One of the biggest obstacles of the Marriott and Starwood merger for loyal SPG members has been the replacement of Coke products with those of Pepsi.
There are very few business that only carry Pepsi because most of the time the brand preference tends to be Coke. You may wonder what hard feelings Marriott has against Coke that they don’t carry their products at all?
You can access Marriott’s website for the combined program here.
Well. We have to go back to 1991 when Marriott’s hotel business was performing badly and they were losing money. Marriott didn’t have much cash on hand to pay bills and then they came up with a brilliant idea to ask Coke to loan money to them.
Here’s an excerpt from the Washington Post (access their piece here):
A senior executive of the Coca-Cola Co. says the soft-drink company lost a big contract with Marriott Corp. after Coca-Cola refused to lend Marriott as much as $100 million on favorable terms.
Bethesda-based Marriott named PepsiCo Inc. as its soda-fountain supplier last week after a 20-year relationship with Atlanta-based Coca-Cola. Pepsi will supply syrup and other soft-drink products to Marriott’s 639 hotels and 2,300 food-service accounts, such as hospital and university cafeterias. The company is believed to be one of the 10 largest buyers of fountain products.
Marriott’s switch to Pepsi followed Coke’s refusal to lend Marriott “$50 million to $100 million” in loans at below-market interest rates, according to a memo written by Charles S. Frenette, senior vice president of Coca-Cola USA. “In effect, they were asking us to become a ‘banker,’ ” wrote Frenette in a memo circulated among Coke’s fountain employees.
A Marriott spokesman, Robert T. Souers, said yesterday the company’s decision to change soda suppliers was based on “economic, service and quality” criteria. “From our point of view, this particular transaction was business as usual,” he said.
And here from the New York Times (access their piece here):
Marriott has been struggling with $3.5 billion in debt and last month borrowed $150 million from banks.
The fountain business continues to be one of the most competitive areas of the soft drink industry. Fountain sales account for about 21 percent of the $45.6 billion soft drink business. It has been estimated that Marriott’s fountain account was worth $2 million a year to Coke.
It seems that the Marriott family has a long memory. Pepsi loaned them the money while Coke didn’t. I do agree with Coca Cola that it is not their business to be lending money to customers.
I am surprised, however, that hotels are not allowed to carry both Pepsi and Coke products. Many prefer one or the another (usually Coke) and wouldn’t substitute it. The exclusive nature across the brands is not a sound business decision.
It is probably healthier to stay away drinking sodas, however. When I ordered Diet Coke at the Sheraton bar last month and the bartender started to pour Diet Pepsi, I told him to just forget it. I just don’t like the taste of it.