Pods - A Rising Balloon or Bursting Bubble?
Copyright 2005 Stuart Daw
“A
Bursting Bubble” is the new buzz phrase referring to inflated real
estate values in some venues. Could it also apply to the highly
optimistic projections for coffee pods in OCS and foodservice that have
filled the air in the past couple of years? Let’s take a look at the
background surrounding this issue to see if we can make some reasonable
predictions. To begin, what motivated seemingly everyone to get so
excited about pods?
One answer is that, unlike most arrivals of a new concept such as coffee
service itself in the 1960’s or honor snacks in the1970’s, this was not
unplowed ground. Pods had a history of proven success in another world,
that of Western Europe, so one would think there should be no question
of their acceptance here. And no one wants to be left on the platform
when the train is leaving the Station with the rest of the family on it.
“If we wait, will it be too late?” “Will others with better insights
into the market beat us to the punch?”
In
the long three-way struggle between quality, price and convenience, here
was a blow for what seemed like convenience, the element that appears to
be winning the race in these hustling, busy times with regard to most
products and services.
Coffee Service in some respects is different in its buying habits from
other kinds of foodservice. Many operators buy from more than one
roaster but most often give the bulk of their business to one in
particular, who may think, “If we don’t start making pods, we may lose
favor with customers who will then be tempted to give more business to
the other guy, or maybe we’ll lose all their business.”
Equipment manufacturers love new trends that promise more business, and
the numbers coming out of Europe were exciting. All pod making machines
thus far have come from well established European manufacturers, but
what about the brewers to handle those pods? In answer, what we have
seen is a coffee version of Operation Head Start, the idea that the
first company to develop a practical, reliable brewer with just the
right amount of bells and whistles would get the jump on the
competition.
Thus we have seen the “made for” types of machines such as Melitta (made
by Salton), Sara Lee (Senseo machines made by Phillips), P & G’s Folgers
(made by Krups,
Hamilton
Beach
and Mr. Coffee), and KGF’s Maxwell House (made by Saeco and distributed
by Braun). You will note the retail nature of those companies as opposed
to the more foodservice-oriented concerns, prime manufacturers such as
Van Houte, Newco, Grindmaster, Bunn, and Aquabrew.
While single cup coffee machines have been around for decades, the
appeal of cartridges for coffee service has been established with Kuerig
and Flavia in spite of their much higher unit cup cost and
inconvenience. The road for pods had in effect been paved by preceding
single cup applications which proved, for example, that the waiting time
for brewing a single cup was not the negative factor it was once
expected to be. As one business person said to me in effect, in a rather
unkindly remark about his people, “My staff wanders around the office
like lost sheep. What’s another 60 seconds in front of the coffee
machine?”
Operators denied access to existing single cup equipment were hungry for
the solution that pods seemed to offer. Expecting lower cup costs, some
impatient operators almost seemed to welcome pods as a tool of revenge.
As for the pessimists who think the pod balloon will burst, their
attitude may simply stem from how comfortable life would be if pods just
hadn’t happened, or if they would just simply go away. But even the
pessimists might agree that pods are here to stay, at least as a niche
in the over-all market.
Let us now examine the above ideas, remembering that all knowledge is
contextual, and that any idea, to be valid, should be taken in the
context of everything else we know about the other issues surrounding
it. By looking at the broader picture, might we gain a somewhat
different perspective?
First, what succeeds in Europe may not necessarily succeed to the same
degree here. The collective work ethic is quite different there, as
witnessed for example by short hours, long vacations, and many busy
merchants such as we see in Italy insisting on taking three hours off
for lunch every day. They seem to be saying “After all, we have a life
to live, and work isn’t everything, is it,” and they have high
unemployment and a slow growth rate to prove it. So coffee, instead of
being swallowed in hurried gulps as we do in the US and Canada, can be
sort of lapped up slowly by the tongue as one lingers lovingly over a
demitasse of coffee while watching the world go by. Thus waiting a half
minute or more for a cup of coffee to brew from a pod might not have
even been an issue to them.
Pods first took off in Europe in their espresso application. Of all the
methods of making coffee, espresso is the most demanding when done in
the traditional fashion of the barista. So much work for so little
beverage! But a fresh espresso with a nice crèma on top can be
delightful to the consumer who loves to watch the sugar dissolve as it
slowly sinks into the foam. It is however a real drag for the busy
restaurateur who relies on a series of hard-to-train dishwashers to keep
his servers supplied from a busy kitchen.
I
experienced this recently for the first time at my favorite steak house,
where by now I must have eaten 50 times. It’s such a delight to go
there. As usual I was greeted at the door by the owner and taken to a
table where the server approached, called me by name, and without
hesitation said, “Beefeater Martini on the rocks with an olive, 12 ounce
Del Monaco with baked potato and mixed vegetables, followed by an
espresso, right?”
Right! And the meal was perfect. Then came the espresso, and to my
consternation it “looked like something the cat had had dragged in.” It
had no crema and had an ominous-looking flat black color. On bringing it
up to my mouth the aroma brought back memories of something back on the
farm that I couldn’t quite identify. The taste had a mouth-puckering
sourness that seemed to mock the desirable, light acidity of a
high-grade coffee. I hated to complain, but on asking our server a
couple of pointed questions, she sheepishly admitted they had gone to
pods, assuring me that they came straight from Italy. The drink left a
bad taste, literally as well a figuratively. I said nothing, but the
image of the restaurant suffered slightly in my mind.
I
mention all of this because it seems to be a trend among even the best
restaurants. And we see it in the form of small Italian coffee roasters
in cities with large ethnic populations, until recently making a living
out of the demand for good espresso. Now some of these tiny roasters are
being offered for sale because of a diminishing volume due to this move
away from all the espresso gimmickry into handy little pods.
Mini-roasting operations are forced to handle pods but can’t afford the
half million or so dollars to install pod-making machines, so they
outsource or lose the customers using them. The other, expensive fixed
assets needed for a roasting operation thus become redundant, and the
operator gets out while he can.
The plethora of pod making machinery has resulted in a huge
over-capacity. The lack of brewer installations in the field may create
tight pricing “just to keep the equipment busy.” But in terms of the
unit cost of coffee itself, pods will still be much more expensive than
a traditional cup from a decanter or thermal server. For the
manufacturer, the possibility of having to produce a wild number of
coffee products beyond normal blends and decafs, such as Fair Trade,
Organic, Bird Friendly, etc., to say nothing of a plethora of flavors,
the set-up and short run times may be a bit painful.
Meanwhile, US equipment manufacturers have quickly set about developing
their own versions of pod dispensers, resulting in a hodge-podge of
designs, “a dog from every village.” And no one wants to be left with
obsolete, expensive fixed assets. As a result, hurried production models
hit the retail market and it has been reported that in some cases as
many as half of all machines sold at retail have been returned.
Is
it possible that pods will merely serve a niche need in the marketplace,
a kind of convenient allied product like tea or cocoa, giving an office
with a small pod machine the ability to mollify its employees,
especially the young ones, with various flavors that can be made one at
a time? With domestic machines being so cheap as to be treated as
disposable, and with universal pod specifications, will price clubs and
other retail outlets be a convenient source of supply? Do we have solid
grounds for assuming that domestic and foodservice quality and strength
demands will be different? In sum, before we are able to make firm
predictions, should we not be careful in making firm commitments?
Copyright 2005 Stuart Daw
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