Coffee Service Corner: Where Now?

Coffee Service Corner: Where Now?

After a 12-month hiatus from penning this column, I return to the writing desk to share observations on the current state of affairs within the Coffee Service Industry.

I chose to attend the August NAMA show, ignoring “hot zone” warnings emanating from Louisiana at the time. This was my first face-to-face group gathering in more than a year. Last-minute exhibitor cancellations affected the event, especially within the Coffee Service Pavilion, but all in all, it was a robust exhibit floor. Gleeful is the term that I would use in describing interactive emotions. Our industry has always been a kind-spirited, mutually supportive one. Seeing friends, colleagues, customers, and competitors was a potent elixir.

Industry Feedback

There is a clear dichotomy between operators offering full service…Vending, Micro Market, Pantry and Coffee Service and those operators providing only Coffee Service. In my interactions with operators and suppliers over the most recent six months, most everyone is reporting some level of northward movement in revenue. However, in general, OCS-only operators are reporting only moderate improvement, many claiming that annualized revenue is hovering around 50% of pre-Covid levels. Many operators are reporting revenue well below 50%. The full-service operators as a whole are reporting OCS sales in some instances as high as 80% of pre-covid levels and averaging 60%ish. Rural accounts are reported to be less affected than in urban offices.

Measured optimism abounds. Uncertainty prevails.

Survival and Recovery Tactics

When the pandemic first hit, most operators (and suppliers) employed many cost-saving measures to help keep their collective heads above water. Employee rosters were reduced up and down the org chart. Some muscle was cut during the process.

Investment spending, from brewer upgrades to vehicle replacements, was suspended. Market expansion, for the most part, slowed to a crawl. Although there were some acquisitions and divestitures, the activity was minimal. PPP loans and their subsequent forgiveness for those spending at least 60% of the proceeds on payroll costs saved many businesses.

Around the middle of Q3, 2021, the business condition improved, albeit moderately. So what are some of the tactics employed by those operators experiencing this early recovery?

Sell, Sell, Sell

While reducing service frequencies, which many operators did during Covid, can expand a route person’s capacity to deliver to more accounts during a given period, there is a likelihood that there will be more out-of-stocks, brewer failures, and overall perception of declining service. During the second half of this year, the net result was a greater interest shown by many businesses in exploring alternative service provider options. In addition, those who added back new business writers reported higher levels of account closes than in prior, pre-pandemic times. And if appropriately structured, sales positions should be self-funding although front-loaded to a certain degree.

Many operators called on their existing customers to explore expanding menus, adding more amenity snacks, cold beverages, and other consumables to help lure employees back into the office. Some report revenue increases north of 20% compared to offices that previously offered only a basic hot beverage menu. Pantry offerings of many sizes and shapes appear most everywhere. This can also lay the groundwork for expansion into micro-market opportunities should one be so inclined!

Expanding The Customer Base

The term “OCS Operator” has been a misnomer for quite some time. Many have served classes of trade other than office and industry for decades. During my Standard Coffee Service operator days, we targeted independent convenience store groups, fine and casual dining, and independent hospitality locations. “OCS” was still approximately 75% of our business, but the revenue we derived from these other classes of trade typically generated more revenue per machine than our office accounts.

Some operators recognized that their trucks (and new business sales personnel) were driven by many potential customers within their current route geographies. Often, current warehouse inventories were found to be sufficient to sell to these new types of locations. Equipment service time of day commitments, however, needed to be expanded to adequately support the new accounts that in many cases were open beyond traditional office hours.

Grow or Sell?

Expanding one’s geographic footprint is always an option, as is divestiture. December was an active buying/selling month as large and small companies acquired some local and regional operators. Could our historically fragmented industry be seeing rapid, expanded roll-up? Possibly. My good friend, NAMA’s Dean Gilland, who recently passed away, once shared a recurring nightmare in which he awoke to find an industry that had rolled up into a single operator and a single supplier. That would be a bit of a stretch, but I do anticipate that within the next five years, our industry demographics will appear much less fragmented than today.

On the Horizon

One of the more interesting products that I have been introduced to recently is Richard’s Rainwater. Yes, real rainwater is captured before it touches the ground and packaged into eco-friendly aluminum cans and glass bottles. The company is building a decentralized network of capture sites with the goal of distributing the rainwater locally, greatly reducing the carbon footprint while supporting the communities they serve. To learn more about this innovative, clean, recyclable hydration choice, contact Katie Journeay at Katie@richardsrainwater.com.

Until next time –Ken

by Ken Shea, President, Ken Shea & Associates

Suggested Reading