2014

Office Coffee Service in Transition

Pod Pak Dan Ragan

Office coffee service (OCS) is in transition. Although this is not a new statement, OCS operators in the northeast United States can attest to the office product industry threat. W. B. Mason has successfully leveraged their customer relationships to add the break room vertical. Office product dealers have offered break room products for many years, although most did not offer a comprehensive equipment program. The transition is underway; some office product dealers now offer equipment, and compete against OCS operators around the country.

The office product industry becomes more competitive as wholesale clubs and Amazon provide more products, and dealers are looking for different ways to grow their business. The office product dealer has considered the break room a legitimate add-on segment to grow their business; however, they provided products, but not equipment. Approximately two years ago United Stationers, the largest wholesaler to the office product industry, stated: “Own the coffee, own the break room (paraphrased).” Owning the break room requires a free equipment program, so some office product dealers now offer free equipment and service. The office product industry has seen W.B Mason add a comprehensive coffee program, and grow their business substantially.

Verticals such as vending and bottled water companies have competed with OCS operators for many years. These industries understand the capital expense required to own the service. Many office products dealers do not have a strategy for leveraging capital, but rather employ large sales teams and use sophisticated marketing programs, i.e. “the easy button”, “taking care of business”, “who but W.B Mason”. Two reasons office products dealers penetrate OCS customers are price, and the buyer. So how do office product distributors offer such low prices, and what influences the buyer?

By considering the monthly office expenditure on all consumable products, and understanding the segment expenditure, the office product dealer has found a way to build their business. Approximately 20% of an office’s expense is break room, and 80% includes remaining consumables. These numbers may be manipulated in many ways, and are provided as a baseline to understand pricing. As competition in the office product industry increases, the dealers are seeking a competitive advantage versus other office product dealers, not versus OCS operators. The method is to price the 20% break room segment at or below cost, to capture the 80% remaining consumable office product segment, and provide coffee equipment and service at no-charge.

OCS operators, in many cases, believe Office Product companies cannot provide the required level of service to keep the business. Staples revenue in 2003 was 11.6 billion, and by 2013 increased to 24.3 billion. Was the increase at Staples due to poor service? Perhaps the service is acceptable and the company employs good marketing and sales people, although the vertical strategies employed may be more complex. Office product dealers have become legitimate competitors in the office coffee segment, and OCS operators need a strategy to compete. Some strategies require new or different products that must be sold to the buyer.

The end-user buyer is ultimately interested in convenience. The buyer may be a facility manager, office manager, administrator, or receptionist. Too often the buyer does not drink coffee, and an appeal to quality of product is not a selling point. Because the buyer does not drink coffee, the sale is now based on cost, and ease of purchase. However, the buyer also has an obligation to provide a product acceptable to the rest of the office population. Therefore, using a national brand product becomes a legitimate purchasing strategy.

Too often a salesperson is faced with a price-only strategy because of a proprietary product, although the selling strategy should have a quality story. Scheduled coffee tasting continues to be a successful OCS method to prove a quality product. The on-site tasting allows an operator to display national brands, locally roasted coffee, and private labels in the format the customer wants. The strategy for the operator is to exploit their industry expertise, and differentiate themselves from other suppliers. To be clear this is a selling technique, not a pricing strategy. Additionally, a successful tasting strategy is embraced by owners, managers, and employees of OCS Companies.

Many opportunities exist to be educated in coffee, and to understand the competitive advantage an OCS company offers. The industry continues to innovate, and differentiating products are available to operators. OCS managers should spend an adequate amount of time at trade shows and educational seminars as part of their strategy. Many shows are available throughout the year, and are typically in a tourist destination, so attendees can unwind. Choosing a show to attend should be based on relevance to the operator’s goal, and will provide maximum success if attendees have targeted vendors to visit. Office Coffee Service is in transition; take advantage of the opportunities!

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