by Ben Kitay, BevTrust Associates
Most restaurant operators focus on the rebates when negotiating soft drink contracts. While that is important, it is only a part of the important contract elements. That “great deal” is not so great when the contract lasts a lot longer than you thought it would.
An often neglected item is the term of the contract. Soft drink companies want to bake predictability into their deals. To do that, they make the economics very predictable for themselves and very unpredictable for you. The tool that accomplishes this is the volume commitment.
In general, we advise our clients to avoid volume commitments. We have seen too many volume commitments that end up extending the contracts to more than twice their intended length. Our experience tells us that a time-bound term, not volume-bound, is the best alternative. It gives you a certain date at which a renegotiation will take place.
That’s important because the price of fountain syrup has consistently gone up more than 4% per year, even when inflation was 2% or less. And when inflation took hold, the lid came off the soda can of pricing. While your deal remains fixed, your spend went up considerably. If you are stuck in a contract that is elongated due to an unreasonable or poorly planned volume commitment, your spend will continue to rise while your rebates remain flat. This will cause a serious competitive disadvantage very quickly.
So don’t do it. Negotiate a fixed end to the contract that is based on a time-bound term.
For help navigating the shark infested waters of soft drink contract negotiation, contact BevTrust Associates through BevTrust.com, or call 770-265-4728