice cream, so we wanted to capture that frozen beverage customer with our unique items,” said Pat Kelly, director of purchasing for the 51-store chain. “A couple of years ago we put out some milkshake machines in our stores and blended our own varieties from our fresh and hand-dipped ice creams right in front of the customer. While customers loved the taste, sales weren’t where they needed to be.”
As a result, management decided to test a f’real program in a dozen stores two years ago. The milkshakes and smoothies are available in a host of varieties—High’s carries 13 dairy and blended iced coffee flavors in all. The addition has proven to be a wise decision as many of High’s stores now carry two f’real machines.
“In some of the newer stores we’ve opened we’ve gone exclusively with f’real and have seen stronger sales than our proprietary program,” Kelly said. “I think some of that comes from the customers being able to do it themselves and working the f’real dispenser.”
An added benefit of the f’real program is its ease. “There is no mess and there is no measuring needed for the customer to get a fresh milkshake,” Kelly said. “Customers are also accustomed to this model from visiting other retailers.”
High’s supports the frozen dairy program with a Coca-Cola slushy program.
Keeping pace with seasonal variations remains an ongoing challenge for all retailers when it comes to frozen beverage sales. “The summer months give you quite a bit of lift in sales, but in the colder months you have to have items that appeal to the season, such as peppermint or even eggnog.
Promotions have helped even out the valleys. “Marketing definitely helps attract people to the category,” Kelly said. “You can do price cuts on it, offer coupons or a buy one, get one promotion. We typically cut our price by about 50 cents to spark some interest.”
High’s Rewards program offers consumer rewards for the purchase of certain items, such as f’Real and cold dispensed beverages. “It adds value to our customers’ experience,” Kelly explained. “When our rewards card is scanned at the time of purchase, customers can earn up to three cents off each gallon of fuel they purchase. That’s a pretty big motivator in itself.”
Thus, the dairy frozen beverage program not only generates sales in its own right, but augments the chain’s gasoline program and builds customer loyalty. That’s the kind of win-win-win that all retailers are looking for.
Strong Growth for Frozen Dispensed Beverages
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.
“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, sales of cold dispensed beverages as a cateogry, 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.