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Value Chain Analysis of the Beverage in Chile.

Commercial Relationships

The beverage industry in Chile is characterized by a complex web of commercial relationships that connect various players across the value chain, from raw material suppliers to the final consumers. These relationships are crucial for the efficient flow of goods and the overall functioning of the industry.

At the initial stage, Raw Material Supply, agricultural producers of fruits, grains, and other crops engage in commercial relationships with beverage manufacturers or their intermediaries. These relationships are typically based on supply contracts, which can be short-term or long-term, specifying quantities, quality standards, delivery schedules, and pricing mechanisms. For instance, fruit growers supplying grapes for wine or barley for beer enter into agreements with wineries and breweries, respectively. Similarly, specialized ingredient suppliers, such as Iansa Ingredientes S.A. for sweeteners or Linde Gas Chile S.A. for CO2, establish direct commercial ties with beverage production companies. These relationships often involve technical support and quality assurance services alongside the physical supply of ingredients. Packaging manufacturers, including those producing plastic bottles (Envases CMF S.A.), glass bottles (Cristalerías de Chile S.A., Cristalerías Toro S.P.A.), caps (Sinea S.A.), and labels (Impregraph Ltda.), operate on a business-to-business (B2B) model, supplying these essential components to bottlers and producers. The commercial terms often involve large volume orders, negotiated pricing based on material costs (like plastic resins or glass), and just-in-time delivery schedules to align with production cycles. Major international players like The Coca-Cola Company have a unique relationship with their local bottlers (Embotelladora Coca-Cola Andina S.A., Coca-Cola Embonor S.A.), supplying concentrates under strict franchise agreements that define product formulas, quality control, and marketing support, in exchange for royalty fees.

Moving to the Production and Bottling stage, the primary commercial relationships are between beverage producers/bottlers and raw material/packaging suppliers, as described above. Within this stage, there are also significant commercial interactions among producers themselves, particularly in the case of co-packing or contract manufacturing. Companies like Embotelladora Dos Banderas and Grupo Ur Garbia engage in B2B service agreements with other beverage brands that may not have their own production facilities. These contracts outline the production volume, packaging specifications, quality standards, and service fees. Large bottlers, such as Embotelladora Coca-Cola Andina S.A. and Coca-Cola Embonor S.A., also have commercial relationships with brand owners (like The Coca-Cola Company) for the licensing and production of their products.

The Distribution stage involves the critical link between producers/bottlers and the retail/sales points. Large beverage companies often utilize their own extensive in-house distribution networks to deliver products directly to various retail channels. This involves internal commercial agreements and transfer pricing mechanisms between the production and distribution arms of the same company. Alternatively, producers engage with third-party logistics (3PL) providers like TIBA Group or transportation companies such as Transwell. These relationships are based on service contracts for transportation, warehousing, and inventory management, with pricing typically based on volume, distance, and service level agreements. Wholesalers also play a role, purchasing in bulk from producers or importers and selling to smaller retailers or the Horeca channel. Their commercial relationships are based on wholesale pricing and volume discounts. Distributors, holding exclusive or non-exclusive rights for specific brands in certain regions, act as intermediaries, buying from producers and selling to retailers, often managing marketing and sales support within their territory. Lerol Trading exemplifies a company facilitating international trade and logistics, acting as a bridge between international suppliers and Chilean importers/distributors.

In the Retail and Sales stage, the commercial relationships are primarily between beverage distributors/wholesalers/producers (depending on the distribution model) and various retail outlets. Supermarket chains like Cencosud S.A. (Jumbo, Santa Isabel) and SMU S.A. (Unimarc, Alvi) are major customers, purchasing large volumes of beverages under negotiated terms that include pricing, payment terms, promotional support, and shelf space allocation agreements. Convenience stores (OK Market, Big John, upa!, Pronto) also maintain direct purchasing relationships with distributors, focusing on a faster turnover of a more limited product range. Specialized stores and "botillerías" have similar purchasing relationships, often with wholesalers or specialized distributors catering to their niche. The Horeca channel (restaurants, bars, cafes, hotels) purchases beverages through wholesalers or direct from producers, often with specific pricing structures for on-premise consumption. E-commerce platforms and online retailers purchase from distributors or hold inventory themselves, establishing commercial agreements for online sales and delivery services (as seen with Rappi partnering with various stores). Traditional retail, comprising small neighborhood stores, typically purchases from local wholesalers or smaller distributors. These relationships are often less formalized but are based on consistent supply and credit terms.

Overall, the commercial relationships in the Chilean beverage value chain are characterized by a mix of long-term contracts for critical supplies and large-volume purchases, alongside more transactional relationships for smaller retailers and specialized channels. The power dynamics within these relationships often favor larger players, particularly major bottlers and large retail chains, who can leverage their volume and market presence in negotiations.

Products and Services Exchanged

Across the beverage value chain in Chile, a diverse array of products and services are exchanged at each step, facilitating the transformation of raw materials into finished goods and their journey to the final consumer.

In the Raw Material Supply stage, the primary products exchanged are the fundamental inputs for beverage production. This includes agricultural commodities such as fruits (grapes, apples, berries for juices and wine), grains (barley for beer), and other plant-based ingredients. Beyond agricultural products, key ingredients like sugar and other sweeteners (supplied by companies such as Iansa Ingredientes S.A. and Sucden Chile S.A.), concentrates (provided by brand owners like The Coca-Cola Company to bottlers), flavorings, colorings, and essential gases like carbon dioxide (from suppliers like Linde Gas Chile S.A.) are exchanged. Packaging materials form another critical category of products exchanged, including various types of bottles (PET, glass), aluminum cans, closures (caps from Sinea S.A.), labels (from Impregraph Ltda.), and secondary packaging materials like shrink wrap (from Plásticos Arpoli S.P.A.). Alongside the physical products, suppliers often provide valuable services such as quality testing and certification, technical support on ingredient application, and logistical services to ensure timely delivery to production facilities. Companies like Grupo Blumos Chile and Grupo Mathiesen offer a broader package, including specialized ingredients and technical assistance for product development and quality control.

In the Production and Bottling stage, the main product exchanged is the finished beverage itself, in various formats (bottles, cans, different sizes) and types (carbonated soft drinks, juices, bottled water, beers, wines, spirits, energy drinks, etc.). These are the tangible goods that result from the manufacturing process. The services exchanged at this stage are primarily the production and packaging services provided by bottling companies and co-packers. This includes water treatment, syrup preparation, blending, carbonation, pasteurization, filling, sealing, labeling, and quality control. Co-packing services, offered by companies like Embotelladora Dos Banderas and Grupo Ur Garbia, are a specific service product where a company provides its manufacturing capacity and expertise to produce beverages for another brand. Machinery and technology providers like Krones Chile offer equipment and technical services related to the bottling and packaging lines.

The Distribution stage is fundamentally about the exchange of logistical services and the physical movement of finished beverage products. The core "product" being exchanged is the transportation service itself, moving goods from production plants to warehouses, distribution centers, and finally to retail outlets. Warehousing and storage services, including inventory management and order picking, are also key services exchanged, particularly with 3PL providers like TIBA Group and companies providing warehouse equipment like Jungheinrich Chile. Primary distribution involves the movement of large volumes, while secondary distribution focuses on delivering smaller, mixed loads to diverse retail points. Logistics planning, route optimization, and potentially customs clearance services (for imported beverages, facilitated by companies like Lerol Trading and TIBA Group) are other essential services exchanged to ensure efficient and timely delivery.

In the Retail and Sales stage, the main product exchanged is the finished beverage, which is sold to the final consumer. Retailers purchase a wide variety of beverages from distributors or producers to offer to their customers. The services exchanged at this stage are centered around the retail experience and the facilitation of the purchase. This includes merchandising and product display services, direct sales and customer service, in-store inventory management, and marketing and promotional activities to drive sales. For online retail and e-commerce platforms, the services exchanged include online order processing, digital marketing, and last-mile delivery services, often facilitated by delivery apps like Rappi. The Horeca channel exchanges the beverage product as part of a broader food and beverage service experience, where the beverage is consumed on-premise.

In summary, the value chain involves a clear progression of product exchanges, starting with raw materials and packaging, transforming into finished beverages, and finally being sold to consumers. This is supported by a range of essential services at each stage, from technical support and co-packing to logistics, warehousing, and retail services, all contributing to the final availability and consumption of beverages in the Chilean market.

Business Models

The Chilean beverage industry employs a variety of business models across its value chain, reflecting the different roles and strategies of the participating players. These models govern how value is created, delivered, and captured at each stage.

In the Raw Material Supply stage, the dominant business model is typically Supplier-centric B2B sales. Producers of agricultural inputs operate on models ranging from direct sales to processors or manufacturers to participating in commodity markets. Ingredient suppliers like Iansa Ingredientes S.A. and Grupo Mathiesen utilize a Specialized Ingredient Supply Model, focusing on providing specific, often technical, inputs and often bundling this with technical support and R&D collaboration to create value for their beverage industry clients. Their revenue comes from the sale of these ingredients. Packaging manufacturers operate on a Manufacturing and Supply Model, producing standardized or customized packaging solutions in large volumes for beverage companies, generating revenue through unit sales. Contractual agreements, often long-term, are common to ensure stable supply and pricing. For entities like The Coca-Cola Company supplying concentrate, the model is a Franchise and Concentrate Supply Model, where they license their brand and intellectual property to bottlers and sell them the proprietary concentrate, earning revenue through concentrate sales and potentially royalty fees.

The Production and Bottling stage features several key business models. Licensed Bottling is prevalent for major international brands like Coca-Cola, where local companies (Embotelladora Coca-Cola Andina S.A., Coca-Cola Embonor S.A.) operate under licenses, responsible for production, packaging, and distribution within defined territories. Their model is based on volume sales of the finished product to the distribution and retail channels, while paying for concentrate and licenses. Integrated Production and Distribution is another model, adopted by large national players like CCU S.A., who manage their entire process from production to direct distribution to certain retail channels. This model allows for greater control over the value chain and direct capture of margins. Co-packing or Contract Manufacturing represents a Service-based Production Model, where companies like Embotelladora Dos Banderas and Grupo Ur Garbia offer their production facilities and expertise as a service to other brands, generating revenue through manufacturing fees per unit produced. Craft breweries and smaller producers often follow a Niche Production Model, focusing on specialized products and often selling directly to consumers or through specialized distributors and retailers.

In the Distribution stage, various models coexist. In-house Distribution by large bottlers and producers follows an Internal Logistics Model, where distribution is seen as a cost center and a critical function for reaching the market, integrated within the larger company structure. Third-Party Logistics (3PL) providers utilize a Logistics Service Provider Model, offering transportation, warehousing, and other supply chain services to multiple clients on a contractual basis, generating revenue through service fees. Wholesalers operate on a Buy-and-Sell Model, purchasing in bulk at lower prices and selling to retailers at a markup. Distributors often follow a Territory-based Distribution Model, securing exclusive or non-exclusive rights to distribute specific brands within a geographical area, profiting from the margin between their purchase price from the producer and their selling price to retailers.

Finally, the Retail and Sales stage encompasses diverse business models focused on reaching the end consumer. Mass Retail by supermarket and hypermarket chains (Cencosud, SMU, Walmart Chile) employs a High-Volume, Low-Margin Model for beverages, relying on large sales volumes across a wide range of products to drive profitability. Convenience stores (OK Market, Big John, upa!, Pronto) operate on a Convenience-driven Model, offering accessibility, longer hours, and quick transactions, often with higher margins on individual items compared to supermarkets. Specialized stores follow a Niche Retail Model, focusing on expert curation and customer service for specific beverage categories, commanding potentially higher prices. The Horeca channel operates under a Service-Integrated Consumption Model, where the cost of the beverage is part of the overall dining or hospitality experience. E-commerce and online platforms utilize an Online Retail Model, relying on digital interfaces, efficient fulfillment, and delivery services, with revenue generated through online sales and potentially delivery fees (as with Rappi). Traditional retail ("almacenes de barrio") follows a Community-based Retail Model, relying on local customer relationships and providing basic availability.

These different business models reflect the strategies companies employ to create and capture value within their specific part of the Chilean beverage value chain, driven by factors such as scale, specialization, market reach, and the nature of the products and services they offer.

Bottlenecks and Challenges

Despite its dynamism, the beverage industry value chain in Chile faces several significant bottlenecks and challenges that can impact efficiency, profitability, and sustainability. Identifying these is crucial for strategic planning and improvement initiatives.

One major challenge lies in the Raw Material Supply stage, particularly concerning the volatility of agricultural commodity prices and availability. Factors such as climate change, water scarcity (a significant concern in Chile), and disease outbreaks can affect the yield and quality of fruits, grains, and other crops essential for beverage production, leading to price fluctuations and potential supply disruptions. Relying on imported ingredients or concentrates also exposes producers to exchange rate volatility and international supply chain disruptions. Additionally, the cost and availability of packaging materials, heavily influenced by global prices of plastic resins, aluminum, and glass, can pose a bottleneck, directly impacting production costs.

In the Production and Bottling stage, challenges include maintaining consistent quality and safety standards across large production volumes, which requires rigorous quality control processes and investments in technology. Energy and water consumption in production can also be significant cost factors and pose environmental challenges, especially in the context of increasing environmental regulations and public scrutiny. For smaller producers and co-packers, access to capital for investment in modern machinery and technology can be a bottleneck, limiting their capacity and efficiency compared to larger players. Furthermore, the increasing consumer demand for healthier and more sustainable options requires producers to adapt formulations and production processes, which can involve R&D costs and technical hurdles.

The Distribution stage is frequently subject to logistical complexities and costs. Chile's diverse geography, with its long and narrow shape and varied terrain, can make transportation challenging and expensive, particularly for reaching remote areas. Traffic congestion in urban centers also adds to delivery times and costs. Efficient warehouse management and inventory control are crucial, and bottlenecks can arise from inadequate storage capacity, outdated technology, or inefficient picking and packing processes. Managing the reverse logistics of packaging, such as collecting and recycling bottles, also presents logistical and operational challenges. Dependence on third-party logistics providers can introduce risks related to their reliability, capacity, and pricing.

At the Retail and Sales stage, intense competition among retailers and various sales channels creates pressure on pricing and margins for beverage producers and distributors. Securing favorable shelf space and prominent product placement in large supermarkets requires significant negotiation power and often promotional investments. The fragmentation of the traditional retail channel ("almacenes de barrio") means that reaching these numerous small outlets efficiently can be challenging and costly. The rapid growth of e-commerce and delivery platforms necessitates investment in digital infrastructure and last-mile delivery solutions, posing a challenge for companies not yet fully integrated into these channels. Changing consumer preferences towards healthier options, functional beverages, and non-alcoholic alternatives require retailers to adapt their product assortments and marketing strategies. Additionally, regulatory changes related to labeling, marketing, and taxation of certain beverages (e.g., sugary drinks, alcohol) can impact sales and require adjustments in product offerings and pricing.

Overall, the bottlenecks and challenges in the Chilean beverage value chain are interconnected, ranging from external factors like climate and global markets to internal operational efficiencies and evolving consumer and regulatory landscapes. Addressing these requires collaboration across the value chain, investment in technology and infrastructure, and adaptability to changing market dynamics.

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