Caffeine Fix

AT A GLANCE

• Hot coffee sales in convenience were up some 7% last year and there are indications that this could be just the start.


• A fully automatic coffee machine lays a perfect groundwork to ensure a standardised, long-term, reliable cup that will draw customers again and again.


• As well as profit per cup, coffee sales are about drawing new customers into the store, keeping them there longer, and driving sales of other products.


• Food items often do well on the back of coffee purchases and by combining coffee with a quality food choice, retailers can make a much higher dollar transaction with excellent profits.

Quality coffee can help lift a sagging bottom line

With supermarket price wars having a huge effect at the C&I outlet till, higher tobacco taxes hitting sales, and the economic outlook still uncertain, it is no surprise that the channel has been keen to maximise the benefits of any ‘good news’. Boom categories such as hot beverages category are offering more than a glimmer of hope to convenience and impulse outlets.

It is the Australian public’s growing love affair with coffee ... and quality coffee to boot ... that is driving hot beverage growth in convenience. Sales were up some 7% last year and the indications are that this could be just the start.

Most convenience and impulse outlets are now keenly aware of the benefit that providing a quality coffee offer alongside a food offer can deliver.

The arrival of affordable, automatic machines that are capable of delivering barista-quality coffee at the touch of a button has revolutionised the look and atmosphere of many outlets.

The growth in coffee sales in convenience worldwide has never been more evident. Now even the most discerning buyer will now drop into a C&I outlet for a quality hot drink. Over the past decade, consumer expectation has shifted to something that could be described as: “I want it now, and I want it to be good!”

With the public’s quality expectations so high, C&I outlets cannot afford to accept mediocrity with a fresh beverage product such as coffee.

Australia has a strong coffee culture thanks to its European migrant history. Coffee drinking is an integral part of our lifestyle. In recent years, the burgeoning demand for premium coffee has led to the arrival of many specialised coffee shops and cafes. If convenience and impulse outlets can attract some of these customers, then the future is already looking a lot brighter.

A quality coffee offering can become a key aspect of the new C&I environment. The pampered feeling consumers get from a premium hot coffee while being on-the-go is something they are prepared to pay for. There is an opportunity to achieve customer loyalty once consumers have found the coffee they want in an environment they enjoy.

One of the most vital requirements to achieving recurrent business is to raise an expectation and then keep that quality promise – day in day out. A fully automatic coffee machine lays a perfect groundwork to ensure a standardised, long-term, reliable quality cup that will draw customers again and again. The ability to offer ‘something more’ ensures outlets broaden their customer base.

There are a number of manufacturers that supply coffee making machinery to the convenience and impulse channel, on both a sales and a rental basis. Whereas once most coffee systems were effectively producing instant coffee with powdered milk, today’s evolved machinery delivers fresh milk and premium coffee.

Espresso Essential has seven different coffee-making models that would suit a variety of convenience and impulse outlets, and these can be both self-serve or staff operated. The well-established company has around 9,500 outlets in Australia and New Zealand boasting fully automatic systems.
For its part, Franke’s fully automatic coffee machines offer a range of beverages including cappuccino, macchiato, hot chocolate, and flavoured hot drinks. The high level of automation on offer means the operator can spend less time on the machine, and focus more attention on the customer.

The Franke Pura Fresco coffee system, which is used by Europa International, can deliver some 200 hot beverages a day and offers a 32 drinks selection with everything from cappuccino and lattes to Swiss hot chocolate and chai lattes. To broaden customer appeal, the machinery incorporates a customised display to suggest purchase combos and boost impulse sales.

Shop Around

It always pays to shop around to get the best quote, and outlets should never assume anything until they have exhausted all avenues and checked all equipment options. Espresso Essential says outlets should consider such things such as water filtration, HAACP certification, safety features, peak performance, expansion of drinks menu, foot print, maintenance, and ease of operation. It believes manufacturers should be going on site to see the store and footprint area to consider sales flow in order to provide retailers with the best advice and return on investment.

Outlets should look at anticipated costs over a longer period, such as four years rather than just the upfront offer. It is easy to get sucked into an attractive offer and be left high and dry with no service on breakdowns or a warranty that requires back to base repairs. Regional outlets need to be particularly aware of this as travel for repairs is not covered by all coffee companies.

There is no shortage of machinery options for stores and the good news is that the maintenance required on this sophisticated equipment is surprisingly light. Machines using fresh milk will still only require a daily clean that takes only a few minutes. An annual service is required to ensure the machines are in top working order and are producing quality coffee and serious profits for the long term.

With a cup of good coffee typically costing the consumer in the vicinity of $3.50 and the cost to the C&I operator of producing it for a fraction of that, the prospects of healthy profits are strong.

While there may be a general trend towards the purchase of equipment, it is still fairly common for C&I outlet operators to lease a coffee system giving them the tax advantages and positive cashflow from immediate sales. Leasing can start for as low as $35.00 per week, and that means the sale of just three cups a day can pay for the equipment. The expectation would be that an outlet would sell many more cups than that, and some stores easily sell in excess of 300 a day!

The true profitability of coffee per cup varies depending on how the coffee is served and sold. The more manual the process, the more the labour needs to be featured into the production cost. Obviously, staff training is also a factor when dealing with barista-style coffee and so doing everything possible to minimise staff turnover is very important.

Espresso Essential says fully automatic espresso with no milk is by far the most profitable coffee with a serving cost as low as $0.20 per coffee shot, not including the cost of the cup. On average, the company suggests that C&I outlets budget on a $0.75 per cup cost and aim for a quality that allows them to sell for $3.00 to $3.50.

It would appear that a combination of quality and cost is the best way to achieve profitable returns.

Repeat Business

But it is not just about the profit achieved per cup. Coffee sales are about drawing new customers into the store, keeping them there longer, and driving sales of other products.

Coffee goes hand-in-hand with repeat business – partly because of the addictive nature of coffee, and partly because of the habitual buying it creates.
The mere act of ‘keeping’ the customer within the store’s environment for longer also has a positive impact on additive sales capabilities.

Quality coffee has become expected in C&I outlets, and the operator who can deliver it consistently and have their coffee offer stand out will bring a competitive advantage to their business. The aim is to attract customers who are not currently coming into C&I outlets to purchase hot beverages – perhaps the customer who has previously been getting his or her caffeine fix at a cafe or quick service restaurant. There is no doubt that extra customers coming through the door to buy coffee results not only in additional hot beverage sales, but in stronger hot food sales and extra sales across all categories.

Food items often do well on the back of coffee and by combining coffee with a quality food choice such as a sandwich, donut or a cake, outlets can make a much higher dollar transaction with excellent profits.

In order to capitalise on both the coffee sales opportunity and the other sales opportunities, most coffee machinery suppliers – as well as offering ongoing service support and the coffee itself – will offer a range of promotional marketing material.

Outlets should do everything possible to promote and advertise their coffee offer from outside. Relying on existing store traffic is a slow way to achieve consumer acceptance. In other words, if you’ve got it, flaunt it.

Technology also allows the coffee equipment to suggest possible combo deals and highlight promotions to customers. For example, Europa International says that perhaps the consumer may be offered a free cappuccino when he or she fills up with a tank of fuel. This sort of promotion may boost fuels sales while costing the operator a mere $0.50 or $0.60 for a cup of coffee.

Coffee appeals to a wide demographic – from truck drivers and office workers to sales reps and busy mums – all who can become baristas at the touch of a button.

Of the more than 500 billion cups of coffee consumed per year, some 50% of them are enjoyed in the morning. So first thing in the day is clearly the prime time for C&I outlets to serve hot, fresh coffee.

Depending on the hours of the C&I outlet business, coffee can be an around the clock money maker for operators. While the typical times for sales are around breakfast, lunch and after work, the on-the-go lifestyle of modern families means any time can be coffee time.

• The rise and rise of coffee looks set to continue for some time and the trend towards quality hot beverages is one that C&I outlets need to capitalise on. A decade or so ago when phonecards first appeared on the scene there were some outlets which didn’t take advantage initially, dismissing the cards as ‘just a fad’. The rest, as they say, is history – and those that didn’t get on board at the start were left eating their words and, more importantly, counting the cost. As the coffee revolution gets into full swing and the public’s expectation of what a C&I outlet should be continues to evolve, it is crucial that profit-hungry operators act quickly to ensure they don’t get left behind.

* C&I Retailing would like to thank Espresso Essential, Europa International and Franke Coffee Systems for supplying information for this article.