For a half century, the Coffee Service Industry has been mostly defined as one based upon providing amenities at America’s workplace. And while many, perhaps most operators, have disregarded the industry’s defining lines and generated handsome profits where beverages are sold, not given away, this journalist’s glimpse into the future will focus upon Office Coffee Service.
I pen this article from the perspective of an operator in growth mode. Hence the future focus rapidly moves to menu opportunities and prospective customers. I want to profitably sell more things to my customers and systematically add more profitable customers. At the Coffee, Tea and Water Show in D.C., I had the opportunity to visit with a number of the most progressive operators in the country. I thank them for their time and insight that was instrumental in developing this article.
Coffee Service naturally begins with brewed beverages. Brew-by-cup continues to dominate the coffee category but the growing downward pressure on selling prices, especially with “cups,” is stripping away those profits that for so long made these programs more lucrative than batch brew systems. More and more operators are looking at K cup compatible programs that offer significant reduction in cost of goods but absent so many of the big name brands. Can high quality, private label cups realize the same success that private label roasters had with fractional packs beginning in the 80’s?
Mars Drinks, Pod programs, and other alternative brew-by-pack systems are doing well. Brewers are more intuitive and robust than ever. I hear that more equipment is on the way and will be unveiled at the NAMA One Show.
I also include in the single cup category the hopper based systems. These brewers come with a much higher cost but allow for a lower product cost per cup. Many operators report receiving monthly rentals. Consumers love combination drinks and the bean-to-cup preparation which is hard to beat from a quality perspective. In spite of the CAPEX jolt, these systems will continue to be more prevalent.
Keep an eye on high-end tea opportunities. Coffee Service tends to follow the Coffee Shop trends and high end tea is a rapidly growing category such as we are seeing with Starbucks’ Teavana. We will soon see more offerings with remedial type tisanes. (I anxiously await the one targeted for we, the follically challenged.) Think sustainably!
More Than Brewed Beverages
There are more millennials occupying desks in today’s workplaces than any other age group. Millennials ask for, and expect to have, more amenities than other age groups. This ticket building opportunity is much more expansive than the allied products offerings of days past. Some operators are seeing the demand as the opportunity to be proactive and have already created well-developed plans to market expanded menus with items including, but not limited to: Sweet and salty snacks; better-for-you products; juices; fresh fruit; yogurt; sandwiches; salads…and the list goes on.
Growing numbers of offices are giving the products away in a mini micro market type of set up. Operators are reporting that some offices that do not provide freebies are receptive to carrying snack items for which they can charge the employees which, in turn subsidizes the next purchase.
An Expanding Customer Base?
In a previous article, I spoke of the opportunity that exists with small offices. The U.S. Bureau of Labor Statistics reports that firms numbering from 1 – 19 employees exceeds 3.5 million! As an operator, I could never justify serving any office so small. While some Internet Coffee Service companies and the Office Supply Companies enjoy some penetration, most of my constituents report that they do not participate in the small office opportunity.
I continue to look for a menu combination of a low cost brewer asset coupled with a high quality beverage and a manageable snack offering to justify stopping a delivery vehicle once every four weeks. I would also include a point of use water system and appropriate monthly rental. Could a 10 person office generate a $125+ invoice at a high GP with minimal service? Could I find dozens of these small offices within the confines of existing routes and not tax the capabilities of my route personnel? And if not, does this potential opportunity give me the impetus to more fully develop my own on-line capabilities? Could an entrepreneur build a business around small offices?
We all see how the micro market opportunity has revolutionized the Vending Industry. Is there a similar, new opportunity on the horizon for Coffee Service operators? Stay tuned!