Why the Beverage Industry is Embracing Co-Manufacturing

Glass bottles used in the Beverage Industry

In the bustling world of the beverage industry, particularly within the U.S. alcohol industry, a significant shift has been underway over the past decade. This evolution is not just about what is being consumed – from traditional beers to innovative beer-like products and spirits – but also about how these beverages are being brought to market. At the heart of this transformation lies the increasing role of specialized co-manufacturing businesses.

Beverage Industry and Market Outlook: A Robust Growth Forecast

According to the “Global Beverage Market Outlook [2023-2030],” the worldwide Beverage market reached a notable size of USD 239105.7 million in 2022. Looking ahead, the market is poised for substantial growth, with a projected Compound Annual Growth Rate (CAGR) of 13.77%. By the end of the forecast period in 2030, the global Beverage market is expected to attain a value of approximately USD 518482.36 million. This growth encompasses a wide spectrum of beverage types, including both alcoholic and non-alcoholic beverages.

Understanding the Shift in Consumer Preferences

For 10 to 15 years, a noticeable trend in the U.S. alcohol industry has been the gradual decline of beer’s market share in favor of spirits and wine. This shift has had a profound impact on industry giants like AB InBev and Molson Coors, compelling them to explore adjacent categories. However, venturing into these new territories often means dealing with production capabilities that may not yet be in place within their existing facilities.

The Role of Co-Manufacturers in the Brewing Industry

Enter co-manufacturers like City Brewing, which have seized the opportunity created by the industry’s leading players’ need for expanded production capabilities. Furthermore, the definition of “beer” itself has broadened over the past 5 to 10 years, now encompassing beer-like products such as Mike’s Hard Lemonade and hard seltzers like Truly and White Claw. Interestingly, neither Mark Anthony Brands nor Boston Beer, the companies behind these popular products, possess the capacity to produce these brands themselves, paving the way for co-manufacturers to fill this gap.

Capacity vs. Specialization: A Delicate Balance

While major players in the industry generally possess sufficient manufacturing capacity, they often face challenges in specific areas of production. This might include specialized packaging capabilities or production techniques for certain products. In these instances, co-manufacturers provide a vital service, filling in production gaps without requiring the larger companies to invest in additional in-house capabilities.

Navigating Through Economic Uncertainty

The looming question of how the industry will fare in the face of a potential recession is complex. Historically, consumer behavior in the alcohol sector during recessions has been varied, with some trading down while others indulge in affordable luxuries. The impact on sub-categories like sparkling water and energy drinks remains uncertain, with demand potentially shifting rapidly.

Challenges Ahead: Supply Chain and Costs

Co-manufacturers are not immune to the challenges facing the broader industry. Supply chain disruptions and rising costs of supplies pose significant threats. However, co-manufacturing contracts can offer some protection against these fluctuations, with strategies to hedge costs like aluminum, transportation, and energy. The ability to absorb or pass on these costs depends on the financial resilience and strategy of the co-manufacturer.

Finding the Edge in Packaging Innovation

One area where co-manufacturers have a distinct advantage is in packaging innovation. Companies like City Brewing are well-positioned to invest in and experiment with niche packaging ideas, something that might be less feasible for larger firms with broader focus areas. This agility allows co-manufacturers to adapt and apply innovative packaging solutions across a diverse customer base, staying ahead of rapidly evolving consumer preferences.

A Dynamic Future for Co-Manufacturing

The landscape of the beverage industry, particularly in the brewing sector, is in a state of dynamic change. As consumer preferences shift and the market evolves, co-manufacturers like City Brewing are playing an increasingly critical role. By bridging gaps in production capabilities, offering specialized services such as innovative packaging, and adapting to economic challenges, co-manufacturers are not just responding to the industry’s needs but are actively shaping its future. With the global beverage market on a trajectory of robust growth, the role of co-manufacturers will become ever more pivotal in meeting the demands of this evolving landscape.

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