HOT COFFEE: BREWING UP SALES

BREWING UP SALES

After feeling the heat of lockdowns, hot beverages sales are brewing up business once again, writes Claire Hibbit.

After being the fastest growing category in the petrol and convenience channel (P&C) for the last five years, hot beverages has felt the heat of the pandemic.

Over the past two years, the sector has been impacted by pandemic-related lockdowns and work from home orders, which saw the elimination of commuters’ early morning coffee run. But, as workers begin to hit the roads and return to offices, sales are looking up.

According to Theo Foukkare, CEO of the Australian Association of Convenience Stores (AACS), data from the newly released AACS 2021 State of Industry Report shows the hot beverages category rebounded in 2021, growing at 7.4 per cent, following a drop in sales in 2020.

“This delivered an extra $22 million in sales, more than making up for the $11 million decline in 2020*,” notes Foukkare.

CONSUMERS SEEK CHOICE AND VALUE

Hot beverages in the P&C channel have evolved significantly over the last few years as customers demand a better quality cup of coffee.

“Coffee quality and the speed of service required in P&C outlets drive many insights and trials,” explains Philip Badolato, National Business Manager – P&C, Grinders Coffee at Coca-Cola Europacific Partners Australia (CCEP).

“Alternate milks have greatly increased in the cafe channel in recent times and there is certainly now a flow on effect into P&C where operators have a barista style offer vs fully automatic.

“Where there used to be one type of alternate milk on offer, we are now seeing enough sales to justify three, sometimes four alternate milk types. Coffee is also playing a significant role all through the day in P&C with the increase in the afternoon coffee occasion.”

According to George Miller, CEO – Oceania, Tiger Coffee, consumers are seeking choice and value, with alternative milk options, most notably oat milk, on the rise.

“In cafes, alternative milk is seeing significant growth and is exceeding 45 per cent of coffee sales in most parts of Sydney, Melbourne, and Brisbane,” says Miller.

Within major P&C operators, getting out from under $1 coffee will be necessary to improve already eroded margins.

– George Miller, CEO – Oceania, Tiger Coffee

“Certainly, one of the majors should ditch light milk as its demand is falling, but it is also looking to cross over in P&C to alternative milk

“Oat is a is massive growth area in major metro areas. While almond still holds risks (regarding allergies), oats should be replaced by light. The market is gagging for a new P&C coffee choice.”

MAKING EVERY CUP COUNT

Miller believes the main challenge for P&C operators is sustaining an attractive fresh coffee offer every day, encouraging retailers to add complementary sales with as many coffee transactions as possible.

“Coffee prices are all up everywhere. Within major P&C operators, getting out from under $1 coffee will be necessary to improve already eroded margins. Consumers are coming to accept it will need to happen. The time is certainly nigh for $1.50, $2,50 and $3.50 (small, regular, and large). For an excellent quality coffee customers will not flinch from it.”

Badolato says the main challenge for the hot beverages category will be the long-term impacts of the pandemic such as commodity prices, fuel prices, and the continuation of remote working.

“Employees continuing to work from home post-pandemic will have an impact on coffee sales, especially during the morning commute peak of 6am-9am,” says Badolato.

According to the AACS 2021 State of Industry Report, visit frequency was lower in 2021 than 2020, however, the mission to purchase hot coffee has increased – although it’s not back to pre-pandemic levels in 2019**.

The local petrol station has its part to play in being more of a destination for necessities and with this comes an opportunity to create a cafe style option within outlets.

– Philip Badolato, National Business Manager – P&C, Grinders Coffee

Badolato believes there is a role for coffee brands to play to help retailers improve their offering.

“Petrol outlets are turning into mini supermarkets. As more people continue to work from home, the local petrol station has its part to play in being more of a destination for necessities and with this comes an opportunity to create a cafe style option within outlets.”

To help keep things fresh, Grinders is constantly looking at alternate, and improved equipment options.

In fact, Badolato and his team have been working with Franke Automatic Coffee Machines over the last 12 months on how to capitalise on the increased technology the machines offer.

“We will be using these machines more in the future as they have amazing telemetry software, that is operated by Franke itself. It lets us remotely log in to any machine around the country to pull all types of data around sales volumes, sales by coffee type, day part, size, etc. This information enables us to develop tailored promotions that can be remotely sent to any machine in a customer’s network and displayed in-store on the machine’s screen.”

Tiger Coffee, the official distributor of Eversys Oceania, has recently welcomed the latest Eversys’ commercial coffee machine, Eversys Legacy, which Miller describes as a “game-changer”.

There needs to be sufficient coffee presence outside the store and then there is the need to create a path to purchase inside as well.

– Philip Badolato, National Business Manager – P&C, Grinders Coffee

The Legacy functions as a one-step machine with new innovations including up to four grinders and an integrated powder unit for multi-purpose beverage service.

“Eversys Legacy is an attractive, sustainable, versatile, and well thought out [machine], and is ideal for P&C,” says Miller.

ADD A LITTLE EXTRA

According to Foukkare and the 2021 AACS State of the Industry Report, category growth has been generated by both push button and barista coffee, with independent stores in particular getting strong results once upgrading their offer.

Badolato believes there is significant opportunity for coffee activation, especially when it comes to $1 push button coffee.

“There are more retailers selling $1 coffee but too often I see [operators] placing an automatic machine in the corner, pricing coffees for $1 and assuming it’s just going to sell,” he says.

Legacy by Eversys

“There needs to be sufficient coffee presence outside the store and then there is the need to create a path to purchase inside as well. People also need to be clear on why they are selling coffee for $1.

“When you add up the cost of automatic equipment, servicing and the cost of the product itself, the money is not in selling coffee for $1, it is in the upsell and using the coffee to drive people into the store.”

Foukkare says the coffee customer delivers retailers an opportunity to be intertwined into the customers’ daily routine, which in turn drives increased frequency and the opportunity upsell other items in the store.

Badolato says it’s important to bundle products with coffee based on the time of day. He suggests a breakfast item in the morning and a snack/confectionery item such as chocolate in the afternoon. He also suggests retailers feature a coffee and water promotion throughout the entire day.

“Consumers are always looking for value and coffee can be bundled with so many different products.”

*AACS 2021 State of the Industry Report

**AACS 2021 State of the Industry Report, CMA Convenience Shopper Report 2021