|Part 2 Contents|
And what about the consumer?
Consumers are more educated, more street-wise, more skeptical and more questioning. Recession and zero inflation has made them less willing to accept price increases. They are technologically educated, computer literate and short of time. To many consumers, life is more complex and more demanding, and they have a constant (although relatively superficial) concern about healthy eating and drinking. This fuels demand for red wine, low alcohol, adult soft drinks, sports drinks, and connoisseur brands, such as malt whiskies.
People are living longer and there are a greater number ofolder people, often with high disposable income. They have developed loyalties to brandswhich offer them reassurance and reward. Health issues and drink drive restrictions mayencourage them to move up-market to premium brands, vintage ports, fine wines or agedcognacs.
The rapidly emerging middle classes in Asian and Indianmarkets also have aspirations for Western brands and are, as yet, largely unbothered bythe health issue. Many of them are women. They are relatively wealthy and becomingincreasingly well-travelled. They want access to Western brands and products. At the otherend of the age spectrum there are new young adults entering the market, with fast,flexible lifestyles. In some senses they are more complicated, more wary, more demandingand more value conscious. But they are also lazy, and easily influenced by fashion andpackaging. They want convenience, maximum style and personal image enhancement. In thiscomplex and constantly shifting market, companies have to provide quality, innovation andvariety, all at an acceptable price.
Changing markets, new shopping
Changes in the marketplace are just as significant.Many western markets appear mature for traditional drinks and a blanket approach tomarketing is no longer acceptable. Within the overall sector there is always a nichemarket to be found which will produce the expected returns. Again, research and analysisis necessary to identify this segment and market products directly to it. Direct marketingand product associations help to maintain the loyalty of the consumer.
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The way people shop has been changed for ever by the spreadof technology, electronic banking, mail order and the Internet. Throughout Europe therehas been a significant move towards take-home (or off-trade) and a decline in sales ofalcoholic beverages in the hotel, restaurant and catering trade. Soft drinks continue togrow.
The grocery multiples are taking ever more business fromspecialists. They know their customers, they are skilled in marketing and sharp onpricing. They are advancing geographically and taking the retail format with them. Theyhave invested huge sums in electronic systems at the point of sale, and expect theirsuppliers to respond. These retailers are putting enormous pressure on brand owners. Theywant to be first in the market with new products, innovative packaging and sophisticatedmarketing. They want to concentrate on the fast moving lines, while still offering theconsumer choice. They are not only putting pressure on margins, but demands on delivery,stock management, accounting and invoicing controls. In Europe, distribution in retail isnow the overwhelming force shaping companies and their alliances for the future.
Whilst well-established brands still continue to enjoy astrong competitive advantage, providing their high profile is well-maintained throughmarketing support and advertising, they are coming under increasing pressure from theformidable challenge of the retailers own brands, which themselves, are of good qualityand can often command a premium price. This trend will continue to menace brands and willsqueeze out of wide distribution those in the middle. Delisting by the majors will thusleave these lesser brands with distribution only through smaller chains, cash and carryand convenience stores.
To remain competitive, companies must capitalise on theirbrand leading positions, their innovative product or their technical advantage.
They need to monitor performance in what is a highlycyclical business, with seasonal demands causing dramatic fluctuations, and to makeinformation accessible across the organisation for analysis of brand and customerprofitability. Regional and global operators need to know precisely where stocks are,where demand is being generated, which markets and brands are growing or stagnating. Theyneed a continual review of geographical operations to determine not only current tactics,but also future strategy.
New business solutions
The beverage industry is increasingly becoming the home for fast-movingorganisations which need new business solutions. This is where effective, industryspecific Information Technology (IT) comes in to give them total visibility ofperformance, costs and distribution, enabling them to concentrate on business and brandswhere growth is possible and especially where growth is good.
New markets will always appear more exciting. Theirpotential seems huge and the rewards great, but much of this is still high risk business.Infrastructure is incomplete, distribution is partial, trade is unregulated, credit isunreliable. Nevertheless, being first in the market is still vitally important and theserisks have to be assessed against the long term gain.
These markets are often dominated by local companies andbrands who have been operating in the domestic market alone. Foreign competition putspressure on these companies too, but it also encourages their regional or globalaspirations. They may not be so sophisticated but neither are they so encumbered withtraditional working practices and outdated systems. Modern integrated systems offer theman immediate opportunity to get up to speed to compete with the multi-national”incomers” on their home ground.
In these instances, starting with a relatively clean slatecould be considered a positive advantage, especially from the business systems angle.Effective drinks specific IT can help them make a giant leap from mechanical tostate-of-the-art technology, almost overnight. It is already happening in China, Polandand the Czech Republic. An excellent example is seen in Romania, where one of thecountry’s largest and most famous brewers is in the process of installing a fullyintegrated manufacturing, distribution and accounting system. The system was chosen inconsultation with a leading drinks industry software supplier. It will have up to 40 userson the system and include a full translation into the Romanian language. This is the firsttime that the brewer has used integrated IT systems for manufacturing or distribution, asuntil now sales have been made from the factory gates, and the manufacturing process hadbeen in the hands of one individual, who had total responsibility for scheduling rawmaterials and production planning.
Lower prices need to be matched withlower costs
If only modest price rises can be obtained in the foreseeable future, thenbetter margins have to be achieved by reducing costs. This means a detailed and intricatereview of the entire management of purchasing and the supply chain. Integrated technologymust be utilised to help here.
The movement of goods needs to be tracked to establish themost common routes and patterns. Stock levels in markets must be analysed and compared andthe lead times reduced. It is demand management as a fine art, a constant review oflogistical operations which helps to set priorities, reduce inventory levels and save cashwhich would otherwise be tied up in unsold stock.
Companies which implement this successfully have asubstantial advantage. They offer better customer service because they can react swiftlyto marketplace changes, they improve production and they speed up delivery with integratedorder processing and inventory applications. Improved forecasting information forproduction and shipping programmes can smooth out seasonal demand patterns. The amount ofstock held is reduced because the improved information on the flow and speed of deliverymeans it can be scheduled to arrive just in time. The procurement cycle improves becausebetter information for sourcing decisions (e.g. discounts, volumes and quality) and moreaccurate knowledge of requirements and delivery allow more effective purchasing.
Manufacturing or production output improves because of moreefficient scheduling of raw materials and better scheduling of work, thereby increasingproductivity. This also leads to less delays, less out-of-stock situations and lesscustomer frustration. New product initiatives may be brought to market faster and cheaper,and evaluated more quickly with the ability to collect and analyse information accurately.
Its ultimate benefit is that it frees up cash, as well asmanagement time, allowing attention to concentrate on running the business, marketing andbrand building, widening distribution and future strategic planning.
So how do beverage companies find a system suited to theirneeds? It should be apparent by now that beverage companies can no longer resist theindustrial driving force of technology. As well as thousands of diverse beverage products,the drinks industry has unique features, such as bonded warehousing, customs and excisereporting regulations and pricing and discount methodology. These features, unique to theindustry, may make the choice of a suitable information system even more difficult than itmay be in other industries. Consolidation of business operations, mergers, acquisitionsand the effect of the single European market, has left many large companies with a diversearray of hardware, operating systems and applications, and finding the right system hasbecome critical.
One company found a solution which may suit others. It is aBritish company, with operations in 46 countries. It employs over 11,000 people and it hasan extensive portfolio of brands, many of which are household names.
It required an integrated distribution strategy toimplement common methods of operation throughout Europe, and allow the business to be runas a single unified entity. At the same time it had to recognise that there were differentmodes of operation in each country, in particular individual legal and fiscal reportingrequirements. It chose a package which contains features developed with and for drinkscompanies, and some which are specifically designed to suit the company’s differenttrading practices country by country. It is primarily used in distribution applicationssuch as the taking of orders, delivery of goods, invoicing of customers and payment ofsuppliers. The company admits that quantifying cost-savings is almost impossible, but thesystem is totally integrated and generates the information necessary to run the businessconsiderably more efficiently; it has improved management of the supply chain, andprovides a very much better service to customers.