Beverage Contracts are Constantly Evolving. Is it Time to Add Specific Terms Related to Delivery?
Most Pouring Rights Agreements (PRAs) are silent on the subject of delivery strategies. That may change over the next 5-10 years, and it may make sense for restaurant companies to initiate that change.
Beverage companies have always been concerned with operational matters that directly impact the quality of their products and the marketing of their products. That’s why equipment solutions, merchandising strategies and on-site marketing efforts are almost always covered in PRAs.
But if–or how–you deliver the beverages you sell has traditionally not been covered in most PRAs. With the recent rise in the popularity of delivery, it’s time to at least consider ways in which your beverage partner may play a significant role in your delivery strategies, and how that role may or may not be defined in your next PRA.
A recent Nation’s Restaurant News article points out that delivery now represents 3% of all sales, and the trend line indicates that this number will increase significantly in the near future. This same article summarizes a recent industry study in this way: “According to the latest research from The NPD Group, delivery visits are up 10 percent and [delivery] sales are up 20 percent since 2012. The majority of that growth is coming from digital orders, which account for 52 percent of all delivery, up from just 27 percent in 2012.”
First, Focus on Your Bottle & Can Strategy
At a minimum, we can all agree that the increasing popularity of delivery means that restaurant companies need to focus more on their bottle and can business than ever before.
Fountain drinks alone cannot satisfy today’s consumers who want beverages delivered with their food to their home or office. Delivery customers fear that fountain drinks will go flat before they arrive at their location, and they value the flexibility and convenience of re-sealable bottle tops, especially when consuming beverages in the work place.
Moreover, when it comes to delivery, bottles and cans are vastly easier to deal with logistically than fountain drinks. Delivery drivers can much more safely and efficiently store and handle bottles and cans than they can fountain or dispensed drinks of any kind.
None of these insights are new or earth shattering. But they are increasingly important as the percentage of delivery business continues to increase.
Because fountain drinks have been so dominant for so many years, many restaurant supply chain executives have little or no experience negotiating a robust bottle and can program. They simply don’t know what qualifies as best-in-class pricing or best-in-class rebates on all the various categories of bottle and can product. And they may not be aware of how dramatically the bottle & can business can change quarter-to-quarter compared to the fountain business.
Furthermore, beverage company account teams themselves may not even fully understand how best to collaborate well with all the various bottling franchisees that must be engaged–and sometimes contracted separately with–in order to have a best-in-class bottle & can program to go along with your fountain program.
Before you enter into your next PRA negotiations, you should do everything you can to close this bottle & can knowledge gap.
The Act of Delivery is More Important than the Means of Delivery
We’ve all read about the eminent arrival of driverless cars and drones delivering packages to our doors. Many of us recoil at the prospect of all these driverless and pilot-less machines barreling down our roads and buzzing overhead. Most of us, I think, take most of these predictions with a grain of salt.
But there can be no doubt that third-party delivery services like DoorDash, UberEats, GrubHub and others are fueling the recent uptick in the popularity of delivery. And there can be no doubt that however these existing services evolve, the end result will likely be that more folks order even more meals delivered, not less.
Coke has recently partnered with Uber Eats and Door Dash in some markets to help its foodservice customers increase beverage incidence with delivery orders. And Pepsi has formed an eCommerce unit, in part to help its foodservice customers with this same challenge.
Many restaurant companies are experimenting with their own proprietary delivery services. Of all the restaurant companies doing this, Dominos seems to be the most advanced and innovative. They have experimented with a fleet of delivery robots, driverless cars, and drones in markets around the world.
With all this experimentation going on, it makes sense for restaurant operators to think about whether and how their next PRA will incorporate terms and conditions related to these kinds of third-party delivery services and their own proprietary delivery efforts.
In future PRAs, for example, it might make sense for restaurant operators to build in some language that requires their beverage partner to share new delivery technologies or delivery best practices with them that have been developed for other customers. Operators with definite plans and budgets, may want to have their beverage partner commit funds or assist in other very specific ways with these efforts.
Let’s Close with a Discussion of Drones, Just for Fun
To end on a fun note, let’s focus a bit on drone delivery. Within the next decade, some new PRAs with Coke or Pepsi may have specific language that governs how your beverage partner participates (or not) in whatever drone delivery program your company might either have or be planning.
In addition to what Dominoes is already doing with drone delivery in New Zealand, Uber is piloting fast food drone delivery in San Diego, as reported by Food & Wine. Dominos (again!) and Chipotle have also tested out drone delivery in the U.S., as reported by Restaurant News.
In your next PRA, Coke and Pepsi corporate lawyers and Coke and Pepsi bottler lawyers may have language that they want governing all drone delivery activities and limiting (to them) all drone-related liabilities. Some of this proposed beverage company language may be designed to try to shape your company’s beverage strategy as it relates to drone delivery. For example, some incentive funding could be tied to your company’s inclusion of beverages in meal bundles that are delivered via drones (or any other method).
Even if, in a million years, you can’t imagine your company having any kind of drone delivery program or partnership or option for consumers who want it, you still need to consider the potential impact of increasingly widespread drone delivery options on your business and on your relationship with your beverage partner.
Some flighty questions you might want to ponder:
- What if most (or a significant percentage of) drone meal delivery trips do not include beverages of any kind? How will that impact your overall sales and average ticket prices and margins?
- Alternatively, can you gain a competitive advantage by ensuring that your company (together with your beverage partner) is set up to deliver larger and/or more beverages with every drone food delivery?
- Should your company approach Coke and Pepsi proactively about co-developing and co-funding pilot drone food & beverage delivery programs? If nothing else, would such efforts generate positive buzz for your company in traditional and social media channels?
If and when drone delivery becomes commonplace, there will be many more questions to ask, liabilities to avoid and potential strategic advantages to exploit.
You can rest assured that Coke and Pepsi will have teams of people trying to figure out how to ensure that as many future state food delivery drones as possible have a beverage of some kind stowed on board.
What does this mean for you?
The key takeaway for all foodservice companies today is that your next PRA will likely be another long-term partnership lasting 5, 7 or even 10 years, just like your current one. In this next contract time period, food & beverage delivery will likely continue to grow
It’s already time for you to start seriously thinking about the impact of delivery on your next PRA. At a minimum, you need to have some basic research done and some key questions identified 18-24 months before your current PRA expires.