You’ve completed the term of your beverage contract and fulfilled all of your obligations. So why are you now being billed for hundreds of thousands of dollars?
The answer is simple: unbundling charges.
We’ve seen it countless times. Executives are exasperated and outraged to realize that there was a term hidden in the fine print of their beverage contract that translates to significant fees charged at the end of the term. The “free equipment” they were provided in their beverage contract turns out to not be so free, after all.
What are Unbundling Charges?
Simply put, so-called “unbundling charges” are fees that beverage companies extract at the end of a beverage contract on equipment and parts that were provided during the agreement. These fees can be charged even if the equipment is returned to the beverage provider at the end of the contract and all other obligations are fulfilled.
While the terms vary by contract and by supplier, unbundling charges can be composed of a variety of costs, including:
- Unamortized book value of the asset
- The cost of removal (including shipping and handling charges)
- The cost of refurbishment and remanufacturing
- The original installation costs
- The cost of non-serialized parts (pumps, racks, lines, etc.)
These costs are compiled together and are due to the beverage company upon expiration of the agreement. The balance can be surprisingly large.
Why Should I Be Concerned about Unbundling Charges?
You will eventually be charged:
Since equipment is depreciated over a longer time period (typically, 7-10 years) than the term of most beverage contracts, virtually every contract with an unbundling term will end up incurring a charge. In other words, if a 5-year agreement is run completely to term, your equipment will still have several years left before being fully depreciated and will therefore incur an unbundling charge.
Your unbundling charges will continue to grow:
Even worse, when faulty equipment is replaced or new equipment is placed in new store openings or additions, the amortization clock starts over. Equipment placed a year prior to contract expiration could add to the unbundling balance by as much as 90% of the value of the equipment.
You end up paying for equipment without receiving the benefits:
Despite having to pay for both a) the unamortized cost of the equipment, plus b) the remanufacturing and refurbishment costs of the equipment, you never get to retain title, receive the tax benefit of depreciation or sell the equipment for the residual value.
You pay for equipment for your competitor:
The equipment that is removed from your outlets will get refurbished and likely placed at another customer. Since you are on the hook to pay for all remanufacturing costs, you just paid for the “free equipment” that is provided as a part of your competitor’s beverage agreement.
You limit your options:
Unbundling charges tie your hands at the end of a beverage agreement. It becomes much easier to renew with the incumbent when faced with the alternative of a sizable bill for unbundling charges. Beverage companies can use this term to create barriers for you to switch to a new beverage provider better suited to meet your current needs.
How Pervasive Are Unbundling Charge Terms?
Unfortunately, unbundling charges have become commonplace in the industry.
In fact, about 60% of the contracts we review contain some form of unbundling charges.
It’s likely that your agreement or proposal contains these fees as well. If you don’t see them, be sure to check the fine print or the “standard terms and conditions”.
How Can I Mitigate Unbundling Charges?
Own Your Equipment:
If you pursue a strategy to own your equipment, a beverage company can’t charge unbundling fees. In addition, owning your equipment could save you money in other ways and provide you with more flexibility in your beverage program.
Negotiate the Terms Out of the Contract:
You can devise your RFP strategy to eliminate unbundling charges entirely. At the very least, you can limit the types of charges allowable and provide a structure of pre-approvals required before incurring any unbundling charges.
Manage Equipment Carefully:
If you are aware of your unbundling exposure, you can institute internal processes and procedures to ensure you manage unbundling charges. For instance, you can ensure a sizable amount of equipment is not placed in the back half of a contract term.
How Much Are Your Unbundling Fees?
If you are curious how much unbundling fees you may owe, you can receive a free estimate as a part of Enliven’s complimentary Opportunity Analysis.
Schedule your free consultation today to not only understand how unbundling fees might impact your contract but to also learn how your agreement stacks up to peers and what savings might be available in your next negotiation.
Should We Work Together?
We help executives in a variety of industries lower their cost of beverages, increase their beverage sales and structure a more productive, inspiring beverage partnership. Can we be of value to you?
A few of our service options include:
- Beverage Deal Audit
We ensure your outlets are being charged the correct, contracted price and you are receiving the full amount of rebates you are due. If we discover errors (which we do about 20% of the time), we’ll recover those funds on your behalf. - Beverage Opportunity Analysis
How well does your agreement benchmark against your peers? How much sponsorship revenue could you expect from your first agreement? We’ll benchmark your agreement against your peers and against other organizations in different industry verticals so you can understand how you stack up and what’s possible in a new program. We provide you with a discovery report that provides actionable intelligence on your current deal and the state of the industry. - Full Service Beverage Negotiation Consulting
If you are approaching your next beverage negotiation, we come beside you to provide strategic planning, project management, comparative analytics, negotiation support, contract review and conversion implementation support. - Category Management to Grow Beverage Sales & Improve Service
Do you feel good about your current partnership but want to grow top-line beverage sales? We help you grow sales through applying analytics to optimize your product mix, promotions and crew incentive programs. We also have a full-service account team built to help resolve and eliminate any service level issues as it relates to your beverage program. - Ad Hoc Consulting Project
Need advice on a specific aspect of your beverage program? When it comes to beverage partnerships, our team has seen it all.
Contact us today to schedule your free initial consultation.
Related Articles:
Three Ways that Unmonitored Beverage Deals Cost You Money
Do You Have an Equipment Strategy for Your Next Beverage Contract Negotiation?
The Pros & Cons of Owning Your Own Beverage Equipment
