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You Can't Know A Book By Its Cover

Posted On: 6/28/2016

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TAGS: Vending Times, Vending Times editorial, vending industry, coin-op, vending machine, coin machine business, office coffee service, vending machine operator, micro markets, Alicia Lavay

Alicia Lavay, vending, Vending Times

The continuing boom in premium coffees and growing demand for their availability in the workplace has aroused a good deal of supplier interest in the office coffee service business. In speaking with these people, I often encounter some confusion about OCS and how it fits into the spectrum of workplace refreshment services.

This confusion is understandable, and was experienced by the modern OCS pioneers themselves: were they "operators" or "dealers" or "distributors?" Their business model was to sell coffee in bulk (cases of fractional-pound coffee packages), but price it by the brewed cup.

That was one solution for serving offices too small to support a vending machine. There were other solutions that fell by the wayside, while new ones continue to be developed. "OCS" operators now provide refreshment solutions to locations of all kinds and sizes.

Like vendors, OCS operators generally have been alert to compatible opportunities like pure-water service. Market demand has encouraged them to expand into single-cup brewers (regular and espresso) and all sorts of rental equipment -- and vending, when appropriate. OCS thus presents an opportunity for suppliers to satisfy the growing demand for a variety of beverage options that will optimize the "coffee bar" experience. And, like vendors, OCS operators may find that micromarkets fit profitably into their service mix. Of course, vending operators can add office coffee services, too, and most of them have.

This is a weakness of narrowly targeted marketing. Suppliers who want simple sales analysis tend to classify products according to "channels," for example vending and convenience stores. This may be a good starting-point, but shouldn't prevent any reseller "channel" from getting whatever product it thinks will sell.

The key here is the product sales and distribution echelon. In my opinion, what suppliers new to this industry need to do is get good brokers and product distributors on board. A distributor will stock what its operator customers will buy. And the supplier can't just look at an operation's name and know what it's likely to want. A "vending" company often wants "OCS" merchandise; a "coffee service" may want "vendible" products; and both may want items that will sell well in micromarkets.

According to Vending Times' third-party research, nearly 50% of our approximately 8,400 vending operator subscribers make purchasing decisions for hot beverages, and that number is growing as more operators enter the market. The traditional OCS location segment that once was considered marginal by most full-line vending operators has become a dynamic component of today's workplace services industry, offering hot and cold beverage solutions for locations of all kinds. Very few "pure" OCS operators remain. Coffee, tea and water -- and their allied products -- have become the components of a broad-spectrum product offering by vending, coffee and micromarket operators who, collectively, enjoy tremendous growth potential.

One example of a new product with broad appeal is cold-brewed coffee, and suppliers appear to recognize this. Some forward-thinking operators already are delivering cold-brew in metal kegs for use in purpose-built dispensers (see, for example, our story on Corporate Essentials in the November 2015 issue or at our website).

Cold brew appeals to the millennial cohort that's transforming upscale workplaces today, but a support system requiring frequent delivery of heavy containers for use with dedicated dispensing systems is going to be restricted to high-volume sites (or very wealthy ones). Cold-brewed coffee in ready-to-drink packaging is a natural as an upscale workplace refreshment product. It does not need a pre-brew delivery infrastructure, but stands to benefit from the demand that such systems are creating. These products might profit from attractive point-of-sale material for vending machines and micromarkets.

An OCS operation may or may not deliver packaged cold beverages to its clients, and those products may or may not be given away for free. In sophisticated markets like New York and San Francisco, free premium cold drinks are not uncommon in professional workplaces, but they're a much greater expense to the client than free coffee. That fact got a lot of OCS operators into (or back into) the vending business as the OCS industry matured.

The ideal scenario for suppliers is to find operators -- vending, OCS and micromarket -- who are getting requests from their better clients for premium products, but who are not in a position to build an elaborate logistical infrastructure and a route service organization capable of heavy lifting. An operator who can reply to a request for cold-brewed coffee by saying, "We've got a terrific new bottled cold-brew coffee, developed for just the kind of employee you have here. Let me bring you some samples..." can get most of the benefits of the trend and serve a much wider customer base.