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Issue Date: Vol. 40, No. 6 / June 25, 2000 - July 24, 2000, Posted On: 6/25/2000


Stong Economy Spurs Demand For Higher-Quality Coffees


Tim Sanford
Editor@vendingtimes.net

U.S.A. - Modern full-line vending took shape early in the 1960s, and the coffee service industry emerged about a decade later. A major trend throughout those years was a decline in per-capita coffee consumption in the United States, which was detected in 1962 and which continued for more than 30 years.

Thus, the history of the two predominant postwar workplace service businesses has been one of continual striving to increase consumption of a core product that appeared to be declining in popularity.

Recent research, including the benchmark National Coffee Drinking Trends Through 2000 published by the National Coffee Association of U.S.A. (New York City), suggests that more Americans now are drinking coffee than ever before. While NCA reports that per-capita consumption stopped declining in the 1980s, it has not started back up (continuing to oscillate around 1.8 cups). However, the figure shows that coffee consumption is keeping pace with population growth.

And an increasing proportion of those 1.8 cups contain higher-quality coffee. NCA reports that more than 20 million Americans drink specialty coffee regularly, and more than four times that number consume it occasionally, paying a premium price for the experience.

Especially noteworthy has been the increase in the number of people drinking coffee at work. NCA's study shows that the number of American adults who consume coffee at work has increased from 18 to 23 percent over the past year.

With more people working than ever before, and spending more time at work, it is logical that they will consume more coffee on the job. And ongoing publicity about the specialty coffee revolution is having an impact, too. The exact nature of that impact is hard to assess.

Michael Citarrella of Classic Coffee Systems (Valley Stream, NY) reports that demand for convenience and quality , for such amenities as single-cup brewers, which save labor and enhance variety , is higher than it has been, and is likely to remain so. "And all the press coverage of 'better coffee' doesn't hurt," he added. "But these factors aren't turning the industry around. Our market is still price-sensitive, no matter what anyone may say." And upscale brewing equipment, such as electronically-controlled airpot brewers and single-cup machines, are by no means dominant, and are not at all likely to become so in the foreseeable future, he said.

PERCEIVING A NEED

Classic Coffee Systems serves the greater New York metropolitan area, one of the centers of today's boom economy; and employers can afford single-cup fresh-brew equipment if they see a reason to do so, Citarrella noted. And some employers certainly do. Two good reasons for installing upmarket equipment are to reduce "soft costs," pantry costs, he said. A machine that delivers coffee at the press of a button does away with a good deal of uncompensated labor , opening fraction-packs, dumping grounds, cleaning brewbaskets and decanters , and reduces waste and pilferage.

The good reason can be provided by employees who want better coffee. In today's very tight labor market, high-productivity employees who say, "If I'm going to work for you, I want good coffee," are likely to get it, Citarrella pointed out. More perceptive employers may not wait to be told that; those who watch well-compensated personnel leaving the office to purchase coffee across the street may well calculate the cost of that behavior. "Too many operators, impelled by price, have offered cheap coffee; and the consumers have gone elsewhere as a result," he said.

Once an account has accepted the logic of either of those arguments, the actual cost of the equipment becomes inconsequential. he added. Very few of them want coin operation; 99 percent of Classic Coffee Systems' single-cup equipment is installed for free vend.

Even so, Citarrella reiterated, this sort of account is in the minority. "The majority of customers still look at cost only , not at productivity, not at employee benefits," he said.

Patti Sorkin of USRefresh (Ft. Lauderdale, FL), who moderated a panel discussion on single-cup coffee in offices at the recent National Automatic Merchandising Association Western Expo (see V/T, May) agrees that clients who want the more expensive automated equipment are willing to pay for it, and that coin control is not a factor for the great majority of accounts that recognize the need.

Such clients will pay a monthly rental, she said , but, increasingly, competition among operators is making brewer rental a thing of the past. The coffee service industry in the United States has been very slow to give up its original business model, based on placing equipment at no cost to the customer. That model has slowed the adoption of more sophisticated equipment.

John Conti, john conti Coffee Co. (Louisville, KY) reports that he is experiencing increased demand for single-cup countertop equipment and, without deliberately setting out to place this kind of machine, he is in fact placing more and more of them.

MAKING IT PAY

Conti, a pioneer coffee service operator who got into OCS from the vending business nearly 30 years ago, credits Canada's Alan King with designing and implementing a marketing approach that spurred the growth of single-cup office coffee in the United States.

"I think Filterfresh opened up the market," Conti said. "The Filterfresh program was set up right, with equipment rental and product sales." The Filterfresh franchisees educated the market, he said, and proved that the demand is there.

The other essential ingredient in the growth of the single-cup segment has been the development of truly reliable equipment, Conti added. He recalls having experimented with the various generations of small-site fresh-brew machines , Coffee-Mat "Juniors" and the like , and never having found one that was entirely satisfactory.

Today's equipment is more versatile and reliable, the OCS veteran noted. He reports very good results with the "Brio," a miniature full-house coffee vending machine manufactured by Zanussi in Italy and imported by Vendors Exchange International.

Conti concurs with Citarrella's view that this kind of machine is not for everyone. It is most appealing, he said, to upscale locations that want convenience and variety. Doctors' lounges in hospitals are a good example; installing a "Brio" in one lounge tends to generate requests from others.

This kind of clientele is willing to pay rent on equipment, and will buy the product for a fair price, Conti noted. While, like other single-cup operators, john conti Coffee Co. presently is placing almost all of its countertop machines on a free-vend basis, they are designed for coin operation and are easy to convert, if it becomes necessary.

While single-cup fresh-brew equipment for small locations has been available for four decades, today's operators can choose between the countertop vending type, which has a long design history behind it, and the newer portion-pack type, which accepts a sealed single-serving packet of roast ground coffee, with integral filter, and forces hot water into that packet to brew a cup of coffee. The vending machine type is more complicated, but the cost per cup is lower.

Classic's Citarrella reports using both types, with good results. "There is no one solution that's right for everyone; each location, and each coffee drinker, is different. Both kinds of automated brewer can deliver a quality cup of coffee; but the operator determines whether or not it actually will."

BURDEN OF HISTORY

Observers have wondered why the single-cup tabletop brewer has taken so long to catch on in the United States, compared to its swift success in Western Europe, Japan and Canada. One reason may well be that the United States in the 1960s provided a unique environment in which the modern coffee service concept evolved. Office workgroups were running their own "coffee clubs," whose members chipped in to purchase coffee for a jointly-owned percolator. At the same time, simple and economical small-batch paper filter brewing equipment was undergoing swift development, to meet the demand by nontraditional foodservice establishments like doughnut shops and fast-food restaurants. The catalyst that produced office coffee service was a sales concept: restaurant coffee, brewed by the client and delivered at a cost of about five cents per cup.

This was a very powerful selling tool, Conti recalled. "The office coffee concept got offices into the coffee business, not the vending business," he summed up. It has taken the new, productivity-focused economy to rekindle interest in pushbutton convenience, cup-by-cup freshness, and variety. And, even so, the traditional business model retains its dominance in the majority of OCS locations.

And current industry observers are starting to ask why, if today's best single-cup countertop machines are regarded by discriminating workplace clients as offering a new level of quality and variety, their full-sized vending counterparts continue to encounter serious price resistance in major vending market segments.

Conti suggests one contributing factor. The john conti Coffee Co. has grown into a leading supplier of specialty and hotel/restaurant coffees in the Midwest, and its products have built extensive recognition. "For this reason, vending operators have expressed interest in using our premium coffees," Conti reported. "But, somehow, it always gets back to price."

This had been an issue with convenience stores, too, the industry veteran recalled; and it was overcome by developing marketing programs for them that increased sales volume , in one case, by 42 percent. Conti is confident that he could do this for a quality-minded vending operation, if the operator will focus on profit, not on cost.

Ted R. Lingle, executive director of the Specialty Coffee Association of America, suggested another factor. The specialty coffee industry, which has accomplished the enviable feat of increasing both sales volume and price, began to experience its dramatic growth when it introduced espresso-based beverages, he said. Consumers expected to pay a premium for the exotic glamour of espresso coffee, which thus commanded a higher price point. That, in turn, validated a price structure that allowed specialty retailers to purvey premium-quality conventionally brewed coffees.

Lingle wonders whether a vending machine delivering authentic, pressure-brewed espresso could command a vend price that, similarly, would validate market pricing of high-quality non-espresso coffees. Such machines exist, and he would be interested in learning the results of a well-thought-out market test.

PARADIGM SHIFT

Part of the difficulty also has to do with the entire relationship between traditional vending and its old core customer base in industrial workplaces, Lingle suggested. Many operators, many location managers and many vending patrons have reciprocal expectations that have solidified over time, and these can inhibit experimentation and progress. Today's workers are very different from their parents , Lingle suggested observing the people waiting in line at Starbucks , and today's best vending machines are much better than their predecessors. Yet there are psychological barriers to marketing premium coffee through vending equipment at the market price.

He again extended an invitation to the vending industry to work with the Specialty Coffee Association of America toward developing quantifiable standards for vended coffee quality, exploring new product opportunities and enhancing industry and public education.

This would be mutually advantageous, he said. The specialty industry would benefit by improving its penetration of the workplace, and vendors would gain by restoring coffee to the primacy it once enjoyed as the most profitable vended product. And vending patrons would benefit from wider access to better coffee.


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