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Market segments in foodservice.

When this writer entered the foodservice coffee business in 1954, little was known about segmenting markets. I recall vividly the letterhead of the company I worked for at that time, Continental Coffee Company, which under the heading said, "Americas Leading Coffee for Restaurants, Hotels, and Institutions." This was the only semblance of market segments identified at that time and not a great deal was done to segregate the needs of the individual segments until quite some time later.

Today, the picture is entirely different and we can identify about 10 market segments. Segmenting the market is both beneficial for the seller and the buyer. The seller can develop special marketing techniques and skills to serve each of the various segments which differ in their approach to coffee quality and blends, packaging, equipment, and service which is required. The buyer is assured that his special needs are being addressed and responded to.

Let's take a look at the most important segments that can be readily identified in foodservice coffee. Fast Food--This giant segment of the foodservice industry is important for coffee only with the operators who serve breakfast. We know that many of the fast food operations do not have a breakfast service and coffee is not a large item in this particular group of companies that belong in the fast food category. However, those that do serve breakfast are large users of coffee and require special attention. It is no secret that McDonald's is one of the largest users of coffee in the U.S. foodservice industry.

Fast food requires the ability to brew large quantities of coffee quickly and have them available during the breakfast segment. It requires the type of equipment where coffee can be held for long periods of time without quality deterioration. We are talking here about air pots and thermos type brewers. As far as blend quality is concerned, the fast food industry ranges from medium to fine quality and generally serve a very good cup of coffee. This segment requires no equipment service as all of the fast food operations have their own service people to do the servicing of all the food preparation equipment.

Coffee Shop and Casual Dining--This is possibly the largest and most important segment for the foodservice coffee industry. These are generally large users of coffee, most of whom have a breakfast service, with breakfast being the largest consuming period for coffee. These companies require versatile equipment, depending on the size of the unit and the way the unit is set up. They use both urns and half gallon brewers, and must have the ability to keep coffee for longer periods of time.

Upscale Restaurants--This segment, of course, while not as large as the other segments, requires special attention in terms of equipment and service, and generally uses fine quality coffee. These type of establishments also are very big in today's market in serving specialty type coffees and provide showmanship-like services at table side. They require fine quality and specialty coffees, and they require the availability of espresso and cappuccino equipment, and need a substantial amount of equipment service.

Hotels--This is an unusual segment as it usually combines some of the ingredients of some of the other segments. A large hotel normally has a coffee shop, as well as a fine dining establishment. Hotels also have banquet facilities. The first two require the same approach as listed in the coffee shop and the upscale area, while the banquet area requires a specialized approach. This segment requires large brewing devices which can brew coffee in large quantities in a short period of time and the ability to move that coffee to the banquet areas for service. These portions of the hotel business also require intensive equipment service.

Business and Industry--This is a very large segment and also contains the leisure and sports segment, as well as the office coffee service segment all of which caters to business and industry. Here, in many cases, coffee is delivered to distribution centers and then redistributed to the various units. Some of these operations require individual equipment service, while others do not.

This segment, of course, involves employee dining rooms in large businesses and, in some cases, white table cloth dining rooms for executives. They also involve employee cafeterias or large dining rooms in factories and, of course, require a different approach in the leisure and sport section, which generally means large stadiums and arenas where coffee has to be available at the various concession stands in these operations. In the latter case, freeze dried and instant coffee plays a large role because of its ease of preparation and its quick availability when needed.

The office coffee service segment is highly specialized. It requires special equipment that can brew small amounts of coffee, depending on the amount of employees available and it requires special packaging to serve the particular needs of smaller offices where employees can enjoy the coffee service during any part of the day.

A sub-segment of business and industry is the vending industry which, again, is highly specialized and requires a special approach by the seller. Vending machines are used in various situations, mostly in large operations such as bus terminals, airport terminals, sports stadiums, etc. Vending machines are also used in businesses where a medium size number of employees are present. These machines are installed in a lunch room to provide various types of foodservices, including, of course, hot beverages which means coffee and tea.

In the past, this segment used fairly mediocre quality coffee blends. However, this has changed in the last few years, particularly with the advent of whole bean vending machines, where coffee is ground when the coin is inserted. A freshly ground, freshly brewed coffee is then available. In this sub-segment also freeze dried and instant coffee play a large role. We would estimate that almost 50% of vending machines today still serve freeze dried or instant coffee.

Transportation--This segment, of course, has become very large with the advent of airline travel and a highly specialized approach is needed here for service to this segment. Because of space constraint, coffee brewers are unique on airliners and a special approach in packaging is needed. Coffee is generally sold in what we call a filter pouch (similar to a tea bag) but containing anywhere from 1 3/4 ounce to 2 1/4 ounce of coffee.

This filter pouch is then overwrapped in extended shelf life, containing anywhere from one to five packages and is opened by the airline service people prior to brewing on the airplane. This segment also includes train service, shipping (particularly the cruise business, which has become quite large). In the latter case, gourmet and specialty coffees have come into play in the last few years.

Healthcare-This is a huge and growing segment which, once again, requires a special approach. In this case, coffee is generally prepared in a central kitchen of the healthcare facility and then conveyed by various means to the patients of a particular healthcare facility. It requires large brewing devices that can brew good coffee in quick time, and this segment also requires intensive service of the equipment to keep it in good working condition.

Specialty Gourmet--This segment has grown immensely and is generating more interest in many of the above mentioned segments which are using specialty gourmet coffees and are installing espresso/cappuccino machines at increasing rates.

This segment actually is used in the coffee shop segment, in the upscale restaurant segment, and in the hotel segment, to name just a few, but it is spilling over into the other segments also.

Armed Services--This is a specialized segment and a number of coffee roasters in the U.S. specialize in providing roasted coffee to the Armed Services. These are specified blends, under U.S. Government specifications, and the coffee is then delivered to large quarter-master depots for delivery to the various army posts, including Army, Navy, and Air Force posts throughout the U.S. and overseas.

As you can see, market segments have become a very important part in selling and marketing to the foodservice industry.

The American roasting community has fully recognized the rewards that can be garnered by having a sales and marketing force, which can capitalize on the different needs of the various segments.
COPYRIGHT 1993 Lockwood Trade Journal Co., Inc.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Coffee Break
Author:Heuman, John
Publication:Tea & Coffee Trade Journal
Article Type:Column
Date:Sep 1, 1993
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