the uk beer and the australian wine industries

SUPPLYCHAINMANAGEMENTAssignment

AlbertoGILGONI

AxelFISCHER

PerryFONG

SCHOOLOFAEROSPACE,TRANSPORTANDMANUFACTURING

MScinAerospaceManufacturing

AcademicYear2015-2016

February2016

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ContentsTheUKBeerIndustry–TheChallengestoDevelopingSustainableChains...........................................2

1. Introduction...................................................................................................................................2

2. ChallengestoDevelopingSustainableChains...............................................................................2

2.1.Political........................................................................................................................................3

2.2.Economic.....................................................................................................................................3

2.3.Social...........................................................................................................................................3

2.4.Technological...............................................................................................................................4

2.5.Legal............................................................................................................................................4

2.6.Environmental.............................................................................................................................4

3. Recommendations.........................................................................................................................5

4. Conclusion.....................................................................................................................................6

5. References.....................................................................................................................................6

TheAustralianWineIndustry–CompaniesCollaborationandDevelopmentintheFuture.................7

1. Introduction...................................................................................................................................7

2. TypesofCollaboration...................................................................................................................7

2.1Horizontalcollaborations.............................................................................................................8

2.2Verticalcollaborations..................................................................................................................8

2.3Clustercase..................................................................................................................................9

3. Strategy2025...............................................................................................................................10

4. Conclusion...................................................................................................................................11

5. References...................................................................................................................................11

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TheUKBeerIndustry–TheChallengestoDevelopingSustainableChains

1. Introduction

TheUKbeerindustryhasbeendecliningsince2004asthebeersalesbyvolumefellby10.2%from2009 to 2013 [1]. This trend started from the economic depression in 2008/2009 coupled withgovernment policy to inflate beer duty annually from 2008. In recent years, the UK economy isshowing signs of recoverywith positive GDP growth, reduced unemployment rate and increasingaveragehouseholddisposableincome.Thesepositiveoutlook,togetherwiththeabolitionofthebeerdutycouldbekeytotherecoveryofthebeerindustrywithbeersalesexhibitinggrowthbyforthefirsttimesince2004.

2. ChallengestoDevelopingSustainableChains

The challenges to developing sustainable chains was analysed using the PESTLE analysis whichencompassesthethreedimensionsofEconomic,SocialandEnvironmentalinthetriplebottomlineframeworkthatisnecessaryforsustainabilityasshowninFigure1.Thebeerindustryreferstotheentiresupplychainwhichconsistsofthefarmers,breweries,bottlingsupplier,transportdistribution,pubs, supermarketsandconsumers. TheeffectsofPESTLEon the stakeholdersare summarised inTable1.

Figure1.3BLFramework[2]

Table1.EffectofPESTLEonStakeholders

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2.1.Political

Manypolicychangestookplacemainlytotacklealcohol-relateddisorders.Thesepoliciesaffectthesupermarkets,consumersandbreweries.

GovernmentPolicy

In 2014, the government implemented theminimumunit pricing [4], that prevents retailers fromsellingalcoholatlowpricesinordertoreduce‘bingedrinking’.

EUAlcoholPolicy

In2015,theEuropeanParliamentcalledforanewstrategytotackletheadversehealthimpactsofalcohol[5],withtheexpirationofthelastEUalcoholstrategyin2012.Thenewstrategywillfocusonthe importance of labelling to include nutritional information and to increase awareness on theconsumptionofalcoholduringpregnancyanddrinkdriving.

2.2.Economic

Theimplementedtaxchangeshadimpactedtheentirebeerindustrytremendouslyovertheyears.

AlcoholDuty

In2008,thealcoholdutyescalatorwasimplementedwhichincreasedthedutyrateby2%abovetheyearlyinflationratetill2015.Howeverin2013and2014,thedutywasreducedby2%eachtime.Inaddition,thealcoholdutyescalatorwasabolishedamidststrong lobbyingcampaignfromthebeerindustryafterseeingdecliningsalesbetween2009to2013from30.2to27.1millionbarrels[1].

PubClosure

Thealcoholdutyescalatorhadastrongimpactonbeerpriceswiththecostofapintincreasingfrom£2.67to£3.23between2008and2014.Thehighpricescoupledwiththetied-pubtenantmodelhasresultedinthedeclineofpubsby9.8%between2008and2012.

2.3.Social

Thesocialproblemsmainlyaffectstheconsumers,whichcontributestotheeconomicaspectofthebeerindustry.

HealthAwareness

Thereisanincreasingawarenessonthehealthimplicationsof‘bingedrinking’inrecentyearsthatisledbyaNGOgroup–Drinkaware.Theyprovides“impartial,evidencebasedinformation,adviceandpracticalresources,raisingawarenessofalcoholanditsharmsandbyworkingcollaborativelywithpartners”[6].Fromtheirwebsite,theyprovidefreeeducationalmaterialsforstudentbetween9to14yearsold,toeducatesthemontheharmfuleffectsofdrinking.In2010/2011,thereisareported1.2millioncasesofalcohol-relatedadmissionstohospitals[7],withalcoholbeingthethirdmain‘lifestylerisk’factorsinUK,thatleadstodiseasesanddeathaftersmokingandobesity.Currently,theUKsocietyispayinganestimated£21billionannuallyforthis[3].

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Misconceptions

Therearemanymisconceptionsaboutbeersuchas ‘consumption leadstobeerbelly’and ‘wine ishealthierthanbeer’.AsurveybytheBritain’sBeerAllianceshowsthat10%ofBritishthinkthatbeerhasmorecaloriesthanwine,25%thinkthatapintofbeerhasmorefatthanachocolatebarand25%thinkthatapintofbeerhasmoresugarthanacanofcola[8].

2.4.Technological

Technologicalchallengesislimitedtothefarmers,breweriesandbottlingsuppliers.

CostofImplementation

Manytechnologicalsolutionsareavailabletoimprovesustainabilitysuchassolarpanels,hi-techbiogasgeneratorandwatertreatmentplant.However,thetotalcostofownershipoftheseequipmentisveryunaffordableformanysmallermicro-breweriesthatisontherise.AccordingtoKeyNote[5],thenumberofbrewerieshasincreasedfrom745to1442from2009to2013,ofwhich88.1%haveemployeesofbelow10.

2.5.Legal

Thelegalissuesaremostlyrelatedtotheconsumers,breweriesandpubs.

Marketing

ThealcoholadvertisinginUKissubjectedtorestrictionsthatpreventthemfromtargetingtheyouth.These restrictions are self-regulated and is governed by the Portman Group and the AdvertisingStandards Authority. Many health groups have criticised these restrictions and called for morestringentcontrolstobeinplace[9].AnanalysisonthealcoholindustrybytheHouseofCommonsHealthSelectCommitteein2009revealedmajorshortcomingsintheself-regulatorycodesandthattheyouthareindeedamarketingtargetfortheseadvertisers[10].

StatutoryCodeforPubcos

In2014,thegovernmentsuggesteda‘StatutoryCode’toaddressalongexistingissuebetweenpubcosandtheirtied-tenants.Inthetied-pubtenantmodel,thepublicanrentsthepubandbuysthebeerfromthepubcos.Often,thisself-regulatedsystemhasreceivedmanycomplaintsfromthetenantsoverunfairtreatmentandunprofitabilityofthismodel.Whilemanytenantsandconsumerswelcomethischange,pubcosontheotherhandopposesthis,claimingthatthiswould leadtoreducedpubinvestment and increased rents. Many pubcos have voiced their strong concerns and will likelychallengethislegallyifimplemented.

2.6.Environmental

Thebeerindustryisamajorindustrialusersofwater,consumesalargeamountofenergyandreleasesa significant amount of carbon. The environmental issues affect the farmers, breweries, bottlingsupplier,transportdistributionandpubs.

CarbonEmission

Energyisanimportantaspectforbeerbrewersthatisdrivenbyincreasingenergycostandregulatorypressuretoreduceenergyuse.Inresponse,theBritishbeerindustrysetanaimtoincreasetheenergyefficiencyby19%andreducecarbonemissionsby30%byyear2020[11].

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WaterUsage

Waterisoneoftheprimaryingredientsofbeerandbrewersunderstandstheimportanceofpreservingitwithdecreasinglyglobalavailability.Theneedtoimproveprocessefficiencyisprimarilydrivenbycost,aswellasdevelopinglongtermresilienceduetoincreasingrisksofdroughtandwatershortagesthatmightresultingovernmentalreviewofaccesstowatertoensuresufficientsupplytoall[11].

PackagingWaste

Thebeerindustryhasbeenkeepingthetraditionalenvironmentally-friendlywayoftransportingbeerusing kegs or caskswith an average life-spanof 15 years.However, this dispensing systemwhichaccountsfor50%ofUKbeerproductionarefacingincreasingpressureduetolossandmisuseofthesecontainers,withanannualestimatedcostof£50million[12].

3. Recommendations

This section provides recommendations that is based on existing trends which will improve thesustainabilityofthebeerindustry.

InnovativeCategory

Currently,thereisanincreasinginterestinthespiritbeerscategory,whichinvolveinfusingbeerwithspirits suchas tequila, rumorwhiskey.There isalsoa risingdemand for loweralcoholbyvolumeproductsduetoincreasinghealthconcernsandpricesofalcoholicdrinks.Thebeerindustryshouldalwaysexplorewaystoinnovatetheirproductinordertokeepupwithconsumer’sdemand.

ChangingPerception

Campaigns can be launched to educate the public on the health benefits of drinking beer inmoderation. The beer academy has published the article “Beer & Wholesomeness” to correctmisconceptions about beer such as calorie and cholesterol content, aswell as emphasizing on itshealthbenefitsthatmaydecreasetheriskofheartdisease,osteoporosisandhighbloodpressure[13].

GoingGreen

ManybrewersinUKhavestartedinvestinginrenewableenergy,waterefficiencyandwastereduction[11] inorder to increase their sustainability resilience. Somehave lookedat “light-weighting” andredesigningof the glassbottles,while initiativeswere launched toensure that the kegs/casks arerecovered.

FemaleDrinkers

Therearehugeopportunitiesinthefemalebeerdrinkerssectorwithpenetrationof51%in2015[14].StudiesbyMintelindicatesthatwomenprefersmallerservingsthatisservedinwine-styleglassesandrecommendation from friends as well as new flavour/ingredients are themost effective ways tointroducethemtobeer.Thus,marketingstrategycanbegearedtowardsthesepreferences.Thereisalsoaneedtochangetheperceptionthatthebeerisaman’sdrink.AsocialexperimentbyAVInBevshowsthatthebeerwasalwaysservedtothemaneventhoughitwasorderedbythewomen[15].

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4. Conclusion

This reportprovidedacriticalanalysisonthesustainabilitychallengesthat theUKbeer industry iscurrently facing using the PESTLE framework and showed how political, economic, social,technological,legalandenvironmentalaspectsaffectedthevariousstakeholdersinthesupplychain.Italsoprovidedrecommendationsonthefutureaheadbasedonthecurrenttrends.

5. References

[1] KeyNote(2014).MarketReport:Breweries&theBeerMarket.KeyNoteLimited.[2] PresentationslidesSupplyChainSustainabilitygivenbyPeterBall,CranfieldUniversity(20Jan

2016)[3] U.K.HMGovernment(2012).TheGovernment'sAlcoholStrategy.Availableat:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224075/alcohol-strategy.pdf

[4] U.K.HomeOffice(2015).GuidanceonbanningthesaleofalcoholbelowthecostofdutyplusVAT.

[5] KeyNote(2015).MarketReport:Breweries&theBeerMarket.KeyNoteLimited.[6] Drinkaware(2016)AboutUs.Availableat:https://www.drinkaware.co.uk/about-us(Accessed

2Feb2016)[7] Chaplin,R.,Flatley,J.andSmith,K.(2011)CrimeinEnglandandWales2010/11.HomeOffice

StatisticalBulletin10/11.London:HomeOffice.SupplementaryTable7.11.[8] There’sABeerForThat(2014)Mythaboutbeer.Availableat:

http://www.beerforthat.com/beermyths(Accessed2Feb2016)[9] IAS(2013)MarketingandAlcoholFactsheet.London:InstituteofAlcoholStudies.[10] Hill,L.,andCasswell,S(2001)AlcoholAdvertisingandSponsorship:CommercialFreedomand

ControlinthePublicInterest.InternationalHandbookofAlcoholDependence&Problems,JohnWiley&Sons.

[11] BBPA(2014)BrewingGreen:OurcommitmenttowardsasustainablefutureforBritain'sbeerandpubs.BritishBeer&PubAssociation.Availableat:http://www.beerandpub.com/world-of-beer-and-pubs/responsibility/environment(Accessed2Feb2016)

[12] BBPA(2016)Lookingafteryourkegsandcasksleaflet:Areyoudoingyourbit?.BritishBeer&PubAssociation.Availableat:http://www.beerandpub.com/kegaware(Accessed2Feb2016)

[13] TheBeerAcademy(2016)Beer&WholesomenessReport.TheBeerAcademyLimited.Availableat:www.beeracademy.co.uk/cms/file/1396/beer-wholesomeness-report-pdf/(Accessed2Feb2016)

[14] Mintel(2015)UK-BeerReport:ExecutiveSummary.MintelGroupLimited.[15] ABInBev(2016)UKwomenraiseaglasstobeer.ABInBevUKLimited.Availableat:

http://www.ab-inbev.co.uk/2015/10/uk-women-raise-a-glass-to-beer/(Accessed2Feb2016)

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TheAustralianWineIndustry–CompaniesCollaborationandDevelopmentintheFuture

1. IntroductionTheAustralianeconomicgrowthbenefits from itsnatural resources,anddespite its isolation fromEuropeandAmerica,itisrankedintopeightproducersbyvolumeandthefourthlargestexportersofwine in theworldwithamarketshareclose to5%[1].TheAustralianwine industryexported724millionlitresin2015,about60%ofitsoverallproduction[2].ThemaindifficultythattheAustraliangrowersencounteredistodistributetheirproductstoEuropeandAmerica,andtheyovercamethisbyhavingcollaborationswithinternationalalliance.Thecollaborationconceptinthewineindustryhasbeendevelopedovertheyears.SmallandlargewineproducersoftenhavedifferinginterestsbutthatchangedwhentheindustryassociationscreatedtheStrategy2025plantoencouragecollaborationbetweenthem[3].Theindustry’sgrowthpotentialtriggeredtheexpansionofsynergiesandsharedinterests.AsshowninFigure1,threemajorfirmsaccountfor51%oftheoverallwineproductionand70%ofthetotalexports[3][4].Collaborationincludesareassuchastradeissues,researchanddevelopment,training and investments. Collaboration also allowsproducer to promote the industry collectively,ratherthanlookingonlyaftertheirowninterests.

Figure 1. Market Distribution in Production [left]; Market Distribution in Exports [right] [3]

2. TypesofCollaboration

Independent grape growers used to produce their own wine, until large foreign companies andwinerieswhoareattractedby thegrowthof thebusiness, started investing in thegrapegrowers.Nowadays,mostofthegrapegrowersdonotproducetheirownwine,butonlysupplythegrapestothewineries.

Somewinemakerswhoareverticallyintegratedintheirsupplychain,producestheirownwinefromtheirvineyards.Also,therearebrandownersthatareonlyinvolvedinwinecommercialisationwithouttheirownwinemakingfacilities[Figure2].

51%49%

Wineproduction

Largest3brandsRestbrands

70%

30%

Exportsmarketshare

Largest3brandsRestbrands

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Figure 2. Australian Wine Supply Chain [4].

ThesuccessoftheAustralianwineindustryisfromitseconomyofscale,andalsothetwodifferentwaysofcollaboration,horizontallyandvertically.

2.1HorizontalcollaborationsOneofthebenefitsisreductionoftransactioncostthatisachievedwhenthewineryislocatednexttoagrowerwherebythewineisproducedinthefarmer’sfacility.Anotherbenefit isthedevelopmentofrelationshipbetweenthewineryandthecommercializationcompany.Thecommercialcompanyunderstandsthemarkettrends,andthereforeimprovesthewineproductionbyintroducingfeedbacksintothesystem.Moreover,thetraderisabletodistributetheproductsmoreefficientlythroughitslowcostchannelsbymanagingmanybrandssimultaneously.Horizontal collaborationandmergersalso improved theoverseas competitivenessofmediumandlargecompaniesbyachievingeconomiesofscale.

2.2VerticalcollaborationsThe vertical collaboration between the Australian companies and the international alliances hasallowedtheAustraliancompaniestounderstandthemarkettrendsinEurope&Americaandtobecompetitivebyusingtheexistingdistributionchannelsofthesealliances.AnexampleofalliancesistheacquisitionofBRLHardy’sbytheConstellationBrands[4].Domestic alliances also exist within Australia to exploit economies of scale and to reduce costs.Clustersunderlargecompaniesincreasebargainingpowerandmakingitpossibletoincreaseexportcapacity. This is especially important for smaller brands who want to move their product fromdomesticboutiquechannelsalestosupermarketandotherretailnetworks.AnexampleisSouthcorpacquisitionoftheFoster’sGrouptobecomethelargestpremiumwinemakerintheworld[4].Theseallianceshavetransformedthebusinessintooligopolisticwithafewlargefirmsholdingontoalargemarketshare[Figure1].

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2.3ClustercaseTheSouthAustralianwineclusterisanillustrationoftheoligopolisticindustry,accountingfor44%ofAustralia’soverallproductionand66%ofexports.Thisclusterexperiencedhighgrowthintheearly90s, and remained competitive by maintaining deep collaboration across the value chain and bychangingthelowqualityperceptionoftheAustralianwineintheexportmarket[5].Thecluster consistsof thegrapegrowers,wineproducersandbrandownersvertically integrated,whileothercompaniessupportthebusinessbyprovidingconsultingservicesandvineyardequipment.In addition, bottles manufacturers such as Amcor and case suppliers such as Upper Murray andHenrichCooperagearealsointegratedintothesupplychain[5].OtherorganisationssuchastheStateorFederalGovernmentwhichprovidestaxbreaksfornewplants,arealsointegratedintheclustermap. Exports are also facilitated by good infrastructure between the vineyards and the Port ofAdelaidetokeyexportmarkets.

Figure 3. South Australia Cluster Map [5]

Collaborationsinvolvingthegrapegrowersandothersupportingcompaniesalsoexist.Forexample,Tolley Viticulture helps the farmers with mechanised pruning and summer trimming. DavidsonViticultureoffersspecialisedservicessuchasplanningandmanagementorevenhelpingvineyardstoadapttoclimatechangewhichisimportantinAustraliaasitisahotanddrycontinentthatismoreexposedtoclimatechange.ThecollaborationbetweenthefoodandtourismclustersallowsthegovernmenttopromotetheSouthAustralia Food andWine Tourism Strategy. This has led to growth in both sectors, as 40%of thetouristsvisitatleastonewineryforwinetastingduringtheirholidaytrips[5].

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3. Strategy2025The strategy comprises of three aspects – Anticipating themarket, Influencing the consumer andBuildingsustainablesuccess[6].AnticipatingthemarketDecision-making in the Australian wine industry can be improved by exploiting global marketintelligencethroughfocusedinformationcollection,analysisofthemarketopportunitiesandanalysisofthewinesupplyrequirements.For instance, informationsuchasconsumer insights,competitor,supplyandsalesintelligencecanbeintegratedtodevelopadeeperunderstandingofthevaluechainlinkagesanditssustainability.In order tomaintainAustralia’s leading position in implementationof Research andDevelopment(R&D)intothisindustry,asector-directedresearchstrategycanbeemployed.ThisstrategywillallowtheR&Dtobedirectedattheneedsandopportunitiesofthewinesector.Someoftheresearchsectorsincludekeynoteresearchesthat involvestheunderstandingofmarketopportunitiesandeconomicimportance of innovation as well as climate change researches that models the economic andgeographicimpactofclimatechange.The activities in the wine sector can be better coordinated by the national, state and regionalorganisations,inordertosupportmarketdevelopmentandtoensurethattheyarealignedintherightdirection. Firstly, roles and responsibilities must be defined for the national, state and regionalorganisations. Secondly, there must be strong communication between the organisations,stakeholdersandconstituentstoensureaconsistentflowofinformationbetweenthem.Lastly,theoverallAustraliawinemarketingstrategymustbeintegratedthroughouttheentiresector.InfluencingtheConsumerTocreatetheWineAustraliabrandsegmentationstrategy,marketingactivityshouldbecoordinatedtoengagethreemainaudiencesnamelytrade,mediaandconsumers.AfeedbacksystemtomeasuretheconsumerperceptionsoftheWineAustraliabrandshouldbeintroducedtocheckthesuccessofthestrategy.Thewineindustryshouldsetnewexpectationsandincreasepublicawarenessforthefinewinesector.For example,major trade event can be held to promote theWine Australia brand segmentationstrategyaswellaswinetastingforthetrademediainthetargetedmarket.Inaddition,thewineindustryshouldalwaysseeknewconsumerandtocreatenewmarketthroughinnovationandcommunication.Forexample,throughanannualeventtoshowcasethedevelopmentofanewproductoranonlinemarketingcampaigntopromoteAustralianwinetothenextgenerationofwinedrinkers.

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BuildingsustainablesuccessThefinalstrategyaddressesthesustainabilityissuesofthewineindustry.Oneofthekeystrategyistoformaclosepartnershipwiththegovernmentinpolicymakinginorderto fosterapositiveand sustainablebusiness climate for thewine industry. Strong communicationbetweentheindustryandthegovernmentiscrucialtoimplementmeasuressuchasthesimplificationofthebusinesstaxes,aswellasimprovingrelationshipwithkeymarketsbythegovernmentinordertoreducepossibletradebarriers.Thewineindustryshouldalsodevelopacultureofself-reliancewhichwillbesupportedbycontinuousimprovement inbusiness skillsandpractices.A ‘CodeofConduct’ for thewine industry shouldbeimplementedandwidelyadoptedbythegrapegrowersandthewineries.Riskmanagementshouldalsobepractisedusingaframeworkofstrategiesattheproducerandindustryorganisationlevels.Thewineindustryshouldcontinuouslyimprovetheenvironmentalperformanceinordertocopewiththevariationofconsumerandcommunitydemandsforsustainability.Socialresponsibilityshouldalsobeconsideredtoensurethatwineissafelyconsumedinmoderation.

4. ConclusionThecollaborationintheAustralianwineindustryhasledtothecreationofclustersandtheseclustershaveprovedtobemorecompetitivethanthepreviouscollaborationmodel.Currently,theseclustersplay a major role in the international market as they continuously try to explore new marketopportunities.CommitmenttoresearchanddevelopallowedtheAustralianwineindustrytoimproveitsknowledgeaboutconsumer’sconsumptionpractices.Finally,commonobjectivesforthe2025horizonhavebeensetbytheAustralianwinesector.Theseobjectiveswillkeepthegrowthmomentumoftheindustrybyanticipatingthemarket,influencingtheconsumerandbuildingasustainablesuccess.

5. References

[1] AustralianGovernment.WineAustralia.WineExportApprovalReport2013.Availableat:http://www.wineaustralia.com

[2] AustralianGovernment.WineAustralia.WineExportApprovalReport2015.Availableat:http://www.wineaustralia.com

[3] MarshI.,ShawB.Australia’swineindustry:CollaborationandLearningasCausesofCompetitiveSuccess.2000;(May).

[4] SpinoglioF.WineClusterCompetitivenessinSouthAustraliaandPiedmont(Italy):StrategiestoaddresschallengesresultingfromtheGlobalFinancialCrisis.2013;(January):1–112.

[5] NipeA.,YorkA.,HoganD.,FaullJ.,BakiY.HarvardUniversity.TheSouthAustralianWineCluster.harvarduniversity.2010;(May):1–33.

[6] WineAustralia:Directionsto2025:Anindustrystrategyforsustainablesuccess.2007.