The challenges with procuring aluminum cans aren’t likely to let up for several years, and increased input costs are likely to bleed down to drinkers, according to David Racino, co-founder and CEO of Austin, Texas-based can supplier American Canning.
Racino walked through the aluminum can supply chain crunch facing craft brewers during the Brewers Association’s (BA) latest Collab Hour webinar. He offered an overview of several issues:
- Demand for can packaging is outpacing supply for the entire beverage industry, and beverage analysts project those shortfalls to continue for two to five years;
- Manufacturers are changing purchasing requirements for can types. As Brewbound has reported, Ball Corporation increased minimum-order requirements for non-contracted customers and changed its warehousing policy;
- Pricing has increased about 50% over the last two years.
As such, Racino said smaller producers are the ones bearing the brunt of the shortfall as manufacturers seek higher speeds and more efficiency in their canning runs. He noted that smaller runs of cans “guts the efficiency of the line,” and said “a truckload (204,000 cans, or 8,500 cases) is a very small number of cans to these companies.”
In November, Ball, the world’s largest manufacturer of aluminum beverage cans, informed non-contracted customers that minimum quantities for orders of printed cans would increase to five truckloads per SKU and that the company will no longer provide warehouse services.
For some craft brewers, the changes presented an existential crisis.
Many smaller craft brewers have “survived on the leftover, non-contracted volumes” from the large can manufacturers, Racino said. However, those volumes have dried up as demand has increased across the beverage industry.
Although companies such as Ball are building additional manufacturing facilities, that doesn’t necessarily equate to capacity for smaller producers. Building manufacturing plants can take around two years to complete, and those companies have already pre-sold the vast majority of the capacity at these plants before they even break ground, Racino explained.
Even if there is additional can inventory, it may not be in the format craft brewers are looking for. Racino pointed to available inventory of 12 oz. sleek (slim) cans, “but there’s not a lot of beer in that format.”
Given the current climate, Racino said brewers should examine their packaging mix and explore which products can fit different styles of can, whether that’s blank brite cans, cans with pressure sensitive labels, shrink-sleeved cans, digitally printed cans or fully printed cans.
“We have tons of customers that will do printed cans for mainstays — widely distributed products and higher volume products — that will do shrink-sleeve cans for seasonals and taproom releases,” he said.
Price Increases Will Reach Drinkers
As input costs have increased more than 50% over the last two years, they will eventually trickle down to the end consumer who will “have to pay more for beer on the shelf,” Racino said.
Racino cautioned craft brewers to expect more volatility in pricing this year and not just in packaging. He told brewers not to assume headlines about the pandemic retreating will lead to prices snapping back to pre-pandemic levels.
“We’re not going to see things snap back to 2018, 2019 levels,” he said. “So don’t don’t hold your breath on that one.”
Racino also stressed the importance of sharing accurate forecasting with can distributors.
“That limits out-of-stock issues, that limits overstock issues where we have to sit on it too long and potentially price increases to account for that storage,” he said.
The spot market for cans — which opens up when a larger supplier calls down their volume and releases those cans to other producers — also offers an opportunity. However, it’s unpredictable by nature, so forecasting can help producers take advantage of that volume.
“You get almost no time to react to whether you want those cans or not,” Racino said. “So the more you know what you’re going to need, the quicker that you can react to that [and] potentially take advantage of that situation.”
Being “art ready” with labels also gives brewers the ability to be more agile, Racino added. He stressed knowing the percentage of packaged product versus draft, and knowing the percentage of can packaging by fill volume. In fact, he added that total quantity by can size is more important than exact brand needs early on for distributors.
Just as the spot market is volatile, running a business on “just in time inventory” for raw ingredients and packaging supplies is risky given the current climate and unpredictable freight times.
American Canning’s Production Facility Slated for Q3
Craft producers will have another option for aluminum cans later this year. As Brewbound previously reported, American Canning will begin manufacturing aluminum cans starting in the third quarter of 2022.
“Ultimately we came to the realization that if we really wanted to have a craft-dedicated supply chain, we’re gonna have to build it,” Racino said “So that’s what we’re doing.”
American Canning is in the process of building its production facility, where it will offer standard diameter 12 and 16 oz. cans. The facility will be able to produce around 300 million cans annually once fully operational. Racino said American Canning will also offer lower minimum order quantities, which the company will share additional information on in the spring.
BA Clarifies New Ball Policies
The BA also provided an update on Ball Corporation’s new minimum order quantities and warehousing policies.
BA chief economist Bart Watson wrote that the March extension offered by Ball applies to “terms customers” who received mid-November notifications. Those customers who wish to place orders before the minimum order quantities go into effect should reach out to their sales representatives.
Nevertheless, placing an order does not guarantee production as those orders are still tied to whether Ball has supply.
Meanwhile, Ball’s “cash-in-advance customers” who were notified in October that they could no longer place orders are still unable to place orders, despite the postponement of the new policy until March.
Ball’s new warehousing policy has been delayed until March 1, with the company holding inventory at that point “for up to six months and then charges will accrue,” Watson wrote.
Finally, non-contracted Ball customers can still buy directly from the manufacturer after March 1 if they meet the minimum order quantity (five truckloads) and can receive immediate delivery.
“The brokers Ball has named have contracted volume and so may provide a safety net for brewers whose orders cannot be produced,” Watson added.