Supply Chain Special – What’s the impact on soft drinks?

Some in soft drinks have been talking of a perfect storm hitting the industry, thanks to COVID’s ravages, inbound supply chain difficulties centred on key ingredients, outbound supply chain challenges such as truck driver shortages and point-of-sale weaknesses triggered by several factors but with COVID the key underlying determinant. Challenges indeed in 2022. But, a perfect storm?

That’s taking things a little too far. I’m more in alignment with those who suggest we might have passed the worst of things and that the many positive steps taken in the last six months – along with an engrained industry skew towards survival despite the odds – will help us along the undoubtedly bumpy road that is the supply chain infrastructure of 2022. There’s certainly no need for us to panic.

Inevitably, there will be continuing – hopefully sporadic – shortages and cost increases of CO2, aluminium cans, some glass bottle types and various ingredients. But, they don’t need to define the soft drinks industry. And nor will they, I believe.

When The Coca-Cola Co CEO James Quincey described the supply chain snarls and higher commodity prices as “a bit like an earthquake”, I empathised. “You get further shock waves coming through,” he told CNBC, “but they tend to be of diminishing magnitude.” A close colleague who lives in an earthquake-prone zone concurs with Quincey’s analogy. He cautioned, however, that earthquake patterns tend to include the occasional very sharp aftershock, occasionally of not much less magnitude than the original.

Take CO2. Shortages of this key gas are by no means a novelty of pandemic times. We’ve had them from time to time over decades, usually balancing out quite quickly but oftentimes a real pain for an extended period. With CSDs an enduringly strong performer on the ever-widening soft drinks spectrum, shortages of CO2 impact on factory throughput and, given that distribution of CSD stock post-production tends to be relatively short-term, can lead to gaps at point-of-sale.

That spectrum expansion has been helping to calm consumer angst by providing a cornucopia of choice on supermarket shelves. Juices, waters, protein formulations, dairy beverages that have spread far beyond milk, plant-based dairy alternatives whose own diversity seems to blossom almost constantly, energy drinks that have added natural strengths to traditional ingredients, RTD teas and coffees once tailored to specific market segments but now of wider demographic appeal – They all provide a choice that most major markets have accepted.

The shockwaves of the pandemic have helped, I think. Once you’ve got beyond panic buying of toilet paper and bottled water (despite water supplies not being at risk in most developed countries), consumers seem to have settled down to a recognition that if their favourite CSD isn’t available on the shelves, then there are plenty of alternatives.

Packaging has also diversified immensely in the soft drinks sector and is likely to continue, especially in paperboard technological advances.

Elsewhere, can and bottle production continues to be hit by price increases in necessities such as magnesium (although claims of an on-going Chinese clampdown on magnesium exports seem over-rated). The manufacturers of both packaging options are moving to mitigate this through the development of new plants – albeit not a short-term solution – and efficiency boosts at existing facilities to dampen costs while also increasing and enhancing sustainability.

Soft drinks producers are also working to improve the post-production supply chain. AG Barr, for instance, has equipped its warehouses with electric forklifts, which are more economical safer and super-efficient – as well as impressive in looks.

Truck fleets are being reviewed and replaced with vehicles of optimum efficiency, including those with electric power or enhanced transmission. For last-mile distribution, there’s a trend towards smaller vehicles – often electric and making the most of opportunities for eye-catching brand livery.

Evolving a little more slowly is the concept of sharing warehouses and local distribution with other producers. This is already commonplace in the UK, Europe and elsewhere via third-party logistics operators, most of whom have been enhancing their own operations of late. In Japan, where shared distribution is gaining acceptance, some producers are also choosing to re-route inter-city supply, especially longer-haul, via rail or even shipping alternatives.

A lot of effort, along with mega investment, is also being expended in the creation of new-era logistics bases. A prime example is the Suntory facility in Saitama City, Tokyo metropolitan area, which is designed to improve the efficiency of inventory allocation and inter-warehouse movement, as well as reduce environmental load. The site includes an automated guided forklift/conveyor system and AI-driven berth reservation.

One factor in this 21st Century warehousing is the reduction of staff, easing the conundrum of recruiting and training adequate personnel. Staffing is a bugbear in both pre- and post-production supply, with numbers impacted severely by COVID including stand-downs generated by vaccination refusal. Truck driver availability was a problem pre-pandemic and has worsened in many areas around the globe.

Several soft drinks companies and their distributors have been tackling the driver shortage in innovative ways, such as advertising jobs on brands’ Social Media channels. Müller Milk & Ingredients, for example, has set up a ‘Warehouse to Wheels’ training scheme and is working with organisations like Veterans into Logistics.

The problem of staffing at point-of-sale, especially in the on-premise channel, is well known and many soft drinks brand owners, such as PepsiCo in the US, have developed schemes to assist.

Ultimately, some supply chain dangers are outside the soft drinks industry’s ability to ease: Inflation (soaring in some parts of the world), electricity load shedding (partly mitigated by the slow-but-steady industry move to solar power), political turmoil and social unrest.

There may be trouble ahead.