Providing hot beverages to go can be a profit booster if your location is right. Aidan Fortune looks at what store owners need to consider
Whether on the school run or rushing to the office, your customers are a busy bunch and often need a little pick-me-up to get them through the day. And what better way to help than to offer a hot beverage on-the-go?
Country Choice marketing controller Stephen Clifford says that it’s time-poor consumers who have led to an increase in demand for on-the-go hot beverages. “The market has fared quite well with an increase in coffee sales to a general upturn in breakfast trade, which is when hot beverages are generally sold,” he says. “Mintel estimates one in five adults or one in four full-time workers eats breakfast outside of home. Sales of tea and coffee are largely linked to a food purchase, such as a bacon bap or sausage roll, or complementary items such as newspapers.”
Retailer’s view - Paul Cheema
“We installed a Country Choice hot beverage machine two months ago and while it hasn’t hit its full potential yet, we haven’t regretted it. We sell an average of 40 cups a day and it’s interesting to see how the choices vary over the course of the day. In the morning lattes are very popular and make up the majority of our hot beverage sales, and then in the evening hot chocolate sells well with the local kids.
“We’ve set the machine up as part of a snacking zone right at the front door, with cereal bars and pastries nearby. We’ve also installed a microwave to heat up snacks so customers can find everything in one area of the store.
“We were a little worried at first that we may not have the right local demographic to suit a hot beverage machine, but we’ve persevered and there’s been a definite return on our investment.” Paul Cheema, Malcolms Stores, Coventry
Instanta sales and marketing director Nick Neal says that the market can provide some fantastic margins for retailers. “A hot beverage machine brings numerous benefits,” he says. “For a start, it encourages customers to stay in a store longer and, combined with a quality food-to-go offer and meal deals, the margins are excellent.”
Max Jenvey of Oxxygen Marketing Partnership agrees that hot beverages is a profitable sector for retailers. “Having a hot beverage offer can be a true sales and profit driver for a convenience retailer,” he says. “The convenience sector is a growing destination for hot beverages on-the-go, with value sales estimated to be worth more than £500m a year.
“Both coffee and tea generate a profit margin of up to 80%, hence whatever level of hot beverage solution that a retailer chooses there should be a strong addition to store sales,” says Jenvey. “There is the potential for a self-serve hot beverage machine to generate up to £40,000 in sales a year in the highest volume stores. Whether it’s table-top or floor-standing, a hot beverage machine could turn one metre of space into £28,000 of additional profit.”
He adds that improvements in technology have also made providing hot beverages much easier for retailers. “The constant development in self-serve machines has enabled a convenience retailer to capitalise on growing demand and bridge the gap between manned coffee shops and vending machines,” points out Jenvey. “The simpler-to-use machines require limited staff maintenance but offer a high return.”
However, before any investment is made retailers need to be sure that a hot beverage machine will be successful in their particular store. The last thing any retailer wants is a piece of equipment gathering dust and taking up space that could be allocated to something more profitable.
According to Clifford, retailers first need to look at their customer base to assess whether hot drinks to go would be well received. He has this advice as a rule of thumb: “If your store is near any of the following then there is a good chance it will work: social housing; railway station; secondary school; private housing; town centre; college or university; factory; bus stop and offices,” he says.
“Breakfast is likely to be the busiest time of day so stores near construction sites, transport hubs or industrial estates will do particularly well.”
If it does suit your store and you take the plunge, Clifford says that it shouldn’t take long for a retailer to recoup the cost of a machine. “Medium-volume retailers should be looking at a minimum of 20 cups a day,” he says. “This would yield about £6,000 profit per year. Higher volume customers will be serving about 60 cups per day and making more than £18,000 profit per year.”
Instanta’s Neal agrees that the return on investment can be achieved quite quickly. “Given that a boiler can be bought and installed from as little as £450, then even if you sell only three or four cups per day the machine could pay for itself in just three or four months.”
He says that retailers need to consider carefully what type of machine they invest in. “While cost is still a major factor, other issues such as energy consumption and reliability are becoming more important in the buying decision. As a result, we are seeing increased interest with eco modes, which run on reduced power during quieter periods, and the introduction of machines such as those in our CT range, which have back-up scale probes that initially advise of an impending scale problem rather than just shutting the machine down immediately.”
innovations Idea to take away
If you’re really keen on providing hot beverages on the go but have no spare space to do so, new Rocket Fuel energy cups could provide the answer. The self-heating cup generates a small thermal reaction between the inner and outer packaging that keeps the drink hot for 20 minutes.
Food Brand Group sales director David Brooks says that the product is designed for time-poor consumers. “Rocket Fuel self-heating cups tap into the growing trend for coffee on-the-go and are perfect for any consumer who requires an instant energy boost anytime, anywhere.”
Available in 200ml recyclable cups, Rocket Fuel comes in white coffee and hot chocolate variants with a retail price of £2.49. The new product is being supported by an advertising campaign that includes digital signage and branded lorries.
He adds that innovations also mean that machines can be set up to shut down to save energy. “Products in our CT range also have a programmable seven-day timer that allows the machine to be set to go on and off at specific times during the day, which is both convenient and gets around the issue of machines being left on overnight when they are not being used,” says Neal.
With the equipment bought, retailers have to consider how wide a range they want to stock. Providing coffee for caffeine-starved customers is a given, but tea shouldn’t be overlooked, either.
“Just 14% of tea is drunk out-of-home,” says Jenvey. “This illustrates a huge potential for an increased out-of-home tea market. The trends in tea are ever-changing and tea houses or tea shops are becoming more and more popular. It will soon be comparable to the rise in coffee shops.”
He adds: “Offering the big brands is vital because tea consumers have a preferred brand,” he says. “Mintel reports that the market share is in the main divided between Tetley, PG Tips, Twinings, Typhoo and Yorkshire Tea. Proactive retailers can, however, range different teas to create a point of difference. The most obvious would be flavoured, scented or herbal teas.”
Jenvey adds that the herbal tea market is a growing sector and one which retailers should keep an eye on. “Demand among health-conscious consumers has grown since the media revealed that celebrities were using tea as a weight-loss aid. Green tea has seen sales grow 26%. We aren’t suggesting that a retailer stocks every tea on the market, but a well selected range can give you a unique selling point.”
If you’ve already made the investment into hot beverages on the go, there are ways to grow your offering so it becomes even more profitable. Jenvey says that retailers have the opportunity to benefit further by placing complementary products nearby. “Switched-on retailers will tap into the plethora of opportunities that exist to drive incremental sales through stocking impulse snacking items or treats such as chocolate bars, muffins, cookies, pastries or sandwiches close to their hot beverage machine,” he says.
“To attract more sales and increase basket spend, retailers should consider offering shoppers link deals for example, a hot drink and a muffin for a set price.”
Retailers considering expanding into a full-on seating area are urged to consider whether it would work in their area. “In our experience shoppers tend to be in a ‘grab and go’ frame of mind,” says Clifford. “A few of our retailers do provide high stools with a narrow counter. One option, assuming the local council permits, is to have a couple of tables and chairs outside the store this is as much about advertising that food is available for the store as providing a practical seating area.”
The American dream
Country Choice’s hot beverage offering has an American feel to it and encourages complementary sales by pairing hot tea and coffee with donuts. The Boston’s concept comes with full marketing support including pos material, and payback can take as little as four months.
cost: £2,700 low volume/£5,900 high volume
tel: 01689 301 201
Design a coffee
Available with one or two bean grinders, the Sielaff Piacere is a speciality hot beverage machine that is designed to cater for all tastes. All models come with a hot water tap as standard, enabling the retailer to offer tea and soup. Extras include a matching milk refrigerator and cup warmer.
tel: 0118 987 6780
The Costa Coffee brand has made its entrance into the convenience store sector with this self-service machine. At less than a metre wide and just over 2m high, the machine uses touchscreen technology to make it easy for customers to pick their favourite hot beverage.
cost: based on a revenue share scheme
tel: 0845 450 5757