Friday, January 19, 2018 | Today's Vending Industry News
Vending Industry Expertise Wrings Profits From Water's Appeal

Posted On: 1/29/2011

  • Printer Friendly Version
  • Decrease Text SizeIncrease Text Size
  • PDF

vending, vending machine, vending machine business, vending machine operator, water vending, bulk water, bottled water, pure water, pure water technology, water purification, point-of-use treatment, POU water treatment, water delivery service, office coffee service, OCS, office refreshment services, automated retailing, beverage vending, cold drinks, cold beverage vending machines, water cooler, International Bottled Water Association, Joe Doss, Beverage Marketing Corp., Jennifer Wills, Sunny D Fruit20, flavored water drinks, Coca-Cola's PlantBottle, PET water bottles, Andy Kartiganer, Professional Vending Services, Tom Taylor, TLTS Inc., Cliff Rosen, Kook Tek LLC, Chris Amore, Better Coffee & Water Technologies, Everpure, Jim Nelson, Claris water filter, Chris Sletten, Gold Star Coffee Service

Water Bottles The rise of the workplace services industry spurred the development of modern water purification technology. First installed in hot and cold beverage vending machines and then in automatic coffee brewers, these filters also were applied by imaginative operators to solving water quality problems for their locations, thereby converting an expense item into another profit center. Today, pure water has attained prominence as the healthy drink of choice at home, work, school and on the go -- and the industry is in an enviable position to deliver it to the many consumers thirsting for it. From the breakroom cooler to single-serve bottles vying for the top spot alongside soft drinks, the pure, natural beverage that has long been a major profit center for the industry continues to evolve in response to market needs.

Operators who have enjoyed the explosive growth of the water business over the past decade and a half also have found themselves navigating new complexities. Bottled water has come under scrutiny in recent years for its impact on the environment, from bottles that pile up in landfills to the greenhouse gas emissions associated with producing and transporting it. This has led some municipalities to prohibit its sale on government property, to encourage consumers to turn to the tap instead; and city and state governments, to levy new taxes that single out water.

The economy has also had its impact on sales as cash-strapped consumers and businesses have cut back on discretionary purchases. More consumers are toting their own refillable water bottles as a cost-saving solution, and more businesses are scrutinizing the cost of providing water as an amenity to their employees.

Despite these challenges, the good news for those selling bottled water, from single-serve PET bottles to five-gallon coolers, is that the market is showing signs of a rebound from the volume dips experienced in each of the past two years. According to Joe Doss, president and chief executive of the International Bottled Water Association (Alexandria, VA), sales rose 1.5% during the first half of 2010. Single-serve PET bottle sales, which currently represent 60% of the bottled water market, were up 4.2%. Those first-half figures, compiled by Beverage Marketing Corp. (New York City) were tallied before the summer months, Doss explained, so he expects to see an even bigger jump in the full-year analysis slated for release within the next few months.

According to Doss, the 2010 uptick indicates that the two-year decline was more likely a result of the economic downturn on consumption than the impact of environmental concerns. "People turn to less costly products when they have less to spend," he commented. "It's also a more mature market. The growth of flavored and vitamin-enhanced waters has likely caused a reduction in the market for traditional bottled waters."

One thing Doss says he's confident about is that bottled water's future remains bright because the product has three attributes that speak to today's consumer: it's safe, healthy and convenient. "As consumers are living healthier lifestyles and looking to moderate or eliminate sugar, calories, caffeine and other additives, water is simply a good choice," he said. "Consumers will continue to purchase it because there's no substitute."

Doss added that the industry is doing its part to reduce its environmental footprint. And as word gets out, environmentally conscious consumers are feeling better about purchasing bottled water.

For one thing, bottled water manufacturers have made strides in "light-weighting," with a 32.6% reduction in the overall amount of PET used in containers over the past eight years, the IBWA executive pointed out. Big players have also moved to packaging water in biodegradable and compostable containers like Coca-Cola's PlantBottle.

The recycling rate of PET water containers has nearly doubled in five years to 31%, which exceeds the rate for other food and beverage packages, Doss noted. He also observed that water bottles contribute only one-third of 1% to the waste stream of all foods and beverages in plastic containers, adding that IBWA communicates this fact at every opportunity.

Another notable trend is that most IBWA members who provide bottled spring water in coolers to the workplace market now also offer point-of-use treatment systems, viewed as an eco-friendly alternative.

Paralleling the renewed upward trend that IBWA's Doss reported for bottled water, flavored-water consumption once again increased in 2010, according to Jennifer Wills, assistant brand manager for Sunny D's Fruit20 fruit-flavored waters line.

"The category was struggling, and it rebounded in the past year," she told VT. "Based on Nielsen data, flavored water was one of a couple of categories that saw growth. It could have been the impact of the economy. There's also a continued and increased trend toward 'healthier' choices, particularly calorie-counts, and consumers are trading sodas and high-sugar drinks for waters and flavored waters."

Water Fruit20

According to Wills, flavored water tends to attract a large base of consumers distinct from plain water drinkers, who favor water's pure qualities and health merits but enjoy a splash of flavor. Many plain-water loyalists turn to flavored water on occasion, while many calorie-conscious consumers who regularly mix up their drink choices find flavored water an appealing alternative to diet sodas and teas.

PHOTO: APPEALING ALTERNATIVE -- Flavored waters like Sunny D's Fruit2O have carved a sizable niche as consumers trade high-sugar drinks for healthier alternatives. Both plain and flavored bottled water appear to be regaining momentum following a two-year slump, most likely attributable to the economy rebounding and continued consumer focus on wellness.

Anecdotally, the majority of operators with whom Vending Times has spoken in recent months have been adversely affected by the economy, but none have reported more dropoff in water sales than in other drinks. And many continue to see growth in the category.

Andy Kartiganer, owner of Professional Vending Services in Coconut Creek, FL, told VT that bottled water has held its rank as his company's top seller since he founded his business 11 years ago, sustained by public interest in healthier drinks that only continues to grow stronger.

Jim Carbone of Chicago-based Classic Group said that PepsiCo's Aquafina and Coca-Cola's Dasani rank next in line after the top-selling regular sodas, and outpace Diet Coke volume. Sales have been growing steadily for the past five years among Classic's clientele, and flavored and vitamin-enhanced waters are carving out a wider niche among a growing segment of calorie-counting consumers.

The Windy City was the first in the nation to levy a tax exclusive to bottled water, in 2008. This forced the vending company to pass the nickel-per-bottle charge on to its customers. Klong said the added fee has had no impact on sales, demonstrating that, at least in a sophisticated metropolitan market, water loyalists are willing to pay the extra few cents rather than settle for another alternative. The industry can only hope Classic's experience holds true nationally, since Chicago's tax opened the door for other municipalities to follow suit.

"After all these years, I'm still amazed at the money you can make selling water in a plastic bottle, and it's still true despite all the controversy around it," said Tom Taylor, owner of TLTS Inc., an amusement and vending company based in Fort Worth, TX. "Water is like amusement vending. I sell three minutes of entertainment at a time and it's interesting that you can put a price on time. With water, you're selling something that's usually free, but that people perceive as a healthier drink than tap water, and better for them than any other drink in the machine."

The operator noted, however, that at present, for every study that supports its benefits, there's one that contradicts it. "Is it just tap water in a bottle? Are the bottles being recycled?" he instanced. In Taylor's experience, the pros of bottled water far outweigh the cons, and he thinks it has a promising place in the mix -- with one caveat: consumers must have the money to spend.

"If they don't have the money, they won't spend it, and I've learned that the hard way across my business," he commented. "This recession has been like a tsunami; it's impossible to isolate any one thing and say if it's just down for the same reason as anything else, or for another reason."

A positive outcome of the attention paid to the supposedly negative effects of bottled water -- in small packages or in bulk -- on the environment, is growing demand for point-of-use water treatment. In-line water filters installed on a location's potable-water line provide a never-ending supply of chilled, filtered water through a bottle-less system. This type of system is a much less labor-intensive means for OCS and vending operators to incorporate pure water into their service mixes, and many are jumping on the bandwagon.

"Point of use is eating away at the bottled water business," said Cliff Rosen, president of KookTek LLC (Land O' Lakes, FL), which manufactures plumbed-in machines as well as classical bottled-water dispensers. "Fifteen years ago, no one knew about point of use. Today it is widely accepted and increasingly preferred; and the 'green' thing is a huge part of it."

Rosen pointed out that a number of cities are banning bottled-water coolers and single-serve water bottles in government buildings, and installing point-of-use alternatives. "Our coolers are Energy Star rated. In many new buildings, if the equipment is not 'green,' they don't let it in," he noted. "There's nothing greener than people bringing their own bottle and refilling it with the same quality water they'd get in a single-serve bottle."

The cost savings with point of use is also a big plus, and in times like these, every penny counts. For example, Rosen said, an office accustomed to spending $100 a month can reduce its bill to as little as $19.95, or up to $69.95, depending on the type of filter they use and the frequency of their filter changes. "It's an easy sell: a never-ending water supply with the footprint of a water cooler," he remarked. "And when the customer realizes that they're saving 30% to 75%, they often sell themselves into a better filter and more frequent changes."

He explained that operators rent the coolers to the location, and so have considerable flexibility in what they can charge. Astute professionals typically charge semiannually or quarterly for filter changes. They also benefit by eliminating costly trucks capable of heavy five-gallon bottle transport and the associated insurance liability. Rosen added that, once an operator provides point-of-use treatment, the same water line can be used to provide drinking-quality water to coffee brewers, and even ice machines, which can be additional incremental revenue sources.

"Nowadays, if you're doing coffee service, you're doing water. It used to be a minority of operators that got involved in water, because it meant lugging heavy bottles," observed Rosen. "And by the same token, water companies are now doing office coffee. If you don't do it all, someone will pitch your account. Why let the water guy in if you're doing the vending and coffee? Even the bottlers provide point-of-use equipment, to stay competitive. If you're not offering it, you risk losing a customer who wants it to the guy delivering the bottles."

Chris Amore of Better Coffee & Water Technologies (Tampa, FL), a Kool Tek customer, established his business, initially devoted to point-of-use water coolers, in 2006. He now serves some 400 accounts in the Tampa Bay, FL, area.

"When I entered the business, it was an easier business to get into. Now, at least in our market, there are so many commercial vacancies, downsizing and competitors that it's hard to gain new accounts," said Amore. "Business parks that had 95% occupancy now have 60% vacancy. Many doors have closed; many companies have three or four employees, or they've stopped supplying water altogether because they look to cut everywhere they can. Right now, there are simply fewer targets to shoot at, but that hopefully will change when the economy rebounds."

A few years ago, Amore found it was easy to compete against bottled water companies, who charged $60 at the low end, by pricing monthly point-of-use cooler rentals at $40, on average. Now, with businesses scrutinizing every penny, he's reduced his fees to $20 on the low end and $45 on the high end to win new business. While many of Amore's competitors charge for filter changes, he provides the service free of charge every six months, to keep a competitive edge.

Amore offers several types of filters priced according to the level of purification they provide. He emphasizes the importance of water professionals being well-educated on the attributes of the filters they use and the water supply they are treating, in order to serve, inform and sell their customers most effectively. He learned the ropes as a salesperson for another water company earlier in his career, and said the experts at Kool Tek have also been a valuable resource.

While many operators shy away from the complexities of providing reverse-osmosis filtration and view it as a choice of last resort, Amore considers himself an expert in it and highly recommends the process, which works by using pressure to force water through a semipermeable membrane, leaving pollutants on the other side. "Many operators avoid reverse osmosis, but it is night and day versus carbon filtration, even if you don't absolutely have to have it based on your water quality," he said. "It's 100 times purer than you could ever get with carbon. In accounts that are used to bottled spring water, it's hard to put a carbon filter and have them be happy with the taste."

The Florida operator said his decision to go exclusively with point-of-use systems from the beginning was a simple one. "It's a better way to go when compared with a bottle system, hands down," he said. "Ecologically, you reduce the footprint of the truck; monetarily it's less expensive to the client; and, as an operator, you're not lifting, storing and transporting bottles -- and neither is the client. But more than anything, money drives their decisions in this market. If they've been spending $50, $60, $100 a month on bottles, point-of-use is instantly attractive."

As the market began contracting two years ago, Amore ventured into coffee service, and has found it to be a good complement to his business, both for retaining accounts and for winning new business. "Most OCS operators these days offer point-of-use water. Once you have your foot in the door, it pays to offer it all and it's an easy sell to convert a customer from bottled water," he reported.

As a veteran filter supplier, Everpure director of sales Jim Nelson has a bird's eye view of industry trends. He agreed with Amore that in some depressed markets, like Florida, cooler rentals are down, and that in the present business climate, established coffee service and water suppliers are currently in the best competitive position to succeed.

"The bottled water companies are also becoming more competitive than they used to be. They've lowered their costs to respond, because they're losing market share as point of use fits into the whole focus on 'going green' and cost savings," said Nelson. "We're not seeing huge increases now like we did for a few years, but filtered water is at least steady and up, in a market where not a lot else is up."

While the margins from renting point of use coolers are not as favorable as they were a few years back, they are still very attractive, Nelson added. In most cases, an operator can pay off his or her lease in 10 months, he said. And, depending on the market area, more than half of point-of-use cooler providers are able to generate an additional revenue stream by charging a fee to change the filter and clean and sanitize the machine periodically.

Working to the industry's advantage is that consumers are more aware than ever of water quality and receptive to drinking filtered water versus spring water, said the Everpure sales director. When headlines broke last month that chromium 6, deemed a probable carcinogen by the National Institutes of Health in 2008, was found in the tap water supplies of 31 cities, the press was both good and bad for the industry, he added.

"It's good because it brings water awareness to everyone's eyes, and gets them thinking about treating their water and going with a professional company," explained Nelson. "But tests found less than two parts per billion, which is an incredibly small amount, way below the limits considered to be safe, so it really becomes more of a scare than a problem."

Nelson said his customers have been flooded with calls from their customers asking if their current system can remove the contaminant or, if not, what they can do to remove it. He emphasized that providing the solution isn't all that simple for the average operator. "I advise them to tell customers in cities where the chromium 6 was found that it's below the EPA limit, but if they want, they can remove it through reverse osmosis, which requires a drain and a tank," he told VT. "It's not as simple as taking out one filter and putting another one in."

Beyond its center-stage position as a pure and healthy drink, filtered water has long played an equally valuable but less public role in coffee brewing. High-quality water is essential to ensure optimum coffee flavor development and reliable brewer operation.

One OCS operator who can speak to that point is Chris Sletten of Gold Star Coffee Service, an Everpure customer based in Madison, WI, who places great value in the filters he has on every coffee brewer.

The operator told VT that investing in the right filter -- Everpure's newest five-stage Claris model -- has been the most effective solution he has found in years for preventive maintenance on his sizable installed base of single-cup brewers. "It demineralizes and filters the water, and keeps the machines up and running like no other filter we've tried; and it improves the taste of the coffee," he explained. "We don't charge for filters on our brewers. We do it to save money on labor and lost sales when the equipment is down and it pays back tenfold."

Sletten estimates that "lime scale"-related service calls have been cut in half with the Claris filter, from deliming once a quarter to twice a year.

"Finding the right filter for drinking water and for coffee brewing is more important than many operators may think," said Everpure's Nelson. He explained that the new Claris filter that Sletten has found to be the answer to his needs is more expensive than traditional filters, and not for everyone in every account. "But a filter like that may make sense in the handful of accounts that generate 40% of an operator's service calls," he continued. "When a filter works, you see firsthand how a little mineral is good for coffee, but a lot is bad, both in terms of taste and the toll it takes on the brewer."

Sletten has been providing his OCS customers point-of-use water treatment coolers in recent years, and estimates that pure water comprises 15% of his business. "The water in our market is not heavily chlorinated, so the customer demand is not what it would be somewhere like Chicago or Detroit," he commented. "And we don't heavily pursue water beyond providing it to the customers who ask for it. But no question about it, if you're a coffee service operator, you have to offer water. Customers love to not have to change and store bottles. We change the filters and we bill them monthly or quarterly. They like the simplicity of dealing with one supplier."