Cover Story: Bottling Industry

Schools soak up soft drink profits
For decades elementary, middle and high schools frowned on the presence of soft drink vending machines on their grounds. Today, they’re a helpful source of revenue in Wake County’s public schools, where a first-year vending agreement with Pepsi provided the system with $2 million.

Wake schools entered into an exclusive agreement with Pepsi Bottling Ventures in 2001, negotiating an agreement for the entire system that replaced the agreements that individual schools had made in prior years. As a result, the district earned more than $1 million for only using Pepsi products and schools earned $549,347 in commission sales, according to the News & Observer of Raleigh. Other school systems in the state are pursuing similar deals.

“In terms of the sales, the real difference is that instead of each school having an individual agreement, there is one agreement for the entire school system,” Wake County Associate Superintendent Del Burns says. “The commissions provide great benefit to the schools. The funds can be used to purchase additional instructional supplies, textbooks to activity buses.”

According to the school system, the 16 Wake County high schools garnered $367,499 from sales through vending machines and event concessions. In addition, 25 middle schools earned $73,447, and 78 elementary schools took in $93,372.

The data further shows that non-carbonated drinks — such as water and fruit juices — accounted for 57.8 percent of the sales. Non-carbonated drinks are available in cafeterias, and principals arrange to have vending machines placed in other areas of their schools.

The majority of elementary schools commissioned to have one or two vending machines at their school for faculty and staff use. Wake Forest Elementary, for example, had five vending machines and earned $2,836, while most middle schools had three or fewer machines. Zebulon Middle had seven machines and earned $4,904. Most high schools had more than 11 machines, and Wakefield High, the two-year-old school in North Raleigh, had 19 machines and earned $22,191.

But no school reaped the benefits as much as Southeast Raleigh High, which topped out at $43,377. The school has 14 vending machines and had the highest vending and concession volume — and the seventh highest cafeteria volume among all of the Wake schools. “The contract with Pepsi is a win-win situation at a time when resources are scarce,” says John Modest, the principal at Southeast Raleigh. “Dr. Burns has directed that these funds be used to enhance student achievement. These funds have also been used to pay for professional development activities for our faculty.”

In February 2001, the Wake County Board of Education approved a contract with Pepsi Bottling Ventures providing an exclusive beverage vending agreement for five years. The contract provides revenue to the school district in exchange for selecting one vendor — a win-win for all parties involved.

The agreement provided $1 million in marketing fees and 42 percent commission on sales generated in the first year, according to the N&O. High schools have been provided about $12,000 in marketing fees annually, and all schools received commissions on sales. In subsequent years, $525,000 in marketing and fees and commissions will be generated with schools receiving marketing fees and commission revenue as in year one. The plan says schools will receive at least the level of revenue from the beverage vending agreement they had before the district agreement was reached.


Bottlers see a solid future in water
The universal appeal and popularity of bottled water snuck up on the soft drink industry, and what started as a side venture for many businesses has become a prominent and increasingly important part of their bottom line.

 Bottled water is the fastest growing segment of both Pepsi’s and Coca-Cola’s product offerings in North Carolina, company spokesmen say. It has also prompted entrepreneurs such as David Lawrence, trustee and plant manager of Indian Hills Spring Water in Cherokee County, to take the plunge into the business.

George Suddath, vice president of corporate communications for Pepsi Bottling Ventures LLC, predicts that soon bottled water “will surpass lemon limes (such as 7-Up or Sprite) and ‘peppers.’”

Andy Jones, vice president of manufacturing, agrees. “It’s unbelievable. None of us would’ve ever thought we’d sell it to all demographics like this.”

Acquafina is Pepsi’s bottled water product. Dasani is Coca-Cola’s bottled water product and also the fastest growing in the Coke product line, says Lauren Steele, spokesman for Coca-Cola Bottling Co. Consolidated in Charlotte “It’s a significant product for us and is one of our top five products,” he says.

To start his bottled water business, Lawrence and his Cherokee County friends obtained permits in December 1998 and today bottle up to 10,000 gallons of water per month. The water comes from a spring that is 90 feet above their 10,000-square-foot plant. It flows into an 8,000-gallon tank outside the plant.

“We bottle it out of the tank. Once it’s in the tank, we recirculate and ozonate the water,” Lawrence says, adding that the process kills bacteria. “It’s absent of all bacteria and mold and yeast.”

Indian Hills Spring Water distributes into the North Carolina Highlands and the Brevard, Asheville and Atlanta markets. The company also sells to private labelers in Daytona Beach and Cincinnati.

Competition is brutal, Lawrence says. He lost 30 pounds after launching his company and at one point was sleeping in his plant with no heat.

“People think that because you have a water business, you have a fortune. But you have to buy land and the machinery. It’s the hardest thing I’ve ever done. It’s the toughest business to go in. But all of us are committed to making it work,” he says.

Lawrence notes that Beverage World magazine recently reported that 65 percent of women who go into a convenience store come out with bottled water. “It’s a health kick,” he says. “People are trying to lose weight. When you’re dieting, you want to drink water, and the purer the water, the better.”

Carolina Beverage Corp., the maker of Cheerwine, introduced its bottled water product, Blue Mist, in 1986, says CEO and President Mark Ritchie.

“Bottled water has become a routine part of the public’s diet instead of tap water. The popularity has grown to the point where it will be here for the long-term. The quality of tap water is not improving. It’s declining, so that will preserve the bottled water market,” Ritchie says. -- Heidi Russell Rafferty