April 15

Coffee Service Corner

Coffee Service Corner Monthly Column

The Coffee Service Industry has long recognized the Specialty Beverage world for the role it played in revitalizing our industry. For many years leading up to the coffee shop boom, North American workplaces were mostly being provided mediocre brews in glass pots that did little more than provide a caffeine lift for the work force.

In the 1980’s air pots and thermal carafes provided some improvement to the quality of the beverage, but a decanter cannot magically re-craft an average brew. I comfortably continue to tip my hat to the coffee shop community even though they continue to take profits from office accounts that my industry serves.

A Key Metric

Most operators have a key performance measurement tool that is designed to grow profit per account, or same-store profit as some call it. I prefer to attach the metric to each brewer rather than an account as this has an equalizing effect as performance is monitored.

When single-cup arrived on the scene in the early nineties, the opportunity to drive profit per machine was upon us. (For this article, I am including single cup as a “specialty” beverage knowing that some readers will disagree.) Prior to single-cup, a typical brewer supporting 30 workers might average $60 profit per machine. A K-cup or Flavia unit could easily generate double that.

My assumption is that for a single machine, a batch brew account would purchase 3-4 cases of 40-count fractional pack coffee in the $30-$35 range, add some basic related items to the ticket and generate 50-55% profit for the operator. This translates into industry-accepted consumption trends.

Changing that brew site to a single-cup machine with the same consumption metrics inflates the cost of goods and selling price but reduces the percentage of profit somewhat. The net result in my experience is that the brewer profits easily double. Fast forward to 2015 and we see competitive pressures diminishing single-cup profits, but coffee service operators consistently report profits exceeding that of batch brew.

Batch brew redux?

A number of operators are reporting a growing demand for higher quality, artisan style bulk or fractional pack varieties from their office accounts. If this trend continues, we could see a rebirth of batch brewing to a measurable degree.

From a key performance metric standpoint, that could be a good thing.

Some points to consider:

• From a cost of goods and selling price standpoint, single-cup is more costly.

• The coffee service customer base is paying upwards of 75 cents per cup. The expectation has been set.

• There is competitive downward service provider pressure on pricing.

• Could I introduce bulk coffee or 40 count, 2.5 ounce fractional packs to my menu and improve my profits? Assuming that a 40-count kit generates 400 cups (10 cups containing 7 ounces of liquid served in an 8 ounce cup) and I paid $40.00 per case ($6.25 per lb.), I could sell that case for $80.00. That equates to an average selling price of 20 cents per cup. Quite a comparative value to single cup. Some of you will challenge that the cost per lb. on some coffees might be closer to $10.00 per lb. If that is true, the value story still holds. (I include bulk coffee as an option as this would be the package of choice by local, craft roasters that do not have sophisticated packaging lines).

• It should be noted that should an operator go the route of bulk coffee dispensed by the cup from a hopper-based system that the brewer cost will be significantly higher but will allow combination beverages, as there are typically one or more water-soluble hoppers within the brewer.

• As an operator, I would have three to six varieties presented in a handsome display rack of thermal decanters. Would offices want or prefer this option?

• As an operator, I see a chance to enhance batch brew profits well beyond where they were pre-single cup. I also see this as a retention tool.

A Tea “Movement”?

My personal journey in exploring the world of tea as a coffee service opportunity began when my wife Charlotte relayed her first-time experience at a Teavana store, which was very positive.

Fast-forward 8 weeks and I have immersed myself into learning more about this category. It culminated with a visit to the Teaja corporate offices at Vancouver, BC. I was provided a wealth of information and was able to sample of number of exquisite loose leaf Teaja offerings.

In my many takeaways, one was insight into the growing demand for tea. I had already recognized the Millennials’ interest in high-end tea. I personally see my baby-boomer generation taking an interest in herbal remedy teas. When one couples that reality with the influx of workers coming in from overseas from predominantly tea-drinking countries, the potential of this opportunity is foreseeable.

The Coffee Service Industry has historically followed the Specialty Beverage world regarding trends. Could tea become the next coffee? Is demand for high-end, organic tea already in the workplace?

Where can we hear more?

At the upcoming NAMA show in Las Vegas, April 21-24, Mike Tompkins will be moderating a session focusing on Specialty Beverages in Coffee Service. Mike is a well-known and respected expert who has been NAMA’s Quality Coffee Certification professor for more than a decade. The panel of four well established regional and national coffee service operators will address the marketing and operational challenges to incorporating retail-quality specialty beverages into business-to-business environments, in order to satisfy the growing demands of emerging demographics.

This is also a grand opportunity for the non-NAMA-member roaster community to see new client opportunities at the trade show.

I hope to see you there!

Ken Shea, DS Services

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