Rising Commodities May Hamper Global Beverage Sector

NEW YORK?Rising commodity costs will impact all drink segments this year and likely force beverage companies to raise prices at a time when consumers already are under economic pressure, according to a new Rabobank market report. Faced with narrowing margins, beverage companies that have a vision and commitment to engage in strategic sourcing will have a competitive advantage in 2013 and beyond.

The report??Thirsting for Growth"?examined the outlook for three primary sectors of the global beverage industry, including soft drinks, coffee and tea, and alcoholic beverages. It found exerting greater control over procurement, including achieving increased transparency with upstream suppliers, will be a critically important initiative for beverage companies in 2013.

In the past, beverage manufacturers were more concerned with buying their inputs at the lowest price, but in today?s world of tightening supply and price volatility, security of supply has emerged as a key concern for many manufacturers. Increasing complexity within the supply chain requires greater dependency and alignment between key stakeholders. As a result, supply chain management and strategic development experts have initiated ?strategic sourcing" of agricommodities.

"Strategic sourcing requires beverage companies to re-evaluate their procurement processes through the lens of global supply and demand, to better understand the impact of price volatility, security of supply and related risks," said Ross Colbert, global beverage strategist for Rabobank and lead author of the report. ?This approach has led global brand owners to develop dedicated supply chains, where suppliers, processors, distributors and even retailers are more aligned and operate in a more integrated system."

Soft Drinks

• The global soft drinks industry will continue to straddle two different worlds: the mature developed markets where growth has stagnated and developing markets where previously high growth rates have slowed, but still offer the greatest upside.
• Bottled water will continue to lead in volume with a projected growth rate of 5.4% in the coming year.
• Ready-to-drink tea and Asian specialty drinks will be the fastest-growing soft drink segments with projected growth rates in 2013 of 9% and 14%, respectively.
• Coca-Cola and PepsiCo are set to undergo a new wave of refranchising as they look to shift bottling assets to strong franchise partners, allowing each giant to focus their efforts on brand building and marketing.
• Supply and demand issues are leading to strategic sourcing for fruit juice companies, including juice suppliers increasing physical control (investing in growers), focusing on market power, and following adaptive strategies such as ingredient substitution or reformulation.

Coffee and Tea

• Continued growth in global coffee will be driven by three key drivers?innovation in single-cup brewing (e.g. K-Cups, pods, etc.); ?premiumization," with consumers choosing to drink higher quality coffee; and increased consumption in the away-from-home channel in developed markets, led by Starbucks and McDonald?s.
• The global tea industry is forecast to face short supply in 2013. Key tea producing countries are expected to have a production drop in the range of 1% to 5% in 2013, while demand will grow by 3%. With consumption in India and China outpacing domestic production, reduced exports and rising prices are expected for both markets.

Alcoholic Beverages

• Beer is forecast to be one of the slowest-growing beverages this year. In mature markets, decline is driven by saturation, health trends and increases in excise duty.
• Spirit consumption in Western Europe is also expected to wane. Regional players and local spirits are likely to be the worst hit with larger, international spirits companies, with broader product portfolios better positioned to weather the storm.
• The wine industry will face tighter availability of global wine inventories, a soft consumer environment, and the need to continue developing many emerging markets. Suppliers will have to develop sourcing strategies that secure sufficient supply at the right cost and in the right place, and that are flexible enough to be relevant when global inventories become more readily available.

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Source: http://www.foodproductdesign.com/news/2013/01/rising-commodities-may-hamper-global-beverage-sec.aspx

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