Interview with Hendrik Snyman
CHIEF INVESTMENT OFFICER, GAIA FUND MANAGERS

Lives in: South Africa

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Public water supply in South Africa is in a crisis. A recent audit, the Blue Drop Report, by South Africa’s Department of Water and Sanitation highlights significant issues: nearly half (46%) of water supply systems pose serious health risks from pathogens; over two-thirds (67.6%) of wastewater treatment facilities are near failure; and more than 47% of clean, treated water is either lost through leaks or unaccounted for.

Spotting an opportunity in this dire situation, South African investment firm Gaia Fund Managers recently acquired a majority stake in Oasis Water, a provider of bottled water. The company’s offering spans from refillable water containers to a water subscription service, and supplying large retailers with their house brand water. Annually, the company sells 235 million litres of water.

We asked Hendrik Snyman, chief investment officer at Gaia, about the reason for the firm’s investment and the opportunities in South Africa’s water sector. Below are lightly edited excerpts.

What motivated Gaia to invest in Oasis Water?

As a specialist infrastructure investor, we recognised the need for investment in water and sewage systems due to population growth, migration, etc. Unfortunately, there is no means to access this asset class because the public sector doesn’t allow for private investment. Our research then revealed that current investment levels would ultimately lead to a collapse of the water and sewage infrastructure, and that should one enter the market privately, there would be limited competition from the public sector. Our search for possible investments led us to Oasis when they wanted to acquire the Doornkloof bottling plant from Clover. (Gaia made its initial investment in Oasis Water back in 2022, when Oasis bought the Doornkloof water bottling plant.)

Oasis’ top selling product is purified refill water. Could you elaborate on this and explain the company’s other offerings?

Customers can either buy water as bottled water in a store or at refill points in franchisee or third-party stores. There is even a subscription model where Oasis will deliver a dispenser that cools the water, along with monthly refills

Oasis is catering for the cost-conscious market. To provide water at the lowest cost point, you need to have economies of scale to reduce the per unit cost contribution of the machinery and overheads. You also need to be close to your market to reduce distribution costs.

How competitive is the purified refill water industry, and what are Oasis’s key differentiators?

It’s a competitive and fragmented market, with low barriers to entry for starting your own water dispensing business. Oasis’s differentiators include its economies of scale and national production footprint, allowing standalone stores to offer a high-quality product at the best price, and for retailers and large distributors to have a single, nationwide partner.

How does the water-as-a-service subscription model work?

For a monthly fee, the client is provided a water dispenser that heats and cools water, with refill bottles delivered straight to their door. For a household buying bottled water at maybe R6/litre, subscribing for 100 litres at R399/month offers water at a 33% discount to retail, with the convenience of having it available at home at the desired temperature.

The company also supplies South Africa’s large retailers with their house brand water?

Retailers are employing the 2&1 concept to optimally utilise shelf space and limit product handling. The 2&1 concept refers to offering clients the top two brands along with their own house brand. Oasis’ strategy is to support retailers with their own house brands. For instance, Shoprite’s own brand of water is called Eastern Highlands. Oasis’s economies of scale and network ensures that Shoprite only has to work with a single supplier for national distribution at the lowest cost.

How do additional products like sports drinks, iced teas, health shots, and fruit juices fit into Oasis’ strategy?

With Oasis’ machinery, national footprint, and logistics network, it can offer these additional products at marginal cost, expanding from low-cost water to low-cost quality drinks in general, where marketing budgets and campaigns aren’t the competitive edge.

Can you discuss Oasis’ retail footprint?

Oasis owns some of its standalone stores, with others operated by franchisees. The franchising model was critical for the company’s early growth as it had limited financial capabilities. With investment backing, Oasis will now open more of its own stores as well as acquire and rebrand third party stores. Oasis has 80 franchisees who together own 364 franchise outlets. Oasis itself owns 250 retail shops, 94 express stores and six depots.

Given that the quality of public water varies from region to region, does this mean there are greater opportunities for Oasis in certain parts of the country?

As per the Blue Drop Report, the worst-affected areas are peri-urban, where people lack access to running water or the systems are failing, posing health risks. These areas represent a large amount of people who need access to clean drinking water, and will be the focus of Oasis going forward.