Putting words in American musician Huey Lewis’ mouth:
I want a new drink
One that won’t make me sick all night
One that don’t cost too much
One that won’t make my bones brittle and my teeth crumble
Or give me cancer and make me want to die
If rural consumers in India were signing an adaptation of this popular 1980’s song, their prospects for a healthy life would be completely different. But they don’t. Every year, hundreds of millions in India fall sick due to water-borne diseases. Untold millions constantly suffer from bone fractures due to drinking fluoride-affected water. The most unfortunate Indians are drinking water that puts them on an inevitable path to arsenic-induced cancer.
WHO estimates more than 7.5 lak (750k) deaths annually due to water-borne disease, with half of them being children dying from diarrheal disease. So many could be saved from this injustice if only two non-trivial things could be delivered at scale. The first is consumer demand for a “new drink” – affordable safe water. The second is a viable business model for commercial or public-private partnerships to meet consumer demand using existing technology. This sounds easy, but obviously is not.
It’s the Business – Technology is Not the Problem
There are no shortages of technologies available to create clean water in India. They’ve been available for decades. Unitus Seed Fund’s recent article explains how a few of them work. The fundamental obstacle to the deployment of any of these technologies is lack of a viable business model. The challenge comes in three places: high capital expense, recurring operating costs and maintenance expenses, and low willingness to pay on the part of consumers. Even with organizations that get government or NGO funds to cover some or all of the capital expense, and in purification models with inherently low capex, the viability of rural water providers is not sustainable. Most often, the consumer’s willingness to pay is not enough to cover operating expenses and provide an acceptable return to the investor. Another recent article from Unitus presents the math demonstrating the challenges in business model viability caused by the most fundamental issue: consumers’ unwillingness to pay.
Changing Consumer Behavior
We believe that the fundamental game changer relative to water will come from an organization that figures out how to activate consumer demand in a sustainable way. Once the demand is there, coupled with a willingness to pay the small price that’s clearly affordable to the masses, businesses that provide consumers with their “new drinks” can proliferate and thrive. But how does one change consumer behavior? In September 2013, The Safe Water Network described insights from research they conducted in Andhra Pradesh, and they published early results from a campaign aiming to “activate consumers”. While they have yet to publish the return on investment (ROI) analysis, we believe that the expensive tactics they employed to drive demand and improve the generally low consumer price points show their efforts to be uneconomic, despite being effective in at least the short term. There have been many such campaigns and experiments across the country.
While it’s encouraging to see that consumer buying behavior can be influenced and changed, we are not aware of any programs that provide a positive ROI when accounting for water system capex and opex along with the cost of the behavior change intervention campaigns. More recently, the organization released a comprehensive report that reviews the status and progress of the community water system network in India. The report highlights the biggest issue faced by water companies- sustainable delivery. High coverage costs coupled with limited willingness to pay has resulted in widespread failure. Some organizations are experimenting with a model that serves urban communities and uses the proceeds to cross-subsidize rural operations, with varying degrees of success. We believe that an cost-effective plan for consumer behavior change around drinking water requires a link to adjacent revenue streams, as the cost of driving change will otherwise make an already-marginal business further lose viability. But which? We don’t have the answer yet but here are some ideas:
- Mobile top-ups. If there is one thing you can count on finding in an Indian village, it’s that villagers have a means to get top-ups for the pre-paid SIMs in their mobile phones. A promising concept would be to cross-market (or cross-educate) safe water along with mobile top-ups. In a related development, we understand that Sarvajal has made serious strides with kiosks that use ‘smart cards’ for dispensing water. Why not top up the phone and the water can together?
- Education. Low-cost private education continues to grow, in many areas accounting for over 50% of enrollment. Parents care about their children’s health. Educating the parents through kids could be inexpensive and effective. The NGO Splash has made inroads in this area via the water systems they place in orphanages and schools. However, the capex and opex for those systems is still paid by donor dollars.
- Other products. As affluence grows in rural areas, the demand for affordable distribution channels will grow, with products varying from solar lighting to FMCG to entertainment. A carefully crafted alignment between select in-demand products and water could offer means to both educate and distribute the new drink to consumers. Spring Health is an example of a company that leverages the existing network of kirana (small grocery) stores to distribute clean drinking water. A number of FMCG providers (including Amul, Godrej, and Cadbury) have substantial rural presence but no water initiatives; a strategic go-to-market tie-up could provide a much-needed boost to a New Drink biz model.
Key Attributes of New Drink
For the hypothetical company New Drink to be an attractive investment for Unitus Seed Fund, we’d want to see:
- A management team with deep experience in rural distribution and operations
- Access to attractively priced water technology, from both capex and opex perspectives
- A vision with a realistic plan, plus promising trial results that drive consumer behavior change on a cost-effective basis though linkages to adjacent programs / revenue sources
- A vision for scaling on a regional and ultimately national basis, with flexible implementations that can address both chemical and bacterial water contamination problems.
Unitus looks forward to meeting entrepreneurs that are on the path of building a water business that demonstrates the key attributes mentioned above.