When approaching an upcoming negotiation with a beverage company, it’s tempting to see the process as a battle. Your job is to “win” by extracting as much value as possible from the competing beverage companies.
There are some consultants out there who would have you believe this. They even use dramatic metaphors of combat and battle to hammer home the point. They would instruct you to cast relationships aside, or at least put them on hold for a period of time. You’re going to war, after all, and there’s no time for niceties. You are to see the beverage companies as nothing more than a big pile of cash, and your sole job is to take as much of that cash and transfer it into your organization’s pocket. It’s a zero-sum game.
We believe this approach is a big mistake.
In fact, we’ve chosen not to take engagements when it becomes apparent that this is the primary mindset of our potential client. Not only does this mentality lead to poor business practices, it simply doesn’t produce a great outcome or a productive partnership.
When you treat your beverage negotiation as a win-lose proposition, everyone actually ends up losing.
The Beverage Companies Don’t Need Your Business
It’s tempting to assume that the beverage companies depend on your business. Therefore, the thinking goes, they must get lathered up at the opportunity to throw as much cash at your organization as possible. They need your volume, right?
While the volume may be meaningful to the local teams or bottlers in your community, no matter how big you are, it pales in comparison to the nearly 2 billion servings delivered by just one of the beverage companies every single day. If the beverage companies were only after volume, they could easily run promotions with their large retail and grocery store customers to boost throughput.
Rather, what they care about is the opportunity to build their brands. And your business can provide them just that: an exclusive environment to foster brand loyalty with a specific consumer base for a long-term horizon.
Understanding this fact yields a very different negotiation framework than assuming that the beverage companies are eager to trade volume for price.
The truth is, they don’t view you as their true customer. Their true customers are the consumers that interact with their brand at your business: your customers and your employees. They’re willing to invest – and sometimes invest at a stunning scale – in channels that help them build loyal consumers. But they are also willing to walk away from “partners” that aren’t acting like partners.
If you want a modest rebate, you can negotiate based on volume and assume the beverage companies need your business. But if you want to craft a value-rich partnership – one that yields eye-popping returns (be it financial, social, customer experience, or other) – you would do well to reframe your thinking.
Where the Real Money Lies
Most people think of Coca-Cola and PepsiCo as beverage manufacturers. It’s true that these companies produce beverage syrup and that their bottlers take that syrup and package and distribute a variety of beverages. But to reduce their core function to manufacturing beverages would be a mistake.
There are dozens of companies that produce beverages, but only two that can claim enterprise value of greater than $250B. How did they achieve this size and scale?
Coca-Cola and PepsiCo claimed their place among the most valuable companies in the world not by manufacturing beverages at scale, but by creating and marketing a portfolio of brands. At their hearts, Coca-Cola and PepsiCo are marketing companies.
They create, invest in, and harvest brands. In fact, both Coca-Cola and PepsiCo can boast of dozens of billion-dollar brands that they have either created or acquired since their founding. There is tremendous pressure to continue creating and growing their suite of brands, and the beverage company that can add another billion-dollar brand to their portfolio will be rewarded handsomely by Wall Street. Introducing and re-introducing their brands to consumers is of tantamount importance.
Which leads us to where the real money resides: it’s not with the sales teams, but with the marketing and branding teams. In fact, Coca-Cola spends over $4B annually on marketing with PepsiCo nearly $2B. It would take just a minuscule portion of this budget, applied to your business, to radically subvert your unit economics.
In our experience, most customers approach the beverage company sales teams with an adversarial tone, attempting to beat the beverage companies up for price. Instead, what they should really be focused on is creating champions out of the beverage company’s sales team, arming them with the ammo they need to advocate internally on your behalf with their own branding and marketing teams. If these teams can subsidize the sales team’s financial offer, your offer can become exponentially more lucrative.
Smart organizations understand that a smaller portion of this much larger marketing pie can easily dwarf the investment available to them in the traditional sales team budget.
The Beverage Landscape Has Changed
If this all sounds a little counter-intuitive, know that the industry has changed rapidly. While in the past, competition was king, at least two key factors have converged to shift the landscape.
Beverage Categories:
The beverage industry today is different from the cola wars of the 90s. Back then, it was all Coke vs. Pepsi, which represented the vast majority of the beverage share. Today, the number of beverage categories is expanding at a dizzying pace:
- Teas
- Juices
- Coffees
- Sparkling waters
- Premium waters
- Super-premium waters
- Kombuchas and probiotics
- Energy drinks
- Isotonics and sports drinks
- Aguas Frescas
At one point, winning the battle for cola preference had ultimate stakes. Today, while still a priority to the beverage companies, winning the cola war must be balanced with competing for a whole portfolio of beverage brands across dozens of categories.
Sure, the big beverage companies (Coca-Cola, PepsiCo and Keurig Dr. Pepper) are still competitive. There’s no doubt that they would like to have your business and keep their competitors away. But with the beverage landscape continuing to fragment, the ultra-competitive, win-at-all-costs approach has shifted.
Advertising Options:
In addition, the number of ways that the beverage companies can reach consumers has soared.
More Channels:
In the past, the beverage companies were more dependent on claiming exclusive pouring rights at strategic properties in order to directly reach consumers.
Today, in addition to traditional print and television advertising, beverage companies can leverage a variety of additional channels to reach their targeted audience, including social media, podcasts, direct-to-consumer e-commerce and media product placement (to name a few).
Brand and marketing managers must evaluate each of these avenues when determining how to best build and foster their brands.
And more to the point: these channels don’t treat the beverage companies as an enemy they must fight.
Fewer New Properties:
In previous decades, businesses that either had strong brand value or which had large captive audiences (customers or employees) were very attractive to the beverage companies. Becoming an exclusive partner was a strategic priority, and beverage companies courted these businesses aggressively.
Today, much of the playing field has already been claimed by one of the beverage companies, and the “green space” opportunity for new partners has significantly diminished. The “land grab” is, for the most part, complete, and there’s less energy and attention given to claiming new properties.
As the beverage industry continues to evolve, crafting an agreement that motivates your beverage partner to continue their brand investment strategy with your business – year after year – will yield the best results.
Strategic Partnerships Are Not a Zero-Sum Game
When entering into pouring rights or beverage marketing agreements, beverage companies are of course looking for a return on investment. And yet, they also have significant assets and strengths. They are willing to deploy those for key partners. The result can be magic – both parties receiving value they couldn’t have achieved without the other.
Smart operators take time to consider what wholistic, strategic goals could be accomplished through a beverage program – outside of simply cutting costs:
- Can a beverage company help extend my brand into the retail channel through their existing retail partners?
- Is there a tie-in with another of the beverage company’s assets (The Olympics, NFL, a local sports team, etc.) that can help advance my brand?
- How can I tap into the beverage company’s audience on social media?
- Can a beverage company help me convert more tap water drinkers into paying customers?
- Can the talent pool at the beverage companies (which hire some of the smartest and brightest) be deployed to help train my employees (i.e., marketing, diversity or customer service training)?
- What technology can be deployed to help nudge my employees and customers towards healthier and more sustainable products to meet my ESG goals?
- Do I have “dead space” at my locations that a beverage company could transform into an engaging, crowd-pleasing space?
These are just a few thought starters. Alongside these questions, businesses should also consider what assets their brand owns, and how it might advance a beverage company’s goals.
- Which demographic does my company reach? Where might there be overlap with the consumer pool a growing beverage brand wants to target?
- How can your company provide perks or experiences that the beverage company can offer to their other partners? (hint: you benefit from this exposure and these connections as well)
- Where do my most loyal customers interact with my brand outside of my four walls (social media, retail partnerships, loyalty programs etc.)? How could the beverage company benefit from this partnership beyond the right to pour?
- What collaborations does a partnership with my company make possible?
The businesses that create the most lucrative partnerships recognize what beverage companies are truly after. They structure the partnership to deliver those outcomes.
As a result, the best structured partnerships continue to gain additional, incremental value from the partnership – even after the contract is signed. Beverage companies see their partnership as an asset in which to invest and not a battle they have to win. The brand teams want to jump into the partnership and invest in order to participate in the return.
We’ve seen this happen with our clients. Partnerships may get kicked off with a marketing activation that was presented as a part of the proposal. But as soon as other brand teams at the beverage company see what’s happening, they come to the table with their own ideas (and their own budgets). These can include:
- Engaging experiences for customers and employees
- Promotions that add additional value to a ticket price
- Sampling of new products and technologies
- Invention of a new product or brand extension – exclusively available at their partner’s business
- Tagging along and co-investing in a social media campaign
The best beverage partnerships result in a clear and direct “win” for all parties. These agreements bring all parties’ unique strengths to the table, resulting in a deal where the whole is greater than the sum of the parts.
Implications for Your Bottom Line
Are we suggesting that lowering beverage COGS is not a valid goal for a beverage negotiation?
Absolutely not.
Rather, we’re proposing three simple ideas:
- COGS is only one metric among many you should use to structure and evaluate your beverage partnership,
- If lowering COGS is an important objective, the best way to accomplish this goal is to approach the negotiation not as a battle, but rather as an opportunity to craft a collaborative partnership that attracts investment, and
- Lowering COGS and increasing sales is what really maximizes your beverage contract value. Your beverage partner understands the cost of getting access to your consumers; the win for them is maximizing that investment through increased sales… for you!
Free Benchmark Assessment: Understand the Untapped Potential of an Investment-Led Approach
Are you still skeptical that this approach could work for your business?
Our clients have taken this win-win approach and have seen results they would not have dreamed were possible. As a side benefit, they’ve positioned their beverage partner not as a vendor they must constantly battle for the life of the agreement, but as a strategic ally in helping their business succeed.
If you’d like to get a deeper understanding of how this process works, we’d be happy to walk you through a few case studies to demonstrate how a different way is not only possible, but preferable.
Since all we do is negotiate and manage beverage deals, our first step is always to provide a free benchmarking assessment. With this report, you can understand how your current partnership compares to others – both inside and outside your industry – and what value might be unlocked through crafting a beverage with this win-win approach.
Contact us today to receive your free benchmark report.
Additional Resources:
The Best Customer Engagement Companies in the World Adopt Pouring Rights (And You Should Too)
The Key to Improving Any Beverage Deal
