Sia Partners' 2023 International Mobile Banking…
Sia Partners examines some of the major climate-related challenges facing the international alcoholic beverage industry and identifies some key ways industry leaders can prepare.
As an industry heavily dependent on the bounty of nature, alcoholic beverage production is particularly vulnerable to the effects of climate change. A warmer and less predictable climate will affect the industry in ways too numerous for one article to list, but by targeting key areas with direct action, manufacturers can begin the hard work of preparing for a world in which their industry will be fundamentally changed.
Below are three such challenges, as well as a few suggested actions to help industry leaders increase their resiliency in the face of one of the greatest challenges the planet has ever faced.
The production of alcoholic beverages depends largely on the amount and quality of the raw materials used. Grapes, grains, hops, etc. are like any crop in that they are subject to the effects of a warming climate with increasingly volatile and frequent weather events. While these events are nothing new to experienced crop producers, their increasing severity and frequency are simply outpacing the ability of humans to adapt.
Formidable enough on their own, these challenges are already being joined by another: the increasing scarcity of water across the globe. This existential risk is a threat both to the livelihood of crop producers and, by extension, the supply chain and production capacity of alcoholic beverage manufacturers.
The equation vis-à-vis production is simple: less water leads to lower crop yields which lead to decreased production capacity. Water used during the actual manufacturing process adds an even more complicated layer to the problem. It’s estimated that in the US, distilleries use an average of 37 liters of water for every one liter of spirits produced, wineries 4L, and breweries 3.5L.
Additionally, the increased competition for existing water supplies is poised to further impact production capacity and raises a larger question about sustainable alcohol production in the future.
The industry’s use of water in areas of limited supply has already led to social unrest and an increase in negative perception. These issues will only increase in the future as scarcity continues to grow, particularly for large producers with global supply chains. Simply put, the only way beverage manufacturers can continue to coexist on the planet and in communities is to rethink their impact on water.
1. Invest in studies and equipment to help improve weather forecasts for its suppliers
In a win-win-win for the industry, communities, and growers (particularly in water-stressed regions), manufacturers should significantly increase their involvement in innovating forecasting methods for the future and equip their suppliers with the tools they need to best predict climate impacts to water supply.
2. Decrease water consumption during distillation
Cooling and cleaning are the two biggest contributors to water use during the distilling process. Good starting points to reduce use would include the installation of on-site wastewater treatment, closed-loop cooling systems with leak detection, and dry cleaning methods such as dry ice or ozone.
3. Recognize that water access is a human rights concern and provide benefits to local communities while offsetting consumption elsewhere
Water is the most fundamental of needs and is inextricably tied to human rights. Beverage manufacturers must recognize that with their consumption of water comes obligations to the communities from which they extract it. Manufacturers must provide visibility into responsible water use, good wages and safe conditions for their workers, and a positive impact to clean water availability in the communities where their facilities are located.
Of all alcoholic beverages and spirits, wine may be the single most vulnerable to changes in climate. For grapes to be used for wine, they must be carefully monitored for acidity, sugar content, maturity, and dozens of other geological and microbiological elements. These factors, combined with soil composition and regional designations, all contribute to what is known as terroir, the single most defining characteristic of wine’s flavor profile.
Climate change poses a risk to each of these elements in ways both obvious and subtle. Extreme heat and weather events are of course the most visible threat to healthy vines. Winemaking requires meticulous attention to detail and record keeping - some records of harvest details in France go back over 800 years. Within those records are several outlier years of extreme heat, cold, or other weather events that history’s winemakers have overcome. However, those records also bear out that the pace and impacts of modern climate change are nowhere near those of the past. Most dramatically, the pace of increasing temperatures may well make much of the wine sold today impossible to produce in the future, at least in the ways consumers currently expect it.
Climate-fueled wildfires also pose an obvious physical danger to vineyards. However, and more subtly, wind-carried smoke and ash can affect the microbiology of vineyards over a much greater distance. Much like smoke inhalation to human lungs, this “smoke taint” can essentially destroy the delicate flavor profile of a wine and render the vintage unsellable- regardless of whether the affected grapes were ever near the fire.
Additionally, even grape varietals better adapted to heat may still be affected by rising temperatures. Invasive pests and new blights may arise which the varietals have no natural defense against, and the sprawling mono agriculture of many wine regions may offer few natural barriers to prevent the spread of either. Both of these pose significant risks to yields and quality.
The stresses felt by winemakers do not exist in a vacuum. For beverage manufacturers and distributors, this represents a significant disruption in the overall supply chain. It also prompts the additional challenge of how best to manage customer expectations for a future in which their favorite wines may be ecologically impossible to provide.
1. Become advocates for new and hybrid grape varietals
The industry would do well to acknowledge that while preservable in smaller plots, most contemporary varietals (at least in their current forms) are unlikely to remain viable mass growing options in the future. Now is the time to encourage vintners and regulatory agencies to adopt hybrid or indigenous varietals as part of the winemaking process. Hybrid grapes can be created which are hardier and more resistant to pests and the effects of climate change, and while many may offer a different flavor profile, they also open the doors to encouraging evolution in taste for consumers.
2. Throw some shade…literally
Using shade to protect grapes from intense sunlight may be one of the few viable ways to continue growing contemporary varietals in a hotter future. Researchers at UC Davis recently identified a shade film that is capable of shielding grapes from harmful sunlight while still allowing enough light through to allow the grapes to properly develop. In addition, some vintners have begun experimenting with alternative trellising methods that allow a more extensive leaf canopy to develop, offering the grapes more natural shielding from the sunlight. The industry should continue to work closely with researchers and vintners to identify and scale these and other new techniques.
3. Mitigate the effects of wildfire smoke
Despite the popular slogan, no one person or industry can prevent all wildfires, particularly in a more volatile climate. However, there is good reason to be optimistic that the wine industry is getting closer to being able to mitigate some of the effects. Scalable efforts in Australia to identify smoke taint before grapes are harvested have been successful in reducing financial loss. Additionally, researchers at the Oregon State have recently identified new chemical compounds found in smoke-tainted grapes which could be neutralized before the winemaking process begins.
As an initial point of fairness, alcoholic beverage production’s carbon contribution is minor compared to some of the industry’s worst offenders. Growers are inherently dependent on nature and as a rule, are conscious of maintaining the health of their immediate environment.
As a second point of fairness, this is also no excuse for the industry to absolve itself of its climate impact. Biodynamic and sustainable agricultural practices are a good start and are where most of the industry is already trending, particularly aiming to reduce the impacts of irrigation, fertilizers/pesticides, and harvest waste. All are important for a more sustainable future for the industry.
The most impactful change, however, would come from sustainability targets around packaging and transport which are currently estimated as contributing to the plurality of the industry’s carbon emissions.
Heavy and/or ornate glass bottles are typically perceived as a sign of quality, particularly with wine and liquor. While glass is chemically inert and durable (necessary qualities for spirits to be properly aged), it is also carbon-intensive to produce. Additionally, cylindrical bottles are heavy and difficult to pack or store, leading to decreased shipping efficiency and higher transport emissions.
These challenges are exacerbated by the perception of quality associated with heavier glass bottles, thus leading to their usage in spirits that are not meant to be aged (or which require durability such as champagne). Globally, 90% of wine is opened within a few weeks of purchase. While liquor is generally consumed at a slower pace, it is not an unreasonable leap to say that it is purchased with a similar “drink now” intent. This means only 10% of spirits purchased in heavy glass will ever benefit from or require it.
There is a massive opportunity for beverage manufacturers to reduce environmental impact and grow efficiency by reshaping the narrative around conventional glass bottling. Lighter, less rounded, or non-glass packing options are both more practical and increasingly accepted by consumers as being more responsible rather than lower quality.
1. Adopt new bottling standards
Beverage manufacturers have a golden opportunity to engage with consumers and educate them on the sustainability benefits of alternate packaging including bag-in-box, cans, or recyclable plastic. For brands more concerned about customer adoption, glass bottles can also be reshaped to a flatter design or made lighter to ensure more efficient packing. Any of these techniques can lighten shipping weight, increase packing efficiency, and reduce the carbon impact of shipping and storing rounded glass bottles.
2. Drive consumer engagement by working with biodynamic, organic, and carbon-neutral producers
Not only does working with green-minded producers help to reduce the overall carbon impact of the industry, but it also presents a major opportunity for increased customer engagement. In survey after survey, a vast majority of consumers have indicated their preference for sustainably produced consumer goods. By actively promoting wines, beers, and spirits made in sustainable ways, the industry can deepen customer loyalty and increase retention, all while making a real impact on its carbon production.
3. Publish sustainability goals
Between regulatory data, NGO studies, and anecdotal evidence propagated through social media, consumers have readily available information regarding the alcoholic beverage industry’s environmental impact. They are savvy to greenwashing efforts, and their trust can only be won through visible action that is in the public space. Beverage manufacturers should seize the opportunity to shape the narrative around their sustainability impact by publishing metrics and targets, celebrating when they hit them, and being accountable when they miss them.
Sia Partners' CPG experts combine a deep reservoir of industry knowledge with a proven track record of successful engagements. As diverse as the clients we serve, our CPG consultants share the same guiding purpose: to be trusted partners in our clients' transformations.
We offer 360o services to the beverage industry including:
- AI & Data Forecasting and Water Management
With our global presence, Sia Partners is proud to have become a trusted advisor to some of the world’s leading beverage and consumer goods companies. Clients across the CPG spectrum rely on Sia Partners’ industry-leading services to inform their business decisions and deliver maximum value to customers and stakeholders.