Dec 16, 2002

Water Vending

One of the hottest industry trends sparks opportunity for dealers everywhere

Its time has come. The concept of water vending is simple:
The customer owns his own bottles and fills them at his convenience. An added
bonus is 24-hour access. Savvy operators offering external water vending units
also provide bottle sterilizers located inside their stores. Typically,
sterilization is provided free of charge and is a great way to increase traffic
inside the store and attract sales of other store items.

Water vending provides a fantastic opportunity for existing
water business operators to expand their business into areas that are too small
or difficult to service profitably. Water stores usually start small but end up
having to increase staff as business grows. A vending machine in a storefront
can ease additional labor requirements. At an average cost of $3,300 (United
States) or $5,000 (Canadian), it is easy to see how quickly a business owner
can offset the machine cost by avoiding the hiring of additional employees.
Extended hours of operation and the flexibility of not having to be open seven
days a week are added benefits.

"Water vending machines rapidly are becoming a major
part of the bottled water industry in the northern United States and
Canada," says Stan Brooks of Mobetta Water. "As a supplier to
purified water operators, our sales of vending machines increases dramatically
each year. The southern United States has enjoyed the use of water vending for
many years through outdoor freestanding units similar to pop machines. These
operators have recognized the fact that the real cost of water is not in the
purification, but in labor, bottle washing, storage, transportation, bottle
replacement, etc."

Most water delivery operators have customers who pick up
water from them vs. having it delivered. The addition of a vending machine is inexpensive
if the purification system already is in place. The service offered to
customers is improved with access

at times that best suit the customer's schedule. Water
vending also safeguards operators from customers migrating to alternate cheaper
water suppliers. By being first in an area, an operator may slow or halt other
operators from placing vending machines in their area of business.

Supermarket in-store filling stations almost always are
located at the rear of the store, making it awkward for customers to purchase
any quantity of water larger than five gallons. External water vending units
dramatically change this. Customers are able to drive right up to the
machine(s), reducing the distance the water has to be carried. Filling is fast
with the average five-gallon container taking about 90 seconds. The savings are


A problem experienced in the northern United States and
Canada is the freezing of outdoor machines.

Window-mounted vending machines solve this problem by being
heated from the inside of the building. A spring-loaded door, open only for a
short time during filling, prevents freezing. The use of incandescent bulbs in
the filling cavity provides additional warmth to protect against freezing. Some
operators choose to install a vestibule for placement of machines, providing
greater comfort to customers.

How Should They Pay?

Coin acceptance requirements are different between the
United States and Canada. The United States has minted a dollar coin while
Canada has both the $1 and $2 coin. In addition, Canada also has several
different versions of most coins, some being solid nickel and others plated.
This results in the requirement for more sophisticated electronic coin
mechanisms. Operators should ensure that machines selected come with an
electronic coin acceptor. This safeguards the capital investment against

There are several ways to accept money through the machines.
The simplest and most trouble free is a straight coin acceptor. Many operators
choose this method as the cost to purchase and maintain equipment is low. There
are few moving parts and service requirements are rare. A downside is exact
change is required. But most customers are repeat customers and know the coin
requirements. Coin changers offer the ability to provide change to the user.
The upgrade expense is fairly significant at an average of $500-$700 (United
States). A bill validator can be used in conjunction with coin changers for
more convenience at a cost of $450-$600 (United States).

Some operators also offer prepaid cards. This provides cash
up front and allows the operator to offer volume and frequency incentives to
increase customer loyalty. Prepaid cards and the card readers required to use
this technology are extremely varied, with multiple platforms that usually are
not interchangeable. Operators should consider a card system carefully.
Purchasing a machine with a card system often can restrict the owner to a
single manufacturer's system. Some systems allow programming through the
machine's card reader itself, while others require a separate programming unit.
Programming can be cumbersome if different card values need to be programmed.
Problems with cards include complexity of programming, the requirement for
operators to buy and stockpile cards for programming as well as loss and damage
to cards by customers. Customers frequently forget cards in machines at the end
of a fill. Unfortunately, operators have no way to know the remaining value
left on a card should they choose to replace it. Many operators will not
replace lost cards, which often can mean disgruntled customers. Database
systems that manage the value of a card (similar to a bank card) typically are
cost prohibitive. Credit cards are not considered viable as a payment option.
The merchant fee per transaction is disproportionate to the value vended and
makes a phone or cellular connection at each vending location a requirement.

Technology to Consider

Business owners considering water vending machines also
should be aware of the impact of the machine's electronic design. Most machines
on the market use more-than-15-year-old cigarette vending machine technologies.
Typically, four different control boards are linked together inside the
machine, resulting in more than 150 wire connections. Servicing of machines
using outdated technology can be both difficult and expensive with no local
technical people trained to work on them.

Another consideration is safety. For obvious safety reasons,
machines with a 110-volt power bar located in the base of the machine, where
water could run into live outlets, should be avoided. Check for companies that
offer machines with a single control board to manage all coin and water
management functions.

Interest in water vending is exploding in Canada. Businesses
that express interest in such technology include water stores, water delivery
operators, auto parts stores, U-Brew stores, vacuum stores and car washes.

Potential operators wanting to select the best water vending
machine need to consider a number of factors. One of which is the number of
different vend sizes a machine can handle. If a machine is capable of handling
only 5-gallon containers, customers wanting to fill 1-, 2- or 3- gallon
containers will go elsewhere. Selecting a basic mechanical coin mechanism can
prove costly in the long run. These cheap mechanisms often are capable of
accepting only one coin denomination (e.g. $0.25). This will prove problematic
with the increasing demand for the dollar coin. This could prevent an operator
from running special promotions or easily changing pricing to remain
competitive should another vending operator start up in the near vicinity.

Additional machine features also should be considered. Audit
controls allow the operator  to
compare money deposited against that collected. This allows added security if
employees have access to the machines. Audit controls also allow operators to
place machines in alternate locations and pay a commission on sales through the
machines. Information also is provided for specific vend sizes, thus allowing
operators to target their marketing efforts more effectively. Other features
include an inactivity flush function that flushes water thru the unit if the
machine is inactive for an hour or more. This serves to cool the ultraviolet
unit and prolong bulb life.

Maintenance Considerations

Inevitably, all equipment will require servicing at some
point. Potential operators should ensure that the machine is simple enough for
them to work on themselves or with minimal assistance from any competent water
or vending technician. Simple electronic board replacement should be possible
as well as easy access to plumbing parts and assemblies.

Future Growth

Ensuring that a machine can be upgraded to deal with the
future growth of a business is another factor to consider. Operators may choose
to purchase a coin acceptance only unit at the outset, but may need to upgrade
to a coin changer and bill validator later on.

Route operators in the United States have integrated technologies
that allow for the remote monitoring of vending machines. These usually are
employed by the largest operators with many machines. Some utilize cellular or
telephone connections for each machine. This can be expensive. Some have chosen
to use radio transmitters. This requires that a route be built from the inside
out as each unit transmits the information back through a neighboring machine.
There is no end to the sophistication that we will likely witness in this
emerging facet of the water industry. However a simple, well-designed machine
usually is sufficient for most operators and is without a doubt a profitable
addition to a retail location.

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