Note: This article was originally posted in The Source magazine and can be accessed here.
Setting up an exclusive relationship with a beverage company could generate a surprising amount of revenue for your healthcare facility.
Beverage companies often pay substantial money for the exclusive right to market and sell their beverage brands at either a single facility or several within a health system. While strategic beverage partnerships or pouring rights agreements (PRAs) have long been common among colleges and universities, a growing number of health systems are getting into the game.
“The demographics and buying patterns have changed for beverage companies so they’re starting to focus on different segments than they have in the past and diversify their portfolio,” explains Brett Rogers, HealthTrust director of strategic sourcing, food and nutrition.
About one-third of U.S. hospital systems currently have a beverage deal, according to Enliven, LLC, which negotiates beverage deals for HealthTrust members, as well as other healthcare organizations, restaurants and airports.
“Enliven drives right to the levers that create value for the member,” Rogers says. “All it does is negotiate beverage deals, so it understands the various selling tactics a beverage company may use to capture or re-sign business.” Arrangements can be customized for a healthcare organization to generate revenue, save money and meet specific needs, explains Tim Richardson, CEO of Enliven.
“The hospital will pay less for the product and save money,” he adds. “They’ll also get increased rebates and marketing dollars as a result of this partnership. Typically, retail sales also go up because the hospital doesn’t have to merchandize and market—the beverage partner is in that business for them.”
Choosing a Beverage Company
Coca-Cola or Pepsi? The two biggest players in the game generally represent the greatest number of arrangements. But that doesn’t mean other companies should be ruled out. A challenger like Keurig Dr. Pepper might be able to provide the best choice—and pricing deal—for an organization. Keurig Dr. Pepper is becoming stronger in some markets and offering legitimate competition, especially in Texas, Richardson notes.
To determine the best deal for your organization, Richardson advises to avoid rushing through the RFP process and spending time discussing preferences and biases. The multiple options offered by beverage companies can be overwhelming. While Enliven negotiates terms for each deal to provide competitive advantages for a member’s organization, Richardson encourages clients to pay close attention to the details of the proposals.
Depending on the circumstance, where a health system is coming from and where they’re going, the savings can be quite substantial and realized quickly.
How Exclusive is Exclusive?
It’s common for an organization to express some hesitancy at first when deciding whether to make an exclusive deal with only one beverage company, Richardson acknowledges.
Sometimes, administrators worry that employees, patients and visitors will complain when they can no longer purchase a particular beverage on campus because the organization signed an exclusive PRA with a competing company. “If we choose Pepsi,” the reasoning goes, “what about the loyal Diet Coke drinker?”
When an organization signs a PRA with a beverage company, they’re not just getting traditional carbonated soda. They’re also getting an array of other beverages, including flavored waters, teas, juices, sports drinks and bottled coffees. These drinks are growing in popularity, as carbonated soft drinks are losing market share.
Many hospitals are moving to “healthier beverage” programs and eliminating sugary drink options from their offerings. In fact, water and flavored water account for more than 60% of the bottled beverages consumed on hospital campuses, according to Enliven. “The proposals will offer many other brands and flavors than most people are used to,” Richardson says.
An organization can always request customizations to its PRA. Exceptions, known as carve-outs, include scenarios such as Coca-Cola and Pepsi products being offered in the physician’s lounge and in a few vending machines on campus, and the hospital gift shop carrying a wider variety of beverages. Such conditions should be spelled out in the RFP so the beverage companies can offer a tailored proposal.
Richardson worked with one healthcare organization that wished to sell soda from a local bottler along with the products from the larger corporation in its facilities. The organization simply included its desire for a carve-out in the RFP.
Value to the Bottom Line
Ultimately, your team will have to make the choice that’s right for your organization. But many hospitals are pleased by how much their organization benefits. A deal could generate savings of 30% or more.
“Every time we do a pouring rights deal, volumes have always gone up, year over year,” Richardson says.
Enliven recently assembled a cost analysis for one healthcare organization, which estimated an annual net savings of $297,000 a year, or about $1.4 million over the course of a five-year deal. “This was a conservative estimate; other health systems have saved even more,” Richardson says.
Enliven offers standard-length contracts for HealthTrust members, but this can vary by organization if a different term fits their strategy better, Rogers explains.
More than a decade ago, an organization might agree to a 10-year deal. Today, five-year deals are more common, as some organizations are reluctant to make a longer-term commitment. “But the longer term you agree to, the greater the economic benefit of the deal,” Richardson adds.