Navigating Duty Hikes - Strategies for Distillery Process Efficiency

The effects of the August 2023 alcohol duty hike continue to be felt among distilled spirits manufacturers. This increase – the largest in 50 years – has affected all parts of the supply chain, greatly reducing profit margins at a challenging time for the sector. Yet this challenge will be made greater still in February 2025, when the duty rate is set to rise by another 2.7% in line with Retail Price Inflation.¹

Combined with increases in raw materials and energy costs, the financial pressures facing distillers are clear. Yet while the sector will have to adapt to rising commodity prices caused by global trends, steps can be taken at an operational level to mitigate increasing energy costs. By doing so, spirits manufacturers may be able to add some breathing space into profit margins set to be further squeezed by spiking duty rates.

Informed specification of decentralised energy equipment offers a way forward in this scenario. Selecting the latest generator technologies and energy-efficient HVAC equipment used in manufacturing can help site stakeholders find savings on operational costs through greater efficiency.

This is especially pressing at a time when grid power prices continue to fluctuate, exposing the energy-intensive spirit manufacturing sector to additional financial risks. By contrast, decentralised solutions are not subject to this level of volatility, insulating site stakeholders from potential instability in this area.

Considering that distilleries rely on precise power and temperature control to assure production continuity and product quality, any improvements to this manufacturing process could also greatly impact bottom lines when replicated at scale. In these circumstances, it is advised that decisionmakers engage additional expertise if they are to truly maximise on-site efficiencies. Such in-depth technological knowledge can be leveraged from within the supply chain and by engaging in ongoing dialogue with sector experts.

Indeed, given the energy demands of pumps, mixers, chillers, heaters, and control systems in fermentation, this combination of informed specification and efficiency gains can amplify savings across entire sites. Yet the duty hike has also impacted this area, with increased financial outlays resulting in smaller equipment purchasing budgets.

This conclusion is supported by data on sector sentiment gathered following the previous duty hike. According to the Survation UK Distillery Report 2023, 71% of distillers said they were less able to invest in business improvements such as increasing production capacity or adopting innovative technologies following the duty change². This situation is likely to have been further amplified now a year on, following additional price rises and economic uncertainty.

Consequently, distillers are facing a dilemma over 2025. Though upgrading to higher quality, more efficient equipment can help offset price rises from the duty hike, the same hike has constrained the capital budgets needed for such investments. As a result, site stakeholders may find themselves in a worsening position and without the means to extricate themselves from it. Decentralised energy provision may offer a route forward, but prohibitive financial obstacles still exist that prevent site decisionmakers from realising this approach’s full potential.

In these circumstances, strategic equipment hire could become an increasingly attractive strategy. By procuring the latest industrial power generation, process cooling equipment such as chillers and oil-free air compressors on a temporary basis, distilleries are better able to reduce energy consumption, costs and emissions during key industry applications, including fermentation.

Crucially, as hired equipment is counted as an operational expense, it removes the deterrent of high upfront costs associated with purchasing permanent solutions. With this barrier overcome, site stakeholders are well-placed to decentralise power provision or supplement on-site power and temperature control systems to keep operations running during shutdowns or seasonal peaks.

To maximise the benefits of this approach, it is critical that distillers engage suppliers capable of providing a wide range of industrial generator and process cooling equipment. Access to an extensive portfolio of HVAC and generator solutions is crucial to ensuring equipment procurement is dynamic enough to meet the ever-evolving needs of individual spirit manufacturers.

This combination of flexibility and modularity can allow distilleries to be more agile in their approach, scaling power and temperature control provision up and down with a greater level of control. Indeed, this level of control should not be regarded as a benefit at distilleries, but as an expectation. Yet it can still be further augmented by the used of advanced, remote equipment monitoring to maximise efficiency and energy savings.

Through services such as Aggreko Remote Monitoring, plant stakeholders can better integrate 24/7 remote monitoring into their operations, alongside rapid emergency response, proactive maintenance and fuel services. The provision of live data for hired, on-site equipment can also help inform actionable insights, while also identifying stoppages, faults or inefficiencies to be resolved.

In turn, these actions can help prevent downtime and ensure the operational reliability of industrial generators and manufacturing HVAC systems used at distilleries. In the challenging environment facing spirit manufacturers, exploring these additional cost-saving avenues can help alleviate financial pressures as the impact of rate hikes becomes clearer over 2025.

As the industry navigates these challenges, adopting innovative solutions and proactively seeking efficiency improvements will be crucial for sustaining profitability and growth in the coming years. Confronted with rising costs and duty hikes, distillers must consider all available options to improve efficiency and reduce operational expenses.

By focusing on informed specification of decentralised energy and temperature control equipment, whilst leveraging strategic equipment hire expertise within the supply chain, site decisionmakers can better reduce financial pressures exacerbated caused by these twin concerns. Engaging with suppliers who offer a wide range of generator and HVAC equipment and technologies can provide the flexibility and control needed to adapt to changing demands. This approach will not only help in maintaining operational reliability but also ensures distilleries can continue to produce high-quality products while managing costs effectively.

To find out more about Aggreko’s equipment and services offering for the manufacturing sector, click here.

References:

[1] https://www.gov.uk/government/publications/changes-to-the-rates-of-alcohol-duty/alcohol-duty-uprating#:~:text=All%20changes%20will%20take%20effect,duty%20rates%20for%20draught%20products

[2] https://cdn.survation.com/wp-content/uploads/2023/10/17091748/Distillery-Report-191023.pdf