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EDITORIAL: Learning From History

Posted On: 11/16/2006

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During the formative years of office coffee service, a prolonged debate took place about the nature of the business. One party held that an OCS operation should establish a distinctive identity in its market area by developing and marketing its own high-quality private-label coffee line. The other argued that the profit resided in national brands, taking advantage of their strong marketing support, while developing a reputation for fast, reliable and helpful service.

This debate has not taken place explicitly in vending, although  "make-or-buy" decisions have been argued since the early 1960s. We think it's time to confront the question squarely.

The development of vending machines able to sell all the components of a meal was driven by the shift away from a workforce that lived and worked in well-defined downtown areas, toward the modern decentralized suburban model. The full-line vending business essentially was conducted by selling fresh, individually wrapped food items (which involved high costs and low profits) plus hot and cold cup beverages. The latter two categories -- the "wet mix" -- converted a few cents' worth of ingredients into a finished product that could be sold for a dime. They offered very high margins, and so helped pay for the fresh food program. Rounding out the line were machines that vended packaged products -- candy, milk, ice cream, cigarettes, hot canned food -- many of which offered operators a choice between national or regional brands and lower-cost alternatives.

Over time, shifts in consumer preference and a change in the marketing strategy of the major soft drink companies combined to make packaged beverages, "finished" by the bottler, as dominant in vending as they were in other retail channels. A prolonged and determined campaign waged by the Cup Coalition to modernize and publicize postmix cup cold drink machines produced some technical successes, but failed to reverse that trend.

The announcement by Starbucks and PepsiCo of a vending system that will deliver hot beverages in cans should prompt us to consider whether the fate of the postmix cold cup machine might overtake fresh-brewed coffee, the other leg of the old "wet mix."

The research behind the Starbucks-PepsiCo initiative found that "common complaints about existing coffee vending included lack of consistent, high-quality coffee, as well as issues with messy and hot-to-hold cups." A 9-fl.oz. steel can with an insulating label, heated for delivery in under a minute, can shift the quality control responsibility to the packager, and do away with a good deal of mechanical complexity and maintenance.

We have argued for decades that the vending industry could benefit greatly by paying more attention to fresh-brew coffee. The Coffee Brewing Center of the Pan-American Coffee Bureau in the 1960s, and the Vending Task Force of the Coffee Development Group in the 1980s, provided resources that operators could use to maximize the quality of the coffee they vended and to market that quality. We think the Specialty Coffee Association of America could perform a similar role for vending today.

We also have argued that the "full-house" whole bean coffee vender has a potential market much wider than the traditional high-volume business-and-industry account. It is worth remembering that the espresso machine originally was conceived and perfected as a way to prepare a single cup of fresh coffee on demand, just as the fresh-brew vending machine was. Yet espresso coffee has been recognized as a premium product, commanding a premium price, while vending continues to grapple with an image problem whose salient points are summarized in the Starbucks-PepsiCo analysis.

We think that a determined effort to position today's best single-cup coffee vending equipment as a better way to deliver coffee, rather than a last resort, could make a very positive impact. Countertop single-cup machines, based on vending or espresso technology, have been enthusiastically received by its audience.

There certainly is a role for the vending operation as a route delivery service, pure and simple. But we think the industry also has room for operators delivering products unobtainable from any other source. Solutions now exist to the hot cup issue, and all the other "dissatisfiers" associated with the formative years of coffee vending. What's needed is a recognition of the opportunity, and a commitment to pursuing it.