The City has been actively pursuing opportunities to leverage its strong brand presence by partnering with corporate entities in a manner that generates positive brand awareness, while at the same time generating revenue or providing savings to the City. The City's municipal sponsorship agency, Global Spectrum L.P.’s (“Spectra Partnerships”) initial efforts focused on identifying potential municipal marketing partners in target categories and reaching out to these potential partners to gauge interest. The current economic conditions due to the pandemic have impacted the marketing budgets for many large corporations that have a history of engaging in these types of partnerships. As you may be aware, municipal marketing efforts are funded principally from marketing budgets as they serve the primary purpose of promoting the corporation’s brand and /or product. Not surprisingly, marketing budgets in large organizations have been impacted and are often the first areas affected when cost-cutting measures are initiated. While we continue to pursue various efforts both in municipal marketing as well as new advertising opportunities, we made considerable progress in the area of securing an exclusive citywide non-alcoholic beverage partner.

Given the upcoming end of the previous exclusive non-alcoholic beverage partnership contract, Spectra Partnerships solicited proposals for a new agreement for an exclusive non-alcoholic beverage partner for the City. The goal of the process was to identify a partner that would be interested in a brand affiliation relationship with the City that provides a marketing benefit to both parties. The relationship, however, is not only intended to increase the presence of the brand in our City, but also to generate volume sales for the beverage company. As such, any potential exclusive non-alcoholic beverage partnership would consider the opportunities available in our City not only for marketing purposes in terms of impressions, but also opportunities for the sale of their beverage program.

Current Opportunities:

Comparable to the previous partnership, the selected entity would have exclusive vending rights at all City facilities, as well as "pouring rights" at certain City-owned facilities, including those currently managed by third parties for the City. Pouring rights refers to dispensed non-alcoholic beverages or beverages sold via concession, as compared to being sold through a vending machine.

The management or contracted companies for these respective City facilities will be required to participate in the City's selected beverage program, with all revenues relating to sponsorship and commissions, as well as marketing support, benefiting the City directly.

Process:

Spectra Partnerships managed the process relating to the Exclusive Beverage Partner program on behalf of the City. In summary, Spectra Partnerships’ process involved the initial identification of potential respondents; an invitation for those companies to submit proposals; the selection of the best potential partnership offers for the submission of a "best and final" offer; and the recommendation of a final offer for the City to consider.

Spectra Partnerships’ involvement has included analysis of comparable partnerships, and providing these potential partners with information relating to the City and opportunities. Spectra Partnerships remained in contact with potential partners before and during this process. This included gathering information on current venues, volumes and deal structures.

Spectra Partnerships has been the point of contact with potential respondents and has been in regular communication with those entities.

Proposal Components:

Spectra Partnerships advised prospective proposers of the City's interest in an Exclusive Non-Alcoholic Beverage Partner and the availability of opportunities from this partnership. In addition to information on volumes, venues, current pricing, etc., Spectra Partnerships also advised the prospective proposers of our interest in securing a partner that provided an annual sponsorship fee, as well as a comprehensive marketing plan to enhance the presence of both brands.

Best and Final Offers:

Based on Spectra Partnerships’ review of the initial proposals submitted, PepsiCo (Pepsi), Red Bull, and the incumbent Coca-Cola Beverages Florida, LLC. (Coke Florida) were invited to submit a “best and final" offer.  Pepsi and Coca-Cola control the largest share of the non-alcoholic beverage industry, with the leading bottled water and CSD (carbonated soft drink) brands.  Each company offers a diverse sampling of products, ranging from the traditional carbonated drinks, to bottled water, juices (fruit and vegetable), sport drinks, energy drinks and ready to drink coffees and teas, among other products. Each are full-service companies, meaning that they will provide all vending and dispensing equipment, as well as the required servicing / maintenance, and handle all distribution to the venues and machines. Each company enjoys a strong brand presence, with existing partnerships that include professional sports and large events, as well as well-known venues and events. Each company represents a great potential partner.

Pepsi, Red Bull, and Coke Florida all presented proposals that provide for a combination of an annual "sponsorship" fee, as well as a structure for additional revenues to the City from sale of product (either vending or dispensed). The additional revenue is mainly derived from commissions on sales, with Pepsi also offering a rebate program. All companies provided product pricing proposals, as it was essential that proposed pricing be competitive with current pricing in the overall market and at CMB venues. The proposals also delineated potential marketing opportunities from the partnership.  While the financial proposals varied, so did the approach to the marketing partnership, with Coke Florida proposing a more comprehensive sponsorship fee in return for full exclusivity and a broader marketing program to the City. Pepsi was open to allowing Red Bull to take exclusivity in the Energy Drink category.  Below are the major deal points of the proposals:

·         Sponsorship Fee: Coke Florida, Pepsi, and Red Bull each submitted proposed annual sponsorship fees.

·         Commissions/Pricing/Rebates: Each proposer submitted similar commission structures (30-40%) for vending. The City's revenues from commissions would increase as business is built over the term of the agreement. Needless to say, it is in both the City and the partner's best interest to increase potential sales volumes, and volumes are expected to increase based on the proposed marketing approach.

·         Exclusivity:  Significantly, Coke Florida is requesting continued exclusivity in all non-alcoholic beverages, while Pepsi is exempting the Energy Drink category (currently the second fastest-growing segment in non-alcoholic beverages, behind sparkling water).

·         Other: While there were differences in the initial sponsorship fee support, the proposals also offered additional support components in the environmental category.  Recycling programs are detailed in Exhibit A.

PROPOSED TERMS:

Exhibit A delineates the proposals of all three responding companies. These proposals

delineate the general responsibilities of each party during the term of the Agreement. As noted, several points remain under discussion at the time this agenda item went to print, pending further clarification and agreement by the City’s, Pepsi’s and Red Bull’s respective legal teams on proposed language submitted by all parties. The following are the major deal points of the respondents recommended by Spectra Partnerships, as referenced in their proposals in Exhibit A.

Estimated Total Value:

As reflected in Exhibit A, the estimated total value of the proposed Exclusive Beverage Partnership with Pepsi and Red Bull over the term of the agreement is approximately $6,010,000, inclusive of the annual sponsorship fees ($1,600,000); estimated cash commission (approximately $585,000); marketing program ($245,000); Pepsi’s Replenysh recycling program (estimated $25,000 value); and annual equipment investment ($175,000).

The total product bank includes 400 cases of product (Pepsi) cans and 16.9 oz. Aquafina bottles) and 45,000 cans (Red Bull) provided to City per year. 

The following charts provide a breakdown of the value of the proposed partnership between the City of Miami Beach, Pepsi, and Red Bull (cash and non-cash):

TOTAL VALUE (CASH AND OTHER):  $6,010,000

Pursuant to the terms of the City's Agreement with Spectra Partnerships, Spectra Partnerships is entitled to commission on revenues to the City based on a sliding scale formula.

Based on Spectra Partnerships’ agreement with the City, the commission payment to Spectra Partnerships in year one will be $86,200. The total amount to be paid to Spectra Partnerships will be calculated once the payment schedule is determined for the various cash components of the agreement above; the City's net revenues for year one of the partnership agreement are likely to still exceed $425,000.

Requirements of City:

As is common in these types of partnerships, there are certain expectations with regards to the non-alcoholic beverage partner's role. In addition to supporting the efforts of expanding the sales of the products through our vending locations and in our venues — something that is mutually beneficial — both Pepsi and Red Bull identified in their proposal certain areas of support required from the City.

As further delineated in Exhibit A, support will include: recognition of the partnership as the official non-alcoholic beverage of the City of Miami Beach; recognition as the beverage recycling partner; exclusive sampling rights on public rights of way, with a waiver of certain permit and application fees for a limited number of sampling events on public property (mutually agreed upon); agreement and recognition of the integrated logo, with a right to use the logo; and City use of only Pepsi and Red Bull products at City events. The agreement negotiated will be subject to any existing contractual rights that the city has with other parties.

The concept of an exclusive beverage partner (non-alcoholic) provides an opportunity for the City to partner with two globally recognized brands in an effort to expand marketing opportunities for the City, in addition to added revenues.

In reviewing the proposals submitted, Spectra Partnerships evaluated the short- and long-term benefits to the City of each partnership — both financial and in other intangibles. The recommendation from Spectra Partnerships is the selection of Pepsi and Red Bull as the City's exclusive non-alcoholic beverage partners pursuant to both of the proposals included in Exhibit A.

Based upon the foregoing, the City Manager recommends waiving, by 5/7^th vote, the formal competitive bidding requirement, as permitted in Section 2-367(e) of the City Code, and authorizing the City Administration to negotiate an agreement with Pepsi for a term of ten (10) years, and an agreement with Red Bull for a term of five (5) years, based upon the Proposals and the financial terms set forth in the City Commission Memorandum accompanying this Resolution.