Description
The brewery industry is going through a particularly challenging phase given the current economic, social, and cultural changes globally. While technology advancements can help address these massive structural shifts, there needs to be a deeper comprehension of the strategic requirement before embarking on technology and business initiatives . In this challenging environment, it becomes imperative that the industry completely understands the emerging industry trends and technology developments.
Brewery Industry in transition:
Embracing new Markets,
Products and Consumers
The brewery industry is going through a particularly
challenging phase given the current economic, social,
and cultural changes globally. While technology
advancements can help address these massive
structural shifts, there needs to be a deeper
comprehension of the strategic requirement before
embarking on technology and business initiatives . In
this challenging environment, it becomes imperative
that the industry completely understands the emerging
industry trends and technology developments.
This paper discusses the impending changes that
brewery players would need to get acclimatized to in
the coming years and how they could exploit these
opportunities to gain competitive advantage. Supply
chain management, operational issues faced by the
brewery industry, and how technology can help
mitigate potential risk has been particularly
emphasized.
White Paper
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About the Author
Srinivas Vadlamudi
Srinivas Vadlamudi is an industry consultant specialising in Supply
Chain Management and is part of the Consumer Packaged Goods
(CPG) practice team at TCS. He has over 10 years of experience in
the information technology industry and has dealt with
conceptualizing and developing technology solutions that
pertain to the CPG Industry. He has worked on Enterprise
Application integration and Business Intelligence projects. His
areas of expertise include a functional understanding of the
supply chain processes in the Brewery and Diary industries.
Srinivas holds a Bachelor’s Degree in Mechanical Engineering and
a PGDM in Marketing and Finance from the Indian Institute of
Management (IIM) Indore.
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Table of Contents
1. Introduction 4
2. Industry overview 4
3. Market trends and challenges 5
4. Challenges 9
5. Top priorities for the industry in current business scenario 12
6. Solutions for the brewery industry 16
7. Conclusion 17
8. References 17
Introduction
Industry overview
In 2010, 236 billion litres of alcoholic beverages was sold and beer constituted 78% of it, making it an
industry that is hard to ignore. The beer industry is the biggest sector of the Alcoholic Beverage industry,
with global annual sales exceeding $325 billion USD (for the year 2011). Over the past decade, the industry
has seen a profound structural transformation, as established market-leading national brands have
expanded beyond their own borders and local beer companies have gained international status through
well-thought-through expansions.
Just as this global structural consolidation was underway, the recession of 2008 began to take hold,
challenging the industry’s prospects for growth. On the one hand, the consolidation allowed global leaders
to draw on their new-found economies of scale to finance product innovation and expansion. On the other,
the recession cut into sales of established brands in the most profitable markets, mitigating investment
potential .
The beer industry is plagued by flat volumes and with minimal growth rates. However, despite the caution,
TCS sees a dynamic and innovative industry, developing interesting and innovative products in established
markets and driving rapid development in fast-growing, emerging markets. Certainly, the industry will
continue to profit by exploiting its new-found global supply chain advantages. Equally important is the
progress companies need to make to better understand the tastes and lifestyle preferences of its
consumers on a global scale.
The following sections will provide insights on these market trends. We outline specific challenges, such as
new product introductions facing beer companies. We also discuss the growing focus on effective Supply
Chain Management and the increasing power of global retailers.
This paper further aims to identify the areas for process improvement and provides specific solutions TCS
has provide to empower beer companies to meet industry challenges and enable profitable growth.
Global beer volume growth continued to improve in 2011, and although this was still below pre-
recessionary levels, the improvement indicated that its well on its way to recovery. The global beer market is
highly consolidated with the top 10 brewers accounting for approximately 67% of global volumes in 2011.
However, in recent years, the brewery industry faces new opportunities and challenges. Changing
consumer demands and preferences require new ways of maintaining current customers and attracting
new ones. In a majority of beer markets, there has been a steady shift towards premium brands that offers
health benefits . As a result there is a focused switch by brewers from mainstream brands to premium
brands to enhance their growth prospects. This in turn has resulted in an increasing need to have an
efficient distribution system and to reduce operating expenses.
The brewery industry is extremely competitive, with private labels greatly influencing the environment.
Companies need a balanced geographic portfolio to maximize growth, with a strong presence in fast-
growing emerging markets that offer volume growth, as well as in developed markets that offer high
revenues.
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China US India Brazil Russia Indonesia Japan Germany UK
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Due to the dynamic growth in emerging markets, brewers have to continue to look for opportunities in
these regions to enhance their volume growth prospects. Emerging markets are expected to continue to
drive global beer volume growth over 2011-2016, while mature markets are predicted to remain sluggish.
In value terms however, developed markets are key as they provide higher margins, but as
‘premiumization’ continues, emerging markets are expected to gain share in value terms as well.
Companies need to focus on value generation, by concentrating mainly on higher-margin products and
cutting costs to enhance profitability.
In short, brewers need to adapt quickly to the changing needs of the consumer. In the tough prevailing
business environment they need to ensure value for their stakeholders and drive profitable growth. In
order to do this, they ought to try some of the following measures:
Consolidation through mergers and acquisitions
Expansion in emerging markets
Focus on product, channel, and geographical diversification
To remain competitive and to sustain growth, brewery companies would need to watch out for the trends
that will shape the industry over the next few years and understand the challenges so that they may be
able to potentially turn them into opportunities. Noteworthy market trends and challenges are listed and
explained below:
Trends
Consolidation
Demographic changes
Retailer Influence
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Market trends and challenges
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Worry they are missing out on something if they don't visit their social network
Believe social networks are a good place to buy products and brands
China US India Brazil Russia Indonesia Japan Germany UK
Figure 1
Challenges
Supply chain/Distribution
Regulatory environment
Packaging
New Product Introductions
TRENDS
Consolidation
With growth remaining pretty stagnant in the developed world, beer manufacturers have been turning
towards mergers and acquisitions to fuel growth. The major players have been looking for scale to:
Gain competitive advantage in terms of offsetting retailer power,
Establish a strong position within the distribution chain, and
Gain shelf space.
The following are some observations around the consolidation phase of the market:
Need for strong positioning in emerging markets - China is already a major market for breweries
though it is yet to realize its full potential. Opportunities also exist in other important markets like
India, Vietnam, and Africa. Though the initial costs to enter these markets may be high, the rewards are
also expected to be huge over an extended time period.
Smaller brewers struggle for market share - Smaller regional brewers have been struggling in the wake
of the current economic slowdown. This provides an opportunity for larger or more financially stable
brewers to make investments in the form of equity stakes, joint ventures or acquisitions.
Acquisitions in future to remain far and few - There are only limited opportunities for further large-
scale acquisitions. With fewer obvious targets, brewers will have to act fast or else they could
encounter unreasonably high acquisition costs.
Though it has been clear to the major breweries that consolidation is a viable option to expand in
emerging markets, it is easier said than done. The acquisition costs have left many companies in North
America and Europe struggling to cut down their debt levels. The challenges that remain are indicated
in the table below.
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Starting out
Beautiful inside and
out - the athlete
Unfit but glamorous-
the supermodel
Healthy but in need of
a makeover
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Maturity of strategy, people, processes & technology
Approaches to social media
I
d
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p
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t
h
1. Basics in place
2. Responsiveness
& sophisticated
campaigns
3. Driving product
& channel
development
4. Social shopping
5. Future
developments
§Facebook page
§Twitter feed
§Company engages
users through
exciting campaigns
§Company responds
effectively to
comments and
feedback
§Company uses
feedback to
change products &
channels
§Consumers engage
with social media
around point of
purchase
§Consumers buy
through social
media sites
Raise funds Companies need to strategize methods to raise funds for inorganic growth in
emerging markets such as Asia and Latin America and simultaneously reduce
current short term debt.
Acquisition stalemate Rapid consolidations lead to a stalemate in terms of further acquisitions. The
issue is regulatory in nature and the combined volumes of any two major
companies would exceed monopolies laws in at least one, and in most cases,
several national jurisdictions.
Process integration post
acquisition
Companies expend a lot of effort to integrate the processes of the acquired
company with those of their own in terms of operations, processes, systems , etc.
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Demographic changes
When working in developing nations, companies
look to target a new segment of consumers than
what they are used to. In developed markets the
core consumers for alcoholic drinks in the 15 to 34
age group has witnessed a decline in consumption
of beer; a trend that contrasts with the observations
in emerging nations.
In addition to this, due to the changing tastes and
rising disposable incomes in developed markets,
consumers are increasingly choosing quality over
quantity, resulting in an overall shift toward
premium beers in these countries. The changing
characteristics and the buying patterns of the
consumers pose a challenge for breweries. The latest trends in consumer behaviour are summarized in
Figure 2.
Each of the above Demographic/Consumer trend has been elucidated in Table 1:
Sophistication
of what the
outsider sees:
1. Basics in place 2. Responsiveness
& sophisticated
campaigns
3. Driving product
& channel
development
4. Social shopping 5. Future
developments
Strategy that
ought to
support this:
No real impact
on company's
strategy
§Limited
predominantly to
marketing strategy
§Decide what will
happen locally and
what will be driven
centrally
§Start of higher
level conversations
about
transparency
§Clarity at a high
level about
relationship with
the consumer and
how consumer
views will be used
§Clarity on routes to
market, allocation
of resources to
different channels,
and management
of expectations in
traditional channels
§Agreement
on whether
the company
will be a
leader or
follower
Trend Characteristics of the consumer group Prevalent Countries
Value
§ Consumers buy at discounters and online as well as download
coupons, etc.
§ They also look for tangible benefits from the products and
generally purchase smaller servings due to instant affordability
§ Consumers use varied channels for purchase especially with the rise
of Internet retailing and smart phones.
§ The channel of choice is different for every consumer
• The rise of Internet retailing and smart phones is an
example of the change in channel preferences
§ Russia
§ Italy
§ France
§ Portugal
§ UK
§ USA
§ Australia
Escapism
§ Recession-weary consumers looking to escape; searching for
recreation away from their homes.
§ Consumers are easier to manipulate, which is ideal for boosting
impulse sales, convenience / consumption.
§ On-the-go orientated packaging driving innovation.
§ Increasing sales via internet and mobile apps.
§ UK
§ South Africa
§ Western Europe
§ Latin America
Health and
Wellness
§ Consumers are highly conscious about health and obesity and
prefer products aligned with a healthy image.
§ Consumers prefer variants that are low calorie and / or Natural /
Organic
§ USA
§ Mexico
§ Australia
§ UK & Europe
§ Asia Pacific
Figure 1
Value
Escapism
Health &
Wellness
Home as
entertainment
hub
Looking
beyond the
self
New World
Order
Ageing
Population
Internet
Consumer
Megatrends
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A notable trend affecting the industry is the increased health awareness among new and existing
consumer segments and consequently an increased preference for premium and low calorie beverages
such as spirits, wine, etc. over traditional high calorie beers. Millennials are more likely to trade back up to
more expensive beer brands as the economy improves. The increased demand for premium beers has
also provided an impetus for innovation in product variants, packaging, and environment friendly
production processes.
Retailer influence
Large retailers continue to demand better service and shorter order-to-delivery cycles from breweries,
mindful of their significance to beer distribution. With higher standards being demanded in terms of
operational excellence, breweries are under pressure to come up with initiatives that will not only
squeeze their margins but also require significant capital investments. This necessitates that they make
their supply chain agile to drive cost efficiency.
Trend Characteristics of the consumer group Prevalent Countries
Home as
entertainment
hub
§ A cocooning trend that has consumers recreating the restaurant
experience at home. Cooking and baking has gained importance.
§ There is a shift away from on-trade alcoholic drinks sales towards
the off-trade channel in many markets.
§ Western Europe
Looking
beyond the
self
§ Environmentally conscious consumers are more interested in
corporate responsibility and are looking for products, which fit their
demand for 'green' more environment-friendly products.
§ Global Trend
New World
Order
§ Despite driving global growth, consumers in emerging markets
have low purchasing power since they have to allocate most of
their meagre income to satisfy their basic necessities.
§ Main drivers for alcoholic drinks consumption for the BRIC nations:
· Large number of consumers in the Legal Drinking Age
(LDA)
· Advancing middle classes
· Rising urban populations
· Emerging westernisation trends
· Aspiration credentials
§ Asia
§ Latin America
Ageing
Population
§ With the ageing population being a challenge in many markets it
becomes imperative to create different products and marketing
strategies for this target group.
§ The population in the 33–43 years age group will continue to
modestly increase (9.5% in 2010–2030 due to immigration), which
will help sustain growth.
§ Developed
markets
Internet
§ Social networking, online retail, consumer reviews ‘word of mouse’
etc. continue to play a huge role in shaping consumer trends.
§ Internet sales of alcoholic drinks continue to rise.
§ Global Trend
Source: EuroMonitor Table 1
Retailers traditionally have a deeper understanding of consumer behaviour because of the nature of their
business. This plays to their advantage in terms of pricing power and providing prime shelf spaces to beer
manufacturers who provide maximum sales. This also necessitates that manufacturers collaborate better with
retailers to understand their end consumer and also to create effective trade promotion strategies.
With the current outlook set to continue, the support funds that beer manufacturers spend towards retail can
only continue to increase. They may potentially end up spending significant sums in retailer collaboration and
trade promotion activities, and also actively look for IT support to help analyse their returns from this
investment.
Supply Chain / Distribution
The traditional distribution system in the brewery industry involves a three-tier structure with delivery enabled
through value-added distributors. This structure is of particular relevance to the North American market. These
distributors merchandise, sell, and deliver the product to the end consumers. This structure often creates a
conflict of interest between the value-added distributors and the beer manufacturers.
The manufacturer’s profits from increased sales is at the expense of distributors’ margins whereas distributors
could profit by selling products at higher profit margins, which forces the manufacturer to cut or optimize their
own costs. The diagram below captures the complex interactions among the various stakeholders in the Brewery
Supply Chain:
The conflicting interests of manufacturers, distributors and retailers coupled with government regulations force
manufacturers to revaluate their supply chain systems to address some of the following challenges:
Address commodity price volatility
Manage expanding portfolio of multiple variants of different products/stock keeping units (SKUs) and
eliminate non-profitable variants
Provide higher service levels demanded by distributors and retailers
CHALLENGES
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Figure 3
Food Service
Organizations
& caterers
Consumer Retail Outlets Distributor
Brewery
Company
Supplier
Hotels
Canteens etc
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Comply with government regulations in batch management and traceability requirements
Accurately understand the complexities of working in emerging markets and the high cost to serve
variation between urban and rural markets
The global diversification of operations is forcing brewers to adopt a model that will work on the concept
of a centralized supply chain, which looks at integration of Sourcing, Distribution, and Manufacturing
processes across various markets and geographies. The primary reason for adopting such a model is to
have a supply chain that provides tangible improvement in logistic networks by rationalizing
warehousing and transportation capacities. This ultimately enables the brewery organization to establish
well in local as well and new markets, through cost competitiveness, increased focus on consumer-facing
activities and faster product launches.
Regulatory environment
The regulatory environment spans the entire spectrum across the globe with tougher laws in countries
like North America and Russia, and more favourable ones in countries like China. The various regulations
and their effect on the brewery industry in different countries have been elucidated below.
Taxes and excise duties
A favorable taxation policy in Russia has been lifted after 2009 with the industry now facing a
regime of heavy tax structure.
Excise duty rises in UK has affected on-trade sales significantly since 2011. A similar situation exists
in many other developed countries.
In China, in contrast to the development across the globe, the government is considering cutting
taxes on luxury alcohol to prevent tax evasion losses.
Advertising regulations
Most countries globally observe a blanket ban on advertising of alcoholic beverages on television,
radio, the internet, public transport, billboards, and print media. Interestingly, this does not seem to
have a significant effect on consumption rates.
Retail restrictions
Government retail monopolies have been installed in Nordics and India to limit impulse
consumption and to promote local breweries.
Similar regulations are expected to be put in place in the UK in the near future.
Minimum pricing
In countries like UK and Russia, minimum pricing rules are under consideration in order to produce
a shift away from polarization. As the price differential between economy and standard alcoholic
drinks reduces, many consumers are likely to trade up to standard products in search of higher
quality.
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With the regulatory environment getting tougher, the industry has to find ways to overcome the challenge.
With most countries trying to come up with legislations that would protect domestic breweries, major
brewers have to continuously adapt to local tastes to mitigate this competition.
Packaging
The value of a product is closely judged by the way the product is packaged in the beverages industry. This
is valid for alcoholic beverages as well. Packaging also plays a far more significant role in the brewery
industry besides just consumer appeal. Packaging continues to remain one of the key innovation areas to
increase the product life cycle or change the positioning of the product in the mind of the consumer.
In terms of the material, glass retains an important and stable position as a favoured bottling material in
key categories of beer, wine and spirits. Its strength lies in its tradition and association with product quality.
Not surprisingly, glass accounted for 59% of global packaged beer sales in 2009, but is suffering some share
loss to metal cans and to PET (Polyethylene terephthalate). Metal cans also continue to be an important
part of packaging. Cans are mostly used to package products for the economy segment while glass
packaging continues to dominate the premium market segment.
In the next five years, packaging is expected to be a legislative area where green packaging and processes
could be encouraged. Significant investment and research is necessary in these areas and there is bound to
be increasing pressure on manufacturers to optimize their packaging.
Reduce wastage by driving sustainable processes and setting ‘green’ targets.
Ensure faster turnaround of used bottles in the supply chain.
Increase margins by reducing the quantity of packaging material.
New product introductions
Beer manufacturers have been relentless about new-product innovation mainly because of their recent
expansion into different geographies and the resultant need to cater to consumers in each of these
markets. Constant innovation, in tandem with the skill for passing on input-cost increases, has allowed the
industry to boost its margins significantly.
The need to aggressively shape portfolios to increase the proportion of the fastest-growing and profitable
categories to sustain growth momentum has led companies to look closely at R&D for new product
innovation. The boom in the craft beer segment where micro-producers are spearheading innovation,
prompts major players to adopt more experimental and radical approaches through product extensions,
flavoured variants, etc. Micro brewers are trying to create a niche by targeting millennials, women, etc.,
forcing major players to come up with competing products.
The ‘retro’ or ‘vintage’ effect has relevance to the vast majority of CPG industries including the beverage and
brewery industry. This trend results in the introduction of variants, once appreciated and enjoyed by the
earlier generation about 30 or 40 years older than us. The trend appears to be a gradual return to heritage,
tradition, and craftsmanship. This has been surfacing as a key driver across the alcoholic drinks industry
globally.
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Top priorities for the industry in current business scenario
The trends and challenges discussed above will play a key role in shaping the future of the brewery
industry over the next few years. The industry needs to prioritize its business needs for the challenges it
will encounter and needs to turn them into opportunities for improving its growth prospects.
Our understanding of the market place has allowed us to come up with the business priorities and
consequent challenges that brewery companies will face in the near future.
Geographical diversification
The major players in the industry are currently trying to achieve a balanced presence in both emerging
and mature markets. One of the quicker ways to increase both volumes and profitability is through
mergers and acquisitions (M&A). In countries where regulations prohibit M&A, joint ventures and buying
equity stakes is an alternate option. Key observations from various markets are:
Table 2
Business Priority Goals Associated Challenges
Geographical
diversification
§ Expand into new market
§ Volume growth
§ Increased prospects of industry
consolidation
§ Demographic changes
Brand building and
improving consumer
relationships
§ Connect with younger
generation
§ Build brand loyalty among
new consumer segments
§ Demographic changes
§ Increased influence of retailer
Increasing Sales Force
Effectiveness
§ Monitor changing
customer preferences at
Point-of-sales
§ Increase collaboration with
Retailer
§ Increased influence of Retailer
Optimizing supply
chain
§ Streamline and centralize
the supply chain
§ Ensure customer and
consumer focus during
planning
§ Geographic consolidation through
acquisitions
§ Distribution and supply chain in
the new business environment
Product and packaging
innovation
§ Tap into new customer
segments
§ Sustainable and green
packaging confirming to
regulations
§ Increased need for value
packaging
§ Increased need of new products
and variants among different
consumer segments
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The traditional powerhouses of growth, North America and Europe, are witnessing sluggish growth.
Companies should look to sustain growth by moving into emerging markets like Asia Pacific, Latin
America and Africa.
China has become a market of choice given the relatively relaxed regulatory environment, and could
prove to be a key market to sustain growth.
Other markets that major players should look towards are Asia Pacific, Africa, and Latin America.
Countries such as Vietnam, Taiwan, South Africa, Mexico, etc. could prove to be decisive in terms of
volume growth.
Companies should opt for the ‘premiumization’ strategy when planning to establish themselves in
these emerging markets.
Brand building and improving consumer relationships
Beer companies will need to identify a healthy mix of strategic and local brands to help them build a
profitable portfolio. While companies should look at acquiring local brands to establish their native
presence, they should also focus on building their major products into international brands. Such brands
turn out to become strategic brands that help the companies gain a good market share along with world-
wide recognition. Another major initiative by manufactures would be to reach out to consumers through
efforts such as in-store merchandising and promotions. Such campaigns would allow manufacturers to:
Improve consumer retention and build strong consumer relationships
Realize additional sales opportunities through merchandizing and in-store activities
Obtain first-hand information on consumer behaviour
Position their own brands better than competitors
With heavy restrictions on marketing in conventional media sources, digital media such as online, mobile
and other new-age devices should be considered as tangible alternatives. Being a preferred platform for
their target audience, companies should definitely make efforts to connect with them through social
media. Digital campaigns, online social media marketing and promotions can serve as an ideal platform
for brand awareness and building loyalty. Engaging with consumers through social media could counter
the fiercely growing competition amongst beers as well as from other alcoholic beverage brands. It can
also prove to be a relatively easy way to reach out to millennials, women and the younger generation,
who may feel disconnected to brands that are not yet online.
Increasing Sales Force Effectiveness
The growth of private-label products is a warning for manufacturers to take steps to compete more
effectively. They need to better understand aspects such as in-store consumer experience, which prove to
be a decisive factor in the purchase cycle. Branded beverage manufacturers could attempt to bridge the
manufacturer-consumer gap, and should pilot direct-to-consumer approaches. Such an effort requires
active monitoring of in-store activity and an effective sales force helps manufacturers understand in-store
activity and help position the right product at the store. In order to stay closer to the changing needs of
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the consumer, manufacturers should enable their sales force to monitor the process real time. With the
advent of mobile devices, such an activity is not only a possibility, but fortunately quite effective.
The most important areas that are being mobile enabled are Retail Execution, Delivery and Logistics,
Empties Management and Field Service Management. Some of the key functionalities that would enable
the sales force to improve their productivity are sales forecasting, order and purchase history tracking,
planograms, surveys, visit planning, etc. The key benefits that breweries derive by mobile enabling their
sales force are:
Increased customer insight
Increased customer sales and improve customer satisfaction
Pre-empting of competitor moves by staying close to point of distribution
Reduced customer stock-out and improved returns on sales campaigns
Integrating and optimizing the entire supply chain
With diversification into emerging markets, the cost of reaching customers is also increasing. The ratio of
number of rural customers to urban ones is high in these markets and hence it proportionally increases
distribution and marketing costs. Companies should focus on optimizing their supply chain to reduce
distribution costs and increase profitability in such markets.
Supply Chain optimization is the most important lever for global breweries to tackle costs and keep them
in check. The most important aspects that companies should consider during supply chain optimization
are reducing cycle times, increasing forecast accuracy, reducing order-delivery cycle and reducing
inventory cycle.
Some of the important levers that will be useful in reducing costs along the entire supply chain are:
SKU Rationalization
M&As necessitate a high level of consolidation in the number of SKUs handled by companies. Its impact is
immense and has a ripple effect over the entire supply chain. The broad areas in the supply chain that are
affected by this phenomenon are highlighted below:
Supplier rationalization and consolidation
Manufacturing asset rationalization and demand driven manufacturing
Integrated planning and scheduling
Network design for consolidated supply chain
Distribution planning and inventory optimization
Demand forecasting for new products
Packaging capability enhancement
Logistics efficiency – route planning, space utilization, etc.
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Some of the measures that the manufacturers should look at to solve these issue are:
Planning tactical distribution
Improving strategic sourcing
Redesigning supply chain network
Warehouse automation
The number of new SKUs and product variants introduced by companies are pressuring them to rethink
their warehousing strategy. In addition to this, rapidly changing packaging configurations, traceability
needs, green packaging regulations and shortening product life cycles are immensely affecting the way
beer companies have to be agile when it comes to warehouse planning. Brewery majors are moreover also
forced to improve cost effectiveness. Automation of warehousing planning and providing an equally agile
distribution system could help companies reallocate their scarce resources for maximum return.
Centralizing the supply chain
The centralization of the supply chain would be a trend that would be put to action by most companies
looking to optimize their supply chain costs. The key reason for institutionalizing such a model is to have a
supply chain for one brewery at one location instead of having one which operates for ‘n’ breweries in ‘n’
locations. A centralized supply chain addresses the needs of various geographies and markets while
keeping cost at a minimum. It will integrate enterprise group procurement, supply chain and logistics
functions into one. Such an initiative would be able to:
Improve customer and consumer service by ensuring products are always available across all outlets
Ensure steady supplies that match and follow market needs
Launch group innovations quickly and profitably
Create a flexible and responsive supply chain that caters to changing variants, shifting volumes,
evolving portfolios, new product developments while also being cost competitive
Continuous product and packaging innovation
In the current competitive environment, companies that are able to enhance and quicken their product
development cycle will clearly have a competitive advantage. As beer drinkers increasingly seek different
styles and more complex or varied flavour profiles, manufacturers would need to keep innovating
constantly. The strategy of beer manufacturers should be to establish market share in emerging markets
with new products that cater to the tastes of the local consumers while trying to establish global brands
through line extensions. In the case of emerging markets, the consumer segments are extremely varied
and hence to establish brand loyalty and mind share, companies have to innovate products that cater to
each of these segments. By effectively making use of internal resources and collaborating extensively with
innovation partners, beer companies should look at reducing their innovation cycle and time to market.
Packaging innovations are equally important to showcase differentiated variants according to the target
consumer and to increase product shelf life. Packaging is one of the most visible ways by which the
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manufacturers can exhibit their commitment to sustainability and green initiatives. Packaging also helps
companies position their premium brands well so that it eventually creates a big difference to their bottom
line.
In order to respond effectively to changing market trends and challenges, the industry must support its
improvement efforts with industry specific solutions. The solutions should help breweries address industry
specific business priorities and maximize effectiveness along the value chain by improving their ability to
plan, execute, and deliver.
The following table captures some of the industry specific solutions that a brewery should look at to
address the business priorities of the industry.
Solutions for the Brewery Industry
Business Priority Solutions
Geographical diversification
§ ‘Templatizing’ the approach towards IT Integration for the
organization’s inorganic initiatives
§ Standardizing and implementing pre-configured business
processes
Brand building and improving
consumer relationships
§ Implementing a digital based marketing solution for customer
insights and to measure customer satisfaction
Increasing Sales Force
Effectiveness
§ Enabling a mobile Retail Execution solution
§ Implementing a best in class trade promotion solution
Optimizing supply chain
§ Implementing an optimized Supply Chain Management solution,
which addresses route optimization and warehouse management
§ Implementing a vendor managed inventory solution along
with empties management solution
Product and packaging
Innovation
§ Implementing product innovation solutions in product
lifecycle management
§ Implementing package enhancement solutions
Table 3
17
Conclusion
The beer industry has seen its share of growth. Now, in the wake of unsteady economic conditions, it is
time for the industry to take a fresh look at its operations. The spate of mergers and subsequent
integration processes in addition to compliance to multiple regulatory norms has indeed created a
significant shift in the way the industry operates.
To sustain in a market with changing demographics yet remain profitable, beer companies would need to
re-evaluate their supply chain practices such that they keep pace with quickening product innovations
and launch processes. The retailer influence is also increasingly adding pressure to their already tight
margins, making optimization efforts even more a necessity.
TCS perceives that breweries have their business priorities mainly in the areas of Product Innovation,
Packaging, Supply Chain Management, Geographical Expansion, Brand Building. Strengthening their sales
force and increasing their retail impact on consumers are also important. We believe that for such end-to-
end optimization undertakings, IT systems will play a major role in creating sustainable processes. Mobile
enablement of sales force operations, trade promotion solutions, ‘templatized’ approach to IT integration
across geographies, Digital Marketing solutions, Supply Chain and Vendor Management solutions and
PLM solutions are a few of the levers to attain their business goals.
References
[1] EuroMonitor Report. Strategies for Growth in an Increasingly Consolidated Global Beer Market. | Feb 2010.
[2] EuroMonitor Report. Beverages Packaging: Share of Material across the Drinks Packaging Industry. | Dec 2009.
[3] EuroMonitor Report. Beyond the Crisis – The New Consumer and the Alcoholic Drinks Industry. | Oct 2010.
[4] EuroMonitor Report. Global Performance and Prospects for Beer. | Jul 2011.
[5] EuroMonitor Report. Growth Opportunities for Beer Suppliers. | Jan 2011.
[6] EuroMonitor Report. Legislation in Alcoholic Drinks: Restrictive Practices VS Free-Trade Opportunities. | Sep 2012.
[7] EuroMonitor Report. Product and Packaging: Trends and Opportunities Shaping the Global Wine Industry. | Apr 2011.
[8] ICAP Reports 17. The Structure of the Beverage Alcohol Industry. | March 2006.
[9] Other publicly available information on the web about the brewery industry.
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Chain Management.
doc_342560738.pdf
The brewery industry is going through a particularly challenging phase given the current economic, social, and cultural changes globally. While technology advancements can help address these massive structural shifts, there needs to be a deeper comprehension of the strategic requirement before embarking on technology and business initiatives . In this challenging environment, it becomes imperative that the industry completely understands the emerging industry trends and technology developments.
Brewery Industry in transition:
Embracing new Markets,
Products and Consumers
The brewery industry is going through a particularly
challenging phase given the current economic, social,
and cultural changes globally. While technology
advancements can help address these massive
structural shifts, there needs to be a deeper
comprehension of the strategic requirement before
embarking on technology and business initiatives . In
this challenging environment, it becomes imperative
that the industry completely understands the emerging
industry trends and technology developments.
This paper discusses the impending changes that
brewery players would need to get acclimatized to in
the coming years and how they could exploit these
opportunities to gain competitive advantage. Supply
chain management, operational issues faced by the
brewery industry, and how technology can help
mitigate potential risk has been particularly
emphasized.
White Paper
2
About the Author
Srinivas Vadlamudi
Srinivas Vadlamudi is an industry consultant specialising in Supply
Chain Management and is part of the Consumer Packaged Goods
(CPG) practice team at TCS. He has over 10 years of experience in
the information technology industry and has dealt with
conceptualizing and developing technology solutions that
pertain to the CPG Industry. He has worked on Enterprise
Application integration and Business Intelligence projects. His
areas of expertise include a functional understanding of the
supply chain processes in the Brewery and Diary industries.
Srinivas holds a Bachelor’s Degree in Mechanical Engineering and
a PGDM in Marketing and Finance from the Indian Institute of
Management (IIM) Indore.
3
Table of Contents
1. Introduction 4
2. Industry overview 4
3. Market trends and challenges 5
4. Challenges 9
5. Top priorities for the industry in current business scenario 12
6. Solutions for the brewery industry 16
7. Conclusion 17
8. References 17
Introduction
Industry overview
In 2010, 236 billion litres of alcoholic beverages was sold and beer constituted 78% of it, making it an
industry that is hard to ignore. The beer industry is the biggest sector of the Alcoholic Beverage industry,
with global annual sales exceeding $325 billion USD (for the year 2011). Over the past decade, the industry
has seen a profound structural transformation, as established market-leading national brands have
expanded beyond their own borders and local beer companies have gained international status through
well-thought-through expansions.
Just as this global structural consolidation was underway, the recession of 2008 began to take hold,
challenging the industry’s prospects for growth. On the one hand, the consolidation allowed global leaders
to draw on their new-found economies of scale to finance product innovation and expansion. On the other,
the recession cut into sales of established brands in the most profitable markets, mitigating investment
potential .
The beer industry is plagued by flat volumes and with minimal growth rates. However, despite the caution,
TCS sees a dynamic and innovative industry, developing interesting and innovative products in established
markets and driving rapid development in fast-growing, emerging markets. Certainly, the industry will
continue to profit by exploiting its new-found global supply chain advantages. Equally important is the
progress companies need to make to better understand the tastes and lifestyle preferences of its
consumers on a global scale.
The following sections will provide insights on these market trends. We outline specific challenges, such as
new product introductions facing beer companies. We also discuss the growing focus on effective Supply
Chain Management and the increasing power of global retailers.
This paper further aims to identify the areas for process improvement and provides specific solutions TCS
has provide to empower beer companies to meet industry challenges and enable profitable growth.
Global beer volume growth continued to improve in 2011, and although this was still below pre-
recessionary levels, the improvement indicated that its well on its way to recovery. The global beer market is
highly consolidated with the top 10 brewers accounting for approximately 67% of global volumes in 2011.
However, in recent years, the brewery industry faces new opportunities and challenges. Changing
consumer demands and preferences require new ways of maintaining current customers and attracting
new ones. In a majority of beer markets, there has been a steady shift towards premium brands that offers
health benefits . As a result there is a focused switch by brewers from mainstream brands to premium
brands to enhance their growth prospects. This in turn has resulted in an increasing need to have an
efficient distribution system and to reduce operating expenses.
The brewery industry is extremely competitive, with private labels greatly influencing the environment.
Companies need a balanced geographic portfolio to maximize growth, with a strong presence in fast-
growing emerging markets that offer volume growth, as well as in developed markets that offer high
revenues.
4
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China US India Brazil Russia Indonesia Japan Germany UK
5
Due to the dynamic growth in emerging markets, brewers have to continue to look for opportunities in
these regions to enhance their volume growth prospects. Emerging markets are expected to continue to
drive global beer volume growth over 2011-2016, while mature markets are predicted to remain sluggish.
In value terms however, developed markets are key as they provide higher margins, but as
‘premiumization’ continues, emerging markets are expected to gain share in value terms as well.
Companies need to focus on value generation, by concentrating mainly on higher-margin products and
cutting costs to enhance profitability.
In short, brewers need to adapt quickly to the changing needs of the consumer. In the tough prevailing
business environment they need to ensure value for their stakeholders and drive profitable growth. In
order to do this, they ought to try some of the following measures:
Consolidation through mergers and acquisitions
Expansion in emerging markets
Focus on product, channel, and geographical diversification
To remain competitive and to sustain growth, brewery companies would need to watch out for the trends
that will shape the industry over the next few years and understand the challenges so that they may be
able to potentially turn them into opportunities. Noteworthy market trends and challenges are listed and
explained below:
Trends
Consolidation
Demographic changes
Retailer Influence
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Market trends and challenges
-40%
-20%
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Worry they are missing out on something if they don't visit their social network
Believe social networks are a good place to buy products and brands
China US India Brazil Russia Indonesia Japan Germany UK
Figure 1
Challenges
Supply chain/Distribution
Regulatory environment
Packaging
New Product Introductions
TRENDS
Consolidation
With growth remaining pretty stagnant in the developed world, beer manufacturers have been turning
towards mergers and acquisitions to fuel growth. The major players have been looking for scale to:
Gain competitive advantage in terms of offsetting retailer power,
Establish a strong position within the distribution chain, and
Gain shelf space.
The following are some observations around the consolidation phase of the market:
Need for strong positioning in emerging markets - China is already a major market for breweries
though it is yet to realize its full potential. Opportunities also exist in other important markets like
India, Vietnam, and Africa. Though the initial costs to enter these markets may be high, the rewards are
also expected to be huge over an extended time period.
Smaller brewers struggle for market share - Smaller regional brewers have been struggling in the wake
of the current economic slowdown. This provides an opportunity for larger or more financially stable
brewers to make investments in the form of equity stakes, joint ventures or acquisitions.
Acquisitions in future to remain far and few - There are only limited opportunities for further large-
scale acquisitions. With fewer obvious targets, brewers will have to act fast or else they could
encounter unreasonably high acquisition costs.
Though it has been clear to the major breweries that consolidation is a viable option to expand in
emerging markets, it is easier said than done. The acquisition costs have left many companies in North
America and Europe struggling to cut down their debt levels. The challenges that remain are indicated
in the table below.
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Starting out
Beautiful inside and
out - the athlete
Unfit but glamorous-
the supermodel
Healthy but in need of
a makeover
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Maturity of strategy, people, processes & technology
Approaches to social media
I
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1. Basics in place
2. Responsiveness
& sophisticated
campaigns
3. Driving product
& channel
development
4. Social shopping
5. Future
developments
§Facebook page
§Twitter feed
§Company engages
users through
exciting campaigns
§Company responds
effectively to
comments and
feedback
§Company uses
feedback to
change products &
channels
§Consumers engage
with social media
around point of
purchase
§Consumers buy
through social
media sites
Raise funds Companies need to strategize methods to raise funds for inorganic growth in
emerging markets such as Asia and Latin America and simultaneously reduce
current short term debt.
Acquisition stalemate Rapid consolidations lead to a stalemate in terms of further acquisitions. The
issue is regulatory in nature and the combined volumes of any two major
companies would exceed monopolies laws in at least one, and in most cases,
several national jurisdictions.
Process integration post
acquisition
Companies expend a lot of effort to integrate the processes of the acquired
company with those of their own in terms of operations, processes, systems , etc.
7
Demographic changes
When working in developing nations, companies
look to target a new segment of consumers than
what they are used to. In developed markets the
core consumers for alcoholic drinks in the 15 to 34
age group has witnessed a decline in consumption
of beer; a trend that contrasts with the observations
in emerging nations.
In addition to this, due to the changing tastes and
rising disposable incomes in developed markets,
consumers are increasingly choosing quality over
quantity, resulting in an overall shift toward
premium beers in these countries. The changing
characteristics and the buying patterns of the
consumers pose a challenge for breweries. The latest trends in consumer behaviour are summarized in
Figure 2.
Each of the above Demographic/Consumer trend has been elucidated in Table 1:
Sophistication
of what the
outsider sees:
1. Basics in place 2. Responsiveness
& sophisticated
campaigns
3. Driving product
& channel
development
4. Social shopping 5. Future
developments
Strategy that
ought to
support this:
No real impact
on company's
strategy
§Limited
predominantly to
marketing strategy
§Decide what will
happen locally and
what will be driven
centrally
§Start of higher
level conversations
about
transparency
§Clarity at a high
level about
relationship with
the consumer and
how consumer
views will be used
§Clarity on routes to
market, allocation
of resources to
different channels,
and management
of expectations in
traditional channels
§Agreement
on whether
the company
will be a
leader or
follower
Trend Characteristics of the consumer group Prevalent Countries
Value
§ Consumers buy at discounters and online as well as download
coupons, etc.
§ They also look for tangible benefits from the products and
generally purchase smaller servings due to instant affordability
§ Consumers use varied channels for purchase especially with the rise
of Internet retailing and smart phones.
§ The channel of choice is different for every consumer
• The rise of Internet retailing and smart phones is an
example of the change in channel preferences
§ Russia
§ Italy
§ France
§ Portugal
§ UK
§ USA
§ Australia
Escapism
§ Recession-weary consumers looking to escape; searching for
recreation away from their homes.
§ Consumers are easier to manipulate, which is ideal for boosting
impulse sales, convenience / consumption.
§ On-the-go orientated packaging driving innovation.
§ Increasing sales via internet and mobile apps.
§ UK
§ South Africa
§ Western Europe
§ Latin America
Health and
Wellness
§ Consumers are highly conscious about health and obesity and
prefer products aligned with a healthy image.
§ Consumers prefer variants that are low calorie and / or Natural /
Organic
§ USA
§ Mexico
§ Australia
§ UK & Europe
§ Asia Pacific
Figure 1
Value
Escapism
Health &
Wellness
Home as
entertainment
hub
Looking
beyond the
self
New World
Order
Ageing
Population
Internet
Consumer
Megatrends
8
A notable trend affecting the industry is the increased health awareness among new and existing
consumer segments and consequently an increased preference for premium and low calorie beverages
such as spirits, wine, etc. over traditional high calorie beers. Millennials are more likely to trade back up to
more expensive beer brands as the economy improves. The increased demand for premium beers has
also provided an impetus for innovation in product variants, packaging, and environment friendly
production processes.
Retailer influence
Large retailers continue to demand better service and shorter order-to-delivery cycles from breweries,
mindful of their significance to beer distribution. With higher standards being demanded in terms of
operational excellence, breweries are under pressure to come up with initiatives that will not only
squeeze their margins but also require significant capital investments. This necessitates that they make
their supply chain agile to drive cost efficiency.
Trend Characteristics of the consumer group Prevalent Countries
Home as
entertainment
hub
§ A cocooning trend that has consumers recreating the restaurant
experience at home. Cooking and baking has gained importance.
§ There is a shift away from on-trade alcoholic drinks sales towards
the off-trade channel in many markets.
§ Western Europe
Looking
beyond the
self
§ Environmentally conscious consumers are more interested in
corporate responsibility and are looking for products, which fit their
demand for 'green' more environment-friendly products.
§ Global Trend
New World
Order
§ Despite driving global growth, consumers in emerging markets
have low purchasing power since they have to allocate most of
their meagre income to satisfy their basic necessities.
§ Main drivers for alcoholic drinks consumption for the BRIC nations:
· Large number of consumers in the Legal Drinking Age
(LDA)
· Advancing middle classes
· Rising urban populations
· Emerging westernisation trends
· Aspiration credentials
§ Asia
§ Latin America
Ageing
Population
§ With the ageing population being a challenge in many markets it
becomes imperative to create different products and marketing
strategies for this target group.
§ The population in the 33–43 years age group will continue to
modestly increase (9.5% in 2010–2030 due to immigration), which
will help sustain growth.
§ Developed
markets
Internet
§ Social networking, online retail, consumer reviews ‘word of mouse’
etc. continue to play a huge role in shaping consumer trends.
§ Internet sales of alcoholic drinks continue to rise.
§ Global Trend
Source: EuroMonitor Table 1
Retailers traditionally have a deeper understanding of consumer behaviour because of the nature of their
business. This plays to their advantage in terms of pricing power and providing prime shelf spaces to beer
manufacturers who provide maximum sales. This also necessitates that manufacturers collaborate better with
retailers to understand their end consumer and also to create effective trade promotion strategies.
With the current outlook set to continue, the support funds that beer manufacturers spend towards retail can
only continue to increase. They may potentially end up spending significant sums in retailer collaboration and
trade promotion activities, and also actively look for IT support to help analyse their returns from this
investment.
Supply Chain / Distribution
The traditional distribution system in the brewery industry involves a three-tier structure with delivery enabled
through value-added distributors. This structure is of particular relevance to the North American market. These
distributors merchandise, sell, and deliver the product to the end consumers. This structure often creates a
conflict of interest between the value-added distributors and the beer manufacturers.
The manufacturer’s profits from increased sales is at the expense of distributors’ margins whereas distributors
could profit by selling products at higher profit margins, which forces the manufacturer to cut or optimize their
own costs. The diagram below captures the complex interactions among the various stakeholders in the Brewery
Supply Chain:
The conflicting interests of manufacturers, distributors and retailers coupled with government regulations force
manufacturers to revaluate their supply chain systems to address some of the following challenges:
Address commodity price volatility
Manage expanding portfolio of multiple variants of different products/stock keeping units (SKUs) and
eliminate non-profitable variants
Provide higher service levels demanded by distributors and retailers
CHALLENGES
n
n
n
9
Figure 3
Food Service
Organizations
& caterers
Consumer Retail Outlets Distributor
Brewery
Company
Supplier
Hotels
Canteens etc
10
n
n
n
n
n
n
Comply with government regulations in batch management and traceability requirements
Accurately understand the complexities of working in emerging markets and the high cost to serve
variation between urban and rural markets
The global diversification of operations is forcing brewers to adopt a model that will work on the concept
of a centralized supply chain, which looks at integration of Sourcing, Distribution, and Manufacturing
processes across various markets and geographies. The primary reason for adopting such a model is to
have a supply chain that provides tangible improvement in logistic networks by rationalizing
warehousing and transportation capacities. This ultimately enables the brewery organization to establish
well in local as well and new markets, through cost competitiveness, increased focus on consumer-facing
activities and faster product launches.
Regulatory environment
The regulatory environment spans the entire spectrum across the globe with tougher laws in countries
like North America and Russia, and more favourable ones in countries like China. The various regulations
and their effect on the brewery industry in different countries have been elucidated below.
Taxes and excise duties
A favorable taxation policy in Russia has been lifted after 2009 with the industry now facing a
regime of heavy tax structure.
Excise duty rises in UK has affected on-trade sales significantly since 2011. A similar situation exists
in many other developed countries.
In China, in contrast to the development across the globe, the government is considering cutting
taxes on luxury alcohol to prevent tax evasion losses.
Advertising regulations
Most countries globally observe a blanket ban on advertising of alcoholic beverages on television,
radio, the internet, public transport, billboards, and print media. Interestingly, this does not seem to
have a significant effect on consumption rates.
Retail restrictions
Government retail monopolies have been installed in Nordics and India to limit impulse
consumption and to promote local breweries.
Similar regulations are expected to be put in place in the UK in the near future.
Minimum pricing
In countries like UK and Russia, minimum pricing rules are under consideration in order to produce
a shift away from polarization. As the price differential between economy and standard alcoholic
drinks reduces, many consumers are likely to trade up to standard products in search of higher
quality.
n
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n
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11
With the regulatory environment getting tougher, the industry has to find ways to overcome the challenge.
With most countries trying to come up with legislations that would protect domestic breweries, major
brewers have to continuously adapt to local tastes to mitigate this competition.
Packaging
The value of a product is closely judged by the way the product is packaged in the beverages industry. This
is valid for alcoholic beverages as well. Packaging also plays a far more significant role in the brewery
industry besides just consumer appeal. Packaging continues to remain one of the key innovation areas to
increase the product life cycle or change the positioning of the product in the mind of the consumer.
In terms of the material, glass retains an important and stable position as a favoured bottling material in
key categories of beer, wine and spirits. Its strength lies in its tradition and association with product quality.
Not surprisingly, glass accounted for 59% of global packaged beer sales in 2009, but is suffering some share
loss to metal cans and to PET (Polyethylene terephthalate). Metal cans also continue to be an important
part of packaging. Cans are mostly used to package products for the economy segment while glass
packaging continues to dominate the premium market segment.
In the next five years, packaging is expected to be a legislative area where green packaging and processes
could be encouraged. Significant investment and research is necessary in these areas and there is bound to
be increasing pressure on manufacturers to optimize their packaging.
Reduce wastage by driving sustainable processes and setting ‘green’ targets.
Ensure faster turnaround of used bottles in the supply chain.
Increase margins by reducing the quantity of packaging material.
New product introductions
Beer manufacturers have been relentless about new-product innovation mainly because of their recent
expansion into different geographies and the resultant need to cater to consumers in each of these
markets. Constant innovation, in tandem with the skill for passing on input-cost increases, has allowed the
industry to boost its margins significantly.
The need to aggressively shape portfolios to increase the proportion of the fastest-growing and profitable
categories to sustain growth momentum has led companies to look closely at R&D for new product
innovation. The boom in the craft beer segment where micro-producers are spearheading innovation,
prompts major players to adopt more experimental and radical approaches through product extensions,
flavoured variants, etc. Micro brewers are trying to create a niche by targeting millennials, women, etc.,
forcing major players to come up with competing products.
The ‘retro’ or ‘vintage’ effect has relevance to the vast majority of CPG industries including the beverage and
brewery industry. This trend results in the introduction of variants, once appreciated and enjoyed by the
earlier generation about 30 or 40 years older than us. The trend appears to be a gradual return to heritage,
tradition, and craftsmanship. This has been surfacing as a key driver across the alcoholic drinks industry
globally.
n
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n
12
Top priorities for the industry in current business scenario
The trends and challenges discussed above will play a key role in shaping the future of the brewery
industry over the next few years. The industry needs to prioritize its business needs for the challenges it
will encounter and needs to turn them into opportunities for improving its growth prospects.
Our understanding of the market place has allowed us to come up with the business priorities and
consequent challenges that brewery companies will face in the near future.
Geographical diversification
The major players in the industry are currently trying to achieve a balanced presence in both emerging
and mature markets. One of the quicker ways to increase both volumes and profitability is through
mergers and acquisitions (M&A). In countries where regulations prohibit M&A, joint ventures and buying
equity stakes is an alternate option. Key observations from various markets are:
Table 2
Business Priority Goals Associated Challenges
Geographical
diversification
§ Expand into new market
§ Volume growth
§ Increased prospects of industry
consolidation
§ Demographic changes
Brand building and
improving consumer
relationships
§ Connect with younger
generation
§ Build brand loyalty among
new consumer segments
§ Demographic changes
§ Increased influence of retailer
Increasing Sales Force
Effectiveness
§ Monitor changing
customer preferences at
Point-of-sales
§ Increase collaboration with
Retailer
§ Increased influence of Retailer
Optimizing supply
chain
§ Streamline and centralize
the supply chain
§ Ensure customer and
consumer focus during
planning
§ Geographic consolidation through
acquisitions
§ Distribution and supply chain in
the new business environment
Product and packaging
innovation
§ Tap into new customer
segments
§ Sustainable and green
packaging confirming to
regulations
§ Increased need for value
packaging
§ Increased need of new products
and variants among different
consumer segments
13
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n
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n
The traditional powerhouses of growth, North America and Europe, are witnessing sluggish growth.
Companies should look to sustain growth by moving into emerging markets like Asia Pacific, Latin
America and Africa.
China has become a market of choice given the relatively relaxed regulatory environment, and could
prove to be a key market to sustain growth.
Other markets that major players should look towards are Asia Pacific, Africa, and Latin America.
Countries such as Vietnam, Taiwan, South Africa, Mexico, etc. could prove to be decisive in terms of
volume growth.
Companies should opt for the ‘premiumization’ strategy when planning to establish themselves in
these emerging markets.
Brand building and improving consumer relationships
Beer companies will need to identify a healthy mix of strategic and local brands to help them build a
profitable portfolio. While companies should look at acquiring local brands to establish their native
presence, they should also focus on building their major products into international brands. Such brands
turn out to become strategic brands that help the companies gain a good market share along with world-
wide recognition. Another major initiative by manufactures would be to reach out to consumers through
efforts such as in-store merchandising and promotions. Such campaigns would allow manufacturers to:
Improve consumer retention and build strong consumer relationships
Realize additional sales opportunities through merchandizing and in-store activities
Obtain first-hand information on consumer behaviour
Position their own brands better than competitors
With heavy restrictions on marketing in conventional media sources, digital media such as online, mobile
and other new-age devices should be considered as tangible alternatives. Being a preferred platform for
their target audience, companies should definitely make efforts to connect with them through social
media. Digital campaigns, online social media marketing and promotions can serve as an ideal platform
for brand awareness and building loyalty. Engaging with consumers through social media could counter
the fiercely growing competition amongst beers as well as from other alcoholic beverage brands. It can
also prove to be a relatively easy way to reach out to millennials, women and the younger generation,
who may feel disconnected to brands that are not yet online.
Increasing Sales Force Effectiveness
The growth of private-label products is a warning for manufacturers to take steps to compete more
effectively. They need to better understand aspects such as in-store consumer experience, which prove to
be a decisive factor in the purchase cycle. Branded beverage manufacturers could attempt to bridge the
manufacturer-consumer gap, and should pilot direct-to-consumer approaches. Such an effort requires
active monitoring of in-store activity and an effective sales force helps manufacturers understand in-store
activity and help position the right product at the store. In order to stay closer to the changing needs of
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the consumer, manufacturers should enable their sales force to monitor the process real time. With the
advent of mobile devices, such an activity is not only a possibility, but fortunately quite effective.
The most important areas that are being mobile enabled are Retail Execution, Delivery and Logistics,
Empties Management and Field Service Management. Some of the key functionalities that would enable
the sales force to improve their productivity are sales forecasting, order and purchase history tracking,
planograms, surveys, visit planning, etc. The key benefits that breweries derive by mobile enabling their
sales force are:
Increased customer insight
Increased customer sales and improve customer satisfaction
Pre-empting of competitor moves by staying close to point of distribution
Reduced customer stock-out and improved returns on sales campaigns
Integrating and optimizing the entire supply chain
With diversification into emerging markets, the cost of reaching customers is also increasing. The ratio of
number of rural customers to urban ones is high in these markets and hence it proportionally increases
distribution and marketing costs. Companies should focus on optimizing their supply chain to reduce
distribution costs and increase profitability in such markets.
Supply Chain optimization is the most important lever for global breweries to tackle costs and keep them
in check. The most important aspects that companies should consider during supply chain optimization
are reducing cycle times, increasing forecast accuracy, reducing order-delivery cycle and reducing
inventory cycle.
Some of the important levers that will be useful in reducing costs along the entire supply chain are:
SKU Rationalization
M&As necessitate a high level of consolidation in the number of SKUs handled by companies. Its impact is
immense and has a ripple effect over the entire supply chain. The broad areas in the supply chain that are
affected by this phenomenon are highlighted below:
Supplier rationalization and consolidation
Manufacturing asset rationalization and demand driven manufacturing
Integrated planning and scheduling
Network design for consolidated supply chain
Distribution planning and inventory optimization
Demand forecasting for new products
Packaging capability enhancement
Logistics efficiency – route planning, space utilization, etc.
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Some of the measures that the manufacturers should look at to solve these issue are:
Planning tactical distribution
Improving strategic sourcing
Redesigning supply chain network
Warehouse automation
The number of new SKUs and product variants introduced by companies are pressuring them to rethink
their warehousing strategy. In addition to this, rapidly changing packaging configurations, traceability
needs, green packaging regulations and shortening product life cycles are immensely affecting the way
beer companies have to be agile when it comes to warehouse planning. Brewery majors are moreover also
forced to improve cost effectiveness. Automation of warehousing planning and providing an equally agile
distribution system could help companies reallocate their scarce resources for maximum return.
Centralizing the supply chain
The centralization of the supply chain would be a trend that would be put to action by most companies
looking to optimize their supply chain costs. The key reason for institutionalizing such a model is to have a
supply chain for one brewery at one location instead of having one which operates for ‘n’ breweries in ‘n’
locations. A centralized supply chain addresses the needs of various geographies and markets while
keeping cost at a minimum. It will integrate enterprise group procurement, supply chain and logistics
functions into one. Such an initiative would be able to:
Improve customer and consumer service by ensuring products are always available across all outlets
Ensure steady supplies that match and follow market needs
Launch group innovations quickly and profitably
Create a flexible and responsive supply chain that caters to changing variants, shifting volumes,
evolving portfolios, new product developments while also being cost competitive
Continuous product and packaging innovation
In the current competitive environment, companies that are able to enhance and quicken their product
development cycle will clearly have a competitive advantage. As beer drinkers increasingly seek different
styles and more complex or varied flavour profiles, manufacturers would need to keep innovating
constantly. The strategy of beer manufacturers should be to establish market share in emerging markets
with new products that cater to the tastes of the local consumers while trying to establish global brands
through line extensions. In the case of emerging markets, the consumer segments are extremely varied
and hence to establish brand loyalty and mind share, companies have to innovate products that cater to
each of these segments. By effectively making use of internal resources and collaborating extensively with
innovation partners, beer companies should look at reducing their innovation cycle and time to market.
Packaging innovations are equally important to showcase differentiated variants according to the target
consumer and to increase product shelf life. Packaging is one of the most visible ways by which the
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manufacturers can exhibit their commitment to sustainability and green initiatives. Packaging also helps
companies position their premium brands well so that it eventually creates a big difference to their bottom
line.
In order to respond effectively to changing market trends and challenges, the industry must support its
improvement efforts with industry specific solutions. The solutions should help breweries address industry
specific business priorities and maximize effectiveness along the value chain by improving their ability to
plan, execute, and deliver.
The following table captures some of the industry specific solutions that a brewery should look at to
address the business priorities of the industry.
Solutions for the Brewery Industry
Business Priority Solutions
Geographical diversification
§ ‘Templatizing’ the approach towards IT Integration for the
organization’s inorganic initiatives
§ Standardizing and implementing pre-configured business
processes
Brand building and improving
consumer relationships
§ Implementing a digital based marketing solution for customer
insights and to measure customer satisfaction
Increasing Sales Force
Effectiveness
§ Enabling a mobile Retail Execution solution
§ Implementing a best in class trade promotion solution
Optimizing supply chain
§ Implementing an optimized Supply Chain Management solution,
which addresses route optimization and warehouse management
§ Implementing a vendor managed inventory solution along
with empties management solution
Product and packaging
Innovation
§ Implementing product innovation solutions in product
lifecycle management
§ Implementing package enhancement solutions
Table 3
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Conclusion
The beer industry has seen its share of growth. Now, in the wake of unsteady economic conditions, it is
time for the industry to take a fresh look at its operations. The spate of mergers and subsequent
integration processes in addition to compliance to multiple regulatory norms has indeed created a
significant shift in the way the industry operates.
To sustain in a market with changing demographics yet remain profitable, beer companies would need to
re-evaluate their supply chain practices such that they keep pace with quickening product innovations
and launch processes. The retailer influence is also increasingly adding pressure to their already tight
margins, making optimization efforts even more a necessity.
TCS perceives that breweries have their business priorities mainly in the areas of Product Innovation,
Packaging, Supply Chain Management, Geographical Expansion, Brand Building. Strengthening their sales
force and increasing their retail impact on consumers are also important. We believe that for such end-to-
end optimization undertakings, IT systems will play a major role in creating sustainable processes. Mobile
enablement of sales force operations, trade promotion solutions, ‘templatized’ approach to IT integration
across geographies, Digital Marketing solutions, Supply Chain and Vendor Management solutions and
PLM solutions are a few of the levers to attain their business goals.
References
[1] EuroMonitor Report. Strategies for Growth in an Increasingly Consolidated Global Beer Market. | Feb 2010.
[2] EuroMonitor Report. Beverages Packaging: Share of Material across the Drinks Packaging Industry. | Dec 2009.
[3] EuroMonitor Report. Beyond the Crisis – The New Consumer and the Alcoholic Drinks Industry. | Oct 2010.
[4] EuroMonitor Report. Global Performance and Prospects for Beer. | Jul 2011.
[5] EuroMonitor Report. Growth Opportunities for Beer Suppliers. | Jan 2011.
[6] EuroMonitor Report. Legislation in Alcoholic Drinks: Restrictive Practices VS Free-Trade Opportunities. | Sep 2012.
[7] EuroMonitor Report. Product and Packaging: Trends and Opportunities Shaping the Global Wine Industry. | Apr 2011.
[8] ICAP Reports 17. The Structure of the Beverage Alcohol Industry. | March 2006.
[9] Other publicly available information on the web about the brewery industry.
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About TCS Consumer Packaged Goods (CPG) Practice
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