Growing the Dispensed Beverage Business

fountainWhether it’s partnering with a buying group or negotiating a better contract on your own, fountain sales offer unprecedented profit potential.

By Howard Riell, Associate Editor

Getting the best price possible at the soda fountain can be crucial to a convenience store operator’s profitability.

That is what executives at Phillips 66 had in mind recently when they launched a new purchasing program for its branded marketers as part of a partnership with Convenience Store Alliance (CSA). The goal is to keep operating costs down and strengthen margins.

Phillips 66, 76 and Conoco-branded retailers who take part can take advantage of improved buying power. The program has been described as low-risk, low-investment. As far as the soda fountain is concerned, participants in the CSA program receive the national price and rebates on all bag-in-a-box programs.

In addition, the program lets retailers control the equipment, and thus offer Coke, Pepsi and Dr Pepper products. The program has reportedly boosted profitability and margins across the board for retailers that have enrolled.

The Phillips 66 program is being eyed and evaluated nationwide by c-store retailers who are also looking for ways to lower their fountain costs.
Indeed, the fountain beverage landscape may be changing soon due to an innovative initiative being launched by The Coca-Cola Co. (see sidebar at end of article).

Savvy Negotiation
“We negotiate that contract on an annual basis, so we know what the basic costs are coming from the account, the manufacturers,” said Tandy Arrant, business manager for Lubbock, Texas-based United Express convenience stores. “We have an idea on what the market is on syrup and the other things that go into making that product. Given that knowledge, if that market is up or down, we can take a look and see what’s fair.”

The chain’s 22 United Express fuel and convenience locations operate throughout Texas, and deal with a trio of suppliers when it comes to dispensed cold and frozen beverages.

Arrant said there have been no major price swings in dispensed beverage products over the past several years. “It’s been pretty consistent.” One reason, aside from ordinary market stability, has been his company’s purchasing power. “We operate grocery stores as well, so we are able to negotiate our price and piggyback off 50-plus large stores, too. I would imagine an independent guy might not get the same break.”

There are, of course, all sorts of strategies for negotiation, beginning with marketing support, promotional activity and loyalty programs. Since negotiation lies at the heart of achieving the best possible prices, honing the strategies that lead to successful negotiating may be the most important step a retailer can take.

A good first step is by requesting a list of current customers from the supplier, then calling and asking about the quality of product and service—and what they’re paying.

“Just knowing what the competition’s pricing is can help,” said Arrant. “Just be informed negotiator before you go into a meeting with those guys.”

Understanding the Market
Business intelligence can prove crucial, according to one industry expert.

 “While their supplier may not be willing to provide what national pricing is, other retailers at industry meetings could provide that information,” said Steven Montgomery, president of b2b Solutions in Lake Forest, Ill.

While larger customers should ensure that they are getting national pricing, smaller convenience store chains and independents may want to seek an affiliation with a buying organization that can provide them the buying power necessary to receive national pricing levels.

Other tips for success in negotiating include:
• Learning the actual cost of the products you want to buy to gain insights into how flexible the supplier can and should be.
• Aiming for a win-win between partners rather than having the mindset of besting a competitor.
• Gathering quotes from other suppliers, not only to gauge the price offered, but to let the person across the table know he needs to compete for your business.
• Presenting one’s self as a long-term piece business opportunity rather than a one-shot sale.

Another tip, according to Arrant, is renegotiating all contracts annually, as United Express does, usually resulting in lower pricing.

“What Phillips 66 did, in essence, is to create an internal buying club for their customers,” Montgomery said. “Aggregating and leveraging the mass for the benefit of the members is something that buying clubs and buying cooperatives have been doing for some time.”

Initially, Montgomery noted, many were small local organizations.

“But today there are three national buying organizations—Royal Buying Group, Consolidated Buying Co., Power Buying Dealers USA—all based in Chicago. I believe all began with a group of dealers affiliated with a specific brand,” he said. “However, today they service multiple brands and have expended their membership to include chains as well as independent dealers.”

In many cases, he added, they have developed brand-specific organizations under their umbrella brand to all the brands to customize the offering to their dealers.
For convenience stores, getting the best price on dispensed cold beverages is an attainable goal—and in an increasingly competitive environment—more important than ever.

Coke’s In-Home Dispensers
The Atlanta-based Coca-Cola Co. has said it wants to basically place vending machines in people’s homes, signing a 10-year partnership agreement with Green Mountain Coffee Roasters to sell products that are compatible with an at home beverage system.

The $1.2-billion agreement is part of the soda company’s strategy to expand beyond fountain drinks and bottles. Some suggest the move was motivated by the
success of SodaStream International, which has done well with its at-home carbonation systems.

Coke is placing a lot of confidence on the power of its brand to eclipse the much-smaller SodaStream, which uses carbon dioxide cylinders and permits consumers to customize their beverages. Coke’s system, on the other hand, employs precisely-formulated single-serve pods to preserve the classic taste of its drinks.

What sort of success Coke will have with the program has been the subject of much discussion. United Express’s Tandy Arrant said he remains unconvinced about the program’s chances for success. “I just don’t see it being a factor,” he said. “We’ve already seen the SodaStream (which lets consumers make soda at home) and all that go out there, and our sales continue to expand and grow every year.” He also pointed out the obvious: “We already have Coke products in our homes, and if you want a fountain drink you are usually out and about, and you can just pick one up.”

While Steven Montgomery, of b2b Solutions, said he is not a Keurig user, he nonetheless understands its appeal. “With over 200 varieties for sale on its Website I can understand the popularity because of the variety it offers and its ease of use. However, Coke does not offer the same very broad number of products. This limits that element of appeal for a cold dispensed system for its products.”

Unlike brewed coffee, he noted, soft drinks do not have the same short shelf life. “Carbonated soft drinks have far, far longer shelf lives. This is why Coke and Pepsi have such huge sales peaks around certain holidays. Consumers take advantage of the seasonal pricing to pantry load.”

Montgomery echoed Arrant’s sentiment about Coke already having a presence in consumers’ homes. “Bottom line: it will appeal to some, but unless they find a way to differentiate the products from those they already sell, I don’t foresee any significant impact on the bottle and can business or it having much impact on the fountain business.”

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