The beverage industry story has been particularly dramatic, with rapid expansion and growth in the last two years, followed by a turbulent ride through the recent pandemic. With shutdowns affecting retail outlets and hospitality venues in particular, some players have been hard hit – while others have benefited from spikes in consumer demand.
In writing this beverage industry sector report we analysed aggregate data from 235 beverage companies that use Unleashed’s cloud-based inventory management software. 25 countries are represented in the cohort, with the majority based in the United States, United Kingdom, Australia and New Zealand. Companies analysed include representatives from the beer, cider, coffee, spirits, soft drink, water, health drinks, tea, and wine industries.
We looked at manufacturers, wholesaler / distributors, and retailers; and we broke them down into two cohorts – high growth, and other – to see what the more successful companies are doing differently.
Though of course this report is restricted to users of Unleashed inventory management software – which is effectively a small business manufacturing ERP – the end result is a uniquely close, under-the-hood view of the industry.
Before the Shock: 5 Key Pre-Covid beverage industry trends
Because the global business story changes so dramatically for every industry from March 2020 on, we divided this report into two main parts: things we learned about the pre-Covid industry (which may or may not inform any future business-as-usual environment), and things we learned in the last few months as the pandemic rippled through the beverage sector.
Let’s look first at how February 2020 compared to February 2019.
Beverage sales volumes are up (a lot)
With a 24% growth in sales volume the industry was still expanding in February 2020 – though notably at a slower rate than the previous period (2019 vs 2018 calendar years), which saw an impressive 37% growth in sales volumes.
- Read more: Learn more about brewery software
But sales values are lagging
Yes, the industry was still growing value on the sales it made, with a 2% increase this year. Yet that’s a paltry gain compared to the previous year’s 19% growth in revenue.
And margins are down
The overall industry saw gross profit margins decline overall, dropping 2 percentage points, albeit from an already healthy average of 53%, down to 51%. The previous period had seen gains (up from 50% to 53%).
More product variety…
2019-2020 saw an explosion in product variety, with 24% more products on average being managed by our beverage customers, up on the previous year’s 17% growth.
A caveat here: take our ‘number of products’ stats with a grain of salt. ‘Products’, as measured within Unleashed’s software, refers to finished products as well as components or ingredients – so while the average number of final products offered is up, what we’re also measuring here is the number of components & ingredients used, as well as ‘new’ products such as bundles of existing items.
…and more customers
The beverage industry customer base grew a healthy 40%, on the back of earlier 19% gains. The average number of customers in Feb 2020 was 1,715 – and while naturally skewed upwards by those selling B2C, even manufacturers with no online retail channel grew their base by a hefty 33%, indicating a drive to acquire new customers across the board.
The stand-out here was manufacturers with an online retail presence, such as an integrated Shopify, Magento or Amazon store, who grew customer numbers by a staggering 60%.
What does it all mean?
Overall, the image we have of the beverage industry, pre-Covid-19, is of growth, innovation and expansion – plus maturation. The heady expansion of 2018 has backed off slightly, and beverage companies have been concentrating on growing their customer base, product offerings and total sales at the expense of margin. Possibly these lower margins reflect the higher fulfilment costs that come with multichannel selling – with for instance more, small Direct-to-Consumer (D2C) beverage packs being couriered to a larger number of customers.
So does this change in focus up until the end of February point to a maturing industry – with a possible upcoming consolidation phase, where fewer and larger players jostle for market share? It’s possible we’ll never know, thanks to a certain disruptive health emergency that alert industry-followers may have noticed recently…
During the Shock: April 2020 v April 2019
Pandemic business-impact stats make grim reading, and the beverage industry is no different, barring one stand-out detail: sales volumes have skyrocketed.
A scramble for cash flow – sales jump 41%
With B2B channels closing, the beverage industry has scrambled to stay alive by selling direct to the public, making many more individual sales of much lower value.
Comparing Feb 2019 with Feb 2020 we see a Sales Volume growth of 24% – which then almost doubles within two months, with Sales Volumes rising 42% from April 2019 to April 2020.
Meanwhile Gross Sales Values fell -23% and Gross Profit fell -33% in the same period, suggesting that for many a pivot to B2C was about short-term cash flow and survival.
The retail lifeline
Breaking the industry down by business type shows the degree to which retail sales were the only game in town. Pure retailers selling online, and brands with a supermarket presence were buoyed by the huge uptick in retail purchases, and manufacturers with their own online retail presence were even able to increase sales volumes for April year-on-year. Everyone else was left out in the cold.
- Read more: The Direct-to-Consumer pivot – How to set up an online store for your beverage business in 7 steps
Margins suffered, even for pure retailers
Overall this drive towards B2C sales saw margins drop, regardless of industry type or profit levels, indicating a higher cost of doing business across the board.
What did the best performers do differently?
We pulled out the beverage companies with the best revenue growth to see what, if anything, they were doing that set them apart.
Quelle Surprise 1: Good companies are good everywhere
Looking at companies with more than 25% revenue growth last year reveals little that could not be guessed: good companies tend to be good across the board.
Quelle Surprise 2: Good companies are agile & resilient
The companies that grew the most revenue in 2019 were also better equipped to deal with March and April’s Covid-19 shocks, boosting sales volumes and protecting margins more effectively than other businesses.
Yes, but how?
It should be noted that Unleashed’s data doesn’t measure all of the many factors that contribute to high-performance, whether that be effective marketing or skilled leadership. However one trend in the data we do have stood out: more efficient stock control.
The top performing companies have a higher stock turnover (14% higher) than other firms, which is natural for companies that make more sales. However despite this growth they have better controlled their stock-on-hand values, relative to the other cohort. Somewhat counter-intuitively they also consistently have fewer warehouses with an average of 7 rather than 8 in April 2020.
How seriously can you take this data?
It’s worth nothing that while this beverage sector report uses a fair-sized data-set – 235 beverage companies around the world – all of the firms we examined are Unleashed Software customers. Unleashed is a fully cloud-based software which means there’s a potential bias here towards companies with more developed digital manufacturing practices, and with overall greater productive efficiencies than more traditional firms.
Similarly, as Unleashed also allows for native B2B sales portals, plus B2C integrations with the likes of Shopify, the number of businesses seen pivoting in this direction may also be skewed.