Ball Corporation, the world’s largest manufacturer of aluminum beverage cans, will continue to allocate inventory to customers and import cans from overseas due to short supply throughout this summer, executive vice president and chief financial officer Scott C. Morrison said yesterday during a public session of the Deutsche Bank Global Basic Materials Conference.
“In the Northern Hemisphere, both in Europe and U.S. we’ll be on allocation again this summer,” he said. “We’re coming into this summer in North America extremely tight on inventory.”
The U.S. beverage market is estimated to be about 10-14 billion cans short of where it should be after the COVID-19 pandemic’s closure of offices, restaurants, bars and other venues and cancellation of in-person events, which caused major shifts in consumer purchasing behavior to packaged products. The switch to at-home consumption created a significant chasm between supply and demand for aluminum beverage cans.
“We probably forewent a lot of sales that we could have had if we had the inventory,” Morrison said.
Morrison does not attribute the tight supply to an overall increase in beverage consumption, but rather a change in how those beverages are consumed.
“The fact that there’s 10 billion or 14 billion unmet demand tells me there really wasn’t a bump from COVID and all this,” he said. “There was definitely more at-home consumption, but I think all that did was take down inventories that were in the system.”
The reopening of the on-premise hasn’t manifested the “dramatic changes” Ball expected, and severe ice storms in Texas this winter and a “cyber issue” at a Ball customer precluded the company from stockpiling inventory ahead of the busy summer season. (Molson Coors reported a disruption in operations from a cyber attack in March, according to Forbes.)
“We would have liked to had built more inventory coming into the summer but things were going so fast,” Morrison said. “Everything we can make we were selling, so you didn’t have that opportunity to build inventories as we got into the summer.”
Complicating the pandemic-driven tightness in the nation’s can inventory is that brands increasingly rely on cans for new product releases.
“Before COVID hit in North America, we were seeing growth in every category, whether it was beer, soft drinks, water, wine, flavored alcoholic beverages, spiked seltzer, energy drinks,” Morrison said. “We were seeing growth across the board in terms of new product introductions. Over 70% of them were coming straight into cans.”
Roughly five years ago, only 30-35% of new beverages were introduced in cans, he added. Since then, one can-driven beverage alcohol segment has launched and caught fire with consumers: hard seltzer, now a $4.5 billion business, according to market research firm NielsenIQ.
The segment leaders — Mark Anthony Brands’ White Claw and Boston Beer Company’s Truly Hard Seltzer — package exclusively in cans, as do all other major brands. Wholesalers expect the segment to grow 30% this year, according to a survey conducted by Goldman Sachs analyst Bonnie Herzog.
Another fast-growing segment, ready-to-drink cocktails — which are predominantly offered in cans — is expected to reach $1.63 billion by 2021, according to Grand View Research. Dollar sales of canned wine increased 62% last year in off-premise channels tracked by NielsenIQ.
“With growth across all those different categories — from pre-COVID and what we’re still seeing today, and what we expect to see going forward — I think all of that capacity will be utilized to supply the market domestically, and I think it’s where our customers are trying to use cans as a differentiator, pushing their products and building their portfolios,” Morrison said. “Those tend to be the customers we’re aligned with, and all the new capacity that we’re putting online is backed by multi-year contracts with those customers, so we feel really good about the investments that we’re making, and not just two, three years from now, but five years, seven years and even 10 years out.”
To increase capacity, Ball has added several new plants and added production capacity to other existing plants, but has still been unable to keep up with beverage producers’ increased demand for packaging.
The company’s new facility in Glendale, Arizona, came online during Q1, and Ball expects its new Pittston, Pennsylvania, plant to come online by the end of Q2. Another new plant in Bowling Green, Kentucky, is expected to begin manufacturing aluminum can ends by the end of 2021. Morrison explained that the company’s major focus is on staffing these new facilities.
“For us, it’s bringing in the labor early enough in training,” he said. “You’re going to staff a plant with a lot of new people. There’ll be some people that move from existing plants, but largely these are people that have never made cans before, so bring them in early enough — a good six months in advance — to train them in other facilities, so when the equipment’s ready to be turned on in the new facilities, they have some knowledge of how all this works.”
In a new facility, it takes about nine months to ramp production up to “a pretty high level,” and several more months to “incrementally improve.”
“It’s an investment to make sure they come up on time, on schedule,” Morrison said. “Because the sooner we can make saleable cans, the faster we can sell them.”
Several can manufacturers, including Ball, have announced capacity expansions that will add about 30 billion incremental units to the North American market by the end of 2023.
“There’s a lot of investment that has to happen just to catch up with how underserved the market is today,” Morrison said.