2011 State of the Coffee Industry Report: A new professionalism defines OCS

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Coffee service has evolved into a highly specialized profession in recent years with a profusion of advanced delivery systems and a wider variety of products, enabling operators to meet diverse customer tastes. Learning how to compete in this new and improved industry requires ongoing commitment to coffee and business management education.

Economic conditions continue to impact OCS along with most industries. However, the consumer’s growing appreciation for good coffee, the fact that OCS coffee is free to the end user, and a willingness on the part of locations to pay for good coffee despite cost pressures have combined to create a unique set of opportunities and challenges for OCS.

A historical review of OCS sales in the last 10 years indicates the economy has less influence on OCS operator sales than the industry’s adoption of single-cup delivery systems, the most significant technological change in the industry’s history. This is a key reason why the OCS industry suffered less sales attrition since the start of the current recession in the fall of 2007 than the vending industry.

The State of the Coffee Service Industry Report in the 12-month period ending in July of 2011 found aggregate OCS sales rebounded from a 10 percentage point decline in the prior two years by five points in 2011, driven by product price increases. The 2010/2011 report found an unprecedented 88 percent of operators raised prices in the 12-month period.

The vending industry, by contrast, lost 18 percentage points in the 3-year period from 2008 to 2010.

The OCS industry suffered a similar rate of decline in the earlier period of the current recession, but it was able to reverse the downward trend in the most recent 12-month period.

Automatic Merchandiser’s analysis of OCS pricing activity in 2010/2011 indicated double digit price increases in the 12-month period, primarily reflecting cost increases from suppliers. Another unique aspect of the operator price increases was that operators raised prices more than once in the 12-month period, in concert with supplier increases. Many operators raised prices three times.

The supplier price increases, reflecting changes in green prices indicated in chart 3, increased with time.

Operators agreed that widespread publicity about higher prices made it easier than ever to pass on higher prices to customers.

The National Coffee Association (NCA) annual coffee trends study further indicated that consumption of coffee has held steady through the recession. In 2011, the study found 40 percent of those 18 to 24 years old said they drink coffee daily, up from 31 percent in 2010 and on par with 2009’s 40 percent. For those 25 to 39 years old, 54 percent said they drink coffee daily, up from 44 percent in 2010 and ahead of 2009’s 53 percent.

NCA reported that gourmet coffee continues to be a significant portion of total coffee consumption, indicating that consumers want to maintain coffee quality even in an uncertain economy.

A consumer survey commissioned by the National Automatic Merchandising Association (NAMA) found consumers overall hold coffee at work in high regard. The survey found that 60 percent of all employed coffee drinkers consider free coffee as an employee benefit; 55 percent of Generation Y consumers (age 18 to 27), 69 percent of Generation X consumers (those born between 1965 and 1976) and 61 percent of baby boomers consider coffee provided by an employer as fresh.

While OCS operators raised coffee prices, they did not charge for fuel as much in 2010/2011 despite spiking fuel costs. As indicated in chart 10a, the number of operators charging for fuel fell to pre-recession levels in 2010/2011.

Among those operators who did charge for fuel, they were more likely to do so on a selective basis than in prior years, indicated in chart 10b.

Operators indicated they were less inclined to seek a fuel charge in addition to passing on higher coffee prices.