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Issue Date: Vol. 52, No. 12, December 2012, Posted On: 1/2/2013


Coffee Tea & Water 2012: NAMA Unveils Strategy And Research For OCS Sector


Tim Sanford
Editor@vendingtimes.net
office coffee service, OCS research, vending, National Automatic Merchandising Association , NAMA Coffee, Tea & Water conference, NAMA Gratitude Event, NAMA CTW, International Bottled Water Association, Tara Burnaman, Ken Shea, DS Waters, Carla Balakgie, Ric Rhinehart, executive director of the Specialty Coffee Association of America, coffee consumption trends, Heart+Mind Strategies, Mike Dabadie, NAMA 2012 Industry Coffee Legend, Fred Steiner

vending, office coffee service

NEW ORLEANS -- A timely and multifaceted educational program highlighted the 2012 National Automatic Merchandising Association Coffee, Tea & Water conference here. The event was preceded by a NAMA Gratitude Event on the downtown New Orleans campus of Tulane University, designed to acquaint the next generation of decision-makers with the latest office refreshment technology. For the first time, the NAMA CTW conference was held in conjunction with the International Bottled Water Association's annual convention and trade show.

Welcoming conference-goers to the opening general session were Tara Burnaman and Ken Shea, DS Waters (Atlanta), both veterans of the New Orleans-based Standard Coffee organization that was acquired by DS Waters last year.

Shea, who is vice-president and general manager of DS Waters' coffee division, recalled that much has changed during the two decades since he joined Standard in New Orleans. "In 1992, the No. 1 brewer in OCS was the Bunn VPR pourover with two warming stations," he instanced. "The plumbed-in automatic airpot version was No. 4." Coin-controlled coffee dispensing, for locations that wanted a self-supporting coffee service, was offered by the reservoir-equipped brewers marketed by Coffee-Inns of America. The typical OCS product mix included regular and decaffeinated coffee, sugar and a low-calorie sweetener ("pink or blue"), creamer and a few allied products; the average menu, he said, offered 15 items. And the office refreshment industry had achieved market penetration of 2.5% to 3%.

He explained that Burnaman, director of procurement for the DS coffee division, has been merging Standard's menus with DS's; more than 1,000 products are listed.

STRATEGIC PLAN
Next to speak was National Automatic Merchandising Association president and chief executive Carla Balakgie. "I got my preview of NAMA at last year's Coffee, Tea & Water conference," she recalled. Officially assuming her new post a month and a half later, she said, "I immediately went to work with the OCS committee to draft a strategic plan." This plan now is being executed.

"We conducted 'coffee experience outreach' with a Society for Human Resource Management focus group, which we asked for their perceptions of coffee in the workplace," the NAMA chief executive reported. "This was very valuable."

Additional research on workplace consumption patterns showed that water is consumed throughout the day, while coffee drinking occasions fall into patterns, she noted; and tea-lovers derive emotional benefits from drinking it.

"We've also expanded and enhanced the Coffee, Tea & Water conference, and created a Coffee Gratitude Event," Balakgie continued, and hailed its successful debut at Tulane. "We're working to make National Coffee Service Month a big occasion." The first of these was celebrated in September.

NAMA's three-year strategic plan is on course, the association president concluded.


SEE ALSO: NAMA Chief Describes Association's 3-Year Strategic Planning Goals For OCS And Vending

Brian Miller, executive vice-president of marketing for Mars Drinks (West Chester, PA) introduced Ric Rhinehart, executive director of the Specialty Coffee Association of America (Long Beach, CA), who keynoted the first day's general session. A veteran of the hospitality and gourmet coffee roasting industries, Rhinehart took the reins at SCAA in 2007.

Trends in coffee production and consumption, and the evolution of the United States coffee market, suggest very strongly that specialty coffee is the key to winning the future, Rhinehart said. International Coffee Organization figures show that, for the 2011-2012 growing season, production totaled 135 million bags while consumption rose to 139 million bags, drawing down retained stocks. For the 2012-2013 season, production is predicted to increase to a record level, in the vicinity of 145 to 150 million bags, while consumption is expected to rise to 143 million bags. In the 2011-2012 period, coffee exports grew to 107 million bags, also a record.

Of particular interest, the SCAA executive director emphasized, is that consumption of coffee in the producing nations is growing rapidly. While coffee use in consuming countries -- a mature market -- is rising at a rate of 1.7% to 2% a year, it is increasing at 3.5% annually in the lands where coffee is grown. Brazil, the world's largest producer (it's responsible for about 35% of all coffee harvested), is on track to become the world's largest consumer by 2018, when Brazilian consumption is forecast to outpace that of the United States. Overall, global consumption is increasing at an average 2.5%, he explained.

One would think, then, that coffee prices would be rising steadily as demand outpaces supply, Rhinehart observed. However, although prices fluctuate, the overall worldwide price trend has been downward.

Graphing U.S. coffee consumption since 1975, the year the unprecedented Brazilian frost dramatically reduced coffee supplies, to 1995 shows that the number of people drinking coffee declined steadily. Rhinehart explained that this correlates with large roasting companies' responses to the higher prices that resulted from that production shortfall: putting less coffee in the familiar vacuum-packed supermarket cans (the classic 1-lb. can went down to 13 oz.), devising ways to grind coffee differently to increase the particles' surface area for greater extraction and, hence, "higher yield"; and using a larger proportion of lower-quality coffee in the blends. While this was going on, the percentage of Americans drinking coffee declined from 60% in 1975 to 47% two decades later.

COFFEE DRINKERS START YOUNG
"We lost consumers because our product didn't taste good," the SCAA leader summarized. "Most coffee drinkers become coffee drinkers before they reach the age of 25; after age 35, only 4% of people who don't drink coffee begin to do so.

"At your Tulane University event, you did what you have to do," he applauded.

Coffee consumption began to recover in 1995 and, by 2011, had again increased to nearly 60% of the population, Rhinehart continued. "Why? Because coffee had started to taste good again," he emphasized; "in particular, specialty coffees marketed by Starbucks and other premium retailers." In 2000, 8% of coffee consumed was described by its consumers as "gourmet"; that percentage has increased to 25%.

"This rebound in consumption has been driven by specialty coffee," Rhinehart said. "In 2011, 40% of people reported having a specialty coffee drink in the previous month."

Disregarding periodic spikes, the price for good-quality coffees has been rather low from the early 1990s to the present. "Consumption is now outpacing production, but coffee prices are declining. Why?"

The answer, he said, is that the production of lower-quality coffees -- robustas (including ever-larger quantities from relatively new exporting nations like Vietnam) and unwashed arabica "naturals" (primarily from Brazil) is increasing rapidly, while production of the higher-quality arabicas has remained flat. "The problem is that there's increasing use of coffees that people don't like," Rhinehart explained. "And when you do that, people drink less."

What people do like is specialty coffee, he reiterated. This can be defined as coffee with no defects and a "distinctive character in the cup," although the Specialty Coffee Association of Europe has a different definition. In fact, he added, typical specialty coffee drinkers do not think of their favorite beverage as "specialty" at all (there are exceptions in the Pacific Northwest). Rather, they seek out good coffee for a variety of reasons.

"Some days, you just need caffeine; but sometimes, you want a pleasant, rewarding experience -- and sometimes you'd like a peak lifetime experience," the coffee expert explained. "Two-thirds of the time, you have a highly emotional connection to the beverage. So we speak in technical terms to people who really want us to say, 'We love you.'"

The mainstream coffee industry lost sight of this after the production shortfall of 1975, and its extraordinary efforts to keep the price low at the expense of enjoyable flavor set off a consumption decline that was not reversed for more than 15 years. "We've shifted away from those coffees now," Rhinehart observed. "Today's best robustas and 'naturals' are better than they were a quarter of a century ago, but they're not as good as the better milds. Let's not make the same mistake again. People want to love coffee; let's not discourage them.

"You're on the forefront," he told the operators. "The challenge is to raise value, to increase quality while providing good service, to connect at the emotional level. Coffee is an experience."

These challenges can be met, the SCAA executive director said. But if they are to be mastered in the longer term, the coffee industry in the United States and the other importing countries must recognize the need to support its vital sources of supply. "We must preserve the traditional coffee producers," he emphasized, noting that recent British research foresees the extinction of all wild coffees (which grow in the highlands of eastern Africa) by 2080, in the worst case. These wild coffees, not presently harvested, are near relatives of the cultivated arabica plant, and their genetic diversity is likely to be essential in developing new strains able to adapt to anticipated changes in climate. | SEE STORY

"We have to invest in the future of coffee," Rhinehart explained. "It's been an orphan crop." Unlike most agricultural products, it has no seed industry; it is predominantly produced in poor countries and consumed in wealthy ones." He called on the industry to strengthen its support for world coffee research, while there still is time to assure a future for coffee.

OPPORTUNITIES IN OCS
A highlight of the 2012 Coffee, Tea & Water conference was a preview of a study of office beverage service's strengths and opportunities commissioned by NAMA. The study was conducted by Heart+Mind Strategies (Reston, VA), whose Mike Dabadie presented a summary of its findings. Dabadie, a veteran of market research titan Wirthlin Worldwide, explained that the study was conducted from September 7 through 14, 2012, by means of 15-minute interviews with 1,000 consumers who are more than 18 years old, employed, and reported consuming beverages. A subsample consisted of those who said that those beverages were provided by an office coffee service in their workplaces. Among office decision-makers interviewed, half reported that their workplaces used a professional coffee service; the other half said that they did not.

"We found that there's a significant opportunity to increase office consumption by broadening the range of beverage offerings," Dabadie said. "The use of single-serve beverage systems continues to increase, and there is real potential in expanding the recognition of the benefits conferred by a professional office beverage service beyond its positive contribution to productivity to its contributions to revitalization and rejuvenation."

Service providers also can benefit by raising clients' and prospects' expectations, solidifying relationships and leveraging professionalism with accounts, the researcher continued. Coffee services can benefit from establishing closer links with pure water service, and by strengthening the links among water, tea and coffee. Finally, he noted, there are both business and personal rationales for a new emphasis on sustainability.

The survey found that the availability of coffee service in an office increases beverage consumption, and that consumption further increases when the service expands the day-part options available to patrons. Making specialty beverages available boosts consumption, too, most markedly among younger con­sumers and those who are less satisfied with the existing offerings.

To those who recall OCS market research from a quarter-century ago, several of the new research's findings will be particularly gratifying. Among consumers in workplaces with a professional coffee service, 93% know that they have one; and, at present, more people get their coffee at work from a professional coffee service than from coffee houses. "Access to coffee and tea at the office rose between 2005 and 2012," Dabadie reported.

The value of water in the mix is that, when pure water is available throughout the day, consumers will continue to drink hot beverages in the morning, but also will add cold beverages (such as iced coffee) in the afternoon. The research suggests that consumers seek "stimulation" in the morning and "rejuvenation" in the afternoon, the Heart+Mind researcher added; and consumption can be increased by expanding the spectrum of hot-drink options with specialty drinks like caffè latte.

The potential for building consumption with this information is substantial, Dabadie noted, because classic pourover brewers still represent about 50% of the market. "If you increase choices, you'll increase consumption," he repeated.

Operators often say that their clients don't want to pay for those added choices, the speaker added; but it's possible to explain why they should rethink that reluctance. "Of the 71% of decision-makers whose beverage services do not now include espresso and espresso-based drinks, more than a third would consider adding those options," he reported.

The use of single-cup systems in offices continues to increase, the research found, with about a third of employees now having access to them. This upswing is more pronounced on the East and West Coasts, Dabadie explained. Reciprocally, the half of employees who continue to consume coffee prepared in pourover brewers tend to be concentrated away from the coasts. And 20% of employees report that their workplaces are equipped with airpot brewers. Tea, typically in the form of teabags, is available to 64% of employees, the study determined.

The researcher reported that a majority of survey respondents with access to single-cup systems gave high marks to their OCS products and services. Pour-over users cited availability of local coffees, and the ability to prepare iced coffee easily. And, for whatever reason, employees with airpot serving systems tended to say that their OCS was not meeting their expectations.

Dabadie repeated that interviews with workplace consumers indicate that professional coffee service can benefit by explaining that it offers benefits that certainly include increased productivity, but extend well beyond it. "Energy, relaxation and taste are the top three reasons given for drinking coffee," he said. "In particular, younger consumers and women regard coffee as relaxing, energizing and mood-enhancing.

"Office coffee, tea and water services are performing well in helping employees get their days started -- 81% of respondents mentioned this -- and at getting them through the day, which was cited by 80%," he continued. "But there is an unmet need for 'healthy choices' and for 'rejuvenation.'"

Alert office refreshment service operators have presented their offerings as among the most cost-effective employee benefits that management can provide, and the new Heart+Mind study confirms that this is as valid now as it ever has been. In fact, it may be more valid, Dabadie said, since many office "perks" have been scaled back during the recession.

Asked about the importance of such amenities as Internet access and windows in the office, employees still rated the availability of a breakroom, filtered water, coffee and tea even higher -- "more important than employer-provided mobile devices," the market research veteran told the audience. "When beverage services were cut back because of the recession, employees missed them."

The workplace population seeks a range of benefits from beverages in the office, some of them apparently contradictory -- survey respondents regard coffee as "relaxing" and as "energizing" -- but a key positive is the perception that "my employer values me," Dabadie noted. People can be persuaded by reason, but they are motivated by emotion, and operators can explain the value of a professional beverage service in terms of its contribution to establishing a better mood in the workplace and fostering cooperation.

THE NEXT LEVEL
"OCS is performing well in enhancing productivity and interaction," he summarized. "The professional refreshment services industry is doing a good job of satisfying its consumers -- but the expectations of those consumers are low, and while they're being met, they are not being exceeded."

It is for this reason that service providers should strive to raise those expectations, the speaker emphasized. By doing so, the industry can increase desire and demand: "when my expectations are high, I'll pay the price -- look at the iPad!"

The new study demonstrated that 97% of decision-makers and 92% of consumers report being satisfied with the products and services they are receiving; they do see OCS operators as professional. The need now is to go beyond purveying satisfactory products and services, and to sell experiences.

This also will further solidify operators' relationships with their clients and patrons, the speaker observed. "You are doing well at building loyalty; only a third of consumers and a fifth of decision-makers would consider switching their refreshment service providers," Dabadie reported. "But there is an opportunity to educate decision-makers on the needs of the consumers in their workplaces."

Employers do receive feedback from their staffs about the refreshment service, the speaker noted, but 4 out of 10 decision-makers don't know whether their OCS provider has a website -- "and, of those who do know, 61% don't use it," the veteran researcher said.

This suggests the potential value of strengthening dialogue with workplace managers. That unmet demand for "healthier" beverages translates directly to an opportunity to sell pure-water dispensing systems; "among consumers without coffee in the office, water attracts the most interest; filtered water from a free-standing dispenser is the most desired option," Dabadie explained. Today's consumers, especially younger ones, are increasingly averse to throwing away empty plastic bottles.

This, in turn, points to an opportunity to increase customer satisfaction by emphasizing sustainability. "Most consumers and decision-makers agree that sustainability matters; it's most interesting to younger consumers," the speaker reported. "But about half of all decision-makers don't know whether their OCS providers use sustainable practices."

In summary, the Heart+Mind executive said, the study points to seven areas in which greater operator attention can boost sales and account retention. "First, broaden the offerings," he recommended. "Second, be aware that the use of single-serving systems in offices is on the increase. Third, expand the discussion of the 'personal benefits' of your service to enhancements beyond productivity."

Fourth, he continued, it's very desirable to increase expectations; "keeping expectations low suppresses desire," Dabadie observed. "Fifth, solidify your relationships: decision-makers are talking to consumers, and we want to join that conversation. Sixth, establish closer links among pure water, coffee and tea. And finally, make the case for sustainability."

In today's market, the people whom operators must convince and please want to have a dialogue with their service providers, the speaker concluded: "Let's encourage it."



Fred Steiner NAMA's 2012 Industry Coffee Legend

Fred Steiner, founder of Imperial Coffee and Services Inc. (Toronto) has been honored as 2012 Coffee Legend by the National Automatic Merchandising Association. The award was given during NAMA's annual Coffee, Tea & Water conference.

Steiner, Coffee Legend Award

Conference co-chair Tara Burnaman introduced Howard Chapman, Royal Cup Coffee (Birmingham, AL), who is completing a two-year term as chairman of NAMA's Coffee Service Committee. Chapman explained that a Coffee Legend is an industry pioneer and innovator who is not only passionate about coffee, but also eager to share that passion in order to help others succeed. The honor has been bestowed twice before, on the late Stuart Daw, Heritage Coffee Co. Ltd. (London, ON, Canada) and Hal Steuber, Associated Services (Oakland, CA).

"Why are we drawn into this business?" Chapman wondered. "Why are there so many multi-generation coffee service companies?" He turned the microphone over to second-generation Imperial president Mark Steiner, who turned away from practicing law in order to join the family business.

"In 1974, my father opened the doors of his new business, sharing 5,000 sq.ft. of space with another startup," the younger Steiner recalled. "In the first year, Imperial's revenue totaled $69,183. Today, we have eight facilities and sales exceeding $40 million."

This success is owed to Fred Steiner's focus on building a quality team by fostering a family environment, his son observed. "We have great staff longevity," he reported, and introduced the honoree.

The 2012 Coffee Legend recalled that the first product he offered through his new coffee service operation was a kit containing 42 fractional-pound packages of coffee, as well as creamer and sugar; the price was $25. He soon shifted to an a la carte format, with the coffee kit sold separately from the creamer and sugar. At that time, "allied products" consisted of hot chocolate, tea and foam cups; these represented about 25% of sales. At present, the company's warehouses stock some 600 SKUs, and allied products constitute more than half of all sales.

The OCS business, and the larger coffee industry, have made a great deal of progress over the past four decades, Steiner emphasized. Coffee has gained new respect, and now is being hailed for its health benefits.

Imperial Coffee's formative years were interesting ones for the relatively young OCS industry. The introduction of the Mr. Coffee home brewer seemed to present a grave threat to location-owned equipment; the great Brazilian frost of 1975 confronted operators with the novel challenge of raising prices. "What we learned was that we really were selling service, not a commodity," Steiner emphasized. "Many roasters tried to offer office service and failed -- you can't sell coffee by the pound in the context of a coffee service.

"I knew we had arrived as an industry when I saw a Bunn VPR in a television show about police work," he added.

The industry veteran explained that he always had a plan, which called for attaining a gross profit over 60% that would allow him to allocate a third for overhead and a third to payroll, with the remaining third representing his net profit. "I never attained those numbers," he reported, "but I've been very successful while trying to get them.

"We offered high-yield coffees when people wanted them, but we never led with them," he continued. "When I recognized that we were selling a service, we began to take pride in offering the most expensive service in our market."

The 2012 NAMA Coffee Legend concluded with a short list of tips for newcomers to the business: "Have a plan; remember that service is most important; get your price -- and don't discount luck."


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