Sustainability, supply chain and rising costs for retailers – Interview, Richard Lloyd, The Park general manager European operations and supply chain
In 2020, Accolade Wines renamed its Accolade Park production site to The Park, as it looked beyond its own business to package bulk wine for third parties.
Today, Richard Lloyd, general manager, European operations and supply chain, tells Lucy Britner that the facility fills 25% of the UK’s wine, with around 30% of its business now coming from outside Accolade. And as supply chain issues persist, Lloyd highlights the need for collaboration.
“The last 12 months have been more about surety of supply,” says Lloyd of widely reported supply chain issues affecting the industry. “We always aim to have strategic partners. And what I mean by that is I will sign long-term supply contracts with dry goods, suppliers, distribution companies. And therefore, I think when the challenges happen, it's about how do you communicate up and down the supply chain. Ultimately, we've grown in the pandemic.”
Long-term contracts and buying power are important watchwords for Lloyd, but he also talks about how supply issues have altered the mindset of retailers.
“Retailers have truly changed their behaviour in the last couple of years,” he says. “I think they realised that we have to be a partnership. It's not ‘us and them’. If they want to succeed, have products on the shelf, lower their footprint, they have to take a holistic view.
“I've certainly seen a change in their behaviour in terms of their engagement with us as a facility and as a group of people on projects on day-to-day issues. There's definitely a much bigger partnership there in the industry now.”
Lloyd talks about a more symbiotic existence. For example, he’s about to trial a completely plastic-free pallet – with no stretch wrap – at a major retailer who has helped with the project. And on the other side, retailers are looking to him to help keep wine on the shelves amid supply chain issues.
“Previously, retailers would be very rigid with their promotional plans,” he says. “Now, they very much talk to us about ‘what have you got’. At the moment, I'm sitting with 40,000 pallets of product. And there have been huge problems with getting things out of the US and Australia, for example. So, we’ve said to them: why don’t you change your promotional plans.
“Depending on what the challenge is, at that point in time, whether it's the shipping variability, whether it's us driving plastic free, I feel that we've got real partnerships now,” he adds.
Lloyd says the shipping industry “hasn’t gone above 40% reliability” in the past 12 months – 60% of wine has arrived late. This has meant adjusting the supply chain and moving away from a ‘just in time’ model.
“We've had to invest in inventory, bulk wine inventory, finished goods, dry goods… and find a way to deal with this volatility of your core ingredient coming in up to three weeks late from when it used to.”
And when it comes to lateness impacting quality, this is where shipping wine in bulk has a major advantage. Lloyd points out that the smaller surface area of wine in a 24,000-litre tank, compared to individual bottles, makes for less temperature variation. As well as a huge reduction in the carbon footprint.
“Some of the growth at The Park, and everything that we're about, is from people realising shipping in bulk is the future. People in the last 12 or 18 months have realised that, and certainly joined the movement.”
The pandemic has brought with it a new-found appreciation for bag-in-box and the format has been attracting more premium players. Lloyd also points out that bag-in-box increasingly comes in more sizes, including a 1.5-litre option, which he says allows drinkers to buy something new without too much of an outlay.
Elsewhere, format-wise, cans are set to be bigger business this year. Like hard seltzer producers, Lloyd says lots of people have requested wine in cans ready for the festival season.
“People want to experiment, and they will buy wine in cans at festivals. 70% of the wine in cans we do at the moment is carbonated. As a consumer, it plays with your mind a bit drinking a red from a can but people are knocking on our door for rosé and white.
“I also think the consumer is starting to understand the packaging that they use: cans come back to life in eight weeks. So as a reusable, environmentally friendly option, cans tick a lot of boxes.”
Looking forward, Lloyd says the company has signed a deal with Hewlett-Packard to work with them on paper bottles. Elsewhere, finding more environmentally friendly ways to recycle glass will be on the cards, he predicts, with hydrogen powered furnaces becoming a consideration for glassmakers.
The mention of glass leads us back to talking about shortages, supply chain and eventually inflation.
“Whichever came first – the pandemic, shipping issues – people are going to have to rationalise their ranges a bit, the cost of everything is going up exponentially,” says Lloyd. “The cost of operating our supply chain this year makes me uncomfortable, as I sit here, with how much we've spent over and above what we had planned to. Therefore, I think there will be certain products that were low margin that might not survive.”
He says the cost of running his supply chain in the 12 months to July 2021 has gone up 10%. “With the scale that we are as a business, I'm talking tens of millions of pounds,” Lloyd explains.
He gives the example of screw caps, which he says have gone up 40% because the price of aluminium is “through the roof”. And to make matters worse, there aren’t currently any companies making screw caps in the UK. He also says that the price of shipping a container from Australia to the UK has doubled in the past 18 months.
And the impact for retails?
“It’s price on the shelf,” says Lloyd. “I think that the biggest bit that the retailer, supply chain and consumer have to work out is, what's the new equilibrium? Most people have increased the prices. Has it been enough? Because a lot of all that activity was happening in October, November. Since then, the shipping price from Australia has gone up by another 40%.
“My team will look at marginal gains everywhere,” he adds. “But the marginal gains can't offset when your shipping price doubles.”
Lloyd highlights a disconnect between wine as an agricultural product with vintage variations and the “hard retailer world of small margins”.
“At the moment, the two are not matching up. And that's why I think price on shelf will change significantly over the next six months.”
He explains that promotions in retail can “distort the true cost of something” and he questions how sustainable promotions are, going forward. However, he also points out that the pandemic has created consumers who are more willing to experiment and don’t buy just on price.
“I think everyone can work together to make sure that wine is understood by the consumer, because it hasn't always been the simplest product to understand unless you're a real connoisseur,” he says. “Retailers need to keep working with the supply base. What would be criminal is if we don't all work in partnership, and you drive costs into each other's businesses because there isn't collaboration.”