It’s not uncommon for executives to have a lot of questions when hearing about a beverage deal:
- What is a beverage deal?
- Is it the same as a pouring rights agreement?
- How are they typically structured?
- Is it common in my industry?
- What are the benefits?
- Shouldn’t my procurement department be handling that? Why is it important for me to consider?
Since our founding in 2005, our entire focus has been creating and managing beverage partnerships, and it always starts with a beverage deal. We put together the following quick article as a helpful guide for you as you consider entering into your first or next beverage contract.
What is a Beverage Deal?
A beverage deal is a contractual agreement between a beverage supplier (typically Coca-Cola, PepsiCo, or Keurig Dr. Pepper) and a business that serves or distributes beverages. These agreements allow the beverage supplier to be an organization’s exclusive or semi-exclusive provider and marketer of beverages. In exchange for the commitment, the beverage company will typically provide favorable pricing, rebates, sponsorship funding, and marketing support. If structured properly, these agreements can result in a beverage company investing its own resources to promote its client, support its objectives, and grow beverage revenue. Typically, these agreements are awarded as a result of a formal RFP (“request for proposal”) or tender process.
What Types of Businesses Enter Beverage Deals?
These agreements are typically associated with restaurant chains and other foodservice establishments. For instance, if you walk into any McDonald’s in the United States, you would expect to only be offered Coca-Cola products.
Today, beverage deals have become commonplace in a variety of industries, including:
- Restaurants & Restaurant Chains
- Colleges & Universities
- Sports Arenas & Stadiums
- Amusement Parks & Attractions
- Movie Theater Chains
- Hospitals & Healthcare Systems
- Hotels & Leisure
- Specialty Retail Chains
- Airports & Airlines
- Large Workplaces
- City-Owned Properties (Convention Centers, Rec Centers, Amphitheaters)
In fact, there’s hardly any industry in which beverage agreements are not prevalent. Perhaps the only place you can find a Diet Coke and a Diet Pepsi at the same location is at a grocery or convenience store.
Additional Resource: Do Companies Really Switch Soft Drink Providers?
Pouring Rights vs. Beverage Marketing Agreement
Pouring rights agreements (“PRA’s”) and beverage marketing agreements (“BMA’s”) are both broadly considered “beverage deals”. While there’s some overlap between the two concepts, it’s helpful to distinguish between the two.
Pouring Rights Agreement:
Pouring rights agreements are associated with the product volume. They grant the beverage company the right to be the exclusive (or semi-exclusive) beverage provider at a defined set of properties or locations. For instance, a business that awards pouring rights to PepsiCo, will only serve and distribute PepsiCo products (and not Coca-Cola products).
Beverage Marketing Agreement:
Beverage marketing agreements are associated with the brand value and brand impressions. They grant the beverage company the right to co-brand and market their products alongside the counterparty. For instance, a business that awards beverage marketing rights to Coca-Cola will allow the Coca-Cola logo to be featured alongside their brand.
As an example, PepsiCo has a long-term partnership with the NFL, while Coca-Cola has a long-term partnership with the Olympics. Neither the NFL or the Olympics deliver significant product volume, yet they command a high investment from their beverage partner.
Pouring Rights + Beverage Marketing Rights:
Most agreements will combine elements of both pouring rights and beverage marketing agreements. Even under traditional pouring rights arrangements, what is most valuable to beverage companies is typically not the volume. For the beverage partner, the true value is an exclusive environment in which they are able to build their brands with their partner’s.
Additional Resource: The Difference Between Pouring Rights & Beverage Marketing Agreements (…And Why It Matters)
Benefits of a Beverage Deal
Every deal is custom and the benefits can vary depending on the industry and priorities of the customer. Still, there are some common threads that emerge out of these agreements.
For the Business:
- Favorable Pricing: Lower invoice pricing and better price increase protection.
- Rebates & Allowances: Funding on the volume of product purchased, typically paid in arrears (quarterly, semi-annually, or annually).
- Sponsorship Payments & Signing Bonuses: Fixed or lump-sum payments for the right to the business.
- Equipment & Service: Equipment and service can be provided at no or reduced charge.
- Marketing & Merchandising Support: Access to a beverage company’s other partners and brand assets to help increase both traffic and beverage sales,
- Community & Employee Engagement: Access to programming, marketing activations and community partnerships.
Additional Resource: How Exclusive Beverage Deals Lead to Increased Sales
For the Beverage Company:
- Access to Your Customers & Employees: Exclusive exposure to your customers and employees, so the beverage company can market and build their beverage brands.
- Association with The Business’s Brand: Affiliation with the emotional connection consumers have with the business’s brand.
- An Engaged Organization: a partner where they can launch marketing activations, demo new product and equipment, and more.
Additional Resources:
3 Reasons Beverage Companies Want to Partner with Airports,
Why Coke & Pepsi Love Healthcare
What is the Typical Length of a Beverage Deal?
While beverage agreements can be structured in a variety of lengths, 5, 7, or 10-year deals are the most common. This allows the beverage companies enough time to harvest their brand investment and to depreciate any equipment provided during the deal. That said, we’ve seen beverage deals as short as a single year and as long as 20+ years. The term of these deals can be linked to a date in the future or a volume commitment, whereby the business will be subject to the beverage deal until they purchase a specific amount of product.
Which Products and Categories are Included?
Today’s beverage landscape is a lot more interesting (and complex) than it once was. Previously, these agreements would be dominated by the carbonated soft drink (“CSD”) category, which represented the vast majority of all volume. While this category is still vitally important – and typically the most profitable for the beverage companies – there are a variety of categories that should be considered in a beverage agreement.
These categories include:
- Sodas (carbonated soft drinks)
- Water (including premium and super premium waters)
- Juice
- Energy
- Ready-to-drink (“RTD”) coffees & teas
- Brewed coffee & tea
- Smoothies & frozen beverages
- Functional beverages (including Kombuchas)
Generally speaking, a beverage company finds value in including as many categories as possible in a beverage agreement.
Are Carve-Outs Allowed in a Beverage Deal?
Yes. Carve-outs are possible and can include products supplied by local, small businesses, products that are directly connected with the business’ brand. A carve-out can even be negotiated to allow a certain amount of competitive product.
A beverage company’s investment is largely based on having exclusive access to market its brands. Any carve-outs will limit the overall value of the deal.
Interested in Customizing a Beverage Agreement for Your Business?
Are you curious about entering your first beverage partnership, but don’t know where to begin? Or do you have a current agreement that’s coming due, but feel like the partnership has grown stale?
We’ve helped organizations of all types and sizes negotiate and manage beverage deals for over 15 years. We love to help create powerful business partnerships that generate astonishing value for all parties – the business owner, the beverage company, the employees and the customers.
Contact us today for a free opportunity analysis, which will help you identify exactly what a beverage partnership can mean for you.
Additional Resources:
How to Speak Beverage Deals: A Running List of Beverage Acronyms
Why Hire A Beverage Consultant?
The Key to Improving Any Beverage Deal
