Classic Coffee Systems rode the popularity of the Coca-Cola Breakmate, the 3-select, countertop cold beverage dispenser, placing about 75 units in the 1980s. The Breakmate eventually lost popularity due to its service cost and limited product variety.
While OCS was still a growing business in the 1980s, pricing pressures were much fiercer. The consumer had not been exposed to high quality coffee, and many purchase decisions were based on price instead of quality.
Many OCS operators couldn’t handle the pricing pressure. Hence, acquisition became an option for growth-minded companies like Classic Coffee Systems. Their largest acquisition gave them 500 new accounts.
Chiarello and Malizio introduced a private label coffee to allow them to compete with the national brands that were dominant at the time. Many operators saw private label as their most profitable option, due to the pricing pressures. It accounted for 80 percent of Classic Coffee Systems’ coffee sales in the 1980s.
LEARNING FROM THEIR PEERS THROUGH ASSOCIATIONS
Chiarello and Malizio were active in OCS associations, which they credit for much of their success. They have been active in local and national trade organizations, where they have learned from other operators. “We’ve made great contacts over the years,” said Chiarello, who has taken the National Automatic Merchandising Association’s quality coffee certification course.
The biggest challenge they faced early on was single-cup systems, which were just coming on the scene. The metro New York market was among the first to have single-cup systems.
Filterfresh, the leading single-cup player, was grabbing big accounts in New York City, and OCS operators were scrambling to find competitive systems to fight Filterfresh. Filterfresh offered a reliable system with high quality coffee, and customers were willing to pay for it.
Chiarello and Malizio tried using the hopper single-cup systems that were introduced in the late 1980s and early 1990s, but they were not fully satisfied with them due to their service costs.
PORTION-CONTROL SINGLE-CUP SYSTEMS EMERGE
Portion-control single cup eventually provided the tool to compete against Filterfresh. But for most OCS operators, things got harder before they got easier. In the mid 1990s, one of Classic Coffee Systems’ biggest competitors was offering one of the two dominant portion-control, single-cup systems on an exclusive basis.
Classic Coffee Systems secured an agreement with the other dominant portion-control, single-cup system in 1998, which was a turning point for them. Portion-control systems became available just as the big specialty coffee retailers were educating consumers about better quality coffee.
With portion-control systems, OCS operators found they could offer coffee house quality in the office. The roasters supporting these systems provided enough variety to meet growing customer preferences. “That variety sells those machines more than anything,” Malizio said. “No one complains about the price of coffee.”
For a company like Classic Coffee Systems, with the support system in place to deliver this variety, growth was imminent.
SINGLE-CUP REVITALIZES OCS
“We rode the wave just like everybody else, and there’s a much better feel to it,” Malizio said. “The last 10 years are very different than the first 10 years.”
Chiarello and Malizio have found portion-control so popular that most accounts are willing to pay a rental fee for the brewer. They estimate that between 85 to 90 percent of their portion-control brewer customers pay a rental fee.
For the past three years, Classic Coffee Systems has carried both of the leading portion-control systems, Keurig and Flavia, and these products now account for 40 percent of their total sales and 90 percent of their new placements.
Portion-control systems have allowed OCS operators to provide more national name brand quality products, Malizio noted. It has also made them aware of the importance of product variety.
Chiarello and Malizio have been more aggressive than most OCS operators in offering organic and “fair trade” coffees. While the demand for these products remains small, the pair believe that it allows them to send a message to their customers.