Sector analysis – Breakroom supplies

 

Lucky breaks

 

by Bruce Ackland

 

The fastest moving category, the time to get into breakroom supply is now

 

As a product category of increasing importance, breakroom supplies has been on the radar for some time. However, when times are as tough as they are right now, any area of growth takes on increasing importance and right now an awful lot of OP companies are thankful for the kind of returns they are getting from this category. The good news is that this appears to be no false idol. It might not be the silver bullet for everyone’s woes but from Europe to the US and beyond this area is proving to be a something of a saviour.

 

Certainly, the category is playing a major role for many supply channels needing to offset eroding sales and margins in the more traditional product categories.
And there’s plenty of variety, as breakroom supplies – while clearly dominated by coffee – includes quite a wide gamut of products from additional beverages such as hot chocolate, tea, bottled water and energy drinks to their associated items such as sweeteners, stirers, creamers, etc to non-bulk janitorial supplies and disposable plates, cups and cutlery.

 

One major US dealer, Guernsey Office Products (GOP), has seen breakroom grow from a $3.5 million business to an expected $10 million business in the last five years.GOP CEO David Guernsey says: "This has always been a category of great and growing potential; we’re just late to the party."
In the Netherlands, dealer group Quantore has seen the category explode since 2006, before which it had almost no breakroom supplies.

 

Managing Director Arnold Theuws says: "I believe this area has become one of such potential for dealers because of the one-stop-shop ideal; the availability is more important than the price. It is a convenience assortment. The total cost of goods (purchase and internal handling cost) is lower if the customers are buying these goods via our dealers."

 

According to facilities products expert the Paradigm Group, breakroom is an $11 billion business in the US related to away from home consumption, representing a 40 percent increase from 2004 – figures that are believed to be mirrored in Europe.

 

Chris Whiting, Sales and Marketing Director for SP Richards’ cleaning and breakroom supplies area, sees breakroom as an exciting growth engine for OP dealers.
He says that the category accounts for 2-3 percent of dealers’ overall sales on average, with the potential to double and triple the business.

 

Whiting adds: "The business has grown 110 percent over the last five years, driven by an expanded assortment of snacks and beverages, as well as helping dealers upgrade the mix away from lowest common denominators such as foam cups and plates to high quality paper insulated cups and higher performing disposable plates and cutlery that improve the image and experience in the breakroom."
In agreement with Theuws, Whiting also believes that the category will be a prime area for the residual desire for a one-stop-shop.
He explains: "Vendor consolidation will favour the OP dealer as they can now handle the products and services that the office coffee and food vendors offer. The ‘one-stop-shopping’ mantra is very applicable to the breakroom opportunity."

 

Productivity

 

So it could be argued that breakroom supplies is likely to be one of the few areas where the recent rewiring of the global economy will have little effect and possibly even be a positive as workers under more pressure then ever forego the halcyon days of looking to address the work/life balance and spend more and more time in the office. Certainly, there seems little doubt that breakroom supplies are being increasingly seen as a key part of boosting productivity.
Office Snax’s Bill Baker says: "Time is money and offices are more pressed for time than they have ever been. Why go out and pick up snacks when an existing supplier can deliver next day. This will be the case even more as our economy declines and there are fewer office people and less time to do the needed work".

 

Indeed, Whiting puts the growth of breakroom supplies down largely to the culture of the modern office worker.
He explains: "The work habits of the average white collar worker have changed significantly over the past decade.
"Today’s multitasking employees are now eating on average 1.3 meals per day in the office (usually at their desk). Everyone is doing the job of what two to three people did prior to workforce reductions and they are so pressed for time that refuelling their bodies on a leisurely lunch hour is now no longer the norm."

 

Karen Harrison, Marketing Manager at AF International, agrees that the change in structure of the working day has fuelled the breakroom supplies boom.
She adds: "The working environment is now busier than ever, and people are working longer hours. Offering a more comfortable, well stocked area for employees has proved to be a way of improving work efficiency and productivity – in the same way a cleaner working environment has."
UK wholesaler Spicers has seen double digit year-on-year growth for the last five years in breakroom supplies/facilities management and it continues to present a significant growth area for the business as the eating and drinking habits of workers change, affecting sales of food and drink as well as the necessary accessories.

 

Marketing and Merchandising Director Jane Rowe says: "As the office environment continues to emphasise productivity and an ‘eat-on-the-run’ mentality during business hours, this will create additional revenue generation opportunities for companies to provide consumables and disposal products that accompany them such as plates, cutlery items etc."

 

Opportunity

 

So it seems that dealers everywhere have a genuine chance to nurture a category with proven growth but of course knowing about the opportunity is only half the battle – you have to take advantage of it too.
Guernsey believes dealers have to make sure they really commit to the category.
He says: "OP resellers have a decided edge competitively over traditional suppliers. That said, succeeding in this arena requires getting in fully and not playing around the margins which means a pretty significant capital investment. Additionally, the supply chain is not nearly as sophisticated as what OP dealers are used to, meaning there are new challenges to overcome if the dealer is to offer a service level comparable to what they do with OP."

 

Of course, the commitment of key wholesalers such as Spicers and SP Richards to this category means better delivery and service levels for dealers.

 

Rowe says: "For dealers, buying breakroom products through a wholesaler removes the need for their customer to duplicate suppliers, with the economic benefits of dealing with just one supplier. In addition, increased overall volume through the wholesaler is likely to have other growth related benefits."
Information and communication will be key to ensuring dealers make the most of the opportunity, both in terms of communicating availability to the consumers and also making sure they see the advantage of saving employee time as they no longer need to leave the office to buy food or eat it.

 

Baker believes that dealers must continue to raise awareness of this area and that there is still plenty for work to be done here.
He says: "We believe there is still a large ‘awareness’ opportunity in the marketplace. Dealers that inform their clients of their ability to deliver food, snacks, candy and beverages will pick up profitable sales. We provide dealers with a free fold-out ‘stuffer’ piece which we have used for years and each year the requests for them grow. In 2009 we will provide over 1 million cross merchandisers to the end-user of our products."

 

Coffee culture

 

While breakroom supplies includes a wide range of products, there is no question that coffee still dominates the category with standout companies such as Nestle providing varieties of coffee tins for the office such as Nescafé Gold Blend and Nescafé Cappuccino.
This area is also being energised by the high growth product of ‘single serve coffee’. Dealers should be quick to make the most of this burgeoning opportunity by embracing brewing systems such as Keurig’s K-Cup system, Mars’ Flavia and Nestle’s Dulce Gusto.

 

Whiting says: "There are two single serve formats that are both high quality and fun to sell. The Keurig K-Cup systems offer extremely high quality coffee, tea, and hot cocoa, in a quick and convenient manner and give lots of choices for the discriminating coffee drinker. The Northeast market is very familiar with Green Mountain coffee and it is rapidly expanding through Big Box and national dealers that have embraced it.
"Also, the Flavia system gives you everything that the K-Cups offer, but is more OP channel-friendly without a lot of approvals and hoops to jump through. You can also make speciality drinks like lattes and mochas that appeal to the Starbucks generation that prefer a sweet dessert type beverage."
The ‘Starbucks effect’ is certainly having an impact on the consumption of coffee in the office and is influencing the type of products being made available.

 

The coffee company Keurig is one supplier that has taken a headlong plunge into the office environment and it recognises the effect of the coffee chains and its clear link with that key area of worker productivity.
Keurig VP Marketing Commercial Products Division Dave Manly explains: "Businesses have evolved to realise that employee motivation and drive can be largely impacted by how they are treated in an office. And, since 50 percent of adults drink coffee, businesses have reacted to give their employees the same gourmet experience that we are all getting used to at Starbucks and the other premium coffee chains.

 

"It is no longer just fine to buy a Mr Coffee drip brewer and make Maxwell House for people. They are demanding more and if it is not provided they will go out for coffee. The average time it takes to run out and get coffee is about 20 minutes of downtime."
Martin Lines, Marketing Director of Nestle Professional, also sees the ‘Starbucks effect’ as having had a direct effect on coffee consumption in the office.
He says: "As offices get more and more sophisticated and workers more and more used to the Starbucks type of coffees and hot chocolates, we recognise the need to serve those needs in the office. And employers also recognise the importance of meeting those needs as it makes employees feel more appreciated and means they are not going out of the office to meet their needs."

 

Manly adds: "The biggest growth area is in providing gourmet coffee to office workers in a convenient manner.This is what is driving our growth, single cup coffee brewing of gourmet brands and varieties with no mess or clean up."

 

Outside influences

 

Another company looking to trade on its consumers’ personal brand awareness outside their offices is Kellogg’s. Kelly Knight, Customer Marketing Manager at Kellogg’s Specialty Channels in the US says that, "the growth of Kellogg’s products with our OP wholesaler customers has increased substantially during the last several years. Office workers already know and eat our brands outside the office environment and we believe providing a variety of snacking solutions that they can eat any time of day will best serve their hectic schedules.

 

"We have seen a positive reception of several products, including Famous Amos cookies, Rice Krispies Treats, Cheeze-It crackers, and Keebler Sandwich Crackers. Moving forward we believe that there will be strong interest in Kashi, Nutri-Grain, and Special K bars."

 

Sustainable responsibility

 

Another key product area for breakroom supplies for the future will be fuelled by the desire for companies to boost their CSR credentials.
The ability to provide environmentally sound and Fair Trade products within breakroom supplies is having an effect on the products that are available now and in the future.

 

Nescafé Partner’s Blend Fair Trade soluble coffee was the first in the market while The Rainforest Alliance – a non-profit organisation that works to conserve the environment and the livelihoods of local communities – puts its mark on the most ethical of tea and coffee such as Unilever’s PG Tips.
Unilever’s Keri-Anne Hughes explains: "The frog on PG tips packs is the Rainforest Alliance Certified Seal to prove that PG tips tea comes from farms where the people who pick their tea, their families and the land the tea grows on are all cared for."

 

Manly adds: "We are very aware of this ‘green’ trend and are dedicated to providing environmentally friendly products. In a year or two we expect to be selling a K-Cup that can be recycled as it will be made from paper instead of plastic."
One new sustainable innovation for the breakroom of the future is likely to be oxo-biodegradable products. These products biodegrade in a manner and timeframe that can be controlled and unlike hydro-biodegradable and simply biodegradable, oxo-biodegradable gives off no harmful greenhouse gases when biodegrading.

 

The leading company in the field is Stewart Superior and its SSeco range of products. Managing Director Geoff Betts sees the material as a perfect fit with breakroom supplies.
He explains: "We see vending cups as a natural for this as they are diminishing because a plastic disposable cup is so eco-unfriendly.
"Waste sacks is another area where we see opportunity and after that you are looking at all the plastic consumables like knives and forks and the such like. The credibility and therefore acceptance of this relatively new technology is growing every day."

 

There’s no question that there is a significant market for ethical breakroom supplies with dealers and distributors recognising the growing trend.
Guernsey adds: "Environmentally sound products are very important, especially in our trading markets where ‘green’ is a crusade and not just in vogue. Fair Trade items have a rapidly growing appeal as well. Of course, as the economy cools there will be a greater price sensitivity than a social sensitivity but these are not mindsets that will simply go away and nor should they."

 

Whiting adds: "We have built an assortment with ‘green’ disposables such as cups, plates, cutlery, napkins, and can liners to provide the ‘green’ solution when desired.
"In the US today, ‘green’ seems to be in highest demand on the east and west coasts, and in the education and government markets, but there is a bit of a premium for ‘green’ items, and it will take a few years for the economies of scale to bring the cost down and make it an easier transition for all businesses."

 

Paradigm Group CEO Ralph Bianculli sees ‘green’ products as a key area where suppliers will be able to differentiate themselves from competitors as well as being an area of high future growth.
He says: "It’s not a matter of how important green products are but how quickly a supplier can learn the curve. The domestic US market is clearly 20 years behind the European and Asian markets in this category. This will be the greatest growth vehicle for any supplier pitching customers for the next five years."

 

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