Glass packaging industry shattered by ban on alcohol sales
By Odwa Mjo
SA’s glass packaging industry, which has lost almost 80% in revenue in the first six weeks of the lockdown, could see production come to a standstill as the ban on alcohol sales increasingly chips away at the merits of running factories.
Production in the glass container industry has been brought to a near halt since the national lockdown began on March 26, as the industry, which is heavily dependent on supplying packaging to alcohol companies, has been unable to produce at full capacity.
"We’ve been able to operate at almost 15% capacity, producing essential products for pharmaceuticals, food and nonalcoholic beverages, but that is quite a small part of our business," Consol Glass CEO Mike Arnold said.
"The real challenge is that without an alcohol industry, there is no scale to run vast production, and if we don’t get a let-up soon and we can’t continue as an industry, then everyone we supply to in other industries will be affected."
Arnold’s comments come amid growing calls from business leaders to quickly allow industries to reopen to avoid job losses and the economy slipping into an even deeper recession.
President Cyril Ramaphosa has promised to take further steps to allow businesses and workers to return to work by the end of May.
While the production lines of the industry have been disrupted, keeping furnaces operating and protecting assets is costing the industry R8m a day, according to a report compiled by advisory firm FTI Consulting.
"We’re down to below 20% of our revenue but we could only get our costs down to 70%. We continue spending cash to keep the furnaces hot, keeping people at work and protecting assets that we can’t utilise," Arnold said.
The glass container industry generated more than 26,000 jobs directly and in related sectors, the report said.
"We’ve already had salary sacrifices and put people into job rotation, which means we have not retrenched anyone as yet," Arnold said. He said smaller suppliers such as label suppliers and recyclable waste pickers could be the hardest hit.
Nampak CEO Erik Smuts said the alcohol ban has affected the packaging industry’s supply chain beyond SA borders.
Nampak supplies cans to the liquor industry.
"We also supply packaging for breweries across our borders into Botswana, Mozambique, etc. Although the production of alcohol in some of those countries is legal, we could not send them packaging under the initial lockdown, as it was illegal to manufacture, supply or distribute any goods in the alcohol supply chain." Smuts said Nampak had since resumed the manufacturing of alcohol-
The weeks-long ban, which Arnold said had cost the glass container industry more than 80%, or R1bn, of its revenue, may soon be a thing of the past after Ramaphosa announced the possible easing of lockdown restrictions in less affected parts of the country to level 3 by the end of May.
As part of the Disaster Management Act, outlets can sell alcohol for three days a week for just four hours a day under level 3.
Despite the loosening of regulations around the sale of alcohol, the packaging industry may continue to feel the knock-on effects as demand for alcohol is likely to remain subdued due to the effects of the lockdown on consumer spending. "In theory, many people will be allowed to buy alcohol, as the sale of liquor will be legal. However, they might not have the money to do so, because the lockdown has severely affected their disposable income," Smuts said.
Arnold warned that the consequence of the restrictions on liquor sales was that it was unlikely the glass container industry would be a vibrant and profitable industry for many years to come.