Refreshment service industry veterans are sometimes prone to reminisce about the “good old days” as they struggle with the challenges of a saturated, more competitive market. But in reality, the early days posed the challenges of selling a new concept to an uneducated coffee consumer. Today’s coffee consumer, by contrast, understands the value of a good cup of coffee and is willing to pay for it.
Charles Ray, 66, wouldn’t trade the opportunities of the future for the struggles he has already conquered. He’s glad to be an established player in a market that is open to state-of-the-art brewing technology and other new products.
He considers himself fortunate to be in the last stages of his career at a time when the business is experiencing a rebirth, born of the specialty coffee revolution. Like many of his colleagues, he credits Starbucks for revitalizing consumer appreciation of coffee.
“I think there’s a lot of opportunity now,” said Ray, whose company includes one full-time employee in addition to himself and his wife, Betty, who works part time. “The industry has changed.”
One lesson he has learned over the past 37 years is that the refreshment services industry allows a small entrepreneur the chance to be the first to bring new products and services to market.
A Single-cup pioneer
Ray was one of the first competitors in Savannah, a medium-size city, to aggressively market single-cup brewers at the start of the new millennium. Single-cup was introduced to major metropolitan sooner than in secondary markets.
While specialty coffee in general did not reach Savannah as quickly as some areas, Ray has tested almost every single-cup system offered and is presently working with several different brewer manufacturers. In addition to the opportunity to upgrade customers to better quality coffee, Ray has also uncovered new customer needs, some national in scope and others that are more specific to his geographic region.
In addition to specialty coffee, Ray is trying to meet the consumers’ desire for healthier products such as granitas and smoothies, and for more “ethnic” offerings.
More specific to the South is the high demand for salted snacks. In recent years, two regional snack vending companies – Tom’s Foods and Lance Inc. – have pared their vending operations, creating a void to be filled by competitors.
Ray, a soft spoken man with a passive demeanor, has more to keep up with than ever before. The 3,000-square-foot building he operates from is bulging at the seams with product, equipment, a garage and offices. Ray’s days are busier than ever, attending to a multitude of details.
A big account recently placed orders for single-cup brewers. A school system is seeking granita machines. And the task of matching the right equipment to the right location is more time consuming than ever, given the myriad of features that today’s brewing equipment offers.
About the only thing that has remained constant for Ray over the years has been challenge.
OCS offers a startup opportunity
Ray initially went to work for a pharmaceutical manufacturer while he sought opportunities to own his own business. He established three criteria for a potential business opportunity: 1) the ability to seek customers (as opposed to a business that required customers to come to you, such as a retail business), 2) low startup costs, and 3) the ability to have repeat sales.
Attending a business opportunity trade show in 1970, Ray came across a Houston, Texas-based company selling OCS franchises. Ray was not even a coffee drinker at the time, but he recognized the opportunity office coffee presented. The OCS business met all three of his criteria for starting a business.
Ray borrowed $4,500 to invest in the franchise. The franchisor provided him pourover brewers and fractional packs of their own coffee.
Ray kept his regular job for a year while he knocked on doors with pourover brewers. The challenge at the time was to convince businesses that his service was more convenient and a better value than the big coffee urns that most of them were using. Like many of his fellow OCS operators at the time, he found that on-site demonstrations helped win sales.
“We’re not really selling coffee; it’s the service,” he explained.
After one year, he had enough customers to hire a full-time employee. His first idea was for the employee to handle new sales and let him do the installations and deliveries. Based on the capabilities of the employee, he soon reversed the roles.
1975: Brazil coffee freeze strikes
The business grew steadily in its early years before the first major setback came: the Brazilian coffee freeze of 1975. This was a turning point for the OCS industry. Many veterans remember it as a time when their product, initially marketed as a lifestyle enhancement, became commoditized.
Many veterans such as Ray claim the OCS industry is still recovering from the impact of the price wars that began with the 1975 freeze.
When roasters raised prices in response to the diminished supply, OCS operators attempted to raise their prices in order to maintain the same quality. But the customers did not accept it. In order to keep customers, operators needed to maintain their prices, and the only way to do this was to reduce pack size. This resulted in a lower quality product.
Ray noted that the customer at the time was not educated enough to realize that their insistence on low prices would result in lower quality coffee. “There was a lot more resistance then to price increases,” Ray recalled. “It (pack weights) went down progressively. It taught people to drink bad coffee.”
OCS was still a relatively new service at the time, and despite the compromises operators made in product quality to maintain their pricing, there were still new customers to sell. Ray Coffee Service continued to grow.
Ray got his first big break in 1982 when one of the largest manufacturing companies in Savannah called him and said they weren’t satisfied with the service they were getting on their coffee vending machines.
Although he had never worked with vending machines, Ray met with the account and promised to deliver a good quality hot beverage vending service.
Ray invested in hot beverage vending machines, a new truck and a new employee to service the machines. It was his foray into vending.
The account was also being served by three other vending companies for its can drink and snack machines.
Ray noticed the account did not have a cold cup machine, which at the time was commonplace in large industrial accounts. He offered to provide one and the customer accepted. He then asked if they wanted a dedicated pastry machine, and they again accepted.
Expansion into vending
That one industrial account eventually did $48,000 annually in sales for Ray’s company, which was enough to sustain a truck and an employee dedicated to vending. Ray then began seeking additional vending accounts.
The expansion into vending came at a fortunate time; the nation’s industrial base was growing in the mid 1980s, and the vending industry was riding the growth. During this period, Ray Coffee Service became one of the largest independent refreshment service operators in Savannah, employing two full-time drivers (one vending, one OCS), a full-time service technician, and an office manager, in addition to Ray.
The good fortune was not destined to continue. One day, the plant manager at this anchor vending account got angry after he lost money in one of the bottler-operated can beverage machines. A competitor that had been pestering the company for a chance to serve them was granted his wish out of plant manager’s spite for the one bad experience. The plant manager agreed to give all of the vending to that one competitor.
“We (all the vendors serving the account) got caught in the splash,” Ray said.
Vending suffers a loss
Ray’s vending route depended heavily on that one account, and making up the loss proved difficult. Ray informed his vending driver that they needed to make up for the lost business in order to sustain the route.
But the loss proved contagious. His competitors spread the word and began soliciting his other vending accounts. By 1989, he had to let his vending driver go. Most of his vending machines went into storage.
The economic winds also changed for the worse in 1989 as a recession gripped the nation. Employers began laying off workers and started cutting costs. Free coffee was one of the first line items to be targeted. Accounts Ray had served for 20 years stopped placing orders.
Ray credits his private label roaster, Excelso Coffee Co., in large measure for his ability to survive this difficult period. Excelso Coffee continued supplying him even when his invoices were long past due.
In one account, Ray learned the hard lesson of waiting too long before asking for a price increase. By the time he decided to seek an increase, he had to ask for an exceptionally large increase. The account refused to accept it, and he lost the account.
Trade shows prove helpful
As tight as his finances were at the time, Ray continued to attend OCS and vending trade shows. He became familiar with the single-cup brewers that were being introduced in the early and mid 1990s, even though they remained elusive in his market.
Ray’s familiarity with the emerging single-cup systems was fortunate, because it prepared him for an unexpected call he received in 2000 from an account that would rejuvenate his business.
In 2000, Ray received a call from a large account that was already being serviced with a single-cup system but wasn’t happy with the service. Ray agreed to show the account some alternative single-cup systems.
He demonstrated the Café System 7 from Crane National Vendors and the Brio by Zanussi from Vendors Exchange Inc. The account manager liked both systems and asked Ray when he could deliver some. He placed 30 single-cup machines at the location.
Ray began offering single-cup systems to some of his other accounts. The convenience, variety and the quality won over many customers, and consumption jumped. He eventually converted about 15 percent of his customers to single-cup, which is high for a secondary (non-big-metro) market.
Education in single-cup brewers continues
The different single-cup models each offer their own unique qualities, he learned. The Brio by Zanussi, for instance, features a cup drop, which eliminates cup pilferage.
The Brio proved especially useful for an account that was active 24/7 and did not want to have cups stolen. The Brio not only met the need, yielding an average 100 cups per day, but it enabled the break room to stay cleaner than the automatic brewer which the customer previously was using. “Those people are drinking that coffee out of that Brio like you can’t believe,” Ray said.
The Triple B Avalon machine from Cafection Enterprises Inc. offers three bean hoppers, which in some accounts provides outstanding value, Ray noted. “That’s a wonderful feature,” he said. It also offers two strengths and two cup sizes.
The Nescafe Lioness offers easy on-site maintenance, he noted, and while freeze dried, the coffee quality is excellent.
Ray has not had as much success with the cartridge-based single-cup systems which have witnessed big growth in recent years. He found the upfront purchase requirements to be hefty for some of these systems.
The cartridge-based systems are more expensive on a cost-per-cup basis than the hopper-based systems. Hence, Ray has found he needs to be more selective in placing such systems. He also does not like the fact that these systems require proprietary coffee packs.
The only cartridge-based, single-cup system that he has deployed has been the Nuova Simonelli, which carries a hefty price tag. He has only placed three of these units. “They are Sherman tanks,” he said.
Ray has also tested the manual pod single-cup systems that were introduced in recent years, but he has found them mechanically unreliable.
A return to vending
Ray’s big new account also expressed an interest in having snacks available to their customers and employees, but the location manager does not want traditional full size vending machines for aesthetic reasons. Ray is presently exploring countertop vending machines.
The account manager also wants to provide the snacks free to customers but not to employees. Thanks to attending trade shows, Ray is aware that some of the new cashless systems provide a solution to this challenge.
He believes that a cashless system will allow the account to provide reloadable keys to customers, allowing them to purchase snacks for free. The employees, on the other hand, will be expected to pay cash.
Ray is hoping that his big new account can be an anchor account for a new vending route.
Given his experience with the big account he lost in the Eighties, Ray is aware of the pitfalls of gearing up to serve a big account. But he believes that today’s refreshment services business is changing in such a way that he will be able to expand beyond that one account and provide additional products to smaller accounts as well.
New customer needs arise
Consumer health concerns have created additional opportunities. Ray believes that some locations where he has placed coffee brewers will accommodate cold beverage machines that vend alternatives to soda.
The most obvious instance is a local school district which recently banned soda. Having read about fruit granita (frozen ice) machines in trade publications, Ray approached the school district and asked if they would like to have granita machines as a replacement beverage. During one test, a school consumed nine gallons of granita in one day. He is currently negotiating a service arrangement.
These machines require more maintenance than traditional beverage machines, but schools, Ray noted, have the personnel to handle this.
For B&I and public accounts, Ray is considering offering Smoothies (a blend of fruit and juice) in 11-ounce aseptic packs from Whitney’s® which he has seen at vending trade shows. One YMCA building he services and a B&I account have already requested Smoothies.
Ray noted that the Smoothies, more than anything, have revived his interest in expanding into vending once again. He noted that he is excited for the first time about his business in many years.
Ethnic products are yet another opportunity. Ray envisions offering Hispanic cold beverages from Novamex in the beverage compartment of the Saeco Combi Snack machine.
Ray is excited about all the new possibilities. He noted that today’s market, unlike yesterday’s, has fewer “virgin” accounts, but there are plenty of new products to sell to existing accounts. “You’ve got to have some reason for them to change,” he said.
Ray is in good health and he expects to keep working for several more years. By then, he hopes that the company will provide a valuable asset for his heirs.
If he had to do it all over again, would he? Ray hesitates to answer that question. “It has become much, much tougher to get business,” he said. But for him, the question has little significance. Refreshment services has been his life’s work, and in his market, he’s a key player. “In a small market, you’ve got to be the artful dodger,” he said.
