BRONX, NY - When demanding New York City Fortune "500" companies and major universities remain loyal to an up-and-coming, locally owned coffee service, it's clear the operator is doing something right. King Coffee Services finds itself in this fortunate position, thriving in a very competitive OCS market.
According to Terry Adelstein and Marc Cosimano, who founded King Coffee Services nine years ago, their track record for service is second to none, and this has fueled the company's growth.
"We're young and hungry and constantly looking to be different , not different in a quirky way, but unconventional in taking a step back to the way things used to be done," said Adelstein. "We embrace the newest technology and use it to full advantage, but while we use global positioning systems in our trucks, we're against telephone automation; one of us usually answers the phone. We like to know our clients by their first names. Even today we still know most of our clients by the sound of their voice over the phone."
Like most OCS professionals, King Coffee's principals entered the business by chance. Adelstein graduated from college in 1988 with an engineering degree and landed a job as a wiring engineer with NBC television. General Electric purchased NBC from RCA a few years later and Adelstein saw the handwriting on the wall in terms of job security.
A year earlier, two of Adelstein's college friends had launched a snack and soda vending operation, and they began receiving requests from clients for office coffee service. They asked Adelstein to join them to plan and execute an expansion into OCS.
The startup business was headquartered in Trenton, NJ, and served the corridor between Philadelphia and New York City. Within three years of Adelstein's joining the business, both vending and OCS had grown substantially and the operators realized it was difficult to cover such a large territory effectively.
"We parted ways very amicably. They retained the Trenton and Philadelphia markets and I kept the New York City OCS business, established as King Coffee Services in 1995," Adelstein told VT. He had six sizable accounts in Manhattan, roughly equivalent in volume to 35 of the company's New Jersey clients.
"It had been obvious that New York City was much more lucrative, but my partners didn't want to relocate or put more assets into developing the metropolitan market. We also hadn't wanted to spread ourselves too thin," Adelstein recalled. "Service is so important in keeping accounts; we didn't want to falter in what we had worked hard to build."
Adelstein asked his junior high school friend, Mark Cosimano, who had a background in wholesale sales and operations management, to join him as a partner. The fit has been ideal, since Adelstein believes his forte is in sales and maintaining close personal relationships in the field, while Cosimano's strengths include purchasing, managing accounts receivable and supervising in-house customer service. Initially, they rented a 500-sq.ft. room, using it as a base to serve their six clients. Following two years spent gaining high-profile clients of all sizes, King Coffee hired its first full-time driver.
"We won the bid to provide coffee to 60 accounts at a major university, which was a big turning point. Today, we have 120 accounts with the same university. Each department makes its own decisions, but we're the one that the purchasing department recommends," said Adelstein. "We have a very strong reputation because of the service we provide."
King Coffee has consistently grown at an annual rate of 10% to 20% sales revenue. "At these rates, we were able to manage the growth and avoid the pitfalls of growing too fast," said Adelstein. The operators focus their sales efforts on the lucrative Manhattan market, but serve all of New York City's five boroughs as well as Westchester and Rockland counties. They are very selective about the size and types of accounts they will service.
REELING IN THE BIG FISH
There are many "big fish" clients emerging from recent consolidations, and often, they are not getting the customized service they desire, according to Cosimano. "They're reaching out to up-and-coming companies like ours because we have always adapted our services to meet the needs of our clients. Too many OCS companies take the approach, 'This is how we do it; take it or leave it.'"
Cosimano told VT that he and his partner used to find it difficult to walk away from unprofitable accounts because they didn't want any prospective client to think they couldn't meet its needs. "Now we have a threshold for the type of client we'll take," Adelstein reported. "And our specialty is those 'big fish.' We don't have to worry about whether they'll be profitable."
King Coffee tends to steer clear of foodservice accounts like delicatessens, restaurants and bodegas because clients of this kind incline toward high turnover and often present service issues around the clock. "We want to keep our focus on large New York City offices, so we don't have to worry about unpaid bills and tracking down our equipment if the restaurant folds," Adelstein added. "We do serve a few restaurants and delis because of close personal relationships, but our bread and butter is the New York City office. We feel blessed to continue to grow the business while being able to choose the kind of prospect that we want to do business with."
This client base sees the value of professional workplace beverage service. Today's managers know that it's not economically sound to run the coffee service and maintain the breakroom in-house, using skilled office workers who make $20 an hour and more to do the grunt work. "It's hard enough to go out and try to procure OCS product on the street, and they know what they'd have to pay for it even if they could find it. And those high-paid office workers also would have to rotate stock and clean the machines. Today's serious managers see the value of our service," said Adelstein.
King Coffee's clients could choose a large national company to provide their OCS, but they appreciate that they can make a single phone call and speak with one of the owners. "As companies grow, it's harder to keep up, but we've been able to maintain that personal touch for nine years," said Cosimano.
Adelstein learned early on that prospective clients of all sizes considered price first when evaluating an OCS provider. "So we had to lead off with price, or we wouldn't get the second interview," he noted. "But once we got the client, I realized that it's service that they really find important. We have grown by providing exceptional service. If a machine is down, they know King Coffee's priority is fixing it; we're always on top of it. We bend over backwards to make life easier for our clients, and we often get business because other vendors are not doing as good a job."
The King Coffee partners know all the service issues first-hand from their experience at running the company's first route. "When the calls come in, we answer the phone and dispatch our service or delivery guy immediately, with no bureaucratic procedures like big OCS companies have," Adelstein told VT. "We're fanatics about open lines of communications. Our drivers and service techs have Nextel 'walkie-talkie' telephones, and regular cell phones too. If one doesn't work, the other will."
In select accounts with 1,000 or more employees and $100,000 in OCS business, King Coffee is prepared to supply an on-site location attendant, full-time, to manage coffee and allied product inventory, including dairy products, and keep the break area looking sharp and running smoothly. At these sites, the operators have even provided Nextel phones to the location contact, ensuring direct contact with their location attendant.
King Coffee's team has grown to include eight employees, each of whom knows the job functions of the others. By cross-training their staff, the King Coffee owners can fill in any gaps in a moment's notice.
"Our commitment to integrity has built our clients' trust in us. Many of our clients depend entirely on us to deliver what's needed to keep their pantries full and to store everything logically and neatly. We simply hand them the invoice. Our top three clients work that way," Adelstein told VT.
By focusing on offices with sizable populations from the start, King Coffee has been highly successful with single-cup machines. "We didn't want to put our toe in the water when the first generation of single-cup brewers first came out," recalled Adelstein. "You never want to be the first to buy anything, whether it's a coffee brewer or a television receiver. We watched the technology advance for a while, and it got better and better."
The single-cup dispensers readily available a decade ago typically used freeze-dried coffee, which was a tough sell in the sophisticated urban New York market. Traditionally designed single-cup brewers used paper filter rolls, and Adelstein found them cumbersome and costly. "I felt that charging customers $200 for a case of filter rolls was going to rub them the wrong way and inconvenience them. And it's a big service issue," recalled the operator.
TAPPING INTO TECHNOLOGY
Finally, Coffee-Inns began distributing the "DCB" (Olland) machine, and King Coffee decided that the time had come to get involved. "We liked the technology, which was similar to a French press with a stainless steel filter. It was easy to maintain, and it was the first machine we tried that made a quality cup of coffee," recalled Cosimano.
Following four very successful years placing the "DCB," the operators learned from Coffee-Inns that the manufacturer was merging with another company and the line was being discontinued.
"From Coffee-Inn's perspective, the 'Brio' from Zanussi, in Italy, was the machine best suited to meet our service parameters and provide a quality cup of coffee," recalled Adelstein. The "Brio" offered another advantage, perhaps even greater: the cups and condiments were all contained inside the machine and dispensed automatically, as in a full-sized hot beverage vender.
"It's fine in an office to have everything beside the machine, but in public places like colleges and museums, products and supplies will walk away. People will take a cup for the soda they bought from the vending machine. That's a problem that still plagues this industry. Most countertop equipment doesn't have all the products self-contained like the 'Brio'," noted Adelstein. "We have these machines at 24-hour Laundromats , not our usual kind of location, but we can do it because everything is self-contained. We run it like a vending machine in those locations, and pay a commission."
"Brio's" ability to grind fresh beans for each cup, and its soluble real dairy creaming agent for milk-based beverages, have given King Coffee a clear advantage. "No one can believe the quality of the coffee that comes out of a 'Brio,'" Adelstein remarked. "We have our ratio of creamer to water set so that the stir-stick stands up in the froth; that's how thick our true cappuccino froth is."
Currently, King Coffee has 100 "Brio" units in the field, and the single-cup brewer's presence is gaining ground steadily. The company recently contracted with a large hotel chain that is interested in the program, and more calls keep coming in.
The operators are also in the process of rolling out a direct marketing campaign to relocate their earlier model "Brios" to new types of accounts that they have never pursued. They're breaking new ground with machines in Laundromats, police precinct houses and parking garages. Word is getting around about the quality product and ease of operation.
"If people are used to buying soda and snacks out of a machine, they shouldn't be squeamish about getting their coffee from a machine," Adelstein pointed out. "It's come a long way since the days when you got a cup of spray-dried mud out of a dial-set vender in a bowling alley. Our campaign will present the 'Brio' as a state-of-the-art gourmet coffee preparation system."
King Coffee is also in the process of turning its delivery trucks into rolling billboards, featuring an eye-catching illustration of a "Brio" and the phrase "Bring the coffeehouse to the office," to spur further demand for the machine. "In this market, you have to take advantage of anywhere you can advertise, and our trucks are out there every day," said Cosimano.
While the "Brio" has become the linchpin of King Coffee's new business, traditionally brewed coffee represents a large part of its overall volume. Adelstein and Cosimano recommend thermal servers to their clients because they want coffee that's associated with their name to maintain its integrity after brewing. This is difficult to ensure with glass decanters, since brewed coffee will begin to oxidize and otherwise degrade when kept over heat for more than 20 minutes or so.
"We still have hundreds of glass bowl systems out there. They're still the best way to brew coffee, but not to hold it, so they're moving out of office locations," commented Adelstein.
In high-volume applications, King Coffee has found a winner with Fetco's thermal coffee brewers. "They take thermal carafes and airpots to the next level. We brew 11/2 gallon carafes into portable shuttles that are perfect in hotel conference rooms and continental breakfast areas," reported Adelstein.
With a demanding and sophisticated customer base, Adelstein finds the most notable hot beverage trends in his market are a decrease in demand for flavored coffees, but surging demand for higher quality coffees, and fast-growing interest in herbal teas.
"In the early 1990s, before Starbucks, when people wanted the best coffee, they wanted 100% Colombian. Now our minimum quality coffee is 100% Colombian," said Adelstein. "And we don't need the prestige brand names. Our roasters can provide us with gourmet varietals and blends offering all the taste without the higher price. This helps keep us in locations."
King Coffee has held firm to its early decision not to offer a private label coffee. "We view private label pessimistically. We promote King Coffee as master purveyors, specializing in finding the best coffees out there. We have no problem letting the world know that we're the middle men," said Cosimano. "Coffee is so subjective; everyone has an opinion. It's great when they love it, but the reality is that coffee beans are an agricultural product and they vary by crop, just like apples can be mushy or mealy. We don't want to have our name on something and have a client hate it. We avoid that by providing top-quality coffees from reputable roasters. We have lots of good choices for our clients, and they're sure to find something they like."
King Coffee carried a long list of national brands in its early days, but eventually dropped most of them from inventory because the owners felt the coffees were not priced appropriately to their quality. "We get coffee fresh from our roasters. The national brand fraction-packs spend much more time in the distribution pipeline, and so have a shorter shelf-life when they reach the operator's warehouse," Cosimano remarked. "We can provide a more attractive price, fresher product and a wider diversity of blends from our contract roasters."
The King Coffee owners attribute much of their success thus far to the decision they made at the outset to concentrate on OCS. "We have never wanted to do vending, and we still don't; we want to stick with what we've become experts at. We didn't want to invest in office supplies or bottled water or espresso, either, but we waited for client demand to drive us," noted Adelstein. "We never promise what we can't deliver. Many of our accounts told us we did a phenomenal job with coffee, so why couldn't we do water too? We began by providing filtration, but they wanted bottled water service. Once we knew we'd have multiple clients asking for it, we began carrying bottled water."
To meet the demand, King Coffee partnered with a local water provider who pays it a commission on each bottle it sells. "He also gives us big leads on our type of coffee clients," added Cosimano.
The OCS operators have established a similar relationship with a local vending company and a catering operation. "With these relationships, we have outside allies who give us great leads, so we don't need a salesman; and we offer the same service to them," said Cosimano. "We've sat down together with our vending ally and our water partner to prepare a joint presentation. Some clients want to deal with one company, with one bill and one phone number. This is an administrative issue, not an operational one. We have cases where we handle the business that way, for that kind of client."
Last year, the King Coffee operators realized that they had become so immersed in pleasing their customers every day and growing the business that they had become fixated on gross sales, not on profit. "In the early years, the two of us and a driver were bringing in $100,000, $200,000 and then $300,000 in gross yearly sales, and we couldn't even imagine what we'd be able to take home when we hit $500,000. When we did, our accountant said: 'You broke even again this year,'" recalled Adelstein. "This started to become a familiar trend until 2003, when we recognized as business owners it was time to get a handle on profits and start managing the company's financials in real time, on a daily basis. We needed to know our profit percentages, our overhead, our product cost and margin on every line item. We thought we had it all covered, but we never slowed down long enough to look at it."
DOLLARS AND SENSE
The operators brought in a consultant who spent 160 hours poring over their financial records. "Retaining a consultant was the best money we ever spent," Cosimano recalled. "He told us if we kept operating the way we were, barely breaking even, we were going to lose in the long run."
By following the consultant's recommendations, the operation has increased its net profits substantially. "When we started working with the consultant our overhead accounted for almost 60% of costs, so we needed a formula to factor overhead into item pricing to achieve a desired net profit on a per item basis. We had some products, out of about 1,100 in inventory, that lost us a dollar on each sale!" Adelstein reported.
"After this analysis, we increased our prices for the first time in our history. We'd always been afraid that we would lose customers, so we kept absorbing price increases. We were wrong," he emphasized. "Goodwill is a fine thing, but we've learned we need to set limits. We can't run downtown to make a delivery when a client forgets to order a box of tea , which we used to do , so we set a minimum order threshold."
The consultant left the operators with 50 templates of spreadsheets, budgets and job descriptions to help make the business more profitable. He also offered advice on setting up an employee incentive program that King Coffee has since successfully instituted.
THE RIGHT STAFF
"From the very beginning, we never wanted a boss/employee relationship. We wanted our employees to treat their job as if they were the owner. We learned that the best way to do that is with a profit-sharing program, so if we exceed our profit targets, we share half the difference with the employees who qualify," explained Adelstein.
As part of the new program, the operators also periodically evaluate employees and score their performance, and award bonuses based on their score. "I also think we've learned to lower our threshold of what we'll put up with since we retained the consultant. If employees don't score satisfactorily, why keep them on board?" Adelstein added.
He reported that the incentive program has reenergized his employees. "It has created friendly competition as they look out for the success of the company as though they were owners. They feel their bosses are good guys who look out for them; they like to come to work, and they want the company to thrive," he remarked. "We're like a family. If we have a job opening, our employees throw us names, because they know their friends and family members would be happy here."
Following the terrorist assaults on September 11, 2001 and the loss of business and equipment in the World Trade Center and lower Manhattan in general, the King Coffee principals secured a low-interest loan that enabled them to move to a new location, invest in a new computer network and accounting system specifically suited to their business, and to support the company's growth with a new delivery truck and a forklift.
With an eye towards technology's role in future company growth, King Coffee has been building its Internet presence a step at a time at its website, kingcoffeeservices.com. "It's not interactive yet, with online ordering, because we don't have the manpower to support it in the way I want to, right now," said Adelstein. "Another reason I'm not ready for online ordering is that many times a client is about to order two items over the phone, and Marc or I ask about other items we know they use. So their orders always end up being larger than when they first called. I feel that online ordering might result in customers overlooking something, and reduce our opportunity to encourage customers to try different products."To enhance King Coffee's Internet presence and attract prospective customers, the operators contracted with a submission company that keeps "King Coffee" far up in the search engines' linked lists when Web-surfers enter keywords such as "Brio." King Coffee gets solid leads as a result, as well as calls from all over the country from other coffee service operators seeking tips and advice, which the principals are happy to share.