2012 Coffee Service Industry Report: Rebound continues for the second straight year

Last year, the headline was, “A new professionalism defines OCS.” This year, the Automatic Merchandiser State of the Coffee Service Industry Report confirms that a new professionalism has in fact taken hold, and OCS has established an identity as a service that American businesses understand and appreciate.

OCS has come of age. The products and delivery systems have evolved. Operators have learned through trial and error how to use these tools to provide an important service in the work place. One that enhances employee productivity.

This evolution, supported by the specialty coffee industry’s efforts in recent years to educate consumers to appreciate better quality coffee, has resulted an OCS industry capable of maintaining a healthy growth curve in a challenging economic environment.

The 12-month period ending June 2012 delivered the second consecutive 5-percentage point gain in OCS sales, according to the Automatic Merchandiser State of the Coffee Service Industry Report. In the last 24 months, OCS operators more than recovered the revenue they lost in the prior 24-month period caused by the recession. The 10 percentage point loss in the prior two years was caused by a fallout in worksite populations and massive budget cuts borne of business uncertainty.

The report is based on returned email surveys sent to more than 9,000 emails identified as OCS operators and vending operators with OCS in the Automatic Merchandiser database.

In the recent 12-month period, OCS sales reached a record $4.12 billion, surpassing the pre-recession level, indicated in Chart 1. For the second consecutive year, the majority of operators reported higher sales than the prior year, indicated in Chart 2.

Driving the growth once again was price increases. Operators overwhelmingly noted that customers were willing to pay more for better quality service, despite economic uncertainty.

The rising consumer appreciation of good coffee has benefited just about all retail coffee segments, including OCS.

Daily coffee consumption soared by 7 percentage points, moving coffee well ahead of soft drinks in 2012, according to the 2012 National Coffee Drinking Trends survey from the National Coffee Association (NCA). Total coffee jumped from 68 percent to 73 percent for past-week consumption and from 76 percent to 78 percent for past-year consumption.

Daily coffee consumption, long neck-and-neck with soft drinks, moved into a solid lead by more than 10 percentage points in 2012, NCA noted. Gourmet coffee consumption also grew, moving from 37 percent of all cups of coffee consumed in the U.S. in 2011 to 46 percent in 2012.

Price increases drive growth

In 2011/2012, for the second straight year, the majority of OCS operators reported raising prices, indicated in Chart 4a. The number of operators raising prices was less in the recent 12-month period than the prior year, but a sizeable majority raised prices in both years.

A key difference in 2011/2012 was the OCS coffee price increases were less driven by manufacturer price increases. Coffee roasters raised prices in 2011, but in early 2012, national name brand roasters announced price decreases.

The retail coffee price decreases did not cause OCS operators to lower prices.

The fact that most OCS operators continued to raise prices in 2012 demonstrates they have educated the customer base about the value of the service they provide. These price increases enabled OCS operators to recover some of the coffee margin erosion they suffered in recent years.

Another significant factor has been the customer’s growing appreciation of single-cup systems. In recent years, Green Mountain Coffee Roasters Inc., the nation’s leading single-cup player, made a major push into the consumer market. While some OCS operators viewed the move with suspicion, it has delivered a massive adoption of homeowner single-cup systems and greater appreciation of single-cup coffee.