Many operators cited competition from retailers and office supply companies for K-Cups, the most dominant single-cup product, as a major contributing factor to their eroding profit margins in the last two years. The Keurig K-Cup dominates both the OCS single-cup market and the consumer single-cup market.
Keurig is also the only single-cup system in which the consumer K-Cup can be used in its OCS brewers. Hence, the office customer has more options, including the Internet, for sourcing K-Cups than for other single-cup coffee.
In addition, small offices can use consumer Keurig brewers instead of brewers designed for OCS applications. Keurig estimated that more than half of its office brewers are homeowner units, as indicated in chart 7.
OCS operators have noted that Keurig’s dominance in both the home and at-work markets makes it difficult for operators to use other single-cup systems. By aggressively marketing to consumers, Keurig established a high level of consumer awareness for its system.
The success of Keurig in both the at-work and home markets has caused some concern among location managers about employees pilfering K-Cups.
However, veteran operators note that such concerns are not new in OCS. Customer location managers have always had to make sure employees don’t steal coffee from the work place, just as OCS operators have always had to make sure customers don’t buy product elsewhere.
Another concern to emerge in the single-cup market is the impact K-Cups and other portion-control coffee packs have on the environment.
Some OCS operators addressed this concern by collecting portion control packs from their customers.
Others answered this concern by offering alternative single-cup systems that don’t use plastic packaging. These alternatives include hopper-based systems, liquid coffee based systems, and brewers that use sustainable filter pods. Many OCS operators believe that environmental benefits will become even more important to customers when the economy improves.
Among these alternatives, pod systems require the lowest upfront investment. Like cartridge-based brewers, the pod brewers are portion control systems.
Pod-based, single-cup systems were initially introduced as an economic alternative to cartridge systems several years ago.
Pod brewers continue to increase, but they have been strongly outpaced by both cartridge and hopper-based single-cup systems.
Signs of recovery emerge
The recession has undermined OCS sales growth, but OCS sales have shown some signs of recovery in the second quarter of 2010.
In addition, green coffee prices have increased in recent months. While OCS operators are reluctant to raise prices, rising green coffee prices could ultimately help them raise their prices.
The best scenario would be an end to the recession. Once the nation’s employers begin rehiring, OCS sales are likely to resume their
In the meantime, the OCS industry has learned that maintaining a high quality service retains customer loyalty.
Not only are consumers maintaining their coffee drinking habits, they are also demanding high quality coffee, even in the face of economic challenges, according to the NCA.
In the meantime, OCS operators have to continue to invest in employee training since the need to sell and deliver high quality service requires a well trained staff.