Karsay Coffee Builds on its Foodservice Base to Shine in OCS

Fortunate timing and staying on top of trends are twin keys to succeeding in business. Karsay Coffee in Somerset, N.J. offers a case study of a company that shifted its focus in response to changing market conditions in the coffee service industry.

Under its third generation leadership, the family-owned business several years ago recognized the need to move away from its traditional foodservice customer base to the office market. This was at a time when new tools — namely single-cup brewers — were creating new opportunities in OCS. The result has been double digit growth every year for the last 10 years.

Single-cup revolution changes company focus
The company was well positioned to capitalize on single-cup brewers when offices in central New Jersey were switching over from glass pot brewers in the mid 1990s. Having already established a strong presence in restaurants and institutions, Karsay Coffee was familiar with the single-cup concept that was revolutionizing OCS. This change was occurring at a time when the company's traditional foodservice market was changing as well.

"We were programmed to sell the restaurants," said Steve Karsay, the son of company founder Elmer Karsay. However, the restaurant business was changing as the large foodservice distributors, which previously left the coffee side of the business to coffee specialists such as Karsay, were developing dedicated coffee divisions.

The big foodservice distributors were beginning to become more competitive in coffee, making that market less profitable.

Fortunately, the third generation of Karsays — brothers Rich, Tom and Ryan — were managing the company and were up to speed on everything happening in the coffee market.

While the big foodservice companies were gaining more of the coffee business, these companies weren't focusing on the smaller coffee shops that were popping up.

Retail coffee stores emerge
"The street business was changing," said Rich Karsay, the current president. When Rich Karsay came on board in 1987 after studying marketing at Radford University in Radford, Va., there were three coffee shops in downtown New Brunswick, N.J. Today, there are more than 20 coffee shops, some of which are his customers.

The changing market required the company to adapt to serving smaller accounts. To meet the needs of these independent retail accounts, it was necessary to provide equipment in addition to product. This required a new business model for the company, which began as a "coffee wagon jobber" in 1950, selling coffee to locations that owned their own coffee urns.

New customer demographics changes delivery needs
Where the average customer owned its own equipment and purchased 100 to 200 pounds of coffee per week in the old days, the typical "street" account now buys 25 pounds and requires equipment. "We used to turn our nose at 20 pounds; now it's average," Rich Karsay said.

Some "street" accounts now have an automatic, 2- to 6-station coffee brewer; a powdered cappuccino dispenser; a coffee grinder; and an espresso brewer, requiring a total $3,500 equipment investment. The account might spend no more than $450 per month on coffee.

Karsay Coffee was forced to add more warehouse space to inventory equipment in addition to product, and add personnel to provide service. The company now operates from a 5,000-square-foot warehouse on a 15-acre property. Company founder Elmer Karsay, now 93, lives in a house on this property.

Fortunately, this investment positioned the company to expand into the office market, which has proven the most profitable and fastest growing segment.

The company has developed leave-behind literature to educate customers about its services. Management has also learned the importance of making sure its delivery personnel have a personal rapport with on-site managers.

The company has developed a brochure that includes information on its brewers and equipment. Prospective customers are given a list of existing customers to call for referrals.