The easy answer to the question of why Pepsi and Coke love hospitals is that both companies want to grow, and they see the healthcare industry as a large and growing sector of the economy in which they can gain market share.
But, the answer goes much deeper than that.
Showcase for Healthier Brands
In recent years, in response to consumer demand shifting away from classic soft drinks toward bottled water and other healthier beverages, both Pepsi and Coke have invested enormous sums to develop extensive portfolios of healthier products—waters, teas, juices, sports drinks, etc.
Do you know who owns Glacéau Smartwater, Vitaminwater, Honest Tea and Odwalla juice? Coke. Do you know who owns or distributes Aquafina, Lifewater, Pure Leaf Tea and Naked juice? Pepsi. And those brands are just the tip of the iceberg.
While full-sugar soft drink brands are still a huge part of their revenue picture, both Coke and Pepsi understand that consumers increasingly want healthier products. Our data tells us that bottled water already outsells bottled soda on your campus – and by a wide margin.
What better place to showcase healthier products than a healthcare campus?
Symbol of Hope and Transformation
Every hospital system—and every individual hospital facility—embodies and represents the delivery of healthcare. Every hospital represents a commitment to wellness and recovery. Hospitals are where you go to get better, to be cured, to be saved, and to be helped. Pepsi and Coke want their products to be associated with all of these positive activities.
Coveted Demographic
Hospitals also employ smart, compassionate, confident, engaged people who skew educated and affluent relative to the population at large. The medical staffs and administrators who work at hospitals are often active in their communities. They take leadership roles at local non-profits, in local faith communities and within local governments and schools. They are exactly the kind of people that ANY consumer product company craves to have associated with their brands.
And there are a lot of them. Hospitals employ thousands of people, 24 hours a day, 365 days a year. All these people stay on campus for long periods and time, and they drink a lot of beverages all day long.
For all these reasons, and many more, Coke and Pepsi are eager to form deeper and direct relationships with hospitals.
Doing a Deal with the Devil?
At first mention of this possibility, many of the hospital administrators we talk to have concerns about “getting into bed with a sugar water company.” But, once they understand how extensive Pepsi and Coke’s healthy product portfolios really are, and how eager Pepsi and Coke are to promote healthier products and to partner on the hospital’s terms, the thought of a relationship becomes much more palatable.
With respect to partnering on the hospital’s terms, Pepsi and Coke are also interested in promoting many of the same strategic initiatives, such as recycling, increased physical activity and greater community engagement among all citizens, that are important to our hospital clients.
Does your hospital need help developing or funding a recycling program? Beverage companies can help do that. Want to help develop and promote the use of more green space and playgrounds in the community? Beverage companies can help do that.
Remember that Pepsi and Coke are global, Fortune 100 firms with financial, strategic and marketing resources that can benefit hospitals in a variety of ways. If a hospital system chooses to take advantage of these resources, we know how to ensure that our hospital clients are well served and well protected, should they choose to make any such elements a part of their beverage company partnership.
Once hospital administrators discover that a relationship with Coke or Pepsi can be structured in such a way as to not only protect their brand but, in some ways, to even enhance and extend their brand, an exclusive pouring rights deal begins to seem like a no-brainer, like just another smart business decision.
And the financial benefits of an exclusive pouring rights agreement are substantial. On average, we generate a net savings of 24% on all beverage purchases.
If your hospital system has four or more acute care hospitals, 1,200 or more staffed beds and 6,000 or more employees, we can most likely save your system $1 million or more during a typical 5-year contract. Our larger hospital system clients save a lot more, proportionately.
Pepsi and Coke are ready to make strategic investments in the healthcare channel – and in your particular system – if you are serious about engaging with them in an exclusive partnership.
Getting the Relationship Right
While Coke and Pepsi will be respectful of whatever marketing guardrails a hospital client puts in place, at the same time, the beverage companies expect a genuine commitment to the partnership. Essentially, the most important component of that commitment is to honor whatever guidelines and restrictions are agreed to with respect to competitive products.
To put it bluntly, if a hospital agrees to serve only Coke or Pepsi products, they need to honor that commitment. (Of course, if the chosen beverage partner doesn’t make a product or a package size that is required for patient feeding or other medical reasons, then the hospital is always free to source the necessary product anywhere else.)
If 100% exclusivity with Pepsi or Coke is not feasible or desired, then we can help our client negotiate a 95/5 or 90/10 split and still deliver tremendous value. But, whatever the agreement is, the hospital must honor it. For all of our clients, a big part of what we do is helping to ensure compliance by all parties.
And, in order to get the best exclusive beverage partnership possible, a hospital system has to know their current beverage business inside and out—volumes, prices, brand mix, package mix, etc. The RFP must have this information in order for Coke and Pepsi to confidently bid on the business. That’s where we can really help. Most hospitals and hospital systems have very little detailed, accurate information about any of this. We know where and how to get it, and how to present it to Coke and Pepsi in a format that will allow them to put the most competitive offer on the table.
Are you interested in learning more about how beverage deals work?
Read our article, “The Necessary Steps to Negotiate an Exclusive or Near-Exclusive Beverage Partnership for a Hospital System” or just send us a message.
We’re happy to help.
