David Henchel on building Corporate Coffee Systems in New York’s toughest market

Some interviews come with a price. Bob Tullio had to round out a foursome — golfing in Mesquite, Nevada — to get an interview with David Henchel. In the process, Tullio lost golf balls, some cash and some confidence in his golf game, but he did score a great interview. 

Industry legend David Henchel talks about his 40 years as an operator in the challenging New York City market area in this episode of Automatic Merchandiser’s Vending & OCS Nation, the podcast for the convenience services industry, produced by Endeavor Business Media, a division of EndeavorB2B.

Henchel started the company after a short stint at Hofstra. When he realized that college wasn’t for him, he started Corporate Coffee Systems along with his brother, Greg, and childhood friend, Donn Luti. Henchel says it could not have happened without those guys.

One definite highlight of this interview is Henchel’s description of the many events that forced him to pivot in his business — most notably, what he had to deal with during the pandemic, and how he managed to endure and navigate his way through it. 

Tullio brings out the storyteller in Henchel, and for Vending & OCS Nation podcast fans, it is an entertaining and informative episode.

No time to listen? Prefer to read? Here is an edited podcast transcript:

Bob Tullio: The only way I could get David Henchel, president and CEO of Corporate Coffee Systems, to agree to this podcast interview — and to do a cover story interview with me for Automatic Merchandiser magazine — I had to play golf with him in Mesquite, Nevada, prior to the NAMA Show in May. Wolf Creek is a torturous course. I lost a few bucks — a few golf balls too — because he’s a solid golfer. And as I’ve always said, it’s a tough job, but somebody has to do it.

The reward for me and for you, the listener, was an interview with an industry legend who operates in the tough New York City market area. Here are a few facts about his operation. I’ll give you this info so we can take a deeper dive into his stories, insights and strategies.

First of all, you can’t miss Henchel at the NAMA Show or CTW. He’s a flashy dresser, and now that he’s a little leaner, he’s showcasing a whole new wardrobe.

• He’s been in business for 40 years. He started the company after a short stint at Hofstra, after he realized that college wasn’t for him. So, along with his brother Greg and childhood friend Don Luti, Corporate Coffee Systems was born. He says it could not have happened without those guys. Today, the company has around 80 employees, following a pre-pandemic high of over 100.
• Henchel calls vending and micro markets — are you ready for this — a necessary evil. He’s all about OCS and pantry service.
• He’s also in the office supply business.
• He’s made a number of acquisitions over the years, which led to his unique approach to private label.
• He currently works with Reunion Coffee in Toronto, Canada, as his roaster.

Now you have the facts. Let’s take a deeper dive with David Henchel. Oh, I almost forgot. Make sure you stick around for the pivoting segment — it gives you a taste of what it’s like to operate the Big Apple. It’s quite a story. And I know a lot of operators out there experience that same level of stress at times in every market.

David Henchel: The New York OCS business was pretty developed even back in the mid-’80s. And so, while operators in other parts of the country were probably one-dimensional on coffee and a few allied products, our SKU list was probably in the 300, 400, 500, even back in the mid-’80s.

Bob Tullio: That’s pretty unusual. It certainly wasn’t that way on the West Coast. And what would typically be in that product mix? Give me five products that would be in that mix.

David Henchel: So certainly coffee, cups, some disposables like paper plates and utensils and napkins.

Bob Tullio: Sure.

David Henchel: But, very unique to New York with the amount of Garment Center showrooms that we had: Canned sodas, snacks were also very prevalent even back in the mid to late ’80s.

Bob Tullio: So you always understood the concept of having a lot of SKUs. It’s not that shocking to you. Because it was a big change for operators after the year 2000, all the SKUs they have now.

But let’s talk about the way your SKUs have progressed, and how your scope of services has progressed over the years. Give me an idea of how that progressed and where you’re at today.

David Henchel: Well, so we went from a business that we launched with, say, 300 SKUs. And now we’re running a business that we warehouse probably 2,500 SKUs. But we’re also in the office supply business. So, we’re making available another 80,000 to 100,000 SKUs through that division.

Bob Tullio: Tell me a little bit about the office supply business. I mean, there’s maybe a misconception out there that there’s not a lot of opportunity. Do you think there is opportunity in it? I know you don’t want to share too much because if it’s good, you’re not going to tell anybody.

David Henchel: I wouldn’t say I would want to share it. think the way to answer that question best is to [say], there’s a fallacy about the office products business. So, the core office products business, which is copy paper, print cartridges, pens, staples, things like that, well, that’s certainly a declining business. Because, as everybody knows, more people are working remote, and there’s more technology.

But there is another piece to that business, which is the break room, the business that we’re all talking about. Those office supply customers are also break room customers. And there are some other annuity-type businesses or sales components within that business, which would include promotional items, print and even furniture.

So we do sell light furniture. We do sell print and promotion, which is a little bit more of an annuity. It’s a regular recurring business, a little similar to coffee. So, it’s a bit of a fallacy that even though core office products business is certainly a lower margin, there are other parts of the business that are exciting and there’s still opportunity.

Bob Tullio: So let’s go back to your scope of services then, office refreshment and workplace refreshment. Obviously, you still do vending, correct?

David Henchel: So, Corporate Coffee Systems — historically — is not a vending business. The reason I say it that way and not say we are not a vending business is because companies that have diverse needs don’t always want to buy from more than one company. And so, we’ve been pulled into the vending business because of decision-makers and also because of the multiple acquisitions that we’ve done.

So, we are in the vending business. We don’t like it. We’re certainly not trying to grow it. We’re certainly not focused on it, but I wouldn’t say that we’re not in it.

Bob Tullio: What about micro markets?

David Henchel: So micro markets are another challenge. We’re not in love with the micro market business. It is a necessary evil — for us. Scale certainly helps make more money and be better at the micro market business, just like the coffee service business. We certainly don’t have that scale because it’s not our focus.

I think that our primary decision for doing a micro market would be related to how much coffee and break room business is at that same customer. So I would say similar to vending, we’re in a micro market when it makes sense because of the other services that customer wants from Corporate Coffee System.

Bob Tullio: Talk to me about pantry. What’s the key to making pantry successful?

David Henchel: Wow. So, first of all, it requires a reasonable budget on the customer’s behalf. The expectation from the customer has to be that they’re going to spend a certain amount of money to make it make sense for us to be providing a traditional pantry. So I think that’s first and foremost.

The second is understanding the amount of SKUs that we’ve got to carry.

And third is the software and technology that helps us manage it in an appropriate way.

Bob Tullio: What do you find is the attitude out there right now? We hear a lot about, “Well, everybody wants to make their employees happy.” They’re willing to spend a lot of money in pantry service. I mean, is that the case out there? Are they amenity hungry? Or is it still a challenge to get folks to buy the way you’d like them to buy?

David Henchel: Similar to the way that people were talking about sustainability going into COVID, everyone wanted to be sustainable. I’m not sure everybody would be sustainable when they found out what the cost of being sustainable would really be. I think that companies that went into COVID with a comfort level of spending that amount of money for a full-blown pantry program are still doing it.

I think that amenities are important. And I think there’s more conversation about what types of amenities we can offer than there might have been before COVID, meaning companies that weren’t doing those things might be more apt to be considering it.

But, I still think there’s a relationship between the amenity and the cost of the amenity.

Bob Tullio: So, you think that at this point in time, it’s kind of a mix right now. I mean, there are some that are clearly amenity hungry, but it’s definitely a mix, in your opinion.

David Henchel: I do think it’s a mix, and I think that when we go back to traditional coffee service to really provide an amenity in post-COVID to draw people back into the office and to keep those people at their desk, we’ve got to elevate the coffee programs before we even get to the snack and the drink. And those elevated coffee programs, as everybody knows, require a more expensive piece of equipment and probably more consumption. And so, there is a relationship that we can’t ignore between an upgraded amenity and the ultimate cost of that amenity.

Because it could be that switching coffee solutions could triple the amount of money that somebody was spending on coffee.

Bob Tullio:  You look at pantry service operators, there’s a lot of them out there, a lot in New York. What do you do to set yourself apart?

David Henchel: So, it’s tricky. I think that the difference is in execution. It’s in our people. It’s in the level of care. And it is connecting and consulting with decision makers, because that’s when we’re setting ourselves apart.

Now, true, once we have the customer, we’ve got to continue to execute because those competitors might be banging on the door and might be telling those decision-makers that they could do a better job. But I really believe that setting up that relationship initially during the sell process is so unbelievably critical to set us apart from anybody else that they might talk to.

Bob Tullio: Talk to me about your take on private label, and the relationship you have with your roaster.

David Henchel: So, I don’t fall into the norm. As a company who made a lot of acquisitions, at one point we had 10 private labels. We are not big believers in private label, but I want to explain that.

Bob Tullio: OK.

David Henchel: The reason we’re not big believers in private label is because we believe a coffee brand has to not only have a great taste in coffee — critical — it’s got to have a backstory. There’s got to be a sizzle. There’s got to be compelling packaging, the box, the logo. And so, we feel that running a private label is challenging.

So, we chose a roaster a while back and said, “How about this? Why don’t we fold our private label business into your label? And in exchange for that, we’re your guy in this market.”

We believe that a roaster —their most valuable asset by far, even maybe before their customer list — is their brand.

Bob Tullio: So, do you have an exclusive relationship with them?

David Henchel: I would say to you that the roaster that we partner with, we are their most significant customer in the New York metropolitan market, but I’d hate to use the word in public "exclusive" because that would be unfair.

Bob Tullio: Okay.

David Henchel: Very well established, very, very family business that believes very strongly in their brand, their logo, the coffee product that they put out. They believe in it. They invest heavily in that brand, that logo, the marketing, the backstory. And so, we believed that was a better place to put our customers and our volume.

We believe that we’ve helped them have a major presence in a major American city that they probably otherwise wouldn’t have without us.

Bob Tullio: Talk to me about your facilities.

David Henchel: We maintain a 40,000-ft² building on Long Island. That’s our distribution center. That’s where we run our trucks out of. That’s where we have our inventory, we do all our receiving and order picking, and that’s where most of the staff is.

And then we’ve got a satellite office, believe it or not, in Midtown Manhattan, 7,000 ft², right in the heart of Midtown Manhattan on Seventh Avenue. We run sales out of that. We run Manhattan service.

We can do some unique things as a result of having a presence right in Midtown Manhattan.

Bob Tullio: What was your vision for the company when you started it?

David Henchel: I feel very strongly about this vision. It was three things.

Number one, it was, be the most compelling solution to the customer. I really believed in this, even as a young man.

The second, I’m not ashamed to admit: to be the most profitable. I wanted to make sure that Corporate Coffee Systems could be the most profitable.

And the third thing, very important, related to our employees, is I wanted it to be a great place to work.

And those three things, those were my vision when we started, and quite frankly, they’re still my vision today.

Bob Tullio: You’ve dealt with more than one pivoting experience over the years — 9/11, and of course, COVID and hurricanes that have rolled through. Give me a rundown on how those situations impacted your business. And I’m particularly interested in COVID in particular. At what point did you know that that was going to be a serious problem?

David Henchel: A lot of people forget, but the first terrorist activity in New York was actually the bombing of the World Trade Center that failed. This was my first taste of disaster, of potential disaster.

Then, of course, 9/11 came around. And to be honest with you, Bob, we were putting leaders on trucks, and we were begging the police that were set up as a perimeter around Manhattan, begging for them to let us through so that we didn’t go out of business.

That was our next taste of a possible catastrophic end to a business in an industry, right? Then we thought we were done. We survived 9/11.

Then Hurricane Sandy came along. And here we were again wondering, what was going to happen now. In some ways, Hurricane Sandy wasn’t as potentially catastrophic as 9/11 was, because 9/11 taught us that Manhattan could be under attack, and nobody would want to work in a building again.

Hurricane Sandy was an event. It was a 100-year storm. It could happen again, but nobody stopped working in skyscrapers as a result of Hurricane Sandy.

Once again, we thought we beat it. We thought we’ve survived. Then what happens? COVID comes along.

And on March 16th, [2020], we lost 92% of this company’s sales. We lost 92%. We had 107 people, and we had to furlough 83 of them. It was the absolute worst day of my career.

I never ever thought we would survive. I was absolutely convinced. I was starting to think about “What am I going to do? How am I going to liquidate this? There’s no coming back from this.”

So, there was a 10-week period where there was hope. There was a glimmer of hope because customers thought we were coming back. Ten weeks, on the day after the 10th week — as if a light switch was turned off — everybody realized we weren’t coming back, and it was going to be what ended up being a two-year shutdown at Midtown Manhattan. I mean of New York, not just Midtown Manhattan.

And so that was the end-all-be-all lesson. I’m not sure we’re going to be able to — how are we going to survive? How do we get out from under an enormous payroll with no sales? How do we sell customers anything? Who’s open? Do we pivot into the home market?

Think about [it]: Where did all the consumption go? The consumption didn’t disappear. It shifted from the workplace to the home. So, all of the sales that the coffee service operators had moved to Amazon, Keurig.com, a thousand other websites. And in a very, very short period of time, Bob, we realized we could not have pivoted fast enough to have grabbed the business.

And so what did we do? We had to guess, and figure out, and wait it out.

And so 10 weeks after the really, really catastrophic news set in because for 10 weeks, Bob, we pivoted into the [personal protective equipment] PPE business. We were one of the first companies in New York to pivot into PPE. And the reason for that is not because I’m smarter. It’s because the office supply companies were the ones that office went to first.

There was no supply chain of PPE in the OCS business. The Vistars were not supporting hand sanitizer and masks and gowns and gloves. The office supply chain was.

And so, because we happened to be in the office supply chain, we had a slight advantage. And so for 10 weeks, we were selling just about the same amount as we were in coffee, maybe even a little bit more. But on the 10th week, it all shut off, just like a light switch.

Bob Tullio: So PPE was critically important to you.

David Henchel: PPE was critically important.

Bob Tullio: And how big did it get?

David Henchel: Bigger than the coffee service business for 10 weeks. So think about this, having the same sales with 70% less overhead, 80% less overhead. I’m ballparking the numbers.

So it’s not that it wasn’t fair, it’s just the evolution. We had to get rid of everybody because we didn’t know those sales were going to come in. We had the supply chain in place.

It’s actually a funny story. We got into the mask business by accident. A customer asked us in January because they went to their office supply salesperson. That office supply salesperson came to me and said, “We need to sell masks.” And I gotta be honest with you, I said, “Masks, what do you mean masks? You mean like Halloween masks?” That’s the first thing that came to my head.

And they said, “No, no masks, you know, like the painters and the contractors wear.”

So, guess what we did? We went to every paint store and contracting store in Midtown Manhattan. And in a short period of time, we bought everybody out. Then they all got restocked. We bought them out again. And one of the paint store owners said, “Stop buying all my inventory. Here’s the guy that I buy from.” Poof. Poof, now we’re in the supply chain.

The next thing you know, Bob, we are importing masks from China, from a factory that was making denim jeans for discount retailers, selling us masks. We’re importing masks from everywhere. 98% of our effort is in sourcing sanitizer and masks. Now, mind you, these are things we always sold, but just in small quantities.

And then what happened was — I'm sure you saw the CEO of Clorox on the news because she was asked, “Why? Why is there no product?” Because there wasn’t enough material.

And so now, what used to be available was no longer so available, and we had to do a lot of sourcing to find the product. Again, products we always sold for almost the entire history of the company, but at such a small fraction of the volume, now we needed to find it by the pallet, by the truckload.

And so we were in the PPE business — as most of our office supply competitors were as well — for 10 weeks. And then everything ended 10 weeks later. No offices were opening.

Bob Tullio: Would you say it saved you?

David Henchel: 100%. The ability to sell other products and the ability to get smaller, unbelievably fast — unbelievably fast — like in one week, is what saved us. And then it was just a waiting game, with no sales.

Imagine a company doing 10%, 12%, maybe it was a little more than the original 8%. [We did] 10%, 12% of our old sales for two and a half years.

That Wednesday of the 10th week, I told my wife, we’re in trouble. This went from Defcom 4 to Defcom 5. I don’t want to negate that it was catastrophic on Day One of March 16th. What I’m saying is we pivoted, so we didn’t feel quite the same impact that we otherwise would have. It was catastrophic at a level four.

We knew it wouldn’t continue, but no one ever thought that offices would close for two years. Who would have ever thought the unthinkable — that Manhattan, arguably the business capital of the, certainly of the United States, maybe the world, I don’t know — would close for two years.

Bob Tullio: That’s it for now. On the next episode of Automatic Merchandiser’s Vending an OCS Nation podcast, September 30, it’s part two of the Hollywood Henshaw interview.

He talks about how his job, his company, and how the industry has changed. What it means to have game-changing employees. And he gives his analysis on how selling has changed, and what his company is doing that works. Finally, some very good advice for new operators.

Automatic Merchandiser’s Vending & OCS Nation is produced by Endeavor Business Media, a division of Endeavor B2B, and it is available on your favorite podcast platform. Subscribe and you will never miss an episode. Give us a like, leave a comment, or give us a review. Thanks for listening.

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