Market volumes for water coolers are holding steady, despite difficult market conditions, delegates to the industry’s annual conference have heard.
Addressing the BWCA’s Water Cooler Industry Annual Conference, whose theme was ‘Competing To Win’, Michael Barnett delivered a presentation on behalf of Michael Gell of Hullbrook, an independent strategy consultancy, revealed that, whilst the overall market was stable, figures showed an increased bias in favour of Point-of-Use (POU) coolers as against Bottled Water Coolers (BWC). However this decline for BWCs is expected to slow over the coming year.
Market value in 2009 was £160m for the whole cooler market, a decline from the peak in 2005 but still showing some £20m growth taking as a whole the decade since 2001.
The migration of customers to POU systems was driven by financial need, environment perceptions and health & safety concerns about lifting bottles. The public sector in particular has driven change for this mix of reasons. However, average pricing for both cooler types has declined in the past 3-4 years and this has helped the market’s stability.
Others in the public sector, however, felt it was best for staff working in large offices to have ready access to water and for this reason BWCs can provide a more flexible option. In the private sector, too, smaller companies and those, for example on construction sites, who need ready supply of water, choose the bottled variety.
Barnett said: “The key drivers are expected to remain flat but there are some issues that may affect the market. One of these is that the UK population still under-estimates how much water should be consumed. Weather is also a factor as are environmental impact concerns.”
A key potential area for growth is the SME market, he said. “Increasing market penetration will require converting SMEs as penetration of large corporates is already very high. Water cooler businesses would therefore be well advised to convert non-users within smaller enterprises rather than simply poaching business and encouraging supplier switching amongst existing cooler customers.”
Looking to the purchasing criteria employed by customers, Barnett said that the four top criteria were delivery, price, cooler quality and ability to supply both POU and BWC systems. Service and sanitisation were also important factors.
Those who get these aspects right have seen sales growth of around 8% per annum and gross margins of 80% in the past few years and often the growth of these high performers has been led by acquisitions to drive scale economies.
“Companies should heed the fact that the main reason for quitting the market was service disappointment. Get prices and service levels right, including efficient delivery, convert non-users and the market should grow,” predicted Barnett basing his comments on Hullbrook Associates' presentation.
Higher growth rates, higher revenue, lower quit rates and lower operating costs were the key drivers of the out-performing companies, the research showed. Mr Barnett added that "industry consolidation was likely to continue and whilst customers will continue to demand strong service while maintaining downward pressure on margins".
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