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The Honolulu Advertiser
Posted on: Sunday, March 25, 2007

Many schools stuck with multi-year beverage deals

By Annys Shin
Washington Post

WASHINGTON — Less than a year after the nation's largest beverage companies pledged to remove high-calorie drinks and limit sugary beverages in all schools, districts across the country are finding that they may not be able to afford the switch because of contracts they signed several years ago with bottlers for the companies.

When Portland, Ore., recently wanted to remove diet soda and sports drinks from high school vending machines and cafeterias, school officials found that they would have to pay the local Coca-Cola bottling company $600,000 to do so. In Racine, Wis., officials decided not to remove high-calorie drinks from high schools earlier this year after they learned they would have to pay the local Pepsi bottler $200,000.

A majority of schools have exclusive marketing agreements with bottling companies — almost 75 percent of high schools, 65 percent of middle schools, and 30 percent of elementary schools.

The contracts, which can last up to 10 years, typically grant the exclusive right to market a company's brands in school vending machines, on scoreboards and on cups at sporting events in exchange for a large upfront payment followed by yearly payments. The contracts include penalties if a school does not meet sales targets or if a school changes the mix of beverages sold.

Last May, Coca-Cola, Pepsi, and Cadbury-Schweppes, the three largest players in the industry, signed a voluntary agreement to remove high-calorie sodas from schools by 2009.

The agreement, brokered by the Alliance for a Healthier Generation, a project sponsored by the William J. Clinton Foundation and the American Heart Association, came in response to a tripling of child obesity rates among school-aged children since 1980. Children consume 35 to 50 percent of their calories during the school day, the alliance said.

The three major beverage companies, which operate separately from local bottlers, said they would make "diligent efforts" to ensure current and future contracts with bottlers abide by a set of voluntary guidelines.

The guidelines include offering elementary school students milk, water and fruit juice instead of high-calorie soda; and offering high school students water, no-calorie or low-calorie drinks, such as diet soda, milk and light juices, including sports drinks.

In most cases, carrying out the guidelines requires altering existing beverage contracts. Wisconsin's Racine Unified School District, for example, had to change its agreement with its Pepsi distributor.

After years of budget problems, school closings and teacher layoffs, the Racine school system signed a 10-year marketing agreement with the Pepsi bottler in 2000, which came with an upfront payment of $450,000 and an annual payment of about $200,000, which included a percentage of drink sales and $25,000 for items such as scoreboards.

The district wanted to apply its new nutrition guidelines to beverages in September but found that required repaying about $200,000 of the upfront payment, said Nicholas Alioto, the district's chief operating officer.

"Fiscally we're not in a position to give the money back," he said, and the system would wait until the contract ends in 2010.

In Oregon, the Portland school district had received a $1.2 million payment in 2002 and would have had to repay about $600,000 if it changed the contract. The district has been in negotiations with the Coca-Cola Bottling Co. of Oregon about the contract.