Pouring Rights – A Case Study

1. Pouring Rights – A Case Study

2. 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

3. Our Story…..

4. Chapters to be covered: Historical Situation The First Steps Writing the RFP Proposal Evaluation Phase Negotiation Phase Contract Phase

5. Historical Situation…..

6. Stakeholder DepartmentsUniversity of Colorado at Boulder: Athletics Housing & Dining Services University Memorial Center (Student Center) Bookstore (Vending Services)

7. First Steps…..

8. 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?

9. 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

10. Purchasing Concerns: Ownership - who will administer the contract for the campus? To the extent a consolidated contract is exclusive, somebody will likelynot be happy

11. Moving forward: March, 2008: RFP committee formed by Vice Chancellor for Administration Buy-In from Stakeholder Departments Vice-Chancellor Retires

12. Writing the RFP…..

13. Goals: Maximize beverage service opportunities Increase net revenues Advantageous pricing Sponsorship Long term partnership

14. 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

15. 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 atCPI Environmental / Recycling / Energy 10 year contract

16. 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.

17. Athletic Dept Exclusivity, Non-Exclusivity: Category Exclusivity Vendor 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.

18. 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 zero-waste events) Bottled and canned organic and natural beverages Bulk Juice Freshly brewed coffee and teas Milk and milk-based drinks Hot Chocolate

19. Milestones: October 31, 2008 RFP posted November 6, 2008 Optional Pre-Proposal Conference January 5, 2009 Proposals due One year after project started!

20. Proposal Evaluation Phase…..

21. 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

22. Coke Non-Responsive: Too many exceptions: Minimum mandatory Re-defined beverages Advertising/sponsorship Signage rights Non-exclusive categories

23. Pepsi Oral Presentation: Athletics marketing allocations Vending 80% Pepsi distribution in retail outlets Bottled water cost Exclusions Address details. . .

24. Pepsi 80/20 Rule: 80% distribution of all retail space Naked Juice and Izze fall into 20% category Piazano’s must be 100% excluded due to organic/natural nature of the venue Non-University catered events must remain 100% excluded University catered events included in 80/20 rule How does Pepsi define 80% of retail space 3rd party contractors included UMC included in 80/20 rule

25. Bottled Water Pricing: 38% price increase Significant to meal plan

26. Negotiation Phase…..

27. Ongoing Concerns: Does the aggregate value warrant proceeding? How to ensure that each stakeholder is made whole? Athletics reconfirmed commitment

28. Internal Discussions/Letter to Pepsi: Formulate strategy March 9, 2009 Letter to Pepsi Outlines University’s final position

29. 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.

30. Back & Forth…

31. 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

32. 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?

33. 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

34. 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

35. Internal Negotiations (May 2009): The UMC is OUT ! Current HDS beverage agreement about to expire Continue negotiations / Schedule face-to-face meeting

36. 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

37. 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?

38. 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

39. ContractPhase…..

40. 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

41. 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

42. 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

43. Never Ending Story… Fully-Executed Agreement in Place? YES  NO

44. Never Ending Story… Fully-Executed Agreement in Place?  NO

45. 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

46. 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

47. 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

48. 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

49. 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.

50. Questions?