4 Factors for Navigating Logistics and Regulations in the Beverages Market

2018-12-19T20:01:47+00:00December 20th, 2018|Compliance|

From Self-Care to Smart Backpacks: This is the last post in a five-part series where we highlight product categories with global demand and the regulations and challenges to keep top of mind.

The global market for hot drinks was worth USD $142.8 billion at retail in 2017, with more than half of those sales from coffee. An expanding global middle class able to partake in the global coffee craze also has the disposable income to enjoy craft beers, a glass of wine and indulging in bottled water. Indeed, the desire to avoid water-borne disease from unsafe tap water has kept the e-commerce market for bottled water robust. Interestingly, the global craft beer market is expected to be worth USD $502.9 billion by 2025, despite alcohol being a more challenging e-commerce space. Only 0.2 percent of beer was purchased online in 2016, but Heineken CEO Ronald den Elzen predicts that by 2025, 10 percent of all off-premise beer sales will likely take place online.

There are significant opportunities in the beverage space, but also pitfalls that include alcohol restrictions, labeling and food-product regulations. We’ve compiled key factors to keep in mind when establishing an international e-commerce presence in these categories.

The craft beer trend has spread to Europe and Asia.

Americans now drink less beer than they consumed in the 2000s but are willing to pay more for a superior product: specialty beer brewers in the U.S. produced 24.9 million barrels in 2017 and generated $26.0 billion. The U.S. is losing its market dominance, however: in 2017, 54 percent of launches originated in Europe and just 19 percent in North America, with the Asia Pacific region an increasingly important market. The Middle East & Africa craft beer market is expected to grow at a CAGR of 28.9% (due to increased penetration in South Africa), and Europe is expected to grow at a CAGR of over 9% until 2021. Emerging markets for craft beer also include Brazil.

There are logistical obstacles to consider in different markets. E-commerce vendors in the U.S. face a three-tier distribution system that blocks brewers from selling directly to consumers: producers sell to distributors, who sell to retailers, who then sell to consumers. And just as it’s tricky to define ‘natural’ and ‘organic,’ the definition of craft beer is open to interpretation and differs by country. In the U.S., for example, it means that annual production must be 6 million barrels of beer or less. There are stringent labeling requirements to observe in the E.U. and elsewhere.  

A glass of good wine never gets old.

In the U.S. wine consumption has steadily increased in the past years, with online sales of beer, liquor and wine for delivery growing 32.7% in 2017. Wine represented more than 65% of online alcohol sales between January 1, 2016 and January 31, 2018. In China consumption of wine is increasing substantially and e-commerce has facilitated the growth, with wine sales in China expected to surpass France and the U.K. by 2020.

The market for non-alcoholic beer and wine is also expanding in Europe, the U.S. and in Muslim countries where alcohol is prohibited, with non-alcoholic wine and beer expected to show a 7.6% annual growth rate by 2024.

Global consumers are avid consumers of wine, but there are a number of challenges to consider before entering the space. The U.S. is currently the largest wine market, but there are interstate and shipping regulations to contend with, such as obtaining licenses for each state product will be sold in. Just because a vendor has a license to sell alcohol in a particular state, it doesn’t necessarily mean they are allowed to sell online. In Europe there are also complex VAT and compliance regulations, although these are subject to review.  

Coffee and tea and make the world go round.

It seems that every nation is fueled by caffeinated beverages: 1.8 trillion cups of tea and just under a trillion cups of coffee were consumed in 2017. Asia-Pacific is a growing market for coffee and consumers are turning to premium product. Within the expanding e-commerce grocery market in the United States, purchase of organic and fair-trade tea and coffee is growing, with Europe and Latin America being other key e-commerce markets. The global market for matcha tea is showing an annual growth rate of 7.6% and expected to be worth USD 5.07 billion by 2025.

Coffee and tea are usually regulated as food products and therefore subject to the same stringent regulations applied to foodstuffs. In the EU, coffee and tea must be traceable throughout the entire supply chain and pesticide content is carefully monitored. In the U.S., there have recently been proposed changes to labeling requirements.

Bottled water is always refreshing.

People are constantly reminded to drink more water to stay healthy and hydrated, but in many countries (including the U.S.), tap water isn’t always safe. The global market for bottled water is projected to show an annual growth rate of 10.67% between 2018– 2023, with Asia Pacific expected to grow the fastest because of a lack of pure drinking tap water, the prevalence of water borne disease and a rising middle class able to afford bottled water.

Bottled water is regulated at both state and federal level as a food product by the U.S. Food and Drug Administration, which has strict criteria for the classification of water as  drinking, artesian, groundwater, distilled, deionized, reverse osmosis, mineral, purified, sparkling, spring, or well water. The EU also has strict regulations, with rules often under proposed review.

 

To conclude, cross-border e-commerce retailers have much to gain from an expanding global middle class with a taste for coffee, wine, craft beer, and even bottled water. Disrupters are working to change the complex alcohol regulatory system and sell directly to consumers in the U.S., aided by e-commerce platforms that provide age verification technology and enable delivery personnel to scan IDs. It seems unlikely that the global craze for coffee will wane anytime soon, nor the need for safe drinking water. Nonetheless, it’s important to assess regulatory pitfalls before establishing a presence in these markets for the beverage category.

 

Written by
Juliana Pereira is Vice President, Marketing at Flow Commerce. With 15 years experience in marketing and ecommerce, Juliana joined the Flow team after serving as Vice President of Marketing at Smartling. Previously Juliana worked across a variety of verticals and industries, from non-profits and publishing to tech and fashion, including management positions and key contributing roles at Ralph Lauren, The Met Store online (at The Metropolitan Museum of Art), Ziff Davis, and eMusic.