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 DepartmentsUniversity 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 ExclusivityVendor will be granted exclusivity in the following categories – carbonated or non-carbonated, non-alcoholic 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 ExclusivityHousing & 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 zero-

waste 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, 2008Optional Pre-Proposal Conference

January 5, 2009Proposals 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

o Naked Juice and Izze fall into 20% categoryo Piazano’s must be 100% excluded due to

organic/natural nature of the venueo Non-University catered events must remain

100% excludedo University catered events included in 80/20 ruleo How does Pepsi define 80% of retail spaceo 3rd party contractors includedo UMC included in 80/20 rule

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?