|
Primo Water Corporation (PRMW-NASDAQ) |
|
|
July 29, 2011 Issue |
||
|
The Most Powerful Name In Corporate News and Information |
||
CURRENT ISSUE | COVER ARCHIVES | INDEX | CONTACT | FINANCIALS | SERVICES | HOME PAGE |
||
|
With their New Beverage Center Dispensing Sodas, Sports Drinks and Coffee, and Relationships with Major Retail Outlets Throughout North America, Primo Water Corporation is Well Positioned for Growth |
||
|
Company Profile: Primo Water Corporation is a rapidly growing provider of multi-gallon purified bottled water, self-serve filtered drinking water and water dispensers sold through major retailers throughout the United States and Canada. Primo Water's products provide an environmentally friendly, economical, convenient and healthy solution for consuming purified water. |
|
|
|
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published - July 29, 2011
Mr. Castaneda: The vision when the company started was to provide water for consumers in a new and environmentally friendly way. Today, consumers have many choices, but a lot of those choices produce plastic bottle waste that go into landfills. We put in over 4 billion pounds of plastic bottle waste into landfills every year. What Primo Water offers is an alternative solution to filling the landfills up with plastic bottle waste.
Mr. Castaneda: The way the system works is the consumer purchases a home water dispenser and they would have the ability then to go on their regular shopping trips to purchase a three or five-gallons of purified water and enjoy it in their home. Then the consumer would have instant access to hot and cold purified water in their kitchen. The consumer would recycle the empty water bottles and replace them with full bottles through our exchange or refill process at their favorite retailer. Therefore, the consumer would not be wasting thousands of plastic bottles each year. We have recently expanded our vision to include any other beverage that someone would consume through the development of a beverage center, where you can make sodas, sport drinks and coffee.
Mr. Castaneda: Yes, the consumer recycles the container by dropping it off at the retailer and then picking up a new one.
Mr. Castaneda: There are two differences. First, is savings. Home delivery is relatively expensive and the consumer must sign up for long term contracts. Therefore, you can save between 30% and 75% by doing it yourself. Given today’s economy, consumers are looking at all activities to save money. The second difference is that now we will have a beverage center, so instead of just getting water at the dispenser you will be able to make sodas, sport drinks, teas, coffee; all from that same purified water base.
Mr. Castaneda: Yes, there is about 4% household penetration today of water coolers for the home, and that has mostly been driven from the home delivery market. So, when consumers switch and buy the cooler themselves instead of paying a lease for a cooler, they can typically pay back within less than a year from their lease payments and save on the cost of the water. As far as the space goes, consumers put them in their kitchens, garage, laundry room or wherever they want to put it. There may be less opportunity in large apartments or high rises for consumers to self-serve, so that is not the market we are going after. We are going after middle America.
Mr. Castaneda: We are in all the contiguous forty-eight states as well as all the provinces in Canada.
Mr. Castaneda: We are in primarily supermarkets and can be found in Drug and Hardware locations across the country. We have just started rolling out Walmart as a customer this year. We are also in all the Lowe’s Home Improvement centers across the country.
Mr. Castaneda: The Blue Rhino experience was really valuable in getting this business started. Actually, that is how this business got started. Some of our Blue Rhino customers approached us and asked if we could offer a water exchange service because they were selling home water dispenser units and consumers did not have a way to get the water. Primo is a very similar distribution business as Blue Rhino. We are delivering bulk bottles through distributors across the country to the same retailers. A lot of the same activities and processes we performed, learned and improved at Blue Rhino, we are applying to Primo Water.
Mr. Castaneda: For the water, we start with either spring or municipal water. We break it down to pure H20 through reverse osmosis or distillation process. We have third-party bottlers that do this work for us throughout the country with over sixty different bottlers. Then we add a proprietary mix of minerals for taste, which results in a smooth, silky water.
Mr. Castaneda: The market for water is very large. It is a $17 billion retail market for purified water in the US. However, the industry has a big problem; the environmental problem of plastic waste clogging up our landfills. Unfortunately, recycling rates in this country are less than 30%, so 70% of the bottles that we buy are not recycled.
Mr. Castaneda: We offer two solutions for consumers at different price points. First, we offer water exchange, where you drop off your bottle and exchange it for a full one. Secondly, the consumer can bring their bottle back and self-serve their refill of purified water at our vending location at the retail store. The price equivalency on a refill versus a case of 24-pack half-liter bottles is around $1.20 for a comparable case-pack and for an exchange, it is around $3.75 case-pack equivalent. Our water refill process is the lowest cost way to buy purified water.
Mr. Castaneda: Yes, it is targeted to the average middle-class American.
Mr. Castaneda: It is coming this Christmas.
Mr. Castaneda: There are two versions; one version is a countertop unit and the other unit is directly attached to our water dispenser. These systems can carbonate the water and then the consumer chooses between 30 flavors to make their beverage. The consumer can also enjoy “still” beverages like sport drinks or teas.
Mr. Castaneda: Thank you. The home water dispensers had never been consumerized before, so we added stylish finishes and designs. We also added innovation through bottom-load technology, to make it easy for the consumer. The consumer no longer has to pick that big bottle up and turn it over and spill the water, you just open the door and slide the bottle in and put a cap on it. There is a pump in the unit that will pump the water out for you.
Mr. Castaneda: We went public in November of last year and we did a follow-on offering just a few weeks ago, so we have about $10 million of cash on the balance sheet and we are debt-free. Also, we have a $40 million credit facility that we can tap for growth. This gives us the capacity to do acquisitions and the ability to organically grow our business. On the income statement side we expect to turn profitable this year and this will be the first year of profitability.
Mr. Castaneda: It is a combination of a few things. One is the taste, but that is secondary to environmental, convenience and price attributes. The consumer goes to the same stores they always shop and feel good about the purchase because they are doing something for the environment and saving money. And by the way, it tastes good.
Mr. Castaneda: We have only been public for about six months and during that time, we have done a non-deal roadshow and presented at a couple conferences.
Mr. Castaneda: Primo is a growing razor/ razor blade business, with the appliances as our razors and water exchange and refill as the razor blades. We have very good industry and consumer trends, and a recurring revenue business model. We have a line of sight to significant retail location growth and are targeting 40,000 – 50,000 locations in three to four years from about 15,000 locations today. The key to our business model is that it is very scalable. Our SG&A expenses do not have to grow at the same rate as revenue, because we have outsourced our production and distribution. Our costs are primarily sales and marketing and processing transactions, which are primarily fixed. Finally, we have a management team that has done this before with a similar business model and a successful track record.
Mr.
Castaneda:
We are in the early stages of our growth. We recently added new soda
products that make our growth opportunity much larger. If you look at our
stock valuation today, it is based on our water business, so investors will
get a free option on our new soda business. The soda business is similar to
a company called Soda Stream, but there are opportunities for both companies
grow in this space, because it is a very large. Soda Stream recently
launched in the U.S., and they have spent a lot of money trying to convince
people to make sodas at home. We will be doing the same thing and think this
is a very big opportunity for potential upside. There are not a lot of
growth stories out there; we are one of the few that has a significant
growth opportunity. |
||
|
There are not a lot of growth stories out there; we
are one of the few that has a significant growth opportunity. - Mark
Castaneda |
||
|
|
||
|
|
||
