Tough OCS customers? Indepedent says 'bring it on!'

Feb. 8, 2011

Would you want “Give ‘em Hell Harry” Truman for a customer?

Satisfying the hard-nosed former President wouldn’t be easy, but once you did it, he’d be a customer for life.

That’s a lesson that Austin Coffee Service, based in Jefferson City, Mo., has learned over the years.

Jefferson City, located almost midway between Kansas City and St. Louis, is a unique OCS market. Being the state capital and a university town, Jefferson City is a white collar oasis in an agricultural region. People are set in their ways and tend to resist change.

Serving their refreshment needs requires a strong commitment to customer service and the ability to provide products at a competitive price.

In recent years, the economics of operating an OCS business have become very difficult as operating costs have increased.

Jefferson City, Mo., being a state capital and university community, has been spared the massive layoffs that have affected other regions. But at the same time, accounts are spread out over a large geographic area, making servicing accounts costlier than in more densely populated markets.

Being a very conservative community, customers have resisted the higher ticket single-cup systems that have boosted OCS revenues in other geographic areas in recent years.

As a result, where several independent OCS players once serviced this market, only a few remain.

Austin Coffee Service has mastered the art and science of profitably servicing this market by understanding customer needs, identifying a large number of products that can be delivered in a cost efficient manner, and identifying product suppliers that allow the company to make a fair profit.

Austin Coffee Service was founded in 1969 by husband/wife team Tom and Shirley Austin. The company has prospered as a division of Graves Menu Maker Foods, a broadline foodservice distributor which bought Austin Coffee Service in 2000.

Austin Coffee Service provides beverages, paper goods and cleaning supplies to customers in Jefferson City and Columbia and surrounding areas.

Bringing unique strengths

John Timbers, general manager of Austin Coffee Service, is reluctant to release financial information, but he insists the company’s performance exceeds the OCS operating averages reported by the National Automatic Merchandising Association’s profit ratio report.

Timbers credits the company’s success to the variety of products it offers and the ability to buy them in high volumes. Another factor is the company’s low employee turnover. Both route sales people have close to 20 years experience.

Timbers, a humble man, is hesitant to credit his own management skills. But there can be no doubt that Timbers’ extensive foodservice background prepared him well for overseeing the OCS division of Jefferson City’s largest broadline foodservice distributor.

Timbers began his foodservice career in market research. After graduating from the University of Nebraska with a marketing degree in the mid 1970s, he went to work for AC Nielsen, the global market research company, in its Lincoln, Neb. office. He helped track customer response to numerous product launches, including General Foods’ Maxwell House Master Blend Coffee in 1976.

Timbers sought other opportunities when AC Nielsen wanted to move him to the East Coast. He decided to go into business for himself when he came across a General Foods coffee distributorship for sale in Brookfield, Mo. From his work at AC Nielsen, he knew Maxwell House carried strong name brand recognition in the market, so he seized the opportunity. “I knew the name brand recognition was there,” he said.

Working from his home, the ambitious Timbers quickly recognized the opportunity to expand the coffee distributorship to include additional product lines. He added snacks, canned goods and frozen foods, and renamed the company Timbers Fine Foods.

By 1991, Timbers had grown the business from one employee doing $120,000 in sales to 15 employees doing close to $4 million annually.

The team comes together

His success caught the attention of Graves Menu Maker Foods, which operated several hundred miles away in Jefferson City, Mo. and Chillicothe, Mo. Dick Graves, company president, saw Timbers as providing geographic expansion for his own company and offered to acquire Timbers’ business.

Graves offered to buy Timbers’ routes, inventory and employees. And since their own coffee business was minimal, Graves viewed Timbers’ coffee experience as a way to strengthen their own beverage business. Timbers agreed to sell and join Graves as director of beverage sales. His responsibilities eventually grew to include chemical sales as well.

“It (growing the coffee business) started all over again down here,” Timbers said, recalling his relocation to Jefferson City.

Office accounts were not high on among Timbers’ priorities at the time. In the early 1990s, there were about five independent OCS players in the Jefferson City market, but Timbers stayed focused on foodservice accounts.

In 2000, Tom and Shirley Austin were in their early sixties and looking to retire from their OCS business, which was based in Columbia, Mo., 30 miles from Jefferson City. They approached Graves Menu Maker Foods about buying their company, which consisted of two routes that did about $200,000 in sales annually. Austin Coffee Service provided pourover brewers, national brand fractional packs, sweeteners, creamers, stirrers, and not much else.

Timbers wasn’t highly knowledgeable about OCS at the time, but he met with the Austins to see what they might offer.

“I was shocked by the profit margins,” said Timbers. The OCS margins were much higher than foodservice margins. The downside was there wasn’t as much variety to offer as foodservice. “When you go in an office, you’re very limited in what you can sell,” he said.

OCS and foodservice synergies

Timbers reasoned there were synergies between OCS and foodservice. Namely, the ability to buy large volumes of coffee, which would result in profitable coffee sales. He also recognized the high level of goodwill that Austin Coffee Service brought to the table. “They were the premier OCS company in this area,” Timbers said. Hence, he advised Graves Menu Maker Foods to buy Austin Coffee Service. Tom and Shirley Austin agreed to stay for six months to assist in the transition.

Graves Menu Maker Foods kept the Austin Coffee Service name and leased its Columbia building for close to three years before moving it to their Jefferson City headquarters facility. Graves constructed a 10,000-square-foot elevated wood platform for Austin Coffee Service inventory in its 50,000 square-foot warehouse.

Central Missouri was slower than other parts of the country to experience specialty coffee houses, but by the time Graves acquired Austin Coffee Service, specialty coffee retailers were emerging in the market.

Timbers’ first order of business was to expand the coffee offerings.

Building OCS offerings

It was around this time that Cadillac Coffee Co., the Detroit, Mich.-based roaster, called on Austin Coffee Service. Cadillac Coffee became their private label roaster.

Timbers also added specialty fractional pack brands such as Starbucks and Millstone, along with powdered cappuccino, teas, spiced cider, hot chocolate, juices, flavored syrups and snacks.

Water quality was a serious issue in Jefferson City, so Timbers also added point-of-use water coolers. He opted not to add 5-gallon water systems due to the amount of space they would require on the delivery vans.

He also added paper goods, such as towels, napkins, utensils, cups and plates.

“We’re willing to try anything to pump up those ticket sales,” Timbers said.

Being a broadline foodservice distributor, Graves Menu Maker Foods has a large inventory of items for Timbers to consider for Austin Coffee Service, a total of about 60 stock keeping units. “When you’re owned by a foodservice company, you have so much,” Timbers noted. “The inventory is there if you need it.”

Timbers encourages the OCS drivers to test products from the foodservice menu. “If they want to sell hamburger to an account, they can,” Timbers said.

Jeff Wells, a driver who worked for the previous owners, said more than half of the inventory he sells was not available prior to the Graves acquisition.

The company did not assign the OCS sales function to the foodservice operation. Instead, the OCS route drivers continue to be responsible for soliciting new OCS accounts. One difference was the oversight and direction that Timbers himself provided.

Dedicated OCS sales

Timbers, with his own sales experience, educated the drivers about the products and the need to be persistent when calling on new accounts. The drivers were instructed to call on one new account per day. They target work sites with a minimum of 10 to 15 coffee drinkers.

Each salesperson should be able to sign up 25 to 30 new customers per year, Timbers said.

Austin Coffee Service has steadily increased its sales in the low double digits every year, Timbers said. The sales reps have been able to hit their new sales targets for adding new business, and account attrition has been minimal.

The company has only lost a fraction of the number of new customers it has gained, and those losses were due to budget cuts.

“It’s personality,” Timbers said, identifying the key to successful OCS sale. “If you get it on the very first time you walk in there, something’s not right. In this business, you have to earn the business.”

Timbers said it takes three or four calls to win a new OCS account. If this sounds like a lot, Timbers’ foodservice background again offers perspective. In foodservice, eight to 10 calls is the norm.

One challenge is to know who the decision maker is. In an office, it can be any number of people. “Usually the person who says they are in charge (on the sales person’s first visit) is not,” he said.

Once the decision maker is identified and that person sees you are serious, you have a shot. “If they see you coming in there week after week, they’ll give you a shot,” he said.

Timbers also warns his sales people not to leave coffee behind with a prospect since it’s a waste of product. “Never leave samples unless you brew the coffee,” he said. Otherwise, someone will simply take the coffee home.

Timbers meets with the route salesmen, John Wyatt and Jeff Wells, every week, giving them a chance to discuss their concerns about accounts. This also serves to reinforce the sense of team.

Detailed service reports

OCS route tickets are printed weekly. Accounts are scheduled for service based on their volumes. Locations are visited anywhere from twice a week to once a month. Wyatt turns in his sales reports on Monday, Wednesday and Friday while Wells turns his in on Thursday and Friday.

The invoices are printed on Fridays for the next week, then given to the route salesmen, who turn them back in at the end of the week. Completed invoices must be turned in for all accounts, even those that don’t make any purchases.

The drivers are responsible for minor equipment repairs in the field. If a machine needs to be replaced, the repair shop has a supply on hand. Graves Menu Maker Foods’ repair shop, located next to the main warehouse, has two full-time repair technicians.

Timbers is a relentless account analyzer. Using a foodservice software program, every day he examines sales per route, sales per stop, number of items sold per stop, and more. Every day, he determines if there is any deviation from the norm, and if there is, he finds out why.

This allows him to identify errors quickly. If the wrong number of products is left at an account, he is able to have it corrected the next service visit. Otherwise, it can be hard to correct.

In addition to the two drivers, a service tech makes special deliveries to customers who call orders in because they happen to run out of product earlier than expected. A separate invoice is printed.

In addition to the two regular OCS deliveries, the company delivers OCS products via UPS to accounts as far away as St. Louis and Kansas City. These accounts typically own their own equipment.

The OCS and foodservice operations have separate customers, but there is some cross selling. The 15 foodservice sales reps within Austin Coffee Service market area occasionally land an OCS account, Timbers said, and vice versa.

Name brand coffee rules

The Jefferson City/Columbia coffee market remains a national name brand OCS coffee market, Timbers said. The national brands remain the biggest OCS sellers.

After expanding the coffee offerings and introducing paper goods, the company began offering cleaning supplies, such as soap, tile cleaner, lime solvent, glass cleaner, degreasers, bleach and detergents.
With each new product offering, the drivers need more product knowledge. But each product expansion has resulted in higher earnings per stop.

Timbers said the cleaning supplies, while the smallest part of the business thus far, are the most profitable and growing. Another advantage is they take less space in the delivery van than either coffee or paper goods.

Cleaning supplies presently account for 3 percent of OCS sales. Timbers believes he can build this to 10 percent.

The company has also expanded into bag-in-the-box juice dispensers. A 100 percent frozen juice offering has proven especially popular with schools that are looking for healthy products.

Rising costs present challenges

The company began adding fuel charges two years ago when gasoline prices first spiked. Timbers said customers were accepting of the charges. He noted that drivers are given the option to remove a fuel charge to save an account, but this has to be approved by Timbers and has yet to happen.

Raising coffee prices has been a bigger challenge. Timbers said most customers realize there is a value to having coffee delivered, their machines serviced and having their glass coffee decanters exchanged with every service visit.

Recently, some customers have opted to switch to less expensive coffee because of rising prices. But they are not switching to lighter pack weights. “The pack sizes are getting bigger,” said Timbers, who has witnessed average pack weights rise from 1.1 ounces to 2.0 ounces over the years. He gives credit to specialty coffee houses. “They (specialty coffee houses) woke people up and are coming back to the heavier packs.”

High volume purchasing helps

Timbers noted that the company has benefited from its high volume coffee purchases. He is also thankful for his relationship with Cadillac Coffee Co., which advised him in advance about the rise in coffee prices. He opted for an extended contract this past summer at a trade show that has protected the company from the most recent price increases.

“Not many companies can leverage that far out,” Timbers said. “That has saved us an enormous amount of money.”

“To get into it now if you haven’t been in the business before can be very capital intensive,” Timbers observed.

Glass pots still rule

Timbers introduced single-cup brewers three years ago, but it didn’t succeed. Even though the OCS market is primarily white collar in Jefferson and Columbia, due to the large number of government, education and health care locations, most people still prefer glass pot brewers.

Homeowner coffee pod systems have gained visibility at retail, Timbers noted, and he is keeping his ear open to customer requests. But so far, there have been none.

One reason is that many accounts rely on employees to pay for their own coffee. Coffee clubs and pay-as-you-drink collection boxes remain commonplace.

Aggressive marketing effort

Another synergy that Graves Menu Maker Foods offers is its aggressive marketing program.

Austin Coffee Service advertises on the radio and in various publications. The company also supports civic and charity organizations, and exhibits at local business expos.

Graves Menu Maker Foods also has its own trade show where its vendors exhibit for its customers. Austin Coffee Service participates in this twice-a-year event, featuring Cadillac Coffee Co. and the national roasters.

Austin Coffee Service demonstrates the need for an OCS company to understand its customers’ preferences well. The company has succeeded because it has been able to do this, and to deliver the products in a manner that ensures a reasonable profit.

No doubt the management skills that came from operating a broadline foodservice distribution business have helped sustain Austin Coffee Service as an independent OCS player in the Jefferson City/Columbia, Mo. market.

“We don’t regret ever making the acquisition,” Timbers said.