Kieran McKenna grew up and studied in Ireland, achieving an honours degree in microbiology from NUI Galway. His first job was in food production, but in 1991, with 4,000 Irish pounds and a friend called Brian Cooney, he went into the water business.
“I had an idea that bottle coolers were too expensive and that if you made a bracket, fitted a filter and attached it to the mains water supply, you could really compete in the Home Office Delivery (HOD) market, which was in its infancy in Ireland at the time, says McKenna”
McKenna first found a supplier in the UK and then in the US, placing 80 units in the first year. All Water Systems Ltd (AWS) was a small operation with big ambition: “Brian and I swapped between ‘suit and tie’ and ‘overall and bucket’, as the person who sold the unit couldn’t be seen to be the one servicing it!”
In December 2003, McKenna and Cooney sold the business to PHS Waterlogic, with a great deal more experience and expertise and over 10,000 units under contract in Ireland, in addition to 3,500 coffee machines, filters and boilers. They also had a loyal staff community of just over 40.
“Selling AWS was actually quite a hard decision for me,” says McKenna. “It was like giving up the baby. And even though the reward was there in cash terms, emotionally I found it hard.”
So hard, in fact, that he almost decided not to sell. However, the time had come to move on and McKenna left AWS in June 2004.
“I realised the time for me to sell AWS was now, leaving it in safe hands and a market leader in worldwide mains-fed per capita penetration, and well on course to become the first company in Europe where a truly mains-fed company had become bigger than the established HOD Companies,” he says. “I believe this was achieved two years ago and AWS now has over 20,000 units placed in the Irish market (pop 5.5m).”
While reading an article on improvements in the elimination of ‘taint’ from Bag in Box (BIB) packaging, it struck McKenna that, for the first time, BIB could move out of the traditional milk, fruit juice and wine industries (where more than a billion units are sold annually) and into delivered water. In 2006, Aqueduct – Purity by Design was incorporated.
What are your perceived problems with current business models?
Kieran McKenna: Mains-fed has fundamentally changed the market dynamics and balance sheet of the HOD business, and the true extent of this is now only being felt. The initial reaction of the established HOD players wasn’t positive to mains-fed in the least: banned from trade shows, denigrated by salespeople and seen as a minor annoyance. By 2006, all had changed, epitomised by the change of BWCA’s ‘B’ from ‘Bottled’ to ‘British’.
If the high-volume users moved to mains-fed, then a fundamental, seminal shift will have happened to the HOD business model. How can one justify the huge investment in water plants (with limited distribution reach due to the returnable nature of the empty bottle) and even greater investment in coolers if one is stuck with a huge number of small deliveries? There’s no chance of any economies of scale either in plant reach or delivery logistics. Actually, the reverse is true: the more small customers you get the harder it is to administer and the bigger the central overhead becomes. Add to this the cost of administering 13-week sanitisation cycles in a vain attempt to keep coolers clean.
The end result is that the return on investment is just not there. I believe this is one of the reasons why Nestlé sold Powwow. It’s unfortunate that such a large company has been brought to its knees, but I don’t think it will be the last. The fundamentals that brought down Powwow apply to all in the HOD business as it is currently structured.
I think there is now, due to mains-fed and the low cost to entry (meaning a huge number of smaller water players are eating at margins), a crisis in the HOD industry. Return on investment models cannot work when based on limited geographical reach from one water plant and increasingly smaller ‘drop sizes’. The HOD market must get profitability back into each delivery and extend the reach of a single water plant.
Do you see environmental pressures as a threat to the water industry in general?
McKenna: Absolutely. The pressures of the ‘green lobby’ will continually grind away at the water industry until it starts to embrace new, less damaging packaging technologies. I see lightweighting of PET bottles as being but the first defensive step, but I think different concepts and technologies will come to the fore and I do believe BIB will be one of a number of greener alternatives that consumers will move towards.
Has the consumer changed?
McKenna: Consumers want hygiene; they want you to be able to tell them that what they’re drinking is as good as it can be; they want to protect the environment; they want fewer trucks on the road; they want packaging sizes they can actually lift; and they don’t want storage issues for full and empty bottles.
We should realise that even though our industry hasn’t given consumers a lot of the above, they still stayed with us, and my advice is that we should reward them by offering truly innovative improvements that are not just gimmicks.
Just as the 1990s brought us a seismic change to the ‘heavy use’ end of the market, BIB will over the next decade change the significant number of customers who are in the low-use end. What’s more, it could actually increase market penetration into new areas such as the exciting, but hitherto elusive, domestic market.
What convinced you to consider BIB dispensing?
McKenna: My analysis of the market was that the early 90s were the years of the first real new ‘threat’ to the established HOD business model – this threat being mains-fed. I was convinced it would represent 50% of the installed cooler base in time. However, the other (lower volume use) 50% would be increasingly difficult to penetrate. If one accepted this fact then it was only a matter of time before the HOD players moved into BIB, as no water company could let 50% of their base ‘walk’ and still survive.
To me, it was blindingly obvious: in every bulk liquid business BIB had overcome well-established bulk delivery methods, and the catering use of BIB is now well ingrained. You cannot beat the logistical efficiencies and geographic reach that a true one-way delivery system offers. The impact in bulk milk, fruit juice, wine, oil and even liquid eggs has been immense, proving it can meet hygiene standards. Only the ‘taint’ issue hampered its movement into water, where actually it’s the ideal packaging. Pick a HOD problem – hygiene, delivery size, logistic reach, manual handling, truck size, bisphenol-A, green lobby, increased staff costs, greater road congestion – you name it, BIB beats the current system. And you can store boxes easily!
What’s more, as a microbiologist, I’ve been inherently unhappy about the hygiene (or in many cases lack of hygiene) associated with bottle and mains-fed systems. Frankly, I don’t have to look much further than the independent cooler testing carried out in the Scottish Fountain Report (March 2009). We’re not talking harmless TVC counts here; this isn’t wild scare-mongering. We’re actually talking upwards of 40% of bottle coolers and 16% of mains-fed coolers being contaminated by (mainly) human-induced pathogenic bacteria! I just don’t know a food industry that would spend so much effort trying to justify its position rather than taking time out to sit back and ask why.
How does BIB water appeal as a business model?
McKenna: Any industry that relies on the physical delivery of their liquid product in a bulk form – but not in huge quantities – is ideally suited to BIB. The key issue here is ‘drop size’ and ‘geographic reach’ from a single plant, the very issues that are killing the profitability of the current HOD business model. And I do believe these issues would have been central to many of the bigger companies selling off their interests, first in the US and latterly in the UK.
Mains-fed has had a huge effect on the HOD industry, virtually removing the ‘D for delivery’ component. It has killed off the hugely profitable large volume sites and what’s left are companies in the medium (slowly being eaten by mains-fed) and low volume (virtually immune to mains-fed approaches due to cost and inconvenience of plumbing).
The level of investment in a HOD plant, which can only cover a radius of a few hundred miles, and the huge labour cost involved if someone is only delivering a couple of bottles a time is slowly strangling the profitability of the current business model. Something has to change. Customers still want the ease and convenience of delivered water, but companies need to find a way of doing this at a decent profit that reflects their massive investment in plant, vehicles and labour.
What were your initial hurdles?
The main issue has always been finance, and there’s a book in me somewhere as to the trials and tribulations of that angle! I was nearly there three times. Yet, each time, for one reason or another, the financing didn’t go through. For instance, in late 2008, when I was about to close on the finance, Lehman Brothers fell, duly evaporating my financing.
The financial black hole of January/February 2009 was a dark time. It seemed after so much work (we were now at the stage of working prototypes and had lined up a huge refrigeration manufacturer in the Far East) all the ready cash from the sale of AWS would be burned through for nothing.
However, perseverance paid off and crucial investment came in April 2009, and it has been foot to the floor since then. Apart from the money, my investor (a €2bn company with manufacturing facilities worldwide) has also brought a huge weight of personal, technical and quality resources to the party; resources that will reflect well in the ultimate cost and quality of our offering.
How has the Aqueduct been received so far?
McKenna: The reception to our working prototypes has been great, and what’s coming is so much better than the ‘rustic’ models we previewed at the Copenhagen Food Fair with our first national partner who really saw the potential for this product, the Danish Bottling Company, and in particular their general manager Brian Thorstrup Nybo. We’ve been working together to iron out any kinks in the system and are now literally weeks away from our launch.
Interest is now rising fast. We have a co-packaging agreement in the UK with the respected Harrogate Spring Water. Paul Martin and his team there have been great and eager in getting their teeth into the project with us, and we launched in the UK this April.
We’re in discussions in Germany, Ireland, France and other locations, and have global interest, literally from Japan to Paraguay! A very serious group is looking at four strategically located water plants in the US, and a well financed launch into the US market will follow.
We’ve also worked extensively with two of the world’s leading multi-billion dollar BIB Companies – Rapak and Smurfit Kappa – and our continued cooperation means we can roll out BIB water plants on a global basis.
Who will take up the BIB water concept?
McKenna: BIB appeals to two differing mindsets in two differing ways. I’ll start with the easy one: mains-fed companies, vending companies, office supply companies, catering, facility management, security, B&B supply etc. – basically anyone who isn’t HOD but provides a regular service to an office.
These companies have an immediate opportunity to offer their customers what is effectively a ‘leaner, greener, cleaner’ technology, and in so doing avail of three new income streams: cooler, water and cup. What’s more, as their staff are already going there (or, in the case of mains-fed companies, Aqueduct or one of our regional partners will arrange delivery), the biggest cost is already covered.
The more interesting proposition is in regard to HOD companies. I truly believe those who embrace BIB will thrive and those that don’t will have an increasingly torrid time, as issues such as hygiene, storage, manual handling and carbon footprint are brought to the fore. And the funny thing is, I truly believe that BIB is good news for the HOD industry as it can drive profitability back into each delivery, not to mention allowing a single, well-located water plant to serve a huge geographic area.
How will the operation work?
McKenna: There will be regional warehouses off a central hub. Each city has a warehouse and the ‘mother ship’ avails of huge economies of scale to supply (via third party trucking, meaning no return journeys) 26 tonnes of water to each hub on each delivery.
The regional hubs then utilise physically smaller vans (same axle weight requirement but actually less space requirement – easier on fuel, easier to park) to deliver the boxes to their customers. This is now the key point, given we can store four boxes within the coolers and we’ve designed a neat storage and recycling centre, another 12 boxes can be stored neatly out of sight. The boxes keep sunlight out (no green bottles) and are disposed of in recycling waste.
In London, recycling is so efficient that in one week a box will be back out as usable board. With Aqueduct – Purity by Design coolers, there’s no requirement for 13-week sanitisation, so return journeys to the customer come only when they call you, and then it’s for a profitable sized delivery. It’s also ideally suited for delivery to less densely populated cooler routes.
What’s the immediate value of using the Aqueduct product?
McKenna: Hygiene, ease of use, beauty, ease of service, increased storage, a ‘green message’ – these are the features key to my design processes.
I think it’s a combination of a focus on quality, be it from the microbiological safety-first viewpoint or the demand for high-quality components, LG Compressors, brushed fingerprint-resistant stainless steel, to the expert advice I have on hand, the choice of a high-quality manufacturer and most importantly a dedicated group of world-class designers (they work for companies such as Logitec). All have combined to produce products that I’m proud to be associated with.
Who is Aqueduct currently being ordered from?
McKenna: That information would be commercially sensitive, but I can tell you we have significant orders, and others pending the trial of test pallets we’re flying in at our own cost (allowing potential customers to test the units themselves before committing to any volume). This offer is still open and I believe shows our belief that once reseller companies get their hands on these coolers, they’ll want more.
What’s the future plan for Aqueduct?
McKenna: Our aim is to find strong, local brands who would like to join with us and promote their water with our cooler; a co-brand approach – a bit like ‘Intel Inside’ we’re ‘Aqueduct Outside’. Our slogan ‘Aqueduct – Purity by Design’ is a message that our high-quality coolers will not contaminate your high-quality water brand.
We would like to speak with serious water players who wish to be associated with us in various markets, as we don’t intend shipping water around the globe for obvious environmental and logistical reasons. There’s really no hard and fast rule. Each country or region will be assessed on the merits of the proposal. It comes down to Aqueduct supplying the cooler and water, or the cooler and packaging (we can provide packaging at extremely competitive pricing to our partners).
In the UK, Aqueduct itself will provide water to a growing list of resellers via our agreement with Harrogate Spring Water, but if someone wants our coolers and bespoke packaging in their own line, we’ll be delighted to help them.
Where’s the added value?
McKenna: I truly believe that it has been this contamination of the integrity of their water product that has kept many of the leading ‘small bottle’ water brands out of the HOD market. BIB offers these companies a way to get their brand into the office space, with each cooler being enjoyed by a multitude of staff, with all the implied home branding spinoffs.
Branding and being ‘on message’ is obviously important. To this end, we’ve hired a great branding company in the UK – Blue Marlin, which is well known for doing such a great job on the Isklar water brand – to coordinate and look after our working with other water brands in a structured manner.
Where do you see Aqueduct in five years’ time?
McKenna: Global, and with a full range of coolers: hot & cold, cold and ambient etc. I would like Aqueduct to be recognised as the market leader, with a great and reliable product that consumers are proud to use.
Kieran McKenna is director of Aqueduct. You can contact him here.
Rachel Delahaye is editor of Food & Beverage International magazine. Subscribe here.
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