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Issue Date: Vol. 47, No.11, November 2007, Posted On: 11/29/2007


OCS Open Forum Probes Obstacles,Opportunities In Changing Market

CHICAGO — Current trends in workplace beverage service received their semiannual airing at the Coffee Service Open Forum held during the National Automatic Merchandising Association National Expo here. The event once again was moderated by Steve Hyde of Newco Enterprises (St. Charles, MO), and afforded participants the opportunity to engage in a wide-ranging exchange of views.

Panelists at the Open Forum were David Backus, Canteen Refreshment Services (Charlotte, NC); Will Billings, Green Mountain Coffee Roasters (Waterbury, VT); John Dalley, Procter & Gamble (Palatine, IL); and  Randy Parks, ProStar Services (Carrollton, TX).

Hyde led off by observing that “organic” and “fair trade” coffees are receiving a great deal of attention in the coffee industry. He asked the panelists for their views on how these characteristics might bear on OCS.

P&G’s Dalley explained that “organic” primarily refers to coffee grown without pesticides, and “fair trade” refers to coffee purchased at a guaranteed pre-harvest price so the farmer is assured of making a profit. At present, “fair trade” coffees represent about 0.5% of the seven million metric tons of green coffee produced annually.

“Does anyone here sell it?” Hyde inquired.

“Yes,” an audience member told him. “In New York City, people are aware of those attributes, and we’re upgrading our quality. Fair trade and organic coffee is a growing segment for us; it should be part of the OCS portfolio. It positions us as being socially responsible.”

“Coffee service customers have heard of this?” Hyde pursued.

“Yes, they have,” the operator replied. “Starbucks and the other premium coffee providers have educated them.”

Canteen’s Backus noted that, while “responsibly grown” coffee presently is a small segment, “people are aware, and you have to have a plan.”

Another audience member suggested that, in view of the very volatile coffee markets of the past several years, fair trade agreements can make sense. “We have to ‘give back’ – invest – to assure future supplies of quality coffee,” he said.

“And do today’s clients care about ‘going green?’” the moderator continued.

“Yes,” another audience member replied. “We’ve worked with our paper suppliers to get products made from recycled paper. We’ve saved money and gotten large orders. We publicize this, and it does get the attention of the customer.” Janitorial companies make a lot of money from the paper they sell, he added, “so find a supplier, and you can go after that business, too.”

Speaking from the audience, industry veteran Ken Shea of Standard Coffee (New Orleans), a long-time industry member with extensive consulting,  operating and manufacturing experience, agreed that it is important for operators to become familiar with these topics and use them to their advantage. “When you got a regional or national request for a proposal, you seldom used to see any reference to these issues; but now you do, and you must have suitable programs on your menu,” he advised.

Panelist Randy Parks, a past winner of NAMA’s Silver Service OCS Operator of the Year Award, asked how other operators sell environmental responsibility: “Do you have a sales piece?” he inquired.

“We’ve been reactive, up to now,” Shea said. “But we will be proactive.”

“Go to your paper supplier,” an audience member suggested. “They’ll educate you and your staff about ‘green.’ It can be expensive to do, so you need your customers to commit to it beforehand.”

Parks explained that ProStar uses several pieces of sales literature devoted to the subject. “We have a ‘green’ paper supplier, and we got a distributorship for that product line,” he reported. “This can be an opportunity for you if you get in early. There are mimimum order requirements, but it’s easy to do.”

He continued by asking what sorts of coffee others include on their socially responsible menus.

Backus advised operators to spend some time on the Internet to educate themselves on “fair trade” and organic coffees.

Hyde asked Billings what educational services Green Mountain can provide to the OCS industry.

“Our Green Mountain Coffee College,”  Billings reported. This is an extensive program that provides information on all aspects of specialty coffee, including “fair trade” coffees and sustainability in general.

Procter & Gamble’s Dalley noted that P&G has extensive information available on socially and environmentally responsible coffee. “And Procter & Gamble also sells paper goods,” he added, “so we can train people in that area too.” He agreed that there can be an element of sticker shock when many customers learn the price.

“A question I get about ‘fair trade’ coffee is how much of the upcharge actually goes to the farmer,” a veteran operator asked.

“From 16¢ to 30¢ a pound,” Dalley replied.

“TransFair USA has good information available on the Web,” Billings added.

Hyde asked for opinions on where the OCS industry is headed, in general, with regard to the coffee it sells.

Billings replied that “we’ve seen big changes in the past five years. It’s no longer simply ‘hot and black, at a low price.’ As customers become more familiar with gourmet – different brewing systems and better coffees – the landscape has changed.” A major factor in this transformation has been single-cup systems in offices, the Green Mountain executive added.

“Your customers will demand a ‘coffee house experience in the office’ every day,” Dalley agreed.

“People have been saying that for years,” Hyde pointed out. “What is it, exactly?”

“Our customers shop at Starbucks on their way into work,” Backus replied. “We have to match that offering. The question is, how do we do it and maintain our margins? How do we get our price?”

Parks concurred. “Consumers want more choices,” he emphasized. “We have to bring them choices at a reasonable price, and do it profitably. As established companies, we have to reinvest if we’re going to do this effectively.”

Hyde asked what issues seem especially challenging at present.

“New equipment is capital-intensive,” Backus said. “You need a strategy for bringing it to market, and you can’t compete on price; you have to compete on quality.”

The moderator pointed out that this is not a new imperative, although it has become more apparent in recent years. “Everyone says, ‘I lost the business because a competitor undercut me.’ No one says, ‘I lost the business because I didn’t take care of the client.’ What can the equipment manufacturer do for you?” he asked.

“Be knowledgeable about your products,” Parks recommended. “Know the territory; come to the NAMA shows. Be knowledgeable about your competition, and know what the industry’s best practices are. I want you to understand the comprehensive OCS business model, and work your trade.”

“We want you to add value,” Shea said from the audience. “We need suppliers with people who are generalists, who can come and train our sales staff.”

An audience member asked for information about the “high energy” products that are attracting the attention of younger consumers. “As far as I can see, this just means ‘high caffeine,’” he said. “What is it?”

“It is hypercaffeinated,” Billings explained, “but it also can be a fortified ‘nutriceutical.’”

“Who’s buying this stuff?” another operator inquired. “What’s the market?”

“Younger consumers,” Billings said. “And, as they age, demand will grow.”

Hyde wondered about the industry’s next superstar beverage.

“Health and wellness will continue to grow,” Parks predicted. “This is an opportunity for us.”

“Gourmet beverages, sweet and creamy,” Dalley suggested. “Green tea, and other specialty teas. Beverages as part of an educational experience, and a reward system for employees.”

Roger Stewart, NAMA’s coffee service director, asked whether the coffee service industry has lagged in recognizing the growing demand for quality.

“I don’t think there’s any doubt,” Hyde replied. He asked the audience whether they visit specialty coffee stores to look for good ideas.

“Yes, we do,” an operator volunteered. “We look for ‘healthier’ things: caffeine-free herbal teas and organic products, for example. I’m in the Midwest, and things get there last,” he added. “But the new items have built us a big increase in sales.”

“We ask our customers whether they go to coffee shops,” another audience member said. “We ask the ones who say they do what it is that they buy, and what they like. If someone says ‘syrups,’ we can do that. The trick is to ask, and listen.”

LISTEN AND EARN

“We have a customer who asks for everything,” a third participant reported. “He asked for Mighty Leaf Tea (San Rafael, CA), and I found out it would cost 48¢ per cup. I told him that, and he said ‘fine!’ So we added it, and asked ourselves why we hadn’t been selling it.”

Hyde asked Parks whether he asks his clients about their preferences.

“Yes, we do,” Parks explained. “The average coffee service bill is $150 a month; we bill $300, because we have full service.”

He agreed that premium tea is a real growth area for office refreshment operators at present, and noted that it can be difficult for an operator who uses “rolling store” route sales and delivery to add a great many new products. The solution is to promote new items by email, and tailor truck inventories to demonstrated demand. “Today, you need to have a ‘green’ solution, a single-cup solution and a variety of product lines available,” the Texas operator emphasized.

Hyde asked whether the Internet is changing the business.

“It is,” Parks replied. “It targets the smaller office. It won’t change business dramatically, because people want service. They’re not really eager to order online; they want you to come in and take care of them. They don’t want to mess with the coffee – they want you to do that.”

An audience member asked whether, overall, there has been an erosion of fractional-pack sales caused by growth in the single-cup sector.

“There’s no doubt about it,” Parks replied.

“Customers do want single cup,” another operator said. “And I have a lot of pourovers sitting around!”

“Look at insulated thermal servers that will work with them, and explain the concept to your customers,” a third forum participant recommended. “It works for us.”

A seminar-goer asked for views on how operators of single-cup systems can defend themselves against people who buy coffee in the appropriate packaging elsewhere, and bring it into the office. He suggested that the single-cup system purveyors should do more to avoid this kind of destructive competition: “We put you on the map, and you’re not protecting us,” he charged.

Hyde pointed out that those with long memories will recall having heard this before. “Do you remember when Sam’s Club brought in OCS supplies and we thought that the world was coming to an end? It didn’t, because customers want service.”

Billings agreed that, as single-cup systems expand in the home market, there are challenges for coffee service. “But the OCS business model is all about service,” he agreed.

Another operator asked, “Suppose we make it available to the home market? Suppose we offer our clients an alternative to the Internet?”

“Some operators are already doing that,” Billings replied.

Ken Shea recommended that operators look at manufacturers’ e-commerce price points before condemning them. “This may even be helping us,” he suggested. “Operators have no reason to object to office pilferage! If they hold their pricing, we’ll all benefit.”

“At $9.95 a box, I can’t compete,” the first operator objected. “I’ve been at this for 25 years now; people always want to ‘shop’ and bring stuff in from home.”

“I think you’re right,” Hyde said. “You do deserve some protection.”

Another audience member suggested that the manufacturers are not necessarily at fault. “Some techno-guy sets up a website and becomes a distributor,” he said. “The slick entrepreneurs, not the manufacturers, are the competition. We can’t stop it; we can sell and we can service, and that’s all we can do.”

“We need accurate market information about the new segments like Flavia and Keurig,” an audience member said. “It’s too easy to say, ‘Oh, that’s just the market...’”

Parks stated that, in his opinion, “It is a level playing field. The manufacturers are fair, in that they treat everyone the same. Don’t focus on this,” he advised. “It’s a small part of the business.”

“It is frustrating to see pricing that we can’t match, but it’s been going on for decades,” another operator added. “I see Bunn brewers on sale in Sam’s at a price I can’t get. We have to evolve, and we do deserve protection and support – but, at the same time, we lose more business to competitors who price stupidly. Some are experienced operators. We should look at ourselves first.”

A participant reported that Parks’ ProStar personnel carry little stickers that they put on a brewer at the end of each visit, “to show that they’ve been there and have done something. It’s ‘office’ and ‘coffee’ and ‘service;’ it’s the service that differentiates you,” he pointed out.

Another participant explained that he sells a single-cup “bundle” that includes both the brewer rental and the coffee. “They can buy more, but not less, so they don’t go outside for coffee – they won’t buy it twice.” This is an approach that has many advantages, he said.

A third observed that stupid competition is not altogether a bad thing, in the long run, if the stupid competitor will go out of business. “If I lose an account, I know I gave him good service, and I can leave with my head held high,” he said. “And I’ll be back.”

Hyde suggested, “Find out what he’s charging the account he took from you, and mail that price to all his customers!”

“I did that to a water distributor,” an operator agreed. “I called him up and said, ‘Shall I tell all your customers what you’re charging this one?’”

An audience member observed that “We’re a low priority for suppliers; we get things last – like coffee pods. The people who call on us are green; when they learn, they get promoted to foodservice or retail.”

THE CUTTING EDGE

“I don’t think OCS is behind the curve; I think we’re ahead,” another operator said. A veteran of nearly four decades in the business, he reminded the audience that the International Coffee Organization turned to the coffee service industry in the late 1970s, when declining coffee consumption was a grave concern. “We were the only bright light in the coffee business,” he recalled.

The OCS industry and ICO’s Promotion Fund established the Coffee Development Group, which set in motion many initiatives that bore fruit in the last decade. “We built specialty coffee, and we drive single-cup,” he emphasized. “Our challenge is to maintain the integrity of our model.”


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