Every weekday morning on her way to work, Pamela Davenport of Austin, Texas, pulls into her nearest convenience store to purchase a large fountain drink. While other commuters sip their cups of joe, Pamela gets her a.m. jolt from Diet Coke, a ritual she’s enjoyed for years.

“Diet Coke has enough caffeine to wake me up, and I can drink on this until mid-afternoon,” said Davenport, who prefers the taste of fountain drinks over soda from cans or bottles. “I even like it when the ice melts and kind of dilutes the last bit.”

According to Statista, the consumer research provider, soft drink consumption in the United States dropped for the 13^th straight year in 2018 to 38.87 gallons per person, a decrease of 25% since 2000 when per capita consumption was 53 gallons. Despite those numbers, the U.S. remains a nation of soda sippers. More than 50% of respondents in a recent Statista survey reported drinking soda several times a week, if not daily. Notably, only 49% of younger respondents were regular drinkers compared with older consumers (57.5%).

Cold, Convenient Refreshment

For the past decade or so, consumers have indicated a preference for more healthy foods and beverages, shunning drinks containing artificial ingredients and showing interest in more natural offerings, such as tea and water, and energy and sports drinks. Cold dispensed beverage sales increased slightly from 2018 to 2019, to $45,896 per store annually, and were the third largest percentage of foodservice sales following prepared food and hot dispensed beverages, according to Jayme Gough, an analyst for NACS.

“Cold dispensed beverages generated $21,733 gross profit dollars per store annually in 2019 and had an average gross margin of 47.35%,” she said. “Cold dispensed beverage offers are a great way to drive customer loyalty, sales volume and incremental basket spend.”

Despite Davenport’s early morning cola craving, most cold dispensed beverages are purchased during the lunch daypart, which makes them ideal for bundling with prepared food at a special price. “The ability to combine a dispensed beverage with a prepared food offer or some other high margin item is a key strategy for convenience retailers,” Gough said.

Traditional carbonated beverages from major producers still dominate the c-store cold-beverage bar. Carbonated fountain beverages made up 62.7% of category sales in 2019, but sales of “other” dispensed beverages are growing, due in part to the popularity of iced or cold-brew coffee, cold-brew tea and kombucha, a fermented tea containing live bacteria that aids in healthy digestion. Other dispensed beverages accounted for 20.6% of category sales, followed by sports drinks (5.1%), non-carbonated (5.1%), refills (4.2%) and club mugs (2.2%).

Jazzing up the Fountain

With so much competition in the category, primarily coming from quick service restaurants, convenience retailers continually seek new cold dispensed options that will attract more consumers and boost sales.

Irving, Texas-based 7-Eleven offers kombucha on tap at its trendy lab store in downtown Dallas, and the chain recently added Jarritos, a popular fruit-flavored craft soda from Mexico, to its fountain offerings companywide. Until now, Jarritos has been sold in bottles, and 7-Eleven has offered it in the proprietary Slurpee format. This is the first time Jarritos has materialized as a fountain beverage.

Customization is particularly important to young customers.

“We are always looking for new and interesting flavors for both Slurpee and fountain drinks by monitoring flavor trend experts, as well as social media buzz,” said Jacob Barnes, senior product director for proprietary beverages, 7-Eleven. “Jarritos is not only the top-selling soft drink from Mexico, but it’s also great-tasting and has broad appeal among all ages and demographics.”

Two convenience chains recently added bubbler machines featuring Pure Craft Beverages to their drink programs. While bubble machines are not new equipment, the product inside appealed to Rutter’s, the York, Pennsylvania-based chain, because it’s made with real sugar, real juice and natural flavors.

“Pure is a brand that utilizes no high-fructose corn syrup in its products,” said Chad White, category supervisor for Rutter’s. “Pure offers unique flavors, such as ginger beer, orange Dreamsicle and cucumber lime, and these flavors help bring some excitement to the beverage bar.”

At High’s, the Mid-Atlantic chain with headquarters in Baltimore, the bubblers were added to full foodservice stores as part of an expanded beverage offer, said Sherryn Diamond, director of foodservice at High’s. Pure was chosen to fill them because it’s a “clean label” product, she said. “The flavors arrive in one-gallon jugs and are mixed with water and put into the bubblers. We plan to rotate LTO flavors based on the season.”

Dallas Wells, vice president of foodservice for High’s, said, “We chose Crathco bubblers [equipment] due to the limited parts that need to be removed for cleaning. Stores tear down the machines, clean them and refill them with fresh product every seven days.”

Providing flavorings on the beverage bar increases drink options without tying up in-store real estate.

While the product’s better-for-you attributes and the equipment’s ease of care are important, the most impressive feature is Pure’s margin—“approximately 55%, higher than traditional fountain soda,” Wells said.

A wide selection of flavors and the ability to manipulate them are important to beverage consumers, according to Glenn Hodess, manager of national sales and export development for Zavida Coffee Roasters of Ontario, which also produces a line of syrup concentrates made with natural flavors and organic sugars. “Flavorings are a huge market for us,” said Hodess. “You see kids in a convenience store putting cherry, grape and lime in their drink. They make it their own beverage—something they created—and that’s what this is all about. It gives people an experience.”

Consumers will add flavors to everything from sodas and tea to coffee and water, he said, so providing flavorings on the beverage bar increases their drink options without tying up in-store real estate. “Our products come in five-ounce bottles, and each bottle flavors 400, 12-ounce beverages,” Hodess said. “If you have peach, pomegranate, raspberry and mango [flavorings], you can brew two regular ice teas—sweet and unsweetened—and you’ll have eight different flavored ice teas.”

“Customization is particularly important to young customers,” said Gough. “They love to experiment with flavors and create something they have never tried before. More retailers are providing dispensed options that let customers create something truly unique to their tastes.”

Cold as Nitro

In 2017, the U.S. cold-brew coffee business was about $166 million, according to Statista, and was predicted to hit $944.16 million by 2025. Much of that is driven by the demand for nitro cold brew, the coffee drink that relies on nitrogen gas to create a creamy head like that found on a stout beer. Thanks to high-tech coffee equipment, what was once a difficult drink to produce can now be easily incorporated into a cold dispensed beverage program.

“If your customer base is looking for menu options, it ought to be there,” said Spencer Turer, vice president of Coffee Enterprises, a coffee and tea consultancy in Hinesburg, Vermont. “Your nitro consumer may or may not be your traditional convenience store consumer, but your traditional c-store consumer evolves. You’re attracting new customers as soon as you upgrade your foodservice and grocery offerings. There are dozens of coffee roasters out there who are happy to get you a cold-brew product.”

Post COVID

During the COVID-19 pandemic, many convenience stores changed the way they operated the cold dispensed beverage category—from banning personal refill cups to converting to full-service-only fountains. Among the Food and Drug Administration best practices for foodservice during the COVID-19 pandemic was the recommendation to discontinue “salad bars, buffets, and beverage service stations that require customers to use common utensils or dispensers.”

At the same time, guidance on self-serve fountain beverages and foodservice operations differed by locality, injecting some confusion into the mix. As some states began reopening non-essential businesses in late spring, convenience retailers expressed hope that customers soon would be able to help themselves to their favorite cold dispensed beverage.

Nick Ruffner, public relations manager with Sheetz of Altoona, Pennsylvania, said the convenience retailer is messaging to customers that the situation is temporary. “We know, at some point, we are returning back to that traditional way of having self-serve beverages,” Ruffner said.

Pilot Flying J of Knoxville, Tennessee, implemented a fresh cup policy for all refills at no extra charge. “We remain focused on protecting the health and safety of our guests and team members and will continue to follow social distancing guidelines and frequently sanitize all areas of our stores, including the self-service fountain beverage stations,” said a company spokesperson.

Employees at Square One Markets of Bethlehem, Pennsylvania, continue serving individual customers seeking fountain drinks. “To protect everyone—our team and our customers—it’s important, and it could be long term,” said Lisa Dell Alba, president. “If we wake up tomorrow and everything is back to normal, I think we have new expectations out there, and our behavior will be altered for a period of time.”

No one is certain exactly how those changes will impact c-store foodservice operations going forward, but one thing is guaranteed. Summer is hot, and hot weather makes people crave cold beverages.

The Power of CSX Data

CSX, the engine behind category metrics and NACS State of the Industry data, provides current and customizable tools for financial and operational reporting and analysis in the convenience industry. Retailers can measure their company by any of the myriad metrics generated via our live database. Contact Chris Rapanick at (703) 518–4253 or [email protected] for a complimentary executive walkthough.