The food and beverage industry, particularly the alcoholic beverage category, has seen significant changes over the past several years. To keep up with evolving consumer demand and new supply chain realities, producers are leaning on insights generated by metrics, particularly around marketplace and retailer performance. Granting team members — regardless of level or role — visibility into “the numbers'' is an effective strategy to boost resilience and adaptability.
Food and beverage (F&B) companies aren’t exempt from the knock-on effects of the COVID-19 pandemic. Like many industries, the F&B sector continues to grapple with disruption in the form of inflation, supply chain issues and demand fluctuations. On a larger scale, they’re experiencing long-term shifts that will significantly change the competitive landscape.
This installment of our continuing Metrics that Matter series delves into the benefits of providing people at all levels of the organization — not just executives — visibility into metrics. Leaders from Bladnoch Distillery, a global leader in whisky making, explain how transparency is key to driving adaptability.
Our Sources
For this article, we spoke with:
Dan Levin, head of global networks and engineering at Bladnoch Distillery
Will Pitchforth, head of sales at Bladnoch Distillery
Bladnoch Distillery (opens in new tab)is one of Scotland’s oldest independent makers of single malt whiskys, with distribution to over 40 markets worldwide.
A Pulse Check on the Beverage Market
By and large, the past two years have been smooth sailing for the alcoholic beverages industry. According to the International Wine and Spirits Record (IWSR), in 2020, total alcoholic beverage consumption rose by the largest margin since 2002. However, that growth required strategic pivots by manufacturers. As with many industries, the beverage market had been undergoing gradual changes for some time. The past two years accelerated some trends.
On-premises to off-premises. Historically, approximately 80% of US alcohol sales have occurred at off-premises retailers including liquor, drug and grocery stores. The remaining 20% happen at on-premises establishments — restaurants, bars, casinos. However, for more than 20 years, US off-premises alcohol consumer expenditures have grown at an accelerated clip thanks to increases in on-premises prices, stricter DUI laws, food delivery services, ecommerce and the rise in on-demand at-home entertainment options. COVID accelerated — and likely solidified — that shift.
While the increase in off-premises alcohol sales offers opportunities for beverage manufacturers, it also means they need to increase their volume thresholds to make up for the loss in higher-margin on-premises sales.
Ecommerce proliferation. According to the IWSR, US alcohol e-commerce is on the upswing. From about $3 billion of online sales in 2019, the market jumped to about $5.6 billion in 2020, when nearly half of e-shoppers surveyed by the IWSR began purchasing alcohol online for the first time.
In 2021, sales more than doubled from 2019, to reach $6.1 billion. Experts anticipate long-term growth, with alcohol ecommerce projected to reach $42 billion by 2025. While that marks significant expansion, online will still likely make up a minority of alcohol sales, particularly if the global market hits its projected $1.68 trillion in 2025 (opens in new tab).
It’s also worth noting that alcohol ecommerce is illegal in eight states as of this writing: Utah, Montana, North Dakota, South Dakota, Kansas, Wisconsin, South Carolina and Alaska.
Shift toward spirits, especially premium ones. The trend of consumers favoring spirits over beer and wine has accelerated over the past two years. In 2020, the $64 billion US beer market fell 5% in value terms. The $21 billion US whisky market grew more than 3% in the same year. Premium brands in particular saw, and continue to see, an increase in popularity. CGA, a research consultancy, found that the premium-price tier of the spirits market took a 40% share of sales by value in February 2022, while super-premium took 18%. The ultra-premium segment had a 4% dollar share, having grown sales by 180% year-on-year.
That means that the three premium categories now account for .62 cents of every dollar spent on spirits.
But don’t assume that growth will continue. Alcoholic beverage makers need to closely monitor consumer purchasing behaviors, particularly given the current rate of inflation and likelihood of a recession. This industry is uniquely in tune with market events — though whether it’s countercyclical or procyclical in nature depends on externalities: The impact of continuing price increases may make consumers more price-conscious and less likely to purchase premium spirits. In turn though, previous economic downturns have increased alcohol sales overall.
Bladnoch Distillery: Using Teamwide Visibility as a Core Strategy
Talking about whisky sales is never going to be as fun as drinking whisky but, in this case, it’s significantly more informative. Bladnoch Distillery is a single malt Scotch whisky distillery located in the Lowlands of Scotland, dating back to 1817. After closing for several years, it was reopened in 2015 by Australian entrepreneur David Prior. While the company’s whiskys are manufactured in Scotland, business operations are conducted in Melbourne.
For Bladnoch, typical efficiency metrics, like gross margin on case sales, distribution cost as a percentage of revenue, inventory turnover, marketing spend, fill rate and percentage of net sales, rank high on its watch list.
But transparency makes Bladnoch’s strategy distinctive.
“It's less that the metrics we're using are particularly unique and more the way that we share them on our team,” said Will Pitchforth, head of sales at Bladnoch Distillery. “Every single member of the team can log into their NetSuite account and get full visibility of our business performance.”
For Bladnoch, giving team members at all levels visibility into the numbers brings numerous benefits, including keeping its global team engaged, accountable and feeling like a part of the company’s success. It also proved advantageous in avoiding several pitfalls that can afflict a more traditional metrics strategy. Traps companies can fall into around metrics, according to Pitchforth, include finessing the numbers or not checking data frequently enough.
In some company cultures, there’s an idea that what leaders don’t know won’t hurt them.
“A big focus on how to make my metrics look better upwards and ‘let’s hide it from the boss and capture the right language before we share it to make ourselves look good,’” said Pitchforth. “That’s like rearranging the deck chairs on the Titanic as it’s sinking.”
If you’re trailing your metrics — or failing to acknowledge their accuracy — you’re likely to be blindsided. Worse, you may find that it’s too late to do anything about problems.
While providing insight into the numbers helps head off these issues, Bladnoch also found another important benefit: adaptability. COVID-19 and its knock-on effects impacted various facets of the business. But, with team members across departments having access to relevant data, Bladnoch was able to make quick, strategic adjustments, particularly in the areas of distribution channels, consumer demand and logistics.
Data-Driven Adaptation to Changing Marketplaces and Supply Chains
Adaptation for Bladnoch took several different forms. When the team saw that COVID-19 was impacting sales due to distribution issues and changing consumer patterns, the distillery implemented an ecommerce strategy.
“We put together a basic ecommerce platform that looked good and gave the customer exactly what they wanted,” within parameters, said Dan Levin, head of global networks and engineering at Bladnoch Distillery. “So even if we had to run it down to a post office by bicycle or had to hire a courier to take it for us, we did that. That's how our engine was put together, and it has been phenomenally successful. It's one of our biggest sales channels today.”
Changing consumer demand also drove Bladnoch to check it points-of-distribution metrics and reevaluate to whom they were selling. The team detected a population shift in its numbers. Instead of being concentrated around major metropolitan city centers, people were moving further out to nontraditional areas.
“We started to see macrotrends in consumption,” said Pitchforth. “Now it's not all just about getting a listing at the hottest whisky bar in New York. It’s much more important to connect with a whisky influencer who does reviews and maybe has a YouTube channel so people sitting at home can learn about whisky. That's a real shift that we're seeing in the industry, and I think it will persist.”
Metrics around marketplace and retailer performance always helped Bladnoch understand which geographies had the most customers interested in its products. However, in the past couple of years, they’ve also been indicative of something else: supply chain realities.
Studying different departments’ dashboards showed that faltering performance in some areas wasn’t due to lack of demand. Rather, it was a lack of product. Distribution lead times and costs showed a huge backlog in some ports, particularly in the United States, as well as a massive increase in shipping prices. Bladnoch was forced to prioritize more accessible marketplaces and consider previously untapped geos.
“We're live-pulling things out of NetSuite to look at what our situation is in order to make the proper decisions,” said Pitchforth. “Like, for example, country performance. Which countries can we properly zoom in on to get a bit of an uplift that aren't as affected by shipping? What territories have we not explored? Looking at the data, are there some opportunities that we have not considered yet?”
Shipping issues and long lead times are also driving Bladnoch’s logistics and executive teams to look at their KPIs for a solution.
“Our packaging is not created in Scotland,” said Levin. “Some is created in Australia, some in China and some elsewhere in the world. And, we don’t think these shipping issues are going to end anytime soon. So, looking at our KPIs from the logistics sphere, it’s under discussion to centralize our packaging, package storage and manufacturing in Scotland.”
The goal: Simplify logistics.
Looking to Future Metrics
Going forward, Bladnoch has another set of metrics that it wants to incorporate into its team’s dashboards: environmental, social and governance (ESG).
“Something that we are now looking at as we evolve has to do with our impact on the planet and how we are achieving our goals of corporate sustainability and responsibility,” said Pitchforth. “I think the next big challenge for a lot of businesses will be to integrate [traditional metrics] with ones like how many tons of CO2 were produced, the amount of waste and the status of the supply chain in terms of ethical sourcing. How can companies see those at the same level as being profitable?”
It’s not just a question of being sustainable. These metrics also represent a benefit to the bottom line: Bladnoch is currently examining its waste, as well as possible packaging and shipping efficiencies, to see how changes could result in savings.
“I think we're really striving toward measuring our success by not just what we achieve, but how we achieve it,” said Pitchforth.
4 Tips from Bladnoch on Selecting Metrics
1. Focus on understandable and relevant
Levin helped each functional team build dashboards and determine which metrics to include. His bird’s-eye view of the chosen KPIs and associated metrics led him to a conclusion: Focus less on style. Put more emphasis on what’s relevant to teams.
“No matter how pretty the metrics look, if it isn’t directly related to the business function and understandable by those that are responsible for that function, they are not used,” said Levin. “So they might not be fancy metrics, [but they are] the important ones.”
2. Include teams in metrics selections
To understand which metrics and KPIs are those important ones, Levin’s advice is simple: Don’t brainstorm at the C-suite level. Ask the team.
“We take pride in the fact that our business is built on a great amount of simplicity,” said Levin. “And people are absolutely integral and key to that simplicity. So if I'm discussing a particular metric with someone, if they or their business unit just doesn't get it or feels that it doesn’t apply to them, then we know it’s not useful. So that's how we determine it. We just ask.”
3. Dig into each KPI
Bladnoch found that as stakeholders come to understand a major KPI, they sometimes end up breaking it down into a set of manageable, actionable metrics.
“For us, it started with, ‘Let's have a discussion about our brands,’” said Levin. “And that sparked an enormous discussion about markets, which sparked a further discussion about focused financials, like who the Top 8 were in those categories. And then we focused on how the [marketplace’s] retailers perform.
“What those discussions gave to us was a set of KPIs that the relevant business units can actually understand and track. So you can see how understanding one KPI led to the evolution of the second, which led to the evolution of the third, etcetera.”
4. Set ambitious yet achievable objectives
Each financial year, Bladnoch designates certain goalposts to reach by year’s end. Then, each month, the business meets to measure progress against those goals to determine if strategy tweaks need to be made.
“For us, KPIs cannot be understood unless there is a set of goalposts to measure them against,” said Levin.
The Bottom Line
Especially over the last several years, a metrics-driven strategy has become even more integral to business success as companies grapple with rapid shifts and disruptions. For those keeping business metrics confined to the C-suite, it may be time to reconsider and embrace teamwide visibility.