By Annys Shin
Washington Post Staff Writer
Thursday, March 22, 2007
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. There are penalties if a school does not meet sales targets or if a school changes the mix of beverages sold.
In the Washington area, most school districts have not had to choose between money from soda sales and meeting tougher nutrition standards because they did not enter into exclusive beverage contracts.
In Maryland, sodas are only sold after school and, thus, are not subject to new federal or state nutrition requirements, said district spokeswoman Katherine O'Malley-Simpson. Therefore, the contract did not require changing. An exception is in Charles County, where the public schools signed a 10-year contract with Coca-Cola that ends in 2010.
Last May, Coca-Cola, Pepsi and Cadbury Schweppes, the three largest companies 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-age 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 that 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 school 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.
Some consumer advocates contend that the contracts make the industry's voluntary agreement meaningless.
"Many school districts are stuck with a deal with the devil. . . . The schools could buy out the contract, but this is about kids and school districts that are strapped for cash" said Deborah Pinkas, a Portland lawyer who, along with another lawyer, Nicola Pinson, wrote a study on beverage contracts.
Kevin W. Keane, a spokesman for the American Beverage Association, said bottlers could not be expected to take a financial hit to implement the guidelines. "Schools ask for money upfront," Keane said. "So companies have made an investment. If you're going to alter that dramatically, the one side is going to bear the brunt of the financial pain, which isn't fair."
The industry is aware that changing existing contracts would take time and gave itself three years to implement the voluntary agreement, Keane said. The Alliance for a Healthier Generation estimates high-calorie sodas and drinks would be removed from 75 percent of school vending machines and cafeterias by the start of the 2008 school year and from every school by 2009.