Establishing the influence of packaging on profitability in the South African craft spirit industry

Abstract

The alcohol industry us one of the only industries growing despite the struggling economy. Even during negative economic growth, this industry tends to continue its growth. Over the last few years, a number of small craft distilleries entered the market to capitalise on the recent consumer trend towards uniquely crafted alcoholic beverages. These distilleries contribute to the economy through job creation, but experience the same limitations as other small, medium and micro-enterprises, and they also have to compete against the large commercial distilleries that dominate the market. The craft spirit market is highly populated. Distilleries need to produce a quality craft spirit, distinguishable from other competing products, and addressing the needs of the consumer. Packaging both distinguishes the product from other products, and influences the consumer during their decision-making process. It influences the profitability of the distillery since it influences the demand for a product through its role in the decision-making process, but also comes at a cost to the distillery. The correct selection of packaging can maximise profitability and ensure sustainability in this highly competitive market. The aim of this research was to determine the influence of packaging on profitability in the South African craft spirit market. It was limited to distilleries within South Africa, which are defined as craft distilleries and produce craft spirits. The research began with a thorough background on craft distilleries, their importance and the market in which they operate. This led to a detailed problem statement, sketching the current situation craft distilleries find themselves in, and suggesting a model for these distilleries to be sustainable in a populated market dominated by a few large companies. The objectives were defined to determine how packaging influences the demand for products through its role in the consumer’s decision-making process and linking it to the cost of the packaging to determine the influence on profitability of craft distilleries. Secondary objectives were defined to support the primary objective and to assist in creating a sustainable model. A literature study was done on the on the craft spirit market in South Africa, detailing their importance in job creation and discussing the market they find themselves in, in term of legislation, risk and competing forces within the market. The functions of packaging were discussed and its role in the consumer decision-making model thoroughly analysed, especially in distinguishing the product from other products and in creating a positive association with the consumer to convince them to buy the product. Profitability measures are listed to determine the influence of the cost of packaging. The study was concluded with critical analyses of packaging in the craft market, highlighting the cost insensitivity of both the consumer and distilleries.