The following content originally appeared in issue 61 of Cooler Plus, which you can subscribe to here.
A new expert advisory service for the water cooler home and office delivery service sector has been launched by Zenith International. It will be led by one of the industry’s top businessmen and former Executive member of the International Bottled Water Association Steve Keim. Keen to know more, Cooler Plus caught up with Steve…
You’ve had unrivalled experience in the water cooler sector with involvement at an operational level, as a consultant and with national and international trade associations. What have been the biggest changes you’ve seen in the cooler industry over the past three years?
There have been several key changes which have affected the bottled water delivery services (or cooler) segment:
1) There has been a dramatic integration of what had been, more often than not, considered to be three distinct businesses: office coffee service, filtration/POU and bottled water coolers. Not long ago they were considered three separate businesses. Now the trend is more towards a focus on customer needs and consumer orientation than it is on product sales and delivery.
In this new environment, there is a clear sense that the primary benefit is service (to offices, homes or both) and the product is distribution – getting the desired consumables to the user at the right time, in the right quantity. Service is increasingly defined as convenience for the end user, through breadth of product offering, ease of access to company communication (website, telephone service) and willingness to accommodate special customer needs. This means that the infrastructure of today’s service delivery companies has to change to incorporate these trends.
2) In America (and in some other markets to differing degrees), retail cooler sales have become the norm, replacing cooler rental revenue and squeezing margins. This has generally been viewed by the industry as a significant problem. I suggest that, longer term, the opposite is true. As cooler retail prices continue to drop, while retail cooler quality improves, more and more residential customers (and to some degree, more small commercial customers) will continue to purchase coolers for their homes. In America, this growth is a driving force in changing the nature of the delivered water market.
Primo Water sold into the US market, approximately 440,000 coolers in 2013, 470,000 coolers in 2014 and an estimated 515,000 coolers in 2015. This adds up to 1,425,000 coolers sold into the (predominantly residential) market in the last three years. Over the last five years it sold over 2 million coolers into the US residential community of about 115 million households. I believe it will continue to accelerate this performance. Soon a tipping point will be reached where most American homes will naturally consider having a water cooler as a necessary and normal household appliance like a microwave or a blender.
It should be pointed out that cooler rentals in America have decreased only slightly, so this is essentially all incremental consumer growth for 18 litre water volume. While some of this water is now being sold at retail stores and by-passing the delivery service, the mark-up required for this type of retail product makes the pricing essentially comparable between delivered and retail 18 litre bottles.
I anticipate that the American consumer will opt for delivered water most of the time. In summary, I see rapid growth in residential cooler penetration and a subsequent increase in water delivery density to homes. Because of the low penetration now, this phenomenon can occur for decades into the future.
3) Plus ça change, Plus c’est la même chose. In the end, despite changes in technology, changes in flavour and health fads, and changes in packaging, vehicles, purification techniques, legislation and environmental policies, the beverage delivery business is still all about customer service. It involves doing the basics well: training and motivating your team, which is in contact with your customer daily; defining the service standards, so your customers are pleased and surprised positively, not negatively; paying amazing attention to detail so that billing, keeping customer appointments, coolers, product taste and quality, phone service, complaint resolution and ‘delivery specials’ are all reasons for customers to pick your brand as the best—not your competitors.
The bottled water industry is very simple in one sense: nothing about it is exceptionally difficult—no rocket science here. Having said that, this industry has, without question, one of the most challenging management and leadership tasks of any industry because everything is so inter-connected. Cash flow management is very tricky. Investor management is totally unlike most industries. It is a food product, with all the risks and regulatory issues that entails. It is a service industry requiring exceptional personnel management, training, motivation, and communication. It is a distribution, not a retail, business which has tricked many major global firms. It is a cost-control, process-driven business which typically does not attract huge salaries and dramatic turn-arounds—and therefore is often considered the soft underbelly of business… not really for the movers and shakers.
That’s why I like it. I respect those leaders who commit their lives to this complex management world, to making a difference, one step at a time, helping families and businesses take good care of their families and employees.
Zenith Dashboard is designed to inform and guide managers through all the key performance indicators of an office services or water cooler delivery business. What are the most common everyday mistakes that you see managers making?
The most common mistakes made by managers are ones that are often ‘right’ in other industries or situations. They include:
1) Expanding their distribution borders incrementally. We already deliver to this street, so we can go another ½ kilometre to deliver to Martha while we are there. We deliver to Parma, Reggio Emilia, Modena, and Bologna now, so we should expand to Florence next year. We can have our extra truck go there a day a week and have a salesperson work that market. In a few years’ we should have it doing very well for us.
This misses the point that any new territory is essentially a totally new investment decision and should be made that way. It does not mean such a decision is wrong, but it is wrong if done without the commitment to rapidly grow that market to make it become profitable. Otherwise, it just becomes a drag on profitability for a long time.
2) Not structuring the compensation of the route sales people and customer service people to encourage growth of density and customer base.
3) Not having the customer service people ask for the order. Many companies are great at training customer service personnel to explain in great detail all about the benefits of their water, how their service works, their types of coolers and why bottled water service makes sense. They often fail to simply ask for the order and close the deal while the customer is on the phone.
4) Not spending enough on advertising. This is generally caused by not understanding the incremental value of an added customer and by not precisely measuring the effect of advertising.
5) Not communicating effectively within the company or with the customer base. Far too often there is a vacuum where leadership knows about a change or new process, yet the operating team has not been told or has not understood.
6) Not having clear process policies and service standards. This leads to mixed messages to customers, and tremendous conflict between customer service representatives and route sales representatives. For example, how to handle a customer who calls to ask that we go back and pick up the ‘extra’ bottle that we left – she doesn’t want it and wants it picked up immediately.
Margins have been squeezed in the past few years and many operators have diversified into office coffee services (OCS). How can Zenith Dashboard help an operator make the most of this opportunity.
Zenith Dashboard has significant experience with adding OCS and or filtration to existing bottled water distribution businesses. It is critical to remember that the OCS industry is very different from the water business. One needs to develop a strategy and a plan of operation that effectively deals with these issues. Specifically, if you want to use OCS to improve margins, it makes no sense to develop an entirely new route system for the OCS business. The OCS ‘pros’ will tell you that it must be done because the route sales reps don’t have the time or skill sets to be effective as OCS salespeople. Therefore you need to understand how to use your version of OCS to improve margins by targeting the types of customers you already have. Often smaller offices, which are considered unprofitable by the OCS professionals. However, they are NOT unprofitable if they are incremental to the route and/or if you modify the cost structure.
Remember, you do not have to compete against other OCS company pricing if you are servicing companies that are too small for the competition. Small offices want service too, so they would be happy to pay a reasonable premium for a Keurig machine, coffee pods, creamer and sugar, all taken care of by the same person who provides the water and the cooler.
Among other items to remember: theft and waste are big issues within the OCS business; turning inventory is important; cash management of inventory is a bigger management concern; and sku proliferation is a constant battle where management must err on the side of caution.
From management and routing software and apps to cashless payments and RFiD, technology has transformed every kind of distribution business in recent years. Does the cooler industry really make the most of new technologies and which ones do you think the industry should be embracing more?
The area where I believe the cooler industry can best use technology is in maximising routing efficiency. This is mostly because the cost of distribution is the largest cost in this business – so a 15% improvement in this expense item is a big number. In other words, maximising bottles per day per route or bottles per kilometre will have a strong positive impact on profitability.
The other area, which you referred to in the question, is the use of real time payment for services rendered. This allows a route sales representative to charge a customer for water when delivered, and to either receive confirmation of payment or to decide not to leave the water for non-payment on the credit card. This reduces the need for credit checks and allows a company more leeway to accept otherwise questionable customers.
The industry has well established and respected quality standards. Do you see smaller operators struggling to maintain standards in the face of ensuring profitability? Can Zenith Dashboard help with that?
Zenith Dashboard has several technical experts who can help clients deal with the constantly changing regulatory environment. Much of the work required is in documentation. We have templates from which to build protocols and procedures for adherence to regulations and GMP’s.
Of course, quality goes beyond documentation. We can advise clients on the right types of equipment, production layouts and testing which is necessary. I see smaller operators struggling to maintain standards, but these standards are the cost of doing business. The solution is not to cut back on quality, but to grow the business and profitability enough so that these quality requirements are easily financed.
Is Zenith Dashboard aimed only at small businesses or can it also help large established businesses?
Zenith Dashboard is a team of cooler and water delivery experts working together to help people in the beverage delivery arena achieve more rapid growth and profitability. We provide a range of services for all sized companies:
1) Straight consulting services including temporary ‘acting management’ services for turnaround situations, market research studies for market expansion and new product development, and financial planning and forecasting for equity raising, banking relationships and investor planning.
2) An annual subscription partnership programme where the client pays a monthly fee for a committed set of annual services to include management mentoring and advisory service subscription to a targeted beverage delivery business newsletter, quarterly confidential marketing reviews and analyses, and an invitation to an annual event for annual partners only.
3) Specialised partnership services packages at fixed fees for any company, and with a 15% reduced fee for annual subscription partners. These packages are being developed now. Examples include: a) an annual service for web design, hosting, quarterly web customer acquisition analysis and recommendation, and management of the web customer acquisition process; b) ‘acting marketing manager’ role to include managing all direct response efforts, media planning, advertising copy, PR and social media including a strategic review; c) human resource management including compensation plans, organisational structure and human resource policies; and d) development of an annual business plan including projects and expected returns.
Our services and pricing are designed to help companies of all sizes by providing experienced insight and learning in areas which are truly critical to success. For smaller companies, we become the only objective, experienced partner available for an owner or senior manager to bounce ideas off, to learn from and to help provide focus. For larger companies, we can become the assistant to an operating manager who does not have the time or management personnel to actively coach all of his or her branches. We can service one or more branches for a company. Our fees per branch for larger companies are equal to the fees for a one branch operation for a smaller business.
What do you think of the arrival of the ‘making water more interesting’ pod-drinks challengers such as SodaStream, Keurig and Lavít?
I think they are interesting new product ideas which can be useful to the beverage delivery industry as another potential source of revenue. Keurig is already mainstream from a coffee perspective, and is continuing to experiment with other new product ideas. I don’t see Lavít or SodaStream becoming major players by taking any large percent of the beverage market.
And, finally, what do you consider to be biggest challenges facing the cooler industry in the next two years and beyond?
The biggest challenge to the cooler/beverage delivery industry will be to determine to what degree we are purely distribution companies, and to what degree we are beverage or even water companies. There are clear indications that consumers are still seeking convenience through home delivered groceries, dinners, beverage services and other combinations. Settling on the right blend of product breadth, customer needs to fulfil and geographical territory to cover will be the strategic dilemma of the next decade. How companies address their missions will determine, to a large degree, their potential brand and profit success.
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