Enliven Beverage Deal Podcast Episode #4
Beverage deals are for the big guys, right? Wrong! On today’s episode, Enliven’s Airport Practice Leader, Martin Strobel, joins us to share four ways that small businesses and small concessionaires can benefit from a pouring rights program.
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Related Resources:
The Best Customer Engagement Companies in the World Adopt Pouring Rights (And You Should Too)
3 Reasons Coke & Pepsi Want Direct Relationships with Airports
Transcript:
Tim Harms:
Welcome to the Enliven Beverage Deal Podcast, where we’re all about saving and making you money, by taking both the guesswork and the legwork out of your beverage partnership, and by leveling the playing field when it comes to negotiating your beverage contracts. I’m your host, Tim harms. We’ve got a great show for you today. Stay tuned.
Tim Harms:
Great to be back for another episode of the Enliven Beverage Deal Podcast. Today we’re welcoming Martin Strobel, the airport practice leader at Enliven. Martin, welcome.
Martin Strobel:
Thank you. Great to be here.
Tim Harms:
I got a question for you: what is your favorite David versus Goliath story? What’s your favorite story of the little guy?
Martin Strobel:
Boy, that’s a tough one. There are so many great stories that are kind of based on that, the little guy who struggles and comes along and is able to overcome all odds. It’s interesting, my first thoughts go to all the great boxing movies, the Rocky, and the Cinderella Man, and those movies like that. But boy, what a great set of stories that come from that David, Goliath story. I mean, a lot of times you think it’s just the story of America, where a bunch of ragamuffins stand up King George.
Tim Harms:
Yeah. My mind, this will give you a peek into my world. My mind right now, just because we’re reading this before bedtime with our daughter, Delphie puts on her ballet shoes and goes to ballet school, and she is transported magically to Enchantia where she gets to save princesses. So what’s better than ballet school, and magic world of princesses? We’re the fighting evil King Rat right now.
Tim Harms:
Well, today we are talking about the little guys, and specifically how beverage deals can help small businesses. And you think about Coke, you think about Pepsi, you think about Dr. Pepper. I mean, huge behemoth companies, it’s not always intuitive to think that beverage deals would help out the small business. But you’re actually here to share with us four reasons why small businesses do indeed benefit, and can actually get ahead by partnering with a big beverage company. Can you walk us through those four reasons?
Martin Strobel:
Yeah. And really, I think one of the things people need realize about… And we call them concessionaires or merchants, it is a tough business. They are, whether it’s a news and gift stand, or a restaurant, business is really difficult. And prior to COVID-19 it was hard. A lot of competition, a lot of requirements on merchants from airports. They can be very, very profitable though. So, the big guys, the global concessionaires, they are making hundreds of, up until this year, were making hundreds of millions of dollars a year. But a lot of times, as you said, David versus Goliath, the David, the small local operator or the smaller regional operator, a disadvantaged business, and ACDBE concessionaire, oftentimes doesn’t have the resources that a global concessionaire has in order to make their business work at an airport.
Martin Strobel:
And so, what we have been focused on, and it’s really a direction from our airport prospects and clients, is we’ve got to protect these smaller concessionaires. In no way can a beverage deal or a pouring rights agreement negatively impact the financial condition of merchants. And so, we’ve really been focused on that. And it’s kind of been distilled down to four key categories. One is cost of goods, the product cost of beverages, so that’s the first. The second is service, to make sure that their service stays as high quality as it can. The third is equipment. And then the fourth is increasing their sales through marketing.
Martin Strobel:
And so let me, the first one is when we do an RFP or pouring rights at an airport, one of the first things that we’ll tell the beverage companies is that they have to match the lowest invoice price at an airport. And so, and again this is just about wholesale pricing, sometimes people will get a little bit confused between a wholesale price, that’s the price the merchant pays for a case of Coca-Cola or a case of Pepsi. The beverage companies have to match the lowest prices that are available to any concessionaire. So what that means is, is that a smaller concessionaire who doesn’t have the global volume of say, a Host, or a Hudson, or a [inaudible 00:05:44], or a SSP or one of those folks, that smaller concessionaire is going to get the same pricing as the global concessionaires. And so what that does is, oftentimes we’ve seen a reduction in price, wholesale invoice price to a smaller concessionaire, be 30, 35% of what they were paying previously. It’s remarkable. I mean, it really is remarkable, the invoice savings that a smaller concessionaire can see.
Martin Strobel:
Now, it’s not all of them. Some of them are going to only see five to 10 or 12% reduction on some products, because they’ve been able to negotiate a better deal. But for some of them, it’s a really, really high savings to what they’ve been paying before.
Tim Harms:
And the small business, I mean, these are really thin margins. I mean, when you’re talking even five to 10% on beverages, such a critical piece of your business, that’s meaningful.
Martin Strobel:
Yeah, it is. Because a little bit of, and exponential’s not the right word, and with your background you can help me. But if you’re saving a quarter, 25 cents per bottle, but you’re still able to sell it for two bucks, it increases your margin. I don’t say exponentially, but what do you call that when that happens?
Tim Harms:
Exponentially sounds good, why not? But you’re obviously coming at this from the airport landscape, but even a small restaurant chain accessing national account pricing, or a small hospital system being able to achieve the same pricing grids that the national for-profit hospitals are able to do, that’s a big deal. You’re able to leverage the size and scale of the big guys, and actually bring those benefits directly to you.
Martin Strobel:
Yeah. So, a lot of people look at it and will say, “Oh, I get it. Because you’re taking this airport, the Dallas Fort Worth airport, or the Detroit International Airport, and you’re bringing all that volume together, and you’re using that volume to get better pricing for those concessionaires.” And that’s part of the equation, but the other part is this preferred relationship that only the airport can guarantee to a Coke or Pepsi.
Martin Strobel:
So, Coke or Pepsi knows they’re getting this volume, but they also know that they’re getting that preferred relationship or exclusivity, and that’s one of the reasons that they’ll lower the price also. So it really is, it’s something that even a regional concessionaire, or like you said, a regional hospital chain or healthcare system, they could go to Coke or Pepsi, and they could really negotiate the price. But unless they can offer that preferred or exclusive platform for the beverage company, they really won’t be able to drive those prices down like the global folks can.
Tim Harms:
Yeah. All right, so the first benefit of partnering with the beverage company is lower cost of goods, lower invoice pricing, wholesale invoice pricing. What’s the second?
Martin Strobel:
Yeah. The second is really the service piece. So if you’re running a restaurant in an airport, and your fountain machine breaks for a day, it is considerable profit loss to your restaurant.
Tim Harms:
Decimates sales.
Martin Strobel:
Yes. It negatively impacts sales. And so, typically what happens with when an airport does a pouring rights deal or a sponsorship agreement with a beverage company, that beverage company has somebody at the airport virtually every day. And a lot of times, almost all day, at least four or five hours a day. So when something goes wrong at a restaurant or at a news and gift shop, a cooler breaks, usually that gets fixed, I don’t want to say almost immediately, but usually the window is within two to four hours. And so, the airport is leveraging its size to get better service for its concessionaires.
Martin Strobel:
And if you’re an individual concessionaire trying to call through, work through Pepsi’s equipment call center, or Coke’s equipment call center, it can be pretty frustrating. And what you get with a pouring rights deal is just a higher level of service for all of the concessionaires, and that’s been a big benefit or a lot of the smaller folks.
Tim Harms:
Okay, well, great. So you can keep the machine running.
Martin Strobel:
Keep them running.
Tim Harms:
All day, and if you have an issue, you get them resolved pretty quickly, because you’re no longer just a one small shop, you are part of a much bigger deal.
Martin Strobel:
Yeah. And that leads to the third point, is the equipment that you get, first of all, Coke and Pepsi will, usually every deal I’ve seen, provide equipment for free to all the concessionaires. So a lot of times the smaller concessionaires may have to purchase equipment or purchase specialty equipment, in these deals all the equipment is provided at no cost, to all the merchants or all the concessionaires, and it’s typically new or like new.
Martin Strobel:
So, you’re getting new equipment that is state of the art, that may use less electricity, all of these other benefits that go along with having this new or like new equipment. And it doesn’t break down as much, so you’re not hearing rattling coolers. You’re not seeing condensation inside of doors. You’re not seeing leaks and things like that. This equipment’s coming in new, most of it has a lifespan of eight to 10 years. So throughout the deal, you’ve got good new equipment at no cost, free to concessionaires. The smaller concessionaires really appreciate that, because rather than having to spend seven to $12,000 on a cooler, or some other type of equipment, it’s coming at no cost from Pepsi or Coke.
Tim Harms:
Yeah. And this could be tens of thousands of dollars worth of equipment at every outlet. So it’s not something to ignore, or to take lightly, it’s a really big benefit. So great, cost of goods will decrease. The service level will increase. The equipment will be provided at no charge. So there’s a lot to love, but there’s even more?
Martin Strobel:
Yeah. So when we look at a beverage deal, and as we’ve put these together for airports, we don’t want negative financial implications for concessionaires, especially ACDBE, smaller regional, those concessionaires. And we would like to see the beverage sales increase for them, and candidly that’s what Coke and Pepsi and beverage companies do best. So, this fourth piece is through comprehensive marketing programs, beverage sales increase for the smaller and regional concessionaires. And the reason that that works is, right now we kind of look at an airport as they’re almost three different spaces. But you’ve got that digital advertising or advertising space, you’ve got these common areas where you can do experiential or customer engagement programs, and then you have the interior spaces, or the lease spaces of the concessionaires.
Martin Strobel:
And what the beverage companies do when they have a preferred relationship with an airport, they invest in all three of those areas. So you’re going to see them investing in digital advertising, or wall wraps, or other advertising or marketing, in order to drive people into stores to purchase a beverage. They’re going to do customer engagement, whether it is a sampling or some type of experiential marketing, in order to drive people into a unit, to buy a beverage. And then inside those unit spaces, you’re going to see point of sale, you’re going to see neck hangers, you’re going to see floor mats, you’re going to see all of these incentives put in by the beverage company, in order to increase sales.
Martin Strobel:
And people will say, “Well, why do Coke or Pepsi invest in marketing at an airport, if they already have the exclusive or the preferred relationship with the airport?” And the important thing to know is the only way that Coke or Pepsi make money off of that sponsorship, is if they can keep sales increasing. So, they’re willing to invest money because they know that that money generates a return for them. It’s selfish, but it helps everybody, because it increases sales for the merchant, increase the sales for Coke or Pepsi, and then the airport takes a little bit higher rent off of those gross sales. So it is, whether it’s planograms, whether it is point of sale, whether it’s advertising, whether it’s experiential, beverage companies put forth a tremendous amount of effort to increase sales for the smaller operators.
Martin Strobel:
The larger operators benefit also, but really the smaller operators who may not have a national team doing their planograms for them, or may not have a national marketing rep who can do point of sale marketing for them, the beverage companies come in and fill that gap for those smaller operators.
Tim Harms:
Well, good, Martin. This has been so helpful, obviously lots of benefits to go around. And I love how you framed it, it’s a win, win, win. A win for the beverage company, a win for the big guys, a win for the small guys, a win for the airport, a win for the passenger or the customer. So any final thoughts that you’d like to leave us with?
Martin Strobel:
Yeah. A lot of times the pushback we’ll get from tenants or concessionaires is, “There’s no way that this beverage deal can work without hurting us,” without hurting the merchants. I think we’ve got a good track record of showing that that’s not true. But the thought or the concept behind that is, a lot of people say the pie’s only so big, and X number of dollars have to go to the beverage company, X to the airport, Y to the merchant, and what we really stress is that the pie gets bigger. The beverage company, because you’re putting together not only the volume and the impression, but some level of exclusivity or preferred relationship, the beverage company will put more money towards the airport environment, whether it’s reducing merchant prices or more funding for the airport. But the beverage company will increase the size of the pie, if you put all three of those together, and that’s what we do. And so, when you think about a beverage deal and how the airport can make a little money off of it, but it not negatively impact tenants, it’s because the size of the pie gets bigger.
Tim Harms:
Perfect. Well, Martin, thank you so much. You’re always a wealth of knowledge. It’s been a pleasure to have you on, and keep fighting the good fight for the Davids of the world, all right?
Martin Strobel:
That’s right. Reach into our, what is it, our bag?
Tim Harms:
Put on the magic ballet slippers, and slay King Rat.
Martin Strobel:
As a dad of three girls, mine are a little older and we missed that. Our books were Pinkalicious, I remember those were the favorites when they were growing up.
Tim Harms:
All right. Well, thank you, Martin.
Martin Strobel:
I appreciate you having me. It’s been fun.
Tim Harms:
Thanks everyone for listening in, hope you found that informative. If you have a burning question about your beverage negotiation or partnership, we’d love to hear from you, and answer it on this podcast. Reach out to us by emailing podcast@enlivenpartnership.com. And hey, before we sign off, I want to remind you that you can take both the guesswork and the legwork out of your beverage partnership. You can level the playing field in your beverage negotiations, and you can save or make your company millions, through a new or an improved beverage agreement. The first step is a free beverage opportunity analysis, which will tell you just how much you can save, or you can make. Sign up for your free beverage opportunity analysis at enlivenpartnership.com, and by clicking Free Savings Estimate. On behalf of everyone here at Enliven, thanks for listening in.
