Successful retailing is all about making the space you have work for you. Every square inch of floor space needs to be making you money, and while some categories will generate more revenue than others, it’s important to figure out quickly which ones will bring you strong returns without taking up too much of your store.
That’s the potential margin on a £1 cup of coffee, according to Country Choice
The hot beverages category offers margins of up to 70%. Is that something you can afford to ignore? Even the most successful retailers would be tempted by that level of margin for relatively little work, and plenty of retailers have been paying heed - some 18% of convenience store shoppers think the hot drinks category has improved in recent years (HIM). However, there are still some retailers who haven’t introduced it to their store.
Nestlé Professional head of beverage solutions Matt Lane says it’s now expected by customers. “With coffee chains springing up on the high street on what seems like a weekly basis, it’s perhaps not surprising that the coffee shop market is now worth a staggering £5.8bn,” he says. “Consumers now expect access to quality coffee wherever they are, at whatever time of day, posing an opportunity for convenience store owners to make a lucrative revenue stream through the growing on-the-go coffee trend.”
Country Choice marketing controller Stephen Clifford says that a solid hot beverages to go offering can attract people to your store. “Coffee is a great profit generator and footfall driver and ties in very well with meal deals such as a coffee and bacon bap,” he says. “Machines can be configured as self-serve or serve-assisted, depending on the particular store set-up. We have an entry level machine that can produce up to 60 cups per day as well as a bigger machine for larger outputs.”
Peter Swain of Spar Stalybridge in Cheshire has had a Kenco 2 Go hot beverage machine for 18 months and says it’s been a profitable addition to the business. “We introduced it to complement our food-to-go offering and take that to the next level,” he says. “We sell about 20 cups a day and that’s in a store with very little passing trade. A lot of the customers will buy on their way to work, but as it’s starting to get dark earlier in the evening, teas and hot chocolates are becoming more popular.”
Morning, noon and night
Some of you may not be able to function without your morning cup of coffee or tea, and surely your customers are the same. And with up to 46% of consumers occasionally skipping breakfast at home (Kantar), the morning should be the key time for your hot beverage machine to get grinding. But once the clock hits midday don’t think that sales are done as there are plenty of other hot beverage opportunities over the course of the day.
If your store is in the right area, the lunchtime rush will provide plenty of tea and coffee sales for hungry workers. Soup is an option for some retailers who want to provide more choice for customers. But if you don’t have the space, a lunchtime meal deal featuring hot beverages can go down a treat. And even if you don’t sell sandwiches, there are opportunites to include confectionery and snacks so you don’t miss out.
Just because it’s a little late in the day for caffeine, it doesn’t mean you can’t sell a few more cups. Peter Swain of Spar Stalybridge in Cheshire is looking to boost hot beverage sales in the evening with his extended range. “Schoolchildren love hot chocolate and it’s growing more popular as the evenings get colder,” he says. “I’m looking into how we can create an evening meal deal that incorporates hot beverages, but for now hot chocolate keeps the space making money later on in the day.”
Clifford says even a modest operation can be a lucrative one that doesn’t take long to see a return on investment. “Medium-volume retailers should be looking at a minimum of 25 cups per day, which would yield about £8,000 profit per year,” he says. “Higher volume customers will be serving about 60 cups per day and making in excess of £18,000 profit per year. Margins on coffee are very good, in the region of 70% for a £1 a cup. so the typical payback period on a machine is between four and five months.”
It doesn’t take much managing, either. “Coffee service does not need to be assisted-serve anymore,” he says. “Self-serve machines can deliver what is required so long as they offer bean-to-cup coffee made using fresh milk, and the delivery speed is between 25 and 40 seconds.”
Peter says his machine just needs a daily fill-up and clean for it to stay in top condition. “It really doesn’t take much to manage it, and because we got the machine through our wholesaler there’s flexibility on ordering extras for it so we’re not tied into buying lots of stock for it every month,” he says.
Some retailers have already seen the light when it comes to hot beverages and installed a machine. But are they making the most of it? “Store owners should definitely make sure that they are maximising the potential of their machine,” says Clifford. “This means making sure it’s in the right location, that link-save deals are implemented and prominently advertised, and that other sales tools such as loyalty cards are also on offer.”
Location is not the only element to bear in mind - quality is also important. “These days, consumers are far more discerning in their appreciation of coffee so quality is paramount,” he says. “Make sure it’s a good bean to cup machine using fresh milk and Fairtrade beans. If they get the right type and quality of machine in the first place then the only upgrade likely to be needed is in relation to increased output. Make sure the offer is prominently displayed and that they highlight the quality - bean to cup, fresh milk, Fairtrade beans.
“Retailers should look to offer a range of coffees using a bean to cup machine to ensure the coffee is freshly ground,” he adds. “Country Choice supplies Fairtrade pure Arabica medium roast coffee, which we believe is a good middle option suitable for all coffees, from milky varieties such as latte to strong varieties like espresso. The machines offer six coffee varieties - espresso, double espresso, latte, cappuccino, white and black - as well as tea and hot chocolate.”
Lane says those retailers looking to trade up should go big. “For those who benefit from high footfall and have the space, the new generation of self-service machines that utilise cutting-edge technology offers a premium service that is quick and simple to use for both staff and customers,” he says.
Mondelêz trade communications manager Susan Nash says hot beverages to go is something a retailer can base a range of impulse purchases around. “By offering hot beverages to go, retailers can encourage impulse purchases across the store,” she says. “With on the go snacking increasing, cross-category selling is a huge opportunity for foodservice operators. Research shows 60% of customers also buy a snack when buying hot drinks. To help drive incremental sales we recommend retailers promote hot beverages alongside complementary snacks, adapting the offer depending on the time of day, such as offering a hot beverage with a Belvita Breakfast Biscuit in the morning, or a Cadbury chocolate bar in the afternoon.”
Clifford adds that offering food with hot beverages to go should be a priority for retailers. “All food to go is complementary to hot beverages - hot savoury pastries and breakfast baps, cakes and sweet pastries and sandwiches are all potentially additional purchases to a cup of coffee or tea,” he says.
Peter has been offering bacon sandwiches and a hot drink for £2 and is keen to expand this to include more lunchtime-friendly meals. “You lose a bit of the margin on a meal deal, but it’s popular with customers so worth keeping,” he says. “We want more customers to pop in during their lunch break so we’ll have more sandwich varieties on offer in the deal. It’s a great way of adding more to your hot beverage offering”
Ones to watch
On the go
Kenco 2Go offers hot beverages in a ready-to-serve, in-cup format.
Pre-dosed products are kept fresh by a foil seal so the operator just needs to peel back the lid, add hot water and serve. The range includes Millicano, Rich, Cappuccino, Decaff, PG Tips, and Cadbury Hot Chocolate.
tel: 0800 073 5757
Nescafé Milano Lounge is a premium self-serve coffee solution which allows consumers to customise their own beverage at the touch of a button. Offering more than 400 combinations, the Nescafé Milano Lounge enables operators to deliver the ‘coffee shop experience’.
tel: 0800 745 845
Country Choice’s Boston’s hot beverage offering comes in two models - a medium- (rrp £2,700) and a high-volume (rrp £5,900) machine. Featuring coffee, tea and hot chocolate, payback on the machine can be as little as four months, depending on machine and volume.
tel: 0800 521 366
Costa’s Express convenience offering allows retailers to provide a wide range of coffees in a variety of sizes. The Express also offers customers the option of adding flavour shots to their drinks. The machine comes with POS material and a 24/7 helpline should anything go wrong.
tel: 0845 450 5757
Good to go
Nescafé’s entry-level option for retailers is still available. Costing as little as £99, the machine holds up to six different hot drink varieties including four Nescafé coffees, Aero Hot Chocolate and Tetley Tea. No plumbing is required for the machine and it takes up only a small space in any store.
tel: 0800 745 845