There are two types of OCS operators when it comes to water systems: those who are selling 5-gallon or point-of-use (POU) water service and those who should be. With the OCS market saturated and costs rising, operators need to maximize sales to existing accounts. Adding water service is one of the easiest ways to do this.
Adding water service has another strategic advantage as well: it protects the OCS operator from competitors who offer it, including water service specialists who are expanding into the coffee business.
Competition Forces Addition of Water Service
Although most operators still don't believe they have to offer water systems to defend their business from water companies, a few are seeing the threat.
Tom Meehan, owner of Coffee Systems Hawaii, Honolulu, Hawaii, who sells single-serve bottles of water, hasn't seen an urgent desire by locations for POU water systems, but he knows it's coming. When asked whether he feels he has to provide water systems to defend against water company competition, he said "not yet."
Randy Smith, president of Georgia Vending Services, Alpharetta, Ga., said, "yes" in his area.
Water companies are trying to keep water service business at corporate locations by adding OCS, said Robin Householder, vice president of Purlogix, and vice president of PHSI, suppliers of POU water coolers.
With manufacturing locations disappearing, people are getting jobs at smaller companies which may not qualify for vending, but do use OCS and water service, a benefit employers use for recruiting employees. Also, with the advent of coffee houses on every corner, OCS operators are fighting back with gourmet, branded coffee, and with that, filtered water is part of the process, according to Householder.
Randy Parks, president of Prostar Services, Carrollton, Texas, said, "The opportunity for the average operator to tap into the water market is huge." As an example of the current business model operators can use for POU systems, Parks said a machine costing $300 would be paid off in a matter of months with a rental fee to the location of $25 a month. And the consumer pays for the filter changes.
Reluctant operators are leaving money on the table, Parks said.
"More and more OCS operators are turning to water. It is a natural addition with little to no requirements for additional sales and service," said Stephen Messinger, director, sales and marketing, Pure 1 Systems, which offers POU systems. "Our dealer in Puerto Rico, who offers coffee and water only, plans to put a water system next to each coffee machine. (The) growth potential is substantial."
Gus Kroustalis, gourmet coffee manager of Gallins Vending, Winston Salem, N.C., said many of his customers have approached him about water because they want to have one vendor for multiple services.
Stronger Push of Water Systems
Lester Lail, vice president of Hav-A-Cup, Hickory, N.C., gets two to three calls a day about just water service. It's a popular commodity, but he is not content with waiting for customers to call, rating himself a 5 on a 1 to 5 scale for how aggressively he sells his water services. "On every call, after we discuss their interest in coffee, I say, ‘If you have time, I'd like to talk to you about our water systems,'" said Lail.
Hav-A-Cup has a salesperson dedicated to new 5-gallon water and POU business. For selling to existing customers, Lail gives himself a 2 on a 1 to 5 scale, admitting, "We don't do it enough — as much as we should."
Lail said in retrospect, he was fortunate to have expanded into water service early in his market. "It's just something we decided to get into. It went with our business," observed Lail. "We're a strong coffee company in this town. We've been selling coffee for 25 years. We've been in the water business for 11." For Lail, water is a niche market he uses only mildly to raise profits, but more so to win accounts and keep existing ones.
"The average consumer is more educated about quality water," Parks said. And he's noticing a push for a higher quality product because of that.
James Barber, purchasing and warehouse manager, Classic Food Services, Durham, N.C., feels the desire is out there for water systems. "I think a lot of people are concerned with chlorine and city water," he said. Barber added 5-gallon delivery service to his business approximately six months ago. He's fairly aggressive selling his water systems to new and existing customers, saying about the latter, "We should already be in good standing with them, so we approach them first."
Point-of-Use or 5-Gallon?
Barber offers POU by customer request only, saying it is usually more expensive than 5-gallon delivery. Changing the filter is sometimes an inconvenience, and he finds locations are often displeased with taking up a water line or adding one, especially in buildings such as warehouses. Since his company is a division of a Coca-Cola franchise, he chose an affiliated bottler in Kentucky who supplies 5-gallon water called Cumberland Gap.
Lail uses location size to determine whether to push the 5-gallon or POU.
"I use what's going to be the most profitable for me," he said. If the location is only going to use three or four bottles a month, then Lail encourages the POU system.
If the amount reaches 10 bottles a month, then bottled water delivery and the associated costs become easily recoverable. His 5-gallon bottles are filled with certified Spring water, not filtered city water, and people taste the difference. "People prefer bottled," Lail said. He uses Oasis coolers.
The Case for POU
Due to 5-gallon delivery costs and lower quality products coming from overseas, POU manufacturers claim the 5-gallon bottled water sector is diminishing.
Purlogix's Householder further pointed out large soft-drink companies are dominating the single-serve market. That leaves POU as the most logical application. And the rental fee becomes an income the operator can count on. "That's the growth," said Householder. "No more fluctuating bottle purchases or seasonal profits. Take the low hanging fruit and capitalize on it."
Parks is actively dissolving his 5-gallon bottled water business into the POU systems he's selling now. "You can't sell the bottles profitably enough to run a (5-gallon) bottle company," he said. Even water companies are transitioning to POU, said Parks.
Between the labor issues, fuel, repacking bottles, etc., the (5-gallon bottle) water companies are really struggling to keep their model alive, he said.
Put Your Eggs in More Baskets
For operators who already have it all — the location, the driver, and the overhead — these systems open another stream of revenue for little to no added cost. But it doesn't stop there. It can even open a new segment on its own.
"Water is a great market," said Tom Boyer, president of Treasure Valley Coffee, based in Boise, Idaho. In order to be successful in business, Boyer recognizes the need to diversify his business to not only include coffee, but also the added value of water. He has a salesman who aggressively sells water systems to new and existing customers, and separate water trucks for his eight bottled water routes, 5-gallon being the bulk of his water business. He uses POU only on his OCS routes.
For Boyer, water systems don't just help him keep his OCS business from water companies looking to compete; they are also important in raising profits and winning new locations. Water systems are a way to increase revenue and profit from current customers.
In every business, not just OCS, expanding to other related business areas is important, said Kroustalis.
"It's like vending companies deciding to do OCS — two services for one company." Even if the customer doesn't sign on for all that a company offers, having various services is good.
"The point-of-use segment has become more attractive due to the need for diversification and water companies joining the OCS business to attract their customer base," said Purlogix's Householder. "As the market grows, it becomes an easier product sale than coffee or related services. All these items are the reason over 50 percent of our inquiries are OCS and vending related."
Water System Manufacturers Target OCS
More suppliers are taking an interest in OCS operators as a previously untapped market. "We hadn't really been focusing on office coffee service providers until last year," said Hal Voznick, general manager of Vertex, which sells POU water systems. Having dealt mainly with water treatment companies, Vertex realized POU systems lent themselves to office use.
Although POU has been around for awhile, said Voznick, it's only really started to grow in the last five years. He attributes this to changes in bottled water equipment that caused users and suppliers to look at other options. "Cost factor is the main benefit of POU systems," said Voznick. There's no space factor to store bottles and less liability since no one has to lift the bottles.
"Water rental becomes another tag line on the invoice with ROI," Householder said. "It's a way to increase profits or revenue based on an existing customer base." He estimated less than 10 percent of the commercial drinking water market is taking advantage of POU, leaving definite room for growth.