A Well-grounded Workforce

By Carolyn Said – San Francisco Chronicle
The Amarillo Globe News
Monday, May 13, 2002

For years, office coffee was a highly fragmented market, with about 10,000 providers - ranging from mom-and-pop shops to large food-service companies such as Aramark and Standard Coffee - tooling around to deliver beans and accessories to workplace kitchens.

It is a challenging business. Try coaxing a flavorful cup of joe from pre-ground beans, and then tackle the intimidating economics of delivering it to offices.

However, in recent years, several big-time gourmet-coffee players, including Seattle's Starbucks and Filterfresh of Westwood, Mass., have started aggressively pursuing the market and for good reason.

Three times as many regular coffee drinkers - 24.6 million - drink coffee at work than at coffee shops, according to the National Coffee Association. A 1999 Gallup survey found an even bigger number: 52.3 million Americans sip java supplied by their employer.

Office coffee "is a huge opportunity for capturing a new market," said Marie Gill, marketing manager for office beverage solutions for Starbucks. Both she and a Filterfresh official estimate the size of the office-coffee market as $3 billion.

Gourmet coffee costs an employer about 25 to 35 cents a cup, suppliers said, even factoring in cream, sugar, cups, stirrers and napkins. Generic coffee costs about half that.

A Perky Perk

In many areas where consumers pride themselves on their well-educated palates, good coffee became de rigueur at offices during the tech boom. Some dot-coms famously splurged on $3,000 cappuccino machines as a recruitment lure.

"Gourmet coffee is a cheap, high-profile perk that will show not only the company's employees but their vendors and business partners that they're a professionally run company," said Valerie Frederickson, chief executive of Valerie Frederickson & Co., a Menlo Park, Calif., consulting firm.

"It would look really cheap if I went to call on a client and he had to put 25 cents in a jar just to give me a cup of coffee. I can't remember the last time I went to a company and they didn't have free coffee and drinks."

Of course, there are always exceptions. At one of Silicon Valley's largest companies, workers seeking a caffeine fix are on their own.

"I came to Intel four years ago and was shocked they didn't have free coffee," said Robert Mineta, a public relations person at the Santa Clara chip firm. "It was the first time in my career I had seen that. Now I admire it. They don't spend their money on free coffee; they spend it on R&D and things like that."

Although he is only 38, Oakland businessman Tom Steuber already has three decades of experience in the office-coffee business. As a little kid, after school he'd help wash out pots at his parents' coffee-delivery company, Associated Services, and drive along with his dad in the family station wagon, a Ford Galaxy 500, to bring ground beans to law firms and auto dealers around the Bay Area.

Steuber now runs the company and has seen workplace coffee transformed from cheap swill - "people would buy anything as long as it was hot and black," he said - to the same high-octane brew that customers learned to love at the corner coffee shop.

Riding Starbucks' Wave

In fact, Starbucks may have been the best thing that ever happened to Associated Services. In 1993, the small firm got an exclusive contract to supply Starbucks coffee to Northern California offices. That helped it land new accounts, which, in turn, gave it the resources to buy other small mom-and-pop operations as the proprietors retired.

That type of growth has mirrored the overall consolidation in the market. Big players, such as Filterfresh, which has franchisees in 50 U.S. cities and sells $85 million worth of office coffee per year, expanded by aggressively snapping up smaller outfits.

Filterfresh has spent $300 million in the past decade to buy 60 smaller coffee vendors; it plans to spend the same amount to try to triple its share of the market.

Unlike Filterfresh, though, Starbucks is sidestepping the delivery side of the business. It primarily supplies office coffee via existing delivery services, also offering coffee for smaller businesses online and via mail order.

Starbucks took a concerted plunge into office coffee two years ago and has since signed up about 400 partners, both small and large, to handle the actual deliveries.

Competition is tough in the office-coffee market, especially in the current economic downturn. In belt-tightening times, coffee has sometimes been the discretionary expenditure that got cut.

At WorldCom Inc., employees at the struggling phone company agreed last month to give up free coffee as well as $25 worth of free long-distance service each month to keep their health-care contributions from increasing, according to Reuters.

A Bad Taste at Work

Then there are all the complaints about office-coffee quality - or lack thereof.

"There are so many things working against the quality in the office," said Mike Ferguson, spokesman for the Specialty Coffee Association of America in Long Beach. "The biggest is that the coffee is pre-ground. Once coffee is ground, within 10 to 15 minutes, a lot of the flavor is gone."

"I can't ever remember getting a good cup of coffee at work," said Doug Grossman, a San Francisco programmer sipping a cup of plain brew at Torrefazione Italia. His most recent employer, investment banker Robertson Stephens, provided Peet's coffee, "but it stunk," he said. "Peet's is good when you go to a Peet's shop, but at work it had a burnt taste. The urns weren't clean."

Vendors have come out with several solutions for better-tasting office coffee, such as machines that brew each cup freshly, and beans packed in a nitrogen-flush environment to ward off oxidation.

Getting Fresh Air

If office coffee really goes through a flavor revolution, could it hurt sales at the corner coffee shop? No worries, said Starbucks' Gill. "People will always find a reason to get out, get away from their boss, get a fresh perspective."

It's not a real coffee break if you take it at work, agreed Jennifer Kissell and Heather Krueger, account executives from Edelman Worldwide Public Relations, who were sipping elaborate caffeine concoctions at a Starbucks on Battery Street in San Francisco.

"I'm addicted to mochas," Kissell said. "We have free coffee at work that's actually pretty good, but we don't have lattes and mochas."

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