Essay, Pages 3 (750 words)
We start by trying to understand the current situation and how the current market trends will impact it.
Lower Consumer demand: the beer industry is experiencing declining consumer demand in the developed markets (USA, Western Europe, Japan) due to the following factors:
- Demand Elasticity- emergence of suitable alternatives (substitute) beverages e.g. Cider, wine.
- Demographic changes due to aging population e.g. Germany, Japan
- Higher taxation and government regulations.
- Global economic slowdown reducing consumer disposal incomes.
However, in emerging markets like Brazil & China and developing markets like Nigeria, demand remains strong and will continue to grow.
Market Volatility resulting in global economic slowdown will lead to the growth of the lower price segment of the beer market (winning greater market share) at the expense of premium and mainstream segments which traditionally attracted stronger growths and higher profit margins resulting in reduction of overall profitability.
Intensified competitive pressure: This will lead to rapid product innovation especially amongst craft brewers resulting in more category offerings and new beers on the market.
Changing Consumer behavior. New patterns of consumer behavior will emerge driven by health & wellness, customization & personalization resulting in dietary preferences, and focus on shopping experience favoring local product purchase.
Distribution Challenges. Retail stores like supermarkets and large chain discounters/convenience stores will become important distribution channels for beer at the expense of traditional bars and pubs. There will be a surge in demand for small batch deliveries in various pack sizes to reduce warehousing costs and satisfy consumer requirements making order fulfilment rate to prevent stock outs a major KPI for the Breweries.
Large batch distribution to a central wholesale customer may be unsuitable and obsolete.
Changes in Operational and Organizational structure. Due to rapid changes in consumer preferences, it is projected that it will lead to shift from stable product portfolios with longer product lifecycles to agile organizational structures which support swift and steady product launches with shorter product lifecycles. Traditional low-cost manufacturing favoring large batch volumes will be unsuited for niche markets requiring smaller batches.
These changes in the beer market powered by the emergence of trend-conscious consumers rather than classical beer drinkers’ will force breweries big or small to adjust to the changing landscape. This means breweries would have to expand their portfolio offering to meet the growing trend of customization. As a result, Breweries are starting to invest massively in digitalization technologies such as IIoT and cloud computing.
Digitalization in brewing industry is still basic limited to process automation, control and recipe management. Most of the available data are not collected. The few data collected are mainly from anomaly detection & control but not fully exploited for making predictions which offers the greatest value.
As sensors become less expensive and readily available, with closer integration in equipment, their utilization will gain traction in the brewing industry resulting in Digital Factory (Industry 4.0) with interconnected devices and processes to generate data for smart decision making.
New ways of manufacturing will be aided by digitalization to enhance productivity.
Digital transformation will change the brewing industry in several ways:
- Innovation cycles will be shorter reducing time to market which is critical for survival in the new emerging competitive environment.
- Breweries will require less production and maintenance staff. Brewers and Process Engineers will be confined in a centralized location in front of the computer screen or on mobile applications like tablets and smart phones to monitor and control the entire process.
- It will transform the brewery business process through improved predictive maintenance, better asset utilization resulting in higher productivity.
- New business models will be enabled transforming the bases of competition.
With the ability to monitor machines and equipment in use at brewery locations, manufacturers of industrial equipment like Endress +Hauser will migrate from selling capital goods to selling products as services. Since the device manufacturer knows the usage rate from sensor data, cost could be charged per usage rate. Remote monitoring of equipment performance, service like periodic software upgrades and maintenance could be provided by device manufacturers under annual contract with the Breweries. This service delivery approach will offer the supplier with a more intimate relationship with the customers hence creating a customer lock-in that will be hard to disrupt by competitors. Performance monitoring of field devices will provide useful data to inform the design of new models which could enable the manufacturer sell additional products and services.
Issues like cloud computing, data security, data privacy, small batch production, simulations using digital twins and documentations will take center stage.