The Capital Advantage

Sept. 9, 2015

Office coffee service is a competitive and volatile business. That is why customer service is king at Capital Coffee. Fostering client relationships and maintaining superior service are two main components McFarland, WI-based Capital Coffee employs in order to stay several steps ahead of would-be competitors.

Joel Sather, president of Capital Coffee, ensures that his employees are experts on every piece of equipment that is placed with a customer and guarantees a site visit every 28 days.

Capital Coffee has grown organically through referrals and door-to-door sales calls. In 2015 the company will have the highest sales in its more than 20-year history and a nine percent growth over 2014. Despite its success, the company takes nothing for granted. “Our team works each day knowing that our biggest client could fire us at any moment, and that our smallest client could one day grow to be our largest,” said Sather, “and that pushes our team to work even harder.”

A natural salesman

When Sather graduated college with a degree in journalism, he immediately got what he considered a dream job working in radio. As the years went on, however, Sather found that radio didn’t offer him the challenge his personality craved. “One day my brother-in-law called me up and told me that he had been exploring the coffee industry and suggested that we go into it together,” said Sather. “I brushed him off but began doing some research.” Eight months later in 1996, Sather quit his radio job and became a Filterfresh franchisee in partnership with his brother-in-law.

The company started off with three employees: Sather, a general manager and a route driver. Sather bought 16 single-cup machines, which totaled around $45,000. “It was every penny I owned, plus some, and so I would look at those machines and just say, ‘It’s time to get to work.’” Sather, a natural salesman, went door-to-door the first day and landed six accounts.

That success continued. In its first five years of business the company doubled sales every year. “You hear things about not wanting to grow too fast but I think we just hit the market at the right time,” he said.

In 2013, Capital Coffee left the Filterfresh franchise and changed its company name. That same year, Sather also purchased full ownership of the company. “We liked being a franchise and were always appreciative of the help we had in the beginning, but it was time that we branched out on our own,” said Sather. The company developed a detailed transition and rebranding plan letting their clients know several weeks in advance of the change. “We didn’t lose a single customer.”Today the company operates in a 250 mile radius and services hundreds of car dealerships, apartment buildings, offices, healthcare facilities such as hospitals and even some foodservice locations and country clubs throughout much of Wisconsin, from Madison to Milwaukee, Janesville to Green Bay and one Minnesota location.

Not in the price battle

Transparency with clients is a key focus for Capital Coffee. The company has only increased prices three times in the last 20 years, and generally that has been due to manufacturer price increases. In each instance Capital Coffee has communicated with customers in advance to let them know about the price change. “Generally no one has had an issue with this, as they understand the ebb and flow of business,” said Sather.

Capital Coffee has been successful retaining its customers by selling on quality first while maintaining a competitive price. The company believes in giving consumers a total coffee experience from high-tech brewer equipment to gourmet hot beverages. Potential customers who are more concerned with price than taste are not always the best fit for Capital Coffee.

It even shies away from private label — because it believes that roasters generally place their best coffee on their own label — and liquid coffee because it doesn’t result in the same high-quality product Sather’s customers have come to expect.

Instead, Capital Coffee offers a majority of the national brands and a handful of local roasters including Steep and Brew, Ancora, and Stone Creek through bean-to-cup, batch brew and single-cup brewers. Although local brands are more expensive than national brands, they are competitive, and Sather has found that some customers prefer to offer a local favorite. Canada-based brand Van Houtte, however, is Capital Coffee’s top-selling coffee.

Capital Coffee has seen consumer coffee and hot beverage expectations increase over the years, including this one. “I can tell that the economy is picking up because I have more locations asking for Starbucks, which is a sign that consumers are willing to spend more,” Sather said. This is a good sign for the company that focuses on introducing quality, high-tech brewers to customers.

The future of OCS

Sather believes high-tech brewers are the future of OCS. He points to a brand new, sleek VKI Eccellenza Touch brewer. “This is the future of OCS, I guarantee it,” he said. The Eccellenza Touch, a bean-to-cup brewer, is equipped with a high-definition, user-friendly 10.1-inch touchscreen and offers more than sixty different hot beverage options. Sather has had this particular machine on display and for use in his office for the last few months, testing the machine before it is placed with a customer. “We always test equipment before we give it to a customer because we need to be the experts on the way the machines function,” said Sather, who recently signed a contract with a car dealership to place one machine in each of the company’s dealerships.

Alongside the Eccellenza models, Capital Coffee also offers other single-cup brewers including Starbucks’ Interactive Cup Brewer, The Café Mio Brewing System, Keurig, BUNN, Bloomfield, Avalon and Flavia. A personal favorite has been VKI’s Suprema, which Sather calls a “work horse.” Capital Coffee will only place brewers that it believes offer an integrated consumer experience. This includes offering gourmet beverages such as cappuccinos, lattes and mochas, as well as a 21st century design, which can include touchscreens. “I can’t fake it,” said Sather. “If I don’t like a machine, I won’t put it with my customers, simple as that.”

Each year Capital Coffee purchases between $100,000 and $150,000 in coffee brewer equipment and spends around $5,000 per month on parts. Sather notes it takes about two years to get back a return on some of his more high-tech machines.

Millennials and even Generation Z consumers motivate Capital Coffee to provide machines on the cutting edge of technology. “I have a daughter who is 11 and these young people, they want the good stuff,” said Sather, who attends NAMA each year in order to stay with the most current trends in technology and coffee. “I always want to see what my competition sees. This year I was happy that I was already familiar with all of the OCS brewers that were at the OneShow,” he said.

Single-cup, bean-to-cup reign

When it comes to trends, Capital Coffee takes a cautious approach. When the company first heard of single-cup in the late 1990s, it took a little bit for them to be convinced that it was something consumers would enjoy. “I’m glad I got in when I did,” said Sather of single-cup. “We started doing single-cup before single-cup was popular.”

Twenty years ago Sather remembers having to explain single-cup to his clients. Today, it’s vice versa, where his clients are asking him for single-cup coffee options. In fact, 60 percent of the company’s coffee sales are single-cup, including bean-to-cup, and 40 percent are batch brew.

Sather has found that not only does the coffee taste better with bean-to-cup machines, but the profit margins are better, too. “You don’t have to charge as much,” he said. 

In fact, Capital Coffee recently transformed the coffee experience for the University of Wisconsin-Madison Camp Randall football stadium and the Kohl Center arena by replacing liquid coffee with dozens of VKI bean-to-cup machines stocked with Van Houtte coffee.

Capital Coffee has seen an increase in its whole bean inventory, as well, due to the growth of bean-to-cup machines.More recently Sather has read about the cold brew coffee trend but is not yet convinced. “I’d have to try it first, but in my area I’m not sure that would catch on and I haven’t had customers asking for it,” he said.

Internal technology advances

Capital Coffee provides a technologically-advanced experience for its clients both through its equipment and through its Website. In 2009, the company started an online ordering service, created by OCS Access. At first customers weren’t keen paying with their credit cards online, but today that’s not an issue. About 65 percent of Capital Coffee sales come from direct online purchases through its ordering system.

An email is triggered to the customer to let them know that it’s time to make a new order and if they don’t respond in a day’s time, another email is triggered. “It’s so efficient because our route drivers don’t have to take extra product with them and because the customer can also let us know exactly what they want and if they will be needing more product for, say, a big event they have coming up that week,” said Sather. “With new customers today we tell them, ‘Online is the way we do it.’”

Last year Sather also had a local business create an app for his company that acts as a sales tool. It allows Sather to take his iPad into meetings and show a potential customer exactly what products Capital Coffee offers. “After meetings I can write up a proposal from my car and send it from the parking lot,” he said. Sather believes the app is another advantage his team has over the competition. “If a customer wants something, you find a way to get it to them, and you find a way fast.”

Accessory items

Capital Coffee also offers more than just coffee. The company introduced an online-ordering pantry service — which it calls accessory item offerings — a few years ago and sells soft drinks, juice, candy, snacks and water supplies. The company will even deliver items personally requested by individuals. This extra offering makes up 20 to 25 percent of Capital Coffee’s revenue.

Capital Coffee’s dedication to its customer resides in the belief that it should always give the customer what they want. In 2015 a local car dealership marked its 50th anniversary and asked the company if it would be able to incorporate the event into the coffee service in any way. Capital Coffee took up the challenge and worked with a local designer to create coffee cups with the dealership’s logo and a 50th anniversary “congratulations” sign on the side.

Diverse growth segments

Another growth segment Sather has seen is water service. Capital Coffee offers the Water Logic WL250, which is a point-of-use water filtering system that uses UV technology to reduce bacterial growth. Both Sather and his clients like that about the product. “In my experience this product saves customers money and is also “green,” which they like,” he said. Sather avoids placing bottled coolers, which he says can be cumbersome.

The iced and hot tea segments have also been solid growth areas for Capital Coffee. China Mist and Stash tea are two brands that have always sold well in Wisconsin, says Sather, who witnessed high tea sales even before the tea segment began growing in other regions.

Over the last ten years Sather has also seen an increase in the amount of fair trade and organic coffees he has placed. “We have to re-order fair trade and organic coffee every five weeks.”

Growth as a family

No matter how much emphasis Sather places on customer service, he recognizes that success starts internally. Sather considers his 13 employees part of his family and treats them as such. Capital Coffee offers employees paid time off, health coverage, 401k and dental. Many Capital Coffee employees have been with the company for more than four years and others have been there for more than 10. “Our employees stick with us because we pay them fairly and treat them like the assets they are,” said Sather.

Capital Coffee’s view of the future of OCS is well-founded optimism. In fact, the biggest challenge Capital Coffee faces is not other competition; it’s hard water. Sather says that hard water can ruin brewers and takes away from original coffee taste. To mitigate this concern, Capital Coffee changes the water filters on all of its brewers every six months.

It is this same type of care and dedication to offering the best service and product possible that gives Capital Coffee an advantage. The opportunities ahead for the company are endless, says Sather. “Our company already has a 20-year history and we have so much more to do.”

Operation Profile: Capital Coffee
Headquarters: McFarland (Madison), WI
Owner: Joel Sather
No. of employees: 13
No. of routes: 5
Annual sales: Not revealed