OCS Sales Rise 5 Points as Quality Drives Growth

The OCS “turnaround,” heralded in 2004, continues. Coffee service operators are making headway in their efforts to cash in on coffee’s new popularity. For the fourth consecutive year, OCS operators raised aggregate revenue, pushing total sales to $3.925, an all-time high, according to the Automatic Merchandiser Coffee Service Market Report.

OCS operators are boosting sales in a stagnant customer base by providing better quality coffee and charging accordingly.

While the OCS industry continues to lag behind its retail competitors in the vibrant coffee market, OCS operators are gaining ground as they invest in more single-cup brewers and sell more higher pack weight coffee.

The 5 percentage point increase in the last 12-month period doesn’t match the overall retail industry’s gain in coffee sales. Foodservice coffee experienced a compounded annual growth rate of 15.2 percent over the past five years, driven by strong growth in the coffee shop, quick service restaurant and convenience store segments, according to the market research firm, Datamonitor. Convenience stores were the fastest growing single channel.

However, the OCS industry’s recent gain is comparatively stronger than in the previous two years. OCS operators are building sales by generating more revenue from their existing accounts.

The majority of OCS operators increased their prices for the third consecutive year in 2006/2007, as indicated in chart 4. The last three years marked a significant increase compared to the previous five years, when on average, only a quarter of the operators raised prices.

OCS operators have been more confident about raising prices for several reasons. One is the retail pricing environment.

The retail environment changes
In the fall of 2006, Starbucks raised its retail prices for the first time in two years, prompting similar moves by all the major consumer coffee companies, making it easier for OCS operators to raise prices.

The public’s rising appreciation for better quality coffee also played a role. The consuming public has become more interested in better quality coffee, thanks in large measure to the efforts of specialty coffee shops.

This year, the National Coffee Association reported for the first time that daily coffee consumption among adults surpassed that of soft drinks, according to its Coffee Drinking Trends 2007 market research. This national telephone survey revealed that 57 percent of American adults drink coffee daily, compared to 51 percent that consume soft drinks each day.

Consumption by adults tied last year’s record of 82 percent, which had risen from 80 percent in 2005 and 79 percent in 2004. Weekly consumption came in just under the 2006 record high, 67 percent versus 68 percent, but remained ahead of 2005’s 64 percent.

All of the increase in daily consumption occurred in regular coffee, for which daily consumption increased to 48 percent from 47 percent last year.

Daily consumption of “gourmet” coffee beverages softened to 14 percent from 2006’s 16 percent, with subsets espresso-based beverages off by one percentage point from last year to 6 percent, and “gourmet” coffee down to 8 percent from 10 percent in 2006.

While these numbers suggest trending toward increased traditional coffee consumption, how consumers define “gourmet” – given the wider variety of coffee options available in the marketplace – may impact the responses behind the numbers.

Coffee consumption among 18- to 24-year olds jumped 6 percentage points, the fourth consecutive annual increase. Consumption among this age group rose from 16 percent in 2004 to 37 percent in 2007.

The economy strengthens
The state of the economy was also fortuitous for OCS operators in the last two years, particularly the comparative health of professional and service accounts. Much of the nation’s economic growth has been in technology, finance, health care, and professional services; industries that rely on OCS more than manufacturing, which has continued to suffer.