Switching Soft Drink Companies...What Are the Risks?
I’ve been involved in switching restaurant chains from one cola supplier to another for over 30 years. Sometimes, I was an employee of a cola company, trying to convince restaurant operators to stay with or switch cola companies. Sometimes, I was either making the decision on behalf of a restaurant chain I was leading or advising a client who had to make the decision.
The choice of a cola supplier will affect some things, but not the things that most people agonize over. In this article, we examine some misconceptions and reveal some rarely talked-about truths.
First let’s talk about the misconceptions…
1. My soft drink incidence will go down (or, conversely, go up).
Absolutely 100% not true. In over 30 years of doing this I have never seen a case where beverage sales declined (or went up, for that matter) because a restaurant chain simply switched cola brands. It’s even more true now. Why? For two big reasons:
1) Cola is a declining segment within a declining segment. It is an ever-shrinking part of the beverage mix. The portfolio of products is more important than the cola. And people will drink something in your portfolio of beverages with their meal. It makes sense now to think of your beverage supplier not as a cola brand, but a manufacturer of a variety of consumer-preferred beverages that go with your food. It also makes sense to examine a variety of packages, not just fountain.
Some key facts: According to Beverage Digest, in 1986, per capita bottled
water consumption was about 5 gallons. In 2016, that number had risen 39.3 gallons. That’s a massive jump that no other beverage saw over the same period. Bottled water volume passed carbonated soft drink share in 2017.
The soft drink companies have very large portfolios. They have this diversity of drinks because they know that betting only on cola makes no sense anymore. It’s time for all of the industry to stop thinking of the cola wars. That thinking was valid in 1988. Today, we need to think about our beverage offering in a much broader way. And that means we need to think about our choice of a supplier in a way that has very little to do with a cola brand.
Moving beverage incidence (Also called “attachment”) takes effort. If you see statistics from a beverage company showing the aftermath of a switch that leads to a change in beverage incidence, it is not because of the cola brand (or any other brand). It’s because someone put a lot of effort into merchandising, crew incentives, and other initiatives that the drove the beverage incidence numbers.
Don’t fall into the trap of worrying about sales because you made a switch. It’s a false narrative created to scare you into the status quo. And don’t buy that your switch will lead to incidence gains because of the brand. The data is clear that any movement in incidence is because of focused effort on the part of the restaurant chain. This was true back in the days when cola was the dominant beverage choice among consumers, and it is even more true today.
2. I need Dr. Pepper
No. You probably don’t. Even if you are in Texas (but Texas is the only place in the world you could reasonably argue that you need it). Yes, it has a relatively good market share (although its market share in much of the USA, especially the Northeast, is actually small). But, if you don’t get a good deal from Dr. Pepper, then don’t serve it. Your beverage sales will be just fine. Dr. Pepper offers no infrastructure, very little account management support, no service capabilities, very little imaginative marketing, no culinary support, and they actually compete with you.
Yes, they compete with you. The company that owns Dr. Pepper also owns Panera Bread, Einstein’s Bagels, Peet’s Coffee, and Pret A Manger. They are a major foodservice competitor of yours. Every time you buy a gallon of Dr. Pepper, you are fueling your competition’s profits and enabling them to compete with you for share of your target consumer’s foodservice expenditure.
3. I’m in a Coke or Pepsi geography, I can’t switch
Both cola suppliers have viable market share in the US and Canada. (Even if you are in Atlanta, you should remember that one of the most popular soft drink flavors in Georgia is a Pepsi product—Mountain Dew.) Market share data is consistently manipulated by both soft drink companies. How many times have you seen one company say their market share is better than the other and then you hear the opposite from the other company in the next meeting? I hear that all the time. The reason is that anyone can make a case for anything by selecting the data that best makes their case. One company will sometimes use only convenience store data from certain periods of time to show their market share as higher.
Another company sometimes will show only cola statistics to prove that they outsell the other. Ignore it all. Both Coke and Pepsi have wide portfolios and have market shares that justify either one serving your beverage needs. The differences in market share mean nothing to your consumers or to your sales.
4. I like the service I get now. What if I don’t get that after we switch? And what if I don’t like my new rep?
Good questions. Both of these concerns should be addressed during the negotiation of a new relationship. To do that, first, demand that the actual account team will be part of the negotiation process. That way you have the ability to form a relationship and evaluate their effectiveness.
Second, build penalties for poor performance into the contract. Penalties can range from cash to free product, and should be severe for repeated violations. No soft drink company can claim freedom from poor service occasionally, so you aren’t at more risk with one than you are with the other. And both have large and competent mechanical service organizations to serve your needs.
5. I worry about the unknown. Everything’s working now. Why open ourselves up to potential pain for a few dollars when nothing is broken?”
Another good question. Don’t switch for a few dollars. Switch for a lot of dollars. There may be some short-term work associated with it, but the rewards of saving a lot of money are worth it.
6. Equipment transition is going to be a pain. It’s not worth the pain.
Equipment transition can be managed in such a way that there will be very little pain. If necessary, conversion can be at night. Most restaurants require no more than a few hours to convert. New equipment should brighten your shop and make service issues less common. Also, if you own the equipment, (and you might want to), converting it is nearly completely painless.
7. I can’t switch because I’m going to be hit with big unbundling charges.
This is one of those “landmines” in your beverage contract that eventually needs to disappear. The unbundling charges are onerous, but by negotiating the right deal with the new supplier, the charges can be minimized and covered pretty easily.
8. I know most people won’t complain, but what about those vocal ones who can make my life miserable on social media?
There will always be someone complaining about something on social media no matter what changes you make. A few complaints should not keep you from moving your business forward. Switching soft drink suppliers gives you a chance to talk about great new drinks and programming that your consumers will be interested in. And you can task your soft drink supplier with connecting with consumers on social media to talk about the plans for your partnership. The soft drink companies have people dedicated to working on social media platforms and are willing to extend their efforts to your brand.
Those are the misconceptions. So, what is true?
Truth. Your choice of a cola supplier should be based on the best deal with the best contract terms.
Your choice should be largely based on rebates, since the fountain price is published (in the USA), and the only difference is what you negotiate back in rebates. Your sales will neither rise nor decline based on any switch of your supplier. If you want sales to go up, you must expend resources and effort to make it so.
Your beverage supplier can help, but they can’t do anything without you and your team’s effort. Both soft drink companies will show you data that demonstrates incidence increasing after switching to their brands. If you dig deep into what really happened, you will find that a well-coordinated merchandising and promotional effort on the part of both the restaurant operator and the soft drink company caused those increases.
Basing your decision on price makes sense for several reasons. First and foremost, if you have the best deal, you are nearly certain not to be at a competitive disadvantage. Second, cola is a small and diminishing part of your beverage mix. The whole portfolio is more important. Both Coke and Pepsi have large portfolios as a matter of necessity because of the declining importance of cola. So, using price as the differentiating factor makes sense. Finally, if you don’t focus on the financials, and use some other metric to make the decision, it is likely that you will find yourself paying too much.
Truth. Your beverage supplier will pack your contract with “land mines”.
Unless you identify contract landmines and negotiate them out, the suppliers will include them. Landmines are those clauses in the fine print, often stuck into the “standard terms and conditions,” that limit your ability to do what you need to do with beverages and funding.
There is nothing standard about the “standard terms.” Spend time up front on the contract language to avoid stepping on a landmine that will cause you grief in the future. If you’ve pre-determined which supplier will have your business based on the myths outlined earlier, you are giving up valuable leverage to uncover and dispose of unfavorable terms.
Truth. You Don’t Really Know if You Have a Good Deal.
How would you know? Do you have hundreds of benchmarks to tell you so? Do you subscribe to a service that helps you gauge the relative worth of your beverage deal? Likely, your answer is “No” on both. We at BevTrust Associates have hundreds of those benchmarks. The subscription service to help you with beverages doesn’t exist like it does for beef, poultry, sugar, and other items you deal with.
Are you relying on your soft drink representative to tell you how good your deal is? Unfortunately, and obviously, that’s not a reliable source. Are you relying on your knowledge of past deals that you have done? Soft drink deals get done once every five or seven or ten years. Things change rapidly. More importantly, how do you know that the last deal you did was good?
The truth is that no one knows their deal is good until they get an insider to analyze it and benchmark it. You aren’t alone. I have seen only one deal that really was as good as it could be. And even then, drastic improvement in the contract language was still possible.
Most of what people expect or worry about if they change suppliers is simply not true. As in the case of law, medicine, IT, and so in the case of soft drink negotiations, it’s better to get professional help.
For more information contact Ben Kitay at BevTrust Associates at Ben@bevtrust.com