Transcript Pouring Rights – A Case Study

Pouring Rights – A Case Study
Presented by:
 Charlene Lydick, Associate Director of
Procurement
 Mary Martin, Manager, Purchasing
Services
 Ron Ried, Director, Facilities Management
Business Services, University of Colorado
at Boulder
Our Story…..
Chapters to be covered:
 Historical Situation
 The First Steps
 Writing the RFP
 Proposal Evaluation Phase
 Negotiation Phase
 Contract Phase
Historical Situation…..
Stakeholder Departments
University of Colorado at Boulder:
Athletics
Housing & Dining Services
University Memorial Center (Student
Center)
Bookstore (Vending Services)
First Steps…..
Vice-Chancellor Challenge:
Kickoff Meeting: January, 2008
Nearing end of departmental contracts
 Time to re-evaluate pouring rights on
campus
 Driven by Athletics
Is there a “Wow” deal?
Stakeholder Concerns:
 Declining trends in contracts across the country
25-30% reductions seen in Big 12 Conference
 Vending sales/commissions going down
 Protect Product Price
 Protect Revenue
 Protect Customer Choice
 Beverage market changing
 Athletics would win; others would pay
Purchasing Concerns:
Ownership - who will administer the
contract for the campus?
To the extent a consolidated contract
is exclusive, somebody will likely not
be happy
Moving forward:
March, 2008: RFP committee formed
by Vice Chancellor for Administration
Buy-In from Stakeholder Departments
Vice-Chancellor Retires
Writing the RFP…..
Goals:
Maximize beverage service
opportunities
Increase net revenues
Advantageous pricing
Sponsorship
Long term partnership
Coming Together:
Met as a group to review draft and
write the RFP
Every word means something…
Meticulously went through the
document word by word to ensure it
was correct
Met weekly for an hour over a 3
month time span
Major Discussion Areas:
 Exclusivity versus non-exclusivity in regards to:
- Venues
(retail vs non-retail)
- Special Events/Situations
- Beverages
- 3rd party agreements
- Catered events
 Firm product pricing first 3 years; future
increases capped at CPI
 Environmental / Recycling / Energy
 10 year contract
Overall Exclusivity, Non-Exclusivity Language:
 Non-exclusive under all options
 HDS convenience stores, UMC convenience stores and catering, and CUBS retail
operations will be non-exclusive
 Exclusions to RFP under all options:
 Milk and milk based drinks (such as shakes and malts), tap water, hot chocolate,
fresh squeezed juices, and bulk juice.
 Privately sponsored events where UCB provides the venue, provided the beverages
served are offered at no additional charge to the event attendees, and all residual
bottles, cans, or other evidence of the beverages served are promptly removed at the
conclusion of the event.
 Non-university catered events
 Program Council for student entertainment events
 The consumption of beverages brought onto the campus by an attendee at an event
or by students, faculty, staff invitee, guests, or visitors of the university for personal
consumption
 The dispensing or serving of non-bottled coffee or coffee derived products such as
cappuccinos or lattes.
 The service of tea at University events, if such beverage is served in cups (as
opposed to single serving cans/bottles).
 Beverages containing alcohol
 Private retail food outlets leasing space or located on the UCB campus that have food
service contracts.
Athletic Dept Exclusivity, Non-Exclusivity:
Category Exclusivity
Vendor will be granted exclusivity in the following categories – carbonated or non-carbonated, nonalcoholic beverages or soft drinks, including, but not limited to, carbonated soft drinks, fruit juices,
fruit juice-containing drinks, and fruit-flavored drinks, tea products, and packaged waters.
Exclusion of Categories: CU Athletics Department
 Beverages which contain nutritional supplements and which are provided by team
trainers for team members.
 Isotonic beverage drinks including but not limited to (carbonated and non-carbonated
sports drinks, sports beverages, isotonics, oxygenated, flavored and/or vitamin
enhanced water, electrolyte and fluid replacement beverages, including but not
limited to PowerAde, All Sport, Ultima Replenisher, Penta-hydrate or Accelerade and
Gatorade Energy Drink (which shall include beverages that deliver energy to the body
through ingredients like carbohydrates, caffeine, or protein).
 Energy drinks including but not limited to (Red Bull, Amp, Rockstar, Sobe,
Adrenaline, etc.).
 Supplemental beverage drinks including but not limited to (Muscle Milk, etc.).
 Packaged coffee beverages. This includes, but is not limited to, any Starbucks
branded coffee product available in individual cans, bottles, etc.
HDS & UMC Exclusivity, Non-Exclusivity:
Category Exclusivity
Housing & Dining Services:
 Carbonated or non- carbonated, non-alcoholic fountain drinks for Dining Services meal
plan board operations
 Bottled and canned beverages (including water) sold as part of a meal-plan in Grab-n-Go
operations
UMC:
 Carbonated or non-carbonated, non-alcoholic fountain drinks for UMC Alfred Packer Grill
only
Non-Exclusive Categories:
 Dining Services Retail/convenience operations
 Catering
 Concessions and special events, that are not part of a meal-plan or when event is
sponsored., such as Colorado Shakespeare Festival.
 Annual special events that require special packaging or considerations (such as zerowaste events)
 Bottled and canned organic and natural beverages
 Bulk Juice
 Freshly brewed coffee and teas
 Milk and milk-based drinks
 Hot Chocolate
Milestones:
October 31, 2008
RFP posted
November 6, 2008
Optional Pre-Proposal Conference
January 5, 2009
Proposals due
One year after project started!
Proposal Evaluation
Phase…..
Disappointment:
Received responses from Pepsi &
Coke
Neither vendor responded in the
format requested. Did not respond to
specific evaluation criteria
Responses laden with marketing
material
Coke Non-Responsive:
Too many exceptions:
•
•
•
•
•
Minimum mandatory
Re-defined beverages
Advertising/sponsorship
Signage rights
Non-exclusive categories
Pepsi Oral Presentation:
Athletics marketing allocations
Vending
80% Pepsi distribution in retail outlets
Bottled water cost
Exclusions
Address details. . .
Pepsi 80/20 Rule:
80% distribution of all retail space
Naked Juice and Izze fall into 20% category
o Piazano’s must be 100% excluded due to
organic/natural nature of the venue
o Non-University catered events must remain
100% excluded
o University catered events included in 80/20 rule
o How does Pepsi define 80% of retail space
o 3rd party contractors included
o UMC included in 80/20 rule
o
Bottled Water Pricing:
38% price increase
Significant to meal plan
Negotiation Phase…..
Ongoing Concerns:
Does the aggregate value warrant
proceeding?
How to ensure that each stakeholder
is made whole?
Athletics reconfirmed commitment
Internal Discussions/Letter to Pepsi:
Formulate strategy
March 9, 2009
Letter to Pepsi
Outlines University’s final position
Content of Letter to Pepsi:
 Pepsi agreed that both PepsiCo brands, IZZE and Naked Juice will be included as part of
the 80% space allocation. Will Pepsi also agree to include Tropicana and all current and
future Pepsi products (even those not distributed by PBG) in the 80% category?
 Again, we stress that Piazano’s must be 100% excluded due to the organic/natural nature
of the venue. Will Pepsi agree?
 Pepsi verbally agreed that all Non-University catered events will remain 100% excluded.
Please confirm in writing.
 The University defines retail space as the percentage of product that faces the customer in
a cooler or display. Does Pepsi agree?
 Again, the University stresses that all private 3rd party retail food outlets leasing space or
located on the UCB campus that have food service contracts be excluded. Will Pepsi
agree?
 The University requests the CU Book Store (CUBS) retail operations be 100% excluded.
Will Pepsi agree?
 The University is very concerned about bottled water pricing under the Pepsi proposal.
The pricing proposed is 30+ % over our current pricing and will cause a significant
negative financial impact on food services operations. The University could agree to water
pricing at $6.02/case for 16.9 oz Aquafina 24/count case. Will Pepsi agree?
 The “Multiple Iced-Tea Dispensing System” that is currently used in our Dining Operations
has proven to be very popular. Would Pepsi consider submitting bid pricing for this
product?
 Please confirm in writing that special sponsored events such as the Colorado
Shakespeare Festival will be excluded from a campus-wide beverage agreement.
Back & Forth…
Main Issues:







Izze and Naked Juice
Exclude Piazano’s
Exclude all non-University catered events
Exclude current 3rd party food vendors
Exclude book store operations
Water pricing
Exclude special sponsored events
Internal Turmoil (March 2009):
 UMC elects not to support a consolidated
contract due to projected financial impact
 Other stakeholders support consolidated
contract
 Step back - Non-partisan internal analysis
of financial impact on all units involved
 Can we move forward without
the UMC?
April 27, 2009 Letter to Pepsi:
Re-state our position on main issues
Request all UMC operations100%
non-exclusive
Confirm all HDS non-retail, food
service operations (meal plan board &
Grab-n-Go) be 100% exclusive
May 6, 2009 – Pepsi Response
 Must include 80% distribution in the UMC
 Agree that Book Store will be exempt from 80%
space requirement, but Pepsi will place a cooler
with Pepsi brands
 Agree to sell water at $6.05/case, but
economics require that Pepsi still recover the
full $2.00 per case reduction. Based on
estimated annual water volume, sponsorship
funding reduction of $24,000 would apply
Internal Negotiations (May 2009):
The UMC is OUT !
Current HDS beverage agreement
about to expire
Continue negotiations / Schedule
face-to-face meeting
University Expectations for face-to-face
meeting:
 Understanding that all UMC operations be
100% excluded
 Firm commitment to Vending as proposed
 Firm commitment to HDS as proposed
 Firm commitment to HDS for
transition/installation of equipment in dining
centers (need in place by 8/7)
 Commitment to Athletics; come with best offer
6/10/2009 meeting with Pepsi:
UMC opt-out huge issue for Pepsi
Value of the deal to Pepsi is based on
campus exclusivity
Funding reduced by $137.5K
annually, $1.295M over 10 years
How to get UMC back onboard?
We have a verbal agreement! (June 18, 2009):
 The UMC is back
 Athletics agrees to reduce their annual
sponsorship by a fixed fee of $25K annually to
offset water pricing
 Expectation that Pepsi will reinstate original
financial proposal with the UMC back in the deal
 University agrees to request all future 3rd party
food vendors to distribute
Pepsi products
Contract Phase…..
1st Draft:
Capture important elements of contract
as negotiated for each stakeholder
department
Allow stakeholders to review draft to
make sure their needs are addressed
and to get their buy-in
1st draft sent to Pepsi 7/1/2009
Pepsi Contract:
 Received 7/26/2009
 Ignored our document & sent standard Pepsi
University Sponsorship Agreement
 Informed Pepsi the University’s contract format
must be used; contract back to Pepsi 8/5/2009
Contract Issues
 Athletics (advertising and interface w/Learfield,
sponsorship activation, sideline agreements)
 Exclusions
 Vending machine efficiency
 Organic/natural drinks
 Price Increases per CPI
 Material Breach Language
 Valuation in event of default
 Vending Commission Structure
 UBIT
Never Ending Story…
Fully-Executed Agreement in Place?

YES

NO
Never Ending Story…
Fully-Executed Agreement in Place?
 NO
Exclusions at end of deal:
 Privately sponsored events
 3rd party catered events
 Products brought on campus for personal
consumption
 Athletics: nutritional beverages provided by
team trainers, isotonic drinks, energy drinks,
supplemental drinks, packaged coffee drinks
 Beverages related to Sideline agreements
 Piazano’s
Lessons Learned:
Buy-in and participation from key
stakeholders is essential
Executive level support crucial
Pepsi funding dependent on campus
exclusivity & volume of product
purchased
More Lessons Learned:

Bottled water is an important part of
Pepsi’s business

No interest in Athletics only option –
purposely bid low

Athletics was very supportive &
considerate of the needs of all
departments involved
Recommendations:
 Start Early!
 Have face-to-face meetings
 Always keep your goal in mind
 Don’t give up
 High-Level support from campus
necessary to manage the contract and
drive compliance long-term
Outcome:
Satisfaction!
Feel consolidated agreement to be in the best
interest of the campus. Although there were no
significant new cash flows, stakeholders feel the
terms offered by Pepsi are competitive and likely
more advantageous than terms that would be
received through individual department
contracts.
Questions?