High-end water filters a tough sell

January 15, 2010

Manuel Desrochers and his sister, Noemie, are the founders of Aquaovo, a Montreal, Canada-based startup that designs unique water filters, aimed at reducing the environmental hazard from billions of plastic water bottles filling up landfills (see original story here).

Their trademarked Ovopur unit is a 23-pound ceramic egg-shaped apparatus that holds 11 liters (2.9 gallons) of water and uses the combination of gravity and a glass filter cartridge to purify ordinary tap water.

“Our target market is really 30-50-year-old young professionals, who really like the design of it and they’re thrilled to hear that it’s actually functional,” said Noemie (read her journal here), who added they raised the price for the filters from $560 to $660 after their first six months in business. “We really came to this price thinking this clientele is willing to pay for quality, so they’ll spend around $700 for the Ovopur.”

Desrochers said that despite the Ovopur’s premium price tag, the unit actually saves families money when compared against buying bottled water. After the initial expenditure for the device, Desrochers said it costs consumers roughly another $200 annually for three glass filter cartridges (they retail for $50 each, plus shipping), which have a four-month lifespan. Desrochers added that the average family spends anywhere from $300-600 a year on bottled water and that the Ovopur starts to save families money after two years.

THE PITCH

According to the Beverage Marketing Corporation (BMC), a consultancy firm that monitors the global beverage industry, the U.S. bottled water market is an $11 billion annual industry and Americans alone consumed more than 8 billion gallons of bottled water in 2008. That represented close to 40 billion plastic bottles, according to BMC data. Additionally, Desrochers’ research showed that roughly 90 percent of purchased water bottles end up in the garbage or in nature and that 40 percent of commercial bottled water is actually tap water.

Desrochers said the company’s biggest challenge is growing sales in the lucrative U.S. market. In order to make that happen, Desrochers is looking for an additional $250,000 from investors to finance a new marketing push and get new products to market. Later this year, Desrochers said Aquaovo will be launching a high-end reusable glass water bottle, that will retail for between $60-80 and include an extractable filter unit that fits any wide-mouth bottle.

TAKING IT TO THE EXPERTS

Kindra Tatarsky, a managing director at national angel investor group Golden Seeds, was very impressed with the Desrochers and their Ovopur filter and thought it would be enticing to seed- and early-stage investors like herself.

“They’ve done a terrific job in a really difficult economy, in terms of launching a product and growing sales and having some good momentum,” said Tatarsky, who liked that the founders had thought things through by offering recyclable glass filter cartridges. “I think their design is lovely and they have a terrific aesthetic.”

Tatarsky said the move to roll out a cheaper alternative, in the form of a portable glass water bottle, is a “really good business strategy” that “leverages off the brand they’ve built from this marquee product.”

Tatarsky was a little leery of the Ovopur’s larger price tag, but was confident Aquaovo could find a foothold in a green retail marketplace that is growing.  “It’s definitely going to be the higher-end consumer, given the $650 price point,” said Tatarsky. “That’s why it’s good they have this bifurcated strategy of having the marquee products and then having something that is more accessible to a more moderate customer.”

Arrun Kapoor, a principal at venture capital firm SJF Ventures, liked what Aquaovo is doing, but classified it more as a “lifestyle” business that he said was unlikely to offer the growth potential that would make a significant return on investment.

“Overall, I think it’s a nice idea,” said Kapoor, but added he felt the customer base was too small to justify venture funding. “It could make them some good money, but I’m having trouble visualizing how it can hit the sort of rapid acceleration that a venture investor could get excited about.”

Kapoor said Aquaovo could improve its chances of successfully growing the business through an extensive marketing campaign that would help better engage  its target audience, who find their reusable cartridges something worth paying a premium for.

“I think they have a great design and it really does change the way people look at water dispensers.  It makes them go from a device with utility to a part of the design of your room,” said Kapoor. “That is compelling and a small group of people that are design conscious may pay for this.”

Rob Day, a partner with cleantech venture firm Black Coral Capital, agreed with Kapoor that Aquaovo was not the right fit for venture capital investment and should pursue a deal with an angel investor.

Regardless of who they end up pitching, Day said the investors would want to know two things: 1. how Aquaovo is specifically targeting high-end consumers; and 2. how close they are to cashflow breakeven.

“From a hard dollars-and-cents perspective, this product’s aesthetic appeal clearly comes at a cost,” said Day, who added he could buy “Brita-like filter solutions” that would provide a much better bang for the buck. “$700 up front and then $200 a year is tough to swallow, if you’re talking about being able to take this beyond an early-adopter niche.”

Despite the challenges, Day felt the Ovopur was still an attractive high-end product. “It’s a nice business idea,” he said. “I think as people get more aware of drinking water quality issues and the anti-plastic bottle pushback continues, there will be a nice niche of high-end consumers willing to pay for something with aesthetic appeal like this.”

Do you agree with our experts? What do you think of Aquaovo’s business model and Ovopur water filter? Is this too high-end to be able to scale significantly? Post your comments below:

One comment

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This business has forgotten one key element of selling filter in the US — NSF Intl certification. Plus state certifications, specifically California, Iowa, Colorado, Wisconsin and Michigan. NSF certifications actually guarantee manufacturer claims to be accurate, by their third-party testing protocols. And these certifications are an expensive committment to their product and their claims, so only those who are sure of their products’ capabilities will spend for NSF certification. Those who know their product can’t perform will not.

Without these certifications, their systems are just one of many that don’t live up to their claims. Also, guaranteed these filters do not remove chloramines, or trihalomethanes, asbestos or arsenic. They probably do an okay job of some basic contaminants, but the filter costs are very high for something that is just okay.

The marketing is based on a groovy design, but not on actual performance. Investors should only put their money behind proven technology that is as good or better than what exists in the NSF-rated market today. Otherwise, the money is being spent on something that is essentially a marketing fad, not a health product.

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