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Momentex LLC
Market and Marketing Strategy

Description of Market

The Gulp & Go service creates a new point of contact between the toll road industry and the beverage industry. Gulp & Go offers these mature industries a new source of revenue.

Toll Road Industry. Toll roads, although primarily governed by state organizations, are managed as private businesses responsible for operating the toll roads and generating enough toll revenue to cover their cost of operations and debt service. Toll contractors, such as market leader TransCore, install new toll plazas and new systems such as ETC and must bid competitively for new projects. Service plaza concessionaires, such as market leader Host Marriott Services, typically have long-term contracts to service all or part of a toll road with off-road services. Typically, concessionaires pay commissions to turnpikes ranging from 10% to 15% of revenues.

Momentex measures the market for Gulp & Go service in number of toll transactions, reflecting driver purchase opportunities. The number of tollbooths represents the market of point-of-sale real estate for Gulp & Go service.

State Tolls Annual Transactions Plazas Tollbooths Transactions/Booth Major Toll Operators
NY Toll Roads 787,000,000 87 790 2729 NY Thruway, MTA
NJ Toll Roads 772,000,000 77 711 2975 Turnpike, Highway, Transport. Auth.
IL Toll Roads 626,000,000 60 450 3811 Highway Authority
Florida Toll Roads 500,000,000 55 330 4151 Turnpike, Expressway Auth.
Texas Toll Roads 230,000,000 45 160 3938 North Dallas, Harris County
California Toll Roads 186,000,000 35 163 3126 CalTrans, TCA
MA Toll Roads 170,000,000 17 120 3881 Turnpike Authority
PA Toll Roads 140,000,000 18 108 3551 Turnpike Authority
NY-NJ Bridges/Tunnels 114,000,000 8 77 4056 Port Authority NY & NJ
Total Majors 3,525,000,000 402 2,909 3320
Others 725,000,000 80 600 3311 VA, OK, OR MD, ME, other (est.)
Total 4,250,000,000 482 3,509 3,318 United States (excludes int'l bridges)
Source: IBTTA; Electronic Toll and Traffic Management
Note: 'Transactions per Booth' reflect daily average

Beverage Industry. The U.S. beverage industry, distributing 230 billion can-equivalents of soda annually, is intensely competitive and is dominated by the Coca-Cola Company and PepsiCo3 Beverage companies typically focus on the creation, production, and distribution of drink syrups, concentrates and beverage bases and the marketing/brand building of beverages. Bottlers take the flavor concentrate, mix it with sweetener and water, bottle the liquids, and then distribute it to retailers or to their own vending machines. Due to the importance of distribution, beverage companies typically hold equity stakes in key bottlers and also pay "rights fees," for exclusive access to captive customers, to those who control certain key distribution channels.

Market Potential

With 3,500 tollbooths in 35 states and over 4 billion toll transactions annually, the United States provides significant market potential. Internationally, another 5 billion toll transactions take place annually at 9,500 international tollbooths, which provides another avenue for substantial growth.4

With a usage rate near 10%, the total annual revenue potential for the Gulp & Go service on toll roads is estimated at over half a billion dollars. In a more conservative estimate, with a usage rate of 2% and a $1.25 price per beverage, annual revenue potential is estimated at $128 million5,6 . A 2% usage rate reflects two tollbooths in a ten booth plaza offering Gulp & Go service, and one in ten drivers who self-select these Gulp & Go toll lanes purchase. Pilot projects will provide better insight into the actual consumer adoption rate and price sensitivity. Momentex expects usage rates to increase as driver comfort for the service increases over time.

Estimate of Market Potential Calculation Notes
Toll Transactions
Total toll transactions (35 states in U.S.) 4.25 billion Source: Electronic Traffic Management of ITS
Tollbooths (U.S.) 3,509 Source: IBTTA 1996, ET`TM
Average daily toll transactions per booth 3,318 Calculation - note variation exists by location and day of week
Gulp & Go Transactions
Purchase rate per tollbooth with Gulp & Go service 10% Estimate of 1 in 10 cars self-selecting a Gulp & Go lane purchase
Gulp & Go daily transactions per booth with service 332 Calculation
Service availability (% of total tollbooths) 20% Estimate of 2 tollbooths with Gulp & Go service per 10 lane plaza
Service availability (4 of total tollbooths) 702 Calculation
Gulp & Go annual transaction estimate (U.S.) 85,000,000 Calculation reflecting a 2% hit rate per total toll transactions
Revenue Drivers
Purchases per transaction 1.2 Estimate of 1 in 5 buyers purchasing 2 drinks
Price per beverage $1.25 Price premium for convenience
Revenue and Profit
Total annual revenue $127,500,000 Calculation
Expected gross profit margin 60% Estimate: 20% to bottler for goods, 15% to toll road, 5% for refilling
Gross profit potential $76,500,000 Calculation

Growth Drivers

Company Growth. Momentex will grow its revenues by (1) increasing usage rates and (2) increasing service locations. Momentex will focus first on a sales effort to penetrate the tollbooth market by maximizing locations that host the service, followed by a marketing push to increase purchase rates per toll plaza. To achieve market penetration, Momentex must demonstrate the economic benefits of the Gulp & Go service and convince toll road operators that consumers will use the service if installed.

Market Growth. Key factors affecting growth in the market, measured in toll transactions, are gas prices, GDP growth and strong economic factors, legislation allowing tolls on interstate highways, and new private convenience highways. Additional growth can stem from new products such as snack foods, international tollbooth expansion (5 billion toll transactions internationally), or opportunity to retail in other locations, such as parking garage tollbooths and gas islands at gas stations and convenience stores7.

Market Acceptance, Trends & Needs

Current trends in driver convenience, the toll industry and the beverage industry have created a window of opportunity for. Momentex's Gulp & Go service. Drivers will value Gulp & Go's convenience and time-saving attributes. Toll road operators will increase profitability and customer satisfaction. Beverage companies will welcome the opportunity to increase sales volumes and to gain access to customers without having to develop inhouse knowledge of toll systems.

Driver Convenience. Research indicates that 81% of today's consumers want more simplicity - - and more convenience - since time has become such an issue in their lives.8 With today's time-sensitive population and advancements in restaurant "drive-thrus", sound systems, cellular communications, and satellite navigation systems (i.e. GPS), the automobile is being transformed into a tool for not only traditional transportation, but also dining, entertainment, communication and navigation. Recognizing the convergence of technology and market need, Momentex has developed driver-interface retailing to deliver Ultimate Conveniencesm to drivers by adding automated retailing to the driver's portfolio of time-saving accessories. Gulp & Go service is a phase shift change in the evolution of driver convenience.

Of the 160 million passenger car drivers on U.S. roads, the Gulp & Go service targets both drivers and passengers that have the following attributes and provides value to them9:

Toll Industry Trends. For many toll roads, increasing fees is a politically damaging method of increasing revenues. They are under pressure to cover bond payments and increase spending on improvements to roads and customer service.13 Therefore, to ensure viability, toll roads must look at methods of creating additional revenue or increasing driver usage.14 As one of the leaders of toll road innovation explains:

"I am always thinking about new ways to make money."
James Kerasiotes, Chairman of the Massachusetts Turnpike Authority

The Gulp & Go service addresses both of these needs by (1) adding an additional profit stream to the operator and (2) increasing customer satisfaction and the convenience of using the road vis a vis alternatives.

In addition, recent federal legislation calls for each state to choose whether to increase revenue for highway operations by building toll plazas on existing interstate highways. This could yield a proliferation of toll plazas and increase the available real estate for Gulp & Go service.

Beverage Industry Trends. As traditional distribution channels mature, the large beverage companies have begun to focus on the higher-margin and growing convenience channels. With fierce competition among the major beverage companies, exclusive access to these distribution channels has become a source of competitive advantage. The beverage companies are paying multi-million dollar, multi-year "rights fees" for this exclusivity, often equating to $3-40 per potential customer.15 Gulp & Go will provide value by offering the opportunity for exclusive access to a new mass distribution channel, expanding the total size of the beverage market by reaching thirsty drivers.

Market test results

Momentex conducted a survey which documents (1) a need for the Gulp & Go service and (2) that customers are willing to pay a premium for the convenience that the service offers. Momentex conducted a survey of toll road users over the past two months and results are summarized in the Market Research appendix. Based upon 115 toll road user respondents, we estimate that the usage of the Gulp & Go service by our target market could be as high as 32%. (In our financial model, a usage rate of 10% is used based on more conservative scale factor of 0.25 vs. 0.75.) Refer to the Market Research Toll Survey appendix for details.

The survey confirms our hypothesis that most drivers (73%) do not stop for a beverage while they are on the toll road due to lack of time. The fact that over 60% of respondents do purchase a beverage on a regular basis during their commute to and from work indicates an opportunity to serve the needs of time sensitive customers. In addition, the survey results show that potential users consider the key attributes of Gulp & Go to be important: 88% of respondents rated convenience/speed as very important, 59% rated easy to use as very important or somewhat important, and 56% rated beverage variety as very important or somewhat important. The average price respondents are willing to pay for a 12 ounce beverage is $1.10, a 38% premium over the customary convenience store price. (Momentex anticipates a price premium of 25-90% and uses $1.25 in financial models.)

Competitive Position

While no direct competition currently exists, Momentex anticipates that once it introduces Gulp & Go service, competition will develop.

Opposition Potential. Competition, in the form of entry or opposition, will stem from companies whose revenue will be either significantly positively or negatively impacted by Gulp & Go's new distribution channel. The degree of competition will depend upon those companies' ability to respond to the introduction of Gulp & Go. Response ability would be measured by (1) level of past technological innovation; (2) degree of national presence (potential or existing); (3) knowledge level of toll systems, drivers' needs, beverage distribution; and 4) strength of toll authority relationships.

Competitive Landscape. The diagram below depicts the competitive landscape for Gulp & Go service. Momentex believes that companies whose market is expanded by Gulp & Go, such as the major beverage companies, may attempt to enter the market. The major beverage companies, however, lack technological innovation, knowledge of both toll systems and drivers' needs, and relationships with toll authorities. Companies who perceive that their revenue would be threatened, such as service plaza concessionaires, may attempt to block the development of Gulp & Go. While concessionaires do have relationships with toll authorities, their ability to leverage these relationships to block an agreement between Momentex and a toll authority is debatable. Momentex's meetings with toll authorities indicate that often the toll authority and concessionaire have tenuous relationships16. Momentex considers entry by Host Marriott, the largest concessionaire, unlikely, as it has stated that toll roads are not its focused area for growth17 . For further details, refer to the Company and Competitor SWOT Analysis appendix for a comparison of competitor strengths, weaknesses, opportunities and threats.

Circle = Magnitude of "deep pockets" for project investment
+/- depicts positive/negative revenue impact

Determinants of Response Ability

Sales and Promotion

Momentex will market its Gulp & Go service to two target groups: collaborators and consumers. Collaborators control sites on which the Gulp & Go machine will be located. Consumers are the ultimate users of the service.

The rate of return on investment and consumer demand will drive the purchase decision of collaborators. To achieve market penetration, Momentex must demonstrate the economic benefits of the Gulp & Go service and convince collaborators that consumers will use the service if installed.

Momentex expects that all prospective customers will already consume the beverages sold at the Gulp & Go machine through other channels. Rather than creating new beverage consumers, Momentex will provide existing beverage consumers with a new, more convenient channel to purchase beverages. The marketing challenges are providing the right products at the right price and educating consumers on how to use the service.

Attract Customers. First, by supplying drivers with the refreshing beverage of their choice, Momentex will attract customers by its Gulp & Go service. To create this draw, Momentex will offer popular beverages and install signage along toll roads to trigger thirst. To optimize beverage selections, Momentex has conducted market research and understands what its target market prefers. In addition, Momentex anticipates that the name-brand beverages offered will enhance the attractiveness of the Gulp & Go service. Momentex will also seek co-marketing opportunities with its beverage provider to further develop sales.

Customer Education and Support. Momentex plans to conduct a pre-marketing campaign to introduce the Gulp & Go service and to create consumer interest. The initial campaign will consist of pamphlets or direct mailings to drivers in the area surrounding the toll road. The marketing materials will fully explain the mechanics of the service and introduce a consumer feedback loop for questions or complaints. Once Momentex installs Gulp & Go service in an area, it will continue to educate drivers about the service through advertising spots in print and broadcast press. Additionally, Momentex will continue to provide strong customer support through both a website and a toll-free telephone number. Customer service will not only educate drivers on the Gulp & Go service, but will also provide the avenue for rectifying any ordering or product problems. Refer to Marketing Plan Summary appendix.

3 1997 Figure. Hays, Constance L. "Bottlers Becoming Rivals To Vending-Sales Merchants," New York Times News Service (1999).
4 IBTTA 1996, ETTM of ITS 1998.
5 Momentex focus groups, (1) Wharton Graduate, (2) UPENN Undergraduate, 1998.
6 Momentex market interviews, Philadelphia and Boston area, 1998.
7 IBTTA 1996.
8 Convenience Store News, December 1998,
9 Federal Highway Administration, Selected Highway Statistics and Charts, October 1997. Nationwide Personal Transportation Survey, April 1998.
10 Momentex focus groups, (1) Wharton Graduate, (2) UPENN Undergraduate, 1998; Department of Transportation Nationwide Personal Transportation Survey April 1998,
11 Ibid.
12 Momentex focus groups, (1) Wharton Graduate, (2) UPENN Undergraduate, 1998.
13 Momentex interview with managers at MA Turnpike 1998.
14 Momentex interviews with management at MA, PA, NY, FL, NJ, VA, DE toll roads 1998; the toll industry trade association (IBTTA) 1998, TransCore 1998, TRMI 1998.
15 interviews with Coke, Pepsi 1999.
16 Jim Kane, Massachusetts Turnpike Authority
17 Host Marriott Services Annual Report 1997; DLJ Equity Analyst Jake Fuller

Momentex LLC
Table of ContentsAppendices
1. Executive Summary
2. Company Overview
3. Service Description
4. Market & Strategy
5. Business Model
6. Management
7. Financials
8. Capitalization
9. Risk Factors
Market Research Survey
Hardware Integration
Software Integration
Internet Integration
Traffic Flow Analysis
Financial Assumptions
Income Statement
Balance Sheet
Cash Flow Statement
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