Tuesday, November 1, 2011

How can wine distribution and retail businesses address the environmental challenges facing them, and what are the costs and benefits in doing so?

I have not been posting regularly in the last year or two.  Not sure who reads this blog(if you do, please say hi) as it has served as more of a journal for me.

I've been continuing to plug along in my MW studies and in 2012 will alas, sit the exams.  Below is my most recent submission. 

Question 9
How can wine distribution and retail businesses address the environmental challenges facing them, and what are the costs and benefits in doing so? Paper III

Wine distribution and retail businesses can address the environmental challenges facing them in multiple ways.  They can demand lighter packaging to decrease the carbon footprint.  They can seek to transport goods in bulk and bottle at destination as well as choosing the route with the least greenhouse gas (GHG) emissions.  They can manage recycling and reuse programs and use recycled packaging to transform what would be waste into a renewable resource.  Not only are these initiatives good for the environment but are also cost effective, in many cases.  This paper examines how wine distribution and retail can address these environmental challenges. 

Decreasing package weight can minimize impact on the environment as lighter weight translates into lower GHG emissions.  According to the Waste and Resources Action Programme (WRAP), an average wine glass bottle weighs 500 grams with the lightest at 300 grams.  Some bottles can weigh in excess of 800 grams. Alcohol retail monopolies in Canada, Sweden and Norway, as well as UK grocers have actively demanded lighter alternative packaging.  By 2013, the Liquor Control Board of Ontario (LCBO) will now require that all non-hock 750ml bottles weigh less than 420 grams under the $15CN price point.  Champagne bottles because of pressure requirements and more expensive wine will not be subject to this maximum but the LCBO has noted that those with lighter packaging will have a competitive advantage.  As one of the most powerful buyers in the world, sourcing from over 80 countries and purchasing over 80 million 750 ml bottles, it has the influence to directly influence their suppliers and indirectly with those wishing to do business with them. Similarly, Systembolaget, the Swedish retail monopoly in Sweden, purchases lighter weight packaging.  Around 55% of sales are bag in the box.  In the UK, the Courtauld Commitment is an environmental initiative, a voluntary collaboration with the government and major retailers.  Although there is no government mandate, Tesco’s already has a 300 gram weight wine bottle.  Waitrose and Saintsbury’s have lighter weight polyethylene terephthalate (PET) bottles that in addition, use less resources to produce.  In 2010, Marks and Spencer created a special line of PET to keep bottles fresh for up to a year as one of the criticisms of PET is that it allows more oxygen ingress.  If a retailer or monopoly drives the use lightweight packaging the supplier has less of a disadvantage as consumers tend to perceive value in heavier bottles; the LCBO model puts the less than CN$15 bottles at a level playing field.  Alongside this, consumers need to be educated in the benefits of lighter weight packaging.  The LCBO has active campaigns to educate its consumers.  Lightweight packaging such has PET, plastic bottles, Tetra Pak and lightweight glass are more cost efficient as the cost to transport per bottle is decreased and the decrease in weight creates less GHG emissions.

Bottling in bulk, bottling place and transportation can be driven by wine distribution and the retailer.  Bottling in bulk has benefits such as reduced transport emissions and waste glass.  As part of the Courtauld Commitment, Foster’s European, African, and Middle Eastern (EMEA) divisions have vowed to increase bulk shipping and bottling at source. Transporting goods in bulk is environmentally friendly but also carries a cost savings of up to 40% in shipping and 35-47% in overall distribution costs, according to WRAP.  Tetra Pak producer Matt Cain of Yellow + Blue ships his malbec from Argentina in truck to Chile, ships in insulated containers to Montreal and trucks to Toronto.  There it is packaged for his Canadian and US consumer.  Mr. Cain claims to pass the savings in transport onto the customer by giving them a $20 wine for $10.  However, only those with a sufficient volume and scale will choose to ship in the bulk method; also, it is most often found in wines with price points under US$15. Many French AC wines must be bottled in region and in Bordeaux, cru classe must be bottled at chateau and thus the governing laws would restrict bottling elsewhere.  Bottling at source would also give a market to the local recycling efforts. Lastly, the mode of transport has different impacts on the environment. A study published by Dr. Vino’s blog showed that GHG emissions ascended in the following order: ship, ship with refrigeration, rail, truck and air.  More than 50% of Foster’s EMEA containers are freighted via trains, which further reduces emissions.  However, YY, operations manager for US importer and distributor GG WInes notes that choosing the lower GHG emission route is not always feasible.  “Yes, rail is cheaper and has lower emissions but takes two weeks from California to New York.  So if I want to respond quicker to my client’s demand, I may have to use a truck that only takes 5 days.  Also, I start paying the supplier at time of pickup so a longer journey has ramifications on my cash flow management.”  In individual cases, bottling in bulk, bottling at source and managing transport can positively impact the environment and be cost effective. 

Retailers and distributors can also manage the recycling and reuse process.  The LCBO is an excellent example.  In 2008, the LCBO stopped using plastic bags.  They encourage the use of reusable bags and use only paper bags made from 100% recycled paper sourced from Canadian mills.  Further, each bottle carries a CN20 cent deposit.  In 2009-10, the LCBO measured a 77% return rate back at a LCBO location thus reducing landfill. In the UK, initiatives to use recycled glass can seen in the Waitrose “Virtue” brand.  Not only is the range transported in lightweight bottles, it is made from 60% recycled materials. However, the size of the retailer is typically a chain supermarket or larger.  YYZ, owner of specialist retailer ABC Wines in New York City says,  “As a fine wine specialist retailer, I don’t have space to take recycling at my store at YYY.  In my private label brands, I don’t want to pay the higher cost for the recycled bottle as I’m most concerned about my margins and more importantly, I don’t think the customer cares.” Not all those in wine distribution or retail can make the leap to recycling or reuse but larger entities are paving the path.    

There are a number of other creative measures that retailers or distributors can take.  For example, JJ Buckley in the US measures their carbon output and buys carbon offsets at carbonfund.org.  Whole Foods in the US has a cork recycling program that remakes cork into products such as floors and cork shippers. The LCBO has Leadership in Energy and Design (LEED) for eight of its stores thus far.  These stores were built to consume less energy.  The means to tackle the environmental challenges are numerous.  

In conclusion, wine distribution and retail business can address environmental challenges in multiple ways.  Mandating lighter weight packaging and educating the consumer on the benefits is one method.  Bulk shipping, bottling at source and choice of method of transport, if feasible for the business, can make an impact.  Promoting recycling programs reduces landfill and creating demand for recycled materials contribute to a better environment.  The benefits include lower GHG emissions, less resources and possibly, economic savings. Wine distribution and retail business can directly and indirectly influence the environmental challenges by adopting some or all of the above programs.