In our nearly 20 year history of analyzing beverage deals, one thing clearly stands out:
Not all beverage deals are created equal.
The disparity between total deal value for organizations with almost identical volumes can be eye opening. A chasm exists between the most lucrative and most stingy agreements.
Naturally, this brings up a fair question:
What drives a beverage company to allocate its resources to certain businesses but not others?
And, more importantly….
How do you approach your beverage business in a way to achieve maximum investment and the most value from your next beverage partner?
After reviewing hundreds of agreements over multiple decades, we’ve identified four key factors that drive a beverage company to invest in your business. Knowing these drivers can help you position your next partnership to align with the beverage company’s strategy…. and give you the best opportunity for success.
What are the four drivers? Let’s dive in.
Driver #1: Volume
Beverage companies are famously competitive and want to capture market share from their competitors. The parent companies (Coca-Cola, PepsiCo, and Keurig Dr Pepper) distribute and sell billions of servings a day. Their bottling partners, which represent the boots on the ground, can fight ruthlessly to gain share in local markets. The beverage industry is a high-volume, low ticket size business. Therefore, growing transaction volume is critical. Businesses that can offer significant volume are attractive investment targets. This is the most obvious factor – but one that is most over-valued by customers seeking a beverage partnership. Trading volume for price is just one factor…
Example: Grocery chains and supermarkets
Driver #2: Profit
Profitability is the second key driver of beverage company investment. Beverage company executives will evaluate which packages in your market will deliver the most gain. Not every package is equally profitable. For instance, 20oz bottled sodas are typically much more profitable than 16oz glass bottles of organic tea. The degree to which a channel of business skews towards packages with higher profitability increases the likelihood of interest and investment.
Example: C-stores
Driver #3: Internal Activation
Beverage companies, at their heart, are marketing companies. They create, build and nurture an entire suite of beverage brands. Does your organization offer the beverage companies an opportunity to market their brands to a large pool of customers and employees? Do you provide a captive audience with unusually high dwell times? Do you appeal to an attractive demographic? This can be of tremendous benefit to a beverage company aiming to build brand loyalty — especially as the industry to continues to fragment into niche brand segments. The beverage companies must build consumer trust and loyalty with each new generation — and with each new brand launch.
Example: Universities, hospital systems, airports, theme parks
Driver #4: External Activation
Even if a business does not sell a significant amount of beverages (or, in fact, any beverages at all), they still might be a target for beverage company investment. How so? A beverage company wants to be associated with brands that resonate with their customers. If a beverage company gains access to the assets of a popular brand, it can use them in its marketing campaigns to sell more products in the retail channel and to win additional exclusive partners in other channels of business.
For instance, a sports team might offer relatively low volume and yet relatively high equipment expense (providing a lot of equipment at a stadium only used once or twice a week during games)… but a beverage company still benefits. It can produce and sell limited edition can panels with that team’s logo at the local grocery store, entertain executives from their other business partners at the team’s games, and have access to the team’s players for marketing campaigns. Brands that command marketing value are very attractive targets of investment.
Example: Sports teams & leagues, celebrities
Putting It All Together
Knowing how your industry – and more specifically, your business – ranks in each of these four drivers will help you frame your partnership in the manner more likely to achieve the results you want. An important key is working to highlight the areas that are the most important to the competing beverage companies — while minimizing the areas that are least attractive.
| Volume | Profit | Internal Activation | External Activation | |
|---|---|---|---|---|
| Supermarket | High | Medium | Low | Low |
| Movie Theater | Medium | Low | High | Low |
| C-Store | Medium | High | Low | Low |
| College & University | Low | Low | High | High |
| Health System | Medium | Medium | High | Low |
| Airport | Medium | Medium | High | Low |
| Quick Serve Restaurant | High | Medium | Medium | Medium |
| Sports Team | Low | Low | High | High |
The first step is identifying how your business naturally performs in these four factors. Then, you can develop a strategy that will help strengthen your case for investment, deliver for your future partner and drive the results you are looking for.
Caveat: It’s Not All About the Fundamentals
Of course, in business, not all decisions are based purely on the fundamentals. Relationships and emotions can also sway an RFP outcome. This especially rings true in the competitive beverage industry.
The level of investment a beverage company is willing to spend may be influenced by a mutual connection that executives share or the preference of an influential board member. Did key executives attend the same university or start their careers at the same company? These ingredients are the stuff of beverage deal folklore.
In addition, the fear of losing a foothold in an industry or the greed of beating out a competitor can also drive decisions. “Irrational exuberance” (to quote Alan Greenspan) applies to the beverage business. Has one of the beverage companies just lost a major property in your market? Has there been recent headlines that a company is trying to move past? These all play a role.
Regardless, before entering into a beverage agreement negotiation, it’s important to consider the fundamentals and know where your business stands. Everything else in your future partnership is built upon this foundation.
How Does Your Business Stack Up?
We help executives in a variety of industries lower their cost of beverages, increase their beverage sales and structure more productive, inspiring beverage partnerships. The first step is always the Opportunity Analysis, where we help you benchmark your current program and determine what’s possible in the next.
Contact us today for a free consultation to identify exactly what a new beverage partnership can mean for you.
Additional Resources:
Three Ways that Unmonitored Beverage Deals Cost You Money
The Difference Between Pouring Rights & Beverage Marketing Agreements (…And Why It Matters)
Do You Have an Equipment Strategy for Your Next Beverage Contract Negotiation?
