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How to 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 lies a complex challenge: accurately forecasting consumer demand. Modern production software can change forecasting for the better.

March 25, 2024

Spirits forecasting is a balancing act and distillers need technology to help find the center of gravity

Demand forecasting is complex across all production channels, but distillers deal with additional complexity based on seasonality, barrel aging, and increased shifts in regulatory factors and legislation. 

As a result, distillers need to project demand well into the future. Let’s take an honest look at the forecasting challenges distillers face and then zoom in on how modern distillers are overcoming those challenges with technology. 

Seasonal Fluctuations and Trends:

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

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 than ever before, the industry's understanding of consumer occasions seems to be in constant flux. 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 last year, the sale of ready-to-drink prepared cocktails has increased by 36.5% 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. Then that's where we start adjusting everything. It's a market when we start seeing or not seeing demand, we stop or reduce a little bit of production.

Giancarlo Passarelli

CFO, Gulf Coast Distillers

Aging Spirits and Lead Times:

Aging spirits, such as whiskey, can require years of maturation until the profile is as 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. Additionally, 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 & President of DISCUS, said "Fair tax treatment and increased retail access for spirits-based, ready-to-drink products is a big priority for us."

The combination of factors that have historically made production planning more of an educated guessing game than it should be 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 efficiency and become more effective with production planning. "We have to produce and put barrels in our warehouse to sell them later," Says Giancarlo Passarelli, CFO of Gulf Coact Distillers. "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 and that for capital is tough."

Production software is a significant advantage for distillers in the modern spirits industry

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, savvy distillers that 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. Thankfully, the tools and technology available to today’s distiller are better than they’ve ever been.

Jamie Bogner

Co-founder & Editorial Director, Craft Spirits & Distilling Magazine

Here are some key advantages today’s leaders have:  

Integrated systems for efficiency:

The smartest distilleries have already replaced spreadsheets, sticky notes, and pads of paper. Production software like 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.

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.

Yannick McCartney

Production Manager, Pursuit Distilling

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 steady shifts in compliance and legislation at both the state and federal levels could pose problems for folks who 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:

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," 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.

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.

Yannick McCartney

Production Manager, Pursuit Distilling

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. 

Proactive problem-solving and demand-planning begins with production software that connects the distillery with their own and outside retail locations, providing visibility into what’s moving when, and why. Encompass is an operating system for the modern distillery sales and distribution environment, offering distillers unprecedented visibility into the entire sales and inventory process, so that you can focus on doing what you best—making great spirits and sharing them with an eager audience.

Jamie Bogner

Co-founder & Editorial Director, Craft Spirits & Distilling Magazine

Innovation through multi-segment production will be key for producers across wine, beer, and spirits that want to remain competitive. Distilleries need a platform that supports their 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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