You probably like your main soft drink company rep. He or she is probably a good person. You are probably not inclined to challenge him or her in any significant way. Your companies are partnered, after all. You’re in a multi-year contract now and you’re going to be in a new long-term contract in the future. You have to get along.
I get it. I’ve been in your shoes. I was an operator for several years, at a few different restaurant companies.
But I was also a soft drink rep for many years. I’ve been on both sides of this table. Together with my colleagues at Enliven, we have decades of experience both assisting operators and negotiating with beverage account executives.
Over the years, we’ve learned that there are at least five key phrases that should sound alarm bells in your mind as you work on a new beverage contract. If your soft drink rep utters any of the following statements, be ready to push back. The phrases are:
- “You have a great deal.”
- “We can’t do that based on market segmentation and volume thresholds for your channel of business.”
- “Our analytics tell us you should be serving (insert brand).”
- “Our proposal includes equipment value to you of (insert large dollar value).”
- “This part of the contract is the standard terms and conditions for everyone.”
For every one of these statements, our experience tells us that reality may be different than you are led to believe.
Here are the top 5 things your beverage account executive doesn’t want you to know:
1. Your Deal is Not as Good as He or She Wants You to Believe
When you hear your soft drink account person tell you, “You have a great deal”, it’s likely the exact opposite is true.
Your soft drink representative gets paid to keep you as a customer at the lowest possible cost to his or her company. When they have to tell you how great your “deal” is, you might have a lousy one.
I can’t count the number of times I have heard a trusting restaurant executive tell me that they have a “great relationship” with their Coke/Pepsi representative and that they have a great deal. I ask how they know they have a great deal. They reply that the rep told them they do. Once I convince the trusting executive to let me look at the numbers, invariably the deal turns out to be a dud. There seems to be an inverse relationship between the value of the soft drink deal and the “greatness” of the relationship.
When a CEO of a major private equity group hired us to improve his soft drink deal, one of his brand presidents made a point of coming to me to tell me not to interfere with his relationship with his soft drink vendor. His free sporting event tickets were more important than his franchisees’ profitability.
Please don’t get me wrong. I’m not against having great relationships with your vendors. Relationships are important. They can pull you out of the fire when you need it most. They make doing business pleasurable and worthwhile.
But when you are negotiating a soft drink program, your relationship should be put on hold. At the very least, have someone who is not a part of the relationship take a leading role as the negotiator. Remove the relationship from the equation and have a dispassionate focus on the numbers. That’s the only way to truly get a “great deal.” Once you have a truly great deal, the relationship will be on even better footing.
2. Your Deal Value isn’t Limited by Arbitrary, Self-Serving Guardrails set by the Beverage Companies.
When you hear, “We can’t do that based on market segmentation and volume thresholds for your channel of business,” know that they and their competitor have done it before.
When they say they can’t do something based on segmentation and thresholds, it means they don’t want to. It also means they aren’t sufficiently convinced that you will tell them to hit the road.
The truth is that they break their own “rules” on segmentation and volume thresholds all the time. The strength of your program does not depend on how big your company is, how many locations you have, or how much product you buy from them. It has much more to do with how well you negotiate. There are small chains with under 100 locations that have soft drink programs that are much richer than chains with 2,000 locations.
These smaller companies with good deals simply took advantage of resources available to them and thoroughly understood the game before entering the arena. Those simple steps are keys to winning.
When you hear the segmentation and thresholds argument, it’s time to change your tactics. If you’re unwilling to switch suppliers and your soft drink representative knows this, you have already lost the game.
3. Soft Drink Companies Want You to Experiment with Untested Brands
When your soft drink rep says, “Our analytics tell us you should be serving (whatever),” look beneath the surface.
The soft drink “analytics” regarding which flavor should be served in your business are often just your representative’s sales goals disguised as analytics. Your soft drink representative wants to maximize volume. That’s what they get paid to do. To do that, they need to sell you more gallons or cases. The easiest path to more cases is to sell you incremental flavors.
Often, they will show data that combine several different sources like Nielsen, CREST, or other data services into one report that says you should be serving any number of brands that they want to add to your line up. Minute Maid flavors, Barrilitos Agua Frescas, Gatorade, Stubborn Soda, Blue Sky, and brand extensions of Mountain Dew are all possible additions they will try to sell you.
But analytics are not driving the recommendation. Often these flavors are low share brands that have no place in your business. They will, however, make your account executive a handsome bonus at the end of the year.
4. Actual Equipment Costs are Much Less than the Equipment “Value” Presented in the Proposal
When your soft drink claims that equipment is worth X millions of dollars, dig in further.
During your negotiation, your soft drink representative will invariably show you a chart that lists all the different funding they are dedicating to your business. As part of that, you’ll notice a value assigned to equipment and service.
That equipment number is most likely inflated well beyond what it really costs the beverage company.
There is an easy way to test whether or not it is. Simply ask them to give you the cash instead of the equipment, so you can evaluate whether or not it is better to own the equipment yourself. Watch what happens next. That equipment value will drop in half.
The truth is that they are simply inflating the value of the equipment to make it look like a better deal for you. Their explanation for the difference will read like a wall street analyst’s report: the depreciation realization combined with the residual value and the discounted cost of capital and the value of the stock price at the time of equipment purchase, etc. etc. You get the point.
Hold him or her to the number he promised. Don’t let them back off from the value of equipment they originally presented.
5. The “Standard Terms and Conditions” are Not Actually Standard
When the contract reads, “Standard Terms and Conditions,” don’t just skip over it.
There’s always a section of the beverage contract, typically attached to the back of the contract, that makes it appear that there’s nothing further to negotiate. It’s called the “Standard Terms and Conditions”, but no, it isn’t standard. The page with the fine print often contains more land mines than the rest of the contract combined.
Regularly this page contains the so called “unbundling charges” that are meant to keep you beholden to your soft drink supplier well past the expiration date of the contract. Strike this out of the contract, or you will potentially face millions of dollars in termination fees even after your contract is expired (in fact, quite a long time after your contract is expired).
Also, in this eye-sore of a page are several land mines your soft drink account executive does not want you to read. Potential land mines include:
- You must apply their state of law jurisdiction to your agreement. (Make it your state, not theirs. They do business everywhere, but you don’t.)
- You must cause anyone acquiring your business to assume the contract. (Strike it if you ever want to sell the business.)
- You must pay any residual charges related to equipment refurbishment, removal, or interest. (Strike it.)
There’s plenty more to list. Before signing, get some good advice on it.
These are just some of the subjects your account executive would prefer you didn’t know. There are many more – too many to cover in a short article. Armed with this information, you can begin to ferret out land mines, hidden truths, and misdirection that could end up costing you a lot of money in the future.
If you are unsure about where you stand, get professional help from consultants who know the business and can steer you away from land mines that hurt your business.