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Influencer Marketing Redefining the Fashion and Beauty Industry
by EOS Intelligence EOS Intelligence No Comments

Influencer Marketing Redefining the Fashion and Beauty Industry

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Social media users are increasingly reliant on and influenced by what they see online, particularly, when it comes to marketing done by fashion and beauty brands. Social media provides immense marketing opportunities to the fashion and beauty industry by allowing them to closely interact with customers and influence their buying decisions like never before. To tap such opportunities, about 78% of global fashion brands incorporated social influencers in their marketing strategy in 2017, according to a survey conducted by Launchmetrics. Influencers are slowly becoming an integral part of marketing campaigns for fashion and beauty brands – for high-end brands such as Becca Cosmetics and Yves Saint Laurent, as well as affordable brands such as Maybelline, for whom influencers have been pivotal in driving sales.

Why beauty and fashion brands are adopting influencer marketing?

In the past, to launch new collections or promote products, fashion/beauty brands invested heavily in celebrities and television models gracing magazine covers, billboard and television advertisements, among others. These efforts were effective but as technology progresses, fresh marketing tactics are born. While most of the traditional forms of advertising are still being used, brands have started to realize how laborious it is to employ traditional methods in promoting products, hence, majority of brands are going digital and starting to work with influencers.

How influential is influencer marketing?

Undoubtedly, influencer marketing is one of the fastest growing digital marketing tools, providing unparalleled access to real-time word-of-mouth targeting. For marketers, today’s social media influencers are yesterday’s celebrities and socialites, only with a more persuasive voice and greater power to reach audiences.

Beauty and fashion industry has understood the power of influencer marketing quite well. Cosmetics brands such as Smashbox have completely abandoned the use of traditional print media for advertising while luxury cosmetics companies such as Estee Lauder have significantly reduced spending on traditional media to focus on digital.

Fashion and cosmetics brands are using various types of influencer campaigns to promote products, foster brand awareness, and boost sales. For example, Maybelline (an American cosmetics company) in China used the influence of beauty bloggers and 50 celebrity influencers to do a 20-minute livestream video for a newly launched lipstick in 2016, which led to sales of 10,000 lipsticks in two hours.

On the other hand, Olay (an American skincare company) introduced a skincare campaign, Olay 28-day Challenge, which urged influencers to document their four-week experience of using company’s products while updating their followers simultaneously across various social media platforms. Influencers also gave away free samples and offered discounts to followers to encourage them to buy the products to join the skincare challenge. In 2018, the campaign was able to increase engagement rate by 20% and there was a significant increase in Google searches for the brand name.

There is no end to innovative social media campaigns that brands are launching. For example, in 2018, H&M (A Swedish clothing retail company) engaged in conversation with consumers on Instagram to come up with new designs for its brand Nyden, which is targeted at millennials. H&M worked with nine influencers, who used Instagram stories’ polling feature to understand followers’ preferences for certain designs, such as using zippers versus buttons, among others. Over a period of two weeks, the polls attracted more than 425,000 viewers and generated 35,000 votes.

For brands such as Fashion Nova (an American fast fashion retail company), with 14 million Instagram followers and ranked as the most Googled fashion brand of 2018, marketing through Instagram has been pivotal in its rapid ascent in the fashion industry. Fashion Nova is known for betting big on Instagram and use of celebrity influencers – as of December 2018, the company had worked with 3,000 influencers on Instagram. Using celebrity influencers, it claims to have generated sales up to US$ 50,000 per post and selling out a whole collection of clothing line within 82 minutes. With about 20 to 30 posts per day on Instagram, Fashion Nova knows how to keep its audience engaged and generate brand awareness.

What challenges are obstructing growth?

Influencer fatigue

Influencer marketing is not as impeccable as it sounds to be. With more and more businesses adopting influencer marketing, threat of influencer fatigue increases, which could result in disengaged audiences and reduced impact. According to a study conducted by Bazaarvoice in 2018, about 47% respondents claimed to be fatigued with repetitive influencer posts on Instagram.

Promotional content is already beginning to clutter consumer’s news feeds. With beauty and fashion influencers recommending every other product that enters the market, audiences will eventually lose trust in them, feel disengaged and overwhelmed. Consumers, after some time, are bound to get tired of having their buying behavior manipulated. Just like people started using ad-blockers when websites became loaded with advertisements, there’s a probability that they may also turn away from beauty/fashion influencers.

Absence of standard metrics/parameters to determine success of campaigns

There is uncertainty regarding what constitutes a successful influencer marketing campaign and how to calculate ROI on marketing spend. Beauty and fashion companies are unable to accurately calculate profitability of influencer campaigns. According to a study published by Celebrity Intelligence in 2018, 46% of respondents (from the beauty industry) faced challenge in evaluating ROI of an influencer collaboration.

Driving purchases is not always the key objective of influencer marketing, rather it focuses on softer goals like growing brand awareness or boosting engagement, which makes ROI far more complex to determine.

Influencer marketing does not guarantee results in terms of sales, brand reach, or number of clicks. No standard metrics have been set for the industry to measure success, instead brands end up speculating whether the campaign was successful or not. Some beauty and fashion companies monitor the comments or number of likes on the posts, while others determine views on videos or track campaign hashtags, all of which are not very effective methodologies.

Fraudulent practices

Much like other industries, beauty and fashion market has also fallen prey to influencer frauds. According a report published Points North Group in 2018, cosmetics/skincare companies suffered losses due to fraudulent engagement – 46% of Raw Sugar Living’s influencer marketing budget was squandered on fake followers, Clarins lost 45% of its budget on influencer frauds, while L’occitane blew 24% of its budget, among various others. Such deceitful practices have taken a toll on marketers, who invest in influencers to drive brand awareness and sales, but their campaigns fail to reach the actual target audience.

Another inauthentic social media activity plaguing the beauty and fashion industry is staging fake promotional posts by aspiring influencers. Companies want to see promotional abilities and references of past campaigns of influencers before hiring them to do paid sponsored posts. Hence, aspiring influencers, particularly from the beauty and fashion industry, have started to publish posts with brand hashtags and captioning it in a manner such that it seems to be a promotional or sponsored content. While this leads to free publicity for brands but most of them complain that this also results in inferior quality sponsored content posted without approval, which could harm brand’s reputation.

Influencer Marketing Redefining the Fashion and Beauty Industry by EOS Intelligence

EOS Perspective

If there is any market that qualifies to be an early adopter of influencer marketing, it is the beauty and fashion industry. It is an extremely dynamic industry and to stand out from competitors, brands need to constantly evolve, be creative, and promote products extensively – all of which is easily achieved through influencer marketing.

Equipped with social media savviness, influencers have the power to eloquently persuade consumers to make purchases. There is no limit to the creativity that they bring to the table – fashion/beauty influencers design compelling marketing campaigns for the brands by reviewing products, conducting polls and contests, offering huge giveaways, sharing their experiences of using products through videos or photographs, attending events organized by brands and promoting such events, among various other tactics.

Is influencer marketing here to stay?

There is no doubt that influencer marketing is becoming the mainstay of beauty and fashion industry, far from a passing fad. The personal nature of influencer campaigns is one of the reasons why it is proving to be effective for the beauty and fashion industry. According to a survey conducted by Celebrity Intelligence in 2018, 98% of beauty companies believed that influencer marketing is effective for the industry while 68% thought beauty segment has a natural affinity with influencers. Even though difficult to calculate, surveys have determined that influencer campaigns could also provide high ROIs – for every US$1 spent on influencer marketing, brands received average ROI of US$10.7 in 2017. Fashion and beauty brands have gauged the power of social media and know that with the right influencer endorsing to the right community/audience, it can translate into clicks, conversions, and actual sales.

Find out more about drivers and challenges in influencer marketing adoption here

For fashion and beauty brands, influencer marketing has become a multi-million-dollar investment, with considerable portions of their budgets dedicated to influencers. For example, Estee Lauder (a US-based cosmetics company), in 2019, revealed that 75% of its marketing budget will be spent on digital marketing, particularly on influencers, while Shiseido (Japanese multinational personal care company) increased its influencer marketing budget by 50% in 2019. On the other hand, in February 2019, Benefit Cosmetics (a US-based cosmetics company) formed an in-house dedicated influencer agency in the UK to streamline influencer marketing operations and manage influencer relationships. In the future, it plans to expand the in-house influencer agency to other locations as well.

Undoubtedly, influencer marketing has dramatically changed the fashion and beauty industry, by allowing real people to narrate a brand story, demonstrate product, and provide honest and credible product reviews. In order to make it a sustainable marketing strategy, measures are being taken to overcome some of the existing challenges. In pursuit to engage with authentic influencers, beauty brands are adopting more sophisticated, data-led approach to selection process. According to Celebrity Intelligence survey, in 2018, about 67% of beauty brands identified social media analytics (including audience insights and engagement metrics) useful to choose authentic and suitable content creators.

Another ongoing challenge is to accurately determine success of campaigns, which some companies (including lifestyle and cosmetics brands such as Daniel Wellington, L’Oréal, and Olay) are tackling by providing influencers with a unique URL or a discount code, which followers can use and brands can easily track conversions. If the campaign does not entail discounts, various metrics can be used to evaluate ROI such as traffic driven, social reach, social media impressions, engagement rate, cost per impression, and cost per engagement, among others.

Nonetheless, opportunities that influencer marketing provides for the beauty and fashion industry outweigh all downsides. While brands have achieved success with sponsored posts and brand hashtags on social media, there is still a lot more for them to explore and innovate through influencer marketing.

Influencer Marketing A Powerful Marketing Tool on the Rise
by EOS Intelligence EOS Intelligence No Comments

Influencer Marketing: A Powerful Marketing Tool on the Rise

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Influencer marketing, until fairly recently a new marketing tool, is now on the frontier of becoming a mainstream marketing channel. The real, relatable, and reaction-stimulating content created by influencers, distinguishes this form of marketing from traditional marketing channels. Influencer marketing offers effective means for brands to communicate and engage with customers on social media, a fact that is driving its popularity. Laden with potential to drive sales and grow brand awareness, the influencer marketing market is likely to reach US$22.3 billion by 2024. However, certain challenges do exist in the market, and if not addressed, they can potentially hinder market growth.

Influencer marketing started shaping up around 2005 with mere video blogs on YouTube, but quickly grew in prominence as marketers took notice of its potential. Growing at a CAGR of 28% between 2019 and 2024, the industry is becoming a marketing mainstay for brands across various markets. This is driven by the fact that influencers generate a sense of proximity with their audiences, which helps in molding their shopping behavior under discrete suggestions and recommendations.

What is driving adoption of influencer marketing?

Consumers, especially millennials, are embracing a different approach to making purchasing decisions. Consumers are relying on Instagram models, Twitter personalities, and YouTube influencers to seek recommendations or to understand which brand or product is trending in the market. This has resulted in brands endorsing products through various social media channels using influencers.

Moreover, it is a proven fact that word-of-mouth marketing leads to twice as high sales as paid advertising, and influencer marketing is nothing but a form of word-of-mouth marketing. Studies also suggest that shoppers purchasing product through word-of-mouth have a 37% higher retention rate, another reason why brands want to reach their consumers through influencer marketing.

Additionally, the way that we consume media has changed. Social media boom is slowly driving consumers away from traditional forms of advertising and marketing. More than ever, social channels are becoming means to start a conversation with consumers and build direct relationships with them. With traditional advertising being sidelined by consumers (about 65% of people skip ads posted during or before online videos), influencer marketing has become an integral channel to connect with them.

How have influencers assisted companies to increase sales and grow brand awareness?

Engaging with influencers is proving to be an effective way of getting a sale, hence, brands are investing considerable budgets in influencer marketing. Brands are partnering with influencers to launch various types of innovative campaigns, with primary focus on increasing brand awareness (84%), reaching new audience (71%), and generating sales (64%), according to a survey conducted by Mediakix in 2019.

For example, YouFoodz, an Australian food chain, used Instagram to promote the launch of its 2017 winter menu. It collaborated with 81 influencers, who posted 162 Instagram stories and 176 pieces of content, which reached 1.5 million Instagram users. The campaign was a huge success, generating 70,000 direct engagements and over 500,000 impressions (number of times particular content is displayed, regardless of if it was clicked or not).

Relying on influencer marketing, Bigelow Tea (an America tea manufacturer) was able to showcase healthy aspects of drinking tea and promote its product to a large audience. Influencers incorporated Bigelow tea into their content in various ways. Culinary influencers developed different recipes to use tea in innovative ways, while craft bloggers turned packaging into DIY arts, for example, creating flower pots from the tea packaging. The campaign led to more than 44 million impressions and increased sales by 18.5%.

Further, M&M (a product of US-based confectionary and food company, Mar Incorporated) launched an innovative campaign in 2016 to let audience decide its new peanut flavor (a choice between Honey Nut, Chili Nut, and Coffee Nut) by running a mini-election. It partnered with a television personality and a team of influencers to encourage people to try the flavors and cast their votes. Finally, coffee nut flavor was selected, and the campaign generated 269 million impressions, 216 influencer posts, 14.4 million social engagements, and more than 1 million votes.

Is influencer marketing cost effective?

Influencer marketing has proven to be quite budget friendly, allowing large brands and small start-ups to launch compelling marketing campaigns. Traditional forms of advertising campaigns, through television commercials, magazines and newspaper ads, etc., require substantial investment.

On the other hand, influencer marketing is cost effective and simpler to execute. Companies with limited budget can engage with micro (comprising 1,000-5,000 followers) or nano (comprising less than 1,000 followers) influencers and still achieve remarkable results without spending a fortune.

In fact, according to a study conducted by Takumi, micro and nano influencers can generate high engagement rates – influencer with up to 1,000 followers could generate about 9.7% engagement rate, while influencers with 1,000-4,000 followers could provide 4.5% engagement rate. Micro and nano influencers tend to build strong trust and authenticity, and are relatable to their audience, which enhances their ability to engage an audience. According to a study conducted by Experticity, 82% of consumers have higher probability of listening to suggestions provided by micro influencers than those provided by influencers with large number of followers.

Moreover, surveys have determined that influencer marketing could yield a decent average ROI of US$ 5.20 for every dollar spent, which makes it an appealing option for marketers.

What challenges are hindering growth?

Lack of stringent regulations leading to poor compliance with guidelines

Current regulations and guidelines pertaining to influencer endorsements are not stringent or comprehensive, leading to malpractices. In the USA, the FTC (Federal Trade Commission) requires influencers to provide disclosure in case of sponsored content, however, no fines are applied for violations. As a result, most influencers do not adhere to the endorsement regulations, either due to lack of knowledge or in fear of losing followers. In 2018, out of 800 Instagram accounts from UK, USA, and Canada, only 25% fully complied with local regulations pertaining to sponsored content, according to a study released by Inkifi.

Such misleading conduct on influencer’s part could raise questions on their authenticity and lead to mistrust among their followers, who demand transparency. Moreover, large corporations such as Unilever (a consumer goods company) have strictly refused to work with influencers who indulge in fraudulent activities. Influencers are at risk of losing trust of their followers as well as of companies if they continue to indulge in misleading activities.

Fraudulent engagement

Typically, brands use the number of followers on an influencer’s account to estimate campaign results in terms of ROI, engagement rate, brand awareness, earned media value, among others. To seem more appropriate or popular, some influencers purchase their followers using bots – software designed to automatically like, comment, and share posts, increase views on videos, and inflate number of followers on accounts. Influencers have also started to fake their engagements by joining a community of real users to trade likes and comments. Despite these followers being real people, they are not likely to be interested in influencer’s content. Consequently, brands fail to meet the desired campaign result or reach the target audience.

In 2019, fraudulent activities were estimated to cost brands US$1.3 billion, about 23% of allocated budget for influencer marketing. Fraudulent practices are inhibiting market growth, as brands are increasingly becoming cautious of investing in influencer marketing – as of January 2019, about 53% of brands stated that fraudulent impressions were obstacles to increasing digital advertisement budgets.

Influencer Marketing A Powerful Marketing Tool on the Rise by EOS Intelligence

EOS Perspective

Influencers are no longer an extra asset to marketing campaigns instead they have become a critical element of storytelling and building direct relationship between brands and customers. Influencers have positioned themselves as authentic gurus rather than simple advertisers, with 92% of consumers making purchasing decision based on influencers’ posts in 2018. Their relentless savviness to promote brands is what keeps audiences engaged and brands coming back for more.

Nonetheless, challenges do persist but the industry is continuously evolving and coming up with solutions. Measures are being taken against inauthentic engagements. Platforms such as Instagram have started to strictly regulate fraudulent activity and began to threaten offenders with fraud penalties, account suspension, and brand reputation damage. Companies have also become mindful and vigilant while engaging with influencers and started to thoroughly vet them to check for fake followers or use of bot to increase followers. On the legal side, a New York Attorney General has stated that selling fake followers on social media will be considered as an illegal activity in the state.

Further, in November 2019, FTC launched guidelines for sponsored content under ‘Disclosures 101 for Social Media Influencers’ that encompasses when and how influencers should disclose their engagement with brands, regardless of whether or not it includes payment. FTC has not made any major changes in the guidelines but the new guide is more user-friendly with abridged language, and photos and videos illustrating the correct way to endorse products on social media.

Find out how influencer marketing is reshaping fashion and beauty industry here

According to the guidelines, when partnering with brands, disclosure is mandatory when there’s a financial, employment, personal, or family relationship with a brand. Disclosure language should be simple and clear, and the disclosure should be hard to miss (for example, disclosures on Instagram are required to be placed at the beginning of the post’s description and before the ‘more’ button). FTC’s aim is to foster transparency in sponsored content by placing more liability on brands and influencers to explicitly reveal their relationship while recommending products.

Influencer marketing has well-established itself in the advertising industry and is moving towards becoming a mainstream marketing channel, and such measures taken by regulatory authorities, social media platforms such as Instagram, as well as the brands will further strengthen its position as a marketing channel. In future, not only will influencer marketing continue to grow in popularity, but is also likely to become a more purposeful and effective way to communicate and engage with audiences. Allured by endless opportunities, brands will continue to collaborate with influencers and the industry is poised to grow.

Global Economy Bound to Suffer from Coronavirus Fever
by EOS Intelligence EOS Intelligence No Comments

Global Economy Bound to Suffer from Coronavirus Fever

Global economy has slowed down in response to coronavirus. Factories in China and many parts of Europe have been forced to halt production temporarily as some of the largest manufacturing hubs in the world battle with the virus. While the heaviest impact of the virus has been (so far) observed in China, global economy too is impacted as most industries’ global supply chains are highly dependent on China for small components and cheaper production rates.

China is considered to be the manufacturing and exporting hub of the world. Lower labor costs and advanced production capabilities make manufacturing in China attractive to international businesses. World Bank estimated China’s GDP in 2018 to be US$13.6 trillion, making it the second largest economy after the USA (US$20.58 trillion). Since 1952, China’s economy has grown 450 fold as compared with the growth rate of the USA economy. International trade and investment have been the primary reason for the economic growth of the country. This shows China’s strong position in the world and indicates that any disturbances in the country’s businesses could have a global effect.

On New Years’ Eve 2019, an outbreak of a virus known as coronavirus (COVID-19) was reported in Wuhan, China to the WHO. Coronavirus is known to cause respiratory illness that ranges from cough and cold to critical infections. As the virus spreads fast and has a relatively high mortality rate, the Chinese government responded by quarantining Wuhan city and its nearby areas on January 23, 2020. However, this did not contain the situation. In January 2020, WHO designated coronavirus a “public health emergency of international concern” (PHEIC), indicating that measures need to be taken to contain the outbreak. On March 11, 2020, WHO called coronavirus a pandemic with the outbreak spreading across about 164 countries, infecting more than 190,000 people and claiming 7,800+ lives (as of March 18, 2020).

Coronavirus threatening businesses in China and beyond

Businesses globally (and especially in China) are feeling the impact of coronavirus. Workers are stuck in their homes due to the outbreak. Factories and work places remain dormant or are running slower than usual. Also, the effects of coronavirus are spreading across the globe. Initially, all factory shutdowns happened in China, however, the ripple effects of the outbreak can now be seen in other parts of the world as well, especially Italy.

Automotive industry

Global automobile manufacturers, such as General Motors, Volkswagen, Toyota, Daimler, Renault, Honda, Hyundai, and Ford Motors, who have invested heavily in China (for instance, Ford Motor joined ventured with China’s state-owned Chongqing Changan Automobile Company, Ltd., one of China’s biggest auto manufacturers) have shut down their factories and production units in the country. According to a London-based global information provider IHS Markit, Chinese auto industry is likely to lose approximately 1.7 million units of production till March 2020, since Wuhan and the rest of Hubei province, where the outbreak originated, account for 9% of total Chinese auto production. While the factories are reopening slowly (at least outside the Wuhan city) and production is expected to ramp up again, it all depends on how well the outbreak is contained. If the situation drags on for few months, the auto manufacturers might face significant losses which in turn may result in limited supply and price hikes.

American, European, and Japanese automobile manufacturers, among others, are heavily dependent on components supplied from China. Low production of car parts and components in China are resulting in supply shortages for the automakers globally. UN estimates that China shipped close to US$35 billion worth of auto parts in 2018. Also, according to the US Commerce Department’s International Trade Administration, about US$20 billion of Chinese parts were exported to the USA alone in 2018. A large percentage of parts are used in assembly lines that are used to build cars while remaining are supplied to retail stores. Supply chain is crucial in a connected global economy.

Coronavirus outbreak poses a risk to the global automotive supply chain.

South Korea’s Hyundai held off operations at its Ulsan complex in Korea due to lack of parts that were supposed to be imported from China. The plant manufactures 1.4 million vehicles annually and the shutdown has cost approximately US$500 million within just five days of shutting down. However, Hyundai is not the only such case. Nissan’s plant in Kyushu, Japan adjusted its production due to shortage of Chinese parts. French automaker Renault also suspended its production at a plant in Busan, South Korea due to similar reasons. Fiat Chrysler predicts the company’s European plant could be at risk of shutting down due to lack of supply of Chinese parts.

However, very recently, automobile factories in China have started reopening as the virus is slowly getting contained in the region. While Volkswagen has slowly started producing in all its locations in China, Nissan has managed to restart three of its five plants in the country.

That being said, auto factories are facing shutdowns across the world as coronavirus becomes a pandemic. Ford Chrysler has temporarily shut down four of its plants in Italy as the country becomes the second largest affected nation after China.

Automobile supply chains are highly integrated and complex, and require significant investments as well as a long term commitment from automobile manufacturers. A sudden shift in suppliers is not easy. The virus is spreading uncontrollably across Europe now and if France and Germany are forced to follow Italy’s footsteps of shutting down factories to contain its spread, this will spell doom for the auto sector as the two countries are home to some of the biggest automobile manufacturers in the world.

Technology industry

China is the largest manufacturer of phones, television sets, and computers. Much of the consumer technologies from smartphones to LED televisions are manufactured in China. One of the important sectors in the technology industry is smartphones.

The outbreak of coronavirus is bad news for the technology sector, especially at the verge of the 5G technology roll-out. Consumers were eagerly waiting for smartphone launches supporting 5G but with the outbreak, the demand for smartphones has seen a decline. According to the China Academy of Information and Communications Technology, overall smartphone shipments in China fell 37% year over year in January 2020.

Foxconn, which is a China-based manufacturing partner of Apple, has iPhone assembling plants in Zhengzhou and Shenzhen. These plants, which make up a large part for the Apple’s global iPhone assembly line, are currently facing a shortage of workers that will ultimately affect the production levels of iPhone in these factories. According to Reuters, only 10% of workers resumed work after the Lunar New Year holiday in China. As per TrendForce, a Taiwanese technology forecasting firm, Apple’s iPhone production is expected to drop by 10% in the first quarter of 2020.

Moreover, Apple closed down all its retail stores and corporate offices in the first week of February 2020 in China in response to the outbreak. On March 13, 2020, it reopened all of its stores in China as the outbreak seems to be under control. However, while Apple seems to recover from the outbreak in China, it is equally affected by store shutdowns in other parts of the world (especially Europe). On March 11, Apple announced that all stores in Italy will be closed until further notice. Italy has been hit by the virus hard after China. The Italian government imposed a nationwide lockdown on the first week of March 2020.

On the other hand other multinational smartphone giants such as LG, Sony Mobile, Oppo, Motorola, Nokia, and many others have delayed their smartphone launches in the first quarter of 2020 due to the outbreak.

The coronavirus outbreak is more likely to be a disaster for smartphone manufacturers relying on China.

Other sectors such as LCD panels for TVs, laptops, and computer monitors are mostly manufactured in China. According to IHS Markit, there are five LCD factories located in the city of Wuhan and the capacity at these factories is likely to be affected due to the quarantine placed by the Chinese government. This is likely to force Chinese manufacturers to raise prices to deal with the shortage.

According to Upload VR, an American virtual reality-focused technology and media company, Facebook has stopped taking new orders for the standalone VR headset and also said the coronavirus will impact production of its Oculus Quest headset.

Shipping industry

In addition to these sectors, the new coronavirus has also hit shipping industry hard. All shipping segments from container lines to oil tanks have been affected by trade restrictions and factory shutdowns in China and other countries. Shipyards have been deserted and vessels are idle awaiting services since the outbreak.

According to a February 2020 survey conducted by Shanghai International Shipping Institute, a Beijing based think-tank, capacity utilization at major Chinese ports has been 20%-50% lower than normal and one-third of the storage facilities were more than 90% full since goods are not moving out. Terminal operations have also been slow since the outbreak in China. The outbreak is costing container shipping lines US$350 million per week, as per Sea-Intelligence, a Danish maritime data specialist.

According to Sea-Intelligence, by February 2020, 21 sailings between China and America and 10 sailings in the Asia-Europe trade loop had been cancelled since the outbreak. In terms of containers, these cancellations encompass 198,500 containers for the China-America route and 151,500 boxes for the Asia-Europe route.

Moreover, shutting down of factories in China has resulted in a manufacturing slowdown, which in turn is expected to impact the Asian shipping markets. European and American trade is also getting affected as the virus spreads to those continents. US retailers depend heavily on imports from China but the outbreak has caused the shipping volumes to diminish over the first quarter.

The USA is already in the middle of a trade war with China that has put a dent in the imports from China. National Retail Federation (world’s largest retail trade association) and Hackett Associates (US based consultancy and research firm) projects imported container volumes at US seaports is likely to be down by 9.5% in March 2020 from 2019. The outbreak is heavily impacting the supply chains globally and if factory shutdowns continue the impact is more likely to be grave.

Read our other Perspectives on US-China tensions: Sino-US Trade War to Cause Ripple Effect of Implications in Auto Industry and Decoding the USA-China 5G War

Other businesses

In addition to the auto, technology, and shipping industries, other sectors are also feeling the heat from the outbreak. Under Armour, an American sports clothing and accessories manufacturer, estimated that its revenues are likely to decline by US$50-60 million in 2020 owing to the outbreak.

Disney’s theme parks in California, Shanghai, Tokyo, and Hong Kong have been shut down due to the outbreak and this is expected to reduce its operating income by more than US$175 million by second quarter 2020.

Further, IMAX, a Canadian film company, has postponed the release of five films in January 2020, due to the outbreak.

Several fast food chains have been temporarily shut down across China and Italy, however, most of them have opened or are in the process of reopening in China as the outbreak is slowly coming under control there. While the global fast food and retail players have limited exposure in China, they are suffering huge losses in Europe, especially Italy. The restaurant sector is severely impacted there, where all restaurants, fast food chains, and bars have been shut down temporarily till April 3 in an attempt to contain the outbreak.

Another significantly affected industry is the American semiconductor industry as it is heavily connected to the Chinese market. Intel’s (a US-based semiconductor company) Chinese customers account for approximately US$20 billion in revenue in 2019. Another American multinational semiconductor and telecommunications equipment company, Qualcomm draws approximately 47% of its revenue from China sales annually. The outbreak is making its way through various industries and global manufacturers could now see how much they have become dependent on China. Although the virus seems to be getting under control as days pass, the businesses are not yet fully operational. Losses could ramp up if the virus is not contained soon.

Global Economy Bound to Suffer from Coronavirus Fever by EOS Intelligence

 

Housebound consumers dealing with coronavirus

Since the virus outbreak, people across many countries are increasingly housebound. Road traffic in China, Italy, Iran, and other severely affected countries has been minimized and public places have been isolated. People are scared to go out and mostly remain at home. This has led local businesses such as shopping malls, restaurants, cinemas, and department stores to witness a considerable slowdown, while in some countries being forced to shut down.

TV viewing and mobile internet consumption on various apps have increased after the outbreak. According to QuestMobile, a research and consultancy firm, daily time spent with mobile internet rose from 6.1 hours in early January 2020 to 6.8 hours during Lunar New Year (February 2020).

While retail outlets and other businesses are slower, people have turned to ordering products online. JD.com, a Chinese online retailer, reported that its online grocery sales grew 215% (year on year) to 15,000 tons between late January and early February 2020. Further, DingTalk, a communication platform developed by Alibaba in 2014, was recorded as the most downloaded app in China in early February 2020.

EOS Perspective

International businesses depend heavily on Chinese factories to make their products, from auto parts to computer and smartphone accessories. The country has emerged as an important part in the global supply chain, manufacturing components required by companies globally. The coronavirus outbreak has shaken the Chinese economy and global supply chains, which in turn has hurt the global economy, the extent of which is to be seen in the months to come. Oxford Economics, a global forecasting and analysis firm, projected China’s economic growth to slip down to 5.6% in 2020 from 6.1% in 2019, which might in turn reduce the global economic growth by 0.2% to an annual rate of 2.3%.

A similar kind of outbreak was seen in China in late 2002 and 2003, with SARS (Severe Acute Respiratory Syndrome) virus. China was just coming out of recession in 2003 and joined the World Trade Organization, attaining entrance to global markets with its low cost labor and production of cheaper goods. The Chinese market was at its infancy at that time. As per 2004 estimates by economists Jong-Wha Lee and Warwick J. McKibbin, SARS had cost the global economy a total of about US$40 billion. After SARS, China suffered several months of economic retrenchment.

The impact of coronavirus on Chinese as well as global economy seems to be much higher than the impact of SARS, since COVID-19 has spread globally, while China has also grown to be the hub for manufacturing parts for almost every industry since the SARS outbreak. In 2003, China accounted for only 4% of the global GDP, whereas in 2020, its share in the global GDP is close to 17%.

Currently, the key challenge for businesses would be to deal with and recover from the outbreak. On the one hand, they need to protect their workers safety and abide by their respective governments’ regulations, and on other hand they need to safeguard their operations under a strained supply chain and shrunken demand.

In the current landscape, many businesses in China have reopened operations but the outbreak is rapidly spreading to other parts of the world (especially Europe and the USA), where it is impacting several business as well as everyday lives. The best thing for manufacturing companies in this scenario is to re-evaluate their inventory levels vs revised demand levels (which may differ from industry to industry), and consider a short-term re-strategizing of their global supply chains to ensure that raw materials/components or their alternates are available and accessible – bearing in mind their existing production capability with less workers and customer needs during this pandemic period.

With the rapid spread of the virus, it seems that the outbreak is likely to cause considerable damage to the global economy (both in terms of production levels as well as psychological reaction on stock markets), at least in the short term, i.e. next 6 months. However, many experts believe that the situation should soon start coming under control at a global level. For instance, some experts at Goldman Sachs, one of the world’s largest financial services companies, believe that while this pandemic will bring the lowest growth rate of the global GDP in the last 30 years (expected at 2% in 2020), it does not pose any systematic risks to the world’s financial system (as was the case during the 2008 economic crisis).

Having said that, it is difficult to estimate what real impact the coronavirus will have on the global economy yet, and if opinions such as Goldman Sachs’ are just a way to downplay the situation to keep the investors calm. It is more likely to depend on how long the virus continues to spread and linger and how effectively do governments around the world are able to contain it.

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Is Sustainability Just Another Buzzword in Food Packaging Industry?

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Sustainable food packaging has recently received an increased attention within the food & beverage sector. Most players try to make sure not to miss any chance of communicating their concern over plastic waste to the general public, showcasing their initiatives taken to curb the waste. Are such initiatives taken out of actual concern or are they just a move to position the brands right in the ‘environmentally-concerned’ market?

It is assumed that packaging is considered sustainable, if it meets three criteria of sustainability. First, it should be economically viable for the consumers as well as the manufacturers. Second, it should be socially acceptable in terms of ease of use, transporting, sorting, and storing. Most importantly, third, the packaging must be eco-friendly through the use of materials that are responsibly-sourced and reusable/recyclable, to reduce the environmental impact of the packaging.

Change fueled by multiple triggers                 

Food and beverage (F&B) and related packaging industry players have been under a growing pressure to be more transparent and to introduce changes to the way food products are packaged. Considering that a significant share of non-sustainable, non-biodegradable waste, especially plastic, comes from food industry, improving the packaging and transitioning to more eco-friendly solutions is becoming imperative, rather than optional, for increasing number of F&B companies.

At the same time, the pressure to reduce waste and protect the environment from non-biodegradable substances is creating new opportunities for the packaging materials producers and for F&B companies with regards to more relevant brand positioning in this highly competitive industry.

While a lot has been changing in the packaging sphere under the heat from environmentalists and legal requirements introduced by regulators, the role of an aware consumer exerting pressure through product scrutiny and shopping choices should not be underestimated in this process.

According to a report published in April 2019 by Globalwebindex, a market research company, there has been a rise in the number of consumers globally who are willing to pay more for eco-friendly/sustainable products (including their packaging), from 49% in 2011 to 57% in 2018. Consumer awareness is growing fast thanks to governments’ initiatives, educational media, and activists’ social media efforts, all of which have triggered an increased sense of responsibility amongst many consumers, who start to understand the importance of switching to eco-friendly and sustainable packaging.

Increasingly, consumer awareness is going beyond just passive understanding and translates into actions which have a real power to change F&B sector’s approach to food packaging. Consumers vote with their spending dollars and exert pressure by switching their loyalty to other brands, both of which approaches appear to be quite effective. According to the same survey by Globalwebindex, 61% of consumers are likely to switch from their currently-used brands to more environmentally-friendly ones if the latter score better on the environmental friendliness front. This shows that F&B companies really do need to re-think their product and packaging choices and start putting money and effort in sustainable solutions, if not from real concern over the environment, then for retaining consumer trust and maintaining brand values.

Big F&B brands appear to show initiative

The increased scrutiny over F&B companies’ packaging choices has already started bringing some results. Several major players are looking to invest in transforming their packaging materials to sustainable ones. Despite the challenges in bringing innovations into packaging materials and designs, and altering their supply chain, several F&B players are claiming to strive for their sustainability goals. Some claims may surely be genuine but some could possibly be a strategy to get the ‘sustainable company’ tag to stand out from the competition in the F&B industry.

Understandably, players are very vocal about their initiatives targeted at improving their eco-friendly standing to appeal to the environmentally-concerned consumers. F&B brands such as Coca-Cola, PepsiCo, Unilever, Nestle, to name a few, have already announced time-bound plans to revolutionize their packaging models.

For example, in January 2018, the beverage giant Coca-Cola announced a goal to collect and recycle the equivalent of every bottle it sells globally by 2030. The company with its bottling partners started an initiative with a plan called “World Without Waste” that is focused on entire packaging cycle from designing and manufacturing of bottles to their recycling. For the execution of this plan, the company plans to educate the public on what, how, and where to recycle, teaming up with local communities, NGOs, industry peers, and consumers. Furthermore, under the plan of “World Without Waste”, the company aspires to create packaging from at least 50% recycled materials by 2030 and continue pursuing the goal to make all consumer packaging 100% recyclable by 2025.

Is Sustainability Just Another Buzzword in Food Packaging Industry? by EOS Intelligence

In addition to this, in October 2019, Coca-Cola European Partners (CCEP), the largest independent Coca-Cola bottler, announced it would switch the carriers on its multipacks from shrink wrap to paperboard to reduce packaging waste. The company claims that with this switch it will remove about 4,000 metric tons of single-use plastic per year from its current supply chain. The paperboard packaging is planned to be certified from either the Forest Stewardship Council (FSC) or the Program for the Endorsement of Forest Certification (PEFC). Similarly, in January 2019, Coca-Cola packaging partner, Coca-Cola Amatil Australia, announced to cease the distribution of single-use plastic straws and stirrers, and distribute biodegradable Forest Stewardship Council accredited recyclable paper straws.

According to a report by Packaging Gateway, Coca-Cola claims to have made 88% of the consumer packaging recyclable, while its packaging used 30% of recycled material by the end of 2018. Also, about 58% of the equivalent of bottles and cans introduced by the company into the developed markets were refilled, collected, or recycled during 2018. Overall, the company’s recover and recycle rate was said to be 56% in 2018 as compared to 59% during 2017 or 61% in 2014. This proves that with growing sales, Coca-Cola’s efforts might not make as much impact as the company would want the public to think.

Nevertheless, the company is undertaking further initiatives to improve its environmental score. It committed to invest US$15 million in Circulate Capital, an investment management firm dedicated to incubating and financing companies and infrastructure that work upon curbing the plastic waste thrown into the oceans. Further plans of the company include increasing the use of recycled plastic in Australia by 2020.

In another example, PepsiCo also talks about becoming an environment-friendly company, announcing to use 25% of recycled content in its plastic packaging by 2025. In order to meet its target, in September 2018, the company announced its participation in the World Economic Forum’s Global Plastic Action Partnership (GPAP). The partnership focuses on stakeholders located in coastal economies, such as those in Southeast Asia, and its purpose is to help businesses, communities, and local governments redesign waste management to create circular models that include collecting waste and recycling or composting it to reduce waste streams to the oceans or landfills.

PepsiCo also announced other targets for improved sustainability to be achieved by 2025. These include to re-design all of its packaging to be recyclable, compostable, or biodegradable, to reduce virgin plastic content by 35% across its beverage portfolio, and to amp up investment to increase recycling rates in key markets.

Apart from individual targets, another initiative was also launched in October 2019 jointly by a few beverage players. As reported by a publishing firm, William Reed, three beverage companies, Coca-Cola, PepsiCo, and Keurig Dr Pepper, announced their partnership with World Wildlife Fund, The Recycling Partnership, and Closed Loop Partners under the “Every Bottle Back” initiative. This initiative, starting in late 2020, will include investment of US$100 million and will focus on sorting, processing, and collecting discarded plastic bottles in four US regions. The initiative also targets to educate consumers that PET bottles are 100% recyclable, easily remade into new plastic, bottles, shirts, shoes, coats, park benches, and playground equipment, by introducing pack label messaging.

Smaller players are emerging with packaging innovations

The pressure to embrace sustainable packaging is even greater for smaller and mid-size F&B companies, if they want to stay relevant to the customers, grasp their attention, and grow own market share. Smaller players in the industry seem to understand this and have proven to be more agile in introducing new products that focus on organic ingredients with sustainable packaging, while challenging big brands’ prices.

For example, in March 2016, Alter Eco Foods, a San Francisco-based chocolate-centric, healthy indulgence, and sustainability-oriented food brand, launched the first stand-up pouch made from renewable plant-based materials, designed for storing quinoa grain. This innovative pouch named “Gone 4 Good”, is not meant to be recycled but to be thrown in a composting bin where it will disintegrate within three to six months. Made from eucalyptus and breech trees for the exterior and compostable resin called “Matter-Bi” for the interior, the pouch has several green certifications. Apart from this, in early 2019, the company also transitioned its chocolate truffles packaging from non-recyclable plastic pouch to a recyclable paper box and claims to be looking for solutions to replace its current plastic Coconut Cluster pouch, since it is yet not recyclable or compostable. The company is determined to make all its products packed in 100% recyclable or compostable packaging by December 2020.

Another player, B.O.S.S. Food, a Texas-based nutrition bar company, started selling its premium nutrition bars in compostable wrappers made by TIPA (an Israel-based compostable packaging company) in 2017, focusing on ensuring the products’ packaging is environmentally safe. TIPA’s packaging is a bio-based blend with all the properties of normal plastic but is certified for both home and industrial composting through OK Compost mark by the TUV institute. The packaging also complies with food contact regulations in Europe and the USA.

Similarly, a UK-based beverage company named Earlybirds launched a 100% plant-based packaging for its breakfast drinks – bottles and lids made from sustainable sugarcane, over the span of two months of September and October 2019. The launch made the packaging 100% compostable as per EU biodegradability standards. The company’s advertisements claim that, under the right conditions, the bottle will breakdown in twelve weeks and it can be thrown in food waste bin and then composted at an industrial composter, reducing it back to soil. The company is the first in the UK to launch sustainable packaging for beverages.

These are just a few of several smaller F&B companies, which are focusing on bringing new packaging solutions to improve their rating as environment-friendly companies in the eyes of consumers. The initiatives are worth the effort, even though players face quite a few challenges in embracing sustainable packaging over traditional packaging.

Such challenges include higher costs, choosing the right material for packaging that must comply with the standards of environmental safety, as well sustaining the quality of the food product. It is estimated that the companies are required to spend nearly 25% more on the sustainable packaging than on the traditional packaging. This higher cost is attributed to major shifts in supply chain, including (but not limited to) procuring the raw material for packaging to collecting the used packaging for recycling. Another major factor contributing to higher costs of sustainable packaging is the R&D expenses that must be borne by the companies. The solutions still require a lot of research, as there are still very few commonly-used technologies and packaging products, thus a lot of players need to invent them. The companies need to invest considerable sums in developing an environment-friendly packaging material that is viable for their food product to sustain throughout the supply chain as well as shelf life, and (equally importantly) has the aesthetic appeal to grab the consumer’s attention.

But despite being smaller in size and having to deal with challenges, companies such as Alter Eco, B.O.S.S. Food, or Earlybirds have been investing extensively in R&D, a fact that resulted in several of them coming out with better and innovative packaging solutions. In fact, at times, smaller scale of operations works to these players’ advantage, as they do not have the constraint of having to convert the existing large-scale traditional packaging lines to ones suited to deliver new format or feature of packaging. Therefore, many efforts undertaken by smaller players seem to be converted into tangible solutions and launched more quickly and easily, also giving the companies a great marketing advantage over large F&B brands.

EOS Perspective

With the rise in awareness about plastic waste and environment safety among consumers, along with regulations formulated by governments across many countries to curb plastic waste, it has become paramount for F&B companies to enter the path of sustainability. At the same time, sustainability is becoming an important element of many companies’ marketing strategy to get ahead of the competition (or, increasingly, not to stay behind other players). The latter reason alone makes it no longer a matter of choice for F&B companies whether to keep assuring the public about efforts undertaken towards improving own sustainability rating across the supply chain.

Certainly, it is doubtful whether all these F&B companies are capable of actually achieving the claimed sustainability. On the one hand, there is a doubt if the scale of their efforts is relevant enough to bring about an actual change and not remain just a PR tool. On the other hand, the doubts seem to be really justified considering the challenges associated with achieving true sustainability goals.

The challenges range across many aspects. These include the complexity of the required changes in the supply chain, which involve both radical and incremental change, from manufacturers to users, owing to alterations in packaging materials and designs.

Another major challenge is the higher cost associated with changing the packaging materials from plastics to renewable or compostable materials. This starts with the development of the right product’s packaging material to ensure stable and long shelf life, and safe transportation with minimal waste, all of which is particularly challenging when dealing with food products. The costs and complexity of the task is further increased by the responsibility of creating an infrastructure for recycling of the packaging materials and taking the onus of collecting and recycling the packaging of own products, if not directly then through well-planned network of third-party entities.

Considering the complexity of these challenges and the high cost of going up the sustainability ladder, many F&B companies are likely to not be able (or to not want to) work towards full sustainability across their supply chain. In the midst of the growing pressure to meet the sustainability criterion, it is possible that some of the players might quietly opt for less sustainable solutions or stick to only those changes that are most visible to the consumer’s eye.

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Beverage Industry in Troubled Waters, Attempting Conservation Efforts

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Water is a finite resource, which is becoming constrained with the growing population and climate change. It is a vital component in production of beverages, both alcoholic and non-alcoholic. From growing raw materials (such as wheat or barley) for beverages, through product development, till the production process, water is indispensable at each step. The beverage industry has come to realize that water scarcity could tremendously impact businesses, forcing them to reassess water management strategies and tap into efficient conservation measures.

Water covers around 70% of the earth’s surface and only 3% is available as freshwater, which can be used for various commercial and non-commercial activities. Unfortunately, this quantity of water is inadequate for growing population and thriving businesses using this resource without considering its limited availability. According to WWF, an international NGO for preservation of wilderness and nature, two-thirds of the world’s population may face water shortage by 2025, with demand for water exceeding supply by 40% by 2030.

Beverage production is highly water-intensive, with water being used at each step across the value chain. According to Water Footprint Network, it takes at least 70 liters of water to produce 0.5 liter of soda, 74 liters of water for a glass of 0.25 liter of beer, and 132 liters of water for a cup of 0.125 liter of coffee. Water footprint for beverage companies is evidently high, and this can be mitigated by implementing water management technologies across the value chain, from farming to beverage production.

Water scarcity posing challenges for beverage producers

Water stress is a pressing problem for all beverage industry players, causing various operational challenges that are impacting business operations.

Opposition to water extraction from natural resources

California suffered a searing seven year drought that ended in 2017. Distress from water scarcity impacted communities, as well as companies operating in the region. For instance, Nestlé, a Swiss multinational food and beverage company, faced opposition from local communities and criticism from conservationists for extracting large quantities of water from Californian springs even during the drought-stricken years.

These events impacted Nestlé’s operations and eventually, succumbing to the pressure, Nestlé invested US$7 million in conservation projects across five of its bottling plants in California in 2017. The projects focused primarily on reducing the amount of water used in filtration process while simultaneously maintaining hygiene of the processing plant. Only after consistent water conservation efforts, Nestlé was granted a three-year permit by US Forest Service in 2018 to extract water within the limit of 8.5 million gallons annually from Californian springs.

Similarly to Nestlé, Coca-Cola faced opposition from local communities in India resulting in closures of two of its bottling plants located in the states of Kerala (in 2004) and Uttar Pradesh (in 2014), due to extensive water extraction from local resources. In order to sustain operations, Coca-Cola announced plans to invest about US$5 billion between 2012 and 2020 to help replenish groundwater in India, allowing the company to also use water for beverage production.

Water shortage impacting business operations

According to global survey of 600 companies by Carbon Disclosure Project (CDP), water scarcity and stricter environmental regulations cost businesses around US$14 billion in 2016. Many companies agreed that water-related issues have affected their businesses directly or indirectly.

For instance, severe droughts in Southeast Brazil in 2014 and 2015 disrupted water supply in the area, limiting production capacity and disturbing operations of Danone, a French multinational food and beverage corporation. As a result the company suffered sales loss of ~US$6 million in 2015.

Not only Danone was affected. As Brazil is one of the world’s leading coffee producers, limited availability of water for irrigation due to the drought, crop production in the region took a hit. Eventually, the situation threatened supply, which led to higher raw material prices for coffee manufacturers. One of the producers that felt the repercussions was J.M. Smucker, an American producer of food and beverages, reported a net loss of US$90.3 million in 2015 due to higher coffee bean prices in Brazil.

Tapping into innovations to reduce water consumption

Water risk for beverage companies highly depends on external factors, such as water quality and availability either through natural resources or municipal bodies. Industry players have very little control over the external factors but can regulate water usage in their internal manufacturing operations to reduce consumption.

Recycling water using zero water technology

Beverage companies are collaborating with technology providers to incorporate innovative water recycling methods.

For instance, in 2014, Nestlé collaborated with Veolia Group (a French company providing water, waste, and energy management solutions) and GEA Group (a German food processing technology firm), to introduce Cero Agua (zero water) technology across dairy production plant in Lagos de Moreno, Mexico. Using the technology, the factory does not have to rely on external water sources. Instead, it recycles and reuses the waste fluid extracted from milk – Nestlé extracts 1ml of water from every 1.6ml of milk. The treated water is used in non-food production applications such as cooling, irrigating the gardens, and cleaning, thus, eliminating the need to depend on external water sources. The company has invested around US$15 million to introduce zero water technology in the plant.

With the help of this technology Nestlé claims to have saved 168 million liters of water in the first year of implementation, reducing water consumption by more than 50%. Zero water technology has been rolled out across its other diary factories located in water-stressed areas of South Africa, India, China, to list a few.

Moreover, between 2004 and 2014, Nestlé claims it was able to reduce water consumption globally by one third and by 50% across its Mexican plants.

Onsite wastewater treatment

Brewing companies are not far from adopting technologies to reduce water footprint. Waste water treatment is one of the effective ways to reuse water and several brewing companies have jumped on the bandwagon to conserve water using this approach.

Since 2014, Lagunitas Brewing Company, a subsidiary of Heineken, has been using EcoVolt membrane bioreactor, a wastewater treatment technology that removes up to 90% pollutants from water so that it can be reused onsite for cleaning purposes. Using this solution, the company has reduced its water footprint by approximately 40%.

In 2016, Bear Republic Brewing Company, a brewery based in California, invested US$4 million in a waste water treatment system that uses electrically active microbes to purify wastewater, which helps the brewery to recycle about 25% of water that it uses to clean factory equipment.

Furthermore, in 2015, a Boston-based craft brewer, Harpoon Brewery, collaborated with Desalitech, a US-based water treatment company, to produce beer made from treated Charles River water. Desalitech uses its ReFlex Reverse Osmosis systems to purify the river water and has been able to recover 93% of the treated river water to brew beer.

Innovative farming techniques

Farming is highly water-intensive and sustainable beverage production can only be achieved if water consumption is cut down during farming. Hence, companies are employing various water management solutions to check water utilization during farming.

In 2014, Anheuser-Busch, an American brewing company installed six AgriMets, a network of agricultural weather stations, in Idaho to provide farmers with real-time weather and crop water use data. Using AgriMet data, growers can monitor rainfall and soil conditions, which helps them to cut down on the amount of water required in irrigation and decide when to irrigate. This ensures efficient use of water across the fields.

Further, for improving water management, the company is employing various seeding and harvesting techniques – for instance, it plants and harvests winter barley earlier in the year, resulting in 30% higher crop yield and 40% lower water usage.

PepsiCo and Coco-Cola have been promoting drip irrigation (a type of irrigation system where water is allowed to drip slowly to the roots minimizing evaporation) in water-scarce Indian states of Maharashtra, Gujarat, Karnataka, Haryana, among others. Coca-Cola started with drip irrigation project in 2008 with 27 farmers covering 13.5 hectares of agricultural land in India, which expanded to over 513 drip irrigation systems installed, stretching across 256.5 hectares of agricultural land by 2011. Drip irrigation leads to significant water conservation, with an average saving of 1200 kiloliter/ hectare of water for a cropping cycle of 110 days/hectare (an agricultural cycle comprising activities related to the growth and harvest of crops). Additionally, savings on account of electricity, fertilizers, and pesticides are estimated at about US$ 29/hectare/year.

Beverage Industry in Troubled Waters - EOS Intelligence

EOS Perspective

For decades, water has been regarded as free commodity in processing and manufacturing environments, but this notion is beginning to change with growing awareness about water scarcity. Limited availability of water puts pressure on industrial activities and often pushes operational costs of beverage companies up. Availability of water is likely to get worse in the future, which could jeopardize operations of food and beverage companies unless the crisis is treated as a priority.

The solution to water scarcity lies in the hands of businesses as much as the governments of various countries. Water management requires stringent policies by the governments to better regulate the use of groundwater or natural resources for irrigation. The governments also need to implement efficient wastewater management and recycling technologies to conserve water. Countries such as Singapore have undertaken water recycling and management measures, but unfortunately such examples are relatively scarce in other parts of the world, with most conservation efforts being implemented only by large food and beverage companies. It is time that the governments as well as all industry players (including small-to-mid sized companies) wake up to the challenges that lie ahead owing to water stress.

Solutions to water scarcity do not always need to be expensive. Small-to-mid sized companies could start with small and inexpensive measures such as installing flow meters or leak detection systems, measuring water usage at each step and setting short and long term goals to reduce consumption across those processes.

Other measures could be to reduce water consumption across most water intensive processes, such as cleaning, which typically accounts for 60% of a beverage plant’s total water consumption. Water could be replaced with dry ice to manually wash equipment or it can be physically cleaned using vacuum systems or high-pressure hoses that can be used to move debris.

Nonetheless, sustainable water management efforts by large beverage companies have resulted in lowering of operational costs, improvement in quality of final products, and in building better brand perception among customers. These strategic advantages could motivate all industry players to reduce water footprint and play their part as responsible water users.

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Infographic: Dark Chocolate – India’s New Indulgence Is Here to Stay

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India’s indulgence in dark chocolate is gradually rising. While the Indian chocolate industry has grown manifold over the decade, especially in milk and white chocolate segments, it is the dark chocolate segment that has gained momentum in the recent years. The growth in demand for dark chocolate can be attributed to the growing health consciousness, increased per capita income of the urban population, and exposure to foreign flavors, especially amongst urban Indians. Most of the demand (and market) is currently limited to urban cities as dark chocolate is typically priced higher than other chocolate types. Nevertheless, though still getting accustomed to the bitter taste of dark chocolate, Indian market offers great growth prospects for players associated with this sector provided they plan efficiently and act keeping in mind the specifics of the Indian market scenario.

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Infographic: Tailored Cosmetics – Customization Is a New Trend

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In the last five years, the beauty and cosmetics industry has witnessed a considerable demand for bespoke or tailored beauty products, which offer an alternative to “one-size-fits-all” cosmetics. The bespoke cosmetics companies allow customizing ingredients, colors, and fragrances, among others, to provide products tailored to an individual’s skincare routine or requirements. With consumers being increasingly selective, more engaged, and aware about ingredient and formula benefits, the appetite for customization to meet their distinct needs has grown.

Presently, the market for tailored beauty products is relatively small, dominated by small-sized players and start-ups, with a few established beauty brands such as Estée Lauder, Shiseido, Lancôme, among others, operating in the market. As demand grows, several other players are expected to venture into the market.

Despite challenges such as limited accessibility and high product prices, bespoke cosmetics market has tremendous growth potential and is certainly more than just a fad. The concept of customization catering to every individual’s requirements is increasingly luring more customers and could take bespoke cosmetics from being a novelty to mainstream sooner than later.

tailored cosmetics

Headquarter locations of tailored cosmetics manufacturers (refer to the infographic)

  • Function of Beauty and Kiehl’s – New York, USA
  • Ittsē and eSalon – California, USA
  • Cover Girl – Maryland, USA
  • Skin Inc. – Singapore
  • GeneU – London, UK
  • Ioma and Lancôme – Paris, France
China wine market
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China’s Wine Market: Will Challenges Crush the Growing Appetite for Imported Wines?

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Over the past decade, China’s wine industry has evolved significantly and is at the forefront of becoming one of the most promising emerging wine markets globally. Globalization and massive socio-economic transformations among Chinese population have revolutionized consumers’ preferences and taste, which in turn created demand for high quality foreign wines in the country. Imported wines have been pouring into China, with approximately one out of every five wine bottles opened being imported. In 2016, China imported 638 million (15% y-o-y growth) liters of wine, valued at US$ 2.4 billion (16% y-o-y growth). The Chinese wine buyers are enthusiastically purchasing a variety of labels across all price ranges, making it an important market for global wine sellers. However, the burgeoning imported wine industry in China faces a few impediments. Faced with stringent import regulations, supply chain impairments, language barrier, counterfeit products, and exorbitant tariff rates, importing wine into China is not a simple process. Nevertheless, importers and producers need to overcome these challenges to establish themselves in the flourishing imported wine business in China.

China is one of the ten largest wine consumers in the world with over 2,000 brands of wine sold in the country, out of which 1,500 were imported in 2015. Consumption of imported wine is the highest in tier I cities including Beijing, Guangzhou, Shanghai, and Shenzhen, which together account for 53% of imported wine sales volume. These cities are populated with expatriates, western-educated young professionals, and consumers, who prefer imported wines. France has consistently been the key wine exporter, accounting for a share of 40% in total wine imports (by volume) to China in 2016, followed by Australia, Spain, and Chile.

China’s Wine Market

Imported wines are quickly trickling down among the wealthy Chinese citizens in urban areas, as consumption of wine is considered a status symbol, influenced by westernization. Growth is further driven by youth population and growing middle class learning about foreign liquor brands and demanding imported wines. In addition, increased consumer spending and government’s promotion of wine as a healthy substitute to the traditional alcohol ‘baijiu’ have accelerated demand for wine in the country.

Despite the growing wine demand, the imported wine industry faces several challenges including dealing with high import tariff rates and circulation of fake wine, breaking through the language and cultural barrier in China, and facing the complex distribution system along with strict import regulations.

EOS Perspective

Chinese consumers are typically interested and enthusiastic about overseas goods which explains their yearning for imported wines. The growing demand for foreign wines is driving the import business, with over 24,000 wine importers present in China, located mostly in Shanghai, Beijing, and Guangzhou. Although obstacles continue to hover above the imported wine market, certain steps have been taken to ease the hassles and this could help alleviate challenges to some extent.

What steps have been taken to overcome challenges?

The Chinese government is actively trying to curb the counterfeiting issue in the country and has introduced an anti-fraud initiative called Protected Eco-origin Product (PEOP) which is a label placed on wine bottles that acts as a guarantee of authenticity by the government. Several technologies are being adopted, including radio frequency identification (RFID) tags, Near Field Communication (NFC) chips, QR codes, etc., to combat counterfeiting. RFID tags and NFC chips offering unique serial identifiers are incorporated into wine bottle’s capsule. Using an app, users can quickly check the authenticity of wine bottles.

The government is also focusing on infrastructural development of tier II cities, which is likely to improve distribution channel across these cities, resulting in better access to imported wines.

What does the future hold for imported wine market in China?

Over 2016-2019, the Chinese wine market is forecast to reach US$ 69.3 billion, growing at a CAGR of 15.4%, with imported wines likely to occupy a significant portion of the market. In near term, imported wines are likely to filter down to tier II cities, as consumers’ knowledge and preference for imported wines is growing amidst government’s efforts to make wine more accessible across these cities.

Further, the imported wine market is likely to undergo certain structural changes. Presently, the Chinese imported wine market is very fragmented, comprising several small importers focusing and operating locally within one city. These smaller importers might realign themselves by joining forces through mergers and acquisitions, in order to take advantage of economies of scale to be able to better compete on price.

Online distribution of wines is likely to gain more popularity, as China offers highly developed e-commerce infrastructure to sell products online. Consumers are slowly opting for online channel to purchase imported wines due to the availability of wide selection, transparency of information, and ease of comparing different brands with each other through information available online. Some producers started selling their wines through marketplaces such as Tmall and JD.com, as well as through specialized alcohol platforms such as Yesmywine, Jiuxian, and Wangjiu. Further, importers use delivery apps such as Dianping and ELeMe to sell imported wines.

The foreign wine market is expected to continue thriving in China and remain an attractive proposition for importers and producers. However, the key challenges will most likely persist in the market amidst other weaknesses including slow implementation of regulations, corruption, and weak administration.

Nevertheless, wine importers and producers foresee tremendous growth opportunity in China’s imported wine industry, and they are likely to continue making efforts to navigate through all obstacles, hoping to make the struggle worthwhile in the long term.

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