But operators also agreed that the leading single-cup providers have established dominant market positions that will be hard to displace. Operators noted that customers have demonstrated a willingness to pay higher prices for the leading single-cup products, even during a period of low consumer confidence.
While OCS operators remained frustrated by an inability to increase consumption in 2010/2011, the location downsizing of the prior two years ebbed, resulting in a stabilization of unit sales. Operators noted that customers recognized OCS provides a tangible employee benefit compared to other benefits, despite the higher cost.
A slight if temporary improvement in consumer confidence nationwide in early 2011 also played a role in the gains reported for all types of coffee retailers. The nation’s unemployment rate fell from a high point of 10 percent in the fourth quarter of 2009 to a low point of 8.8 percent in the fourth quarter of 2010 before rising again to 9.2 percent in July 2011.
Operators also noticed that the accounts lost in 2008 and 2009 were less profitable accounts to begin with. Hence, the business that remained was more profitable on a per-account basis.
OCS strengthens hold on its customer
Another positive trend was the success that OCS operators scored protecting their business from alternative channels, such as office supply retailers, bottled water operators, membership warehouse clubs, supermarkets and Internet sites. Automatic Merchandiser reported last year that these players, particularly office supply companies, became more aggressive in 2009, presumably in response to lower sales in other product segments.
Automatic Merchandiser found in conversations with product suppliers and research companies that these competing channels lost their share of OCS sales in the last year. Coffee product suppliers confirmed OCS operators’ claims that these competing channels primarily cater to smaller OCS customers and were unable to provide service that customers expect from OCS operators.
The report found that layoffs among OCS operators declined in 2010/2011 compared to the previous two years, indicated in chart 12a.
A similar number of operators added staff in 2010/2011 as in the prior year, but in the recent year, operators hired more people in non-sales positions, indicated in chart 12b. This indicates operators focused more in serving existing customers than in trying to win new ones.
The percent of operators adding products to address environmental concerns declined in 2010/2011, indicated in chart 13a. Operators interviewed noted that consumers continue to place a strong emphasis on environmental issues, but are not willing to pay more for these items.