Use coffee to boost micro market sales

April 6, 2015

Many factors go into the type of hot beverages operators provide in a micro market. Coffee and coffee-related offerings depend on an operator’s region and their previous OCS history; they also depend on the type, size and demographic of individual locations. There is no standard yet on ways to maximize hot beverage sales in a micro market and the majority of operators are struggling to find the best solution for their micro markets. One thing many operators agree upon, however, is that hot beverage offerings provide an opportunity to drive micro market sales.

What type of operator are you?

Although there is not yet an industry standard in terms of offering hot beverages in micro markets, the segment should not be overlooked. Brad Bachtelle, president of Bachtelle and Associates, finds that coffee programs vary widely between micro markets and are often based upon the type of coffee available prior to the installation. Multiple approaches are being utilized effectively around the country by operators including the use of single-serve brewers, hot beverage vending machines and liquid coffee equipment.

Nearly every large business and industry location has coffee available in some form prior to a micro market installation, generally either OCS offered on a no charge basis to employees or a single cup, vended product. Considering this, when a micro markets is installed, Bachtelle finds that coffee is generally handled in one of four different ways.

Option 1: No micro market coffee 

The pre-micro market OCS system is retained as the sole option for location coffee, often providing fresh-brew coffee at various points at the account and with no incremental coffee program within the micro market. The “no micro market coffee” is the lowest micro market hot beverage volume environment.

Option 2: Augmented OCS, employee paid

Retention of the prior OCS system as it existed, augmented within the micro market by the installation of an employee-paid upscale, multi-variety, coffee system. The popularity of upscale, quality coffee shops has proven that consumers often prefer a better coffee product, and will pay for better or different coffee blends as well as other types of hot beverages.

Option 3: OCS in market, company sponsored  

Addition of micro market coffee as an OCS inclusion funded by the location and at no charge to the employee. This provides the highest micro market hot beverage volume, but with increased employer cost.

Option 4: Upscale OCS, employee paid 

Replacement of the prior OCS and/or coffee vending with an upscale system installed within the micro market area all provided on an employee-paid basis. Where vending existed, it is a relatively easy and direct conversion with perhaps an increase in per-cup costs justified by the higher coffee quality. Where OCS existed previously, locations often translate prior OCS costs to a per-employee monthly market card load to help offset some of the higher employee coffee cost.

Bachtelle recommends avoiding the first option. “Clearly, not having any coffee in a micro market is the least preferred option. Increased same-location micro market sales over prior vending installations can be sourced in great part to the increased variety of products available, and there is really no difference in terms of driving increased hot beverage volumes by offering better, higher quality products than the increase in micro market food sales that has occurred from an improved fresh food program,” Bachtelle said. Matt Caston, CSO of 365 Retail Markets, agrees. “When you offer people a good hot beverage in micro markets, they will pay for it,” he said. “Make sure you’re not leaving money on the table when it comes to offering coffee in micro markets.” Caston has found that for 365 Retail Markets operators, coffee is a top-5 seller in micro markets, consistently.

Bachtelle also pointed out that coffee sales alone are not the only benefit from having a micro market hot beverage program. “Every time a consumer comes into their micro market for any beverage, there is always the opportunity for incremental, ‘bundled’ purchases. Convenience stores know that coffee is the number one breakfast hour ‘destination product’, which is often combined with some type of breakfast food or snack. Micro market operators should also be working towards increasing morning food purchases in combination with providing in-market coffee,” he said.

From micro market research conducted by Bachtelle in 2012, two-thirds of sampled micro market locations did not have a hot beverage program of any type available in the market area. Of those locations with hot beverage programs in place, a number of sites delivered between 6 percent and 10 percent of sales from hot beverages. Today, coffee in micro markets is more prevalent, and Bachtelle projects that in the U.S., the 10 percent hot beverage share of sales “will become the industry standard in terms of location sales objectives,” he said.

Current challenges and solutions

John Ward of Serenity Vending located in Rockford, IL, witnessed the benefits of a hot beverage program firsthand when he noticed coffee became the number one seller in 70 percent of his micro markets. In 40 percent of his micro markets, French vanilla gourmet coffee became the second-best seller. Ward looked into pod and single-serve brewers when he first got into micro markets, but they weren’t right for his locations. Most of Ward’s locations are on a limited time schedule, and he found they would not have time to make their own coffee in the micro market. “I came across liquid coffee early on and I had machines for it,” he said. “So I’ve been using that in micro markets.” He likes this option, and so do his locations. He also places a 3- to 5-head cappuccino unit alongside the liquid coffee dispensers. Ward has found this solution to be effective; the machines are low maintenance and he gets good margins. He sells 16-ounce drinks for $1.00. Customers pay for their drink by selecting their drink option at the kiosk. Ninety percent of Ward’s micro markets provide coffee that is employee-paid for. “We do what works for us and we are utilizing equipment that we already have,” he said.

Pete Johnson of Quail Mountain Vending located in Klamath Falls, OR, opened his first micro market in 2013 at a location of 600 employees. “I got into coffee right away,” he said. “With our associated vendor group we created a high quality proprietary coffee cup with UPC labels and we offer a premium coffee, similar to that of a coffee house.” Along with changing to a premium coffee, Johnson increased the gram throws on coffee and cappuccino to create a “coffee house” coffee and cappuccino. All of Johnson’s micro market locations are high-volume, with more than 450 employees, so he needed a solution that did not require a lot of maintenance and could accommodate the numbers. His solution was to place a hot beverage machine on free vend with 12- and 16-ounce cups that the customer then scans at the kiosk. The 12-ounce cups are $1.00 and 16-ounce cups are $1.50. He has seen sales slightly increase. Johnson will continue to use a hot beverage machine for locations with 400 to 600 employees. “When I open a micro market with 150 people or less, I will need to figure out another method, but I’ll cross that bridge when I come to it,” he said. Since 2013 Johnson has bought two new hot beverage machines; he has also taken some hot beverage machines from vending locations and updated them with new sign panels and fixed brewer parts and placed them back into micro markets.

For many operators, finding a micro market coffee solution depends on the individual location. Single -serve and bean-to-cup machines work well in many smaller micro market locations, although some single-serve cartridges do not have UPC labels. Operators can get around this by either printing off their own UPC labels and placing them on the item or by making each single-serve drink one price. “Single-cup has been doing well in micro markets because the customer is already in the micro market purchasing items,” said Kevin Searcy of deORO Markets in Odessa, TX. That was not true for all of Searcy’s locations, however. “At one location the company was already offering 5 to 6 different brands of high quality coffee through airpot brewers. When we moved to micro markets I tried a higher-end single-serve machine and it busted because the employees were used to good, free coffee,” he said. In other locations he has found pod machines to work the best, especially because pod packages can fit well onto shelving.

Searcy charges either $.45 or $.50 per cup on the lower end and about $.80 for higher quality hot beverages. In each of Searcy’s micro market locations, the employer is providing either cups or mugs for the coffee, which has helped keep the end sale price down. He noticed that some locations are more willing than others to pay for gourmet coffee.

In Utah, Trevor Booth of Fuel Vending has seen tremendous success with single-serve coffee in micro markets. “I use a single-cup brewer in every location with the exception of two highrise office locations. At those I use a bean-to-cup machine which is much more expensive, but they are willing to pay for it,” he said. Coffee makes up 5 percent of Booth’s overall micro market sales and is the number one selling product, even above fresh food. “I was hesitant at first to get into coffee in micro markets, but since I’ve put resources into it we make about $3,000 per month in seven locations just off of coffee sales.” Booth prices cups of coffee at $1.00 at the majority of his locations. “The right location makes all the difference when it comes to maximizing coffee profits in micro markets,” he said.

Future forward

Although operators are making coffee a part of their strategic plan in micro markets, many are waiting for other operators to move, to find the best option. It is unlikely that one standard will work for every location and operators are quickly finding that it takes trial and error. “Operators should be aware of their customer profile in selecting what coffee solution to offer in a micro market location and how to price it,” said Caston. “It’s a question of understanding the customers.” Caston advises that operators avoid looking at coffee service and micro markets as two separate entities. “Integrate coffee service into your micro markets and into initial micro market design,” he said. “There is an opportunity for cross pollination, so to speak,” he continued. “Marrying coffee service and micro markets should be an emphasis for full-line operators.”

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