Brewing Profits

Published in C-Store Canada, July-August 2009:
A recession plus competition from a mighty Canadian coffee Goliath doesn’t equal bad times for java sales at Mike Hammoud’s Newsbreak store in Dartmouth, N.S.

“It is on the upswing, definitely,” says Hammoud. His Dartmouth store has had considerable success selling hot coffee, even though it’s located next to a Tim Hortons.

“The hot drink market right now is something that probably needs more focus on it by convenience store retailers,” he adds.

Hammoud, who is also president of the Atlantic Convenience Stores Association, offers two big reasons for that position: margins and traffic.

The profit margins on coffee, tea and hot chocolate are significantly higher than on such typical c-store fare as cigarettes and candy bars, he notes. And selling a good cup of joe can boost customer traffic, with many of those extra customers buying other items with their coffee purchase.

Laniel Canada sales director Bob Charbonneau’s read on the c-store coffee market differs slightly from Hammoud’s.

“With the current economic situation, it’s flat,” Charbonneau says at the coffee and equipment supplier’s headquarters in Montreal.

“But normally it would be up,” he adds. “For the past two years we’ve seen the convenience stores buying more and more coffee machines for their premises.”

Charbonneau says one big advantage convenience stores have over the coffee-and-doughnut shops is, well, convenience. “When they stop at Tim Hortons, they have to wait in line. When they go to the convenience store, they get their coffee and pay and leave – it’s faster. The problem at convenience stores is, most of the time they don’t offer quality coffee.”

That Newsbreak store’s proximity to a Tims hasn’t hindered Hammoud in his pursuit of java success, as he isn’t trying to go head-to-head with the coffee-and-doughnuts giant by offering a near-identical product.
“You cannot directly compete with Tim Hortons and expect to succeed,” he says. “You just can’t.”

Instead, he has built Newsbreak’s coffee program on quality, with high-grade, organic, Fair Trade beans. A cup costs a little more than Tims charges, but it’s a way different product, and that has garnered loyal customers.

In his books, it’s all about quality. If you use an average coffee, you likely won’t have great success; offer top-drawer stuff and coffee sales will perk up.

The goal of a coffee program should be to get customers to think of a store as their java destination, says Marie-Claude Dessureault of gourmet coffee supplier Van Houtte. “The only way c-stores are going to be successful in creating a destination is variety and quality. That’s one reason why so many are associating their coffee programs with a successful brand.”

Canterbury Coffee’s Gary Senez agrees that quality is indeed the key to winning the hearts of coffee swillers is quality.

“Like anything, stores have to have good product,” he says from the specialty coffee roaster’s head office in Richmond, B.C. “The product has to be fresh, and they have to have the selection that the customers are looking for.”

Senez says it’s important to remember that the competition includes big companies that emphasize the freshness of their fare. “If you’re going to be in the same market as these guys, you’ve got to be fresh.”
Okay, so quality is important. No surprise there. But how do you deliver quality?

“My suggestion for a very good coffee program is to use a whole-bean system,” Hammoud says. Key components in his prescription include finding a local roaster, offering a variety of coffees (possibly including a flavoured coffee or two), and grinding it on-site.

Senez agrees it all starts with good beans, and says that’s why Canterbury sells 100 per cent Arabica beans of the highest quality.

It’s also important to brew with the right coffee-to-water ratio and find the right grind for your needs, he says. (The finer the grind, the more bitterness.)

Don’t be stingy and load the brewing machine with too little coffee for a good brew, adds Charbonneau. “If a store cuts on costs with a smaller bag, if it tries to get away with making more with less, then it will not make a quality cup and the customer will not come back. But if it does a strong coffee, a coffee that people like, then customers will return.”

Equipment-wise, Charbonneau says a thermos system is usually a good choice for convenience stores.
“Thermos systems require some time from the store owner to make the coffee in the morning and (replenish the supply), but this is fast for the customer. When the customer comes in, he just pushes a lever and gets the coffee right away.”

Thermoses retain flavour and temperature for about two hours, making them much better choices than any hot-plate system that cooks the coffee to an unpleasant bitter taste in that same time period.

“The other fast way to do it is with an automatic machine, but then it’s a much bigger investment, which is not good for every convenience store,” Charbonneau remarks. “Some don’t want to invest that kind of money. These machines can cost $5,000, while a small thermos machine would cost $500.”

Initial cost shouldn’t be the only consideration, however. Dessureault, Van Houtte’s director of brewing technologies, points out that machines that brew one cup at a time cost more initially but can save money over the long term because they produce “absolutely zero waste.”

And you’ll save on labour with single-cup equipment, she adds, “because you don’t have to make new coffee every 90 minutes.”

Making sure the machines are running as intended is an important of quality control, Charbonneau adds.
“A key part of the strategy would be to make sure that the machines are well-adjusted, because a machine can do a good coffee but the adjustment is not always there. Tim Hortons has standards, and they make sure that the standards are always maintained.”

Convenience stores typically don’t maintain such standards due to personnel limitations, he says, because proprietors and personnel have little time to maintain equipment.

For location, Charbonneau and Dessureault both recommend any place in the store that is highly visible and say signage is important, to make sure store visitors are aware coffee is available.

“You need to draw people in,” Dessureault says from Montreal. “If you tuck it in a corner, it doesn’t look like a destination.” The hot beverage station shouldn’t look like an afterthought, she says.

Like Hammoud, Charbonneau has seen proof that c-stores can compete with Tims-like neighbours. He cites a downtown Montreal store that, undaunted by the presence of two coffee purveyors nearby, implemented a coffee program with great success. So much success, in fact, that its owners copied the program at other stores of theirs.