Soda Costs Jump, Forcing Vendors to Find New Strategies

Soda suppliers are raising prices more than usual this year. Operators in many parts of the country are finding they are unable to absorb the higher prices, but are also unable to raise their own prices enough to cover the increases. Many are contemplating new cold drink strategies.

Coca-Cola Enterprises Inc. (CCE), the nation's largest bottler, is seeking price increases this year due to what officials call unprecedented increases in raw goods and aluminum costs. The increases vary by geography and have caused many vending operators to seek alternative products to reduce exposure to the higher prices.

CCE's case price increases have been as high as 30 percent on 20-ounce bottles in some markets. In many instances, vending operators must raise prices to $1.25, which is a 25 percent increase.

The prices for cans has also increased more than normal this year, and in some markets, suppliers are seeking a bigger percentage increase for cans than bottles. In most markets, however, bottlers are seeking bigger percentage increases for bottles.

By the time this article goes to press, operators who get Coke rebates from the Better Vendors Association buying cooperative will no longer receive rebates under an agreement signed between BVA and CCE in January. BVA was the only buying cooperative that had a program with CCE.

Many operators worry that Coke's competitors will match the price increase, although this has not happened in most markets as of this report. In select markets, Coke competitors have sought higher price increases than Coke.

"The numbers are just staggering," said Len Salzman, owner of S & S Vending Inc., Melbourne, Fla. "This is the biggest increase in the history of vending in Florida." He recently began buying Coke cans for $5.25 a case at a warehouse club. His bottler wants $7.10 a case.

Unfortunately, the clubs don't sell 20-ounce bottles, and this is where the market is moving.

Salzman doesn't think he can get $1.25 for a 20-ounce bottle. The highest he has gone is $1.15. "I increased other things to make up for soda," he said.

Changers must be retrofitted to pay correct change
Besides customer resistance to a $1.25 price point, Salzman said he would need to retrofit his machines with 4-tube changers in order to pay out proper change. "One of the big obstacles is changers," he said.

Ted Bilger, who operates Bilger Vending in Minden, Nev., also noted the problem with reconfiguring his changers.

Bilger said he plans to minimize his exposure to the higher prices by only buying the "core" products from the companies that have raised prices, which include his major bottler suppliers. He will buy more juice-based products from sources other than his bottler suppliers.

This strategy was cited by many vendors interviewed for this article, but it is not expected to be a cure all. The "core" products represent the fastest and highest volume sellers.

"I would have never dreamed that they're getting from us what they're getting," said Vic Pemberton, who operates Pepi Food Services in Albany, Ga. In raising his prices from $1.00 to $1.25, unit sales have declined between 8 and 18 percent. The can prices have not increased as much.

Imperial Companies, a Tulsa, Okla.-based operation serving several markets, noticed that CCE recently softened its demands a bit, but his Coke prices are still his highest, noted Paul Tims, president of Imperial Companies. Hence, he is reducing his orders mainly to Coke and Diet Coke. "Pepsi Bottling Group and PepsiAmericas didn't do that (raise prices as much)," said Tims. "It would have been devastating."

"Anytime you give somebody a 25 percent price increase, it's a slap in their face," Tims said.

Tims was among several operators who noted that the higher Coke prices is another incentive to add more non-carbonated products. "We're trying to go to juice and new age drinks anyway," he said. "Coca-Cola raised our price $3 a case. It's a justification for going to other selections."

While Tims said he has been able to negotiate with CCE, most operators do not have the volume that he has, and hence, don't have the same clout.

Some operators seek Alternative suppliers
Some operators are looking more aggressively for deals at retail outlets.

Jim Babiarz, who operates Winner Vending in Cocoa Beach, Fla., recently came across 24-can packs for $3.98 at a gasoline store and bought 1,000 cases. He estimated he saved $3,100.

Babiarz also expects to buy more secondary (non-core) items from Cadbury Schweppes, which recently opened up a warehouse nearby.

Like many operators, Babiarz already raised his can prices by a nickel last year to 60 and 65 cents and is reluctant to seek another increase so soon. He lost some accounts last year when he raised his can prices over 50 cents.

Lee Thompson, owner of a three-route operation in Troy, Mo., used to buy his cans from a convenience store that sold it to him at cost, which was lower than what he could get it for. Now convenience store prices have gone up. For 20-ounce bottles, Coke is charging the most, so he is buying less Coke and more Pepsi and Cadbury Schweppes, which works well for his market.

Bottlers underbid vendor
Thompson said his bottlers are trying to underbid him in some accounts, offering $1.00 for 20-ounce cans where he needs to now charge $1.25. He said he has been able to keep the business by telling customers what the bottlers are doing and reminding them that he can give better service.

It helps that even with the higher price, Thompson said, he still offers a better price than the convenience stores, which must charge a sales tax.

Operators are raising prices selectively, based on the location's volume and how long it has been since the price was changed.

Corporate Refreshment Services, based in Tampa, Fla., will be doing more business with Pepsi Cola and Cadbury Schweppes because of CCE's pricing, noted Jonathan Bartholomew, purchasing manager. Bartholomew was among several operators who has been disheartened to see that CCE has not raised its own vending prices. Where his company is charging $1.00 to $1.25 for a 20-ounce bottle, many CCE machines are still charging 80 to 95 cents. "It's kind of disheartening; I feel kind of betrayed by them," Bartholomew said.

Several operators noted that there isn't a lot they can do but raise prices. "You can't really do without Coke (Classic) and Diet Coke," noted Steve Marx, who operates Royal Vending Inc. in Maple Grove, Minn., serving the Twin Cities area.

Some see their options as limited
Transshipping, the practice of buying from a bottler in an outside territory that has a different price, is not a long-term option, Marx noted.

"They're going to find out very quickly" and take corrective action, Marx said.

Marx was one of the few operators to admit that the price increase might eventually be to the vending industry's advantage. Marx and others have noted that it often requires action by the manufacturers to get operators to raise prices. "At the end of the day, we will profit more," he said. He said the bottlers could do more to educate the public about rising costs.

Some operators say that the problem of rising costs is not confined to soda and is actually more significant in other areas, such as candy and snacks. Bruce Adams, who operates Rainbow Vending in Denver, Colo., said he has a harder time raising candy prices than soda prices.

Fresh Vend, based in Fort Worth, Texas, contracts with CCE to handle bottle machines in its accounts in exchange for a commission. Hence, his company has not been affected by the pricing. He said most of the machines are selling 20-ounce for $1.00. "We actually make out better if we allow them to do the full service," said John DeSimone, owner.

Bill Gilbert, purchasing and operations manager at Diverse Food Systems of Sacramento Inc. in Sacramento, Calif., said the increases are not restricted to Coke. He recently stopped carrying Dr Pepper because of price increases.

Gilbert found better pricing on cans at a membership warehouse club for Pepsi and Cadbury Schweppes products. He still sources his Coke bottler for Coke cans.

24-ounce bottles: a new option?
Gilbert was one of several vendors who wondered about switching to 24-ounce bottles, which he said cost less than 20-ounce products. This would require retrofitting machines with shims. "If it (24-ounce) gets pulled out of the club stores, we've got a whole bunch of machines configured with shims for 24-ounce and we can't get the product," he said.

Many operators regret seeing 24-ounce bottles priced lower in some retail outlets than what vending operators are charging for 20-ounce bottles. This makes consumers think that vending operators are overcharging.

Some operators are considering retrofitting machines to carry 16.9-ounce bottles, which are also available at club stores.

Several operators interviewed noted that club stores have also raised prices. Peggy Mayhew, president, Apollo Vending Co., Inc., Irondale, Ala., said she will have to raise can prices a nickel to 55 cents to accommodate the increase.

Bag-in-the box pricing also rises
The increase impacts bag-in-the-box as well. Loose Ends Vending, based in Batavia, N.Y., still operates some cup soda machines, noted Bill Wassink, vice president of operations. He said the cost for the bag-in-the-box product jumped more this year than in previous years, despite the fact that the company's owners also own a bottling company and it is a Canteen franchise.

The pricing situation will encourage vending operators to seek alternative sources for secondary items. In the meantime, operators will have no choice but to raise their prices.