Coffee Service Corner: Buy, Sell or Grow

Coffee Service Corner Monthly Column

As I began my tenure as a Coffee Service Operator around 1990, my company was in national expansion mode and very aggressive on the acquisition front. Around this time, many first-generation operators found themselves with no appealing succession chain options and en masse there was an abundance of acquisition candidates on the market and an equal number of interested buyers.

During this time, the price of OCS companies proved to be excellent values, very much in favor of the acquiring companies. Very few sellers and buyers were dealing with the unknown multiples of EBITDA or other traditional divestiture formulas but instead the common value denominator had evolved into multiples of annual gross profit. Over a ten year period, my company paid, on average, one years’ gross profit and acquired dozens of operators around the country. It was indeed a great value for us and proved many times to be a better alternative than building a business from a zero base in a new market and having new business writers sell our way into the expanded market.

Today’s market is robust for buyers and sellers alike, although the price of poker has gone up for the acquiring companies. The industry is reporting acquisitions paying closer to one times annual sales rather than profit. And in some cases the multiple has exceeded this.

Buy?

At least three of the “big five” OCS operators are in active acquisition mode. First Choice recently announced the acquisition of Blue Tiger, a first class OCS operation based in Seattle and very active in multiple markets. Additionally, a number of very strong, progressive regional operators are reporting acquisitions from coast to coast. Just this past week, Accent Foods based in Pflugerville, Texas announced the acquisition of the assets of Texas Refreshments, a multi-state vending and OCS operation. This comes on the heels of their East and West coast acquisitions and/or partnerships.

Our industry remains highly fragmented and many acquisition candidates remain. To compete with the nationals, growing critical mass for the local and regional operator is critical. Most number crunchers of the acquiring companies report being quite satisfied with the R.O.I.s that they are realizing paying current market prices.

Sell?

Listed OCS Companies are not remaining on the market long these days. In most markets, multiple players can be readily found creating a healthy competitive situation for the seller. Most processes are quite simple and due diligence tends to be well organized and painless for the most part.

Selling is personal. Sometimes growing economic hardships and obligations prompt the sale, allowing the seller to exit a difficult situation and walk away with sufficient retirement funds. Often it’s “just time”. I know a number of operators that had no desire to remain in the business and were ready to reap their hard earned rewards and move on and out of the industry into a life of leisure.

Other times a more youthful seller might seek to remain in the business but desires to be a part of an entity that is larger, stronger, and positioned for hyper growth. Similarly, an acquiring company is always on the lookout for great talent!

Regardless of the need or motivation, now is a great time to sell. Seek out a professional broker who can guide you around the potential landmines.

Grow?

I have seen many landmark changes over my three-plus decades in this great industry. I can confidently say that opportunities to grow one’s OCS business have never been better from my perspective.

The primary reason is that traditional office accounts have never been more willing to expand their amenity offerings than they are today. Millennials are driving much of this as they expect more amenities. The demand is coming in the form of better-quality coffee, more and better cold beverages and snacks…. salty, savory, decadent, better-for-you…demand is all over the board. I met with a leading West Coast operator recently who reported that his fastest growing OCS SKU for the past 12 months was bananas!!

Build the Ticket – Amenity or Charged

While today’s business owner or office manager is certainly more willing to provide more “free” products to their employees than ever before, there are also easy-to-use, intuitive payment APP solutions for offices that opt not to subsidize the expanded list of goodies. Some apps reside on the employees’ cell phones. The employees fund their own account. At the point of purchase they then scan the product that has been supplied by the office, paying for their purchase. The funds received from the employee’s account then move to the office account which will then “fund” the purchase of the next product delivery. These systems are relatively inexpensive. (More to come on this in a subsequent article.)

The Small Office

The other opportunity yet to be fully exploited by OCS operators is the small office. Not to say the 5-20 person office has no coffee, water, or other products…. most do. But much of it is self-sourced from the big box store, supermarket, or possibly bought online.

I believe that an operator can develop a very workable business model to sell to the small office either via e-commerce or creating small office routes built around a 4-week delivery cycle with a complete bundle of offerings that would include a moderate asset cost brewed beverage solution, filtered or bottled water, and even a snack assortment. (More to come on this growing segment.)

There are more than 4 million offices with less than 20 employees!

Decisions

As an operator, my company was driven by three primary Key Performance Indicators….Customer Retention; Growing Same Account Profits; Adding Profitable New Business. I believe that today’s market dynamics sets the stage for a progressive, service-focused, customer-centric operator to build, or expand into, a very, very healthy OCS operation like never before. And with better KPIs, driven mainly by significantly increased same account sales and profits, should one decide to sell the business at some point, the return on your efforts will be significant.

Until next time.

Ken

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