Brau Beviale 2012: Efficient use of raw materials and resources

contents

europe

Exhibitors and visitors travel to Nürnberg for Brau Beviale a day earlier than previously. The event now starts on Tuesday (13 November), when the some 1,350 exhibitors expect a good 31,500 beverage specialists from all over Europe for three days at the industry's top capital goods exhibition in 2012. The focus is on information about new developments and improvements in the segments of raw materials, technologies, logistics and marketing. The supporting programme with special shows and forums covers beverage issues in depth and provides food for thought, for example on the efficient use of raw materials and resources.

Visitors can also experience how this can improve competitiveness and spare the environment at the same time in the "Energy & Water" theme pavilion with its snappy short presentations on renewable energy, rational energy conversion, cogeneration units, contracting, disinfection, and recovery, analysis and treatment of water. This special show is organized by NürnbergMesse together with the Competence Pool Weihenstephan of Munich Technical University.

Beverage industry must continue to cut costs
Almost before a company has finished presenting its business report, a media representative raises his hand and the usual question follows: Will you raise your prices this year? This is just as likely to be followed by the answer: Yes. This is usually justified by increased raw material prices that can no longer be absorbed and must be passed on to consumers. Undoubtedly, pushing through price increases has a strong impact on a company's success, but many beverage produces falter especially when it comes to implementing price rises and then suffer from substantially reduced profits by not passing on cost increases.

It is also undoubtedly true that price increases for beer (and petrol) trigger deep-seated psychological reflexes among consumers all over the world. Although increased beer prices have long ceased to cause revolutions, as once the case in Bavaria, price rises still need to considered carefully. It has become established practice, at least in Europe, to justify price rises for beer and drinks to the consumer with increased prices for raw materials. The fact that raw material prices have climbed in the past years is not to be disputed. The price of malt alone has almost doubled for German brewers from 2008 to 2011.

Five megatrends for beverage producers
According to a study by the Dutch Rabobank ("Best of Times, Worst of Times – Global Beverage Outlook", January 2012), fluctuating or rising prices for raw materials are one of five so-called megatrends that beverage producers see themselves confronted with this year. The other trends, which have an impact on sales planning, are: the still growing importance of the emerging markets, splitting demand between cheap and premium brands, strategic sourcing and convergence between beverage segments.

Rising raw material prices hit beverage producers hard but to a varying extent, according to the Rabobank study. Fluctuations in raw material prices affect the fruit juice producers far more severely than the soft drink bottlers, for example. For fruit juice producers, raw materials – such as oranges and apples – account for between 25 and 50 % of the production costs. Although the soft drink bottlers are less affected by fluctuations in raw material prices, the more than 160 % rise in the price of sugar since 2007 is still a big worry for them. This was why the industry's big players had to respond by raising their prices by 2 % in the first half of 2011 and by another approx. 1.5 % in the second half-year.

Fluctuating raw material prices hit brewers in emerging markets harder
If the worldwide cost structure of breweries is analysed (if insights are possible), large differences are determined. Substantial differences exist, for example, in the cost of packaging, where it is necessary to distinguish between markets with returnable systems and markets that only know disposable packages. Breweries that use returnable bottles, or even better, produce a large share of draught beer, all have lower packaging costs than those that use disposable containers, but extra costs for cleaning kegs and bottles etc. are then added to the cost of production.

In mature markets, Rabobank estimates that the packaging costs account for an average of 15 % of the cost price (without markup), and raw materials also 15 %. Ultimately, maximum 5 % of the cost price is attributed to the raw material malt, at least according to Rabobank. To this extent, the brewers are right when they justify beer price increases with increased raw material prices, but this is only half true and depends heavily on the part of the world in which they operate.

One thing is noticeable, however: Nowadays, personnel costs (included in production costs) among the worldwide breweries are less significant than 20 or 30 years ago. The breweries benefit from modernization and automation of their plants, which need far fewer personnel that previously. It is estimated that personnel costs account for about 20 % of the total costs in German breweries and probably appreciably less in other countries. Brewers must keep a firm eye on their total costs and look for ways and means of reducing them, if they don't want to upset their customers and have to accept sales losses. Because the fiscal burden – beer taxes and import duties, which vary considerably from country to country – is a cost factor on which they have little or no influence.

In many markets of Africa, brewers resort to using local raw materials such as sorghum and cassava for producing beer. Beer made from these raw materials is taxed at a low rate, which means it has a low end consumer price, in contrast to beer brewed from malt that has to be imported at high cost and transported over long distances. This allows the use of malt exclusively for high-priced beers that only a few consumers can afford. Another factor is the psychological buying barrier, which is widespread especially in mature markets and prevents consumers paying more than a certain amount for a beer. For example, the high tax on malt in Japan has stimulated research and marketing of "Shin Janru" or "New Genre Beverages". These are alcoholic drinks similar to beer that are produced from pulses – without malt. The production of these drinks is complex and expensive, but their lower taxation makes them distinctly cheaper at the point of sale than a beer of 100 % malt. In 2010, seven years after their introduction, these New Genre Beverages already had a 33 % share of the Japanese beer market, with a rising trend.

If we lived in an ideal world, all drinks would be supplied in kegs, which would probably be the cheapest solution for brewers and beverage producers. However, as this is not the case, they have no choice but to operate as cost-effectively as possible. This rule applies to beverage producers all over the world, but even more to those among them whose markets are stagnating or shrinking.

There is a growing pressure on not allowing costs to get out of hand. Economy – in the positive sense – is the order of the day, but waste is a burden that causes nothing but costs. Energy, water, waste: Everything is being scrutinized closely, and not just since the brewing and beverage industry has attached priority to environmental protection. "Get it right the first time" is top priority.

The Rabobank study is aptly entitled “Best of Times, Worst of Times”, with which the author is alluding to a quote from Charles Dickens – the 200th anniversary of his birth is celebrated this year. Indeed, the global beer and drinks market is and remains divided: into growing and stagnating markets. Growth used to make good one or another small sins, but not any more. Performance figures create comparability and control. Costs that are avoided increase profits.

write your comments about the article :: © 2012 Exhibition News :: home page