Bev/al executives shouldn’t count on being able to pass along higher costs — especially packaging costs — to consumers, Rabobank‘s lead beverage strategist Stephen Rannekeiv, warns in a note to clients.
Even now, success in passing along costs has been mixed, and will become even more so in the future. Controlling costs will be critical to all beverage companies to maintain profitability, and one key to that, he says, is reducing greenhouse gas emissions.
One place Rannekeiv thinks companies can look for cost savings is packaging. Success in the packaging area can be a double-whammy, since packaging decisions are key components of beverage companies greenhouse gas emissions.
We warned more than a year ago about the dangers inflation posed to the industry and to the economy. Rannekeiv says inflation is starting to look more structural rather than transitory. “Costs are unlikely to return to prepandemic levels int he near term,” he says, noting that freight costs are well above pre-2020 level, labor shortages and rising wages in states like California have been a challenge for years, and “surging commodity and energy prices are unlikely to subside any time soon.”
Especially in wine, executives need to rethink packaging as an area that can not only generate cost savings, but also reduce greenhouse gas emissions. In particular, he says companies should be looking at bag-in-box wine as well as lightweighting bottles. Already, he says, wine bottles are 30% lighter than 20 years ago.
“The main obstacle to moving toward more lightweight bottles is often the fear by marketers that the product will be perceived as lower in quality. However, this ‘premium’ image is coming at an increasing high cost. and there is at least annecdotal evidence that we often overestimate the impact of heavy glass on consumer perceptions. He notes Jackson Family Wines has successfully reduced the weight of the glass bottle for one brand “with no adverse impacts.”
The Rabobank beverages team thinks decentralized production is gaining popularity and will gain more as the cost of logistics skyrocket. For just one producer, one-way packaging and logistics made up 27% of total operating costs. Still, there are benefits to centralized production, starting with authenticity. Is Stella Artois made in St. Louis as “authentic” and Stella Artois made in Leuven, Belgium? But producing central and shipping around the world can be really expensve, take longer to transport the product and generate more packaging waste. Anheuser-Busch opted to move Stella Artois production closer to the U.S. customer, benefitting from lower freight costs and the lower prices of gas used in making bottles in the U.S. compared to Europe.
An alternative to bottling and brewing near the consumer is to brew centrally and bottle near the consumer. Rabobank notes that a 20-coot container can hold 115 hl of bottle beer or 250 hl in bulk.
Both Heineken and AB-InBev estimate the carbon footprint of a resusable bottle is six to eight times smaller than one-way glass. But that benefit quickly dissipates if bottles have to travel long distances back to a production facility. That’s why Rabobank’s analysts thing either local production of brewing central and bottling locally will become the model in the future.
