After the bids were made it was Pepsi that came out on top and signed a 10-year agreement with the state of Illinois to mark the nation's first statewide beverage contract. In the agreement Pepsi products are to be distributed in vending machines and pouring locations at university and state-owned facilities, which will expectedly yield $6.4 million annually to the state, says Pepsi, with a minimum guarantee of $1.44 million.
In exchange for the right to be the exclusive vendor, PepsiAmericas will pay the state a 45 to 50 percent commission on each sale at state facilities.
According to Seth Webb, former special assistant to Gov. Rod Blagojevich, instituting the corporate sponsorship program was a way to generate funds to support core principals of the governor’s initiatives, for example expanding healthcare and education.
Webb, one of the main initiators of the program says, “Creating a unified beverage agreement across the state was one of the ideas that we brought to the table after looking at how we could work with a private sector to increase revenues for public programs while at the same time giving private companies the unique benefit of partnering with state or local government.”
Pepsi outbid Coke for the contract. Webb explains bids were scored by a selection committee comprised of representatives from across the state’s government and universities who evaluated each company’s services, product offerings and pricing.
The deal involved a collaborative effort of privately owned Pepsi bottlers in Illinois, PepsiAmericas, Inc., the second largest Pepsi-Cola anchor bottler, as well as Pepsi-Cola North America, says Robert Waid, corporate director of workplace, travel, leisure and healthcare with PepsiAmericas, Inc.
“This gives us an opportunity to expand our portfolio with a very, very large employer and focus in on a workplace channel and on-premise business segment. It also gives us an opportunity to get into a lot of properties, obviously, under one agreement,” says Waid.
PepsiAmericas, based in Minneapolis, MN, will service 2,374 vending machines and provide beverages for 29 pouring locations on state property and on facilities at campuses of the University of Illinois and Northeastern Illinois University.
Waid relays that the vending machines will expand beverage offerings to include “non-carbonated better-for-you products” including water, juice and tea. “That’s the one thing that we focused on as part of the bid,” he says, “expanding our optimizing of the brand offerings within the existing base of equipment that is out there.”
In addition to increased revenue to the state and universities, the contract will establish a new centralized and more accountable management structure that will increase opportunities for blind and disabled vendors and provide quality beverage services statewide. The contract will ensure the state has a management structure that maximizes revenue, increases efficiency and is consistent with industry standards.
“Not only will the state of Illinois benefit from the new revenues this contract brings, but it is structured to ensure that the Blind Vendors Association will continue to earn income from their distribution agreement with the state,” says Maureen O'Donnell, acting director, Central Management Services.
Prior to the PepsiAmericas beverage contract, the state received approximately $400,000 annually from the various pre-existing agreements for beverage vending in state facilities. However, notes Webb, no structure was in place to track this revenue or how it was used. Under the new consolidated beverage contract, beverage vending machine revenues will go into the General Revenue Fund where it can be used to pay for core state services like education, health care and public safety.
“Every dollar we’re able to generate to support state services through innovative partnerships like this, is a dollar that does not come out of taxpayers’ pocketbooks,” says Blagojevich. “This new agreement makes good business sense and it reflects our goal of continuing to invest in services that help people, but not increasing the burden on working families in the process.”
While other cities and states have embarked on similar contracts—Ocean City, CA; Huntington Beach, CA; Houston, TX; San Diego, CA and New York City—Illinois’ contract has the highest commission percentage at 45 to 50 percent.
Webb, who’s worked with other state governments, says he possibly foresees consolidated beverage contracts as a trend of the future.
“I think there is a lot of upside for states,” he says. “I think states will see this as an opportunity and as a best practice—something that will improve the management of existing vending and, two, increase their revenue.”
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