SIBA Cask Repatriation Subcommittee

SIBA Cask Repatriation Subcommittee
Please note that company names have been used for illustrative purposes only. Their inclusion in this document does NOT represent a commitment or otherwise to the scheme described.

Cask Deposit Update

The British Beer & Pub Association (BBPA) Returnable Asset Management Panel (RAMP) has presented its findings on cask deposits the to the BBPA Council. The presentation was well received and endorsement given to move to the next stage which was to assess the feasibility and costs of actually introducing a container deposit scheme.

The purpose of this document is to inform SIBA members of the mechanics of the proposed container deposit scheme to ensure that, should it be implemented by the major breweries, our members are able to make an informed decision on whether their own businesses should adopt the proposal.

Operations

Any deposit scheme should have minimal effect on operational matters.
The deposit would be charged out with ‘title to stock’. i.e. when a customer buys a cask of beer they also ‘buy’ the deposit.
Direct Brewery supply to a free trade customer illustrate this in its simplest form. For example Corvedale Brewery supplying the free house called The Dog & Duck

Step 1. Corvedale Brewery sells a cask of beer to The Dog & Duck. Corvedale charges the cask deposit to The Dog & Duck

Step 2. Corvedale Brewery returns and uplifts the cask from The Dog & Duck. Corvedale refunds the cask deposit to The Dog & Duck

However the majority of pubs in the UK are not free houses. Many of the Pub Company owned outlets have supply agreements with the major brewers who in turn use ‘third party logistics’

The biggest hurdle to overcome when devising a UK container deposit scheme was routing the charge through the incredibly complex UK supply chain. One of the key issues was the complexity associated with the separation of distribution from supply and distributors that do not take title to stock i.e. third party distributors who operate on a haulage only basis (or in even more complicated ways!) and breweries delivering on behalf of others.

In general there would be no issues with full stock movements as these are fully accounted for. The container is wrapped around the beer, which has a tangible value. It is not possible to loose the cask on its way to a customer without loosing the contents as well. However the uplift of empties by distributors operating on behalf of a number of suppliers was particularly complex. The proposed solution is outlined below

Step 1. Elgoods Brewery sells a cask of beer to a Wetherspoon Pub. Elgoods deliver the cask of beer to Tradeteam, who deliver the cask of beer to the Wetherspoon Pub, Elgoods charges the cask deposit to EWA, who charges the cask deposit to Wetherspoon Head Office, who charges the cask deposit to the Wetherspoon pub.

Step 2. Tradeteam returns and uplifts the Elgoods Deposit Paid cask from the Wetherspoon Pub. Tradeteam also collects any other empty containers (not just casks)from the Wetherspoon Pub. Tradeteam record on the Wetherspoon Pub delivery note the number of deposit-paid and the number of non-deposit paid containers returned to them. The paperwork does not specify whose containers are returned.

Tradeteam Admin notify EWA of the number of deposit-paid casks returned. EWA refunds the deposit to Wetherspoon Head Office, who refunds the deposit to the Wetherspoon Pub. At the same time EWA charges the deposits to Tradeteam (because that is where the containers are!)

Step 3. Tradeteam do not only deliver to Wetherspoons.
They also deliver to Mitchells & Butlers outlets and free trade outlets. All Elgoods Deposit Paid casks will be stored together.

Elgoods Brewery return to collect their empties from Tradeteam checking carefully that a) they are all
Elgoods casks and b) that they are all Deposit Paid casks!

It is not possible to say which pub any of these casks have been returned from. Elgoods Brewery refunds the cask deposit to Tradeteam.

The above illustration can be further complicated because JD Wetherspoon do not only deal with Tradeteam.
S&N also supply Wetherspoons via their third party distributor KNDL.

Accounting and Finance

The effect on compliant customers businesses should be minimal. A cask deposit scheme would mean customers having to find additional funds to pay for the deposits.

There were a number of options available to breweries to mitigate the cash flow impact (or associated loss of interest on banked funds) on their customers.
One suggestion was to open separate accounts for each customer purely for container deposits. The deposit account could be operated on longer credit terms to allow the return of casks to minimise the cash flow implications.

Other suggestions included discounted pricing, free of charge stock, loans, or amended terms. A brewery could employ one or a mix of solutions depending on its requirements and capabilities.

Day One and Implementation

Containers would need to be marked to allow identification of those that carried a deposit from those that did not. This would need to be consistent to allow accurate interpretation by delivery crews.
A combination of ink jetting and labelling was being proposed.

The ink jet would print on the side of the cask allowing identification of deposit charged casks even when stacked.

Technology

The panel considered that the solution did not require additional technology but it was capable of being supported by container tracking proposals.

Ullage

It was recognised that procedures and processes for the crediting of ullage would need to be reviewed in line with the deposit scheme, particularly where credit was given before repossession of the container e.g. beer destruction in cellar. The deposit should be capable of being separated from the goods.

RAMP Conclusion

It was considered that, in light of the current container loss rate doing nothing was not an option
It was believed that the devised scheme was a viable proposition for the implementation of a deposit scheme.
Companies would need to work on implementing best practice procedures and start a ‘cultural’ change to send a clear message throughout the industry that containers are important to brewers and that actions would be taken to ensure their security and efficient return

Frequently asked questions

Will Cask Deposits raise the customers awareness of the importance of containers to the brewing industry.
Yes! The scheme has been devised to effect a cultural change in the attitude of people to the handling of casks. When a monetary value is put on a container expect the attitude of customers to the security of empty casks and the speed of their return to change radically.

Empties are likely to be moved to secure areas. Uplifts will need to be timed when for when there is access to these areas.

Uplift requests will increase in frequency

Delivery frequency will need to increase as customers reduce their orders volume to minimise the cash flow implications.

Will Cask Deposits stop casks being stolen!

Yes! When empty containers are moved to secure areas the frequency of thefts will reduce.

Will Cask Deposits stop wholesalers loosing my casks?

No! A wholesaler will simply pass the deposit on with the title for goods. There is no incentive for an unscrupulous wholesaler to collect the cask. In fact the ensuing paperwork involved in collecting the cask, crediting the customer and then attempting to obtain the deposit back from the brewery could well have the reverse effect. It is more likely that the cask will be uplifted by the ‘point of least resistance’ i.e. a third party distributor.

It has been argued that an imbalance on the wholesaler’s deposit account would provoke investigation into their container returns. However most independent brewers already know where there containers are going missing from but choose not to act. Would they act differently because this evidence is presented as a deposit imbalance rather than a container imbalance?

Will Cask Deposits stop third party distributors from collecting my casks?

No! The suggested scheme would encourage landlords to return casks to anyone who will take them and credit their deposits back!
This is not necessarily via the same route that the beer was supplied.
However the recently published BBPA Kegs and Cask Supply Chain Best Practice endorses the use of the SIBA Orange stickers on casks that are not to be uplifted by third party distributors.

The SIBA Cask Repatriation Scheme that currently assists in the repatriation of casks from S&N would not be able to offer this service to casks with a deposit on them. The implications of the additional administration, paperwork and effect on cash flow required to operate with deposits would increase the costs to a level that would not be viable.

Will Cask Deposits prevent me backfilling casks?

No! If you have deposit-paid casks from another brewery and they have agreed to allow you to back fill these casks then you will receive the refund for the deposit when you deliver their casks back to them with your beer in.

What will be the level of the deposit?

This has not been decided. It would need to be set at a level that reflected the value of the container.
It would need to be greater than the black market value of the construction metal of the container
It would need to be set to take account of future inflationary increases. It would need to be low enough to be commercially viable.

It is imperative that there be only one deposit level.
Attempting to apply a lower rate, in an attempt to gain commercial advantage over competitors, would only increase the risk of casks going missing. If for example a brewery only charges £15 cask deposit when the agreed industry level was £30 then a landlord could return the cask via a third party distributor and would have made a £15 profit!

What would be the implications to my business of adopting the cask deposit proposal?
Define, install, test and implementation of systems
System changes to delivery notes to record deposit paid and non-deposit paid casks.

System changes to allow deposits to be charged and refunded.

Systems changes to allow deposits to be given separate credit terms to goods.

Systems changes to remove non-deposit paid casks from the population.

Systems changes to include third party distributors as sales accounts

Capital expenditure on marking casks as deposit paid
Operational expenditure for checking accuracy of delivery note completion.

Operational expenditure for additional workforce to deal with refunding cask deposits.

Operational expenditure for handling queries and discrepancies

Operation expenditure of additional time taken to perform deliveries

Communication of systems to employees

Communication of proposal to customers

Bad debt provision for non payment of cask deposit charges

Fraud & Theft implications of creating a new currency

What is the time scale for implementation?

Returnable Asset Management Panel contributors have been tasked with reviewing in more detail the feasibility and impact within their specific companies of the proposed cask deposit scheme. This would involve assessing costs for individual companies and gauging their commitment to implementation. It has been suggested that an industry steering group co-ordinate this to ensure that the work be undertaken in a consistent format and without unnecessary duplication. There would be continued involvement with key retailers and distributors in this next phase.

RAMP are to report their findings to the BBPA on September 19th 2007

SIBA representatives continue to attend the RAMP meetings and will report the progress to the SIBA membership.