Rising costs and a competitive marketplace gave operators no choice but to position themselves as coffee professionals, enabling them to cover their costs with higher priced products and equipment.
About the survey
The State of the Coffee Service Industry Report is based on the results of a questionnaire e-mailed to 600 dedicated OCS operators and 2,700 vending operators with OCS operations. The survey generated a 10-percent response. The commentary in this report is also based on telephone interviews with operators, product suppliers, equipment manufacturers, and researchers.
The aggregate OCS revenue reported in this study includes the OCS revenue reported in the State of the Vending Industry Report, which is published in August. The OCS revenue reported in the vending report includes OCS sold to accounts that are primarily vending accounts. The vending report does not include OCS business handled by dedicated OCS organizations within vending companies, or in partnership with a vending company.
Cartridge systems dominate single-cup
Single-cup brewers continued to increase in 2006/2007, posting an even bigger percentage point gain in unit placements (43.5 percent) than in the prior year (41.5 percent), as indicated in chart 10.
Cartridge-based single-cup systems dominated the growth in single-cup units for the sixth consecutive year. These units are more compact than the hopper-based systems, and require a lower initial investment.
In 2006, some of the key manufacturers of cartridge-based systems introduced lower cost models, making them more economically feasible for smaller locations. They also expanded product offerings, allowing them to meet more customer tastes.
The main factors fueling the growth of these systems are their quality, user-friendliness, product variety, and proven reliability. These units deliver consistent quality control.
Another factor is the commitment the key manufacturers of these systems have provided through field sales and technical support.
Maintaining control of cartridge sales proved problematic for some OCS operators, since the Internet made it possible for unauthorized providers to sell discounted cartridges. It forced some operators to monitor sales and demand that customers honor purchase agreements.
One way some operators were able to enforce purchase agreements was to charge a machine lease fee if the account did not purchase a minimum amount of cartridges.
The manual pod single-cup systems introduced in 2004, designed to offer the same benefits of cartridge-based systems at a lower cost, have not proven successful, mainly on account of poor reliability.
The manual pod system manufacturer that sold the most units also makes pods, thereby emulating the proprietary cartridge model except for the fact that the machine will accommodate other roasters’ pods.
Homeowner models: no impact
The introduction of homeowner single-cup brewers in the last two years did not affect the OCS industry in any measurable way. Some OCS operators sold brewers and cartridges to customers for their own personal use.
The homeowner market witnessed the same dual reaction to cartridge-based and manual pod systems as the OCS market, with consumers, as commercial users, opting for the latter. Cartridge-based systems (sold mainly in high-end department stores and specialty stores) increased 50 percent while manual pod systems (sold mainly in mass merchants and supermarkets) declined 50 percent, according to Homeworld Business, a retail trade publication.
All single-cup formats grow
While cartridge-based systems have dominated the growth in single-cup activity, the more established hopper based systems also posted growth in 2006/2007. The bean grinding capability of some of these units proved a strong selling tool. Some units feature more than one bean hopper for different types of coffee.
Water soluble and liquid concentrate single-cup systems also continued to gain placements in 2006/2007.
Some operators found it more economical to provide a water-soluble, single-cup system next to a traditional batch brewer than introducing a more expensive fresh-ground single-cup system.