Bottling operations

As a nation, the way in which we enjoy alcoholic beverages is changing. We drink more at home, when we eat we favour wine and with the current squeeze on disposable income, we are putting more emphasis on low prices in our purchasing decisions.

Traditional pubs are closing at an alarming rate, transforming to the ‘gastro pub’ model in order to sustain revenues. Pubs, restaurants and venues represent the ‘on-trade’ market; a market in which the consumption of beer is in severe decline as we make the transition into a world where the ‘off-trade’ sales to the supermarkets and off-licenses will become the dominant route to market. As if managing this change wasn’t challenging enough, the established decline in the beer industry as a whole will certainly have the attention of the industry’s stakeholders. On-trade volume began its decline after peaking at around 35 million hectolitres of beer sold annually. At this time, the off-trade contributed an additional 15 million hectolitres. This year it is predicted that the two markets will meet at around 23 million hectolitres per trade. The current opportunities therefore seem to be with small-pack production, the majority of which comes in the form of a can or bottle. Yet this is not such an easy transition to make and the change in packaging medium brings with it many new challenges.

Bottling provides some of the smallest individual units available. For every barrel (36 UK gallons) of beer sold, the single keg translates to over 640 bottles with a volume of 250 millilitres. The larger breweries are moving away from the ‘art’ of brewing, and have recognised the need for repeatability, speed and aggressive cost reduction as the breweries align themselves with more established FMCG manufacturers to facilitate their evolution into this category. Moving towards FMCG puts great emphasis on automation, but the supermarkets bring with them a different set of demands to those of the on-trade customers. Naturally, these rarely align with the nature of efficient automated production and trade-offs are common in the pursuit of maximum operational effectiveness.

The new customer

It’s no secret that the majority of major supermarkets require variety from suppliers. When it comes to alcoholic beverages, such retailers want a variety of bottle shapes and volume, packaging artwork, number of units in packs, gifts in packs – and they wanted it yesterday. The pack sizes regularly require changes. As the duty on beer increases year on year, this pushes the retail price of each pack above the retailers’ defined price points. In order to counteract this, it is often the units per pack that are decreased to bring the price back on target. Changing pack sizes often involves major modification to the bottling machinery and the purchase of new and expensive interchangeable machine parts. The supermarkets can have their cake and eat it too. The UK bottling capacity far outweighs demand, and it is often brand power alone that prevents the supermarkets from playing the big brewers off against each other.

The next pricing challenge on the horizon may disrupt this further. Should the government pass legislation on minimum pricing for alcohol sold through the multiple grocers, where then is the competitive edge? Brand power and quality seem suitable candidates, but we’re fighting in a mature market. Operating without organic growth, innovation and acquisition to refresh the product portfolio are opportunities that the breweries appear to be exploiting. This requires further investment, and with the current state of the industry, only those entering into immerging markets such as Asia and South America will gain the confidence of investors. The brands in these markets and other ‘World Beers’ are particularly interesting in that they are more commonly bottled or on draught, and when consumed in the UK, have a major presence in restaurants. I’m sure many have enjoyed a Cobra with Indian cuisine, or Tiger with Thai. The necessity to develop these World Beers may ever so slightly increase the buoyancy of on-trade sales as an indirect benefit.

Just under half of the off-trade is made up of the smaller independents and off-licenses. These customers want incredibly small volumes and lots of variety to satisfy the impulse buyer. They have limited fridge space and want what sells quickly. As a result this segment is still very reliant on a push approach to sales rather than the pull of growing demand.

Leaner process, lower costs…

Brewing is a slow process made up of many stages where the physical operation comes to a halt. Reducing work in progress (WIP) and inventory is not a simple solution when your products require long conditioning periods of varying lengths, in most cases days. The interesting question is how beneficial is the lean model and ‘just-in-time’ methods to the operation? Kegs for on-trade and bottles for off-trade have a typical shelf life of three and nine months respectively. So whilst optimising stock levels is advantageous, reducing stock completely can leave the business at risk from volume demand fluctuation and unreliable customer forecasting – a common challenge when manufacturing products for which sales are affected so dramatically by the great British weather. The extended shelf life reduces the risk of producing un-saleable stock, but we still have the issue of the cost of warehousing.

The low volumes and high variety required to satisfy the impulse traders also affect to what extent we can reduce stocks. Consistent delivery requires a facility whereby finished stock can be picked to build bespoke orders for these premises. It would be hugely inefficient to produce bright beer in small batches and so we tend to plan the weekly running order by beer quality and not pack size, which puts the pressure on the final packaging stages. Changeovers have to be quick if not eliminated, and running speeds must be far beyond the capability of the bottle filling process. The filler is the heart of the line, and an ideal line balance will have the filler as the slowest machine. Those before the filler need to start faster and gradually decrease their production speed as they become closer to the filler and those beyond gradually faster. If you were to plot the line speeds on a graph, a clear ‘V’ would be seen with the filler at the lowest point. This goes against the theoretical ‘pull-system’; but in this system, if one machine stops then the whole line stops very quickly. Using the ‘V-curve’ attempts to pull filled bottles away from the filler but maintain a constant supply of materials so that the filler throughput is maximised. This is essential in maintaining the quality of the beer. Once the beer is filtered to make bright beer, the filling process can very easily become detrimental to all aspects of the liquid.

Turbulent flow encourages gas loss and can cause fob, which leads to haze in the beer. Stopping, starting and speed fluctuation on the filler put the beer at risk of oxygen ingress through either the open bottle or the route to the filler. Oxygen reacts with beer over time and causes staling, significantly reducing shelf life. Engineering the process so that problems are spotted immediately, as in a true pull system, should in theory encourage immediate escalation and resolution. But while ever the macro-operation through brewing, filtration and packaging is unavoidably disjointed, there is little value in risking the quality and efficiency of the packaging process.

Opportunities for direct cost reduction are there for all to see through reduction in material and utility waste. The increase in packaging units through smallpack production dramatically increases the risk of variances in budgeted material loss, but this is not the only factor to affect the associated operating expenses.

Tunnel pasteurisation is a common method of pasteurising beer once it is packaged and sealed. This process involves heating large masses of water to over 60°C which is used to heat the sealed units until the desired level of pasteurisation is achieved. Bottling represents the packaging method with the highest energy consumption throughout the supply chain. Not only does bottling increase the units consumed, glass bottle production is much more energy intensive than that of cans. This makes bottling one of the most expensive methods of packaging beer.

Man and machine

There are few manual jobs in modern high speed bottling operations. The utilisation of complex machinery to package a complex product requires a certain standard of operator capable of working with a high level of autonomy. Professional development is a big focus of the larger breweries. NVQs and IBD accredited qualifications in brewing and packaging are common amongst the employees.

With reference to the shelf life of bottled products allowing a degree of production levelling, this suits the heavily automated process which does not always allow for the use of flexible labour. My experience in chilled food is of unskilled flexible labour available within hours of identifying a deficit. In a manual operation, this labour adds value immediately due to the ability to perform the required tasks with little instruction. This is not a realistic solution when a large amount of mechanical training is required to begin adding value to the operation. For this reason, labour in automated packaging operations is predominantly fixed. Using only fixed labour, typically dispersed one man per machine along an in-line process, requires manning levels that are sufficient to meet maximum demand. A demand curve with dramatic peaks and troughs leaves huge amounts of wasted capacity and expensive labour along the yearly cycle.

The need to recruit and develop great leadership capability into the business has also been recognised. Brewing still retains a great deal of tradition within the industry, but the days of time-served promotion and jobs-for-life are coming to an end. The breweries are becoming more open to external recruitment from other industries to help facilitate and manage the cultural and operational change to meet the demands of FMCG.

The suppliers

Whilst bottles are arguably superior to cans in many ways, particularly in terms of maintaining product quality, the risks associated with the material are not to be overlooked. Recent product recalls of major brands demonstrate this all too clearly. However, neither the competitive glass suppliers nor the brewers of competitive brands are rubbing their hands together. There are three major suppliers of glass in the UK. This reliance on such a small number of suppliers puts brewers sourcing large volumes at risk. The inability of any of these suppliers to meet the production requirements without sufficient time to develop an alternative source will have an adverse effect on the operation. The probability that these requirements will not be met is increased when the largest customers attempt to reduce supply from those who are losing the confidence of the big consumers within the industry. Thus begins a destructive cycle of increasing risk through limiting alternative suppliers, whist simultaneously increasing the likelihood that these suppliers will be short on requirements.

The suppliers of glass also pose another threat. As they exploit synergies to develop economies of scope, the suppliers’ own bottling capabilities are breathing down the necks of those brewers still using outdated equipment and expensive labour.

Looking ahead

The big breweries have some catching up to do. The operational environment has changed for an industry that is not innately proficient in reacting to unfamiliar and rapidly changing market demands. To make matters worse, the traditional operation is not a perfect fit with modern manufacturing techniques and the new customers have more power and less sympathy. Short term, the right people need to be in place to manage this change and implement the quick wins brilliantly. Increasing the effectiveness of the supply chain from optimisation of procurement strategy to development of more flexible and responsive packaging and logistics operations whilst keeping particular focus on achieving ‘right-first-time’ quality, will facilitate the more advanced lean initiatives. The perfect lean model may never be achieved; and it may not need to be in some cases.

To remain competitive in the long term, product innovation has to inspire new people to enjoy beer, and those that are developing a taste already need to experience the same great delivery seen in the mature markets. Which World Beers will develop into the next flagship brand is unclear. What is clear is that the future of smallpack production, particularly bottling, provides a challenging but exciting opportunity that has the potential to reward both the successful brewers, and the industry itself.

About the Author

Gareth Godley has worked for MolsonCoors since January 2009. He graduated from the University of the West of England with a degree in Business Studies. He has experience in leading teams in chilled food and confectionery for large manufacturers, including Cadburys.