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As more traditional vending companies begin to offer water coolers to customers, does this activity present as many opportunities as threats to the water cooler industry?

In this special report, cooler innovation invited opinion on the key vending issues for the future.

As a member of the water cooler industry, or simply an interested observer, it is becoming clear that in today’s market place, the distinction between service company offerings is becoming more than a little blurred. So with more vending companies now offering water coolers, and some activity in the opposite direction, whereby a handful of cooler companies are beginning to realise the vending opportunity, where does this leave the larger cooler industry and how does it respond?

One key issue is standards. With more player moving into the cooler industry, the entire industry needs to maintain vital aspects of customer service and hygiene standards, to avoid any future issues.

The single portion service of bottled water vending is obviously a very different prospect to water coolers but there seems to be a general consensus within the cooler industry that it must be proactive rather than reactive in order to protect its market share.

When looking at the key issues in the vending industry today, it is easy to see why it is growing. The workplace remains the key vending location and the convenience offered by vending is vital to the up-coming generation of young consumers. The focus is also shifting towards healthier products - and as readers of this magazine will no doubt agree, water is as healthy as you can get. While traditional vended products such as coffee and cigarettes are not proving as lucrative as in the past, innovation in the areas of healthy products and new brands will be the key to future growth.

View from the cooler industry

Blue Direct, run by Managing Director James Anderton, (recently appointed President of the European Point-of-use Drinking Water Association), offers a small amount of vending services including vended drinks and snacks. Vending has always been a peripheral part of the business due to the specialist equipment variants and man power commitment needed.

When questioned how he perceived the vending industry to differ from the water cooler sector, James replied that vending companies were usually focused on higher value machines with the bulk of revenue driven through ongoing ingredient sales with leased equipment.

“The total deal value and profitability for vending companies is higher than water and therefore has a lower overall cost of sale. The water cooler aspect for the vending companies is often seen as very peripheral as the margins are low and it adds little on-going revenue stream,” James continued.

“In theory, service should be more efficient as vending companies are often going to customer sites daily. However, the investment in direct training for water coolers has so far been low - looking at the number of vending companies that are members of the EPDWA - therefore current service levels and quality of service must be questionable.”

So does bottled water vending have any advantages over traditional bottled water cooler or point of use cooler provision?

“Bottled water vending is only practical in sites requiring payment for product and some public areas,” James added. “It is unlikely to be adopted as the only option in offices where water is currently available free of charge. It has been offered in these environments with limited success where the supply of water is either erratic or where there is a snack or can machine on site.”

A new focus

One of the UK’s major players, Eden Springs UK is already considering the issues raised by the vending industry.

As Commercial Director Graeme Caruthers explained: “We are very aware that other sectors, such as vending, are looking at the bottled water cooler and point of use market. At the end of the day, every single company is looking for revenue growth and sustained profitability. They will look for synergies in other markets where they can use their skills.

“I’m sure the vending industry must be visiting its customers and seeing water coolers available - and questioning why they don’t try to get a piece of that business themselves,” he continued.

“We see ourselves as a hydration solutions company - which includes bottle fed coolers, point of use, small pack, and as an extension to that, vending. We are not vending experts but it could be up for discussion,” Graeme added.

He reported that Eden Springs UK had spoken to vending companies previously to see if it could use referral systems whereby Eden could refer clients to them and vice versa. “Ultimately, if we see vending companies taking share from the point of use market, it will sharpen our focus because we will all be vying for the same customers.”

Michael Barnett, Managing Director of Hydropure and the British Water Cooler Association Chairman commented: “Bottled water vending does have some advantages over traditional bottled water cooler or point of use provision in some locations such as gyms and some institutions and where provision of water can not be free, such as airports and railway stations.

Hydropure recently tested plumbed in, coin operated water coolers for dispensing water with and without flavourings. The company found that normal water cooler usage or free-vend was, as expected, the most popular by far. For the paid-vend system, water consumption decreased noticeably and flavoured paid-vend had very low usage and was perceived as having novelty value only.

Vending as partners

Moshe Gazit of Waterlogic, which sponsored the European Vending Association Brussels conference “Healthy eating: vending solutions” earlier in 2006, meanwhile commented that while the company only provided POU services, it worked very closely with vending and office coffee service businesses.

“We have many clients offering vending products and have designed some of our products to accommodate this, such as POU fed machines and special units. This is a growing and important aspect of our business through our dealer network.

“We see the vending industry as our partners in the market, and our intentions are to continue building synergies with the vending industry”, Moshe added.

On the matter of service, he believed service to be crucial in both industries. “Client satisfaction is the key,” he added. “The vending industry differs primarily as they charge per drink. The combination of vended drinks and water is crucial and most vending companies would view bottled water as competition.”

Does bottled water vending have any advantages over traditional bottled water cooler or point of use cooler provision? “We think vending is a very diverse industry with water provision selected according to the clients needs. Bottled water vending is more appropriate only in areas where free cup dispensing is being avoided (i.e. airports) and the vending company wants to make profit on selling small bottles.”

Does Moshe think there are greater financial gains to be had in vending that watercoolers? “No. Efficiently run POU businesses can certainly earn very handsome returns. Vending is a very competitive business and adding POU to a vending company will inevitably increase their margins. We have dealers in the vending industry who have notified us that the POU part of their business is by far the most profitable. There are also far less technical issues if a quality POU dispenser is installed than a standard vending machine,” he revealed.

Via its contract with the University of Birmingham in the UK, Quench Water Systems has worked to install the Brita Rehydration Zone, which dispenses chilled water using a microchip monitored filter, as well as traditional vending machines for snacks.

“As members of the water cooler industry, it is important to remember that small pack water is extremely popular and we have to meet this demand too,” commented Managing Director Fred Cairns Palmer.

“However, with vending it is important to consider your capital expenditure carefully. You have to be in it for the longer term than say, an average point of use contract, where you will probably regain your money more quickly.

“Vending also has its own range of technical issues to consider, which differ from water coolers. “Machines such as bean to cup coffee machines can mean daily upkeep for your business so you have to be able to respond to this challenge.

A German perspective

For the last four years in Germany, vending companies have begun operating in the water cooler sector. Soenke Rocho, Managing Director at revos, a major German water cooler company explained that there are some big players in vending, including companies such as Asb Beuck, which have around 2,000 coolers in their portfolio. Asb Beuck is still primarily a vending company, which is very strong and the surrounding area. The company has joined as a member of the German Bottled Watercooler Association, showing its commitment to the sector.

“A lot of other vending companies in Germany offer water coolers as well but it’s a small part of their business and standards can vary. I would estimate that between them they only hold a maximum 5% share of the market.

“So this is not really a threat to the water cooler industry in its own right as it is not their main focus,” Soenke continued. “But the varying standards in hygiene they offer could be a potential problem to the entire industry, in the event of a crisis.”

Vending companies with a cooler interest are, Soenke added, mainly focusing onpoint of use. “They are much more involved in this than bottled water coolers. A lot of their customers want to be able to offer free water to employees and clients and for them, the POU machine already fits in with their existing coffee and drinks vending machines.

“Vending is a different industry to the water delivery business, and most vending companies also don’t have the storage and delivery logistics to handle five gallon bottles.”

Although it does not operate in vending directly, revos is a member of BDV, the German vending association, because of its sales partners, the only water cooler company in Germany to belong to the association. * Fit to serve*

As part of the trend, several manufacturers working in the vending industry have moved into producing products for the water cooler industry.

French manufacturer Fisapac, which has been active as a supplier in both the water cooler and vending fields, has recently launched a series of new water cooler and cartridge machines. The company now offers a new version of its Georgia free standing and table top, which offer flavoured drinks as well as tea, coffee and water.

In addition, Fisapac has launched the Diviniris, billed as a “water cooler vending” machine. The Diviniris model automatically recognises each product cartridge as soon as they are placed into the machine and can then process this data to show cartridge expiry dates, allowed usage time of the product once opened, the preset number of cups for each cartridge (to prevent refilling) and traceability of every product. Fisapac hope these sales statistics will help distributors keep track of consumption rates for each cooler out in the field.

The system also offers various payment methods: the basic version includes a card payment system, but a coin system can also be added and they can both work as a cashless system.

Vending specialist Bravilor Bonamat, based in the Netherlands, has a range of vending products including the FreshGround, which can grind beans as well as serving a range of coffees. In a move to offer customers more, the company recently launched the Chiller, a filtered point of use drinking water cooler machine now on offer.

As the company explained, the chiller has proved appealing to existing customers of its coffee systems because they are already familiar with the company’s brands and products. “With the new Chiller machine, we are providing a solution for the latest trend for healthy hydration and boosted water consumption,” commented Marketing Communication Specialist Miranda Korten.

Serve yourself

According to the history books, vending began back in 215 BC when the Greek mathematician Hero invented a holy water dispenser for the Egyptian Temples.

What is vending?

Put simply, vending is automatic retailing. It covers the sale of products and services through a machine operated by introducing coins, banknotes, payment cards, tokens or other means of cashless payment.

Although subject to much criticism lately, particularly in the schools sector where new legislation has seen much vending banned in schools across Europe, the US and Australasia, vending is only a means of distribution rather than a product in itself - a self service shop.

An increasing desire for on-demand catering has led to the number of machines expanding even in locations with other catering facilities, such as hotels and hospitals.

As with any industry, there are a lot of technical issues affecting vending such as cashless technology, Bluetooth, coinage (Euros, counterfeiting and fraud issues) and EU legislation such as the WEEE & RoHS legislation.

Why vending?

There are a number of advantages to vending as opposed to traditional food and drink service. These include:

• Convenience: vended goods are available 24 hours a day and machines can be sited exactly where needed.

• Hygiene: with vending, as with water coolers you receive a clean cup every time and avoid washing up.

• Recycling: the Save a Cup scheme in the UK provides a ready way to recycle used vending cups into durable items for the office.

• Variety: vending machines offer a whole range of different products. Drinks vending machines can offer not just black and white coffee and tea but can also make the drink weak or strong according to taste. Fresh brew, cappuccino and chocolate drinks are also available.

According to the Automatic Vending Association in the UK, there are around 511,000 refreshment vending machines in use in the UK.

Consumers spend an annual £1.5 billion on vended products, with eight million cups of coffee and two million cups of tea vended every day. In total, vending uses 1.5 billion litres of water a year.

As a plus point for the vending industry, the association also reports research figures showing that the average size business with 50 staff could be spending more than £85,000 of its annual wages bill in time spent by employees making their own tea or coffee.

Meanwhile in the US, vending is a $30 billion-a-year industry, employing 700,000 people who work at an estimated 13,500 companies. Around 100 million Americans will use one of seven million vending machines each day. While 16.3% of all vending machines are located in schools and colleges, most vending machines are found in manufacturing settings.