How the drinks industry works: brands, bottlers and the route to market
From sugar, grain and grapes to the fridge in a corner shop: who makes what, the five main categories, how drinks reach drinkers, and the measures that matter.
Industry brief, with a one-minute summary: BeveragesKey takeaways
- Most drinks are mostly water, which is heavy and cheap, so the finished drink is made close to the people who drink it.
- Volume: unit cases for soft drinks (one unit case is 24 servings of 8 US fluid ounces, about 5.7 litres), hectolitres for beer (100 litres), nine-litre cases for spirits and wine.
- Price and mix: how much revenue per unit changed because of higher prices, and because people bought more expensive drinks or packs (mix).
- Revenue per hectolitre or per unit case: what the company earns on each unit of volume.
Key idea
Most drinks are mostly water, which is heavy and cheap, so the finished drink is made close to the people who drink it. What travels is the valuable part: the brand, the recipe or concentrate, and for spirits and wine the drink itself, because it is worth far more per litre. Profit sits with whoever owns the brand people ask for and controls the route to the shelf and the bar.
- From ingredients to drinker
- Ingredients and packagingWater, sugar and sweeteners, fruit, barley malt and hops, grapes, grain and agave; cans, PET bottles, glass, cartons
- Key: Brand ownerOwns the brand, the recipe and the marketing: Coca-Cola, PepsiCo, AB InBev, Diageo
- Production and bottlingSoft drinks: bottlers mix concentrate with water and sweetener and fill bottles and cans. Beer: breweries brew and package. Spirits: distilleries, ageing in casks, bottling
- DistributionOwn trucks to shops, or wholesalers and distributors; in most US states, alcohol must by law pass from producer to wholesaler to retailer (the three-tier system)
- ChannelsSupermarkets, small shops (general trade), bars, restaurants and hotels, online, vending
- DrinkerPays the shelf price, which includes the retailer's margin, sales tax and any excise
Off-trade means drinks bought in shops to drink elsewhere. On-trade means drinks served in bars, restaurants and hotels. Excise is a tax charged per litre or per unit of alcohol or sugar, on top of sales tax.
| Category | How it is made | Value per litre and how far it travels | Biggest costs | Where the profit sits |
|---|---|---|---|---|
| Soft drinks | Concentrate mixed with water and sweetener, carbonated and filled | Low; finished drinks made locally, concentrate shipped | Packaging, sweetener, distribution, marketing | Brand owners selling concentrate; large bottlers with dense routes |
| Bottled water | Spring or treated water, filled in PET or glass | Very low; made very close to drinkers | Packaging and freight | Strong local brands, premium mineral waters, efficient routes |
| Beer | Malted barley and hops brewed and fermented for weeks | Low; mostly brewed in the country where it is drunk | Packaging, raw materials, excise, distribution | Big brewers with brand portfolios, scale breweries and control of distribution |
| Wine | Grapes crushed and fermented, sometimes aged | Medium to high; shipped worldwide | Grapes and land, bottles, ageing | Spread thin across many producers; strong brands and famous regions earn more |
| Spirits | Fermented grain, grapes, cane or agave distilled; whisky and cognac aged for years | High; shipped worldwide from where it is made | Ageing stock, glass, marketing, excise | Brand owners with premium brands; the highest margins in drinks |
So-what
The more a litre is worth, the further it travels and the more the profit depends on the brand rather than on local factories and trucks.
Soft drinks use a special model. The brand owner, such as The Coca-Cola Company, makes concentrate (the flavour base) and sells it to bottlers, which are often separate companies with the right to sell the brand in a territory. The bottler adds water, sweetener and carbon dioxide, fills bottles and cans, and delivers to hundreds of thousands of shops, often placing branded fridges (coolers) in them. The brand owner spends on advertising; the bottler spends on factories, trucks and coolers. Brewers usually do both jobs themselves. Spirits makers often own their brands and distilleries and use their own sales teams or distributors in each country.
Key measures, in plain words
- Volume: unit cases for soft drinks (one unit case is 24 servings of 8 US fluid ounces, about 5.7 litres), hectolitres for beer (100 litres), nine-litre cases for spirits and wine.
- Price and mix: how much revenue per unit changed because of higher prices, and because people bought more expensive drinks or packs (mix).
- Revenue per hectolitre or per unit case: what the company earns on each unit of volume.
- Gross margin: revenue minus the cost of ingredients, packaging and production, as a share of revenue.
- Advertising and promotion as a share of sales: often around a tenth or more of sales for big brands.
- Numeric distribution and cooler count: how many shops stock the brand, and how many company fridges are in the market.
- Excise per litre: the tax that can be a large share of the shelf price of beer and spirits.
- Inventory days: for aged spirits, the years of stock maturing in warehouses before it can be sold.
One unit case is about 5.68 litres. A bottler in Thailand sold 300 million unit cases last year. About how many litres is that, in millions?
Why does a soft drinks brand owner ship concentrate rather than finished drinks to most countries?
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and terms
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