Blu Water ATMs

Blu targets Latin America's over-reliance on bottled water, which is expensive (due to transportation and packaging costs) and environmentally unfriendly (creating high volumes of plastic waste). Even as more Latin Americans become environmentally-conscious, bottled water remains a staple item due to lack of a convenient alternative.

Blu offers pure drinking water of the same quality via its IoT-connected network of filtration & refill stations. The devices connect to the public water network and filter water on-the-spot (hence eliminating transportation costs), and require consumers to bring their own bottle (hence eliminating plastic waste). Connecting the devices to the cloud allows us to perform cashless operations, optimise maintenance schedules and ensure 24/7 functionality of every machine.

At full scale, Blu could positively change lives by preventing potentially billions of plastic bottles (equal to Latin America's consumption) from entering the environment each year, while giving Latin Americans a convenient, lower-cost and environmentally-friendly (guilt-free) drinking option.

Latin America purchases 10 billion plastic bottles annually, which end up in landfills or oceans and take up to 450 years to decompose. Bottled water is also expensive, primarily due to the cost of transporting full bottles of liquid to points of sale (with 75% of bottled water revenue covering this cost alone). 

Despite Latin America becoming more environmentally-conscious, it continues to rely on bottled water due to the lack of a convenient alternative outside the home (with tap water still unpotable in many cities). Latin Americans want to drink water, as shown by the strong substitution towards bottled water from sodas. However, our research suggests consumers are seeking a less-expensive and guilt-free option.

Sourcing drinking water presents challenges to all Latin Americans, but the nature of these challenges varies by socioeconomic segment.

Wealthy consumers are increasingly drinking water over other beverages (e.g. sodas), but are also becoming more environmentally-conscious and are seeking a guilt-free solution that does not contribute to plastic waste with every bottle purchased. 

Latin America's large and growing middle class typically boil tap water for consumption in the home (a method they are largely satisfied with). However, they still regularly purchase bottled water when they are away from the home due to lack of an alternative. Bottled water is expensive, and these middle-class consumers are price-sensitive and are looking for ways to relieve the intense cost-of-living pressures in Latin American cities.

Many of Latin America's poor communities rely on deliveries of water from cistern trucks, which is often contaminated. Some consumers purchase bottled water when they can afford it - however most weeks they are unable to. A low-cost clean drinking water solutions would benefit the health of these communities.

Sources: Euromonitor market research, primary research conducted with ~130 consumers across Lima, Peru, in the districts of Barranco, San Isidro and San Juan de Miraflores.

A network of IoT-connected water refill stations. They provider water of the same quality as bottled water, but far cheaper and without plastic waste (and therefore guilt-free for the user). There are three important components of the solution: 

(1) A 5-stage advanced purification process similar to that in a bottled water plant, but on a smaller scale. It produces high-quality water that is trusted by users.

(2) IoT connectivity, which includes a LoRa chipset and sensors to detect and measure the outflow of water from the device, as well as sensors to detect filter condition and water quality. This helps us to scale because it enables remote operation and data collection from the network of machines, which will become increasingly important as the network grows. The sensors and data transmission will allow us to monitor sales activity and implement per-litre billing models. Through remote monitoring of filter condition, we are able to ensure 24/7 functionality and optimise maintenance processes to control costs.

(3) Electronic payment. In the next generation of our machines, consumers will be able to pay with their mobile phone for convenience and ease of processing.

Locations will include retail outlets (e.g. shopping centres, pharmacies, banks), other public spaces (e.g. metro stations) and workplaces (e.g. mining camps, corporate offices). Consumers pay per litre of water dispensed. Selected machines will also be installed in poor communities to provide water at a discount.

The solution includes elements of both process & product innovation.

1. Process innovation in the delivery of bottled water. Normally, bottled water is produced in a cental plant and transported to points of sale. This transportation accounts for 75% of the total cost of the product, and the bottle (without a widespread recycling program) contaminates the environment. Blu's refill stations connect to the public water network purify water at the point of sale. They also employ a 'bring your own bottle' system to eliminate plastic waste. Without transportation and plastic costs, consumers enjoy a significant saving relative to bottled water. 

2. Product innovation in the integration of IoT into water refill stations. This allows us to monitor sales activity, identify unique consumers (and feed hydration-related insights back to them or their employers), and monitor  filter condition to optimise maintenance schedules.

Activities: We will design and install water purification and refill stations in high-traffic locations. We will also promote the benefits of refill stations and reusable bottles via campaigns at selected locations, social media and through our corporate partners.

Outputs: Purified water of a similar quality to bottled water, but offered at half the price with a bring-your-own-bottle system.

Short-term outcomes: Consumers who are already willing to carry their own reusable bottle (e.g. those who are particularly price-sensitive) adopt the system instead of buying bottled water. Consumers who have just finished their bottled water refill it with the machine instead of purchasing a second. Some plastic waste is prevented as a result.

Medium-term outcomes: Consumers adopt the bring-your-own bottle system and develop the habit of carrying their own reusable bottle. The further reduction in purchase of bottled water prevents even more plastic waste.

Long-term outcomes: Bottled water companies transition their business models away from single-use plastics towards bring-your-own bottle systems or eco-friendly packaging in order to remain competitive and adapt to consumer demand. This will have the largest impact of all on the amount of plastic waste generated.

Blu currently has two pilot operations, which reach a total of 1,000 users.

In one year, we intend to reach 100 refill stations, which could reach 10,000 users and prevent 100,000 plastic bottles from being discarded into the environment each year.

In five years, our goal is to have 1,000 refill stations, which could serve an estimated 1 million users each month (once broader awareness is achieved). Importantly, by using our refill stations instead of purchasing bottled water, 4 million plastic bottles from being discarded into the environment.

Since we directly compete with bottled water, each refill represents a plastic bottle that has been saved from entering the environment. 

Since commencing our pilot two months ago, we have had some impact. While our pilots are being conducted in an office building environment, one of our corporate partners replaced a plastic bottle vending machine with our refill station. We estimate that this has enabled approximately 1,000 transactions to date (and hence displaced 1,000 bottle sales).

Future generations of the machine will have the technology to monitor transaction activity to provide a real-time estimate of the number of refills (and hence plastic bottle sales prevented). After the pilot, the machines will also be placed in retail locations and displace bottled water sales from nearby outlets.

Blu has 4 goals for the next 12 months.

1. Establish a pilot operation in a retail location in Lima, Peru.

2. Produce our next generation of refill station, that allows mobile payment and a more robust set of internal sensors.

3. Reach 100 refill stations, and reach a target of 10,000 regular consumers.

4. Establish a pilot operation in Santiago, Chile.

Over the next 5 years, Blu will scale its solution to other Latin American markets such as Bolivia, Argentina and Ecuador to reach a target of 1,000 refill stations.

Capital intensity: Given Blu is a hardware-based solution, capital investments are required for each unit installed. Investment is therefore required to scale, which can be significant until Blu is able to mass-produce the machines. 

Behavior change: Currently, most Peruvians are not yet in the habit of carrying their own reusable bottle. Changing this behavior will be necessary for Blu to have the desired impact in reducing reliance on single-use bottled water.

Competition: As a simple solution without specific patents on the technology, it is possible that competing solutions will arrive in Latin America, placing downward pressure on margins.

Capital intensity: Blu's expansion model is to partner with mission-aligned corporates that also seek to create a shift away from single-use plastics. These companies can provide locations for the machines (e.g. shopping centres) and co-invest in the upfront cost of the machines, while also sharing in the revenues that they generate.

Behavior change: Reusable bottles will be sold alongside the machines, at least initially. This could be in a vending machine located next to the refill station. We will also consider campaigns at selected locations (e.g. universities where machines will be installed), and through Blu's network of social media influencers.

Competition: Blu's mindset is to embrace, rather than resist competition. This is because Blu's mission is to shift the business model of water consumption in Latin America to a more sustainable solution that eliminates single-use plastic. If competitors are able to contribute to this movement, we support it. Further, for a competitor's refill station to compete with Blu on price, it would need to be located nearby. Given the complete lack of a solution today, there are many high-traffic locations for both Blu and other players to co-exist in the short to medium run. In the long run, there is scope for consolidation between providers.

Blu is headquartered in Lima, Peru and undertakes its product development and manufacturing there. The first market for expansion will be Peru, followed by neighboring countries Chile and Bolivia.

Blu is currently undertaking a pilot study in two sites with two major corporations (Cencosud and Roche), who have agreed to be our early test partners. The machines are placed in the corporate offices for employees to use. The next stage if testing will involve placing machines in a public space, such as a shopping center, to test demand from the general public.

2 full-time and 2 part-time

Our team is well-placed to deliver this initiative due to the breadth and complementarity of their skills and the co-founders' prior experience working together.

Fernando and Callum are co-founders. Fernando is a well-known entrepreneur in Peru, having founded social enterprise YAQUA and fitness chain Fighter Fit. Callum has 7 years of experience as an economist and strategy consultant, having advised some of the world's largest companies on growth & expansion strategies. Fernando met Callum 10 years ago in Australia, as they were both studying the Bachelor of Commerce at the University of Melbourne. Back then, Fernando and Callum co-founded the Melbourne Microfinance Initiative, now one of the fastest growing student societies in Australia. In 2019, Callum moved to Peru to help grow Fernando's company YAQUA (a bottled water brand with 7 years in operations). Blu was founded during this process and now both entrepreneurs are 100% dedicated to it.

Blu's key team members are Ricardo and Jorge, a product designer and a full stack developer. Both have worked together in the highly-successful tech startup Anda, designing and building a smartwatch for kids. They are IoT experts.

We have partnerships with some of the largest companies in Latin America. Our partners provide locations for our refill stations and co-own the equipment. Currently we are at the pilot stage and are trialling the early version of our technology in the corporate offices of Cencosud and Roche. Further partnerships are under discussion with Peru's other largest retailers. 

Our model is B2B2C, meaning that we partner with values-aligned corporates that provide locations for our machines and co-invest (typically a third) in the cost of the equipment and share in the machine's revenues. 

The refill stations are placed in retail locations (for example, a shopping center) where consumers can access it and pay per liter of water dispensed. The machines will allow payment via mobile phone.

Unit economics are favorable, both for Blu and the corporate partner. The consumer also receives water at a 50% discount to bottled water.

Consumers pay per liter of water dispensed from the refill stations. Given the favorable unit economics per liter (due to the elimination of transportation costs), the business is financially-sustainable by design.

Our modelling takes into account costs such as depreciation, filter replacement, water & electricity, cost of retail space, maintenance, IoT network subscription expenses, security/insurance and overheads. At a 50% discount to bottled water, the unit economic are still favorable after all of these costs are considered.

The path to profitability therefore involves perfecting the machine design to minimize faults and maintenance requirements, and reaching scale.

As a hardware-based solution, scaling can be capital-intensive. Therefore, be believe that a partnership could help us to improve our prototype, locate and establish a relationship with a reputable manufacturing supplier, broaden our relationships with potential retail partners and help us reach the capital investment required to manufacture a first batch of Water ATMs.

Eventually, we hope to establish partnerships with a range of major retailers and shopping centre operators across Latin America. We are in the process of establishing the types of partnerships we require in Peru - primarily large retailers with a high number of consumer-facing locations (including Cencosud). We are seeking to broaden our set of partnerships to other Latin American markets. 

We would also like to form partnerships with governments (in particular, operators of public transport networks), and potential manufacturing suppliers.