Bottle Reuse In Hungary’s Wine Sector

Varga Winery Ltd. www.vargabor.hu

Bálint Varga

Brussels, 8/10/2008

Bottle Reuse In Hungary’s Wine Sector

Conference on Reusable Beverage Packaging in Europe

2 Varga WineryBrussels, 8/10/2008 www.vargabor.hu

Content

About us

Brief history of the Hungarian wine-bottle deposit system

Operation of bottle reuse system

SWOT-Analysis and conclusion


Varga Winery can be found at the lake Balaton, in one of the most beautiful and famous wine regions of Hungary!

Map

Badacsonyörs

Varga Winery

Badacsonyörs

Budapest165 km


Varga Winery: the number one Hungarian winery! Market leader since 2005 in Hungary.

Sales of 10-11 million bottles of wine and sparkling wine annually.

Working as a family firm.

Using up-to-date oenological technology.

The capacity of our filling line (including a bottle-washer machine and a rinser) is 10.000 bottles/hour.

97% of our domestic sales is sold in reuse bottle.

We collect 90% of reused bottles sold.

We’re committed to the use of refund bottles!


Fully automated filling line including a bottle-washing system


Content

About us

Brief history of the Hungarian wine-bottle deposit system




Bottle reuse (refill) system in socialism

1950 1970

Centralization Foundation of the fully centralized Wine Trust (one state owned company covers the whole wine industry).

Beginning of standardization (bottles are mainly standardized, bottle-cases not yet).

1990

Decentralization The appearance of several independent market participants, like state farms and co-operatives.

Launch of wine and sparkling wine bottle reuse (refill) system

Both bottles and plastic cases become standardized

Main facts

The reuse system is regulated by the government

Bottle deposit price is centrally determined

Technical parameters of reuse bottles and cases are specified by the regulator

Share of reuse bottles: approx. 96%

Major changes of the 90’s in food-retail, regulation and

company ownership structures affected the bottle reuse system

adversely.


In the 90’s a plenty of factors made the market believe that the bottle reuse system will completely disappear soon…

Food-retail sector became dominated by multinational retail chains (Penny Market, Tesco, Plus ...), which prefer one-way bottles:

lack of empty bottle and plastic case storage area in warehouses and stores,

bottle reuse system can only work on regional or country level, it doesn’t fit into global procurement processes.

Bad condition of 20-30 years old plastic cases.

Lack of governmental regulation:

bottle types are not standardized any more (e.g. 17 different types of Bordolese bottles),

bottle deposit prices are not regulated any more.

The number of wineries increased from 100 to more than 10.000, new small and middle-sized wineries cannot afford an expensive bottle-washing system (cost is appr. 400.000 EUR).

Even large wineries built their new filling lines without bottle washing system!

CONS


… and only a couple of factors indicated the survival of the system

Bottle reuse (refill) is much more cost effective compared to one-way system (shelf price benefit: up to 31%!).

Increasing green fee cost, based on company’s reuse rates.

Intensifying social demand for environmental-friendly solutions.

Bottle reuse system still operating, but on a lower scale!

PROS


Content

About us

Brief history of the Hungarian wine-bottle deposit-refund system




Reusable bottle - Up to 31% shelf price benefit!

*Shelf price benefit is calculated with 40% sales margin and 20% VAT.

Total Cost Benefit (TCB): 18,8 c

Shelf Price Benefit = TCB / ( 1- sales margin ) * ( 1 + VAT ) = 18,8 / 0,6 * 1,2 = 37,6 c

Main shelf price interval:

Shelf price benefit (%):

85 c 210 c

MIN MAX

31% 15%

One-way or refill: cost analysis on company level

(values in Eurocent) One-way ReusableBottle PRICE 20,0 15,8Calculated bottle COST 20,0 1,6Carton price 4,2 0,0Cost of bottle breakage on filling line 0,2 0,5Cost of plastic case breakage 0,0 1,7Washing cost 0,0 1,7Recollection cost 0,0 0,2Total cost 24,4 5,6

0% 90%90% Reuse rate (%)

Calculated bottle COST =

Bottle PRICE * ( 1 - Reuse rate )


Co

nsu

-m

ersW

ineries

Wh

ole-

salersR

etailersOperation of the bottle reuse chain

Winery1

Retailer1

Wholesaler1

Consumer

Full bottle

Winery2

Retailer3Retailer2

Waste container

Empty bottle


Characteristics of bottle reuse system in Hungary today

The bottle reuse system is not centrally regulated, it’s based on the free cooperation of the different market players - mainly producers.

Due to the lack of strong bottle standardization a couple of bottle types (e.g Bordolese) have to be manually sorted by size before filling.

Bottles are stored in 16-er plastic cases. Average age of cases: more than 30 years.

Only one thing is determined by right: stores, selling wine in reusable bottles are obliged to recollect them, and pay back the deposit fee in cash. In practice many retailers obstruct this process.

Refund prices among producers, wholesalers and retailers are normally the same, but retailers apply different deposit fees for consumers (from 4c to 12,5c).

Cheap wine is not sold in TetraPak and bag-in-box, because those packaging solution are expensive compared to reusable bottles. Economy packaged wine is sold in 2-5 liter PET.


Main bottle & case types

Bo

rdo

lese

Rh

ein

Bu

rgu

nd

y

16-er wine case for 0,75 L bottles 8-er wine case for 1,5 L bottles

The 1,5 l magnum bottle as refund bottle was introduced by Varga Winery in 2003.

Plastic case for magnum bottles is manufactured with a Varga Winery logo on it.

By now it became a new reusable bottle „standard”, applied by many wineries.

Mag

nu

m


Reuse (refill) rates in Hungary

Total sales in bottles

Recollection of reusable bottles

120

75

59

Company level (Varga Winery, 2007)

Total sales in reusable bottles

million bottles

%

100%

60%

50%

7,1

6,9

6,4

million bottles

%

100%

97%

90%

Market level (estimate)

Remarks:

Wine market size (total sales): 300 million litres annually

Sparkling wine bottles have been no longer refilled since 2005.


Content

About us

Brief History of the Hungarian wine-bottle deposit-refund system




More then 30 years old plastic cases, reproduction is not solved.

Missing technical specification of bottle types.

The number of reusable bottle types are decreasing.

Only a few large wineries own an up-to-date bottle-washing machine.

WEAKNESSES

SWOT Analysis – Strengths & Weaknesses

Flexible: based on the cooperation of market players, (common refund price setting).

Cost-effective: large cost-advantage compared to one-way bottle cost.

Shelf-price benefit compared to bottled import wines and alternative wine packaging (TetraPak, bag-in-box etc.).

STRENGTHS


SWOT Analysis – Opportunities & Threats

Pressure of multinational retail companies.

Many retailers obstruct the collection of reusable bottles.

Parallel bottle-deposit and recycling (selective waste collecting) systems, because the government is not really committed to either of them.

THREATS

Increasing bottle-shortage in EU.

Rising green fee on non-reused packaging (questionable, the Hungarian green fee system has been attacked by EU).

Social demand for environmental-friendly solutions.

OPPORTUNITIES


Conclusion

The Hungarian government has to commit to bottle-reuse (refill) against bottle-recycling:

set higher green fee rates,

subsidize producers, retailers and wholesalers in creating the infrastructure for bottle reuse system (bottle-washing system, bottle storage area).

subsidize the reproduction of plastic cases,

strictly control the retail sector’s bottle deposit practice,

inform consumers and promote the bottle-deposit system.

We believe that bottle reuse will be the future’s solution in the EU because it’s the most eco-friendly and cost effective way of wine packaging!

Business

Bottle Reuse In Hungary’s Wine Sector