Bevcos have been grappling with squeeze on cans, can ends and copacking time that’s roiling their planning for 2019 as supplier consolidation, boom in alc and non-alc sparkling items, growing aversion to plastic on sustainability grounds and other issues turn once-reliable format into source of considerable anxiety. Most severely constrained items seem to be 16-oz cans, as fast-growing brands like Monster Energy soak up availability, and 12-oz slim cans, a darling of superpremium set. But even conventional 12-oz cans are tight, thanks to craze for sparkling water brands like National Bev’s La Croix and Pepsi’s Bubly. Can ends are in particular squeeze, particularly for those hoping to indulge in trend toward colored pull tabs and other refinements. And as oversold condition leads can suppliers to outsource from their rivals, customers are incurring extra freight costs in process. Meanwhile, tunnel-pasteurized copacking capacity for cans seems tight across the board, as growing participation in natural segment by big bevcos leaves small and mid-sized players scrambling for what’s left. Some are even resorting to installing their own pasteurizing equipment at their copackers.
“The entire industry is sold out,” said Michael Zuckerman, principal at century-old packaging consultant Zuckerman-Honickman in King of Prussia, Penn, which diversified focus on glass and plastic with move into cans about 7 years ago and has seen format surge to 30% of its biz. He was quick to add, “It’s a battle every day but we’re getting what we need.” True, the seasonal downturn in bevs has eased the squeeze a bit and new capacity is coming online, but those planning for 2019 aren’t expecting a respite as things gear up for spring.
“It’s been keeping me up at night,” reported LifeAid cofounder Orion Melehan. “I spent 3 days cold-calling copackers.” Existing copacker serving eastern US, whom he declined to identify, “strung us along for 6 months and then said there’s a change in direction” – despite fact that LifeAid was planning to run 1.8 mil 12-unit cases there this year. So he’s searching for new partner on East Coast or in Midwest to augment 2 copackers on West Coast and reduce freight costs that are hurting margins. LifeAid’s core package, 12-oz slim can, also is “amazingly tight” in supply, but co had foresight to sign multi-year commitment a few years back with supplier Ardagh, which may not be accepting any new customers at moment.
At heart of issue is boom in use of aluminum cans, not so long ago viewed as an anomaly in craft beer. Beer Institute recently reported that cans continue to win share from glass in beer, and canned wines have been coming on strong, too – to point that Zuckerman-Honickman recently set up alliance with mobile canner Ironheart expressly to pursue that biz. Crown Holdings exec Tim Donohue recently estimated cans’ share of craft beer at 25-30%, and “certainly much higher” were it not for capacity shortages. Spiked seltzers have been another phenomenon. Indeed, on recent earnings call, Crown’s rival Ball attributed its Q3 growth to the 20% of its biz comprised of new categories such as wine, sparkling water, craft beer and spiked seltzers, all sporting double-digit growth. Of the other 80%, split evenly between big beer and soft drinks, Ball chmn John Hayes said beer is declining and CSDs are flat, tho cans continue to win share in beer. But the “good growth” is in energy, water, craft, wine, flavored alc bevs. As major corporate customers who got caught short this year move a bit away from just-in-time mode and rebuild their stocks, it presages further difficulty for smaller customers.
“The real issue is that the market, while it is flat this year, it’s only flat because mass beer is down 3% to 4% in cans,” Crown svp/cfo Tom Kelly recently told investors. “And with the exception of mass beer, everything non-alcoholic is up a few percent. And when you look at the decline in mass beer and the cans that are not being utilized throughout the entire system, those extra cans are located perhaps with a guy who makes his own cans. So, it leaves the rest of the market fairly tight.”
On NA side, continued growth of Monster Energy is squeezing capacity on 16-oz cans, while boom in La Croix sparkling essence water and its challenger from Pepsi, Bubly, have further constrained conventional 12-oz stock cans. Sleek cans have been a chronic problem as marketers of high-end brands employ them to signal elegance or functionality. Can ends are in even tighter situation than can bodies. On top of that, processing capability is hard to come by, particularly in niches like sleek cans, pasteurized items and sparkling bevs. For hotfilled brands requiring small or mid-sized runs, capacity is so tight that Zuckerman-Honickman sometimes works with clients to install pasteurization capability at copackers’ plants, Z-H principal Lorne Haskin said. The squeeze echoes what we’d seen in recent years in other processing styles, as when Pepsi/Starbucks Frappuccino soaked up much of retort processing capacity for dairy-based drinks (in process stunting rivals like Java Monster) or Bai soaked up much of aseptic processing for PET bottles. If you're a small or mid-sized brand trying to settle your packaging mix and line time, planning for 2019 has become tortuous process. “The beer guys, NAs, everybody is moving into cans,” lamented Chris Wilson, whose Sipp Sparkling Organics line has recently tilted from glass bottles to cans.
Supply side for cans has seen its share of turbulence. This past summer, for instance, Crown closed a plant in Lawrence, Mass, and opened a massive plant in Nichols, NY, where it consolidated its Pepsi business; this summer it said it was oversold on cans by 1 bil units. Among other key producers, Ball has been bringing on a new superplant in Goodyear, Ariz, but closed plants in Chatsworth, Calif, and Longview, Tex, essentially replacing 8 lines with 5, as svp Dan Fisher noted on recent earnings call. All this while shorter runs of fast-growing specialty items has reduced efficiencies. “Multiple products are off of one line, you’re making less cans, so all of that is having an impact on supply-demand,” Dan said. Meanwhile, while another key supplier, Ardagh, hasn’t announced plans to build a new plant, it will add lines to its existing operations.
Meanwhile, ongoing consolidation on copacking side is likely to have repercussions that ripple out. For example, Summit Co-packing owner Geoff Soares said he’s been getting inquiries from customers who’re worried that Harvest Hill’s move to combine its Carolina Bev and Cold Spring acquisitions could result in move away from smaller and mid-size clients. Word is that Cold Spring has suffered delays bringing on a new high-speed line that was supposed to be live last Jul, crimping its own ability to absorb soaring demand. Exit even of small copacker like Paul’s Beverage near Pittsburgh sent some clients on desperate quest for capacity, tho those assets were just picked up by nearby Castle Co-Packing (story below). Others are reacting to press of demand by adding capacity. In Wis, for example, Krier Foods has operated only a single can line but is adding another. And AZ Pack and NVE Pharmaceuticals are said to be cutting over 8.4-oz slim can lines to 12-oz slim can lines as smaller size fades in significance. But those additions will take time to catch up with demand.
So far, unlike the widely discussed transportation squeeze, the topic seems to be mainly a focus of worried conversations behind the scenes. But it’s starting to break into public view more often, as on recent earnings call of Celsius Holdings, whose entire bev line goes out in cans. “Copacker availability in N America has been challenging, a lot of growth in the sleek can business,” ceo John Fieldly told investors. He said CELH is working with 4 copackers and is in talks with 4 others for 2019 as it scrambles to bring its inventory levels up to support brand’s rapid growth. He added, “There is some talk about cans having supply issues, but we have a good relationship with our can manufacturer and have not been affected by that.”
At fast-growing 3D energy in Louisville, cofounder Trey Steiger told BBI he’d had to resort to overseas supplier to get adequate supply of 16-oz cans, but is witnessing “huge shortages” in can ends, worsened by big buy recently by PepsiCo. As for copacking line time, that’s “available though not always when you want it.” He cited recent supplier email that said customers’ purchase orders for Dec delivery on can ends was being pushed out to Mar. Cans used to be on 6-week cycle from PO; now it’s 3 months, he reported.
It’s “literally impossible” to get production time for canned items, lamented Sipp’s Wilson, adding you have to be willing to commit to 10K-case minimum per flavor, or else just rent the plant for the day. (He recently scouted out affordable new option in Mid-Atlantic region but requested that we shield its identity – “like with a good babysitter,” he joked.) For other small brands, the situation is spurring move to self-production, as Dona Chai is doing at its recently occupied Brooklyn facility for new canned sparkling line, said cofounder Peter Rothstein.
Of course, we’ve seen turbulence before in biz that’s lurched thru boom-&-bust cycles. Zuckerman-Honickman’s Paskin recalled big push by Crown in 2012 to go after craft brewers that proved too successful: company reeled in 300+ customers only to find the fragmentation killed efficiency; by 2015, it was sending letters to 250 breweries dropping them from roster.
For entrepreneurs trying to build canned brands, it’s delicate balancing act. At LifeAid, Melehan said he must balance suppliers’ demands for long-term commitments against fact that new capacity coming on in next coupla years should reduce tolling fees. He also needs to weigh whether the benefits of building inventories as assurance against out-of-stocks is worth the strains on working capital, or even the need to bring in more capital at risk of further dilution. On positive side, he noted, the squeeze has served as entry barrier to earlier-stage brands that might come along to challenge brands like his. With copackers demanding minimum runs of 10K cases or more, “it’s very tough to come into the market now,” he said.
Looking at 2019, Z-H’s Paskin warned that for NAs, “capacity is extremely tight” as larger players don’t leave much room for smaller and mid-sized brand owners. Tho he’s heard more capacity will go live starting in Q1, “Our advice to our customer base is: lock it down and secure it . . . solidify your relationships.”