Monday, November 11, 2013

Dan DeRose–Soda in Schools King

Here is a “Blast From The Past” article on Small Smiles Dental Centers founder, Dan DeRose and his visions of sugar plums – Soda in Public Schools. This article was written during the period his dad, Eddie DeRose, formed DeRose Management, LLC.  DeRose Management, LLC was the precursor to FORBA, LLC — the “test” dental management company of sorts.

New York Times Articles


Today's Lesson: Soda Rights; Consultant Helps Schools Sell Themselves to Vendors

Published: May 21, 1999

Dan DeRose, marketing consultant, was busy doing the math for his new client, the Newark Public Schools.

The question on everyone's mind: how much money could the district make if it sold a soft-drink company the exclusive right to vend its products on school grounds? The answer, according to Mr. DeRose: a lot more than it gets right now.

''Let's just say everyone drinks one product a day, and let's just count the students,'' he said. ''At 45,000 times 180 days of school, that's 8.1 million cans. At 75 cents apiece, that's $6 million walking out the front door of your school every year in quarters and dollars.

''Let's get a lot of it,'' he told his audience, a collection of school principals, athletic directors, P.T.A. officials and one student. ''Let's get some of it back to the schools.'' Even $5 million would make a difference in the district's $550 million budget.

With his square shoulders, steady smile and conscientious use of the first-person plural, Mr. DeRose and his company, DD Marketing, are storming a once-quiet backwater in the soft-drink business. Schools regard him as a font of information. Soft-drink companies, which used to make low-key deals on their terms with local school districts, hate him with a passion.

One of the best-known consultants in a rapidly growing specialty, Mr. De Rose, who is based in Pueblo, Colo., says he has obtained exclusive contracts, or is negotiating them, for 63 school systems nationwide.

The exclusive contract, a winner-take-all creation of the soft-drink companies themselves, eliminates rivals' products from a school, a hotel, an airline. Thanks to Coca-Cola and Pepsico's desire to market to children, and the eagerness of schools for the income, Mr. DeRose has found a niche.

Almost evangelical in his zeal, he primes school officials to take on the soft-drink companies, raising the stakes for all concerned and profiting handsomely from the deals that go through. ''Dan DeRose is probably the person most responsible for this current feeding frenzy,'' said Alex Molnar, a professor of education at the University of Wisconsin who has debated Mr. DeRose.

Others say there is a need for his services. ''Most educators don't have a background in food management,'' said Barry Gaskins, a spokesman for the Pitt County schools in Greenville, N.C., which hired Mr. DeRose last year. ''They're trained in the three R's, and the R's don't include retail.''

While demand for exclusive contracts has never been greater, there is a distinct downside. Some lawmakers want to ban the sale or giveaway of soft drinks during the school day, citing nutrition concerns and the ubiquity of ads and vending machines. And advocates for education say students are captive audiences who should not be sold to the highest bidder, even to finance school programs.

''If schools use their position to give certain products undue priority in a child's life, they are misusing their power,'' Charlotte Baecher, director of the Zillions Education Center at Consumers Union, said.

Mr. DeRose is working closely with Valerie Wilson, the food-services manager for Newark schools, who wants to consolidate the system's patchwork arrangement -- some Coke here, some Pepsi there, plus other brands. Whoever wins the contract would supply not only sodas for vending machines but also juices in 82 school cafeterias and water and other drinks for athletic events.

After some discussion about the merits of the idea, officials decided to go ahead, Ms. Wilson said, and solicited bids from three marketing consultants, settling on Mr. DeRose. Earlier this month, nattily dressed in a gray suit, blue silk tie and shiny black alligator loafers, he met with the committee Ms. Wilson assembled to discuss the fine points.

He warmed up by discussing deals he has orchestrated for school systems in Colorado and Kansas -- one for $11.1 million, the other for roughly $5.3 million. ''In Kansas City,'' he noted, ''they were getting 67 cents a kid before, and now they're getting $27.''

Then he went to the heart of the issue: how much Newark's kids could be worth.

As in hundreds of school systems around the country, Newark officials are unable to pay for every program on their agendas. The system was so badly mismanaged that in 1995, the state took control and still runs it.

To make the most of its assets, Mr. DeRose said, Newark should make a deal with just one soft-drink giant. ''We're going to get what we call a rights fee,'' he said, adding that companies like Coke and Pepsi love exclusive contracts because they imprint brand loyalty on young minds.

As an example, Mr. DeRose cited his own first grader, Anna, whose school in Pueblo has an exclusive contract with Coca-Cola, the work of DD Marketing. ''From now until she's graduated, all she'll drink is Coke,'' he said. ''She goes out for pizza and we ask, What do you want to drink, honey? Coke. She doesn't even know how to spell Pepsi.''

Several critics compare Mr. De Rose to the title character in ''The Music Man,'' the musical about a small town falling for a charlatan's pitch. ''He really illustrates the worst aspects of commercialism in schools,'' said Andrew Hagelshaw, senior program director for the Center for Commercial Free Public Education in Oakland, Calif. ''He is making millions of dollars off commercializing public schools, and he is not taking into account any of the negatives.''

How many millions? Mr. DeRose would say only that ''we're doing really good.'' He charges a percentage of the final contract -- 25 to 35 percent, according to school systems that have hired him.

Recently he modified his commission for a $4.6 million contract between Coca-Cola and the Manteca, Calif., schools. Mr. DeRose offered to accept $160,000, far less than 25 percent, after Coke first refused to bid on the contract, said Jerry Ogden, an assistant superintendent there.

Such fees, soft-drink companies say, are outlandish. ''These consultants who charge commissions based on the fees in the contracts generally bring little or no value to the school system,'' said Bob Lanz, a spokesman for Coca-Cola Enterprises, the Coke bottler for Newark.

Statements like these elicit smirks from Mr. DeRose, who likes to read from Coca-Cola's 1997 annual report -- such lines as ''Sales of Coca-Cola and other company products exceed one billion servings per day'' -- as part of his sales pitch. Despite saying they would not work with consultants like him, Mr. DeRose told the Newark committee, most bottlers end up bidding anyway.

The names and logos of Coke or Pepsi do appear frequently on exclusive contracts he arranges. He recommends minimum numbers of vending machines for each school building.

''They'll want ads in athletic programs, something on tickets, and the scoreboard,'' he told the Newark group. But when Ms. Wilson asked whether there would be ''Coke and Pepsi plastered all over the building,'' Mr. DeRose replied, ''We'll do whatever you want.''

Mr. DeRose insisted he was helping make schools more realistic for children. ''If you have no advertising in schools at all, it doesn't give our young people an accurate picture of our society,'' he said.

Still, he added, children should not be ''bombarded with it.'' His partner in DD Marketing came up with the idea of putting ads on school buses, and the company also markets Zap Me, a computers-in-schools program that includes ads in one corner of the screen.

Critics say soft-drink contracts distort a school's role. They differ from contracts for textbooks or pencils, which are educational essentials, Mr. Molnar said.

Others worry about the nutritional impact. ''Twenty years ago, teen-agers drank twice as much milk as soda pop, and now they drink twice as much soda as milk,'' said Michael Jacobson, executive director of the Center for Science in the Public Interest.

The Newark group seemed impressed by Mr. DeRose's presentation, which included frequent pauses to answer questions. ''It's a first time for us,'' said Roger Jones, a spokesman for the Newark Public Schools, when asked why the system needed a consultant. ''It's an opportunity to bring together all the people involved in vending so we have one voice speaking for everyone,'' and help generate a windfall ''that ultimately goes back into our system so students benefit.''

Not all of Mr. DeRose's projects work out. The Pitt County school board paid him nothing after opting not to pursue a contract. Both Coke and Pepsi refused to bid, though a vending company made an offer.

But the board learned a lot. ''Just by the fact that Dan DeRose walks in and says this is the kind of money you could get, you know it's there,'' said Mr. Gaskins, the Pitt County spokesman.

Still, he said, ''some of our board members felt this was too good to be true, and another rubbing point was the commission that would be paid to DD Marketing.

''But the thought of generating that kind of revenue stream, where you didn't have to raise property taxes, you didn't have to increase the sales tax and you didn't have to do battle with the county commissioners, was very attractive,'' Mr. Gaskins conceded.

Not that it's always easy money. School officials in Colorado Springs learned last year that only beverages purchased from vending machines count toward the system's 70,000-case annual quota, said John Bushey, an administrator, which has forced the system to pay closer attention to purchases to make the most from its $11.1 million contract with Coca-Cola. ''Quite honestly, they were smarter than us,'' he said.

With their costs rising, Coke and Pepsi say they want to avoid deals that involve marketers like Mr. DeRose. ''I'm surprised that during his presentation, the high school band didn't break into a spontaneous version of 'Seventy-Six Trombones,' '' said Lauren C. Steele, a spokesman for Coca-Cola Consolidated, a bottler in Charlotte, N.C.

Pepsi also views consultants with distaste. ''We tend not to love working with these guys,'' said a spokesman, David DeCecco.

In the past, soft-drink companies would make low offers and schools would usually accept them, lacking the time and inclination to pursue alternatives.

Now, the word is out. ''Coke came to the table with an offer last week, and I said, 'based on what you did in Manteca and what you did in Wyoming, this isn't good enough,' '' said Bill Erlendson, an official with the San Jose, Calif., school district, who used information Mr. DeRose provided. He was expecting a revised bid from Coke this week.

Mr. Derose's plan for Newark calls for installing eight vending machines at each of the city's 13 high schools; two to four at each of the 69 lower schools. ''Typically, we like to add a machine in a hall, to give the company a presence,'' he said. Committee members were asked to sign confidentiality agreements, to keep the offers secret from competing bidders, Mr. DeRose said.

The Newark group next meets June 1 to discuss the proposal Mr. DeRose puts together, before soliciting bids from the beverage companies. If all goes according to plan, Newark will sign an exclusive contract by the time school opens in September.

At its last meeting, the committee did express several reservations, including whether one old high school would be able to support eight vending machines on its existing electrical work, and whether the girls' basketball team would still be able to sell drinks at football games.

Mr. DeRose smiled, fixed his gaze on the group and said: ''All of your concerns, I've heard them 500 times before. All of your peers across the country have the same concerns.

''To give you a little comfort: when this process is over, we're all going to have more money than we have now.''