If many companies in the water cooler market were schoolchildren, the end of year reports might have collectively read: ‘Needs to stop fighting in the playground. More differentiation is needed, especially in terms of quality, and high standards must be maintained. Could try harder.’
The number of water coolers in the UK reached its peak in 2007 when 720,000 units were in circulation. That number is now 665,000 – not a bad number given the difficult financial situation facing businesses in recent years, but still a tiny proportion of the potential total.
The problem is that, as a sector, we are faced with a body of transient water cooler customers who show little brand loyalty and instead buy on price.
In the mains-fed water cooler market, there has been modest growth of 2-3% per annum, but even in this sub-sector, margins continue to decline year-on-year. Margins that were generally in the high teens are slipping to low teens per month, and for large customers as low as £8-9 per month is not atypical.
The problem is simple to diagnose but not simple to fix. The situation is caused because this is a grossly overcrowded market with low barriers to entry. The potential for market growth should be huge, as current market penetration is less than a fifth (around 17-18%) of VAT-registered businesses.
We need a major player to step in and grow the overall market. The mains-fed sector is led by conversion from bottled water coolers when what we need is leadership in innovation.
In the UK, there are 500 firms in-fighting for business on the basis of price and little else. Everyone is taking the low-hanging fruit and failing to seize what might be bigger prizes.
Much of the opportunity lies with the SME market, which is by no means fully penetrated. The home-office and home markets offer potential new markets, but the industry as a whole just does not have the necessary sales skills and resources to develop these relatively untouched sectors.
For too long, the market has been commoditised. To avoid this, we need something new to happen in the overall sector. I predict that one of two things will occur: either a slow painful consolidation to a few market players, or the entry of a new player building and diversifying the sector.
Market perceptions need to alter while accepting that, for most organisations and companies, water coolers are a ‘free’ service for visitors or employees, and so price will continue to play a large part in the decision-making process.
The UK situation contrasts with mainland Europe. For instance, Belgium and Switzerland have very different dynamics, with each having just a few companies dominating, maintaining their dominant positions through active R&D teams.
In the UK, we see an average spend per cooler of £13 per month or less. In Switzerland, the average is up to £20 per week for a mains-fed machine.
In Switzerland and Belgium, customers expect service to be good and it’s good because the money is there. But it’s not just innovation that counts. Excellence in standards matter even more.
In the UK, some of the best companies are members of BWCA. Members are accredited on safety, hygiene, training and delivery and they won’t compromise on price at the expense of standards.
At my own company, Angel Springs, we turn away as much business as we take on because we won’t compromise on standards, and lowering our prices would mean just that.
To survive, we must look about us. Other markets that have switched from commoditisation to developing strong business-to-business brands and to our counterparts elsewhere in Europe. And we must accept that it is by improved, not reduced standards, that we will delight our customers and grow our market and our businesses.
John Dundon is chairman of the British Water Cooler Association. Listen to this podcast interview about the future of the water cooler industry.
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