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NATIONAL REPORT — Determining what to charge for your dispensed beverages can be a sticky wicket. One would like to be able to undersell the competition without giving away the house.
So, how do you determine what price is right for your store? Do you set your prices as a percentage of gross margin? Or do you price similar to (or below) what's offered by the competition?
"I believe it's a balance of both," said Ryan Krebs, director of foodservice for York, Pa.-based Rutter's Farm Stores. "The main goal is to focus on margin for your individual organization. Competition price wars can drive prices down to the point where no one is making an honest profit."
If a convenience store retailer's overall dispensed beverage program is successful in drawing customers into the store, then a 99-cent any size, or "free" approach, may be counterintuitive. "At the same time, you always want to be aware of a competitor's everyday pricing, so your overall program is not an obvious overcharge compared to those around you," continued Krebs.
Pricing has become more of an issue in the c-store industry as many retailers move toward the one price for all sizes (usually 99 cents) or free refills, putting pressure on margins in the process, according to Larry Miller, founder and president of Sanford, Fla.-based Miller Management & Consulting Services.
"QSRs [quick-service restaurants] rarely, if ever, promote a fountain drink by itself," explained Miller. "They have always counted on the combined margins in, say, a fountain and French fries combo to maintain profitability. QSRs have tied in movie events, children's toys, TV show character promotions and, of course, collectibles, on all of these as a value-added proposition that drives profits based on maintaining tremendous volume. I don't think c-stores have done a very good job of promoting fountain in any way other than price."
A retailer's pricing structure should be dependent on that retailer's overall sales strategy, advised Chad Prast, senior category manager of fresh foods and dispensed beverages for Bentonville, Ark.-based Murphy USA Inc. Is the retailer trying to use dispensed beverages as a profit generator or as a sales driver?
"You always want to keep an eye on competition, but if the quality of your products are better and your customers are willing to pay more for them, lowering your price points doesn't make sense," Prast said. "Having inline, day-to-day pricing and then promoting with in-and-out items and short-term lower prices can really help drive incremental sales in the category."
Editor's note: Check out the April issue of Convenience Store News for the Single Store Owner for our full report on "How to Maximize the Profitability of Dispensed Beverages."