title
AGREEMENT WITH COCA COLA CO. FOR POURING RIGHTS AT THE ENTERTAINMENT VENUES AND VENDING THROUGHOUT CITY FACILITIES
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Authorizing the execution of an Agreement with BCI Coca Cola Bottling Bottler of Los Angeles (Coca Cola) for Pouring Rights (exclusive beverage provider) for the City’s Entertainment Venues and certain City properties.
2. Authorizing the City Manager or his designee, to take all the necessary and appropriate actions to carry out the purpose and intent of this resolution.
body
Summary
The City is currently operating under a month-to-month pouring rights agreement with Coca Cola for all citywide locations which utilize beverage services. The agreement requires the City to offer Coca Cola products, in exchange, Coca Cola pays the City a commission on vending products sold. The Entertainment Venues (Arena, Ball Park, Oak Park Ice Rink, and the Bob Hope Theatre) operate under a separate pouring rights agreement from 2005, with Pepsi, as negotiated by International Facilities Group (IFG), the predecessor to the current management group, SMG. Per SMG’s management agreement with the City of Stockton, it was required to continue the Pepsi Agreement through the completion of the term. In an effort to consolidate the two separate contracts and put the City in a stronger negotiating position, SMG was asked to negotiate a pouring rights partnership on behalf of the City and the Entertainment Venues. SMG Issued an RFP and received two proposals, one from Pepsi Co, and one from Coca Cola. Staff and SMG management recommend that the City Council approve the agreement with Coca Cola for pouring rights at the SMG operated venues and other citywide locations.
DISCUSSION
Background
In August 2002, the City entered into an exclusive 10-year agreement with Coca-Cola for exclusive vending and pouring rights at various City facilities. The agreement expired in 2012 and according to the terms, has been operating on a month-to-month basis since then. The agreement has generated an average of approximately $6,400 in revenue per year.
The Entertainment Venues have operated under a different pouring rights agreement with Pepsi Co. since 2005. This Agreement in 2005 was initiated with the previous facility management company, IFG and was assigned to the City and then SMG when it took over as the operator for the event facilities. The term of the contract was for 10 years or a minimum volume of product purchased, whichever came later. In April of 2015 the product commitment was finally met with Pepsi. Negotiation for a new beverage agreement has taken longer than expected as both parties experienced personnel changes and evolving legal requirements. Meanwhile, the previous agreements continued on a month-to-month basis.
Present Situation
In an effort to provide the most economical and highest return at no additional cost to the City, SMG issued a joint RFP for pouring rights for various City facilities and SMG managed facilities. The City facilities include City Hall, City Libraries, SEB, MUD, Community Centers, Pixie Woods, softball complexes, and other City facilities that have vending and pouring facilities.
The two proposals received during the RFP Process are as follows:
|
|
Coca Cola |
Pepsi |
|
Years |
10 |
10 |
|
Annual Price Increase |
4% |
4% |
|
Upfront City Sponsorship |
$65,000 |
$15,000 * |
|
Annual City Sponsorship |
$5,000 |
$10,000 * |
|
BIB Pricing |
$66 |
$62.5 |
|
Case Pricing |
$25 |
$27.6 |
|
Rebate |
$2.00 for fountain and $1.50 for cases (includes vending) |
$2.50 for fountain and $1.00 for cases (excludes vending) |
|
Notes |
30% commission on vending |
Flat fee in lieu of vending commission to City based on per case sold |
*Pepsi’s proposal specifically limits the sponsorship and menu board dollars to Stockton Arena only and is not a cash sponsorship to the City for the City’s discretionary use.
The proposals were reviewed by a panel consisting of a third party marketing and sponsorship consultant, SMG management, and City Staff. The Proposals were assessed based on overall benefit to the City. In comparing the two proposals, Coca Cola’s proposal includes revenue to the City of $115,000 ($65,000 + ($5,000 annually for 10 years)) over the term of the 10-year contract. Pepsi’s proposal does not include any cash to the City, but instead includes $115,000 in sponsorship dollars ($15,000 + $10,000 annually for 10 years) with restricted use at the Arena only. Specifically, Pepsi’s deal was structured like the previous agreement with the tenant sports teams receiving a portion of the sponsorship dollars. Pepsi’s interest was in paying the arena and the sports teams for signage and sponsorship recognition in support of the teams. Coca Cola’s proposal designates the cash sponsorship to the City to be used at the City’s discretion. Since the proposed agreement covers more than just the Arena, it was determined that the City should maintain the discretion to appropriate the funding in its best interest without the regulations contained in the Pepsi Proposal.
It is recommended that the revenues received by the City be designated to the Community Services Department to help to fund youth recreational and educational programs, focusing these funds on program scholarships for youth with demonstrated need. This use supports the Council’s strategic target of supporting Stockton youth.
ENVIRONMENTAL CLEARANCE
The City has determined that this project is exempt from the California Environmental Quality Act (CEQA) under the “general rule” that CEQA applies only to projects that have the potential for causing significant environmental effects, as specified in Section 15061(b)(3) of the State CEQA Guidelines. Approval of this contract constitutes an administrative action that will not result in direct or indirect physical changes in the environment.
FINANCIAL SUMMARY
The City financial impact include the following revenues:
• A sixty-five thousand dollar ($65,000) one-time payment to be received within 60 days of contract execution;
• Annual installments of five thousand dollars ($5,000);
• 30% commission on all vending machine proceeds throughout the life of the agreement (historically about $6,400 annually).
It is recommended that the above revenues will be placed in the Recreation Youth Sports Scholarship accounts in 643-0287. The revenues will help to fund youth recreational and educational programs, focusing on program scholarships for youth with demonstrated need. This agreement ensures that the commission payments will continue over the next ten years.
Financial benefits to the SMG managed facilities include:
• Beverage rebates to be used to off-set product costs, ($1.50 for each case of vending products purchased, beyond 4,430; $2.00 per gallon of fountain syrup beyond 2,738 gallons) anticipated to be approximately $5,000 annually dependent on the amount of product sold;
• $5,000 in the initial year to convert all menu boards and other marketing collateral for the arena;
• On-going installments up to $6,000 over the life of the contract for Point of Sale (POS) marketing needs;
• Set product pricing at rates commensurate with the account volume and limits bottler to not more than 4% increases;
• All needed dispensing equipment.