Beverage Brands are Feeling the Impact of COVID-19, But May be Stronger in the Future for itApril 27, 2020 - by Taylor Getler
With all of the extreme changes in shopper behavior since the coronavirus pandemic hit, CPG food brands have been among a small group of companies to continue to thrive. However, while pantry staples are finding success as shoppers stock up on emergency supplies, major beverage brands have suffered sharp declines in sales.
Coca-Cola, for example, usually depends on away-from-home channels for nearly half of the company’s revenue. With restaurants around the world shuttered and customers forced to stay at home, Coca-Cola has already seen a 25% decline in global sales volume.
If beverage brands want to mitigate lost sales, they are going to have to quickly adopt a market strategy that is mostly CPG-focused. But with so many shoppers homing in on essential products in their grocery trips, this transition will have to be carefully executed to be successful.
Beyond sales, beverage brands are also grappling with significant interruptions to their supply chains. Many companies – including Coca-Cola – rely on Chinese producers for non-sugar sweeteners, like aspartame, sucralose, and saccharin.
A spokesperson for HSWT, one of the largest producers of aspartame in the world, described how the company was forced to make air deliveries of the sweetener. “Air shipments are extreme,” he said, which “shows you how crucial the role of aspartame in food is.”
With Chinese producers on lockdown since January, France-headquartered HSWT has reported a 20-30% increase in sales as they have absorbed new international customers. This is good news for brands, since it indicates that they are working towards overcoming the hurdle of Chinese imports by spreading their supply chain across countries whose operations have not been affected as dramatically.
Some major producers have been quick to demonstrate leadership in this situation. Bob Gamgort, the CEO of Keurig Dr. Pepper (which owns over 125 major brands) said in a statement that they acted fast to make sure that the lockdown in China wouldn’t pose a major problem to their supply chain. According to Gamgort, “the first thing that we did was geo-diversify our supply chain for our brewers outside of China.”
Beverage brands are also facing increasing concerns about carbon dioxide scarcity. Renewable fuel companies typically produce CO2 as a byproduct of their normal production processes, and these companies are vital contributors for the food and beverage industry. The quarantine has caused the number of cars on the road to drop drastically, cutting demand – and production – from U.S. ethanol plants.
These new restrictions on the carbon dioxide supply have increased prices by 25%. Meanwhile, brands that rely on carbon dioxide as a vital ingredient (including soda and beer brands) are facing these cost hikes at the same time that they are losing a majority of their foodservice sales, as well as problems with their own plants as they navigate the difficult task of social distancing on factory floors. According to some experts, carbon dioxide production could fall short of industry demand by more than 70%.
With all of the bleak information pouring in, it’s easy to lose track of the good that is still being done. For example, despite these recent obstacles, PepsiCo has committed to participating in a program to deliver nearly a million meals to rural students in need. According to Jon Banner, Executive Vice President of Global Communications and President of the PepsiCo Foundation, “it’s critical that the private sector help ensure these students have access to nutritious meals” in light of long-term school closures. While large companies are typically most affected by major disruptions to the supply chain, they are also well-positioned to support local communities and share their resources.
This is a great chance for brands to step up and give back to their consumers, and it’s encouraging to see national companies already seizing this opportunity. Hopefully, many more will follow the example of these early contributors.
It is also important to remember that brands who successfully come out on the other side of this will be more resilient and prepared for sudden external problems. These businesses will find creative solutions and will diversify their supply chains against future disruptions, as Keurig Dr. Pepper has. If new practices are sustainable, they may set beverage brands up to respond to sudden problems quickly, efficiently, and as safely as possible for employees on the front lines.
This can apply to unforeseen circumstances ranging from natural disasters like earthquakes and hurricanes, to human-driven issues like political upheaval and trade wars. By learning how to overcome something as challenging as the pandemic, brands can have the tools to withstand nearly any outside disruptor. Beverage brands are facing hurdles from many different angles now as a result of COVID-19, but they will be both more adaptable and more reliable in the future for having pushed through it.