Trouble finding your favorite alcohol brands in 2021? Chances are it’s because this industry, like many during Covid-19, has run into a major packaging shortage.
Materials like glass and aluminum have become difficult and expensive to track down. Of course, you cannot ship or sell alcohol without bottles and cans. This shortage also extends into caps, cork and paper labels. All are necessary for alcohol packaging, and all are currently experiencing crippling shortages.
It’s nothing personal to the alcohol industry. Covid-19 has wreaked havoc on distribution and production channels across the globe.
Out of an abundance of safety, manufacturing facilities worldwide shut down for months when the virus first arrived. Shipping remains complicated by the lingering crisis. The wholesale industry had to reinvent itself overnight to remain functional while simultaneously protecting legions of front-line workers. Safety against Covid trumps efficiency.
Importing materials from overseas? Prepare for exorbitant freight prices. Ordering anything from the production centers of China and Europe is now a slow, pricy prospect.
The result is a lot less of everything available for consumers. Empty shelves and out-of-stocks have become frequent, frustrating sights for all kinds of retailers.
“I don’t know any commodity that hasn’t been touched by shortages,” says Robert Catalano, co-founder and CIO of the packaging company The Spearhead Group. They work with a number of major alcohol brands. “We’re constantly running fire drills now for our clients. It used to be about long-term planning. Now, most conversations are fire drills.”
“Clients say, ‘‘So and so’ is stuck in transport overseas; we need a new packaging solution right away’,” he adds. “We’ve become major problem solvers. Everyone is running a little late, everyone is being a little overcharged.”
Naturally, this has led to inflation in the packaging industry — and worse.
“Little by little, there’s an element of people being taken advantage of, too,” says Catalano. “Like in the days when we had gas shortages. It’s our job to mitigate and go through the maze of what’s true and what’s not.”
Packaging Shortage: Additional Causes
Other factors have driven this shortage. For instance: innovation in hard seltzer, RTDs and canned wine.
“We can attribute the aluminum can shortage to line extensions across multiple industries,” says Dan Kobiske, VP of supply chain for the distributor Mexcor International. “These new products really drove the demand for aluminum past capacity.”
Hampered by the health crisis, production facilities have not yet caught up.
“From what I’ve heard, it’s not the actual shortage in aluminum, but that the can manufacturers (Crown, Ball, etcetera) have such limited time available on their lines due to such high demand for printed cans right now,” says Zack Lister, founder of Bodega Brands, whose portfolio includes the canned RTD Hecho Tequila Seltzer. “You are seeing these companies now racing to manufacture new facilities, or increase capacity in current facilities.”
This strain on production creates headaches for smaller brands with less influence.
“Smaller brands are getting treated like second-class citizens as the larger players (Coke, Pepsi, White Claw, Truly) have pre-existing contracts for volumes, so [the production facilities] can’t commit to smaller-volume requirements, and effectively have to put people on a waiting list,” says Lister.
“This is also forcing people to look for solutions overseas, but that only provides the blank cans,” he adds. “Then the brand is responsible for getting it labeled (shrink sleeve or vinyl) which is much mor expensive than purchasing a printed can all in.”
Another issue is that alcohol consumption remains elevated, even now, so far removed from March 2020.
“Alcohol sales have not slowed down significantly during this later stage of the pandemic,” says Chrissy Beaudette Tinelli, director of client development for MHW, Ltd, a beverage alcohol solutions company. “I know of distilleries that are working at 200% capacity, working overtime, just to produce enough liquid to meet the constant demand.”
One reason for this elevated consumption is the reopening of bars and restaurants.
“People are still drinking even more at home, and now they’re also enjoying nights out, as well, for celebration,” Tinelli says. Celebration and stress have been our dual emotions during the pandemic. Both inspire imbibing.
The upcoming holiday season will also likely intensify shortages. “I think we’re going to see a big crunch,” Tinelli says. “All that extra shipping to consumers will use up more warehouses and trucks, making it even harder on alcohol distribution.”
With this strain on shipping comes one more issue, which predates Covid-19. Alcohol distributors in America for years have struggled with a scarcity of truck drivers. In 2019, the industry was 70,000 drivers short, according to Bobby Burg, Southern Glazer’s Wine & Spirits SVP operations and chief supply chain officer. In 2020, that number spiked to 100,000 short. Attracting quality drivers has only grown more difficult, given the dangers of travel during the pandemic.
How Can Brands Adapt?
As for brands that want to launch in this time of more consumption but less packaging — what’s the gameplan?
“It depends on what kind of brand and category we’re talking about,” says Carlton Fowler, co-founder of Goat Rodeo Capital, a venture capital firm that invests in early-stage beverage alcohol brands. “If you have higher margins, then you probably should look to aggressively take in the packaging supply up front.”
“But if you’re constantly dealing with lower margins, then maybe reforecast,” he adds, “and don’t look to take in every packaging opportunity that pops up.”
Alternative packaging is a potential stopgap. As the shortage drags on, consumers should expect that more brands arrive at retail in plastic bottles with screw caps. Even premium spirits.
Still, savvy companies can locate packaging.
“You can still find glass and aluminum manufacturers, but they’re not in the U.S.,” says Catalano of The Spearhead Group. “Supply-chain challenges have opened up opportunities for other factories that cannot normally compete against the big ones. They’re the diamonds in the rough, if you can find them.”
In the meantime, patience.
“When forecasting, you probably want to buffer in three to four more weeks for the arrival of packaging components than you think so,” says Tinelli. “You should be sourcing from wherever you can and looking to get more from the sources you already use. And be more generous with your packaging budget. Because remember: Alcohol is still a very healthy market to be in.”
When Will the Packaging Shortage End?
Subjects interviewed do not anticipate a quick fix.
“When I talk to my co-packers, they don’t think the shortage will end until 2023, it not further out,” says Fowler, of Goat Rodeo Capital.
Catalano of The Spearhead Group predicts a similar timeline.
“I haven’t found any real hard data to support Q1 of 2022,” he says. “People saying early 2022 are likely going with a general feeling that things have to get back to normal again. But 2023 is probably more of a reality. But that reality is so unknown, and that’s our biggest fear.”
Of all the limited packaging materials, aluminum may recover first.
“I think we may be a little closer on cans than others, if only because that shortage came around sooner than the others,” says Tinelli of MHW. “But that’s still not going anywhere, anytime soon. And I’d assume a price increase as well.”
Overall, 2023 has become the common estimate.
“We are starting to hear some talk about the grip loosening up in late 2022 -2023,” says Kobiske of Mexcor International. “Our current situation will take some time to get out of. I don’t think it will ever return to what it was pre-pandemic, but we will settle in with a new normal.