'Black Swans' Are Not Extinct

Posted On: 12/29/2017

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The education program at this year's Atlantic Coast Exposition included a panel discussion of the evolving micromarket segment. One of the operator panelists observed that, while experienced vending operators have experienced the problems that arise from an economic downturn, micromarket operators have not yet had to deal with that situation.

This got us thinking about the effects of economic contraction on the office refreshments industry. The modern OCS industry developed in the mid-1960s, at a time when the U.S. economy was adapting to the new, more complex postwar world. The desirability  of "coffee breaks" had been demonstrated in manufacturing plants during the war, and there was great interest in finding efficient ways to provide them in locations of all sizes. Vending, armed with new single-cup fresh-brew machines, could do the job in large locations like factories. Office locations prompted a good deal of creativity. The willing solution involved the offer of a pour-through brewer (originally developed for fast-food restaurants) placed in a small location that agreed to meet a minimum monthly purchase of coffee and supplies. So an industry was born.

The offices that were the prospects for the new office coffee service concept were staffed by people who often set up informal "coffee clubs" which bought a percolator and chipped in to purchase coffee for it. Thus, employees were accustomed to pay for their coffee, as their blue-collar counterparts were doing in factories. The "value proposition" made by OCS in 1970 was restaurant-quality coffee at 5¢ per cup. The industry would come to regret establishing that price expectation, but it did encourage many employers to make the coffee available to their employees at no cost.

It's worth pointing out that this OCS model did not find wide favor abroad, not even in Canada. In most places, some sort of coin-controlled coffee dispenser was the mainstay of office beverage service. In this country, the model lost much of its appeal every time the business cycle turned down. Faced with the urgent need to cut costs, many businesses asked their operators for solutions to charging employees a price that would, at least, pay for the service and the products. Those business-cycle troughs led to temporary demands for batch-brew machines dispensing 12 cups of coffee into an insulated reservoir with a coin-controlled faucet, as well as European-type "in-cup" systems. Of course, single-cup fresh-brew machines had been available for smaller locations since the late 1950s; these became mainstays of office refreshment services in Canada and much of Europe, but the employer-paid model proved  resilient in this country, rebounding when the economy recovered.

Part of this resilience was caused by employer recognition that the value assigned by employees to a good office beverage program that cost them nothing was a very economical benefit. This was especially true of upscale OCS clients like financial services firms, particularly those located in large cities. Well-compensated staff members of such organizations could generate thousands of dollars for each hour spent working on a client account; if such an employee took a break to walk across the street for a cup of coffee, that productivity was lost. Thus, prestige locations were willing to pay top dollar to an operator able to provide gourmet beverages by installing sophisticated equipment and bringing in a variety of specialty beverages.

The rise of new, fast-growing technology firms created increased demand for this  cost-effective employee perquisite. On an elaborate corporate campus equipped with abundant amenities to keep people productive during long workdays, gourmet beverage service was a bargain.

In today's economy, growth businesses striving to attract highly motivated young employees have proven willing to subsidize products like cold-brewed coffee delivered through nitrogen-pressurized dispensing heads, specialty beverages provided in portion-packs and even foodservice. The opportunity this presents to the OCS, vending and micromarket segments is tremendous, and has received considerable attention. From one point of view, the only real obstacle to taking full advantage of it is the disbelief of operators with long memories of being hammered by clients for increasing the price of something by a dime. It's important to keep an open mind and understand what prospects really want.

From another perspective, though, there is reason for caution. Experience has shown that many dramatic economic disruptions – "Black Monday" in 1987 and the savings and loan crisis a few years later, for example – have erupted suddenly and unexpectedly. There is no reason to believe that this can't happen again.

For this reason, we should keep an eye out for technologies that will enable this industry to make as smooth a transition as possible from free to paid if the economy turns down. We certainly have the payment technology needed to meet clients' needs for effective solutions to the problem of reining in costs, and those able to keep their heads while others lose theirs will reap real benefits and survive until the sun breaks through again.