FIELD INSIGHTS SERIES
SEPTEMBER 2013
SAFE WATER DISTRIBUTION IN INDIA
Improving Financial Viability Through Cost-Effective Delivery Services
MARCH 2014
Safe Water Stations need to reach minimum sales volumes to become financially viable.
We’ve field-tested a range of approaches to enable third-party distribution networks, with
the goal of demonstrating a model that’s profitable for local distributors and standardized
for replication.
Lead Author: Ryan Hebert Contributing Authors: Ravi Sewak, Hew Crooks, Sumanta Mitra, Shanker Batra
Background: Safe Water Kiosks
PROGRAM SUMMARY
To become sustainable, any water system must first achieve
• Objective: Improve the financial viability of Safe
Water Stations in India1 through bulk water sales to
institutions, distribution through retail stores, and
home delivery services.
financial viability. The community-level Safe Water Stations we
• Intervention: Field-testing alternative models to
enable consumers to pay a premium for delivery
services—including part- and full-time approaches,
different vehicle types and channels, and various
models for equipment ownership and water
pricing.
operating expenses, and a total of ~200 (45% of system capacity)
establish operate at low margins in order to maintain affordable
pricing (`4, or $0.07, per 20L container 2 ). As a result, each must sell
~90 containers per day (20% of system capacity) to cover ongoing
if it is to build reserves for maintenance and capital replacement.
To help reach these thresholds, and to ensure health benefits, our
target is for 75% of households in each community to become
Safe Water Station customers3.
Testing Delivery Services to Drive Sales
KEY INSIGHTS
As part of our work to reach these goals, we developed distribution
models (pricing, channels, logistics, vehicle selection, etc.), and
• Local distributors have both the interest and the
capacity to carry out safe water distribution as an
extension of their businesses.
provided training to local private distributors. These distributors
collect water from Stations and deliver it throughout the village and
in nearby hamlets, serving homes, retail stores, and institutional
buyers capable of purchasing 10 or more containers at a time (such
• Profitable distribution is challenging: water is heavy,
roads are often poor, and low margins make it critical
to keep costs as low as possible.
as schools). To date, we have implemented distribution in 23 villages,
in the states of Andhra Pradesh (Warangal and Karimnagar districts)
and Uttar Pradesh (Gautam Buddha Nagar and Mathura districts).
• Distribution is most successful using part-time
assets, and in communities where populations are
sufficiently large to offset costs.
At the end of 2012, we made distribution a more significant focus
and intensified our efforts, as described below.
• Success requires identifying suitable distributors,
engaging bulk purchasers, and ensuring consumer
willingness to pay for the value-add of distribution.
1
2
3
Our related work to develop viable distribution in Ghana will be described
in a future Field Insights.
As of this writing, $1 = `60 (August 2013)
A
household of five people would need to purchase slightly less than
two containers per day to provide each person with the 7L minimum
recommended by UNHCR.
Safe Water Network develops innovative solutions that provide safe water to communities in need. Our goal is to achieve sustainable service delivery
and locally-independent operations through the application of local ownership and market principles.
In Field Insights, we provide a focused analysis of how we’ve approached a particular challenge and what insights have been gained.
For more information, contact [email protected].
1
FIELD INSIGHTS SERIES
FIELD INSIGHTS SERIES
SAFE WATER DISTRIBUTION IN INDIA
Improving Financial Viability Through Cost-Effective Delivery Services
SAFE WATER DISTRIBUTION IN INDIA
Improving Financial Viability Through Cost-Effective Delivery Services
Beyond improving the viability of water systems, distribution
nursing homes, and retailers) and individual customers, especially
4. Seasonality
contributes to local livelihoods by providing revenue streams to
the old and infirm.
Challenge: Water demand is highly seasonal, peaking along with
private distributors and retailers. It also enables us to provide safe
3. Quality Assurance
temperatures between March and June, as shown in Figure 3 on
water access to many more people, including the old and infirm
the previous page. This fluctuation makes it highly challenging for
Challenge: With more activities happening outside the controlled
(who may be unable to carry water over any significant distance),
distributors, who must be prepared to meet high demand during
Safe Water Station environment, distribution creates complications
and greater convenience for others.4
the peak season while avoiding the high costs of excess capacity in
in ensuring that treated water is not recontaminated before it
the low-seasonality months. It also makes it difficult to build and
reaches the final consumer. Handling during transport and storage,
Challenges to Cost-Effective Distribution
maintain a customer base over time.
the rate of inventory turnover in retail shops, and the transfer of
water between vessels all have the potential to compromise water
Solution: We ensure that distributors anticipate this seasonality,
quality. Quality assurance can be particularly challenging in areas
and we incorporate it into the model in two ways: by reducing
where residents insist on owning their own containers rather than
distribution frequency during lower seasonality months to reduce
exchanging an empty for a full one (often because of sensitivities
costs, and by setting high customer targets during peak months
revenues between an operator, a distributor, and in some cases
regarding caste).
with the goal of ensuring that when demand drops, sales remain
a retailer. Our field-testing focused on addressing the following
Solution: We manage this risk through the consistent use of
sufficient to keep distributors at breakeven or better.
challenges:
residual chlorine (0.2 to 0.3 ppm in treated water, with 50 ppm used
1. Vehicle Selection
weekly to clean distribution tanks). Where resellers maintain their
Though distribution has the potential to improve system economics,
it is also challenging on a number of fronts. Water is heavy to
transport, and our low margins make it essential to identify
efficiencies wherever possible—particularly given the need to divide
Economic Results
own inventory of containers, we also closely monitor their cleaning
Challenge: We found that distributors were often unrealistic in
1. Economics for Distributors
practices, ensuring that strict standards are met.
their revenue and margin expectations, and purchased expensive
Figure 4 presents a sample from our economic modeling, showing
how profitability can be reached if certain volume thresholds are
new vehicles for which cost recovery was unlikely. Vehicles must
be carefully chosen based on a balance between cargo capacity,
Figure 4. Summary of Economics for Distributors
Figure 1: Vehicles tested for distribution: (Clockwise from top left)
distributor filling containers from a three-wheeled truck, four-wheeled
truck, jugaad, oxcart and motorized cycle rickshaw
reliability on bad roads, and cost.
Solution: We tested a range of vehicles to determine which
1 at right) included three- and four-wheeled trucks, motorized
rickshaws, jugaads (motorized trolleys), and oxcarts.
Different vehicles showed potential for different use cases. Fourwheeled pickups proved ideal for long distances over poor roads
with heavy water loads. Three-wheeled trucks are limited in
Figure 2: Distributors and operators are taught basic principles of route
planning. Once bulk buyers are identified and established (left), the
distributor works to fill in with household deliveries.
In peri-urban areas or other locations with relatively smooth roads,
motorized cycle rickshaws can be used. Surprisingly, oxcarts proved
to be unworkable, both because they become scarce during the
harvest season and because the cost of food for oxen is generally
2. Logistics
160 CANS PER DAY
Challenge: Given the slow speed of filling tanks5, long distances
between delivery points, and bad roads (particularly during
140
monsoon periods), a distribution model must leverage efficiencies
120
wherever possible.
the previous page) so we could design cost-effective routes that
minimized travel times and distance, strengthen reliability, and
strike an effective balance between bulk buyers (colleges, schools,
5
40
AVERAGE HIGH
TEMPERATURE
35
TOTAL EXPENSES
each village and its neighboring communities (see Figure 2 on
4
EXPENSES
Water
Diesel fuel consumption
Vehicle
Loader
Reseller
45
100
Solution: We worked with plant operators and distributors to map
TOTAL REVENUE
50°C
AVERAGE SALES
VOLUME
80
30
60
25
J
F
M
A
M
J
J
A
Convenience itself can contribute significantly to safe water consumption (see Field Insights: Remote Kiosks, April 2013).
When electricity is unavailable to run a motorized pump, filling a 1,000-L tank can take nearly an hour.
2
S
O
N
D
to 100 20L containers each day (92 for a four-wheeled truck using
HAMLET
3,430
4.3
800
20%
100%
12
1,920
64
$0.17
$0.07
$0.02
diesel, as presented in Figure 4). We have completed variations of
TOTAL
6,430
this table for each combination of vehicle and fuel.
Distribution is more likely to reach viability if costs can be reduced
1,500
through the use of part-time assets (both staff and equipment).
This can be achieved by an independent entrepreneur distributing
water part of the day 6 and other goods at other times, or by a Safe
2,760
92
Water Station operator running deliveries in the middle of the day
when the Station is closed.
Under both of these models, distribution represents a part-time
activity, which distributors report to be worthwhile if they can earn
an incremental $30-80 per month beyond their income from other
DELIVERY ECONOMICS (monthly)
Figure 3: Average Monthly Water Sales vs. Average
Monthly High Temperatures, Warangal District, 2012
higher than the cost of fuel for a motorized vehicle.
This threshold depends on the vehicle used, but ranges from 40
MAIN
ASSUMPTIONS
COMMUNITY
3,000
Village population
4.3
Average family size
700
Households (HH)
50%
% HH purchasing/month
20%
% Customer HH delivery purchasing
HH buying frequency (20L cans/month) 12
840
Total 20L cans delivered/month
28
Total 20L cans delivered/day
Sales price - delivered water/20L can $0.17
$0.07
Cost of water/20L can
$0.03
Reseller margin
represented the most effective balance. Vehicles tested (see Figure
weight-carrying capacity and tend to require more maintenance.
consistently achieved (including in the low-seasonality months).
(four-wheeled truck, diesel fuel)
NET INCOME FROM DELIVERY
$140
$320
activities—a threshold now being reached in five villages. Figure
$460
5 on the following page shows the year-to-date average monthly
net income from delivery in each village. For the six-month period
$56
$2
$32
$13
$28
$128
$4
$74
$30
$32
$184
$6
$106
$43
$60
from January to June (which includes both high- and low-volume
$131
$269
$399
Retail resellers generally seek an incremental income of `20 ($0.30)
$10
$52
$61
months), distribution is a profitable activity overall in 13 villages,
and in a 14th (Jookal) the distributor is breaking even.
2. Economics for Retailers
per day. For most retailers (who pay `7 to have water delivered,
and resell it at `8), this requires selling 20 containers per day. As
retailers establish a market price for retail water, however, we have
6
For example, 1.5-2 hours twice a day, as at the village of Pathipaka
3
FIELD INSIGHTS SERIES
SAFE WATER DISTRIBUTION IN INDIA
Improving Financial Viability Through Cost-Effective Delivery Services
seen other enterprising individuals begin to fetch water by bicycle
Figure 5: Distributors’ Net Income from Delivery,
Jan.-Jun 2013
directly from the Safe Water Station for resale from their homes or
storefronts. Earning the full differential from `4 (at the Station) to
`8, they can reach `20 per day by selling just five containers per day,
AREA
which requires only two or three bicycle trips.
$128
Parkal, AP
58
Pathipaka, AP
45
Mahabubabad, AP
38
Shayampet, AP
34
Kolahar, UP
19
Asmadpur Charoli, UP
13
Kampalli, AP
7
Kothapally, AP
3
Mulkalapally, AP
$30
2
Pasargonda, AP
Minimum
1
Gangirenigudem, AP
profitability
threshold for
0.45
Hasanparthi, AP
distributors
0.35
Wadlakonda, AP
0
Rajavaram, AP
-0.40
Pochampally, AP
-1
Jookal
-1
Thodellagudem, AP
-1
Gorikothapally, AP
-3
Mannegudem, AP
-4
Nizampally, AP
Katrapalle, AP
-7
-11
Kureb, UP
-34
Mana Garhi, UP
3. Contribution to Overall Performance
In Q2 of 2013, distribution represented 20% of total system volumes
across all 23 villages, up from just 11% in Q2 of 2012. In volume
terms (see Figure 6), distribution increased 60% year over year
in Q1 2013 (from 11 to 18 containers per day on average) and 112%
year over year in Q2 2013 (from 14 to 29 containers per day). These
increased distribution volumes have not come at the expense of
main-site sales, which increased by some 5% year over year over the
same period. Distribution has played a significant role in bringing
Stations above the ~90 container/day threshold for covering
operating expenses. It has also generated benefits to livelihoods
in the form of full-time employment for 14 people and part-time
incremental income for an additional 74 (including 61 retailers).
Having shown the potential for distribution to improve viability
and increase coverage, the challenge is to make it profitable
everywhere that it is implemented. Villages that have struggled
to achieve profitable distribution are generally (though not in
all cases) smaller, making it harder to cover costs. Additional
NET INCOME
challenges in these villages include difficulties in identifying
distributors, engaging bulk purchasers, ensuring willingness to
Figure 6: Average Sales Volume from Distribution
pay for distribution, or simply bad roads, which interrupt
(all sites)
established delivery routes.
40 CANS PER DAY
What’s Next?
30
We continue to refine our approaches and test new methods in the
lower-performing villages. Initiatives include:
20
• Identifying opportunities for distribution to reach poorer
10
consumers, who may be unable to afford the higher prices
+112%
YOY
INTERVENTION
+60%
YOY
11
11
Q4
2011
Q1
2012
18
14
29
18
8
0
currently charged.
• Testing subscription models for bulk purchasers to increase
frequency and predictability of routes and volumes.
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
With these improvements in place, we expect that effective, year-
• Identifying ways to improve the speed of loading and unloading
round distribution will be a key element of any community safe
to improve efficiency.
water project and an important contributor to economic viability.
• Expanding distribution footprints to ensure distributors reach
Safe Water Network’s distribution program is made
possible through support from the:
minimal volumes in off-peak months.
• Continuing to investigate more-successful and less-successful
villages to identify opportunities to replicate successes in new
environments.
• Developing a standardized “distribution kit” (similar to our
THE NELL NEWMAN FOUNDATION
Toolkits) including training materials for both distributors and
Lead Supporters of Safe Water Network in India:
Merck Foundation, PepsiCo Foundation, SRTT
water system managers.
4