>>SMART INVESTMENT OR BOONDOGGLE? >>>Part One of Two Parts >(part Two is Here) >Water Conditioning & Purification, June 1986 >by Gene Shaparenko, Aqua Technology >
>Author's Note:This was the defining article which kicked off the national rush to build independently owned as well as franchised water stores. The concept in 1983 was altogether new and radically different from any water treatment operation in existence at that time.
Following the initial article, our telephone rang day and night, from all over the US to Europe, Asia and Australia with requests for our assistance in starting stores in those areas.
The idea of water stores caught on first in California, around the area of the first Aqua Technology stores. The expansion in these areas was primarily through employees who cut their teeth on the initial Aqua Technology stores---learning merchandising as well as operational aspects of this new and exciting business.
Soon, various manufacturers were putting together "water store" packages to sell to prospective store owners.. These were simply hardware packages and came with little or no advise or business operational information. During the late 1980's and early 1990's the business landscape was littered with failures from these initial startups---some ill-designed "franchise" operations losing upwards of $15 million on such programs.
Today, the successful water stores in America are primarily independently owned and operated. Here and there one can find a "franchised" operation selling a significant amount of water but whose bottom line is severely limited by nature of the franchise activities and the tendency to focus on water sales or relatively other insignificant items.
In today's competitive retail economy, simply dropping a bunch of water processing and dispensing equipments into a conveniently located shopping center is not enough for prudent investors nor is it justified by the bottom line. It is necessary to evaluate the strategic position of that business(via computer models) in the community at large as well as with respect to existing or hypothetical competitors.
This may seem extraneous to the typical "wanna be" store owner but as larger business owners and industrial concerns will rapidly concede, these business modeling activities are absolutely essential in determining if specific investments are indeed justifiable, based on a variety of environmental and operational conditions which may affect the business.
Most water store owners and "store builders" push these concerns to the side as "extraneous to getting a store operation" and thus consign the operation to red ink faster than one can get out the red pen. Successful retail operations, including water stores, today run by more than the seat of their pants---they use tools which larger corporations use on a regular basis to keep their operations on track.
Some of these planning and modeling considerations are presented in an overview form HERE.
We hope you enjoy these original articles on water stores. Your comments and questions are always welcome. You can contact us at the phone or e-mail connections noted at the bottom of any page on this website.
And now...the article.
This is a short story about how the West Coast's first "water store" was born---how it became very successful---some reasons why you might want to consider building one---and finally, why not everyone who is trying to duplicate it is succeeding.
As with every growing small business which starts in the home or garage, one must always make a decision as to whether or not greater public exposure will increase sales and thereby help justify the additional advertising expenses, etc.
Sometimes, outside forces (the city fathers, for example) help you make that decision. Such was the case with Aqua Technology in the summer of 1983. Having sold hundreds of POU systems since 1977 from the back of a garage on a quiet residential street, increased retail foot traffic to and from the garage, the roar of shipping and receiving vehicles competing for parking space on the residential street next to our house and other notable neighborhood discomforts led us (with the gentle prodding of the city fathers) to find adequate room (i.e. "please find another place") for the growing business.
Moving from the garage to a retail store meant changing gears from a "preference" to a "commitment" regarding purified drinking water. It also meant selecting new and more sophisticated types of equipment, increasing the quality and quantity of advertising, training outside salespersons, etc.
At first, we really didn't know what we were looking for in terms of a retail showroom. After all, we had no role model or example to follow---other distiller, filter and other POU salespersons still worked out of a small shed (or)garage, the trunk of the car, etc.
Also, in 1983, the technology for producing distilled water in "commercial quantities" for resale to the general public was just being developed. Therefore, the first retail store started in September, 1983 with just standard POU items (distillers, filters, reverse osmosis, ultraviolet, micro filters, etc.).
Surprisingly, within six weeks, on the strength of POU system sales alone, the West Coast's first water store was operating in the black.
During these early weeks and months, on several occasions customers asked whether or not we had some samples of distilled water to "try before I buy." My wife, the smart businesswoman that she is, said,
". . . Gene, you know there's a future in selling distilled water---you'd better get a few distillers running in the back room so we can have some (distilled water) on hand for clients who are considering a water purifier."
During the next week, literally every spare square foot and electrical outlet was tied up making distilled water (with small 8-gallon/day units). Somehow, the water disappeared faster than it could be made. At the end of that first week, close of business found us completely exhausted from carrying distilled water around the facility, and the entire showroom floor was again filled with more empty customer's jugs awaiting water which was to be made that evening.
Again, my wife said,
"...Gene, you'd better do something about these jugs."
And, of course, she was right. We had to get those jugs filled and out of the way so customers could see our retail products.
As fortune would have it, (Steven & Michael Sears at)Superstill Technology Inc. was completing initial production models of a 400 gallon per day vapor compression distiller.
Not really knowing much about what technical risks might lay ahead, but seeing the need, we accepted the opportunity to have Superstill's first production units in our retail store.
Superstill's first models operated on 100 volts AC-made a healthy 400 gallons per day and some of the key components were constructed of copper and nickel alloys. As such, these (initial)units required careful pre-conditioning of the incoming tap water so as not to destroy the delicate heat exchange plates. Commercial water softeners were verboten-a messy acid feed system was required.
Sophisticated, computer-based controls were built to carefully meter concentrated sulfamic acid into the feed water to restrict scale buildup in the tight heat exchange plate areas of the distiller. Bags of high-grade sulfamic acid, plastic gloves, protective eyeglasses, etc. were commonplace in the distiller work area.
Literally hundreds of hours were spent trying to find that ideal "operating point" where production rate, output water quality and automatic descaling would occur.
Fortunately for all concerned, along came 400 and 600 gallon stainless-steel and titanium versions of the Superstill- and with it came fewer sleepless nights. Properly sized water softeners preceding the distiller, combined with the monitoring of a limited number of "externals" such as carbon dioxide, conductivity, water pressure, flow rates, etc., and the first retail store was thrust into large scale automated distilled water production.
Soon, the biggest problem became water storage---more and larger tanks, sterilization and dispensing. Specialized, fully-accessible storage tanks were built to specifications and placed directly in the showroom area. Custom dispenser systems built to health department standards were fabricated and the distillation and pre-conditioning equipments were moved to rear areas for noise abatement and for reasons of physical security and safety.
Specialized equipment displays for maximum "merchandising" effects were developed together with new "distilled water" brochures, consumer guides to both local water quality and POU equipments, were written to facilitate customer dialogue. Young men with strong backs and arms were hired to carry customer's water containers-and the race was on!
At the same time, a carefully-selected set of POU equipment was selected and marketed to individuals seeking home use systems. Water testing equipment ranging from the mundane to full biological laboratory capabilities were assembled.
Water dispensers, coolers, jugs, and other miscellany were gradually added to the inventory when it was determined that those items were profitable and added leverage to the merchandising efforts.
Today(1986), hundreds of POU systems and hundreds of thousands of gallons of distilled water are sold yearly at each of Aqua Technology's retail stores.
>IS A WATER STORE A SMART INVESTMENT?
With all the technical footwork basically done, there is really no magic formula for physically constructing a water store. Virtually all the vendors needed to supply prime equipment and 80% of the retail inventory are readily available. The few additional items needed to put a store together can be assembled with a few visits or phone calls to current store owners.
The difficult parts come later. We'll explain.
What is a full-service "water store"? Our definition is one which limits the scope of retail operations to water purification equipment and the sale of purified drinking water. We do not include water conditioning equipment in our water stores for several reasons:
First, (in 1983)we believed that to be financially successful, the water store had to be a "specialty" store-not just another place to buy a water softener.
Second, we observed that because of slow growth rates, the water conditioning industry was itself adding POU systems to its inventory to bolster their bottom line. We questioned the intelligence of our adding equipment (softeners) and trying to compete in an already overcrowded water conditioning market which itself was having problems expanding. (Note: some of these conditions have changed in the last decade---and the water store designs have adapted to those changes).
Therefore, (in 1983) only a single brand of steam distiller, a single reverse osmosis brand, a set of filtration systems built around a single, high-performance cartridge, a single micro filtration and single ultraviolet system were selected for mass merchandising.
We found out very early in this endeavor(1983) that convincing an individual that he/she needs a POU system is a difficult enough task and that the last thing one would want to do would be to further confuse the customer by making him/her choose between two types of distillers, three R/O systems, three types of filters, etc.
This single-product POU concept works, and very profitably, provided you have selected the proper POU manufacturers, suppliers and supporting vendors to do business with.
>WHERE THE MONEY IS MADE
The full-service water store is composed of several profit centers---water sales to walk-in traffic and commercial accounts; in-store POU equipment sales; outside sales by commissioned and/or salaried salespersons; wholesale activities to other local retailers or distributors; warranty and service work; and the sales of accessories (jugs, coolers, containers, pumps, etc.).
The first profit center (water) is easily constructed as we have noted above. In a subsequent article for this magazine we will give you schematics and simple guidelines for putting a water store into operation.(See Water Store Article #2).
The second profit center for a full service water store relies solely on POU water purification equipment. We found that as soon as we began considering items such as water softeners, iron filters, hot-tubs and other "water items," the water store became virtually indistinguishable from a long list of other water conditioning outlets or nondescript retail stores in the yellow pages.
It would become a business which has one of everything, but whose management and salespersons knew little or nothing about drinking water quality or details about any of the products.
Limiting the scope of retail operations solves additional headaches with inventory, cash flow and startup costs, insurance, storage, chemicals (and state and local restrictions on these chemicals in retail shopping centers), valuable showroom and storage space for bulky equipment, to name a few.
(Note: many new store owners who have not followed this formula or who constructed no business plan to work from ended up selling flowers, candy, newspapers, teddy bears, balloons, phone cards, lotto tickets and other paraphernalia in addition to water and water products. Today, most of these stores are either out of business or are being sold to the next unfortunate owner with the same retail baggage---poorly defined products.)
A fallacy we will now dispel about a full-service retail store is that the largest percentage of profits do not come from the sale of water, they come through the sale of POU equipment! The amount of foot-traffic generated by the availability of distilled or reverse osmosis water at 40 cents per gallon tends to give the casual observer the opposite view of fiscal reality in the store.
This is another mistake prospective water store owners make. Sitting in their car in the parking l of(and we see lots of them doing this) and observing hundreds of customers come through the door daily, they get the impression that water makes the store profitable. They then go about making that their sole priority---and then wonder later why they can't make rent payments.
While a well-operated, full-service water store can net in the high five or low six figures in water profits, profits from equipment sales generally tend to be greater. That's if you have chosen the right equipment to sell.
We have mentioned "right equipment" many times. After selling home distillers for several years and finding that continually repairing poorly designed systems can virtually eat you alive in both profits and referrals, we took a different approach to equipment selection:
(1) select a system based on better engineering rather than fancy brochures or marketing programs;
(2) select a system that, if service is needed, it can be done rapidly without wasting an hour to disassemble the entire unit; and
(3) look for systems that the customer will recognize as an "appliance," rather than just a water distiller.
If the equipment looks like it belongs in a laboratory we suggest that you leave it there! Retail customers are looking for appliances, not toys, gimmicks or lab equipment.
As a retailer with a myriad of additional expenses, your sales perspective now must change from that of being a "distributor" with perhaps a "partisanship" view toward a vendor to a perspective which focuses on your own profitability. If the vendor cannot deliver you will suffer.
On the other hand, if their equipment operates without failures or excessive maintenance costs, customers will be happy, you will spend less time fixing things and more time selling things. You will profit and, thus, survive.
Other questions we always encounter from people interested in the Water Store concept include:
"How much does it take to get started?"
Be prepared to lay out $45,000 to $60,000 for a turn-key operation capable of generating $200,000-300,000 yearly gross sales. If your vision is bigger, the required investment will obviously be larger.
"How big should the store be?"
A comfortable size would be about 13001500 square feet-half in showroom and half dedicated to offices, shop and inventory storage. Plan for growth and be prepared to pay dearly for that extra space in a good area. Lease terms of 5-10 years are common for good retail spaces. Unless the sidewalk is gold-plated, stay away from lease rates exceeding $1.50 per square foot per year.
On the other hand, if the agent is "trying to give the place away," you probably will be as unsuccessful in that location as was the prior tenant.
"What type of location is best?"
A medium-sized shopping center that caters to a regular, local clientele but is readily accessible to major traffic patterns. Remember, customers will be carrying 5-gallon jugs of water to their car so don't locate right next to a major store where no parking is ever available.
Quick in and quick out is very important. Stay away from shopping malls. No one will ever carry a 40 pound jug of water through a shopping mall to a distant parking spot.
"What type of overhead expenses can you expect?"
With a new store, expect between $2000-3000 per month (not including salaries). As the store grows, this number will probably peak around $3500-$4000.
"How do you generate retail POU sales?"
We are active in many local advertising media-write for several papers, give lectures, have door-to-door salesmen, cover the Yellow Pages, direct mail, flyers, the standard advertising circuit. However, we are very careful to evaluate the effectiveness of each of our advertising efforts and, thus, maximize our ROI by promptly eliminating "losers" in the media.
Finally, our stores are strategically located to draw from larger "anchor" stores such as Safeway, chain drug stores, and are located on major thoroughfares using highly-visible, street-front signs.
"For in-store water sales, do you recommend selling distilled water, reverse osmosis water or both?"
At Aqua Technology, we sell steam-distilled water(we went to two types in 1999). Other water stores around the country use R/O, and some are now considering or now offering both. A lot is personal preference. We find that selling only one type of water is less confusing to new customers. On the other hand having two types of water might eliminate some of the "mineral" arguments one might encounter with new customers.
From a technical standpoint, maintaining two different systems, storing, sterilizing and dispensing two types of water complicates the store design and maintenance. On the other hand, one system could serve as a backup for the other during scheduled or unscheduled maintenance (downtime) periods.
Financially, we have found that a high-volume, high-purity distiller will provide a better return on investment (ROI) than reverse osmosis. The tradeoff is equipment complexity---a high volume R/O system will provide a smaller ROI with less equipment complexity.
"What do you find is the biggest center in the store?"
Without question, the point-of-use (POU) systems. In the POU category, steam distillers are by far the leader in our stores, with carbon filters second and R/O systems third. The "aftermarket" for all three systems should not be ignored. We have a strong referral and filter replacement program that reaches throughout the health-related "networks" (holistic, chiropractic, nutritional, etc.).
"What about licensing and health approvals?"
Each state will have regulations on vending-type operations such as a water store. Periodic health inspections as well as biological, organic and inorganic tests will be required. It is wise to have your own bacteriological lab to be able to periodically verify the design integrity of your water production, storage and dispensing system and any changes made in these subsystems.
"What are some of the problems one will encounter in the water store?"
Growth management. It is hard to resist expanding the basic water store concept into related areas such as water delivery services, water conditioning equipment, selected health items, selling books, and the list goes on and on.
Secondly, it is imperative to have accurate and readily available answers to customer's questions. The woods are full of all types of POU salespersons and to effectively compete with these other products you and your sales staff must be up to date on new products and their strong and weak points.
"What is the bottom line for success with customers?"
You have to act as a broker of information. On one hand, each customer will have different needs, based on personal preference and water conditions. As an information and water conditions. As an information "broker," you demonstrate an understanding of his/her peculiar water conditions, and the available purification technologies, thus permitting the customer to select a perfect match between his need, budget and available techniques.
Most of all, be honest. It doesn't take much research on the part of a curious customer to find out if you are pulling their leg about some water purifier. Good news will travel fast, but bad news will travel faster!
And, remember, as with any other type of retail activity, the products you select to sell should sell on their own merits. If you have to downgrade the competition in order to sell those products you have, it's likely you are selling the wrong products.
>IS A WATER STORE FOR YOU?
Running a water store requires that you have a commitment to better health through better water. The types of customer you attract will doubt your sincerity and honesty if you try to sell them a home water purifier and at the same time puff on a cigarette.
Running a water store requires that you not overestimate the profits you will make in the short haul. A water store is a long haul activity if you want big profits. There are no "quick kills" in this business.
Running a water store means having the best equipment you can put your hands on. Then you don't have to make excuses for not having what the competition offers.
Running a water store means running a business, with all the controls and paperwork that would go along with selling balloons, ballistic missiles, etc.
If you can handle these items, we look forward to seeing you become a part of one of the fastest growing small businesses in the U.S. today.
Owner and operator of Aqua Technology of San Jose, CA, Gene Shaparenko built his first, full-service retail water store in San Jose in 1983 and the second one in Sunnyvale in 1985. Since then, he has consulted for investors and assisted in the construction of several dozen other stores nationwide.
New stores which he creates not only use advanced equipment technologies but have available powerful business and strategic planning software to assist business owners in the evaluation of new business opportunities as well as provide business strategies to deal with competitive business activities which may affect their retail or development activities.
Shaparenko is a EE graduate of the University of North Dakota with advanced degrees from Purdue University and with post-doctoral fellowship work in satellite communications at Stanford University's Electronic Research Laboratory. He spent a dozen years in the aerospace industry in satellite, navigation and reconnaissance system design and development.
He has been President and CEO of a major bottling company and Vice President of Research and Development for advanced chemical polymer design and far infrared technologies.
His research company, Pacific Intertech Corporation, investigates new and emerging technologies worldwide and brings together investors and technologists to create new and advanced products.
Part two of this two part series on water store development can be found HERE.
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