Can plant investment in the USA
Richard Moore examines how the US beverage can market has gone from being static, to an unprecedented wave of investment…
If you wind back just two years ago, the canned beverage market in the USA, the largest in the world, looked a sleepy place to be. Volume had remained static or slightly declining for the previous several years at 90 billion cans, led by reducing volume of carbonates offset by slightly growing beer volumes.
The mantra from canmakers was ‘milk developed markets, invest in emerging markets’. As a result the predominant strategy in the US was rationalisation and cost reduction, notably through benchmarking across very similar operations, and managing the balance between supply and demand.
Static until 2018
In the previous 10 years before 2018, no new canmaking plants were created, and 11 plants were closed. The relatively few investments were focussed on speed and productivity, largely on existing equipment, much of which was already 20 years old. The Ball Rexam acquisition in 2016 brought with it a promise of further rationalisation.
Then several changes started to happen at once. Firstly, so-called ‘New Age’ drinks started to arrive on the market, initially in glass then increasingly in cans. Craft beers started to take significant volumes from mass market beers, initially in glass and then increasingly in cans.
Concerned by the decline of classic carbonates, the main players started to develop more and more varieties, especially low calorie and new flavours, and started experimenting with new sizes, especially the sleek 12oz can, leading to further fragmentation of the packaging mix. The Coca-Cola brand in the US now has 16 recipe variants on the market, compared to just two 20 years ago.
Blue Planet II
Plastic packaging, especially PET bottles for beverages, previously seen as modern, lightweight and sexy, suddenly fell from grace in 2018, thanks to David Attenborough’s Blue Planet II series in the UK. This was picked up internationally and acted as an eye opener across the world for the damage being done to nature by plastics and the absence of a solution.
Beverages in PET bottles, which had been growing steadily at the expense of glass and metal in soft drinks over the last 20 years, saw their growth halted and volume actually dropping in 2020. 70% of new beverage launches since 2019 have been in cans, compared to 30% previously.
Energy drinks in cans grew fast to become a major segment, with 4.8 billion cans sold in 2020, mainly in ‘Speciality’ tall 16oz cans.
More recently, hard seltzers and other ready to drink alcoholic beverages (2bn cans in 2020) and flavoured mineral waters (4.5bn cans) have come from nowhere in 2011 to be sizeable market segments in their own right, often in ‘Sleek’ 12oz formats. RTD alcoholic beverages doubled in volume in 2020, and the leader White Claw already has 8 recipe varieties.
Trends during Covid-19
These trends continued through the pandemic, with a transfer in volume from the in-trade (bars and restaurants) to the off trade (retail) For the full year 2020, Euromonitor shows overall canned beverages up 9% overall compared to 2019, despite a drop of over 50% in the on-trade. But this is not showing the true impact of stock shortages. All the evidence is for an acceleration of all these trends over the last 9 months, evidenced by canmakers staying in allocation mode and essentially informing customers what they will receive, rather than giving them what they want.
Despite best efforts, this has tended to squeeze out smaller fillers, including craft brewers and the distributors that serve them. In order to fill the gap, it is estimated that the industry as a whole actually imported 10 billion cans in 2020, and that the unfulfilled demand was of the order of at least 2 billion cans, which would make the real trend for 2020 greater than 9%. In a market where there was already a tight fit between supply and demand, this was enough to cause widespread shortages, often mirrored in dramatic press headlines, thus aggravating the problem.
All this has led to an unprecedented wave of investments, often in ‘Speciality’ can formats, and demands on the canmaking equipment industry to fulfil orders for new lines within record leadtimes. In anticipation, in 2020 SLAC relocated and expanded its SLAC Americas business to a new 40,000 sq ft site in Dayton, capable of building and servicing SLAC’s full breadth of can and end making machinery offerings. From this new location SLAC has launched its machinery health system programme for North America, which is focused on refurbishment, repair and rebuild of legacy can and end manufacturing equipment.
OKL in Cincinnati was acquired from bankruptcy in 2018 and from this humble start has been developed into a thriving business, also being expanded to increase its bodymaker manufacturing capacity. With active backing from its 500 people strong manufacturing plant in Suzhou, SLAC is ready to meet the increase in demand.
Naturally, the whole supply chain has to react. Although there is plenty of capacity worldwide on aluminium coil, importantly bottlers also have to switch from PET filling lines to can filling lines, which are sufficiently different to require a separate investment. All the evidence so far is that all new filling line investments are in metal, and that there will be sufficient capacity to meet the increase in demand.
Between 2018 and today in 2021, the beverage can market in the USA has gone through a sea change, requiring a new emphasis on skills of agility, supply chain management and quick reaction to fast-changing events, all of these in an industry not known in the past for its flexibility and openness to change.
Richard Moore is a board member of SLAC Group and managing director of consultancy group RMRM Consultancy Ltd.