Why OCS operators should lean into water and ice for recurring revenue

Water and ice: Are they the best-kept secret in the coffee service business? The ongoing opportunity for operators that exists from point-of-use water systems and ice machine rentals may not be much of a secret after all — certainly not with experienced operators. Equipment innovation is further enhancing revenue.

As veteran operator David Henchel points out, “Any coffee service operator who is not taking advantage of the ancillary income associated with water, filtration and ice is just leaving money on the table.” After 40 years, Henchel, president and CEO of Corporate Coffee Systems, knows a thing or two about running a profitable business.

Recurring revenue opportunity

Pete Tullio, a former NAMA chairperson and CFO of Gourmet Coffee Service in Los Angeles (sold in 2017), recalls a conversation about the water business with the late Bill Reed, a Newco representative who was helping Tullio get started in the OCS business.

“Bill told me that ultimately, even though the individual water rentals were not big numbers on their own, it would be my favorite part of the OCS business,” Tullio said. “He was right. It was like an annuity — the one source of revenue you could count on every month, and when we reached something like 1,500 water units, plus filter changes, the revenue was impressive.”

Industry consultant Orrin Huebner advises his operator clients to focus on recurring revenue, and water and ice machines fall squarely into that category. He has a simple formula for his operator clients.

“If you are at 10% recurring revenue, you are OK. If you’re at 15%, you’re doing well. If you are at 20%, you are the gold standard. Water and ice contribute to those numbers very nicely,” said Huebner. “We still have too many operators, unfortunately, that are not jumping on the bandwagon.” Huebner added that it reminds him of the vending operators who took forever to finally make a move into the coffee service business.

Some small operators are thinking about water and ice the wrong way, Huebner said. “They see $50 a month for a rental, and they feel it isn’t worth the effort. They are looking instead at the big accounts they have, $20,000 a year and up, but they do not realize the annuity that builds with rentals and everything that goes with it — filter changes, line flushes, annual maintenance. Customers are willing to pay for an exceptional water and ice experience. As a consultant, I do my best to explain that, but it can be a struggle,” he said.

Huebner advises clients to use a smarter rental strategy. “Rent it by the week: charge them every four weeks, get 13 rentals per quarter and run with it. Get your ice machines out there.”

“Do the clients demand premium water quality? Not a problem! That means quarterly filter changes,” he said. “If I were going into the business today, I would do water and ice. I might not do OCS,” he said.

Functional beverages start with great-tasting water

With new technology and more stylish equipment, rental rates continue to rise. One popular water system extends beyond rental and can be a major revenue source for operators. Bevi offers hot, cold, sparkling and ambient water. According to Joanna Choi, national account manager, Bevi provides a powerful revenue opportunity for independent operators, far better than the $50 a month rented water units she once sold for Aramark and Filterfresh. In fact, Choi said some operators are generating over $1 million in annual sales on Bevi alone.

Bevi offers quite a variety to end users. “We have three different enhancements currently available. One is called Energy Boost. That utilizes green coffee extract. It is caffeine, basically, and you can set it high or low. We also offer electrolytes — sugarless, no calories, so comparable to Gatorade, but without all the additional sugar and food dyes. We also have vitamin boost — your B12s, your B6, your Zinc — everything you need. We’re also coming out with a new enhancement called Focus Boost, and that has magnesium and B12 vitamins to help enhance focus for folks while they’re at work and to reduce their stress levels while doing it,” said Choi. “In a perfect situation, you would have those three enhancements plus five fruit flavors. Potentially, around 40,000 different beverage combinations.”

Looks matter: A design-oriented approach

Vivreau offers a water unit that is part of an emerging trend toward stylish equipment. Davin Wickstrom, director of industry relations, said his company was quite intentional about the design of its water unit.

“We wanted it to be front of house so when people walked into a break room or a meeting room, they were wowed by the visual,” said Wickstrom. “Hot, cold and sparkling water — a really small footprint on the counter, which we know is prime OCS real estate. It is sleek and stylish.”

Wickstrom said that Vivreau goes beyond good looks. The company stands behind its Purity C filtration system, and Vivreau offers a sustainable, custom-made bottle feature. “If you had a client that wanted to get their name on the bottles, or an OCS partner wanting that, we work with them to get them specifically set up for those bottles. The bottles are unique to us, which will then be unique to the customer. We are very mindful to put our money where our mouth is when it comes to sustainability,” he said.

Impact of sparkling water

Matt Dudley, sales and operations director for North America at Marco Beverage Systems, said the growth of his company’s stylish water system, Friia, has been largely driven by the popularity of sparkling beverages, a trend that operators often overlook. “If you went to your local grocery store a decade ago, the sparkling water wasn’t a major category. Now, in a C-store or a grocery store, it’s a major category in their beverage section,” said Dudley.

“That category is driving the popularity of dispensed water, along with the growing trend of people looking for alternatives to single-use plastics. For a long time, everybody was purchasing bottled water. Now you see a large part of the population, particularly the younger people, carrying refillable water bottles,” he said.

Dudley pointed to the look of the Friia unit as a major selling point. “From an aesthetic standpoint, Friia is very much on trend in terms of being small and compact, taking up minimal counter space, having that super sleek, beautiful aesthetic that really complements the environment,” he said.

Water industry veteran Steve Silha, president of F&B Innovation Group, said that sustainability in today’s workplace creates a water service opportunity for operators. “I’ve worked with hospitality groups and major corporations that have offices across the United States,” said Silha. “Those are the organizations that start with a sustainability mission because they have many employees, and they can have a pretty big impact. It’s definitely a top-of-mind issue.”

A healthy choice

“Health and wellness are another issue. Water and ice play right into that. There are studies that support the idea that well-hydrated employees are happier, perform better, are healthier, and have less brain fog,” he said. “Water is also an awesome opportunity to lock in a client with another product and keep competition out of your location.”

Brian Zekesky, national sales manager for Follett Products, an ice machine manufacturer, said the demand for ice in the workplace has exploded, and that is good news for OCS operators. “Consumers are into cold brew teas and sparkling water, healthier cold drink options, and all of that starts with ice and water,” said Zekesky. “If the operator is not dialed into how to deliver ice and water, they are missing a huge opportunity.”

According to Zekesky, ice in the office is no longer just a luxury item. “70% of beverages sold are now iced. Ice is a consumer-demanded item. If it’s not part of the office refreshment package, you are going to have consumers asking for it.”

“Follett’s Champion 7 and 15 models are very successful in workplaces,” Zekesky said, pointing out that the units are low profile with a small footprint. “One of the best things about these units is that they are completely drainless. All you need is power and a water line, and you can place them practically anywhere.”

Tullio recalls that when he started in OCS in 1995, the rental rate on a basic point-of-use water system was modest, typically $25 to $35 per month. “In those days, you could still pay for the equipment in a year,” said Tullio. “We saw those rental rates go up a lot over the next 20 years as the equipment quality improved and the filtration became more advanced. From my perspective, this aspect of the business only gets better for operators.”