Consumer Business

Protable growth and value creation in the beer industry

A view from Deloitte and SAP

Table of Contents
1. Introduction ................................................................................................................................. 2. Industry overview ....................................................................................................................... The business environment for the beer industry................................................................ Business performance improvement priorities the path to value ................................ 3. Market trends and industry challenges .................................................................................... Complex distribution systems with conflicting interests .................................................. Demographic and lifestyle changes ...................................................................................... Retailers power continuously increases ............................................................................... Competition gets fiercer ......................................................................................................... Food safety ............................................................................................................................... Consolidation & globalization .............................................................................................. 4. Beer industry process improvement opportunities ............................................................... Improving customer relationships with direct store delivery .......................................... Enhancing relationships with indirect partners ................................................................. Increasing sales force effectiveness through incentives management ............................. Managing safety requirements through tracking and traceability ................................... Optimizing the extended supply chain ................................................................................ Reducing time-to-market for new products ....................................................................... Increasing customer retention through effective trade promotions ............................... Improving margins by optimizing the telesales channel .................................................. 5. Solutions for the beer industry ................................................................................................. Basic capabilities and processes ............................................................................................ Beverage-specific processes ................................................................................................... 6. Conclusion ................................................................................................................................... 1 1 1 2 2 3 3 4 4 5 5 5 5 6 7 8 8 9 10 11 12 12 13 14

1. Introduction
The beer industry is the biggest sector of the Alcoholic Beverage industry, with global annual sales exceeding $325 billion USD. However, market saturation has been reached in much of the developed world, which is limiting the industrys growth potential and forcing many companies to focus on emerging markets. With so few options for growth, companies that operate in the industry face considerable competitive pressures. Consequently, they must streamline their processes in order to drive real, protable growth all while ensuring that they effectively meet the demands of both customers and consumers. This paper provides insights on the market trends facing the beer industry. It outlines the specic challenges facing the companies operating in this arena, such as ever-changing consumer tastes, a growing emphasis on product safety, and the increasing power of global retailers. It also explores opportunities for process improvement and cites specic solutions that can empower beer companies to meet industry challenges, both today and tomorrow, and drive protability and growth. Amid ever-increasing competition, beverage companies must intensely court customers, offer high-quality products, efciently distribute them, ensure safety, and keep prices low all while staying nimble enough to exploit new markets by launching new products. In this environment, success depends on a companys ability to quickly capitalize on emerging opportunities. The beverage industry is extremely competitive, with private labels greatly inuencing the environment. A few global beverage giants produce many brands, but those brands fall into self-contained categories as well. Thus, the beverage market is not really one market; it is a collection of markets with many different types of products, processes and requirements. The beverage market includes several different products that can be grouped into two main categories: alcoholic (beer, wine, spirits) and non-alcoholic (carbonated soft drinks, juice, water, sports drinks, etc.). Each category, and often each type, of beverage has its unique issues and needs. In 2003, China surpassed the US as the worlds largest beer market. Volume in China grew by 5.1% in 2003, while aggregate volume of the other four markets in the global Top 5 fell by 0.8%

2. Industry overview
The business environment for the beer industry
First brewed in ancient Mesopotamia as early as 10,000 BC, beer has been enchanting the world for centuries. Described as the most ancient of manufacturing arts, brewing and distributing processes have been undertaken by millions of people throughout history. The manufacturers and distributors of today now carry the torch for the industry, continuing beers great, storied tradition. To understand todays beer industry, one must rst look at the beverage industry as a whole. In recent years, the beverage industry has been faced with new opportunities and challenges. Changing consumer demands and preferences require new ways of maintaining current customers and attracting new ones.

Recent trends in the food and beverage market center on product safety, quality, consumer demand, and channel complexity (including the growing inuence of retailers on the supply chain). These trends have impacted the beverage industry in general and the beer industry in particular. Moreover, the beer industry is distinctly characterized by the conicting interests of beverage manufacturers and distributors. The key players and interactions of the beer industry are illustrated in the following chart:

innovation, differentiated quality, improved product availability, better management of customer relationships, and increased control over the distribution channels

Cost reduction/margin improvement for example, through improved operational efficiency, lower labor costs and the capture of operational synergies from acquisitions Improved asset utilization for example, through reduced inventory levels of beer held in cold storage, faster turnaround of re-usable transit packaging in the supply chain, and better control over field assets Regulatory/assurance for example, through demonstrating quality by participating in retailer assurance schemes and assisting trade customers in achieving full compliance with new traceability legislation.

Hotel, Hotel, Restaurant, Restaurant, Canteen Canteen

Supplier Supplier

Beverage Products Company

Distributor Distributor

Retail Retail Stores Stores

Food Service Food Service Companies & Companies & Caterers Caterers

3. Market trends and industry challenges

In order to survive in this environment, companies must consider the market trends that will likely shape the industry over the next few years. This will help beer companies to understand the challenges they will encounter and to turn them into opportunities for process improvement, enhanced exibility and, ultimately, greater protability. Market trends for the beer industry can be summarized by six fundamental themes: 1. Complex distribution systems with conflicting interests 2. Demographic and lifestyle changes 3. Continually increasing retailer power 4. Fierce competition 5. Product safety issues 6. Consolidation and globalization

Figure 1. Key players and interactions within the beer industry.

In this paper, we will focus on the issues relevant primarily to beer producers or distributors with an annual turnover of $500 million to $2 billion USD. However, the majority of the points will still be applicable to all beer companies, regardless of size.

Business performance improvement priorities the path to value

Against the backdrop of these market challenges, how can beer companies drive protable growth and create value for their owners or shareholders? In practical terms, there are four areas on which companies in the beer business need to focus:

Revenue protection and enhancement for example, as driven by product and packaging

Complex distribution systems with conflicting interests

Often in the beer industry, manufacturers use valueadded distributors to merchandise, sell, and deliver the product to the end accounts. This practice is most prevalent in the US. As described below, each entity performs different roles within this complex supply chain.
The Value Chain

Contain the costs of acquiring new customers Increase customer loyalty

Beer manufacturers continue to develop new products and packages, which increases the operational complexity for distributors, often requiring them to make additional capital investments

Demographic & lifestyle changes

There is signicant concern in the mature beer markets (US, UK, Germany, and Japan) regarding a forecasted decline in core beer consumers, dened as people ages 15-34. This age group is regarded as the major force behind the growth in the alcoholic beverage industry. For example, people within this age group consume 66 gallons per capita annually in the US, more than twice the national average of 31 gallons per adult (Interbrew Corporate Analysis Value Center). In the emerging nations of

Figure 2. Roles within the beer supply chain

This structure often creates a conict of interests between beer manufacturers and distributors because:

Beer manufacturers profit from increased sales at the expense of distributors margins

Beer manufacturers historically have had higher returns and lower capital requirements Beer distributors historically have had lower returns and higher capital requirements for distribution networks

Beer distributors push their customers towards the brands with the highest profit margins Beer distributors continue to consolidate in an attempt to offset margin pressure through cost reduction. Specifically, size helps them to:

Spread xed costs over greater volume Make larger investments in warehousing and distribution equipment

Asia and Latin America, the news is somewhat better. The number of people within the 15-34 age group is forecasted to increase, which should drive consumption in the coming years. In addition to age and demographic concerns, increased awareness of caloric intake and carbohydrates, due to the recent popularity of the Atkins and South Beach

diets, has hit the beer industry particularly hard. While this trend has spurred some innovation (Michelob Ultra), the industry as a whole has been slow to mount an effective response. This has caused an across-the-board decline in the consumption of beer, which is generally high in caloric content, versus consumption of spirits and wine, as well as non-alcoholic beverages: Additionally, due to maturing tastes and greater amounts of disposable income, consumers are increasingly choosing quality over quantity, resulting in an overall shift toward premium-priced beers.

the growing competition between manufacturers and retailers:

Retailers are using their power to set higher standards for marketing and operational excellence, including escalating demands for improved service quality and shorter order-to-delivery cycles from manufacturers and distributors. Many of these demands, such as RFID, not only squeeze margins but also require significant capital investments. Because of their direct relationships with consumers, retailers have a deeper knowledge of consumer behavior.

Retailers power continuously increases

With Wal-Mart leading the charge, the worlds dominant retailers are demanding better service and shorter order-to-delivery cycles from beer companies. This is dramatically reshaping the industry, forcing beer companies to become more efcient, while taking pricing power out of their hands. The dual need for improved supply chain agility and cost-efciency is challenging suppliers to reevaluate the ways in which they plan and manage their supply chains, as they constantly search for approaches that will help them achieve the rock-bottom prices and increased efciency now expected in the industry. Furthermore, the growth of private-label products is encouraging manufacturers to take a number of steps to compete more effectively. Increasingly, they are turning to innovation and new product introduction as a means to achieve real differentiation as well as growth. Branded manufacturers are also looking to get closer to the consumer, with many of the larger ones piloting direct-to-consumer marketing approaches. They are also trying to better understand the in-store consumer experience by monitoring the execution of in-store activities. Nevertheless, many suppliers are losing brand equity. In recent years, a couple of factors have been fueling

Competition gets fiercer

In the beer industry, competition is growing due to the following factors:

Falling consumption in mature markets Constant demand for new products and packaging Industry consolidation, which has significantly raised the bar for the scale needed to compete Growth of private label products.

These competitive pressures have led to:

SKU proliferation Between 1991 and 2001 the number of SKUs in a typical beverage company doubled. A plethora of new product failures:

Only 20% are effective Only 10% generate signicant revenue Most fail within the rst two years

Further consolidation and rationalization, driven by opportunities for cost-cutting through operational improvements or elimination of redundancies The acquisition of small, high-growth companies in emerging markets by industry leaders

Food safety
Food safety is a concern of governments across the world. Periodically, safety failures make big news in the global press. Amid this growing concern, regulators are cracking down on sanitation and a variety of other food-safety requirements. While food safety is the major focus in Europe, the emphasis in the US is more on bio-terrorism and food security. However, the provisions in the 2005 traceability legislation in the US, which stemmed from the Bioterrorism Act of 2002, and those in EU Directive 178, Articles 18 and 19, are very similar. The U.S. Food and Drug Administration (FDA) is proposing the registration and tracking of almost all domestic and imported food articles, but some are concerned that the complexity of the rules will overwhelm both the food industry and the FDA.

At the beginning of the new millennium, brewers focused primarily on Europe; their attention since has swung to China. Merger and acquisition opportunities continue to attract brewers in this region: In 2003, for example, Carlsberg bought two breweries in Chinas southern Yunnan Province after previously selling a 75% stake in Carlsberg Brewery (Shanghai). 2004 saw AB acquiring a 29% stake in Harbin Brewery, Chinas fth largest brewery, which triggered a bidding war for full ownership with SABMiller. That same year, Interbrew SA purchased a controlling interest in Malaysian Lion Groups Chinese beer business. Added to its 24% stake in Zhujiang (another Chinese brewer), Interbrew now holds a 6.2% share of Chinas beer market. Heineken also upped its game in China by investing in Guangdong Brewery so as to brew its beer in the local market. Each beer company must take these industry challenges into consideration, as well as its own strengths and market position, when looking for ways to drive innovation, accelerate growth and increase margins. The next section outlines where some of the most promising opportunities for accomplishing these objectives can be found.

Consolidation & globalization

Because growth is expected to be stagnant in the European and American beer markets, both beer manufacturers and distributors are turning to mergers and acquisitions to fuel growth. Size, for both the beer producer and distributor, has also become an increasingly important means of offsetting retailer power, helping suppliers to obtain a strong position within the distribution chain and to gain prime shelf space.

4. Beer industry process improvement opportunities

Improving customer relationships with direct store delivery
Branded beverage manufacturers are attempting to get closer to the consumer, with many larger manufacturers piloting direct-to-consumer marketing approaches. These include active monitoring of in-store activity and, in some markets, a signicant move back to direct store delivery (DSD). Direct Store Delivery is a business process used in the beverage industry to sell and distribute goods directly to the customers point-of-sale. With DSD, the beer company gets in direct contact with retailers, restaurants

and pubs and other outlets where consumers can obtain the product. Manufacturers can use DSD to:

Make beverage goods available to stores and customers quickly Optimize process settlement in sales and distribution through complete coverage of the supply chain Improve customer retention and build customer relationships through personal service Realize additional sales opportunities Obtain first-hand information about the market Better position brands against competitors Ensure product quality up to the point of sale

competitive intelligence (competitive products, product mixes, prices, displays, etc.); and monitoring store/account execution. May also include some preventive maintenance.

Additional sales opportunities - Enables a company to sell goods off the truck without any preceding order. The mix of products on the truck is dependent on what is most likely to be sold on a certain trip. Support provided by handheld devices enables drivers to skip back-end paperwork and to close the process through printed invoices.

Enhancing relationships with indirect partners

Indirect sales is the process of selling to an end customer through a third party, and tracking that sale as such.

The best DSD companies couple the process of direct delivery with a cultural change in how they view their employees and how their delivery personnel operate: They are not just drivers but they have sales skills, communication skills and a global view of the companys offerings, commercial priorities, and initiatives. For some companies (beer distributors in particular), delivering directly to stores is the established method of doing business. Nonetheless, many of these companies do not take full advantage of the proximity to the consumer that this process allows. These companies must think beyond merely delivering products to engender a cultural shift in their delivery forces. Direct Store Delivery is characterized by variable orders and deliveries. Consequently, the process should involve more than just bringing goods to the point of sale. It should eventually encompass taking additional orders, picking up empties, collecting money, and more. Leading DSD operations typically include valuable activities, such as:

Distributor

Store

Due to the complexity of the beverage supply chain, conicts of interest frequently arise between beverage manufacturers and beverage distributors:

Beer manufacturers profit from increased sales at the expense of distributors margins Beer distributors profit from positive local pricing environments, which, if exploited, reduce volume sales Beer distributors continue to consolidate in an attempt to offset margin pressure through cost reduction Beer distributors push their customers toward the brands with the highest profit margins

Merchandising activities - Enables the company to leverage frequent delivery visits to the point of sale. These activities include tracking merchandising of other entities (suppliers, wholesalers, etc.); reporting on in-store merchandising activities; carrying out

Despite these conicting interests, it is crucial that beverage manufacturers and beverage distributors maintain one face to the customer. These companies jointly market and sell the product in the marketplace, and close co-operation yields benets for both parties. The indirect relationship is a partnership that must be nurtured by both the supplier and the distributor. The stakes are high for everyone. For the manufacturer, a poor relationship with a distributor may cause it to give a competitor more presence in the local marketplace. For the distributor, a negative relationship with a supplier means constant threats of contract termination and fewer marketing dollars spent in the local market. A strong manufacturer/distributor relationship is also important because consumers are becoming more difcult to capture and classify. It is not only about sales; it is also about information. But how can strategic information ow freely between partners? Although sharing is implied in the word partnership, the reality is that companies are still uncomfortable about exchanging strategic information. Nevertheless, it is critical for companies to share information regarding sales volume and market intelligence on both the microscopic and macroscopic levels. The importance of the distributors role in the indirect channel for beverage distribution suggests that it would be benecial to establish a common understanding between distributors and manufacturers regarding:

distributing companies, and acquisitions of distributing companies by manufacturers, have signicantly modied many operating and ownership structures. Consequently, a few well-structured and managed distributors have emerged that possess a better understanding of the value of collaboration. These distributors have been at the forefront of facilitating partnership initiatives.

Increasing sales force effectiveness through incentives management

In the beverage industry, the critical path to a companys success is the effectiveness of its sales force. No matter how efciently the company runs its manufacturing processes, or how well it markets its products, a beverage company cannot succeed without an effective sales force that ensures product placement on the store shelves. A beverage manufacturers sales force typically comprises 17%-25% of the companys cost basis. Beverage distributors have an even higher percentage of their total costs allocated to their sales forces. Yet, how can beverage companies get the most out of their investments and ensure that their sales forces are operating optimally? Properly managed commission programs allow beverage companies to effectively motivate their sales forces to increase or maintain volume by brand or package. A commission could be a rebate, discount, or other payment to a third-party or in-house employee. In order to actively manage sales behavior, it should be paid when the internal or external sales representative meets a pre-established benchmark for a tracked metric. The commission could take the form of either a cash payment or an item.

Coding (products, channels, customers) Technology Data interpretation Marketing and sales actions

In some cases, distributors are small-to-medium sized companies that only dedicate a few people full-time to operational activities. As a result of this structure, they are rarely open to implementing a truly collaborative environment. Recently, however, mergers between

While commissions are usually paid based on sales volume, leading companies take a more comprehensive view of commissions metrics. Some other important measures include:

At the batch level, it is now possible to assign different product attributes when searching for the product including manufacturing expiration dates and shelf life dates. By classifying production lots into batches, companies can identify specic inventory and automatically record its history, including the history of the raw materials (and their associated batch numbers) used in its production. In other words, it allows full recall of the materials that have been involved in the overall manufacturing process. These improvements reduce the companys exposure to litigation and regulatory nes. In addition, track and trace improvements help companies to maintain high quality standards, which is often a selling point that differentiates one brand from another and that can command a price premium with the consumer. Recording and tracking that quality is critical. In the nal analysis, beer companies must strive for the highest quality standards they can achieve ones that are superior to those of their competitors.

Account revenue growth Profit results Number of new accounts Customer service metrics Account retention.

Managing safety requirements through tracking and traceability

As recent history has shown, the ability to track inventory accurately and to perform a timely and cost-effective product recall is critical in the beverage industry. Inventory items need to be tracked, monitored, and controlled in different ways and at very detailed levels. In each individual plant or warehouse, each resource requires a different level of control/analysis. Food safety legislation, such as EU Directive 178, impacts the whole process ow. Traceability is a goal that must be achieved over the entire value chain, requiring a batch control system that is able to track and document all related characteristics.
Activity Track and inquire on inventory by characteristics Record inventory activities (receipts, shipments, adjustments, etc.) Recall products Inventory traceability information Type of Questions Answered How many kilos of barley do I have? How many different batches of light beer do I have in my inventory? What batches will I have to recall from the retailer? What went into a specic batch?

Optimizing the extended supply chain

In a business environment characterized by strong competition, changing consumer preferences, and conicting relationships between beer manufacturers and distributors, the beverage supply chain is under signicant pressure. Moreover, the worlds dominant grocery retailers (with Wal-Mart paving the way) continue to demand increasingly better service quality and shorter order-to-delivery cycles from manufacturers. This is dramatically forcing manufacturers to become more efcient, while taking pricing power out of their hands. The need for both improved supply chain agility and cost-efciency is challenging suppliers to re-assess how they plan and manage their supply chains.

The logistic chain must be able to sustain brands, products and services cohesively, while taking into account different channels, customers, points of sale and customer needs. Accordingly, companies should consider taking the following steps to improve their supply chains:

Ensure on-shelf product availability On-shelf availability is becoming a critical issue for both manufacturers and retailers. A system that avoids out-of-stocks improves consumer value, builds brand and store loyalty, increases sales and most importantly boosts category profitability. The traditional practice of filling out-of-stocks with other products is no longer sufficient particularly from the manufacturers point of view. If consumers cannot find the brand they want, their loyalty to that brand suffers. A 2002 study by the Grocery Manufacturers of America (GMA) found that outof-stocks jeopardize $6 billion in retail sales every year. Less conservative estimates put this figure as high as $20 billion. Increase flexibility Most retailers are demanding increased flexibility in order lead-times and delivery methods, putting additional pressures on the supply chains of manufacturers and distributors. To withstand these pressures, companies need to streamline product movement through programs, such as store-specific shipments. They must also meet the strategies of progressive retailers, which require flow-through distribution and cross-docking. Accurately forecast demand Properly forecasted demand drives two of the primary metrics used to measure the efficiency of a beverage companys supply chain: customer service and inventory. Accurate forecasts are essential to achieving improved customer service and lower inventory levels. Even with recent success in developing and maintaining efficient supply chain processes, forecasting inaccuracy remains a significant industry problem. According to the 2003 GMA Logistics Study, more than one-third of all forecasts are inaccurate at the national level. This figure jumps

to almost one out of every two at the regional (distribution-center) level. Meanwhile, at the store level, differences in store formats and sizes hamper the forecasting process, and few have the tools to accurately manage the sheer volume of data generated by forecasting. Furthermore, many manufacturers do not have the technology to properly support their planning and forecasting efforts. Many manufacturers are still forecasting sales in months, although their plants run on weekly plans. That means they have to squeeze weekly totals out of monthly boxes.

Implement a fully integrated empties management process Empties management is the process of managing returnable containers, including kegs, CO2 tanks, bottles and crates (an essential part of direct store delivery). A successful empties management system gives the manufacturer a detailed picture of the entire empties lifecycle, including the location and status of a companys assets. This process:

Lowers costs by controlling high-value empties assets Increases control by managing empties at customer locations Decreases manufacturing issues by tracking empties.

Reducing time-to-market for new products

An efcient new product development system is essential in the beverage industry. New products need to be brought to market quickly in order to capitalize on changing consumer preferences and competitive threats. However, new products must be developed tactically, and the products potential must be understood and analyzed before it hits the market. Currently, success rates for new products are astonishingly low dropping from 75% to 25% in the last decade according to

AMR and most fail within the rst two years after introduction. The companies that are best able to execute the whole product development cycle will clearly have an advantage. This requires reducing time-to-market as well as making effective use of scarce internal resources and improving collaboration with partners. In addition, great attention must be paid to aligning the related marketing initiatives (e.g. advertising, sales promotions, etc.) with the new product introductions. Innovation is one of the primary growth drivers for beverage companies, and it can involve changes to the product itself or to the products packaging:

potentially permanent damage to the companys longterm reputation.

Increasing customer retention through effective trade promotions

In an environment characterized by strong retailers and discriminating consumers, beverage companies must utilize processes and tools to protect their market shares. To do this, they must make a favorable impact at the point of sale through promotional activity. Trade promotions have become a necessary and expensive cost of doing business. With a sizable percentage of volume being driven through a smaller base of retailers, the competition for shelf space has never been higher. If a beverage company fails to execute a trade promotion at Wal-Mart, a competitor will. Furthermore, as trade promotions have proliferated over the past few years, they have also become more targeted. In response, beverage companies must create promotions for specic demographics, channels, and retailers, which makes the sales process more costly and complex. Trade promotions vary widely in terms of methods, approaches, and structures. Many local promotions are run ad-hoc with marginal capital investments by eld associates, while others require signicant investments and involve pre-scheduling in co-operation with national chains. Two of the most commonly used trade promotions in the beverage industry are coupons and rebates. Coupon and rebate management are critical to enhancing relationships between the beverage manufacturer and wholesalers, customers and, in the case of coupons, consumers. Coupon programs, which are in essence trade promotions addressed to the nal consumer, are mainly executed via discounts at large retailers. The

Product innovation Focuses on providing new tastes and flavors to demanding consumers. Packaging innovation - Emphasizes developing differentiated packaging according to the consumption situation. Often, beverage manufacturers use packaging innovation to increase product shelf life.

To ensure new product success, beverage companies must oversee the integration, consolidation and reuse of knowledge from all involved parties (including manufacturers and distributors), from R & D through production, and down to sales, marketing, and nancials. By emphasizing greater collaboration and implementing Web-based workow, beverage companies can reduce lead-time from concept to shelf by 25 - 40% and, at the same time, better integrate safety controls into the development process. Companies can gain an obvious competitive advantage by bringing products to market faster. However, improved process efciency must not be accomplished at the expense of beverage quality and safety. Compromising safety within the product development cycle would not only cause customers to lose condence in the new products, but it would also inict serious and

10

coupon, a certicate with a stated value, can be applied immediately or reserved for the next purchase. A properly executed coupon program enables beverage companies to pass savings directly to the end consumer. On the other hand, rebate programs are trade promotions addressed to the retailer. Therefore, contractual terms and conditions between the manufacturer and the retailer must be monitored and executed. Rebates are often part of special trade promotions, and management of the rebates typically follows one of the following ows:

Improving margins by optimizing the telesales channel

For a large number of companies in the beverage industry, telephone sales are the primary method of order taking and customer interaction. An effective telesales process can increase revenues and complement other sales processes, such as direct store delivery and eld assets management. This is accomplished by integrating the phone sales function with the companys other operations. When correctly executed, inbound and outbound telesales functionality enables companies to manage effectively and efciently all contacts related to sales and customer services. In addition, it helps build client relationships, sell new business, and expand and retain the current customer base. Well-implemented telesales functionality also enables business processes to be integrated and standardized. This effectively closes the loop, creating a consistent experience for customers within a multi-channel environment.

Rebate management in direct sales

Some of the key benets that a company can gain through telesales include:

Revenue Enhancement Improved sales effectiveness by consolidating the customer relationship Better up-selling Improved cross-selling Increased customer retention Expanded customer base Enhanced competitiveness via services that match or surpass those of competitors Margin Improvement Reduced costs for order processing Accelerated sales process

Rebate management in Indirect Sales

11

Lower sales costs in comparison to field sales Increased flexibility and speed to market Differentiated service levels according to customer relevance and need.

Implementing closed-loop processes between the telesales operations and other departments can provide agents with a comprehensive view of all customer interactions across the enterprise - in real time. In order to optimize the telesales channel, agents must have tools to manage the entire sales process, from generating leads, planning calls, and prioritizing sales opportunities and activities, to managing contacts and placing orders quickly.

Manage procurement process Necessary capabilities for efcient procurement include supporting vendor price comparisons and exible pricing processes for the actual value of the raw ingredients. It should also support quotation handling, contract management, and batch handling. Meet customer expectations for managing their orders An effective solution should be able to effectively manage the entire process for handling customers orders, encompassing variable pricing, delivery, invoicing and payment. It should support beverage companies in shortening order cycle times, making on-time and in-full deliveries, and providing optimal payment methods for customers. Optimize planning and manufacturing to suit specic business requirements Solutions in this arena should support a multi-step manufacturing process. This includes the ability to perform automatic batch determination based on expiration date during production-order processing. Provide efciencies in integrated inventory management Integrated inventory management capabilities are crucial. The system should be able to automatically update all stock gures after material movements have been posted. These gures should be accessible in real-time for decision support. Manage product safety As food safety requirements become more advanced across the beverage industry, track and trace capabilities are a prerequisite. An effective solution should have the functionality to nd a defective batch that has already been delivered to a customer.

5. Solutions for the beer industry

In order to respond effectively to changing market trends and challenges, beer companies must support their improvement efforts with industry-specic solutions. These solutions should have the following characteristics and provide the following capabilities:

Basic capabilities and processes

Pre-congured processes with clearly dened implementation scope A streamlined implementation strategy is necessary to minimize disruptions to the business while maximizing enterprisewide adoption. When a world-class solution tailored to the specic needs of the beer industry is coupled with a rapid implementation approach, it can deliver immediate business value, generating a high overall return on investment and a low total cost of ownership. Manage nancials including cost management An effective solution must provide an integrated nance system capable of handling cost management, meeting internal and external reporting requirements, providing real-time data access, and drilling-down to greater levels of detail.

12

Beverage-specific processes
Plan deliveries Effective solutions feature powerful tools that businesses can use to efciently load, dispatch, and track any number of deliveries. An emphasis should be placed on eliminating redundant trips and matching the appropriate vehicles and drivers to customers for each delivery. By extending route management into the order management system, companies could reap potential cost savings of 25% to 50%. Monitor route business Beverage companies must be able to account for every item delivered, and take quick action to resolve item discrepancies. Best-in-class solutions provide powerful check-in and check-out functions that record all deliveries and returned goods. They should also provide tools to monitor quickly and accurately the entire transportation operation, or that of a transportation supplier, from loading and delivery to accounting and settlement of returned goods. The system as a whole should ensure complete loads, ontime deliveries, solid inventory control, and seamless invoicing. Keep track of empties The best beverage industry solutions paint a detailed picture of the entire empties situation, showing the location and status of crates, kegs, or pallets, and helping optimize return logistics. They should also permit quick access of each customers empties account and print delivery notes or invoices recording the empties involved in a delivery. Manage rebates and bonus agreements Rebate and bonus agreements are critical to enhancing relationships between beverage manufacturers, wholesalers, and customers. Yet, the task of managing rebate programs is becoming increasingly difcult as current rebate arrangements often involve numerous parties, including many that are not directly involved in the initial transactions. Effective beverage

solutions provide companies with the tools needed to manage easily and accurately large, complex partner constellations with any number of bonus or rebate arrangements. They should also provide coupon management. These functions apply both to direct and indirect customers. Manage commissions In the beverage industry, complex commission structures are needed to motivate the sales-force and to encourage them to push certain brands and to develop specic markets. Best-in-class solutions allow companies to complete commissionbased transactions, make payments both to internal and external sales forces, and track the payment of these commissions over time. Manage excise duties Taxes have always been a complex issue for manufacturers of alcoholic drinks especially for companies that operate in more than one country. Effective beverage-industry solutions should offer powerful excise-duty functionality that lets companies efciently optimize tax and reporting operations. This includes recording, analyzing, and grouping all tax-related transactions and issues.

13

6. Conclusion
The relative market share and level of consolidation of the beer sub-sectors vary widely across Europe, America and Asia due to the differences in consumption habits, brand awareness and lifestyles. On the aggregate, the total value of beer consumption in 2001 exceeded $325 billion USD. Despite its size, annual growth is often limited to increases in the worlds population base, especially increases in the middle-class. In mature markets such as North America and the European Union where population growth is limited, achieving real protable growth requires specic strategies for truly differentiated business performance. While all beverage businesses start from different baselines, there are common themes in their potential paths to success:

supply chain is vital to the success of a modern beverage company. Requests from the trade for outstanding service quality and reduced order-todelivery cycles are challenging suppliers to re-assess their approaches to planning and managing their supply chains. Ensured product availability, delivery flexibility, and improved forecasting are the most important keys for success in the beverage industry.

Actionable information to manage the business Examining accurate and timely data about sales and consumer behavior allows companies to gain a true picture of product and customer profitability. This provides the foundation upon which to make good management decisions and to take the proper actions in the market.

Better understanding the consumer Beverage and related businesses will need to keep an eye on fast-moving changes in consumer requirements. Growing consumer expectations for quality and variety, more diverse populations, and rising concerns over beverage safety will require firms to introduce new products targeted to more specialized markets and to rethink their production processes and supply chains. Effective innovation and new product introduction The ability to respond with agility to changing customer and consumer demands is essential, and it must be accomplished via the introduction of new products and formats that are successfully planned and executed. This represents the largest single opportunity to drive profitable growth. Closer customer relationships As retailers rationalize their supply base across all product categories, beverage companies will need to work more closely with a smaller number of customers, each of whom represent a growing portion of their business. Operations Excellence A responsive, cost-effective

Companies that can successfully address these issues will be those that prosper. The key to managing these challenges, and ultimately to driving protable growth, lies in designing and implementing effective processes and supporting them with a exible, integrated information system capable of meeting the distinct, and constantly evolving, needs of the beer industry.

14

For more information about the Deloitte and SAP Food and Beverage Initiative please contact:

Deloitte
Lawrence Hutter lhutter@deloitte.com

SAP
food@sap.com beverage@sap.com For more information about Deloittes global Consumer Business practice:

Global Consumer Business Leader

Ed Carey ecarey@deloitte.com

Asia Pacific
Yoshiaki Kitamura ykitamura@deloitte.com

Europe, Middle East, and Africa (EMEA)

Gilles Goldenberg ggoldenberg@deloitte.com

Latin America, Caribbean

Francisco Perez Cisneros fperezcisneros@deloitte.com

North America
Brent Houlden (Canada) bhoulden@deloitte.com Tara Weiner (US) tweiner@deloitte.com

15

SAP is the worlds leading provider of business software solutions. SAP solutions are designed to meet the demands of companies of all sizesfrom small and midsize businesses to global enterprises. Powered by the SAP NetWeaver open integration and application platform to reduce complexity and total cost of ownership and empower business change and innovation, mySAP Business Suite solutions are helping enterprises around the world improve customer relationships, enhance partner collaboration and create efciencies across their supply chains and business operations. The unique core processes of various industries, from aerospace to utilities, are supported by more than 25 industry-specic SAP solution portfolios. Today, more than 22,600 customers in over 120 countries run more than 76,100 installations of SAP software. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol SAP. (Additional information at /www.sap.com) Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member rms, and their respective subsidiaries and afliates. Deloitte Touche Tohmatsu is an organization of member rms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 150 countries. With access to the deep intellectual capital of 120,000 people worldwide, Deloitte delivers services in four professional areasaudit, tax, consulting and nancial advisory servicesand serves more than one-half of the worlds largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member rms do not provide services in all four professional areas. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member rms has any liability for each others acts or omissions. Each of the member rms is a separate and independent legal entity operating under the names Deloitte, Deloitte & Touche, Deloitte Touche Tohmatsu, or other related names.

Copyright 2005 Deloitte Touche Tohmatsu. All rights reserved

16