This document discusses challenges facing the development of sustainable supply chains in the UK beer industry. It analyzes political, economic, social, technological, legal and environmental factors using PESTLE and their effects on stakeholders. Recommendations include innovating product categories, changing misconceptions about beer's health benefits, investing in renewable energy and targeting the growing female beer market. The document concludes with an analysis of sustainability challenges and how trends may impact the industry's future.

1. SUPPLY CHAIN MANAGEMENT
Assignment
Alberto GIL GONI
Axel FISCHER
Perry FONG
SCHOOL OF AEROSPACE, TRANSPORT AND MANUFACTURING
MSc in Aerospace Manufacturing
Academic Year 2015-2016
February 2016

2. A. Gil Goni, A. Fischer, P. Fong Supply Chain Management
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Contents
The UK Beer Industry – The Challenges to Developing Sustainable Chains ........................................... 2
1. Introduction ................................................................................................................................... 2
2. Challenges to Developing Sustainable Chains ............................................................................... 2
2.1. Political ........................................................................................................................................ 3
2.2. Economic ..................................................................................................................................... 3
2.3. Social ........................................................................................................................................... 3
2.4. Technological ............................................................................................................................... 4
2.5. Legal ............................................................................................................................................ 4
2.6. Environmental ............................................................................................................................. 4
3. Recommendations ......................................................................................................................... 5
4. Conclusion ..................................................................................................................................... 6
5. References ..................................................................................................................................... 6
The Australian Wine Industry – Companies Collaboration and Development in the Future ................. 7
1. Introduction ................................................................................................................................... 7
2. Types of Collaboration ................................................................................................................... 7
2.1 Horizontal collaborations ............................................................................................................. 8
2.2 Vertical collaborations .................................................................................................................. 8
2.3 Cluster case .................................................................................................................................. 9
3. Strategy 2025 ............................................................................................................................... 10
4. Conclusion ................................................................................................................................... 11
5. References ................................................................................................................................... 11

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The UK Beer Industry – The Challenges to Developing Sustainable
Chains
1. Introduction
The UK beer industry has been declining since 2004 as the beer sales by volume fell by 10.2% from
2009 to 2013 [1]. This trend started from the economic depression in 2008/2009 coupled with
government policy to inflate beer duty annually from 2008. In recent years, the UK economy is
showing signs of recovery with positive GDP growth, reduced unemployment rate and increasing
average household disposable income. These positive outlook, together with the abolition of the beer
duty could be key to the recovery of the beer industry with beer sales exhibiting growth by for the
first time since 2004.
2. Challenges to Developing Sustainable Chains
The challenges to developing sustainable chains was analysed using the PESTLE analysis which
encompasses the three dimensions of Economic, Social and Environmental in the triple bottom line
framework that is necessary for sustainability as shown in Figure 1. The beer industry refers to the
entire supply chain which consists of the farmers, breweries, bottling supplier, transport distribution,
pubs, supermarkets and consumers. The effects of PESTLE on the stakeholders are summarised in
Table 1.
Figure 1. 3BL Framework [2]
Table 1. Effect of PESTLE on Stakeholders

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2.1. Political
Many policy changes took place mainly to tackle alcohol-related disorders. These policies affect the
supermarkets, consumers and breweries.
Government Policy
In 2014, the government implemented the minimum unit pricing [4], that prevents retailers from
selling alcohol at low prices in order to reduce ‘binge drinking’.
EU Alcohol Policy
In 2015, the European Parliament called for a new strategy to tackle the adverse health impacts of
alcohol [5], with the expiration of the last EU alcohol strategy in 2012. The new strategy will focus on
the importance of labelling to include nutritional information and to increase awareness on the
consumption of alcohol during pregnancy and drink driving.
2.2. Economic
The implemented tax changes had impacted the entire beer industry tremendously over the years.
Alcohol Duty
In 2008, the alcohol duty escalator was implemented which increased the duty rate by 2% above the
yearly inflation rate till 2015. However in 2013 and 2014, the duty was reduced by 2% each time. In
addition, the alcohol duty escalator was abolished amidst strong lobbying campaign from the beer
industry after seeing declining sales between 2009 to 2013 from 30.2 to 27.1 million barrels [1].
Pub Closure
The alcohol duty escalator had a strong impact on beer prices with the cost of a pint increasing from
£2.67 to £3.23 between 2008 and 2014. The high prices coupled with the tied-pub tenant model has
resulted in the decline of pubs by 9.8% between 2008 and 2012.
2.3. Social
The social problems mainly affects the consumers, which contributes to the economic aspect of the
beer industry.
Health Awareness
There is an increasing awareness on the health implications of ‘binge drinking’ in recent years that is
led by a NGO group – Drinkaware. They provides “impartial, evidence based information, advice and
practical resources, raising awareness of alcohol and its harms and by working collaboratively with
partners”[6]. From their website, they provide free educational materials for student between 9 to 14
years old, to educates them on the harmful effects of drinking. In 2010/2011, there is a reported 1.2
million cases of alcohol-related admissions to hospitals [7], with alcohol being the third main ‘lifestyle
risk’ factors in UK, that leads to diseases and death after smoking and obesity. Currently, the UK society
is paying an estimated £21 billion annually for this [3].

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Misconceptions
There are many misconceptions about beer such as ‘consumption leads to beer belly’ and ‘wine is
healthier than beer’. A survey by the Britain’s Beer Alliance shows that 10% of British think that beer
has more calories than wine, 25% think that a pint of beer has more fat than a chocolate bar and 25%
think that a pint of beer has more sugar than a can of cola [8].
2.4. Technological
Technological challenges is limited to the farmers, breweries and bottling suppliers.
Cost of Implementation
Many technological solutions are available to improve sustainability such as solar panels, hi-tech
biogas generator and water treatment plant. However, the total cost of ownership of these
equipment is very unaffordable for many smaller micro-breweries that is on the rise. According to
KeyNote [5], the number of breweries has increased from 745 to 1442 from 2009 to 2013, of which
88.1% have employees of below 10.
2.5. Legal
The legal issues are mostly related to the consumers, breweries and pubs.
Marketing
The alcohol advertising in UK is subjected to restrictions that prevent them from targeting the youth.
These restrictions are self-regulated and is governed by the Portman Group and the Advertising
Standards Authority. Many health groups have criticised these restrictions and called for more
stringent controls to be in place [9]. An analysis on the alcohol industry by the House of Commons
Health Select Committee in 2009 revealed major shortcomings in the self-regulatory codes and that
the youth are indeed a marketing target for these advertisers [10].
Statutory Code for Pubcos
In 2014, the government suggested a ‘Statutory Code’ to address a long existing issue between pubcos
and their tied-tenants. In the tied-pub tenant model, the publican rents the pub and buys the beer
from the pubcos. Often, this self-regulated system has received many complaints from the tenants
over unfair treatment and unprofitability of this model. While many tenants and consumers welcome
this change, pubcos on the other hand opposes this, claiming that this would lead to reduced pub
investment and increased rents. Many pubcos have voiced their strong concerns and will likely
challenge this legally if implemented.
2.6. Environmental
The beer industry is a major industrial users of water, consumes a large amount of energy and releases
a significant amount of carbon. The environmental issues affect the farmers, breweries, bottling
supplier, transport distribution and pubs.
Carbon Emission
Energy is an important aspect for beer brewers that is driven by increasing energy cost and regulatory
pressure to reduce energy use. In response, the British beer industry set an aim to increase the energy
efficiency by 19% and reduce carbon emissions by 30% by year 2020 [11].

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Water Usage
Water is one of the primary ingredients of beer and brewers understands the importance of preserving
it with decreasingly global availability. The need to improve process efficiency is primarily driven by
cost, as well as developing long term resilience due to increasing risks of drought and water shortages
that might result in governmental review of access to water to ensure sufficient supply to all [11].
Packaging Waste
The beer industry has been keeping the traditional environmentally-friendly way of transporting beer
using kegs or casks with an average life-span of 15 years. However, this dispensing system which
accounts for 50% of UK beer production are facing increasing pressure due to loss and misuse of these
containers, with an annual estimated cost of £50 million [12].
3. Recommendations
This section provides recommendations that is based on existing trends which will improve the
sustainability of the beer industry.
Innovative Category
Currently, there is an increasing interest in the spirit beers category, which involve infusing beer with
spirits such as tequila, rum or whiskey. There is also a rising demand for lower alcohol by volume
products due to increasing health concerns and prices of alcoholic drinks. The beer industry should
always explore ways to innovate their product in order to keep up with consumer’s demand.
Changing Perception
Campaigns can be launched to educate the public on the health benefits of drinking beer in
moderation. The beer academy has published the article “Beer & Wholesomeness” to correct
misconceptions about beer such as calorie and cholesterol content, as well as emphasizing on its
health benefits that may decrease the risk of heart disease, osteoporosis and high blood pressure [13].
Going Green
Many brewers in UK have started investing in renewable energy, water efficiency and waste reduction
[11] in order to increase their sustainability resilience. Some have looked at “light-weighting” and
redesigning of the glass bottles, while initiatives were launched to ensure that the kegs/casks are
recovered.
Female Drinkers
There are huge opportunities in the female beer drinkers sector with penetration of 51% in 2015 [14].
Studies by Mintel indicates that women prefer smaller servings that is served in wine-style glasses and
recommendation from friends as well as new flavour/ingredients are the most effective ways to
introduce them to beer. Thus, marketing strategy can be geared towards these preferences. There is
also a need to change the perception that the beer is a man’s drink. A social experiment by AVInBev
shows that the beer was always served to the man even though it was ordered by the women [15].

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4. Conclusion
This report provided a critical analysis on the sustainability challenges that the UK beer industry is
currently facing using the PESTLE framework and showed how political, economic, social,
technological, legal and environmental aspects affected the various stakeholders in the supply chain.
It also provided recommendations on the future ahead based on the current trends.
5. References
[1] Key Note (2014). Market Report: Breweries & the Beer Market. Key Note Limited.
[2] Presentation slides Supply Chain Sustainability given by Peter Ball, Cranfield University (20 Jan
2016)
[3] U.K. HM Government (2012). The Government's Alcohol Strategy. Available at:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224075/alc
ohol-strategy.pdf
[4] U.K. Home Office (2015). Guidance on banning the sale of alcohol below the cost of duty plus
VAT.
[5] Key Note (2015). Market Report: Breweries & the Beer Market. Key Note Limited.
[6] Drinkaware (2016) About Us. Available at: https://www.drinkaware.co.uk/about-us (Accessed
2 Feb 2016)
[7] Chaplin, R., Flatley, J. and Smith, K. (2011) Crime in England and Wales 2010/11. Home Office
Statistical Bulletin 10/11. London: Home Office. Supplementary Table 7.11.
[8] There’s A Beer For That (2014) Myth about beer. Available at:
http://www.beerforthat.com/beermyths (Accessed 2 Feb 2016)
[9] IAS (2013) Marketing and Alcohol Factsheet. London: Institute of Alcohol Studies.
[10] Hill, L., and Casswell, S (2001) Alcohol Advertising and Sponsorship: Commercial Freedom and
Control in the Public Interest. International Handbook of Alcohol Dependence & Problems,
John Wiley & Sons.
[11] BBPA (2014) Brewing Green: Our commitment towards a sustainable future for Britain's beer
and pubs. British Beer & Pub Association. Available at: http://www.beerandpub.com/world-
of-beer-and-pubs/responsibility/environment (Accessed 2 Feb 2016)
[12] BBPA (2016) Looking after your kegs and casks leaflet: Are you doing your bit?. British Beer &
Pub Association. Available at: http://www.beerandpub.com/kegaware (Accessed 2 Feb 2016)
[13] The Beer Academy (2016) Beer & Wholesomeness Report. The Beer Academy Limited.
Available at: www.beeracademy.co.uk/cms/file/1396/beer-wholesomeness-report-pdf/
(Accessed 2 Feb 2016)
[14] Mintel (2015) UK - Beer Report: Executive Summary. Mintel Group Limited.
[15] ABInBev (2016) UK women raise a glass to beer. AB InBev UK Limited. Available at:
http://www.ab-inbev.co.uk/2015/10/uk-women-raise-a-glass-to-beer/ (Accessed 2 Feb 2016)

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The Australian Wine Industry – Companies Collaboration and
Development in the Future
1. Introduction
The Australian economic growth benefits from its natural resources, and despite its isolation from
Europe and America, it is ranked in top eight producers by volume and the fourth largest exporters of
wine in the world with a market share close to 5% [1]. The Australian wine industry exported 724
million litres in 2015, about 60% of its overall production [2]. The main difficulty that the Australian
growers encountered is to distribute their products to Europe and America, and they overcame this
by having collaborations with international alliance.
The collaboration concept in the wine industry has been developed over the years. Small and large
wine producers often have differing interests but that changed when the industry associations created
the Strategy 2025 plan to encourage collaboration between them [3]. The industry’s growth potential
triggered the expansion of synergies and shared interests.
As shown in Figure 1, three major firms account for 51% of the overall wine production and 70% of
the total exports [3][4]. Collaboration includes areas such as trade issues, research and development,
training and investments. Collaboration also allows producer to promote the industry collectively,
rather than looking only after their own interests.
Figure 1. Market Distribution in Production [left]; Market Distribution in Exports [right] [3]
2. Types of Collaboration
Independent grape growers used to produce their own wine, until large foreign companies and
wineries who are attracted by the growth of the business, started investing in the grape growers.
Nowadays, most of the grape growers do not produce their own wine, but only supply the grapes to
the wineries.
Some winemakers who are vertically integrated in their supply chain, produces their own wine from
their vineyards. Also, there are brand owners that are only involved in wine commercialisation without
their own winemaking facilities [Figure 2].
51%49%
Wine production
Largest 3 brands
Rest brands
70%
30%
Exports market share
Largest 3 brands
Rest brands

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Figure 2. Australian Wine Supply Chain [4].
The success of the Australian wine industry is from its economy of scale, and also the two different
ways of collaboration, horizontally and vertically.
2.1 Horizontal collaborations
One of the benefits is reduction of transaction cost that is achieved when the winery is located next
to a grower whereby the wine is produced in the farmer’s facility.
Another benefit is the development of relationship between the winery and the commercialization
company. The commercial company understands the market trends, and therefore improves the wine
production by introducing feedbacks into the system. Moreover, the trader is able to distribute the
products more efficiently through its low cost channels by managing many brands simultaneously.
Horizontal collaboration and mergers also improved the overseas competitiveness of medium and
large companies by achieving economies of scale.
2.2 Vertical collaborations
The vertical collaboration between the Australian companies and the international alliances has
allowed the Australian companies to understand the market trends in Europe & America and to be
competitive by using the existing distribution channels of these alliances. An example of alliances is
the acquisition of BRL Hardy’s by the Constellation Brands [4].
Domestic alliances also exist within Australia to exploit economies of scale and to reduce costs.
Clusters under large companies increase bargaining power and making it possible to increase export
capacity. This is especially important for smaller brands who want to move their product from
domestic boutique channel sales to supermarket and other retail networks. An example is Southcorp
acquisition of the Foster’s Group to become the largest premium winemaker in the world [4].
These alliances have transformed the business into oligopolistic with a few large firms holding on to a
large market share [Figure 1].

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2.3 Cluster case
The South Australian wine cluster is an illustration of the oligopolistic industry, accounting for 44% of
Australia’s overall production and 66% of exports. This cluster experienced high growth in the early
90s, and remained competitive by maintaining deep collaboration across the value chain and by
changing the low quality perception of the Australian wine in the export market [5].
The cluster consists of the grape growers, wine producers and brand owners vertically integrated,
while other companies support the business by providing consulting services and vineyard equipment.
In addition, bottles manufacturers such as Amcor and case suppliers such as Upper Murray and
Henrich Cooperage are also integrated into the supply chain [5]. Other organisations such as the State
or Federal Government which provides tax breaks for new plants, are also integrated in the cluster
map. Exports are also facilitated by good infrastructure between the vineyards and the Port of
Adelaide to key export markets.
Figure 3. South Australia Cluster Map [5]
Collaborations involving the grape growers and other supporting companies also exist. For example,
Tolley Viticulture helps the farmers with mechanised pruning and summer trimming. Davidson
Viticulture offers specialised services such as planning and management or even helping vineyards to
adapt to climate change which is important in Australia as it is a hot and dry continent that is more
exposed to climate change.
The collaboration between the food and tourism clusters allows the government to promote the South
Australia Food and Wine Tourism Strategy. This has led to growth in both sectors, as 40% of the
tourists visit at least one winery for wine tasting during their holiday trips [5].

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3. Strategy 2025
The strategy comprises of three aspects – Anticipating the market, Influencing the consumer and
Building sustainable success [6].
Anticipating the market
Decision-making in the Australian wine industry can be improved by exploiting global market
intelligence through focused information collection, analysis of the market opportunities and analysis
of the wine supply requirements. For instance, information such as consumer insights, competitor,
supply and sales intelligence can be integrated to develop a deeper understanding of the value chain
linkages and its sustainability.
In order to maintain Australia’s leading position in implementation of Research and Development
(R&D) into this industry, a sector-directed research strategy can be employed. This strategy will allow
the R&D to be directed at the needs and opportunities of the wine sector. Some of the research sectors
include keynote researches that involves the understanding of market opportunities and economic
importance of innovation as well as climate change researches that models the economic and
geographic impact of climate change.
The activities in the wine sector can be better coordinated by the national, state and regional
organisations, in order to support market development and to ensure that they are aligned in the right
direction. Firstly, roles and responsibilities must be defined for the national, state and regional
organisations. Secondly, there must be strong communication between the organisations,
stakeholders and constituents to ensure a consistent flow of information between them. Lastly, the
overall Australia wine marketing strategy must be integrated throughout the entire sector.
Influencing the Consumer
To create the Wine Australia brand segmentation strategy, marketing activity should be coordinated
to engage three main audiences namely trade, media and consumers. A feedback system to measure
the consumer perceptions of the Wine Australia brand should be introduced to check the success of
the strategy.
The wine industry should set new expectations and increase public awareness for the fine wine sector.
For example, major trade event can be held to promote the Wine Australia brand segmentation
strategy as well as wine tasting for the trade media in the targeted market.
In addition, the wine industry should always seek new consumer and to create new market through
innovation and communication. For example, through an annual event to showcase the development
of a new product or an online marketing campaign to promote Australian wine to the next generation
of wine drinkers.

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Building sustainable success
The final strategy addresses the sustainability issues of the wine industry.
One of the key strategy is to form a close partnership with the government in policy making in order
to foster a positive and sustainable business climate for the wine industry. Strong communication
between the industry and the government is crucial to implement measures such as the simplification
of the business taxes, as well as improving relationship with key markets by the government in order
to reduce possible trade barriers.
The wine industry should also develop a culture of self-reliance which will be supported by continuous
improvement in business skills and practices. A ‘Code of Conduct’ for the wine industry should be
implemented and widely adopted by the grape growers and the wineries. Risk management should
also be practised using a framework of strategies at the producer and industry organisation levels.
The wine industry should continuously improve the environmental performance in order to cope with
the variation of consumer and community demands for sustainability. Social responsibility should also
be considered to ensure that wine is safely consumed in moderation.
4. Conclusion
The collaboration in the Australian wine industry has led to the creation of clusters and these clusters
have proved to be more competitive than the previous collaboration model. Currently, these clusters
play a major role in the international market as they continuously try to explore new market
opportunities. Commitment to research and develop allowed the Australian wine industry to improve
its knowledge about consumer’s consumption practices.
Finally, common objectives for the 2025 horizon have been set by the Australian wine sector. These
objectives will keep the growth momentum of the industry by anticipating the market, influencing the
consumer and building a sustainable success.
5. References
[1] Australian Government. Wine Australia. Wine Export Approval Report 2013. Available at:
http://www.wineaustralia.com
[2] Australian Government. Wine Australia. Wine Export Approval Report 2015. Available at:
http://www.wineaustralia.com
[3] Marsh I., Shaw B. Australia’s wine industry: Collaboration and Learning as Causes of
Competitive Success. 2000; (May).
[4] Spinoglio F. Wine Cluster Competitiveness in South Australia and Piedmont ( Italy ): Strategies
to address challenges resulting from the Global Financial Crisis. 2013; (January): 1–112.
[5] Nipe A., York A., Hogan D., Faull J., Baki Y. Harvard University. The South Australian Wine
Cluster. harvard university. 2010; (May): 1–33.
[6] Wine Australia: Directions to 2025: An industry strategy for sustainable success. 2007.