Water and ice: Are you leaving money on the table?

In this episode of Automatic Merchandiser’s Vending & OCS Nation, the podcast for the convenience services industry — produced by Endeavor Business Media, a Division of EndeavorB2B — host Bob Tullio talked to several industry experts about a wonderful aspect of the OCS business: water, ice and filtration. 

Tullio shares with listeners about how he discovered the water and ice business.

“As an operator, I kind of stumbled into the point of use water, ice and filtration business — once considered to be a very ancillary part of the OCS industry. It reminded me of the days when I rented pool tables and juke boxes — the kind with 45s and CDs, not the internet versions we see today. As an operator, you would pick up $35 every week from the bar owner, change a few records to the delight of the daytime bar patrons, and be on your way. A slow drip of revenue — $1,800 or so, for a juke box that cost about $1,000 to begin with. Year after year, a steady return on investment,” he explained.

“Much like the point-of-use water business. Steady revenue, it’s like an annuity. It may be the best thing going in the OCS business. But early on in my OCS sales career, I saw the power of filtered water when I convinced E! Entertainment Television to switch from $6,000 a month in bottled water to $600 a month in point-of-use water. They rewarded my brilliant idea by giving us the OCS business — quite an account for our growing company."

This podcast features eight industry experts:

• Orrin Huebner, consultant
• David Henchel, Corporate Coffee Systems
• Joanna Choi, Bevi
• Davin Wickstrom, Vivreau
• Matt Dudley, Marco Beverage Systems
• Steve Silha, F&B Innovation Group
• Brian Zakeski, Follett Products
• Gary Arwin, Gator Refresh

While Tullio also covered water and ice in a recent article for Automatic Merchandiser, this podcast takes a deeper dive into the topic.

No time to listen? Prefer to read? Here is an edited podcast transcript:

Bob Tullio: Earlier, I said that water, ice and filtration is the best-kept secret in the OCS business. But is it really a secret? Just ask industry consultant Orrin Huebner. He gets it. Everybody wants water.

Orrin Huebner: Everybody wants water. Everybody wants filtered water. Post pandemic, we're in a world now that people care about all of that, and they’re willing to pay for it. So, it's important to take a look at it.

I always say, if you’re 10% recurring revenue, you’re okay. If you're 15%, you’re doing good. If you’re 20%, you’re gold standard. And all of this contributes to it.

I liken it, Bob, to when vending companies were thinking about OCS, and it took forever to drag them into there. We’re still seeing that today, where people just aren’t jumping on the bandwagon yet.

We’re into ice now. We’re thinking about cold brew, and we’re thinking about ready-to-drink products, and how do you chill those?

Bob Tullio: So, you advise your clients to really jump in there and go after that ancillary income. You don’t think, for the most part, operators are doing it quite as effectively as they should?

Orrin Huebner: I don’t think that the small operator is focusing on it because he’s thinking, “What's $50 a month? What’s $500 a year?” They’re looking for the $20---, $30---, $50,000 accounts, and they’re not realizing the annuity piece that this builds, and all the pieces that go with it: the filter changes, the line flushes, the periodic maintenances and all of that. I don’t think they understand the economics, Bob. And I think that they struggle with that.

I’m always one that goes low as common denominator. So, sell it by the week, charge them every four weeks, get 13 rentals in instead of a monthly 12 and run with it.

Get your ice machines out there. If you’re $14 a week, $15 a week for a water unit, and you go out there and get $75 a week for an ice machine, and you pay it off in 8 to 12 months, what happens in year 2, 3, 4, 5? It all falls to the bottom line. If I go back into the business, if I were 10 years younger, I’d do ice and water. I don’t know that I’d do coffee. I’d do ice and water.

Bob Tullio: David Henschel is president and CEO of Corporate Coffee Systems. He happens to be on the cover of this edition of Automatic Merchandiser magazine. He understands the value of recurring income and water.

Let’s talk about water, ice and filtration. Why is that so important — that particular channel — for operators?

David Henschel: We’re in the business of aggregating as much sales as we can from a customer. And certainly, in almost every, if not every, customer that we’re doing business with, there’s some sort of water solution, whether it’s a flavored water or sparkling, flat, bottled, whatever the case may be. So, we’re after that business because it aggregates up to the overall size of the customer. So, I would say to you that I think it’s very important to us at Corporate Coffee. I’m not sure that customers always see a coffee service as a water expert. And let me explain what I mean.

Again, we did it to aggregate more sales. That’s not the same as being seen as a water expert. And so recently, Edward and I developed our own water brand, which, just coincidentally, the trademark was just announced today. I just got the email a half hour ago. We’ve trademarked our own water brand. The reason we did this is so that in marketing, we can portray ourselves more so as water experts, as opposed to equipment offering.

So to me, there’s a big difference between offering a water cooler — and by the way, Corporate Coffee has been successful over 40-some odd years — placing water coolers alongside coffee machines. That’s not quite the same thing as being a water expert. And so, what we’re trying to do is portray ourselves as a water expert besides a coffee expert because the water business is about rentals and it’s about filter changes.

So, we want that business. We’re after it. And the only way we think we can be strong in that arena is to be projecting ourselves digitally through marketing as a water expert. And that’s why we just launched a new water brand called Thyrst.

Bob Tullio: With new technology and more stylish equipment, rental rates continue to rise. One popular water system goes well beyond a 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.

Joanna Choi: I’ve been in the OCS field for, gosh, like over 14 years now, which is crazy because I still look so young.

But I know like back in the day when I sold for like Filterfresh and Aramark, the first and most of the focus was just selling coffee. So, as soon as you sold coffee, you kind of threw the Lipton tea bags at them and said, “Hey, there is a water filtration you could get for 50 bucks a month,” and call it a day and walk out.

What’s really exciting now is that we do have so many different types of solutions available, not just with coffee, but also with tea and, of course, water. Bevi, really, a really amazing revenue driver. I know that for sure. Like I personally, I work with all of our independent operators. So, anyone who’s not part of the whole Canteen and Aramark Quench family. And so, what’s really great is that we are giving these independent operators another revenue stream. And we’re also seeing a lot of movement in areas that’s not just like your white collar, not your the meta Facebook, Google offices — that of course, all of the operators want — but especially now, especially in a post-pandemic world and really diversifying your portfolio of the clients that you service, especially when those white collar offices are working from home. We’re seeing a lot of movement with like warehouses, distribution centers, and blue-collar areas.

Bob Tullio: You have the enhancements, you’ve got hot, you’ve got cold, you’ve got sparkling, you’ve got ambient, probably, and you’ve got flavors

Joanna Choi: Oh yeah. Yes, and you’ve got fruit flavors associated with it. So, our main unit is the Standup 2.0. It’s got eight different flavor slots. So, in a perfect situation, you would have those three enhancements plus five fruit flavors. It equals right around 40,000 different beverage combinations, very similar to a bean-to-cup system.

Bob Tullio: Vivreau offers a water unit that is part of an emerging trend towards stylish equipment. Davin Wickstrom, director of industry relations, said his company was quite intentional about the design of their water unit. What’s the product that you recommend for operators in the OCS channel and vending channel?

Davin Wickstrom: Yeah, that’s going to be our C shape. And the reason I love this is for a couple reasons. First, you have options, which are absolutely paramount and important. So, you can choose hot water. And this is all within one system. You can have the hot water system. You can have cold, chilled water. You can have light sparkling. And then you can have full body sparkling, which I didn’t even know was a thing until recently. But in Europe, it’s really important to have different options of sparkle in your water. So, we can absolutely do that.

Bob Tullio: So, can you describe that system to me from a look standpoint? It’s a pretty stylized piece of equipment, isn’t it?

Davin Wickstrom: Yeah, yeah. We were quite intentional on the design. 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. The best way I can describe it is — my marketing team’s gonna kill me — but it’s like the size of your forearm. The wonderful part of it. It’s a great amenity add to any break room, really a small footprint. I mean, that’s real estate as far as concerned of how you can maximize your spend and your dollars. So it’s a sleek, stylish, single-use water filtration system.

Bob Tullio: Matt Dudley, sales and operations director for North America and Marco Beverage Systems, said the growth of his company’s stylish water system, Friia, has largely been driven by the popularity of sparkling beverages, something operators often overlook.

Why do you think this channel, the water, filtration, ice, enhanced beverages, why do you think this channel is something that operators should be pursuing with vigor?

Matt Dudley: The popularity of sparkling beverages, you know, when I think about how successful our Friia system has been, it has been largely driven by the sparkling water aspect. Go to your own grocery store. A decade ago, the sparkling water wasn’t a thing — or wasn’t a major category. Now, whether you go to a C-store or a grocery store, it’s a major category in their beverage section. And so that alone is really driving, you know, the popularity of dispensed water.

I think also, too, there’s a growing trend of people looking for alternatives to single-use plastics. Now you see everyone, part of the population, particularly the younger population, carrying refillable water bottles.

Bob Tullio: 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.

Steve Silha: Water and ice are relevant for a lot of reasons, namely sustainability. It’s an important topic to this day. In my past, I’ve worked with hospitality groups. I’ve worked with major corporations that have offices across the United States. And those are the typical organizations that start with a sustainability mission because they often have many people, and they can have a pretty big impact.

It’s definitely something that’s top of mind for the operators’ clients. And so that’s number one, why it’s so important.

On top of that, health and wellness are another really important topic as well. And water and ice play right into that: Keeping yourself hydrated, making sure of that. There are actually studies that have shown that well-hydrated employees are less likely to call in [sick and have] less time for sickness. They’re happier. They perform better. They have less brain fog. So, it’s really important from that perspective.

The other side of it: When you’re looking at it from a business perspective, water is an awesome opportunity not only to lock in a client with another product. So, let’s just say you have a client that’s doing the micro market with you, or you’re doing OCS with them. Definitely would want to talk to them about their water situation because someone’s going to if you don’t.

Bob Tullio: Brian Zakeski, national sales manager for Follett Products, an ice machine manufacturer, said the demand for ice in the workplace has exploded, and that’s good news for OCS operators.

Brian Zakeski: Iced drinks are booming across all industries. Iced beverages now make up about 70% of drinks that are purchased in cafes and coffee shops. Consumers are into cold brew teas and sparkling water, healthier cold drink options. All of that starts with ice and water.

We’ve been incredibly focused on innovation and quality across the board. Our mission has been quite simple: Design products that not only work well, but really meet the unique needs of each customer.

Bob Tullio: You certainly have a tremendous reputation among ice machines. It’s a high-end ice machine, but the one thing I did find as an operator: People are willing to pay the price for the quality. Is that still consistent? I mean, you’ve got to have some lower-priced competition out there, I would assume, at this stage of the game.

Brian Zakeski: We, of course, have a higher-end machine, and yes, there’s lower-priced ones in the market.

And just to frame the conversation, because we are talking the OCS market, primarily we'd be talking about two product lines. We have our Champion product line, and we have our Symphony product line. And those — each comes with different options for production and storage.

Bob Tullio: Well, and talk to me about the revenue opportunity.

Brian Zakeski: One easy way is to bundle filter replacement programs, either as part of the lease or a value-added service later on down the road.

The really high benefit of this, and you mentioned it, is the tying in of the service aspect as well. So, not only are you adding a revenue stream or increasing that revenue stream, but it also keeps the equipment running smoothly, just opens up another opportunity in that space.

Bob Tullio: Gary Arwin is president of Gator Refresh in Florida. He understands the opportunity that comes with water.

Gary Arwin: We just started with vending only, and over time, people have asked us, “Oh, do you do water coolers? Do you do ice machines and other things as well?” And at the very beginning, we were like, “No, we don’t do any of that.” But we were asked that so many times. We were like, “You know what? We need to look into this further.”

So, we went to a NAMA Show and concentrated on looking at what the options were. And we decided, “You know what? This makes sense.”

If you think about it, probably 75% of businesses have a water cooler of some sort, and maybe 35% or so have an ice machine already. What we found over time again is that the capital equipment costs of water coolers, coupled with a minimal amount of service calls, and the residual income from the water filter changes, make it almost a no-brainer. In addition, if you have coffee service or do provide coffee service, you already know that you have to have a water filter — at least in our area. But the good thing is that you get to change it more often in charge of fee to do that. So, it’s kind of a blessing in disguise.

Having the coffee service, we understand you have to have good filtration to have a good cup of coffee. Otherwise, your coffee’s not going to taste good.

Bob Tullio: Sure, sure. But I mean, it’s incredible. It’s almost like an annuity, isn’t it, as time goes on?

Gary Arwin: That’s exactly what I call it to my guys. It’s definitely an annuity. I mean, honestly, the amount of repairs on a water cooler compared to vending or any other method of revenue generation that we have, again, it’s a no-brainer. It is an annuity. Every month, you can count on going for the water cooler rental, and then are changing those filters so often. And again, it's basically like an annuity.

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