Growth was steady. After one year, they moved out of their garages into a rented warehouse.
Ferguson and Endres didn’t realize it right away, but they had picked a good time to be competing against national brands with high quality private label coffee. In the mid 1990s, some national roasters were offering customers lower pack weights which they claimed delivered the same quality coffee as heavier pack weights. Ferguson was able to successfully sell his private label against the lower pack weights. “That (the lower pack weight national brand) really helped us,” he recalled. “It (the private label) went over like hot cakes.”
In two years, they hired their first employee, Endres’ brother-in-law, Fred Sierra, to repair brewers and wash decanters. Sierra is now the general manager. Around this time, they also invested in their first OCS management software system.
EARLY INVESTMENT IN OCS SOFTWARE
They were just learning about computers. Not many small OCS companies invest in management software, but Ferguson and Endres recognized the need for good accounting software in a business that must keep track of equipment, orders and inventory.
In 2000, they hired their first dedicated sales person. This proved to be an important advantage as OCS products and equipment were evolving. Better quality products and equipment — such as airpots, single-cup brewers and specialty coffee — gave the company the chance to distinguish itself from the competition. Ferguson and Endres believe that it is necessary to have dedicated sales people to market these benefits.
Ferguson said he prefers hiring sales people who don’t have OCS experience; too many OCS sales people are not instructed to emphasize quality over price.
The most important background Ferguson looks for in a prospective OCS salesperson is cold calling experience and customer service experience.
EXPANSION INTO VENDING
Ferguson and Endres learned early on that a lot of customers wanted vending in addition to OCS. They first tried partnering with dedicated vending operators to meet these requests. Unfortunately, the vending operators they worked with did not provide a level of quality they wanted.
In 1995, they expanded into vending. They hired a dedicated vending driver so they could offer vending to those customers who asked for it. They bought, moved and serviced their own equipment and built a base of vending customers from their OCS customer base.
The pair never considered mixing vending and OCS products on the same deliveries. “Vending and coffee should be separate,” Ferguson said.
But the company was never as committed to vending as OCS. Even though the vending business grew to five routes in a 10-year period, Ferguson and Endres never felt vending was as profitable as OCS.
VENDING PRESENTS ITS OWN SET OF ISSUES
Vending customers, they found, were less willing to accept price increases than OCS customers. They found it harder to raise vending prices due to competitive pressure.
In 2005, they switched to a more powerful management software package, which confirmed their suspicions: the vending business was not as profitable as the OCS side.
Ferguson and Endres faced a difficult choice: divest the vending business which was 50 percent of total sales to focus more resources on the OCS business. And risk losing business to customers who wanted both OCS and vending. They nevertheless chose to sell the vending routes and focus on OCS. They sold their vending routes to Fresh Brew Group USA, based in Houston.
The divestiture went smoothly, with very little customer loss.
Ferguson and Endres then used the proceeds from the sale to fund their OCS growth and remodel their 14,000-square-foot building. “We love the coffee business; we have a passion for it,” Ferguson said.
The decision to focus on OCS proved fortuitous.
REFOCUSING ON OCS AND INVESTING IN SPECIALTY COFFEE
OCS was becoming more specialized. Specialty coffee retailers were educating consumers about better quality coffee, and single-cup systems and airpot brewers allowed OCS operators to offer better coffee in the office.