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MIAMI BEACH -- Day 2 of the NACS Leadership Forum here opened with a panel of distinguished retailer and supplier experts discussing the future of refreshments.
Led by Professor of Marketing at Ohio State University Neeli Bendapudi, three retailers, NACS' research leader, and one supplier executive hypothesized about how the refreshments they currently sell will change in the years ahead.
Dae Kim, NACS' vice president of research, presented insights on the growth of packaged beverages, beer, and hot, cold and frozen dispensed beverages in the convenience channel. Kim noted refreshments (these five categories) have grown by 800 percent in sales over the past 35 years, compared to overall store sales growth of 600 percent during that period.
More importantly, the gross margin contribution of the refreshment category is significantly better than its percent of sales, he added.
Kim also presented insights from a consumer intercept study conducted by NACS, which found that refreshments comprise 46 percent of trip occasions to convenience stores. They also constitute 18 percent of impulse sales. However, indicative of additional growth opportunity, Kim pointed out that refreshment categories also comprise 25 percent of missed sales opportunities where a consumer walks out without buying anything.
Next, Opokua Kwapong, vice president of R&D, Sports and Hydration for PepsiCo Inc., provided attendees with a look at the drivers and trends that will impact refreshments by the year 2020. The five main drivers, according to Kwapong, are:
- Demographics – aging population, multicultural growth, more older and younger consumers and complex households.
- Economics – instability, high debt/leverage, rising health care costs, income disparity.
- Health – importance of wellness, disease and obesity, science vs. nature solutions, government taxation and regulation.
- Environment – resource scarcity, carbon footprint, interconnected view, government regulation.
- Lifestyle – wired society, universal design, convenience and consumers in control.
Some of the results of these drivers will be consumers making more informed appraisals of their shopping behaviors, a greater focus on worth and function, an emphasis on being healthy, more control and personalization of products, and more use of social networking to build connections.
Kwapong envisioned such future products as zero calorie sugar, advanced functional/medical foods for relieving chronic health issues and fermented beverages.
From soft drinks, the discussion moved to the beer category. Dave Carpenter, president of J.D. Carpenter Cos. based in Iowa, said beer is critically important at his Shortstop stores. Carpenter believes a beer cave (or beer vault as it's called at Shortstop) is the best way to maximize sales and profits in the beer category for the following reasons:
- To differentiate from the competition.
- To provide a larger selection and drive more impulse purchasing.
- To promote the "coldest beer" in town.
- To use employee labor more efficiently.
- To reduce out of stocks compared to refrigerated doors.
Carpenter, who said he built his first beer vault in 1995, warned that retailers need to ensure their beer caves are customer friendly and big enough -- he recommends at least 300 square feet to provide enough space to bridge your stock between deliveries. Another common mistake, he said, is not providing enough visibilities for customers into the beer cave, which invites theft and makes some customers, especially women, feel uncomfortable. Carpenter utilizes automatic doors, lots of lighting and even pipes music into his beer vaults to make sure they are especially inviting to everyone to enter.
Sticking with the cold beverage theme, John Zikias, vice president of marketing for Thorntons, provided a case study in how to drive fountain business for cold and frozen beverages. Zikias said focusing on quality goes beyond figuring out the ideal temperature for a carbonated soft drink from the fountain is 34 degrees. "We asked ourselves, 'what's a perfect drink,'" said Zikias. "We came up with the term 'tongue tingling' and then we made sure all our team members understand what that means."
After quality, the next step is consistency, said Zikias. "We want our team members to have fun so we created mugs for them to use and allow them to drink any fountain beverage they want for free. If they are drinking it, they'll know if it is tongue tingling," he said. Thorntons also encourages team members to make new drinks using different flavor combinations and talk to customers about it. It even created a Web site, www.MakeYourMix.com, for employees to submit their own drink combinations.
The other ingredient to Thorntons' fountain success is communication to both customers and employees. Internally, every team member is put through what the company calls its "Fabulous Fountain Training Program."
Lisa Wollan of Wawa wrapped up the morning session on refreshments. The head of consumer insights and brand strategy at the Pennsylvania-based retailer discussed how Wawa re-invented its vaunted coffee program.
Wollan reported on how Wawa conducted extensive consumer research after the company noticed it had slipped in market share in 2007 due to the aggressive new coffee programs introduced by competitors like McDonald, Starbucks and Dunkin' Donuts.
So, the first thing the company did was shore up its current offering by tighten every specification, hiring a coffee expert, and adding a new premium 100 percent Columbian coffee. Then it improved the process through SKU rationalization and evolved the packaging with new graphics that connoted quality.
The changes had an immediate positive impact, according to Wollen, but the company didn't stop there. "That just stopped the bleeding," said Wollen. "But long term we needed to defend and grow our coffee share by delivering quality coffee without increasing spoilage."
That's when the company took the leap from its iconic coffee pot to carafes. The carafes kept the coffee hot longer, kept the flavor and provided longer shelf life. Operationally, the new system saved energy and labor while reducing spoilage. And, as a final step, the company created brand ambassadors for its new Coffee Unplugged! Program to create a positive environment for both customers and team members.