9 minute read
FEATURE: HOT BEVERAGES
The perfect blend
Now an essential offering in petrol and convenience stores, the hot dispensed beverage category is growing at a rate that is hard to ignore.
Words Deb Jackson
AUSTRALIAN CONSUMERS ARE wellknown for their love of coffee, but not everyone has the time and/or budget to visit their favourite barista every day. With the quality of hot dispensed beverages available in petrol and convenience stores improving dramatically, this once ‘nice-to-have’ is becoming increasingly essential for all operators.
According to the 2023 AACS State of the Industry Report, Hot Beverages had a strong year in 2023, growing 15.5 per cent to a value of $424 million, following a 17.4 per cent growth in 2022.
Theo Foukkare, CEO of the Australian Association of Convenience Stores (AACS), attributes this growth in part to a new pricing structure being adopted within the channel. The average price for Hot Beverages increased by 0.59 cents in 2023 compared to 2022, and with this price increase saw an additional $73 million in margin delivered to the channel.
Hot Beverages had a strong year in 2023, growing 15.5 per cent to a value of $424m (2023 AACS State of the Industry Report).
“Value within the category has jumped on the back of price increases away from $1 coffee, driven by inflationary pressures and increased commodity prices. Dollar share grew from 3.6 per cent of sales in 2022 to 4.1 per cent in 2023,” he says.
“The one challenge is the nine per cent decline in unit sales, which saw more than 17 million fewer cups sold in 2023,” Foukkare highlights. “However, the overall Beverages category –covering both hot and cold beverages – is still expected to see the greatest value growth for retailers into 2024.”
Both hot beverage suppliers and in-store providers talk about cost-of-living being a big factor in the growth and popularity of their hot drinks. As more consumers look at ways to save some money, but still enjoy certain habits and occasions, value hot beverages become a more popular option.
But with Australia having such a strong coffee culture, consumers are looking at ways they can save money, without sacrificing quality. Brett Bolwell, CEO at Barista Equip Australia, explains how they can help stores meet this need.
“Australian coffee consumers are used to a very high calibre of coffee. If you look at convenience and retailing, the interesting thing is some of them have moved from push-button machines into traditional espresso machines to look at ways they can make their offer look barista style.
“We have a full suite of products that you can add onto your traditional espresso machine that can make all the jobs very simple, which means you don’t need to bring a barista to your machine. You can add our products to your coffee machine and teach anybody in your organisation how to make coffee within three to four minutes.
“Everything we do is around making traditional coffee easily accessible to anybody and debunking the need for having a high-end barista.”
Alternative milk
One sign that consumers are increasingly turning to convenient hot drinks over the high street barista is in the growth of alternative milks.
An Ampol spokesperson said that the introduction of alternative milks was proving popular.
“We have seen many customers at our barista sites change to an alternate milk option as part of lifestyle changes, with one-in-five moving to soy, oat or almond milks.
“Our new push button self-serve machines are also offering a great quality coffee. As customers try this option, they are finding that value doesn’t mean they have to sacrifice a great coffee experience.”
We have seen a significant shift towards low sugar, low fat and alternative milks.
- Beverley Eastgate, Category Manager –Food Service, APCO Service Stations
It’s a sentiment echoed by Jeff Yerbury, Acting General Manager – Channel at 7-Eleven, who said that over the past 12 months they’ve seen customers respond well to their investment in alternative milks.
“Alternative milk machines are now available at approximately 325 stores in Victoria and New South Wales, and we hope to have 400 stores across those states offering alternative milk by the end of the year.
“Our customers have loved having the option to choose an alternative milk coffee across our range and we are seeing soy and oat milk options being nearly as popular as dairy-based coffee in many of the stores.”
Beverley Eastgate, APCO’s Category Manager – Food Service, added: “We have seen a significant shift towards low sugar, low fat and alternative milks, with the standout being the growth observed for oat milk.”
It’s something that suppliers are seeing as well, with more than one-in-five coffees sold by Grinders being sold with a dairy alternative.
Jeff Deeth, National Business Manager at Grinders said: “Consumers continue to embrace plant-based milks, driven by health and environmental considerations. Oat is the fastest growing alternative milk.”
While Ben Dunn, Managing Director of The Dunn Group, said the sales spread of its hot Balmain Coffee Company products is consistent across all stores, without any real heroes, adding that “there is no doubt that the alternative milks are increasing and have been for years.”
“The challenge as consumers move across to these milks,” he said, “is managing their expectations around the price of these coffees as the alternative milks are more expensive.”
Store placement
The increase in consumer demand for alternative milks is something that has influenced businesses like 7-Eleven to think more about the placement of the hot beverage in its stores and how consumers use the machines.
Yerbury explained that from a store layout perspective, their designs are adjusted to suit the needs of the local community, but generally speaking they want to make sure they make it as easy as possible for their customers to get their coffee and perhaps something to go with it, especially at peak times.
“What that means is in many of our stores we have coffee islands, with around four coffee machines as well as four separate stations for the cups, lids, sugar or the chocolate shakers. Co-buy items are located on these coffee islands as well.”
The coffee islands also enable 7-Eleven to offer the alternative milk machines.
The hot beverage and food ‘combo deal’ is another thing that many stores have in common, and Eastgate said that APCO sees the potential to increase consumer spend by engaging at key areas in-store.
“We always locate our machines as our last stop for customers. It is essential for us to guide them to walk through the café and, in turn, view our full breadth of the Café 24/7 food offer.
“Including hot beverages in monthly food combos enables us to increase our touch points with POS featured at our highest customer flow areas to encourage sales conversion.”
Dunn, however, says that the quality of the hot beverage you are offering the consumer should not be forgotten or underestimated.
“There are the obvious bundling of coffee and bakery products that all decent coffee retailers will have,” he said, “however you simply cannot beat quality and consistency of your product with every cup you sell.
“If you do this, you will be successful, and you cannot allow staff that are not trained or confident to be making your coffee.”
Deeth agreed, saying: “For retailers with a barista offer, having well-trained staff is absolutely vital to ensure a quality blend becomes a quality coffee for the customer. We ensure at Grinders Coffee Roasters that the quality of barista training is at the forefront and provide ongoing training and barista observation amongst our customers.”
What’s next?
With that consistency and quality front of mind, Dunn said: “The things that we are looking at in the future are more around equipment technology and a bit more automation to ensure the consistency of our Balmain Coffee.”
Quality is a sentiment echoed by Eastgate at APCO.
You simply cannot beat quality and consistency of your product with every cup you sell.
- Ben Dunn, Managing Director, The Dunn Group
“Investing in educating our customers more, through effective POS such as our digital GoBoards, will help drive the message of a trusted offering, one of our key uniques.”
For Yerbury, the future is also about ensuring value and quality for the consumer. He said that people are going to continue to look to the convenience channel for coffee options 24/7 in the year ahead.
“We’ll need to provide good value options and delight them with the quality of what our channel can provide to give consumers more reasons to choose convenience for their daily coffee.”
The role of P&C in fulfilling consumers’ hot beverage needs will continue to grow as the quality and value of what is on offer also improves. Due to the quality of hot beverages in P&C now being so consistent and so high, the key for convenience stores is drawing the consumer in for the first try.
With loyalty programs, strong food and beverage combinations and ideally placed machines that offer something for every consumer, the ability to bring people in for that first sip is increasing, which means hot beverages look well placed to continue their growth and to be an important part of a comprehensive convenience store offering.
Fast facts
Jeff Deeth, National Business Manager, Grinders Coffee Roasters provides a snapshot of the hot beverages category within the P&C channel:
• More than one-in-five coffees are now sold with a dairy alternative. Consumers continue to embrace plantbased milks, driven by health and environmental considerations. Oat is the fastest growing alt milk.
• Cappuccino and Lattes are preferred by 68 per cent of consumers when purchasing coffee away from home, however cold drinks are also on the rise (iced lattes, frappes etc) – especially among Gen Y and Z.
• In Metro areas there is more of a trend towards smaller, stronger coffees (piccolos and double shots) whereas regionally the larger milk-based coffees tend to over-index.
• Quality of coffee is, and will remain, one of the key drivers of consumption. Grinders Coffee Roasters sources the highest quality coffee and ensure that every bean contributes to the premium end result consumers experience with each sip.
Source: CMA Convenience Shopper Report 2023, Euromonitor Nov 2023, Mirage News, Flat White Index Australia August 2023, Food and Drink Business, Future Market Insights, IRI – Grocery & C&P Databases, Coffee Intelligence, Future Market Insights, Modor Intelligence, Global Data – the future of food service April 2023.
