Cartridge growth creates issues; will pods return?

Last February, in a column titled, "A tale of two portion packs," I claimed that the manual pod brewers had lost their bid to ride the single-cup revolution that was revitalizing the OCS industry. Most observers still agree that the pod systems have yet to make a mark in OCS while other single-cup machines continue to grow.

Our State of the Coffee Service Industry Report, beginning on page 24, confirms this. But the numbers could change. The homeowner single-cup
market has gained momentum in recent years, and there are signs this could be affecting the OCS market.

CARTRIDGES NOW RULE

During my presentation at the NAMA Coffee Summit in February, I reviewed the manner in which customer experiences in the homeowner coffee market have duplicated those in the OCS market.
In both markets, proprietary cartridges have outpaced all other systems.

Pod brewers, while designed to offer some of the same benefits as cartridges and provide greater versatility to operators, have not fared well. Many of the early pod brewers were mechanically unreliable and in some cases, the product quality just wasn't there.

While the consumer and commercial markets have responded similarly to the advantages of cartridge systems, one thing many observers, including myself, didn't foresee was the impact the homeowner market would have on the OCS industry. Hence the coffee market, as we now see it, could change.

CONSUMER DEMAND AFFECTS OCS

As cartridge units have proliferated in both the homeowner and OCS markets, demand for cartridges has exploded, for better and for worse.

For better, more end users are interested in having single-cup in the office.

For worse, the homeowner market has brought new pricing pressures to bear on the OCS market, at least for some operators.

Not all cartridge manufacturers have entered the homeowner market. But some are selling the same cartridge to both audiences. This has created a disparity in pricing among different outlets: retailers, Websites, office supply companies, and traditional OCS supply warehouses.

Some OCS operators claim they are unable to maintain their profit margins because of competitive pricing.

These concerns were voiced loud and clear during a forum at the February Coffee Summit.

COMMODITIZATION OF CARTRIDGES?

Commoditization is a serious issue that the OCS industry cannot ignore. OCS operators paid a big price when they engaged in a price war in response to the Brazilian coffee freeze in the late 1970s. Operators who face pricing pressures will certainly consider alternative systems.

Commoditization of cartridges could well breathe new life into both pods and traditional bulk hopper brewers. Both systems have their unique benefits.

The pod brewers have improved with time, and they offer the operator the freedom to source product from multiple suppliers (their original selling point.)

Pods and hopper based systems both also offer the benefits of superior sustainability, a rising concern in today's OCS market.

For the time being, the cartridges still rule, but that could change.

Rumors of the death of manual pod brewers might have been premature.

Please send your comments regarding this or any article in Automatic Merchandiser to Elliot.Maras@AMonline.com

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