German”s drinks deposit system causes sales to plunge

A new deposit law on cans and bottles has sharply reduced beverage sales in Germany, causing at least a temporary hardship in a US$15 billion industry when the economy may be on the brink of a recession.



The New York Times reports that makers of cans and bottles are reporting 20 to 60 per cent drops in sales. Since January 1, customers have had to pay a deposit on all carbonated soft drinks, as well as beer sold in cans or plastic bottles. The deposit ranges from 25 to 50 euro cents a container (27 to 54 US cents), depending on size. By comparison, many US states require a deposit of only 5 cents.



The new law is meant to stem the growing popularity of disposable containers at the expense of refillable glass bottles, which have been covered by a deposit law for years. And it appears to be slowly working. Some of the lost demand for canned drinks has already shifted to refillables, and industry analysts expect overall sales to return to previous levels eventually.



For Germany – where recycling is practically a national religion, government regulation is plentiful and planning is prized – the tumult has come as something of a shock. Supporters of the law say that the beverage industry had more than enough time to prepare but chose to spend the time fighting a losing battle against the law. Many companies put off making the required investments, hoping that a favorable ruling in a series of legal challenges or a victory by Edmund Stoiber and his industry-friendly Christian Democrats in national elections last November would make them unnecessary.



As a result, when January 1 arrived, there was no nation-wide return system in place for the disposable containers, as there is for refillable packaging. Consumers were faced with having to return used containers to the store where they were purchased and show a sales receipt to prove it, or forfeit the deposit. It will be autumn at the earliest before a nationwide return system will be in place, industry executives say. In the meantime, beverage retailers are struggling to cope with piles of returned containers.



Schmalbach-Lubeca, the largest maker of drink cans in Germany, may be the company hardest hit by the law. Recently acquired by Ball Corp., an American packaging conglomerate, Schmalbach-Lubeca depends on the German market for a third of its annual sales of EUR1 billion. Those sales are down 60 per cent since the law took effect. The company has begun rotating plant closings and furloughing employees without pay. Even so, it expects to lose EUR50 million in the first quarter.



Retailers, who are dealing most directly with the consequences of the new law, are watching competitors to make sure they are complying. Rivals have already filed suit against Wal-Mart Germany, accusing it of refunding deposits to customers without requiring them to actually return the containers. Wal-Mart denied the charge.



The new deposit law grows out of a 1991 recycling law that set a ceiling on the percentage of deposit-free containers on the market. In recent years, growing price competition and aggressive marketing drove the market share of these containers up to almost twice the allowed limit.