Page 31 - RetailWorld-May2021-Tobacco-Updated

SURFING THE COVID COFFEE WAVE Just because at-home hot beverages have achieved strong growth during the pandemic doesn’t mean there aren’t further revenue generation opportunities. BTy Exceedra APAC Sales Director Simon Elsby. he pandemic has been with confectionery. Or to provide good news for the in-home ‘starter packs’ of coffee alternatives hot beverages category. so consumers owning new machines Working from home led to tea can explore their roast and flavour and coffee consumption skyrocketing preferences. All these are opportunities as workers took their breaks at home. Sales of coffee machines soared. Now, as heretofore office-based workers return to a several-days-a-week office commute, cafes and convenience stores should reap at least a partial return of their coffee revenue. However, given the increased penetration of coffee machines at home, and as consumers have realised the high cost of buying their hot beverages outside the home (often reaching into the thousands of dollars a year), elevated levels of at-home coffee and tea consumption and purchase are sure to last for some time. So, beyond the organic – and somewhat out of the ordinary – growth of at-home hot beverages to date, some of which may continue as consumers continue to work from home to some extent, what’s next for hot beverages? While one could be tempted simply to ride the current growth wave, it doesn’t mean there aren’t further revenue generation opportunities to be leveraged. Trading up in multiple ways Opportunities for increasing average weight of purchase (AWOP) are an obvious place to start, both in number of items and in larger pack sizes due to raised consumption and continuing consumer propensity to buy in bulk. Leveraging consumers’ propensity for trading up into barista style coffee experiences, using their newly acquired coffee machines, can be achieved through capsule, bean and ground coffee bundles. At the time of writing, Woolworths online was offering three- pack bundles of Nespresso-compatible Moccona capsules for $10, for instance. There are also opportunities to bundle with sugar and sugar alternatives, with flavour additives and syrups, and with milk modifiers. Others include addressing the treating and ‘break’ occasions by bundling for off-location displays to support. With the rising consumption of multiple categories, consumer need for variety has increased markedly. Along with the expansion of ‘everyday treating’, this means that in specialty tea there are opportunities for cross-flavour bundles and even for variety packs. The increase in consumer stress levels and focus on mental health during the pandemic means that from an occasion standpoint, stress-relieving tea SKUs such as peppermint and chamomile can be called out and communicated as such in in-store and out-of-store campaigns with displays and an allied upsizing offer, perhaps justified with a recommended consumption frequency. This can also happen online on retailers’ websites and elsewhere with supporting advertising on-site in the tea and coffee category. There may also be an opportunity to take price up while demand is high. However, anecdotally we know this was potentially a real pain point for consumers through the course of last year, and in conversations I’ve had with some of our clients, they say consumers will notice when shelf prices increase by more than 10 per cent on their staple brands. So, ensuring your promotional program is balanced with the right frequency and depth remains critical. While the major supermarkets appear to be using an EDLP strategy on core SKUs, such as Lipton Black Tea Bags 200-packs, there may be an opportunity, especially in coffee capsules and beans, as the consumer point of comparison is the per-cup cost, typically $3-$5, of an out-of-home coffee. Unlike confectionery, which we discussed last time, deep discounting isn’t required to drive basket penetration in the hot beverages category. Increasing transaction value and volume is the name of the game for hot beverages. This may require a review of the discount curve by pack size and format to optimise margins. Likewise, in light of increased demand and propensity to both buy in bulk and trade up, a review of both online and in-store promotional programs, depth and frequency may be in order to align promotional objectives and intensity against AWOP and spend. The growth of the category and subsequent proliferation of new SKUs mean that category management principles around assortment and space are highlighted. There may be an opportunity for manufacturers to manage their portfolio space through introduction of limited edition and promotional rotating SKUs and flavours that play to consumers’ need for experimentation and variety. What to do? Key to revenue management – making hay while the sun shines in the hot beverages category – in the medium term are: • Continuous tracking of consumers and the changes in how, what and when they buy. • Mapping products and packs to specific, differing occasions, missions and price points. • Reviewing price and promotion strategy, with an emphasis on optimal frequency and depth of promotional relative to shelf price-points, to optimise margins. • Portfolio management, involving end- to-end value chain assessment across the portfolio, seeking opportunities to premiumise and upsize through adjustments to price and weight, and launching into higher price tiers via additional product benefits or larger pack sizes, premium innovation and mix management to accelerate higher value lines. HOT BEVERAGES MAY, 2021 RETAIL WORLD 29