Primo Water Corporation (PRMW-NASDAQ)

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July 29, 2011 Issue

The Most Powerful Name In Corporate News and Information


With their New Beverage Center Dispensing Sodas, Sports Drinks and Coffee, and Relationships with Major Retail Outlets Throughout North America, Primo Water Corporation is Well Positioned for Growth

Mark Castaneda
Chief Financial Officer

Mark Castaneda Chief Financial Officer Mr. Castaneda has served as our Chief Financial Officer since March 2008. Prior to joining our Company, he served as Chief Financial Officer for Tecta America, Inc. (a private national roofing contractor) and Pike Electric Corporation (a publicly-traded energy solutions provider). Mr. Castaneda worked with Billy Prim previously as Chief Financial Officer of Blue Rhino Corporation from October 1997 until October 2004 and as a Director from September 1998 until April 2004. Mr. Castaneda began his career with Deloitte & Touche in 1988 and is a certified public accountant.


Company Profile:

Primo Water Corporation is a rapidly growing provider of multi-gallon purified bottled water, self-serve filtered drinking water and water dispensers sold through major retailers throughout the United States and Canada. Primo Water's products provide an environmentally friendly, economical, convenient and healthy solution for consuming purified water.

Consumer Goods
Purified Water, Beverages – Soft Drinks

Primo Water Corporation
104 Cambridge Plaza Drive
Winston-Salem, NC 27104
Phone: 336-331-4000


Interview conducted by: Lynn Fosse, Senior Editor,, Published - July 29, 2011

Mr. Castaneda, what was the vision when Promo Water was started and where are you today?

Mr. Castaneda: The vision when the company started was to provide water for consumers in a new and environmentally friendly way. Today, consumers have many choices, but a lot of those choices produce plastic bottle waste that go into landfills. We put in over 4 billion pounds of plastic bottle waste into landfills every year. What Primo Water offers is an alternative solution to filling the landfills up with plastic bottle waste.

CEOCFO: How does the Primo Water system work?

Mr. Castaneda: The way the system works is the consumer purchases a home water dispenser and they would have the ability then to go on their regular shopping trips  to purchase a three or five-gallons of purified water and enjoy it in their home. Then the consumer would have instant access to hot and cold purified water in their kitchen. The consumer would recycle the empty water bottles and replace them with full bottles through our exchange or refill process at their favorite retailer. Therefore, the consumer would not be wasting thousands of plastic bottles each year. We have recently expanded our vision to include any other beverage that someone would consume through the development of a beverage center, where you can make sodas, sport drinks and coffee.

CEOCFO: Are the consumers returning the containers back to the retail shop?

Mr. Castaneda: Yes, the consumer recycles the container by dropping it off at the retailer and then picking up a new one.

CEOCFO: How does the Primo system differ from the traditional water cooler services?

Mr. Castaneda: There are two differences. First, is savings. Home delivery is relatively expensive and the consumer must sign up for long term contracts. Therefore, you can save between 30% and 75% by doing it yourself. Given today’s economy, consumers are looking at all activities to save money. The second difference is that now we will have a beverage center, so instead of just getting water at the dispenser you will be able to make sodas, sport drinks, teas, coffee; all from that same purified water base.

CEOCFO: Are you focused on the home market?

Mr. Castaneda: Yes, there is about 4% household penetration today of water coolers for the home, and that has mostly been driven from the home delivery market. So, when consumers switch and buy the cooler themselves instead of paying a lease for a cooler, they can typically pay back within less than a year from their lease payments and save on the cost of the water. As far as the space goes, consumers put them in their kitchens, garage, laundry room or wherever they want to put it. There may be less opportunity in large apartments or high rises for consumers to self-serve, so that is not the market we are going after. We are going after middle America.

CEOCFO: What is the geographic range for you today?

Mr. Castaneda: We are in all the contiguous forty-eight states as well as all the provinces in Canada.

CEOCFO: What types of retail locations are carrying Primo Water system and water?

Mr. Castaneda: We are in primarily supermarkets and can be found in Drug and Hardware locations across the country. We have just started rolling out Walmart as a customer this year. We are also in all the Lowe’s Home Improvement centers across the country.

CEOCFO: Has your history with Blue Rhino helped in getting into the stores and getting Primo off the ground?

Mr. Castaneda: The Blue Rhino experience was really valuable in getting this business started. Actually, that is how this business got started. Some of our Blue Rhino customers approached us and asked if we could offer a water exchange service because they were selling home water dispenser units and consumers did not have a way to get the water. Primo is a very similar distribution business as Blue Rhino. We are delivering bulk bottles through distributors across the country to the same retailers. A lot of the same activities and processes we performed, learned and improved at Blue Rhino, we are applying to Primo Water.

CEOCFO: Would you tell us about the purification and bottling process as well any additives for the taste?

Mr. Castaneda: For the water, we start with either spring or municipal water. We break it down to pure H20 through reverse osmosis or distillation process. We have third-party bottlers that do this work for us throughout the country with over sixty different bottlers. Then we add a proprietary mix of minerals for taste, which results in a smooth, silky water.

CEOCFO: What is the market potential; how many people are buying water and how many are looking into alternatives?

Mr. Castaneda: The market for water is very large. It is a $17 billion retail market for purified water in the US. However, the industry has a big problem; the environmental problem of plastic waste clogging up our landfills. Unfortunately, recycling rates in this country are less than 30%, so 70% of the bottles that we buy are not recycled.

CEOCFO: How does the cost of Primo compare to some of the alternatives?

Mr. Castaneda: We offer two solutions for consumers at different price points.  First, we offer water exchange, where you drop off your bottle and exchange it for a full one. Secondly, the consumer can bring their bottle back and self-serve their refill of purified water at our vending location at the retail store. The price equivalency on a refill versus a case of 24-pack half-liter bottles is around $1.20 for a comparable case-pack and for an exchange, it is around $3.75 case-pack equivalent. Our water refill process is the lowest cost way to buy purified water.

CEOCFO: Is the home system for the average middle-class American, or is it targeted for a more affluent group?

Mr. Castaneda: Yes, it is targeted to the average middle-class American.

CEOCFO: Is the beverage center currently a part of the Primo Water product on the market?

Mr. Castaneda: It is coming this Christmas.

CEOCFO: How does the beverage center work?

Mr. Castaneda: There are two versions; one version is a countertop unit and the other unit is directly attached to our water dispenser. These systems can carbonate the water and then the consumer chooses between 30 flavors to make their beverage. The consumer can also enjoy “still” beverages like sport drinks or teas.

CEOCFO: The Primo Water systems shown on your site are very attractive!

Mr. Castaneda: Thank you. The home water dispensers had never been consumerized before, so we added stylish finishes and designs. We also added innovation through bottom-load technology, to make it easy for the consumer. The consumer no longer has to pick that big bottle up and turn it over and spill the water, you just open the door and slide the bottle in and put a cap on it. There is a pump in the unit that will pump the water out for you.

CEOCFO: Do you have much competition?
Mr. Castaneda: We have competition in each of the different components of our business. We have been in the water cooler business for about three years. Our coolers are sold at retail to major retailers and we have about 60% market share at retail. So in a short period of time we were able to grab the majority of the market share because of the innovation and styling. We have competitors on the refill and exchange side, that are mostly small regional competitors. Glacier Water is a larger refill competitor, which is primarily on the west coast, and does not have full national coverage today. Glacier is highly leveraged, which may impact its growth prospects. We do not have any competitors that compete across the whole water delivery system.

CEOCFO: What is the financial picture like at Primo Water today?

Mr. Castaneda: We went public in November of last year and we did a follow-on offering just a few weeks ago, so we have about $10 million of cash on the balance sheet and we are debt-free. Also, we have a $40 million credit facility that we can tap for growth. This gives us the capacity to do acquisitions and the ability to organically grow our business. On the income statement side we expect to turn profitable this year and this will be the first year of profitability.

CEOCFO: Are consumers looking at Primo for environmental reasons, taste reasons, or a combination of both?

Mr. Castaneda: It is a combination of a few things. One is the taste, but that is secondary to environmental, convenience and price attributes. The consumer goes to the same stores they always shop and feel good about the purchase because they are doing something for the environment and saving money. And by the way, it tastes good.

CEOCFO: Do you do much investor outreach?

Mr. Castaneda: We have only been public for about six months and during that time, we have done a non-deal roadshow and presented at a couple conferences.

CEOCFO: Why should potential investors be interested, and what might they miss about Primo Water that they should consider?

Mr. Castaneda: Primo is a growing razor/ razor blade business, with the appliances as our razors and water exchange and refill as the razor blades. We have very good industry and consumer trends, and a recurring revenue business model. We have a line of sight to significant retail location growth and are targeting 40,000 – 50,000 locations in three to four years from about 15,000 locations today. The key to our business model is that it is very scalable. Our SG&A expenses do not have to grow at the same rate as revenue, because we have outsourced our production and distribution. Our costs are primarily sales and marketing and processing transactions, which are primarily fixed. Finally, we have a management team that has done this before with a similar business model and a successful track record.

CEOCFO: Final thoughts, what should people remember most about Primo Water?

Mr. Castaneda: We are in the early stages of our growth. We recently added new soda products that make our growth opportunity much larger. If you look at our stock valuation today, it is based on our water business, so investors will get a free option on our new soda business. The soda business is similar to a company called Soda Stream, but there are opportunities for both companies grow in this space, because it is a very large. Soda Stream recently launched in the U.S., and they have spent a lot of money trying to convince people to make sodas at home. We will be doing the same thing and think this is a very big opportunity for potential upside. There are not a lot of growth stories out there; we are one of the few that has a significant growth opportunity.


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There are not a lot of growth stories out there; we are one of the few that has a significant growth opportunity. - Mark Castaneda

The vision when the company started was to provide water for consumers in a new and environmentally friendly way. Today, consumers have many choices, but a lot of those choices produce plastic bottle waste that go into landfills. We put in over 4 billion pounds of plastic bottle waste into landfills every year. What Primo Water offers is an alternative solution to filling the landfills up with plastic bottle waste. - Mark Castaneda does not purchase or make
recommendation on stocks based on the interviews published.