Building a Sustainable Model for Foreign Beer in America
In many countries, foreign beer brands are growing in popularity as consumers are looking for new experiences, yet the choice of business model for producing those beers is under debate. Authenticity favors the import model, but shipping beer and glass over long distances scores poorly on sustainability. We do not expect that brewers in the United States – the largest market for foreign beer – will switch from imports to local production. They might, however, follow a lead from the wine industry and introduce a hybrid model where beer is produced in the country of origin, shipped in bulk, and bottled in market. This could be a means of reducing not only costs (particularly if beer becomes caught up in the escalating trade war), but also greenhouse gases.
A Hybrid Model Combines Benefits of Imports and Local Production
Foreign beer is becoming increasingly popular across the world. Since 2000, the category has more than doubled in size, rising from 15 billion to 33 billion liters. Currently, there are two widely used operating models for foreign beer: import and local production. Because of changing consumer preferences and the risk of rising import duties, a third (hybrid) model may become more attractive (see Table 1).
New Import Tariffs Could Be a Catalyst for Change in the US
In the United States, where one in seven foreign beers is consumed, almost all volume is currently imported. American consumers put great emphasis on authenticity and like their foreign beer to be brewed at the original brewery. The price premium that brewers are therefore able to charge makes importing an attractive proposition. The higher price more than offsets the transportation costs. It is unlikely, however, that brewers would also be able to pass on new import duties if Mexican and European beers were dragged into the trade conflicts. These potential new duties could exceed 25% of the products’ value.
Switching to local production is problematic in the United States, as the new location of the brewing process would no longer meet consumers’ expectations. Consumers sued AB InBev when it became known that they brewed Beck’s in St. Louis, rather than in Germany. Craft Brew Alliance met a similar fate when it was discovered their Kona beer comes from the US mainland and not from Hawaii. Although changing a business model may bring many advantages for brewers, it is improbable that American consumers would continue to pay a premium price for foreign brands if they are brewed in the US.
A Hybrid Solution Is a Step Towards Sustainable Change
Beer companies will be reluctant to brew their foreign brands in America, but a hybrid model comprising home-market brewing, bulk transport, and local bottling could be an interesting alternative. By shifting from bottled to bulk transport, as many in the wine industry have done, brewers could:
- Reduce the cost price of their beer
- Lower their CO2 footprint and increase sustainability
- Improve the quality of the beer at the point of consumption
- Continue to offer the authenticity and experience of foreign beer
Brewers Can Halve Their Number of Journeys
At the moment, most imported beer is transported to the United States in bottles (see Figure 1). A 20ft container can hold 11,500 liters of beer in bottles but 24,000 liters when shipped in bulk. By switching to bulk transport, brewers can halve their number of journeys, thereby lowering their logistics costs and CO2 footprint.
The Effect of Potential New Import Duties Can Be Halved
Although bulk beer will also attract prospective new tariffs, bottling within the US would result in a lower value when crossing the border, which reduces the amount of the duty. A commercial brewer typically spends 25% of direct costs on ingredients, 25% on the brewing process, and 50% on packaging. By transporting beer unpackaged, brewers would be less exposed to potential new import duties.
The Quality of Beer Is Still Affected by Transport but Is Likely to Improve
Transport of beer, whether in bottle or bulk, constitutes a risk. Packaging can break. Contamination might occur. And beer itself can deteriorate, either through exposure to heat and sunlight or because its freshness diminishes. Data from the wine industry shows that the variation in temperature during bulk transport is lower than during transport in bottles, due to dissipation. If maturation of beer can be achieved during bulk transport, it could also reach the consumer much fresher than under the traditional import model.
The Authenticity of Bulk Beer Can Benefit From Transparency
There are two main areas of concern for American consumers if the current import model for foreign beer were to change: a lack of authenticity and a low level of transparency. Modern blockchain technology can solve the latter issue and show consumers exactly where the individual value-chain activities of their beer have taken place. It would clearly differentiate between the hybrid- and the local production-model and identify sourcing and brewing as foreign activities.
Third Parties Can Help With Investments and Technological Challenges
Across the world, brewers have shown that they are willing to adjust their operating model, especially when import duties are (threatened to be) increased, for example in Angola and Ethiopia. For major importers like Heineken and Constellation Brands, consumer acceptance of bulk beer will be key when deciding on an operating model. Brewers might be hesitant to change because of consumer preference for authenticity, particularly in the US. For smaller importers, diseconomies of scale would be an additional barrier, but outsourcing to independent transporters and co-packing companies can help them. The hybrid model could provide a long-term solution that benefits everyone: a product for the consumer that is both sustainable and authentic, creation of jobs in the US, and margin protection for brewers.
