Recycling for profit - Container Deposit Scheme

cds pt1

There is a way for breweries to be cost neutral under the Container Deposit Scheme (CDS) – and further move the dial toward positive cash flow – by using the CDS to their advantage.

This is Part 1 in our series on the CDS where we discuss how it affects craft breweries and how to best manage it. 

Part 1 is a brief history on the subject across Australia; learn from the mistakes of the beverage industry's negative response, and how small to medium sized breweries can leverage the benefits.

 

A bit of background

Container deposit legislation (CDL), commonly referred to as the Container Deposit Scheme (CDS) is set to kick off in Queensland on 1st November 2018. It’s never too late for breweries to get their head around the change and understand how to use the CDS recycling to reduce the cost of compliance and potentially make a profit.

South Australians have been set up since 1977 and offers up to 10 cents per container to the consumer for returning the container to a collection point.

Similar schemes were established in the Northern Territory in 2012, the Australian Capital Territory and New South Wales in 2017, and Western Australia has committed to a rollout in 2020.  Victoria and Tasmania are both reviewing the schemes in the other States and Territories but have not yet committed to their own CDS.  With Queensland set to launch this year, it is important for beverage manufacturers, including breweries that are trading in one of these States and Territories, that they understand the scheme and how it impacts them.

 

What CDS means for craft beer breweries

To help set the scene and a good example of what not to do, there is a short history on the beverage industry's opposition to the schemes in South Australia and Northern Territory.

South Australia was challenged by Castlemaine Tooheys Ltd in the High Court of Australia (details here). Tooheys won this battle.

Northern Territory was also successfully challenged by Coca-Cola Amatil, Schweppes Australia and Lion Pty Ltd (details here). We’ll bring this up later and show you why they won the battles but not the war.

Great comment on the Northern Territory case: Greenpeace, Reece Turner said, it was an absurdity for Coke to talk about cost of living issues when consumers get a refund. "It is the height of corporate arrogance, and any claims Coke makes in future about sustainability have been completely trashed."

Moving on the cost to the manufacture and the $0.099 when purchasing the container. You need to start understanding how this 10c flows through the system. It’s what will give you a competitive advantage over these big guys and why the above is a good example of what not to do.

Don’t waste time fighting this battle, win the war!

By shifting your focus from fighting the system to focusing on how the system can work for you, you’ll be able to profit from recycling, and this is your guide on how to do it.

 

Turning CDS into value for a brewery

There’s a great article in the MIT open access series called “Open business models and closed loop value chains: Redefining the Firm-Consumer Relationships”.

Compelling reading for most folk that run a brewery.

To get to the main value here the article explains nine archetypes of business models, one of which is yours at the moment.

It talks about how a basic business model works - value creation and capture moving forward to the end consumer, ending with a purchase of a product (transaction-oriented). While also covering why you should extend this traditional perspective to understand how to recapture value in models like the ‘recycling alliance’.

The recycling alliance model works by not owning but aligning with service providers to recapture value in the system your products interact with.

In the case of a CDS this is very valuable for you as a brewery, especially a microbrewery by aligning yourself back into the system as a refund point (collecting the scheme paid service fee on the way).

A refund point in Queensland can collect $0.06 of the container redemption rate ($0.09 aluminium) per eligible container as a service fee to support the scheme.

It’s similar in other states (check the fine print on how much).

Align with businesses and consumers in the system to promote alliances and drive outcomes, in this case recycling. I was lucky enough to see this first hand when studying international sales in Germany recently. People were lining up in masses to collect their credits and shop at the refund point. 

In Queensland as a manufacturer (Brewery), let’s say you buy one can, you have your can cost and the CDS cost, for this article let's just focus on the cost of CDS, so $0.09.

If you collected “one can” as a return point for the scheme they will pay you the $0.06 service fee. The new cost of your cans CDS is now $0.03. However if you collected three cans, the cost of your can is now zero and you’re ahead +$0.09.

Let’s recap:

  • Can CDS cost: -$0.09
  • Collecting cans as a refund point: +$0.06
  • New CDS cost to you -$0.03
  • New CDS cost after collecting three cans +$0.09

It sounds too simple right? My assumption is you’re actually already doing this when you provide a refill service for growlers/squealer. I’ve provided an illustration below in figure two.

When you request the information pack to tender for the opportunity you’ll find this flow chart:

Excise.Cloud Qld Container Refund Scheme Structure

 

Here's a visual to illustrate what I am talking about above:

Excise.Cloud QLD Container Refund Scheme Example

This small amount can actually turn into a substantial advantage especially if you as a micro producer can handle the management of the additional containers at your location. While you crunch the numbers for your locations you should consider the intangible benefits such as Branding, closing the loop on your production, innovation, all news articles in your local community, driving your brand message of sustainable local production.

 

How craft beer breweries can implement their own CDS

The “what not to do” examples I provided earlier are worthy comparisons that your local media outlets can get behind. Differentiating your Brewery in the media, giving consumers a strong WHY to buy from their local brewer will continue to deliver competitive advantage.

It’s incredibly expensive to drive people into your building if you’re advertising all the time. So utilize the 10c refund as an incentive to drive people to your business location, the Government will list you on their sites and apps and promote this to drive consumers to recycle.

  1. Complete a short feasibility study to see if you can make this happen. Start by totalling your current purchasing: 10,000 cans a week? Times it by three. 30k.
    1. Is this a volume you handle? If yes - great use this as a starting point, if not - work backwards from here to understand what’s achievable for you, processing wise.
  2. Reach out to CoEx and get sent the tenders pack to become a refund point.
    1. Just email: tenders @ containerexchange dot com dot au
    2. Subject: Seeking Information – Become a Refund Point
  3. Do more research on your feasibility excel
    1. Include: The purchase of balers, bins, bags, cages, shipping or other types of containers, fencing and security equipment (e.g. chains and padlocks), concrete slabs, signs, roadways, trailers and built structures (e.g. shed, administration office). Labour/salaries for the installation of infrastructure and transport of infrastructure to site. All based on the size of your operation.
  4. Fund it: Get onto Grants Guru and find something that matches your ambition.
    1. Northern Territory has a grant specifically for this at the moment here, if you have time and know them, email it to your local councillor. Say they need to get onto the state member so this type of grant can be made available.
  5. Other links:
    1. Example of refund points in NSW https://returnandearn.org.au
    2. SA: https://www.epa.sa.gov.au/environmental_info/container_deposit
  6. Get some help:
    1. This is a shift in your business model not a strategy, once you understand how to restructure parts of your business model (Key partners, Key activities and Costs) you can position yourself in the right way to realise the new income and maximise gains. 


If you like what we’ve come up with here, you’ll love our excise management product. Email us to become part of the customer in beta testing with us. team@excise.cloud

Originally published: 19 August 2018