The NCA, which conducts telephone surveys with consumers, found that coffee consumed at work increased to 18 percent in 2006, marking a 5 percentage point gain in a three year period. More importantly, the percentage of at-work coffee brought from outside the office increased to 48 percent in 2006 from 45 percent in 2005, 43 percent in 2004 and 36 percent in 2003. In-transit consumption increased from 4 percent in 2003 to 7 percent in 2006.
Large coffee retailers upped the ante big time in 2005/2006. Some of the national fast food chains introduced new coffee products supported by major media advertising and free coffee samplings. One even offered free taxi rides.
Convenience stores also continued to market coffee aggressively in 2005. According to The National Association of Convenience Stores, retail sales of dispensed hot beverages in convenience stores increased from $5.2 billion in 2004 to $5.47 billion in 2005, a 14 percentage point jump.
NCA also found that overall coffee consumption has increased, giving OCS operators more of an opportunity to increase coffee sales. NCA reported that daily coffee consumption among U.S. adults increased for the second straight year in 2006, rising to 56 percent from 53 percent in 2005 and 49 percent in 2004. Overall consumption reflected a similar trend: 82 percent of adults drank coffee in 2006, compared to 80 percent in 2005 and 79 percent in 2004.
At the end of 2005, the National Automatic Merchandising Association (NAMA) released some groundbreaking research on how consumers view OCS coffee at this critical time in the industry's history. The survey, the most comprehensive OCS consumer survey ever conducted, found that most consumers largely view OCS as a convenience, not as a high-quality product. This underscores the challenge that OCS operators confront in the face of an increasingly competitive marketplace driven by well capitalized retail competitors.
Key findings of the NAMA survey, reported in detail in the February 2006 Automatic Merchandiser, were:
- Forty percent of consumers have no opinion about whether access to coffee makes people more productive.
- Coffee purchased outside the office benefits from perceptions of "taste" and "quality."
- OCS is driven by perceptions of "convenience" and "price."
- Three quarters of consumers do not believe OCS provides specialty beverages.
- About 70 percent of consumers rank OCS coffee as average in quality.
To change customer perception about the benefits they provide, OCS operators need to invest in the better quality product and equipment that manufacturers have made available to them in recent years. This mandates a higher upfront capital investment in product, equipment and personnel. To market more sophisticated products successfully, operators need better trained and compensated employees.
Single-cup growth continues
The continued expansion of single-cup systems marks the most promising development for the OCS industry's future. The rate of expansion has increased in recent years, particularly for the portion-control, brew-by-pack systems that are more compact than the bulk hopper systems and require a lower initial investment.
While single-cup units continued to increase at a rapid clip in 2005/2006, the percentage of these systems as a share of total brewers did not grow as much as in earlier years, as indicated in chart 8. The main reason is that more operators added single-cup units as a complement rather than a replacement to automatic batch brewers.
Enhanced product variety improves sales
Operators recognized that for many customers, the single-cup unit's greatest selling point is the product variety it offers. As indicated in chart 6, the percentage of "other coffee" products posted an increase in 2005/2006. This includes varietal, flavored and whole bean coffee.
Operators recognized that many customers prefer to use the automatic batch brewers out of personal preference. In many locations where a single-cup unit attracts new customers, the traditional brewer still has a place.
In addition, there is no incentive to remove the traditional brewer if new locations are not readily available.
While the portion control, brew-by-pack system can be profitable in accounts with as few as 50 people, the economics still limits the opportunity to an account base that is not growing.