Water is the essence of wetness... for Cott Corp. Canada's drinks/filtration company treated itself to acquire Primo Water for $775M. Cott's so enamored with water that it sold off its soft-drink biz and quit coffee/tea. Now it's even adopting Primo's entire brand — Cott is marrying Primo, taking its name, and paying it $775M.
Primo follows the ol' razor/razor blade biz model... You're lured in with cheap razors, but then have to refill with pricier blades (#hygiene). With water, Primo can barely make any money (but hook you) with its water dispensers, then make bank when you come back to exchange/refill your huge water jugs:
- Low Margin: The claaaassic boulder-sized hot/cool water dispensers dominating your office kitchen — they're barely profitable for Primo (8% profit margin).
- Higher Margin: Pre-filled plastic water jugs delivered to offices and homes nationwide — pretty profitable (30% margin).
- Highest Margin: FYOB (fill your own bottles) using Primo's filling machines at over 23K locations like Safeway, Walmart, and Costco — the most profitable (31% margin).
Do less, more... Companies like Coca-Cola try to do more, more. Coca-Cola is a soda company, but it owns hundreds of non-soda brands from Dasani to Vitaminwater. Cott's doing the opposite: selling off its non-agua brands to focus solely on water (btw — it owns green glass bottle legend Mountain Valley).
- Upside: Cott can do more with one product — Hydrating health is trendy along with sustainable bottles. Plus, everyone literally needs it to survive.
- Downside: But Cott could get cott if the trends disappear — Water surpassed soda as America's favorite bottled beverage in 2017, but it could just be a fad.