Jim Evans isn’t fazed by the recession. Or rising coffee prices. Or intensifying competition. In his mind, he’s faced bigger challenges in the OCS business over the past few decades.
And any company that has survived amidst all these challenges has emerged as a stronger company.
Nowhere has it been as evident as in the metropolitan New York City area, the nation’s largest and most competitive OCS market.
Evans Quality Coffee Service, based in Moonachie, N.J., has mastered the product knowledge, market knowledge, team strength and forward-looking vision needed to prosper in today’s OCS industry.
Evans, a second generation owner, noted that a business owner must recognize changing customer needs, new technologies, and have the ability to focus on the areas the company can best serve. “Single-cup in general has changed our industry,” said Evans. “It has absolutely revolutionized how people drink coffee both at home and in the office. It also comes with its own frustrations.”
The current recession is only one of several challenges that OCS companies have faced since single cup became the mechanism of choice in the Northeast several years ago. Profit margins on K-Cups, the most popular single-cup product, were declining prior to the recession, forcing OCS operators to focus closely on their profit margins.
The coffee price increases in the past year have compounded the challenges even further.
But despite all of the challenges, the OCS customer still wants a good cup of coffee and is willing to pay for it.
Evans Quality Coffee Service has increased sales in the last year in double digits. Evans claims price increases account for less than half of this growth. The company has expanded its coffee selections to offer customers more variety. It has also discovered some popular new product segments, such as iced beverages. And it has also established a strong Internet sales program.
Evans is quick to credit the support he gets from product and equipment suppliers. He recognized early on the important role suppliers play in a service company’s success.
More concerning to Evans than price increases and stiff competition is the fact that the economy remains in a fragile state. Refreshment service operators cannot expect volume growth until customer populations increase, and employers aren’t going to invest in growth until the economic outlook becomes more stable.
But Evans is optimistic because OCS has become a specialty, and over the years, his company has mastered it.
Roots in mobile catering
Evans has been in the refreshment services industry for as long as he can remember. In 1960, his father, Edward Evans, then 19 years old, bought a mobile catering truck and delivered food made in his parents’ kitchen to industrial work sites.
Mobile catering was a much bigger business then than it is today. Edward Evans expanded to three trucks and began selling trucks and supplies to other mobile caterers.
In the 1970s, the company expanded into vending, manual feeding and OCS.
In 1980, Jim Evans was a teenager when his father built a 14,000-square-foot building to open a commissary. The commissary supported the vending, manual feeding and mobile catering business. OCS was the smallest part of the business at the time.
Shortly thereafter, Jim Evans attended Seaton Hall University in South Orange, N.J. and studied business management and industrial relations.
Edward Evans saw that while OCS and vending were both growing, the two businesses did not have a lot of synergies. He realized the company needed to dedicate resources to both businesses.
Between the two businesses, Edward Evans realized that OCS was a more profitable business. Hence, he acquired a 2-route OCS company in Berlin, N.J. with the intention of focusing on OCS more than vending. The Berlin branch eventually moved to Pennsauken.
In the mid 1980s, Evans acquired a small OCS company in southern New Jersey and also helped a relative start an OCS business in Boston, Mass., Evans Quality Coffee Service of New England.
The company invested in dedicated software for OCS inventory management and billing.
OCS Requires a Dedicated Focus
When Jim Evans graduated from college in 1984, his father offered him a job as manager for a newspaper cafeteria in New York City.
Two years later, Jim was promoted to manage the company’s 25-employee commissary. The mobile catering business was still fairly significant in the mid 1980s. But membership warehouse clubs were offering product and equipment for mobile caterers. This competition, in addition to the growth of fast food restaurants and convenience stores, took its toll on Evans’ catering business.
By 1990, the company’s mobile catering business had fallen from 70 to about 30 trucks.
The company had diversified over the years, but in 1990, it found itself at a cross road. Mobile catering, the mainstay, was declining. Manual feeding was also declining since industrial customers were losing interest in subsidizing cafeterias. Vending and OCS were small, but they were growing.
Around this time, Jim Evans moved out of commissary management and joined the company’s 5-person sales team, which was focused on expanding the OCS and vending businesses. He found himself natural in the sales role, and soon became sales manager.
OCS, while a growing business, faced its own challenges.
OCS Faces Challenges
A spike in coffee prices in the late 1970s resulted in a massive downgrading of OCS pack weights through the 1980s. Operators were competing on price, and profit margins suffered.
By the early 1990s, some national coffee brands began selling OCS fractional packs to membership warehouse clubs, putting further pricing pressure on OCS companies.
Little did Evans know that these pressures would ultimately push the OCS industry to a stronger position.
The competitive pressures forced OCS operators to better understand the importance of customer service. “It forced us to look at things differently, to take on different products,” Evans said. “We’re a service, we have to remember. We’re not a club store.”
Evans formed a partnership with Martinson Coffee, a private label roaster, to offer a coffee line to compete against the national brands. Martinson Coffee’s own sales force assisted Evans’ sales team.
Automatic thermal brewers were also introduced, giving OCS operators a new way to reduce wasted coffee.
The most significant development of all was the introduction of single-cup systems which were being introduced at OCS trade shows. Most OCS operators rejected these systems as too expensive, too labor intensive and too complicated. But not Evans.
Evans studied these early hopper-based systems and recognized the customer convenience and the high product quality they provided.
Single-cup Takes Center Stage
He claims he was one of the first operators in the country to begin offering customers Café System 7 machines from Crane Co., mostly on a lease basis. The system won office accounts. The company ultimately placed 100 Café System 7s, including 20 units in one hospital alone.
Being a vending operator, Evans had the staff to understand the technicalities of the unit, such as whipper motors and solenoid valves, and perform the maintenance. This was an advantage many OCS operators did not have.
The Café System 7 did present space issues for some accounts, he noted.
Then there was the Lavazza Espresso Point machine. This was a single-cup espresso machine for offices and restaurants. Evans placed about 50 of these machines.
The company expanded into bottled water in the mid 1990s, mainly as a defensive measure. By switching to slightly larger trucks, they could deliver boxes of 16.9- and 20-ounce water bottles in addition to OCS products.
In the late 1990s, a breakthrough development came in the form of the coffee cartridge single-cup system. These machines were less expensive than the hopper-based single-cup systems and provided reliable quality in a smaller footprint. The hopper-based systems had won a lot of business for the company, but the expense and the large size limited the number of locations they could go in.
Keurig was offering its K Cup cartridge system to select operations.
Evans was not the first OCS operator in the metro New York market to offer Keurig, but he was among the first. He became an authorized Keurig distributor in 1998, when the portion control concept was still fairly new.
As an authorized Keurig distributor, Evans received sales assistance from Keurig’s sales team.
“Because of Keurig, our industry has changed forever,” Evans said.
When Evans began offering Keurig, single-cup systems accounted for no more than 5 percent of its brewers.
Thanks largely to Keurig, single-cup now represents 70 percent of all brewers.
Around this time, the company also became a Starbucks preferred operator.
The improved delivery systems fueled OCS growth at the start of the new millennium. But the growth curve wasn’t smooth.
Everything was going gangbusters until the Twin Towers terrorist attack on Sept. 11, 2001.
The terrorist attack took an emotional toll that surpassed the business hit, Evans recalled. He feels fortunate that he didn’t lose any employees, but many of his customers did.
The company was not able to deliver product to many customers for several weeks following the attack because of security measures.
Evans, who was then running the company, reasoned that none of his three branches were operating at maximum efficiency. He didn’t feel he had the management depth to run all branches efficiently, so he decided to sell the Boston, Mass. and Pennsauken, N.J. branches in 2002 and 2003.
The company was still recovering from 9/11 when the recession hit in 2007. By then, single-cup had become entrenched, but many customers could no longer afford to spend as much money on coffee. Some accounts laid off 20 percent of their personnel.
Customers were looking to reduce coffee costs. Some even switched from single-cup systems to batch brew. Evans said less than 5 percent of the customers switched from single-cup back to batch brew.
As early as 2004, manual pod brewers were introduced as a less expensive option to the cartridge single-cup systems. Evans tested many of these units, but he didn’t feel they were reliable enough.
A big problem with the pod systems was that many of the pods were incompatible with many of the brewers.
In recent years, pod systems have improved, Evans said, but the cartridge units have since established strong customer loyalty.
Evans has high hopes for the Tassimo Professional from Kraft Vendng & OCS. The system’s bar code technology ensures proper water level, air and temperature, which deliver a high level of quality. The system offers one of the best quality cappuccino and latte products on the market.
The sheer variety of high quality OCS products and equipment enables the company to tailor offerings to individual customer needs, Evans said.
The homeowner side of the business has also created a growth opportunity.
Evans expanded into the homeowner single-cup business in 2004. He got the idea watching a friend sell car parts on Ebay.
After becoming an authorized Keurig homeowner distributor, Evans began selling boxes of K-Cups on Ebay. The response encouraged him to set up his own coffee products Website, www.coffeewiz.com. Consumers must register to use the site. Orders are sent by ground shipping.
The consumer Website marked Evans’ third Website following the main company Website and a Website for selling commercial coffee products to small offices, www.northeastcoffeeco.com.
The consumer Website, www.coffeewiz.com, has required a significant capital investment. His initial outlay was $100,000.
The consumer Website, besides offering extensive product information, hosts demonstration videos provided by manufacturers in addition to videos the company produced itself.
As location population losses ebbed in 2010, single-cup sales have rebounded for Evans. He noted that single cup placements rose 25 percent in the last year. This, coupled with Internet sales, has resulted in a l0 to 12 percent sales gain in the last year.
Evans has learned that refreshment services is a changing business, and to be successful, an operator needs to continuously understand customer needs.
Today’s array of high quality coffee equipment and products allows an operator to meet customer needs better than ever. And the Internet has provided an outstanding communications tool.