CHICAGO -- Exactly two months after the first of several wholesale distributors told packaged beverage manufacturers they will change the way they charge for delivering their products, the other shoe dropped.
On Monday, officials from Quaker Tropicana Gatorade (QTG) announced their plan to increase costs on all Gatorade products. After seven years of managing the cost side and not taking a list-price increase, we are now finding it necessary to take pricing, the company stated in a letter to retailers obtained by CSP Daily News.
The letter, dated March 19, is signed by Gatorade vice president of sales Chris Finck and announced the price increases were effective beginning the same day. Attempts to contact Finck or another QTG representative for comment were unsuccessful at press time.
An accompanying spreadsheet explains that pricing has increased:
5.05% or 65 cents on cases of 32-oz. Gatorade. 9.06% or $1.35 on cases of 20-oz. widemouth Gatorade. 7% or $1.40 on cases of 24-oz. Edge Gatorade. 10% or $2.19 on bag-in-box concentrate Gatorade.It's not clear if the increase is for Gatorade products delivered to all convenience stores or just those going through wholesale distributors that have announced their intentions to change their pricing structure.
In a note included with the letter, one Gatorade sales representative suggested retailers could deal with the increase, which raises the wholesale cost of a 32-oz. bottle from $1.16 to $1.22, in one of two ways:
In the first, retailers could maintain their current pricing, typically $1.99 for a 32-oz. bottle, and lose 5 cents of margin per unit. In the second, retailers could increase their shelf price to $2.09, effectively adding another 4 cents to their margin.On January 19, McLane Co., the convenience channel's largest wholesaler, announced it would revamp its pricing structure for the delivery of packaged beverages, moving from a mark-up model to an activity-based-costing (ABC) strategy that sets a price based on the actual cost incurred during the receiving, product management and delivery process. Initially, it was suggested that new cost would be 9.5 cents per pound, with a minimum of $2.50 per case.
Since then, more than half of the top 10 industry wholesalers said they would fall in line with the change. They also began negotiations with Gatorade and Nestle Waters North America, the two suppliers most affected by the change, to ease the blow of such an increase.
The outcome of those negotiations has not been made public. However, the letter from Chicago-based Gatorade sets the stage for what retailers can expect from other effected beverage manufacturers.
The complete text of the letter from Finck reads as follows:
To: Our valued customer
The past several years have brought significant pressures on nearly all input costs ranging from ingredients to manufacturing and distribution costs on all Gatorade products. We have made investments in supply chain and procurement over the years to help manage the costs and minimize consumer impact. However, after 7 years of managing the cost side and not taking a list price increase, we are now finding it necessary to take pricing.
Effective 3/19/07, Gatorade will be raising prices on most sizes of product. Specific details will be communicated to you through your Gatorade account executive or distributor, and updated price lists are attached.
No decision to move pricing is taken lightly. We are confident our Gatorade business will continue to perform very well after these changes. Gatorade remains committed to delivering a growing category with everyday consumer value. We will continue to work with you to develop strategies and plans that ensure continued performance on our business.
We appreciate and thank you for your business and support.
Sincerely,
Chris Finck
Vice President Sales, Gatorade
For a complete look at the new pricing structure and the reasons behind it, watch for the April issue of CSP magazine.
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