Purchasing Plans to Remain Steady

December 1, 2004
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Purchasing Plans to Remain Steady

By CATHERINE PENN
Beverage bottlers and distributors will invest in new equipment next year at rates very similar to this year, according to Beverage Industry’s 2005 Buying Intentions survey. The data show that beverage bottlers will drive equipment spending over the first three months of 2005, and material handling, filling equipment and conveyors will be the hot items. Also new in 2005 will be beverage companies with less than $10 million in annual revenue buying equipment for the first time in at least a couple of years.
From April to June 2005, equipment spending will be dominated by distributors buying trucks, tractors and trailers to replace existing vehicles. For the rest of the year, bottlers will again drive equipment spending with their need to increase capacity through new plants and processing machines.
Distributors consider beer and soft drinks their most lucrative areas with bottled water and juices following. Although wine and distilled spirits are smaller segments of the beverage industry, their distributors suggest they will expand greatly in 2005.
New construction
Beverage companies with annual revenues more than $250 million are twice as likely as smaller organizations to engage in new construction in 2005. New construction most likely means expanding an existing facility; however, 29 percent of large companies engaged in construction will build brand new facilities in 2005.
The data show that at least one in 10 companies involved in producing or distributing dairy, beer and bottled water products plan to build new facilities in 2005. As a rule, those involved with wine and spirits will not engage in new construction, although 21 percent will expand an existing facility.
Beverage distributors know that consumers are tempted by new drinks. The data suggest the choices of beer and soft drinks will expand in the coming months. In 2005, 71 percent of distributors will add new beers to the mix, and 59 percent will offer additional soft drinks. Interest in energy drinks is also increasing as half of all distributors will have new energy drink choices in 2005. Bottled water, which is pretty ubiquitous, is likely to stay that way without any dramatic increase expected at the moment.
Distributors have juice drinks available 43 percent of the time, and 40 percent will add new juices in 2005. One-third offer sports drinks and ready-to-drink coffee and tea, and these segments will grow in the coming months as most distributors are looking for new products. Dairy drinks are less widely available from distributors — nevertheless 29 percent will offer additional dairy drinks.
While wine and spirits are more specialized, being available at 17 percent and 11 percent of surveyed distributors, respectively, they represent strong growth segments. In 2005, 67 percent of distributors will offer new wines and 75 percent will increase the choice of spirits.
Vehicles
Distributors prefer to own, rather than lease, their vehicles: 80 percent own trucks and trailers, whereas 40 percent lease them (some own and lease vehicles). The data show that most distributors — 52 percent — will be buying new vehicles in 2005.
Beverage bottlers are more likely to lease vehicles; however, ownership is preferred. These processors own 63 percent of the time and lease 53 percent of the time. Bottlers will be less likely purchasers of new vehicles in 2005 — 26 percent said this was part of their spending plan.
New wheels for beverage companies in 2005 will include tractors, mentioned by 56 percent of new vehicle purchasers, and trucks, planned by 47 percent. Also, 41 percent will purchase cargo vans.
Equipment purchasing in 2004
Distributors and bottlers bought new equipment in 2004 — 93 percent bought new and 9 percent went with used.
Distribution is all about vehicles so it’s not surprising that 64 percent of beverage distributors purchased vehicles in 2004. Trucks were bought 50 percent of the time, and 21 percent bought tractors. Other vehicles bought in 2004 include vans, cars, trailers and forklifts.
Beverage manufacturing and warehousing had respondents typing-up purchase orders for production, filling, packaging and material handling equipment. In 2004, beverage-makers bought equipment that included blending equipment, filters, kegs, compressors, grain silos, grinders, heat exchangers, racking equipment, rinsers, spinners and vats. In terms of packaging, they ordered case packers, labeling equipment, erectors, bundlers, foilers and stretchwrappers. Material handling equipment purchases included conveyors and palletizers/depalletizers.
The data suggest that equipment purchases in 2005 might be very similar to that purchased in 2004. Companies with more than $10 million in annual revenue will be purchasing equipment at the same level as they were in 2004. But beverage companies with less than $10 million in annual revenue have ambitious equipment purchasing plans for 2005. In 2004, 45 percent of these companies bought new equipment. In 2005, 85 percent say they plan to buy new equipment.
Equipment spending by beverage producers in 2005 will be driven by a need to increase capacity. The data show 55 percent of bottlers will buy new equipment to add capacity, and 50 percent plan to replace existing equipment. Most bottlers will focus on material handling, filling equipment and conveyors in 2005, each mentioned by at least 40 percent of bottlers. Other areas of spending will be multipack equipment, mentioned by 30 percent, and labelers, anticipated by 27 percent. Eleven percent of bottlers will purchase equipment for an entirely new facility.
One in four bottlers will buy in the area of computers, vending and quality control equipment. Of those making quality control purchases, 82 percent will be looking to monitor manufacturing, while 36 percent will purchase lab equipment. Computers are likely to be used for plant automation and office activities.
Other areas of new equipment spending for bottlers include merchandisers, palletizers and depalletizers, dispensing equipment and water treatment equipment, each mentioned by 20 percent of respondents.
For respondents with distribution responsibilities, equipment purchasing activity in 2005 will be driven by the need to replace existing or outdated equipment. The main areas of spending for distributors will be material handling equipment and computers, each expected by 44 percent. Most likely, computers will be for distribution and warehousing activities. One in three expect to buy new vending equipment.
Equipment spending timetable
The data show that bottlers will drive equipment spending during the next three months — from January to March 2005. From April to June, equipment spending will be dominated by distributors. For the rest of 2005, bottlers will again be the big spenders.
According to respondents, most equipment purchases in January to March 2005 will be in the areas of material handling, filling equipment and conveyors. April to June will see an increase in spending for vehicles as distributors look to replace existing trucks, tractors and trailers.
Overall, it seems beverage companies anticipate sustained growth into 2005, as bottlers plan to increase spending on new plant and processing equipment and distributors purchase new vehicles. Another indication of sustained growth is beverage companies’ desire for new rather than used equipment is the fact that the motivation for buying new equipment is to increase capacity, and the fact that 25 percent of bottlers engaged in construction plan to build a new facility in 2005.
While the type of equipment being bought might be similar to that purchased in 2004, it is important to remember that most bottlers surveyed will be spending more — buying two machines rather than one.
Methodology
Beverage Industry’s 2005 Buying Intentions Survey includes responses from bottlers, 64 percent of those surveyed, and distributors, 36 percent.
In terms of job function, 57 percent of respondents are from general management; 22 percent have fleet, distribution and logistics positions; and 17 percent are from R&D. Twelve percent are from sales/marketing and 9 percent are from purchasing.
Beverage companies with annual revenue of more than $250 million, represent 27 percent of the sample and 11 percent work where revenue is $100 million to $250 million. One in four of respondents work at facilities where annual revenue is less than $10 million, and 38 percent report revenue $10 million to $100 million.
In terms of geography, 29 percent of respondents work at beverage facilities located in the southern United States, and 27 percent work in the western part of the country. The midwest represents 21 percent of interviews and 18 percent of respondents are from the northeast. Ten percent are located in Canada and 6 percent have facilities located throughout the country. BI

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