Get Smarter about Demand Forecasting in the Modern Spirits Industry

From whiskey to gin, rum to vodka, distilleries craft liquids that captivate our senses. Behind it all is a complex challenge: accurately forecasting consumer demand. Modern production software can change forecasting for the better.

Encompass Technologies (Sponsored) May 9, 2024 - 9 min read

Get Smarter about Demand Forecasting in the Modern Spirits Industry Primary Image

Demand forecasting is complex across all production channels, but distillers deal with additional complexity based on seasonality, barrel aging, and shifts in regulatory factors and legislation. As a result, distillers need to project demand well into the future. Here we look at the forecasting challenges distillers face and then zoom in on how modern distillers are overcoming those challenges with technology.

Distilleries face seasonal variations in demand. For example, summer calls for refreshing cocktails while winter sees a surge in whiskey consumption.

While historical trends provide a baseline for your growth and an evaluation of continued success, they don’t always predict future preferences. Consumer tastes evolve, influenced by cultural shifts, marketing, and lifestyle changes.

With more options for consumers than ever before, the challenge for modern producers is to crack the code of what consumers want, when they want it, and where they want to get it. In the past year, the sale of ready-to-drink (RTD) prepared cocktails has increased by 36.5 percent according to Bump Williams Consulting.

‘When consumers stop buying bottles, you start seeing that the retailer is not buying, the distributor is not pushing, and we’re not able to pull anything,” says Giancarlo Passarelli, CFO of Gulf Coast Distillers. “Then that’s where we start adjusting everything. In a market where we start seeing or not seeing demand, we stop or reduce a little bit of production.”

Aging Spirits and Lead Times

Aging spirits, such as whiskey, can require years before the profile is what you want and need. This forces distilleries to anticipate demand years in advance, making it incredibly difficult to know whether you will get it right. In addition, lead times for production, bottling, and distribution add complexity. A misjudgment can lead to excess inventory or shortages.

Market Volatility and Regulatory Factors

Economic fluctuations always impact consumer spending. A recession can alter buying patterns. The same can be said for regulatory changes at the state level and their effect on production and distribution, adding another layer of uncertainty to compliance requirements and TTB audits for distillers. As the beer and spirits industries clash over RTD legislation, you have to stay on your toes when it comes to compliance. Chris Swonger, CFO and president of DISCUS, says, “Fair tax treatment and increased retail access for spirits-based, ready-to-drink products is a big priority for us.”

The factors that have historically made production planning such an educated guessing game are all things that data, technology, and supply-chain insights can solve. It begins by having the right distillery production software to help you conquer inefficiency and become more effective with production planning. “We have to produce and put barrels in our warehouse to sell them later,” says Passarelli. “But as you know, every time you put a barrel in your warehouse, it’s money that you’re just setting aside for the future.”

Production Software—A Significant Advantage for Distillers

The modern beverage industry is here. Future-forward distilleries are actively using production software to get and stay ahead despite the unceasing shift in consumer preference and complications in forecasting.

“As the market continues to move in unpredictable ways,” says Jamie Bogner, cofounder and editorial director for Craft Spirits & Distilling, “savvy distillers who want to avoid unnecessary costs and apply their resources where it counts—in the quality of their spirits—need to focus on being proactive rather than reactive in forecasting demand, managing inventory, and more.”

Here are some key advantages today’s leaders have with Encompass Production Cloud.

Integrated Systems for Efficiency

The smartest distilleries have already replaced spreadsheets, sticky notes, and pads of paper. Production software such as Encompass Production Cloud unifies documentation across sales, inventory, production, finance, and logistics to create seamless communication across all key business touchpoints.

By automating processes, distilleries gain efficiency across departments. Real-time data visibility and batch tracking from mash to bottle empower informed decisions for tasks ranging from ordering raw materials to barrel aging. In short, it keeps all teams on the same page.

Yannick McCartney, production manager at Pursuit Distilling says, “Encompass makes ordering and purchasing raw materials extremely easy. Having our inventory and depletion reports on hand makes it very simple for me to order.”

A Tech Stack That Keeps Up with Shifting Legislation

An audit from the TTB can sideline your business when you aren’t operating with accuracy and continuing to adapt to changing circumstances. For example, if you make an RTD, the shifts in compliance and legislation at both the state and federal levels could pose problems if you aren’t using adaptable software. Lot traceability for compliance and quality control is one way modern distillers stay ahead. “Distillers can work with us to adjust their reporting processes and meet industry compliance changes head-on,” says Encompass Solutions Director-Production, Mike Geisterfer. “When change comes about, our team is ready to help you meet that need and respond to change in a timely fashion.”

Supply-Chain Collaboration

Distillers can optimize production levels by streamlining ordering, receiving, and supply-demand management. Collaboration with suppliers, distributors, and retailers can be effortless. Accurate data flow prevents stockouts or excess inventory and gives you a window to the consumer that hasn’t previously existed.

“We buy information from the retailers on how they’re moving product. We receive inventory from the majority of the retailers, so we know what they have,” Gulf Coast’s Passarelli points out. “And our distributor tells us what they’re selling, so we also know the inventory that they have, what they’re selling.”

Demand Forecasting with Precision

Encompass Production Cloud’s demand-planning capabilities help you calculate and predict demand based on historical data, sales forecasts, and placement opportunities.

Collaboration with distributors and retailers operating on the same network enables communication to boost your ability to make smarter decisions faster. Whether using moving averages or linear regression, you should leverage your tech tools to fine-tune forecasts before supply planning.

Pursuit’s McCartney says, “The more data the better, as always. I don’t think shedding light on any form of data will ever be a bad maneuver. Anything that can help forecast demand to allow us to be more proactive in ordering supplies and keeping production going is a positive.”

Future-Proof Your Distillery, Make Smarter Decisions Faster

The complexities of the modern beverage industry continue to leave many producers with no choice but to scratch their heads. The future may seem unpredictable now, but with the right technology, market volatility and shifting consumer habits can play in your favor.

Innovation through multi-segment production will be key for producers across wine, beer, and spirits who want to remain competitive. You need a platform that supports your ability to expand into new product offerings. Canned or prebatched cocktails, NAs, and even cannabis or CBD drinks are a great way to enter multi-segment production.

But keep in mind that over-innovation must be balanced to maintain brand identity. Modern producers need to strike a balance between new and flagship products. The two can frequently support each other in a company’s overall mission to capture brand loyalty. Still, if the scales are tipped too far in one direction, it could create a difficult path forward—especially for those without the right technology to change with them.

Encompass Production Cloud bridges the gap between tradition and modernity, enabling accurate demand forecasting, efficient operations, and collaboration across the supply chain. For example, Encompass is building a feature that enables distillers to automate production scheduling based on intelligent demand forecasts. As the beverage industry evolves, distilleries armed with data-driven insights will proactively meet consumers with the perfect beverage for every occasion.

Ready to equip your team with smarter forecasting capabilities? Connect with an Encompass representative today.

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