IN-DISPENSABLE

The dispensed-water category may look like a modest, low-profile customer service, but it is a surprisingly profitable one for supermarket retailers.In-store, where retailers say they capture both impulse and destination sales, the unobtrusive machines are found along the store perimeter, in store lobbies, or in an aisle. More often than not, however, the water centers are placed somewhere on the

The dispensed-water category may look like a modest, low-profile customer service, but it is a surprisingly profitable one for supermarket retailers.

In-store, where retailers say they capture both impulse and destination sales, the unobtrusive machines are found along the store perimeter, in store lobbies, or in an aisle. More often than not, however, the water centers are placed somewhere on the store's perimeter, whether it's near the produce department or wedged between the service deli and the seafood department in an otherwise "dead" area.

On a recent store visit in Atlanta, SN noted a coin-operated water-vending machine in a metropolitan Publix Super Markets location. The dispenser was placed at the front of the store along a wall near an exit and the checkstands.

At another Atlanta-area retailer, Ingles Markets, a store representative said the machine was placed just inside the doors as customers entered the supermarket.

"It has been our experience that the ideal placement is on a perimeter wall in the produce department. We have found that once the machine is there, the shoppers know where it is," said Ken Sumner, president of Pure Fill Corp., Modesto, Calif. His company is the exclusive water supplier to Save Mart Supermarkets, Modesto, Calif. Other retail clients include Raley's Supermarkets, Haggen Inc., Winn-Dixie Stores, Publix, Albertson's, Lucky Stores and Brown & Cole.

According to retailers and water companies alike, placement soon becomes a nonissue, because, with a little promotion, the machine's location is made known to customers, and it ultimately becomes a well-traveled destination stop.

Retailers polled by SN agreed that the bulk of their dispensed-water sales are planned purchases, since customers bring their own jugs. Indeed, almost all outside-vended water purchases are planned ones.

At San Antonio-based Handy Andy stores, "People fill up with water without coming in the store," said the chain's president, Ken Murphy. "We don't have space to bring [the vending machines] inside," he added.

On the other hand, when dispensing machines are inside, some stores also merchandise various bottle sizes nearby. For instance, Brian Yost, assistant store manager at Churchill's Super Markets, Sylvania, Ohio, said his store carries 1-, 3- and 5-gallon containers. His dispenser is placed toward the back of the store near a beverage center, he said.

Similarly, Barbara Schenk, vice president of operations at The Mustard Seed Cafe & Market, Akron, Ohio, said her stores merchandise bottles near the indoor water source. But The Mustard Seed stocks polycarbonate bottles instead of plastic, because they don't allow the chemicals from plastic to leach into the water, she said. The jugs are also recyclable, and their easy accessibility encourages impulse sales.

Dispensed water is very profitable for Save Mart, according to Sally Sanborn, director of public relations.

Water at Save Mart is vended from two sources: an outside dispenser and an indoor water center. The indoor water bar has two or four ports, so more than one shopper can fill a bottle at a time. The total square footage, according to Sumner of Pure Fill, is about 9 feet.

Coins are collected from the outdoor machine by Sumner's maintenance team. Save Mart then receives a commission check for outside sales. Inside, Save Mart collects the money and receives a bill from the vendor for the amount of water dispensed, which is based on an internal metering system that calculates how much water has been poured. Other water-dispensing companies with whom SN spoke worked on a similar pay system.

"The inside machines do considerably more volume than the outside ones, because customers can buy water inside the store with a debit card, food stamps, check or credit card. Outside, it is coins only," explained Sumner.

He added that Save Mart "is looking to serve 100% of the consumer's needs with equipment both inside the store and out. They are a complete water store," Sumner said. Last calendar year, Save Mart sold more than 4.5 million gallons of water in its stores, he said.

Not only are the machines profitable; they also cost stores almost nothing to install. They pay for the electricity and water that flows through the fixture's plumbing, but the company that owns and maintains the dispenser absorbs all other expenditures.

For example, Glacier Water, a top-selling dispensed water company, schedules weekly maintenance check-ups in stores that lease its machines, explained Jerry Gordon, president of the Carlsbad, Calif.-based company.

Glacier Water has dispensers at various locations within many chains, including H.E. Butt Grocery Co., Randall's Food Markets, Fred Meyer Inc., Stater Bros. Markets, Ralphs Grocery Co., Publix, Winn-Dixie, Albertson's, Ingles and Kroger. Its most recent contract is with Safeway, Gordon said.

Gordon said when a store first installs a water dispenser, sales increase if the purified water is promoted.

Tanney Staffenson, store manager at Lamb's Market Thriftway, Wilsonville, Ore., said his store promoted its indoor, 3-foot by 2-foot water center through bag stuffers. After six months, the retailer quit advertising the dispenser because it had become a fixture in consumers' minds. "Ours is not in a high-traffic area, but it is a destination stop," Staffenson said.

On the other hand, Schenk of The Mustard Seed told SN: "We market our water." The independent natural-food supermarket promotes its water with in-store fliers and other literature available throughout the 50,000-square-foot unit.

This store is unique because, in its current location, as well as in a future location in Solon, Ohio, all of the store's water is run through a filtering and purification system found in a "water room." The room is plumbed to accommodate the process of "reverse osmosis," in which water from a municipal source is run through various kinds of filters until it reaches a high pressure membrane designed to remove dissolved solids that may be found in the water.

Despite its origins as city water, vended water is free of bacteria, chemicals, dissolved solids and other pollutants, according to retailers and water companies that spoke with SN.

"This water system supplies filtered water to our produce misters, as well as the service station in our restaurant," Schenk said. "Our cooks in the kitchen use it, and it is in the dispensing unit on the floor for our customers," she added.

Customer demographics for the purchase of bulk water vary from store to store. Glacier's Gordon and Pure Fill's Sumner said they see more appeal among middle to low-income consumers. Gordon added that he has observed a higher percentage of Hispanics and Asians taking advantage of vended water, possibly because the water in their native countries is not very good.

The good news is that it looks like two different customers are buying bottled and dispensed water. "Dispensed water does not cannibalize our bottled-water sales," said Schenk. "There will always be people who don't want to mess with jugs," she added.

For retailers and vended-water companies that have seen their customers walking in with 5-gallon jugs, it's not the branded-water manufacturers who are missing sales -- it's the home-water delivery services. Prices for home delivery can be as much as $2 per gallon, while most retailers keep prices down around 25 to 29 cents a gallon.