Linda Lisanti writes in Convenience Store News that there’s good news and bad news in the coffee category these days.

The bad news is a double whammy is impacting convenience retailers’ sales and margins in this all-important area of the store. With unemployment at record highs, once-core customers are out of work and no longer making their usual morning commutes — or their daily java stops. Coupled with that is the increasing coffee competition c-stores are facing from quick-service restaurants, doughnut shops and gourmet coffee houses.

The good news, though, is c-stores are holding their own. Coffee servings across all U.S. convenience stores were up 2 percent in 2009 vs. the prior year, and the channel is holding steady in its share of total restaurant coffee servings. In 2009, c-stores held an 8 percent share of brewed coffee servings, and a 9 percent share of specialty coffee servings, according to market research company The NPD Group. That’s compared to c-stores’ 2008 share of 9 percent brewed, and 8 percent specialty.

“We’ve got our challenges cut out for us,” said Bonnie Riggs, NPD’s restaurant industry analyst. “We’re going through the most prolonged downtrend ever seen in the restaurant industry. But c-stores are holding up better than others. C-stores have done some pretty aggressive promoting of their products — specifically foodservice and beverages — and they will have to continue to do so; the forecast [for 2010] is more of the same.”

In spite of all the negative projections, Brian Matlock, director of foodservice for Rockland, Mass.-based Tedeschi Food Shops, is optimistic. He said the chain had a great year in 2009, and he expects an even better performance this year. “Of course, we can’t let our guard down for a second,” he said. “This isn’t the time for complacency.”

That’s why for the last year, the 189-store convenience retailer has taken “a back-to-basics approach” in its coffee program execution, narrowing the offering and focusing on quality and consistency. Currently, 161 Tedeschi Food Shops have a Green Mountain-branded program, while the rest feature either Honey Dew Donuts or Dunkin’ Donuts.

“We gave managers flexibility in bringing in products, but some stores had 16 to 17 coffee varieties [going at one time],” Matlock explained. In April 2009, the chain narrowed the program to eight core varieties, with a focus on light, premium and dark roast blends.

“Sometimes, less is more,” he noted. “When we looked at the demographics for our markets, it was apparent that six out of 10 people coming in for coffee were looking for a core blend. The rest was being divided between decaf and flavored.”

In addition to SKU adjustments, Tedeschi Food Shops concentrated on improving quality and consistency by re-energizing its foodservice training programs and reworking the company’s standards manual and store-level checklists for the coffee section. The changes made are showing some success so far, according to Matlock.

“We have been able to maintain our market share in coffee, and that was key for us. A lot of our competitors were deep discounting last year. There was a time when some were selling their coffee below 99 cents, others were at 79 cents and some were even giving it away. We were able to hold our market share in cup sales despite this, so I look at it as a win for us,” he said. “If your offering is compelling enough — if you have what the customer wants — you don’t have to deep discount to drive volume.”

Like Tedeschi Food Shops, 31-store NOCO Energy Corp., based in Tonawanda, N.Y., is feeling the heat from competitors, specifically Dunkin’ Donuts and Tim Horton’s.

Terry Messmer, director of merchandising for the chain’s NOCO Express convenience stores, said a new coffee shop seems to be popping up on every corner. “We’re in a highly competitive market, and that’s our biggest struggle,” he explained. “It seems every day a new Tim Horton’s is opening up here.”

Read more at: Convenience Store News