When it comes to finding ways to save money, beverages don’t typically rise to the top of the list. In fact, many executives are surprised to learn how much their business is spending on beverages in the first place. The truth is, businesses of all sizes and types can find ways to save money on their beverage spend.
Are you afraid you might be overspending on beverages at your business? To help you determine how you can reduce your company’s beverage costs, here are six different scenarios that businesses frequently encounter while purchasing beverages.
Buying Beverage Product at Market Rate
Many times, executives don’t believe their business warrants a specific strategy for contracting with key beverage suppliers. Perhaps their primary business does not directly relate to food and beverages or they believe their distributor or GPO agreements already have this category covered.
The end result: Their business ends up paying market rate for beverages.
The answer: An exclusive beverage agreement
Exclusive (or Semi-Exclusive) Beverage Deals:
Exclusive beverage deals, or pouring rights agreements, are agreements between a business and a beverage supplier. These contractual partnerships allow businesses to negotiate lower pricing, rebates, sponsorship funds, price ceilings and more, in exchange for a commitment to purchase beverages exclusively (or sometimes, semi-exclusively) from the beverage partner.
Additional Benefits:
As an added benefit, non-financial terms can be negotiated as well, like service level guarantees, employee engagement programs and commitments to meet a company’s corporate environmental and sustainability goals.
Commonplace Across Industries:
Beverage deals are commonplace throughout various industries and extend beyond restaurants and restaurant chains. Amusement parks, theaters, specialty retail, colleges and universities, healthcare systems, large employer bases, and other industries all negotiate strategic beverage agreements. One of the primary motivations is to reduce beverage spend.
Additional Resource: How Avera Health Saved 40%+ on Beverage Spend
Trading Volume for Price in Your Beverage Agreement Negotiations
Once a business decides to negotiate a beverage contract, the next step is to determine how to approach the project.
Why the common negotiation approach does not work: In our experience, most procurement professionals try to consolidate their purchasing volume to provide leverage to negotiate a lower price. While this is how most businesses operate, when it comes to beverages, this could actually hurt your bottom line.
Why? Because the major beverage companies don’t think of themselves as beverage distributors. They think of themselves as marketing companies that exist to create and build beverage brands.
If beverage companies were only after volume, they could get it by fighting for shelf space at a large chain, such as Kroger or Walmart. Instead, they are looking for places where they can showcase their brands and expand their customer base.
Beverage companies believe their real client is the consumer, not the business owner.
To build brand awareness with consumers, they need consumers exposed to their brands. By leveraging the large network that is already in place within your four walls (rather than your volume), you will have the best opportunity to lower overall costs.
Additional Resources:
The Difference Between Pouring Rights & Beverage Marketing Agreements (…And Why It Matters)
The Beverage Company is Not Your Enemy
Not Having A Direct Agreement
Beverage companies want to partner with strategic properties and businesses to promote their brands and build a loyal customer base. The best way for them to do so is by partnering directly with the property.
Not Receiving the Full Allotment of Rebates:
Cafeteria operators, concessionaires, and discount program operators may not pass along the full rebates to their end customers. Oftentimes, these rebates and allowances are paid by the beverage company to the food management company’s corporate entity and are not passed along to the end-facility or represented on the local P&L. These rebates can also be renamed as various terms (“allowances”, “marketing fund”, etc.) to avoid contractual obligations to report and pass along the rebates to the end-user.
More Value from an Engaged Beverage Partner:
Having a direct relationship with a business gives the beverage companies the confidence that their partner is appropriately engaged and invested in the partnership. Not only will your business receive the full allotment of rebates it is due, but the amount of rebates will often be larger. Beverage companies can view the rebates due to cafeteria operators and concessionaires as a toll necessary to get the product to their customer. They’ll pay it, but they’d be willing to pay more directly to a business that is willing to be a true business partner.
Inefficient Ordering Processes
Because beverages might be an indirect spend for your business, it may be that each department has its individual process by which it purchases beverages. This can lead to numerous orders being placed at different times, with different suppliers and at different prices (for even the same product).
Sometimes, there isn’t a central contract negotiated at all, and other times, departments can be unaware of the process to order through the approved channels. Individual departments’ spend may not rise to the level of needing to negotiate a central contract, but when all pooled together, the spend can be sizeable.
All of this leads to inconsistent ordering practices and higher costs on several levels — it can confuse vendors and create a situation where they don’t stock enough product or don’t count volume towards rebate programs. It can also lead to higher freight charges due to multiple vendors using multiple carriers.
Having an approved ordering process with a locked order guide can eliminate these hassles, provide more transparency on the true organizational spend, and ultimately, save your organization money.
Not Auditing Invoices & Rebate Payments
Even if a business has a competitive beverage agreement in place, if it’s not being actively monitored, there can be opportunities for savings.
Auditing Invoices:
Many times, the pricing charged to your business can be more than the pricing agreed to in the contract. Often, this can be due to systems errors with the beverage companies, their bottling network or your distributors. For instance, one of your facilities could fall off of the pricing grid, an annual pricing increase might be misapplied, a new asset or order number may never be linked to the contracted pricing to begin with, or a variety of other reasons could cause the error. Nevertheless, the end result is the same: you are overcharged.
In our experience, purchasing managers rarely check the cost of beverages against the contracted price. Sometimes this is because they don’t know how to look but often it’s because they don’t have time. Most beverage contracts include dozens, if not hundreds, of items in them, so it’s a lot of work to double-check everything.
Auditing Rebates:
Executives can often fail to audit the rebate payments to ensure the calculations are correct or are paid on the complete pool of volume.
We find that invoices and audit rebates can have up to a 20% error rate. To avoid these issues, management in both procurement and operations should have a plan to both monitor and audit invoice prices and discounts.
Additional Resources: Three Ways that Unmonitored Beverage Deals Cost You Money
Not Controlling Inventory
Businesses that don’t control inventory well tend to overspend. There are a variety of factors to which this can be attributed:
Rush Orders: It’s surprising to hear how many times a purchasing manager has to run to the grocery store to replenish out-of-stock beverages. Not only is this person’s time better used elsewhere, but these beverages are also almost always priced higher than could be available through a beverage deal.
Specialty Products: A special order here for a key member of the team, a special order there from a surprisingly good salesman… it all leads to a non-standardized product portfolio at higher costs. Creating a best-in-class standard portfolio and locking down the order guide can eliminate excess pricing.
The Wrong Product Mix: Ordering the new “flavor of the day” and trying out every new product can lead to stale products. Under-ordering the products that are most in demand and command the highest profit margin can lead to out-of-stocks and missed profitability targets. It’s important to dial in the right product mix for your customer base, context and geography. Run tests on new products and be ruthless about optimizing the mix.
Duplicative Products: Remove duplicative products to reduce complexity in the ordering process and help maximize the profit contribution of each product. Having two different full-sugar sodas, two different economy waters and two different organic tea brands is not only unnecessary, it prevents you from accessing the financial benefits of an exclusive beverage deal.
Not accounting for hidden costs
Hidden costs are real costs that – if properly accounted for – can inflate your beverage spend. The first step to mitigating these costs is to properly identify them. These costs can include, but are not limited to, the following:
Service Calls: Do you pay for service, or does your beverage supplier? Are proactive as well as reactive calls included in your deal? Can you aggregate calls across all of your locations?
Water Filtration: Nearly 85% of all fountain beverages are water. Your regular filtration service should be accounted for in your sales.
CO2: Do you receive bulk CO2 service? Or is it delivered by your local bottler or other service provider?
Equipment Allowances: Do you receive equipment as a part of your beverage partnership? Do you pay for your own equipment? Do you receive any equipment allowances?
Unbundling Charges: There can often be residual charges that are incurred at the end of your beverage program, even if you meet all of your obligations. Check the fine print of your agreement and be sure you are factoring in all of the charges you must pay at the termination of your partnership.
Get Expert Help
How much money are you overspending on beverages? If you fear you might be wasteful and inefficient in your beverage category, you don’t have to go it alone. Our team is organized to do one thing: help you save and make more money on your beverage spend.
Whether you have an entire team focused on the beverage category, or know you should have a plan with beverages but just don’t have the time and resources to dedicate to it, we can help you deliver savings and revenue to your organization.
The first step? A free opportunity analysis to help you benchmark your current spend against your peers. Schedule your consultation today.
Additional Resources:
Are the savings too good to be true?
The Best Customer Engagement Companies in the World Adopt Pouring Rights (And You Should Too)
Budget shortfall? Pouring Rights Can Help
