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    The Low-Cost, Highly Profitable Category

    Dispensed beverages remain the heart and soul of convenience stores.

    By Tim Powell, Think Research & Consulting

    Lately, there has been a lot of discussion and content dedicated to convenience store food -- segment growth and perception. Considering dispensed beverages are the heart and soul of c-stores, accounting for half of all foodservice sales, this column is meant to remind readers to maintain focus on the traffic – and particularly profit – potential of this always important category.

    Gross margins for cold and hot dispensed beverages are the highest among all foodservice categories in convenience stores and in the foodservice industry overall. Gross margins are highest for dispensed iced tea and coffee, which can exceed 95 percent. Still, operators see generous margins for dispensed carbonated soft drinks (CSDs), slushies/smoothies and juices.

    It is a well-known practice in the industry to “steal” margins from beverages to “make up” for the high cost of food. For example, incrementally increasing the price of a beverage included in a combo meal means the overall price of the sandwich and chips can be lowered without compromising profits.

    In addition to the profitability story, dispensed beverages can attract a broad audience.

    The Gas Pump as a Billboard
    While we are in a deep freeze, it seems no one in their right mind would go into a c-store after pumping gas. However, catchy pump advertising such as a “super hot cup of coffee free with a muffin” is certainly enticing this time of year. In my own estimation, too, few retailers use the gas pump as a promotional tool or never remove the original signage.

    Use Beverage Equipment as a Novelty
    The introduction of the Coca-Cola Freestyle machine is an excellent example of customer interaction within a c-store. While not all beverage equipment has to meet the same innovation standards as the latter, retailers can increase in-store excitement with bright, interactive equipment, such as the f’real milkshake machine, that gets consumers talking.

    Offer Varieties & Limited-Time Offers
    C-stores are well-known for offering among the best variety of beverages in the industry. Motorists can typically stop at a roadside store and count on purchasing a favorite CSD brand. Like the food offerings in other segments, c-stores must continually keep the beverage offerings new and exciting. Offer a certain coffee, CSD or iced drink four to five times per year for a limited time, and replace unsuccessful brands/offerings to make way for the newest drink.

    The Return of Iced Tea
    With the attack on the calories of CSDs and high expense of “healthy” bottled beverages, consumers are once again looking toward iced tea as a favorite complementary beverage with food. Iced tea is among the highest in gross margins and is also one of the most versatile items operators can offer in terms of additional flavors, functions and types.

    The equipment is typically provided by the supplier and relatively reliable, with low maintenance. Ideas would include offering a “boost” from the CSD dispenser with iced tea, or simply providing similar flavor pumps to customize iced tea as consumers do with coffee. Obviously, the Arnold Palmer would be an easy addition.

    Stick to the Basics
    Heavy users of c-store foodservice (those visiting more than three times per week) over-index on beverage purchases, as well as on overall check averages. This group may, in fact, only purchase a beverage on certain occasions and may actually return the same day for another beverage.

    While the beverage category is undergoing an influx of new beverages (relaxation, functional, fusion, etc.), it is critical that c-stores do not alienate their current base of heavy users to attract a lighter-user base with specialty lattes, for example. Following these rules suggested, c-stores will see that no specific consumer segment is ignored.

    Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

    By Tim Powell, Think Research & Consulting
    • About Tim Powell Tim Powell is founder and principal of Think Research & Consulting. Think is experienced in providing insights and actionable strategies to retailers looking to gain a competitive footing in an ever-changing industry. Contact Think at [email protected] Powell has more than 20 years of consulting, research and sales experience across a variety of industries. Prior to Think, he worked for more than a decade with foodservice consulting firm Technomic. He can be reached at [email protected]

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