Wednesday, May 30, 2012

Pepsi wins exclusive beverage contract at University of Arkansas

Posted By on Wed, May 30, 2012 at 7:01 PM

COMING SOON TO UA: Gatorade and other Pepsi products.
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  • COMING SOON TO UA: Gatorade and other Pepsi products.

An agreement has been reached by the University of Arkansas to enter an exclusive beverage rights and sponsorship deal with Pepsico, ending a historic association with Coca-Cola, I've learned. Effective July 1, barring hitches, Pepsi will be the exclusive supplier of cold, non-alcoholic beverages (still room for an official hot coffee) at the UA, including the critical athletic events. (Luxury suite owners will, if the RFP holds, be able to lug in their own Nehis or other pop of choice, along with winked-at firewater). The RFP also included some exceptions for Chick-Fil-A lemonade and Quizno raspberry lemonade, both sold at franchise outlets on campus, and Dr Pepper, distributed by Pepsi.)

It's a 10-year deal, according to my source. The tentative agreement will be announced tomorrow (UPDATE: here's the news release), though terms will be withheld until all parties have officially signed. It could be worth, according to a figure suggested by my source, at more than $17 million over 10 years. According to UA figures, Coca-Cola payments have been averaging about $1.06 million per year the last three years. I don't know enough about specifics yet to say if the apparent difference is 60 percent better a year because the figures may include factors that prevent them from being directly comparable.

When the UA put the beverage rights and sponsorship out for bids, it estimated the total value of the deal — based on projected sales and value of advertising — at roughly $19.8 million, with $11.4 million of that athletic marketing.

(I should have added at the start that my efforts to confirm this tip with a university spokesman have so far not produced a response. UPDATE: I've now confirmed what I've reported here with a university spokesman who emphasizes there is no signed contract yet. The UA has issued an "intent to award" to all bidders notifying them that it would be negotiating further with PepsiCo, but specifics are still in flux.)

THURSDAY UPDATE: There's one narrow exception to the exclusivity deal, a University spokesman noted, in addition to the skybox exception. The two or three convenience stores on campus will be able to reserve 20 percent of shelf space for non-Pepsi products. I got a lot of Facebook and Twitter feedback on this decision last night, majority negative. It's getting a lot of talk, too, on the UA Facebook page.

What would J. Frank Broyles, son of Georgia who is the former long-time UA athletic director, say about the end to exclusive beverage rights for Atlanta's Coke?

Doesn't matter. Money talked in the form of a superior offer in a sealed-bid process. Coke signs have already been coming down around campus.

About that photo above. Real Gatorade showers will now be allowed on the sidelines of Razorback contests because Gatorade is a Pepsi product. UPDATE: In perusing bid documents, I find that the UA already has a separate agreement with Gatorade through 2014.

Pepsi has been pushing hard to take pouring rights on university campuses. The branding with young consumers is important. It nailed down Penn State recently. A few days ago, Southern Arkansas University in Magnolia went with Pepsi exclusively. Magnolia Reporter had details. I believe the UA deal will follow that model — exclusive pouring rights in all campus venues, including through the food service contractor.

Personal comment: Money is money. But Coke, particularly Diet Coke, tastes better.

The university issued a request for proposals last year and had already signaled its intent to find Pepsico the best bid.

The money is the big draw, but Pepsi will also support student and university programs and provide some other campus improvements, specifics not yet known. Participation in health programs and student government activities is also anticipated. The contract will far exceed any beverage deal the UA has ever struck. How much were they? Good question. Snack and drink sales through vending machines were about $640,000 in 2010, but this doesn't touch food service fountains or the busy nozzles at athletic events or the value of the sponsorship (exclusive advertising) rights.

I'd gotten a hint last year that something was cooking on the soft drink contract before formal bids were sought and got a copy of the existing contract with Coke, which began in July 2002. To Coke's great advantage, the university helpfully redacted all the information about what Coke was paying for sponsorship rights and what perks it got in return (skyboxes, parking places, ad placement in venues), along with any specifics on sales particulars. I hope a little more openness will prevail this time around. Other bidders, as well as the public, are owed a look at the competing offers so they can conclude the UA made the best decision, on business, if not taste.

UPDATE: The competitive bid process has been good for public disclosure. I've just learned you can find out every last detail of the existing detail, including individual machine sales, on the university procurement website. It includes a sheet indicating payments of about $1.06 million a year to the UA each of the last three years between payments to the academic and athletic sides, with academic payments totaling $1.78 million the last three years and athletic payments totaling $1.38 million.

The RFP anticipated a seven-year contract with three one-year extensions. The deal that's been struck will mirror that.

PS: Yes the agreement apparently includes Pepsi's line of bottled water. We've written previously about some efforts by a campus sustainability group to limit bottled water on campus.

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