GLASS SUPPLY: Not a lotta bottle

With glass manufacturers shutting down throughout Europe and the UK, creating bottle shortages and price hikes, Sally Easton MW wonders if it may be time for drinks companies to consider other packaging options

It’s not just the wine industry that is undergoing a long-term consolidation. Glass container manufacturers, on whom the drinks and food industries rely, have been consolidating and shutting down furnaces over the past few years, resulting in a Europe-wide shortage of glass bottles.

A downturn in European demand for glass bottles a few years ago, combined with big increases in energy prices saw a flurry of mergers and acquisitions. Just three companies – Owens-Illinois (O-I), Saint-Gobain and Ardagh Glass – now dominate global production.

The fires go out
In spring this year French wine producer Castel warned its customers  of impending wine bottle shortages. In a written statement it said: “Market leader Owens-Illinois took over the French BSN Glasspack in 2005. Since then,

the strategy has been to reduce stock levels and to increase margins. To this effect, a number of furnaces, notably in Germany, have been closed and the range on offer has been reduced, putting pressure on availability.”

Saint-Gobain adopted a similar strategy, which resulted in strikes during the early part of the year. Add to this some furnace breakdowns in Europe, and major interruptions to supply are the result. Subsequent stockpiling by some drinks producers has exacerbated the shortage.

Michel Fleur, owner and CEO of Les Celliers du Prieuré in St Georges sur Loire, says: “O-I focused on producing higher margin bottles and more efficient production, rationalising the range of colours of different bottle types  it produces.” 

Managing director of Castel UK, Anne Burchett, says: “In May, I was told we would run out of bottles for a promotion. This had never happened in 20 years. I checked with others in the trade and realised the situation was serious. We have orders in place. If the bottle delivery doesn’t turn up, the bottling can’t happen. It’s a complete nightmare.” Several in the industry have estimated it will take a year to get back to normal.

Ardagh Glass has a 20% share of the wine bottle sector in Europe. Its head of marketing and PR in Germany, Patric Edel, says: “The German market has evolved in recent years from overcapacity and poor prices. In the last seven years nine furnaces have closed. Prices have increased after a long period. Last year prices went up about 10%. This year we hope prices will go up again.”

He adds that some bottles have stopped being produced altogether at the cheaper  end  of the market. “Also more customers want individual bottles with embossing, and special colours. We have to change [what runs through the furnace] all the time, and this takes out capacity, as there is more down time.” Edel thinks the supply situation “will be tight in the next 12 months”.

Saint-Gobain is the world’s leading supplier of glass wine bottles. A spokesperson was upbeat, suggesting supply would be back in balance after summer. “We’re expecting to improve our service in 2008, for example delaying the rebuilding of furnaces, to keep them in production and bringing forward investment to improve flexibility.” At the time of going to press no-one from Owens-Illinois was available for comment.

Anecdotes suggest Europe is short of clear glass, of bottles for screwcaps and of cheaper bottles of all descriptions, where everyone’s margin is too tight. But it’s impossible to build a global picture of precisely where the issues are, and they vary by country. Suddenly glass manufacturers are producers’ “new best friends” as they try to secure supply of bottles.

“No glass manufacturer is holding stock and they’re only making glass against firm orders,” explains Peter Roberts, commercial director of Corby Bottlers, which buys most of its glass from Europe. “Prices went up last year, 6-10% was the asking price. I wouldn’t be surprised to see a similar ask again in January 2008.”

Running on empty
In the UK, only about 4% of the glass container manufacturing industry’s total output is wine bottles. Even so, glass supply is tight.

Lindsay Talas, buying director at Thierry’s, believes: “There is no slack in the industry. We’re anticipating continued problems. We work with our customers to look at different options and we’ll encourage people to look long and hard at alternative packs and to UK bottling. A big chunk of a major Christmas promotion for one of the major multiples will be bottled in the UK. What’s important is consumers are not penalised. We’ve even had to airfreight a pallet to get it in on time.”

Michael Forde, supply chain director at Kingsland Wines & Spirits, admits that his company has been experiencing some problems, but nothing that has stopped them filling. “It’s difficult to secure glass in Europe now,” he says. “I’ve heard rumours that it might take longer than 2008 to come into balance. It’s not a new thing for the glass industry to have a shortage of supply. It tends to rectify itself in 12 to 18 months, but I can’t guarantee that will happen this time.”

Alternative options
At retailer Sainsbury’s, Howard Winn, wine quality manager, says: “We’ve had to split products between screwcap and stoppered cork. On the beer side, we’ve had to postpone the launch of product. We’ve had warnings from Germany on colour availability. We’re having to look further afield within Europe for our glass, with the associated on-costs.”

Quinn Glass is the only company investing in new furnaces in Europe, adding capacity of about 1.4 billion glass containers into an 8bn unit sector, and this is just keeping up with UK demand. “You usually build a furnace for a particular business, such as food containers. If the market changes, it’s not so easy to change, for example to beverage s,” explains sales and marketing director Peter Fitzgerald.

He believes the shortage in the UK is partly cyclical and partly due to other factors. “Two thirds of demand was for flint, with the balance split between green and amber. Now flint is 50%, and green and amber have grown, so there’s a mismatch in colour demand from what was traditionally available. As well as demand for green from bulk New World wine, there’s also growth in ciders in the last couple of years, which tend to be in amber glass.” According to Fitzgerald the demand colour mix has changed more quickly than at any other time in the past 20 years, and it takes time for manufacturers to adjust.

With such shortages of glass bottles perhaps continuing through much of next year, one has to wonder if it creates a serendipitous moment for nascent non-glass alternative packs.

© db October 2007