Reaching the glass ceiling

Nigel Huddleston looks at the escalating price of glass
27 August, 2008
Page 20 
Rising costs and low retail prices are putting the squeeze on drinks suppliers' margins like never before.

Prices of the stuff drinks come in, as well as the raw materials they're made of, are in many cases in double-digit growth across Europe .

Such costs are generally invisible to consumers who have become used to getting more for less, making it hard for drinks suppliers to pass them on in one hit.

As European retailers increase their power in the marketplace, many are unwilling to accept comparable wholesale prices increases or pass them on to shoppers.

Glass bottles fall into this category, with some producers imposing reported prices of between 10 and 25 per cent above the inflation-linked increases already included in contracts with drinks producers.

Glass producers say a shortage of bottles affecting the European wine trade in 2007 was caused by consolidation in the glass industry leading to less capacity, and a hot summer in southern Europe which disrupted forecasts for demand from wine producers there.

In France, industrial action at glass manufacturers has increased the problems faced by the industry.

Scotch Whisky Association spokesman David Williamson said: "There have been issues around the closure of furnaces in Europe and the maintenance of glass works, and it's something we're watching very closely and working with the glass sector to ensure our requirements are met at a competitive price."

David Workman, director general of British Glass, insists any glass shortages are short-term, despite fears among some drinks suppliers that shortages are here to stay.

Glass price increases are more tied-up with the higher gas prices experienced by European manufacturers and consumers between 2004 and 2006. Because supply was outstripping demand at the time, glass producers generally chose to absorb the cost. Now, with the situation reversed, they're trying to recoup some of the shortfall.

Rupert Thompson, managing director of the UK's Wychwood brewery, said glass prices are among a range of cost concerns for drinks firms.

"It's goes well beyond ourselves or indeed just the brewing industry," he said, "though for brewers it does represent a bigger portion of the total cost than for most other sectors.

"We had a contract that allowed for exceptional increases and we've had to submit to increases we hadn't bargained for."

Rising glass prices have come on top of increasing costs in other raw materials such as malt and hops, plus packaging materials including cardboard and aluminium .

Higher energy prices are a major contributor to bottle price increases, according to the glass industry.

But there are concerns that consolidation has led to a near monopoly situation in Europe, bringing less competition and reducing the ability of drinks manufacturers to shop around.

Jean-Jacques Delhaye, director of the European Federation of Wine & Spirit Importers & Distributors, has written to European Competition Commissioner Neelie Kroes to express concern at "an extremely alarming situation which is seriously endangering the organisation of production tools in our members' companies".

He added: "The glass sector has clearly become highly concentrated to the point where we now face a virtual monopoly of suppliers among whom there is no longer any competition."

Further glass prices could see more producers turning to other forms of packaging altogether.

Already several wine companies and the UK supermarket giant Sainsbury's are us ing PET bottles made to resemble traditional glass ones in an attempt to lower transport costs. Other wine suppliers are turning to Tetra Pak .

Many wine producers still prefer the authenticity of glass and are working with suppliers to produce lightweight, which could ease the global supply crisis in glass and cut down carbon emissions .

But many in the drinks industry need convincing the problems faced by glass producers are crystal clear .

One drinks manufacturer, who didn't want to be named, said: "Furnaces have closed when they really needed to be kept open. Three payers [in the UK] have a very dominant portion of the marketplace. If that had been the drinks industry the Competition Commission would have been down on us by now."