OCS Operator of the Year: Howard Chapman, Royal Cup Coffee Co., Birmingham, Ala.

Consumers might be unnerved by rising unemployment and falling stock prices, but they still love a good cup of coffee.

Howard Chapman, office beverage manager at Royal Cup Coffee Co. in Birmingham, Ala., isn’t worried. The company continues to expand as more customers discover the benefits of high quality OCS. A company with the right infrastructure to deliver a great product along with sensational service has nothing but growth ahead of it.

Chapman, the 2008 Automatic Merchandiser OCS Operator of the Year, has witnessed the evolution of high quality OCS. The company has aggressively marketed the single-cup systems that have delivered constant growth to the OCS industry, economic conditions notwithstanding.

INTRODUCED TO OCS AS AN ACCOUNT DECISION MAKER

Chapman learned the importance of good quality OCS as an account decision maker. He was director of administrative services for an Atlanta, Ga. law firm in 1986 when Royal Cup Coffee called on him about a new service they were introducing — OCS. Chapman was not completely satisfied with the law firm’s existing OCS provider.

Royal Cup Coffee, which was established in 1896, had established a reputation as a foodservice coffee provider in Atlanta. Chapman agreed to meet them, knowing they were knowledgeable about coffee. He was impressed by their professionalism and their coffee knowledge. He was also impressed that they were a roaster that was already providing high quality coffee to white tablecloth restaurants. By that time, Royal Cup Coffee had established a dedicated route and sales division for offices.

AN INVITATION TO ‘SWITCH SIDES’

In 1992, Royal Cup Coffee asked him to join them as Atlanta, Ga. district manager. Chapman had always wanted to own his own business, but he had always been uneasy about risking his finances to start a business. Royal Cup Coffee, because of the way it was organized, offered him the chance to build a business.

The position made him responsible for a profit center. As a district manager, Chapman had the freedom to invest resources as he saw fit, and would be rewarded based on performance.

At that time, Royal Cup Coffee acquired a vending operation in Atlanta that had an OCS division. Chapman was put in charge of the entire Atlanta operation.

In the course of a year, Chapman decided it did not make sense to be in both vending and OCS. He decided to divest the vending routes. “It (the OCS) grew dramatically as a result,” he said.

In 1998, Royal Cup Coffee’s upper management offered him the position of office beverage manager, and he accepted. He moved his family from Atlanta to Birmingham, Ala., where the company is based. He oversaw OCS operations covering Atlanta, Ga., Charlotte, N.C., Nashville, Tenn., Memphis, Tenn., and Washington, D.C. Chapman opened operations in Florida, Texas and Colorado, focusing on the major metropolitan areas.

SPECIALTY COFFEE CHAINS EMERGE

The specialty coffee chains were expanding nationwide at the time, and the OCS industry was beginning to develop tools to replicate the coffee house experience in the office. Under Chapman, the office division grew from $11 million in 1998 to almost $50 million in 2008.

A key factor was partnering with Flavia in 2000, Chapman said. He believes brew-by-pack has been the single most important development for OCS in recent years. Royal Cup Coffee carries both Flavia and Keurig.

“They (brew by pack) were a win-win for everybody,” Chapman said, referring to customers, who got more variety, and operators, who were able to charge higher prices and have reliable delivery systems. “That was such a phenomenon for us.”

Specialty retailers educated people about the variety with their menu boards. In addition to coffee, they offered teas and hot chocolate. “Brew by pack brought those same options to the office,” Chapman said.

About a quarter of all customers now have single-cup systems, Chapman said, and as many as 70 percent of all new customers take single cup.

FAIR TRADE CONTINUES TO GROW

Fair Trade products continue to gain customers, he said. Royal Cup Coffee is a Rainforest Alliance partner and Chapman said the demand for these products has not been hurt by the economic downturn.

Two years ago, the company established “The Royal Connection,” a partnership with several other regional OCS operators on a national accounts program that has been successful. This was modeled on a concept the company previously established in the foodservice side of the business. Chapman said they have succeeded in winning a number of national accounts.

Among the operator partners are: Coffee Ambassador Inc., San Diego, Calif.; Boston Bean Coffee Co., Woburn, Mass.; Coffee Distributing Corp., New Hyde Park, N.Y.; Coffee Unlimited, Chicago, Ill.; Alta Coffee Co., Newport Beach, Calif.; Associated Services, San Leandro, Calif.; Your Choice Coffee, Philadelphia, Pa.; Ronnoco/Mid-America Coffee, St. Louis, Mo.; and Consumer’s Choice Coffee, Louisville, Ky.

ECONOMY PRESENTS NEW CHALLENGES

The recent decline in consumer confidence has caused more customers to review their expenses, but Chapman claimed that it is not dramatically affecting sales. He said most customers are choosing to reduce allied product purchases. “Things have to be pretty serious to give up that Flavia machine,” he said.

He said that same-store sales have declined on account of layoffs in customer locations. To make up for this, the company has initiated a three-part marketing plan to be executed at the district level:

1) Reduce expenses by 10 percent below budget.
2) Make 10 additional key customer contacts per week.
3) Each selling resource makes 10 additional prospecting calls per week.

The company has the advantage of a strong training program.

Chapman said the company also has the benefit of being privately owned. Hence, employees know the company will continue to develop the people needed to support its growth.

While the economy has made the OCS business more challenging in the past year, the consumer’s appreciation for specialty coffee has created an opportunity for companies in a position to deliver a memorable experience.

Profile: Royal Cup Coffee Co.
Founded: 1896
Majority Owners: The Smith family
Headquarters Location: Birmingham, Ala.
OCS Branch Operations: Atlanta, Ga., Charlotte, N.C., Nashville, Tenn., Memphis, Tenn., Washington, D.C., Tampa, Fla., St. Petersburg, Fla., Orlando, Fla., Dallas, Texas, Houston, Texas, Denver, Colo.
Number of Full-time OCS Employees: 25
Estimated 2008 OCS Sales: $50 million

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