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The Challenge Coffee pods cause entrepreneur’s profits to drip away

Claudio David’s coffee-supply business, Office Coffee Solutions, was facing new competition in the form of single-serve pods by Keurig and Tassimo.

Galit Rodan/The Globe and Mail

Claudio David could smell trouble brewing earlier this year.

His coffee-supply business, Office Coffee Solutions, was facing new competition in the form of single-serve pods by Keurig and Tassimo. Some of his clients, which included law firms, advertising agencies and universities, started switching to single-serve machines to save money.

At first Mr. David, who started the business in 1996, was able to keep pace by selling the machines and pods.

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At that point, Office Coffee Solutions, which has 30 employees, had experienced 20-per-cent growth on average a year for close to six years. Sales in 2013 totalled $5.2-million.

But the market was becoming saturated, with the pods readily available at low cost in grocery and drugstores.

"When we started in this business, we didn't have a lot of players to compete with," Mr. David said in a Small Business Challenge column in April.

The proliferation has hurt Mr. David's business twofold: Smaller businesses are opting to buy the pods themselves, and the retail side of his operation – the company has two retail cafés – has suffered.

Three experts offered advice to help keep Mr. David's profits from dripping away. In general, they suggested he rebrand the business and focus on big office clients rather than the retail operation. Mr. David said he liked the advice and mostly followed what the experts said.

"We have focused most of our energies on the business-to-business channel while maintaining the existing business-to-consumer business, while not emphasizing it," he said. "Although we continue to have a retail presence, and will continue to leverage it accordingly; our office-coffee-service business has and will continue to grow because this channel is our primary focus," Mr. David said.

The company has grown since, and he has also been successful retaining clients he feared he would lose. "The challenge is still present but on a much smaller scale."

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Office Coffee has also partnered with Keurig Canada, enabling him to offer new brands such as Starbucks, Timothy's, Van Houtte and Green Mountain.

Mr. David mentioned that Office Coffee also plans to refresh its websites, and recently began offsetting its carbon footprint through Carbon Farmer, which plants trees for its clients.

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