Something Brewing in the Beer Business

July 1, 2002
A returnable container system, in this case kegs, is part of an innovative third-party relationship.

Something Brewing in the Beer Business

Maybe because it’s summertime, but a recent conversation I had with Greg Cronin about beer was instructive. We talked about his latest adventure, into the world of reverse logistics, returnable containers and beer kegs.

Not well known in transport packaging circles, Cronin was an early and successful player in the warehouse management systems software arena. Now, he’s focused his expertise on asset and information management tracking.

In the past, Cronin’s company, TrenStar, dealt with returnable packaging and intermediate bulk containers (IBCs) per-use programs. Its current deal with Scottish Courage, one of the larger breweries in the U.K., is special. TrenStar has acquired the keg fleet, nearly two million units, belonging to Scottish Courage, and will make the kegs available to the company on a per-fill fee basis. An interesting facet of this deal is the ownership of the containers, technology and management services by a neutral party. Who ponies up the cash to pay for boxes or pallets is one of the bugaboos in many returnable container schemes. In this case, it was $69.4 million — cash on the barrelhead.

Cronin’s spin on this kind of third-party provisioning is that the company using the asset should be charged only on a per-use basis, unlike a rental deal where you pay whether you use the container or it sits in your warehouse.

Cronin says his goal is to create pools of assets in business verticals so all members of the vertical can benefit. He says his company is on the verge of owning about 60 percent of the beer kegs in the U.K.

In the U.K., beer goes straight from the brewer to the pub. In the U.S., it passes through a distributor network before reaching the end consumer. Cronin says there are several reasons the U.K. market is more responsive to his program. TrenStar will use RFID tags on the kegs to provide content information along with tracking. Although government mandates have yet to come down, brewers know it’s only a matter of time before source ingredients inside the kegs will have to be tracked. In the U.K., beer is considered a food product — much as it is here in most college towns.

Timing is everything. Cronin says brewers in the U.K. are giving up the notion that doing their own distribution has some competitive advantage.

In effect, TrenStar will become a fourth-party logistics provider since it will require the services of companies other than its own to clean and store the kegs. Given all the layers in this program, I questioned who would be accountable.

Cronin says accountability is actually less of a problem when a single company controls the physical as well as technical aspects of the program. He agreed it puts a lot of risk on his company, but he’s not overly concerned about the technical parts of the puzzle. What is more crucial will be TrenStar’s relationship with any third party handling the physical piece.

A big job lies ahead. Just tagging the kegs will take extraordinary effort. By the end of this year, TrenStar expects to own nearly five million kegs.

Can the program succeed? Well, if experience counts and size matters, I think there’s a good chance.

By charging on a per-use basis, as opposed to renting the container, TrenStar will be forced to be efficient. Think of the airlines where an airplane makes money only when its wheels are off the ground. For the user, this program has appeal. The rental idea works fine for low-cost assets like pallets. It gets expensive when you talk about stainless steel containers.

Another advantage is the use of RFID tagging. RFID’s appeal is that it takes labor out of the data-capture equation. This should be attractive to brewers, pub owners and everyone in between. The everyone in between in this case are vendors of RFID tags and scanners. Manufacturers of RFID equipment look for volume sales to turn a profit. Cronin says the volume for tags and scanners is there — as long as people keep drinking beer. I’d say it’s a safe bet.

Clyde E. Witt, executive editor, [email protected]

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