As more people turn towards bottled water as their primary source of drinking water or look for options to refill water containers from safe sources, buying water from water stores has started becoming a serious alternative to tap water.
But are Water Stores Profitable?
If you are planning to get into the water stores business, you are probably asking yourself this question over and over again.
The short answer is Yes, a water store business can be quite profitable. Of course, like any business, there are a number of factors that will affect how successful a water store is. Things like location, competition, and operating costs will all play a role in how profitable a water store can be.
In this article, we will review the main factors that impact the profitability of a water store.
When Are Water Stores Profitable?
Water stores are most profitable when they are able to generate high enough volumes of sales to compensate for the main costs which include rent, labor, utilities, and the cost of the water.
The more water a store is able to sell, the higher its profit margin will be. This is because the cost of operating a water store is relatively fixed regardless of how much water is sold.
To generate high volumes of sales, it is important for water stores to be located in areas with high foot traffic. This could be near a busy intersection, in a shopping mall, or close to a popular tourist destination.
Also, water is a commodity. So a store with minimal competition in its vicinity is likely to have higher sales than a water store with plenty of alternate options for buyers.
Operating costs are another important factor that impacts the profitability of a water store. Needless to say, stores that are able to keep their operating costs low will be more profitable than those with high operating costs.
There are a number of ways to keep operating costs low. One way is to source water from a cheaper supplier. Another way is to use energy-efficient equipment and appliances. The third is to buy in volume or on consignment.
Location, competition, and operating costs are all important factors that will impact the profitability of a water store. But there are many more.
Let’s now look more closely at the top factors that affect a water store’s profitability.
Top Factors Affecting the Profitability of a Water Store
The factors which most affect the profitability and therefore the commercial viability of a water store are:
- Location
- Range of water products
- Targetting the right customer segments
- Prices
- Competition
- Operating Costs
- Inventory Management
- The Weather
- Upsell / Cross-sell opportunities
- Supplier Management
Let’s dig deeper into each of these.
1. Location
‘Location’ has always been one of the most important factors for any retail business and water stores are no different.
A water store needs to be located in an area with high foot traffic if it wants to generate enough sales to be profitable.
The best locations for a water store are near busy intersections, in shopping malls, or close to popular tourist destinations.
2. Range of water products
Customers always prefer stores with a range of products to choose from. A customer entering a water store will expect no less.
To make sure that every customer who walks into your water store makes a purchase, you will need to carry different types of water products.
Some examples include:
- Different brands of bottled water
- Flavored water
- Mineral water
- Still water
- Herbal Water
- Vitamin-enhanced water
- Water with extra nutrients
- Sparkling water
and many more.
3. Targetting the right customer segments
To know which different types of water products to carry you will need to understand the target market for bottled water that you plan to address.
Will you target the health-conscious consumer? Or the safety-conscious? Or perhaps your water store is in a tourist location and you are targeting the thirsty tourist on a hot summer day.
Be sure who your ideal customer is and then make sure you have the products that will appeal to them and the price they will be willing to pay.
4. Prices
No discussion about profit or loss is complete without talking about the price of products. The way you price your products will play a big role in profitability (or lack thereof).
If the prices of your water products are too low, you will make less profit per sale. You may even give the impression that you’re carrying a low-quality product. On the other hand, if the prices are too high, customers will go to a competitor.
To find the right price for your water products, you need to understand the perceived value of bottled water to your target market segments and then price accordingly.
And don’t forget to check out how competitors in your area are pricing similar products.
5. Competition
In any business, but especially in retail, it is important to understand the competition. A water store will have two types of competition:
The first is other water stores or stores carrying water products and the second is all the alternative sources of hydration that your potential customers have. This could be a juice bar or a soda fountain in a nearby store. It could also be a free water fountain in a shopping mall nearby.
You will need to understand both types of competition and how they can impact your business. Remember, you need to give your potential customers a reason to walk into your store instead of those of your competitors.
6. Operating Costs
The operating costs of a water store are the expenses incurred in running the business on a day-to-day basis.
Main costs include:
- Rent or mortgage payments
- Utilities
- Insurance
- Wages
- The cost of water products (COGS)
- Maintenance and repairs
- Marketing and advertising
To be profitable, a water store needs to generate enough sales to cover all of these costs and make a profit.
A big mistake that many entrepreneurs make is to underestimate the operating costs of their business. Be sure to do your research and understand all the different types of costs that are associated with running a water store before making any decisions.
7. Inventory Management
The key to profitable retail is effective inventory management. If your water store does not have the right products in stock, it will lose sales. For instance, a customer looking for a specific brand of water will go to a competitor if they cannot find the brand in your store.
On the other hand, if you have too much inventory, it will tie up cash that you could use elsewhere in your business. It will also mean higher storage and insurance costs. And in the worst case, you will need to get rid of your old excess inventory and absorb a loss.
To manage inventory effectively, you need to understand what products are selling well and which are not. You also need to keep an eye on trends so that you are not stuck with a lot of outdated inventory.
Make sure you put systems in place to track sales, monitor stock levels, and reorder products when necessary.
8. The Weather
One factor that is often out of the control of a water store owner is the weather.
Sales of bottled water are highest in hot weather when people are looking for a way to stay hydrated.
In cold weather, sales will typically be lower as people are not as thirsty and are more likely to drink hot beverages like coffee and tea.
Of course, there are ways to offset the impact of weather on sales. For instance, you could carry other products like sports drinks or hot chocolate that are more popular in cold weather. You could also offer discounts or promotions to encourage people to buy water during slower periods.
9. Upsell / Cross-sell opportunities
The entire profitability of your water store doesn’t have to depend on water products alone. You can (and should) carry other products that your customers are likely to buy when they walk into your store.
If your water store is in a tourist area, you could sell souvenirs like T-shirts, keychains, and postcards. If you are near a beach, you could sell sunscreen, hats, and sunglasses.
If you are in a busy urban area, you could sell coffee or tea to people looking for a quick pick-me-up. And if you are near an office building, you could sell lunch items like sandwiches and salads.
These are just a few examples of how you can use upsells and cross-sells to increase sales and profits. Be creative and think about what other products your customers might need or want when they come into your store.
10. Supplier Management
Finally, you can always negotiate with your suppliers to extract extra profits from each transaction. For instance, if you are buying in large quantities, you could ask for a volume discount. Or if you are paying upfront, you could ask for early payment discounts.
You can also try to negotiate longer terms so that you have more time to pay your invoices. This will free up cash flow in your business and give you more flexibility.
Of course, you need to be careful not to put your business in a difficult position by overextending yourself. But if you can get favorable terms from your suppliers, it will definitely help improve your bottom line.
Conclusion
In this article, we tackled the question – Are Water Stores Profitable? – by reviewing the top 10 factors that impact the profitability of water stores.
If you are planning to start a water store remember that the success of your store will depend on a number of factors, including location, competition, product mix, pricing, inventory management, control over operating expenses, upselling, cross-selling, and supplier management.
By carefully considering all of these factors and truly understanding the needs of your target market, you can increase your chances of profitability and success.
