Comment: brewers must adapt supply chains to the shift in drinking habits

Europe’s brewing sector is experiencing radical change, similar in many respects to retail’s omni-channel revolution. According to statistics released in 2015 by industry trade body The Brewers of Europe, there are over 6,500 breweries in operation – 1,000 of these started up in 2014, representing a 16% increase on 2013 and a doubling since 2008.

However, this explosive growth in the number of breweries does not reflect any real increase in the volume of beer being consumed. Instead, it depicts a shift in drinking habits towards speciality beers and growing demand for a more diverse offering of craft products. The UK leads the way, being home to over a quarter of Europe’s breweries.

This significant shift in the market is driving new behaviours in big brand producers. Many are acquiring niche brands or adding their own versions of high-end premium beers to their product portfolios.

But, in so doing, supply chain complexity has risen significantly, with increased SKUs and only a minimal shift in the volume of beer being managed. Seasonal variations between big-volume power brands, popular in summer months, and low-volume niche beers, popular at festive periods, bring further complexity.

There is another major trend impacting the sector. In the past, the on-trade was king and most beer consumption was in bars and restaurants. But now, with the wide introduction of smoking bans, consumers are choosing to drink at home and are shifting towards buying beer through the big supermarket chains. In turn, this change in buying behaviour introduces major issues to the supply chain, challenging traditional behaviours, management techniques and customer relationships.

In particular, retailers are looking to reduce their warehouse costs by putting pressure on manufacturers to provide smaller, more frequent deliveries – with all the incumbent logistical challenges falling on the manufacturer.

What’s more, retailers have driven a considerable increase in the number of product pack types being managed across the industry. Ten years ago, many breweries and beer distribution operations would handle as few as 25 SKUs. Now, the expectation is a minimum of 125 SKUs. For the sector’s logistics operators this has added considerably to the burden of complexity.

Faced with new market dynamics, escalating SKU proliferation and major changes in channels to market, brewery businesses must look hard at their logistics networks and operational processes to find innovative solutions that best serve both collective and individual markets.

For example, is direct sales distribution the right route for a certain country? Is a distributor model going to be more cost effective? What might future shifts in consumer behaviour do to this dynamic? Clearly, a highly agile and flexible supply chain will be an essential asset for any organisation responding to such radical change.

In a recent project for international brewer SABMiller, BiS Henderson Consulting was asked to undertake an in-depth analysis of its European warehousing and distribution operations, with a view to identifying opportunities for unlocking value, reducing costs and enhancing service.

For the eight countries under review, savings of 9% versus budget have been identified, and where the ‘deep dive’ programme has been deployed so far, the benefits delivered have beaten forecasts, ranging in each country from 7.5-20% of supply chain budgets.

Significant operational benefits, cost reductions, service improvements and increased value can be achieved in the brewing sector by creating supply chains that are attuned to these changing market dynamics.

However, it is only through the application of close analysis, intelligent thinking and practical know-how that the full potential can be realised and a competitive edge gained.

This is a guest post by Sid Holian, managing director of BiS Henderson Consulting