November 17

Coffee Service Corner – A Watershed Time for the Coffee Service Industry

By definition, Mr. Noah Webster defines “watershed” as “an important point of division or transition”. Years from now, I believe that our industry historians will look back at the years 2015-2018 as a notable time of transition for the Coffee Service Industry which has witnessed a number of significant events that have marked time since the mid 1960’s.

In the half century existence of “OCS”, there have been a number of interesting and exciting events that have affected the shape and course of our business. These events include:

• The introduction of fractional pack coffees

• Development of thermal decanters and air pots

• The Coffee Shop phenomenon

• Single Cup systems…just to name a few.

From my observations, I note three evolving realities that are truly changing the face of our great industry for both operators, suppliers and distributors.

INDUSTRY ROLL-UP RESUMES

For decades, no single operating company has commanded more than single digit percentages of market share until this year. Through robust organic activity, increased activity on the acquisition trail and a growing network of franchises, Canteen appears to be the first operating company to surpass ten percent share of the OCS market.

Canteen is not alone in the hunt for acquisition candidates and territory expansion. Aramark, First Choice, DS Services and Texas based powerhouse Accent Food Services have been very active of late. And some activity is taking place outside of the continental 48 states.

Unlike the Vending and Micro-Market classes of trade, OCS remains a very fragmented industry and it is unlikely that we will see such market domination in Coffee Service short term but we are certainly moving nearer consolidation than away from it. It’s a great time to be an OCS operator as a business builder and/or as a seller. Driven largely by the expanding presence of Millennials in the workplace, office subsidies of offerings beyond the cup have never been greater. And this brings up our next evolving reality.

OCS – MORE THAN COFFEE!

In my 17 years as an operator, serving in various roles that supported our Purchasing and Supply Chain departments as well as Route Operations, I frequently received ad hoc requests from our field generals for new snacks and drinks that were mostly one-off office account opportunities that did not appear to be indicators of broader, profit expanding opportunities. But in retrospect during my last year, I did notice an increase in new product requests, again for snacks and drinks. And I summarily dismissed those requests as one-offs. (One of my last operator missteps).

As I re-entered my consulting and broker life and began interacting with many of my operator friends who were now customers and that I found were much wiser than me, I discovered that a large number had already identified ticket building opportunities beyond coffee and allied products and were adding double digit percentages of profit to historically flat accounts.

As an operator, regardless of one’s motivation to sell the business or to keep it, these new sales opportunities, which in many cases require little or no asset investment, will help one optimize both objectives. After all, every divestiture formula and algorithm begins with top line gross sales and profits.

The menu opportunities do not end with snacks and traditional beverages. Sparkling water, Cold brew RTD drinks and kegs, better for you offerings and much more are being subsidized by offices. It is reported that Millennials snack more than other generations and many offices allow non-traditional work hours. Having refreshments within an arm’s reach has never been more important to the office. Providing these refreshments has never been more potentially lucrative to the operator.

EXPANDING POTENTIAL CUSTOMER BASE

The census bureau reports that there are more than four million offices with employees numbering twenty persons and less. Very few operators historically would target such size accounts for DSD service. While I doubt that very few of these offices go without coffee and water, the way they source their products often exclude the OCS operator. Office supply companies, Amazon and other on-line fulfillment sources provide a level of fulfillment but in many cases leave gaps. Weight and dimension restrictions, item fragility and subsequent costs limit a number of menu choices. There is no “service” in these scenarios.

While few operators have made the move to build full service routes than include the smaller offices, the question remains as to the viability of such a business. With my operator hat on, I believe that I could add perhaps one additional limited service stop per day to an existing route and schedule the small office stops at four week intervals. I would place a very low cost, disposable coffee appliance, build a full menu of allied products, snack assortment and secure the water business with a point of use unit. A ten person office, with the water unit rental, should easily generate $125 in sales per four week cycle. This volume represents an additional $30,000+ in annual route revenue at a very handsome GP. Any takers?

The National Automatic Merchandising Association continues to recognize industry trends and keeps the membership apprised of same and does a superb job in providing education venues at its industry gatherings. It is indeed a good time to be in the OCS industry.

COFFEE, TEA AND WATER SHOW

By the time most of you receive this issue of COFFEETALK, many will be in Grapevine, TX at NAMA’s CTW show. If so, please stop by for a visit at the SOCIALFEEDIA booth. This will be a good opportunity to see some interesting snack and beverage solutions as well as a Payment APP especially designed for the office. I hope to see many of you there.

Until next time – Ken

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