A lot of hospital executives are looking for savings under every rock, big and small.
Those of you who are finally looking under the “beverage spend” rock, are probably wondering “how big is it, really?” and “shouldn’t we be able to do a good sole-source agreement on our own?”
After all, it’s just beverages. It’s not knee implants or pharmaceuticals. How hard could it be?
It’s surprisingly hard. And it requires a surprising amount of business intelligence to which you simply don’t have access.
To be clear, we expect that you have a really solid supply chain team. We mean no disrespect to them. But, no matter how good they are, they do not have access to the key data points that are required to understand what your current beverage spend is, let alone what savings might be possible through an exclusive pouring rights deal with Coke or Pepsi.
Some hospital systems have tried to negotiate exclusive pouring rights agreements on their own. We’ve reviewed quite a few of these deals. Suffice to say, we sleep very well at night, knowing that all the deals that we’ve negotiated and managed on behalf of our clients far exceed any deals that other hospital systems may have done using only their own supply chain team. And this is especially true for deals that may have been negotiated for hospital systems by any of the big GPOs or outsourced cafeteria operators.
Here are 5 reasons you should outsource your negotiations to Enliven:
1. You can’t depend on your current cafeteria operators or GPOs to do this for you.
God help us, we know more about the beverage business on hospital campuses than any company on earth. You cannot find a firm to be your advocate with more expertise in this sector than us.
I quickly concede that the big cafeteria operators know a lot about the hospital beverage business, too. But they are not your advocates, first and foremost. All of them have their own pre-existing national deals with Coke and Pepsi, through which they currently receive millions of dollars in back-end rebates every year. Most of the time, they will not even admit to getting these rebates. They are surely not going to share them with you in any meaningful way, unless forced to do so by you (and us, on your behalf).
GPOs have less of a direct financial incentive to obfuscate and hide a large piece of the beverage funding puzzle from you. And, yes, all GPOs already have some kind of a national agreement in place with Coke and Pepsi. But, contrary to what most of our prospects think, these exiting GPO agreements with Coke and Pepsi do not deliver the best pricing and funding, not even close.
There are many reasons for this. One is that a great deal of the financial value associated with any exclusive beverage deal is directly derived from the local market Coke or Pepsi bottler. Your GPO is not in a position to engage the local bottler and make them a crucial part of your beverage agreement. They wouldn’t even begin to know how to do this.
2. You don’t know what you don’t know.
We currently manage beverage contracts for 13 hospital systems representing more than 332 facilities, 45,634 beds and 179,000 employees in 38 states. Since 2005, we have delivered more than $26 million in rebate checks and/or audited savings to our clients.
We started gathering the most relevant data points required to negotiate favorable exclusive pouring contracts for our clients more than 10 years ago. This includes:
- Current beverage prices for all Pepsi and Coke packages
- Maximum rebate rates by package
- Vending commissions by package
- Fixed marketing payment metrics
- Exclusivity payment metrics
- Free equipment commitments
- Top service level commitments
- Free product allotments
If you add variables like the strengths and weaknesses of different Coke and Pepsi bottling groups across the country, hospital system service requirements based on facility sizes, introductions of new beverage equipment technologies and new beverage product categories, changes in customer tastes and preferences, etc., etc., etc., you can quickly see how much work you would have to do to get the best information prior to a negotiation. Candidly, there’s no way that you can get all this information on your own. We already have it, and we are constantly updating our knowledge with every passing week.
3. No one on your staff has written an exclusive pouring rights RFP.
If the RFP isn’t written correctly on the front end, execution of the agreement is a nightmare on the back end. We’ve written dozens of RFPs, closed as many contracts, and implemented those deals.
We prepare the RFPs and negotiate the contracts so that execution is seamless. There are no headaches and no fire drills for your supply chain folks or facility level food service directors.
Even if your supply chain team includes someone who recently worked for Coke or Pepsi, or someone who has been a part of negotiating an exclusive beverage deal in another industry, that person does not have a grasp on the whole hospital beverage ecosystem in the same comprehensive way that we do.
4. You are not organized to track the beverage channel.
Tracking beverage volumes and associated rebate and commission payments is not something hospital systems typically do. If it is done at all, that task is usually outsourced to GPOs, cafeteria operators and/or broad-line distributors. Experience has shown us, time and time again, that these other parties do a terrible job of tracking beverage volumes and associated spend and rebates and commissions.
One big reason these other parties do such a bad job is that it is hard work, and time consuming. Another reason is that, despite being “in the business” already, their own systems and processes are oftentimes woefully inadequate for the job.
We, on the contrary, obsess about accurate tracking of all beverage volumes and all package level detail in all channels—cafeteria, patient feeding, vending, catering, gift shops, coffee carts, etc.
We obsess about it because we only get paid after you get paid. We audit all payments for every pouring rights contract we implement. Once we ensure that the payments to you are accurate, we submit our invoice to you. This means that you get increased accuracy, transparency and detail with respect to every aspect of your beverage business, and that you get every penny that you are owed.
5. You won’t get as much money as we’ll get you.
There is a surprising amount of money at stake during exclusive pouring rights negotiations. If you’re examining this part of your business, and you’re looking at a “beverage spend” report of any kind, please know that you’re probably looking at a wrong number, and an artificially low number. This is mostly because of the bad volume tracking just mentioned above.
Dollar savings for most of our hospital system clients range from $1 million to more than more than $12 million during standard five-year contract term. In other words, most of our clients save between $200,000/year to $2,400,000/year. That’s net, after our fees.
Percentage-wise, our hospital system clients are able to save an average of 24% over the prior year’s beverage spend.
That’s real money.
If your hospital system has four or more acute care hospitals, 1,200 or more staffed beds and 6,000 or more employees, we know that we can generate very significant savings for you. And, as an added benefit, we always bring much greater accuracy and transparency to the beverage channel on your hospital campus.