The Economics of Refillable Beverage Containers
Through reduced beverage prices and reduced waste management costs, refilling costs the public less than packaging beverages in one-way containers. Refilling can cut costs for bottlers, most of whom, along with most retailers, adamantly resist stocking beverages in refillable containers. In fact, refilling rewards bottlers more than any other actor in the packaging chain. In Europe, for instance, refilling a PET bottle is one-tenth the cost of filling a one-way PET bottle. The bottling industry can cover retailers’ costs by paying them a handling fee to cover the extra labor and operating costs for accepting and storing refillables. And, automatic take-back machines, widely used in Europe, can minimize and even eliminate retailers’ labor costs. Enjoying the economic benefits of refilling, however, requires having established refilling systems. Establishing refilling systems where only non-refilling systems exist is not as difficult as it might appear, especially when considering the ease of converting from one-way to refillable PET bottles. This web page explains some of the economic obstacles to establishing refilling systems and the economic advantages of refilling for industry and for the public.
Establishing Refilling Systems
Refilling can be profitable for bottlers in the long term, but the large initial investments that refilling requires make this packaging option a much greater economic risk than one-way containers [AGM, p. 69]. Although the general decline in refilling in most parts of the world exacerbates this risk, it has not daunted some bottlers. While refilling was slowly declining in Germany during the 1980s and 1990s, some medium-sized beverage companies there invested in refilling systems shortly after that country’s packaging ordinance became effective in 1991 [JT].
Bottling Plants. Establishing a refilling line requires at minimum bottle-handling equipment, a bottle washer, bottle-inspection equipment, a filling machine, and a supply (float) of bottles and bottle crates. Converting bottling plants from one-way to refillable PET bottles may seem like a daunting and expensive task, but existing equipment can facilitate such a conversion. Bottlers can fill and label refillable PET bottles by using existing equipment for one-way PET bottles–without modifications or additional costs. For any conversion to refilling, however, bottlers would need to purchase additional equipment: a case de-packer (which removes bottles from crates and then loads them onto a conveyor), a bottle washer, and a sniffer to inspect the washed bottles for remaining contaminants [PPET]. Washing and inspection equipment is required also for refilling glass bottles. Equipment to treat wastewater from the washing process is another additional expense for both PET and glass [SAPH, pp. 187-189]. Adding bottlewashing equipment may require expanding the bottling plant, but bottlers who cannot expand their plants may be able to consign their bottlewashing operations to other companies. This type of arrangement has been used successfully in many instances.
Retailers. To participate in a refilling system, retailers must dedicate floor space for bottle returns and stockroom space for bottle storage. Dedicating space for these purposes seems difficult for most American supermarkets because they have just enough space to accommodate their current retail operations and often evaluate their cost-effectiveness in terms of dollars per unit area. Although competition in the retail grocery industry is mostly based on price, moreover, competition based on customer service has compelled a few supermarket chains to provide ticket sales, money orders, video rentals, film processing, and other convenient services. Indeed, the features of the typical American supermarket apparently leave no room for bottle returns. However, some of the most advanced reverse vending machines that are used in Europe for taking bottle returns occupy less than one square meter of floor space. In such a small space, these machines can take bottles individually or in crates and can sort the bottles [TMRA]. Even with such compact equipment, a store may need to establish outside bottle-handling facilities. The oversized parking lots of many suburban and rural supermarkets may be able to accommodate bottle return stations. Separate, independent bottle depots are another option for returns but present an additional errand in the consumer’s busy day. While depots can spare retailers the expenses of bottle returns, they increase costs for bottlers and their distributors by forcing them to make separate stops for product delivery and bottle retrieval. In the Canadian province of Prince Edward Island, where all beer and soft-drink containers must be refillable, both stores and depots take back empty bottles.
Packaging manufacturers. To convert their existing operations to making refillable PET bottles, manufacturers of one-way PET bottles would need only to add some extra equipment. Except for a few special procedures required for refillables, the processes for manufacturing refillable PET bottles are identical to those for one-way PET bottles [PPET].
Industry-wide Costs. Knowing what equipment and facilities are needed to convert from non-refillable systems to refillable systems for beverage packaging, the next question about establishing refilling systems concerns the total cost of such a conversion. This cost will depend on the following factors.
- What policy instruments government will enact and the packaging mix that will result from them
- How the beverage industry will geographically restructure its bottling operations
- For a bottling plant in a particular geographic region, the productivity levels required to meet consumer demand and to maintain profitability
- The additional equipment required for bottle handling and filling
- The additional labor required
- The sizes of the required bottling and distribution facilities
- The role of existing bottling plants and distribution facilities
- The number of bottles required for the initial bottle float
- Whether beverage companies will collaborate to use industry-standard bottles or will prefer to use proprietary packaging
- Whether or not bottling companies will consign processes such as bottlewashing to bottle pools or to other third parties
- Whether stores or depots will take bottle returns
- The equipment and labor required for bottle returns
Although this list is probably not complete, it illustrates what a conversion from one-way to refillable containers involves. Estimating the cost of such a conversion is beyond the scope of this web page but may be a worthwhile study.
Costs and Benefits of Established Refilling Systems
Once a refilling system has been established, bottlers can earn a return on their investments. For bottlers, the essential cost savings from refilling come through trippage. To attain the trippage required to reap these cost savings, bottlers depend on consumers’ returning their empty bottles. In almost all refilling systems that exist, consumers return their bottles to stores. Therefore, the success of any refilling system depends on the cooperation of retailers. Because retailers would much rather stock beverages in one-way containers, inducing their cooperation is easier when their costs of handling bottles are addressed.
Bottlers. The reuse of containers several times rewards bottlers more than any other actor in the packaging chain. Although a refillable container initially costs the bottler more than its one-way counterpart, the cost-per-filling of the refillable container is less. To illustrate this point, consider the typical costs of 500-ml beverage containers in Europe that are shown by the table below [AGM, p. 71].
|Refillable Glass Bottle||0.103||20||0.005|
|Refillable PET Bottle||1.133||20||0.007|
|One-Way Glass Bottle||0.047||1||0.047|
|One-Way PET Bottle||0.069||1||0.069|
Based on these figures, the cost-per-filling of the refillable PET bottle making 20 trips is 0.007 Euro, which is about one-tenth of the cost-per-filling of the one-way bottle. The cost-per-filling of the refillable glass bottle making 20 trips is 0.005 Euro, which is about one-twentieth of the cost-per-filling of the aluminum can. Comparing one-way to refillable containers requires examining not only the costs of the containers themselves but also the costs of labor. A study involving 1-liter juice containers–cartons, one-way glass bottles, and refillable glass bottles–concluded the following [AGM, pp. 68-69].
- Refilling glass bottles costs less than packaging juices in cartons, the least-expensive one-way packaging option that the study considered.
- The most expensive option is one-way glass bottles.
- For refillable glass bottles, 50 percent of the cost of production is labor, and only 20 percent is packaging. Most of that 20 percent involves caps and labels.
- For production with one-way containers, more than 50 percent of the cost is packaging.
The findings of this study may suggest that the extra labor costs incurred by refilling can be offset by the reduced packaging costs. Another cost comparison, one which investigated the bottling and distribution of soft drinks in refillable and one-way PET bottles, found that the cost-per-filling is about four cents less for the refillables [SAPH, p. 202].
Production rates are another important aspect of the economics of packaging beverages. Because filling machines for one-way PET bottles can be used for refillable PET bottles, the production rates for refillables will match the rates for one-way bottles of the same size if empty refillable bottles enter the filling line at the same rate that new one-way bottles do. If that filling line originally processed 2-liter one-way bottles, however, then processing 1.5-liter refillables on it will result in a slower rate per unit volume.
Retailers. Selling beverages in refillable containers is expensive for retailers, who are stuck with managing a deposit-return system for the containers and with almost no inherent way to make profits from such a system. For the retailer, half of the cost involves managing a deposit-return system and the other half entails storage space for both full and empty containers [AGM, p. 70]. Deposit-return systems not only occupy valuable retail space but also incur labor and other operating costs. Automatic take-back machines, which are widely used in Europe, can minimize or eliminate labor costs. In spite of automation, however, retailers who sell beverages in refillables still have bottle-handling costs. In some European countries, the beer and soft-drink industries compensate retailers for the costs of stocking beverages in refillable containers and for the costs of handling empty containers. Such arrangements have worked well in markets with only a few large bottlers and a few large retailers [AGM, p. 70]. Finland’s breweries, mainly the four largest, deliver beverages directly to stores, retrieve the empty bottles, and pay them a handling fee of 0.15-0.17 FMK per bottle. The stores’ actual handling costs range from 0.08 FMK to 0.30 FMK per bottle [AGC, p. 21]. Instead of receiving a handling fee from the bottler, the retailer could keep part of the consumer’s deposit as a handling fee. Another example of bottler-retailer cooperation is found in Denmark, where brewers and soft-drink bottlers recently established a non-profit organization to provide technical assistance to retailers and to administer the payment of bottle-handling fees to retailers [DRAS].
Deposit-return systems for refillable containers can cut costs for retailers. Brewers Retail, Inc., (BRI) also known as The Beer Store, is Ontario’s leading beer retailer. BRI and Ontario brewers together operate a deposit-return system for refillable bottles which facilitates the recovery of almost all secondary and transport packaging. BRI’s recovery operations reduced its waste disposal costs from a peak of C$1,500,000 in 1992 to only C$129,000 in 1994. By recovering almost all of its post-consumer packaging–plastic bags, beer cans, and even bottle caps–in addition to its secondary and transport packaging, the Ontario beer industry has earned a noteworthy reputation for its packaging stewardship [BBBW]. Systemwide. Cost-benefit analysis (CBA) studies can provide the best cost comparisons between refilling and non-refilling beverage packaging systems. In 2001, the consulting firms RDC-Environment and Pira International completed a CBA study for the European Commission (EC), who intended to use the findings to set new recovery targets for the EC Directive on Packaging and Packaging Waste. This study compared 330-ml refillable glass bottles with one-way glass bottles of the same size by considering the costs of container manufacture, filling, distribution, retailing, and waste management under the following assumptions [CBA].
- The return rate for the refillable bottles is 100 percent.
- All bottle losses occur during washing and refilling.
- The round-trip distance from the warehouse to the store is 100 km.
- Consumers recycle their commingled bottles and other containers only at drop-off centers. Industry bears all recycling costs.
- The portion of one-way bottles that are not recycled is split equally between landfilling and incineration.
The study concluded that refillable glass bottles cost less than one-way glass bottles whenever the distance from the bottling plant to the warehouse is less than 125 km with 20 trips for the refillable bottles and a 91 percent recycling rate for the one-way bottles; less than 150 km with 20 trips and a 42 percent recycling rate; less than 100 km with 5 trips and a 91 percent recycling rate; and less than 120 km with 5 trips and a 42 percent recycling rate. (When external costs were factored in, refillable bottles were more cost-effective at even greater distances to the bottling plant — from 2,300 to 4,200 km away.) The results of this comparison suggest that refilling can be less expensive than recycling in settings in which industry legally or voluntarily assumes responsibility for its packaging waste. Because the assumed method of recycling collection is uncommon in the United States, deriving conclusions for the United States from this study is difficult. The RDC-Pira study also attempted a similar comparison for PET bottles, but this comparison apparently omitted the costs of washing the bottles. Another CBA study [GUA], which is worth reading but is available only in German, was completed in 2000 for the Austrian Ministry of the Environment.
Benefits to Society
Refilling can put more money in people’s pockets by reducing the prices of beverages, cutting the public costs of waste management, and increasing employment.
Consumers. Although refilling can cost less to beverage companies, they may not necessarily pass the cost savings to the consumer. Marketing strategies rather than production costs often affect beverage prices [SAPH, p. 216]. Some evidence and opinion suggest that consumers generally pay less for beverages in refillable containers. This conclusion was reached by a 1976 US EPA study and by a survey conducted by the National Environmental Law Center in 1992 [SAPH, p. 221]. Moreover, an Austrian consumer information association says that the price-per-liter of soda pop is usually less in refillable bottles than in one-way bottles [VKI]. Anecdotal evidence further indicates that beverages in refillable containers cost less to consumers. In Norway, without taxes or deposits, the cost-per-liter of lager in 330-ml refillable glass bottles is 0.51 Euro less than the cost-per-liter in 500-ml cans. This price advantage for refillables affects a significant portion of Norway’s beer market, where 91 percent of beer is lager, about 30 percent of beer is sold in 330-ml refillable bottles, and about 31 percent is sold in 500-ml cans [NWCC]. Beer drinkers in New Brunswick, Canada, pay one cent per liter less for beer in refillable glass bottles than they do for canned beer [BACX]. In Latin America, the use of the refillable PET bottle makes soft drinks affordable to more consumers [SAPH, p. 199]. In Mexico, the price of soda pop in a refillable bottle is about 18 percent less than the price of the same product in a one-way bottle of the same size. In stores near Mexico City, Coke in a 2-liter refillable PET bottle costs 11 Pesos but costs 13 Pesos in a 2-liter one-way PET bottle [FEM, p. 8]. In Argentina, consumers pay 25 percent less for Coke in a 1.5-liter refillable bottle than for Coke in a one-way PET bottle of the same size [FEM, p. 9]. (By reducing the prices of packaged beverages and making them affordable to more people, refilling can increase retailers’ sales of packaged beverages.)
Another bit of evidence suggests that refillables may cost more to the consumer. For home delivery from Marcus Dairy of Danbury, Connecticut, a half gallon of milk costs $2.13 in a carton or a one-way plastic jug but costs $2.39 in a refillable glass bottle. This cost figure for the refillable bottle does not include the $1.75 deposit [MILK]. From these bits of anecdotal evidence, the best conclusions that we can draw are the following. Where refillable containers are prevalent, the prices of beverages in refillables are less than or equal to the prices in one-way containers. In markets where refillable containers are rare, consumers may pay more but not much more. Taxpayers. Refilling not only cuts the costs of packaged beverages but also cuts the costs of waste management. By removing them from the municipal solid waste stream, refilling transfers the costs of managing beverage containers from the taxpayer to the producer. These costs are significant because beverage containers occupy a significant amount of space in city and county trash and recycling collections. Some facts and figures from Canada illustrate the burdens that beverage containers put on taxpayers. In a typical curbside recycling program in Ontario, PET occupies about 20 to 25 percent of the volumetric capacity. The significant volume of PET in recycling collections and its low market value contribute to the high costs of managing discarded PET containers. At one time during the mid-1990s, in fact, the provincial auditor reported that collecting PET by curbside recycling was costing Ontario C$1,800 per tonne. Other cost estimates for managing discarded PET containers are C$1,100 per tonne for net recycling costs and C$400 per tonne for volume-adjusted landfilling costs. With these costs and a 50 percent recycling rate, the management of 360-million one-way PET soft-drink bottles costs Ontario municipalities about 12 million dollars (Canadian) per year [PPET]. Local governments would save millions, therefore, if the soft-drink industry used refillable PET bottles.
Because a simple deposit law for recycling one-way containers can also remove beverage containers from the municipal waste stream, the effects of such a law on curbside recycling are like those of refilling. With that thought in mind, let us consider some more facts and figures from Ontario. According to the City of Toronto’s data, beverage containers occupy about half of the volume of the city’s recycling collections. With a deposit law for all beverage containers, the city’s curbside recycling program could have only one collection day per month instead of nine and thus save C$900,000 per year [CNWM, p. 6]. With the money saved, the city could hire 21 more police officers if it needed them [TPOL]. Although the numbers would be different for U.S. cities, they could benefit in a similar way from refilling.
Rather than reduce recycling programs, counties and cities could use the capacity vacated by beverage containers to collect other materials that make up a significant portion of the waste stream. These materials include yard trimmings and food scraps for composting, electronics, appliances, and building materials. Diverting these materials from landfills can bring additional savings for local governments. Workers. Refilling also can generate tax revenue by putting people to work. Although the processes for recovering, handling, washing, and inspecting refillable containers are highly automated, refilling often requires more labor than filling one-way containers. Recovering, washing, and processing refillable glass beer bottles employs over 2,000 persons in Ontario [BRI]. A 1993 study by Andreas Golding, author of the European Commission report Reuse of Primary Packaging, concluded that refilling creates many more jobs than using one-way containers does. Of the 161,000 jobs that were directly connected to the manufacture and filling of beverage containers and to the distribution and selling of packaged beverages in Germany, 73 percent involved refillable containers. In that setting, 27,000 new jobs would be created by moving completely to refilling. If one-way containers completely overtook refillables, then 53,000 jobs would be lost [AGM, pp. 71-72]. One new job in the one-way sector eliminates nine jobs in the reuse sector, according to the European Environmental Bureau [EEB].
- [AGC] Golding, Andreas. Reuse of Primary Packaging. (Country-by-country report) Brussels: European Commission, 1999. (B)
- [AGM] Golding, Andreas. Reuse of Primary Packaging. (Main report) Brussels: European Commission, 1999. (B)
- [BACX] ILSR’s calculations based on data from the Brewers Association of Canada.
- [BBBW] Valiante, Usman. “Billions of Bottles of Beer on the Wall: The Brewer’s Retail 98% Recovery Rate Reduces Costs.” Hazardous Materials Management 8.4 (1996): 92. (B)
- [BRI] Brewers Retail, Inc. [Mississauga, Ontario] “Environmental Leadership.”
- [CBA] RDC-Environment and Pira International. Evaluation of Costs and Benefits for the Achievement of Reuse and the Recycling Targets for the Different Packaging Materials in the Frame of the Packaging and Packaging Waste Directive 94/62/EC. (Draft) Brussels: European Commission, 2001. (B)
- [CNWM] Citizens’ Network on Waste Management (CNWM). A Strategy to Promote Refillables and Reuse in Ontario. Kitchener, Ontario: CNWM, 1997. (B)
- [DRAS] Dansk Retursystem A/S.
- [EEB] European Environmental Bureau. “New Coalition for Re-use.” Press Release 20 Apr. 1999.
- [FEM] Coca-Cola FEMSA, S.A. “Coca-Cola FEMSA 2000 Annual Report.”
- [GUA] Gesellschaft für Umfassende Analysen (GUA), GmbH. Volkswirtschaftlicher Vergleich von Einweg- und Mehrwegsystemen. Vienna: Austrian Ministry of Environment, 2000. (B)
- [JT] German Federal Environment Ministry. “Federal Environment Minister Jürgen Trittin: Deposit on Disposable Drinks Packaging from 2002 Will Halt the Advance of the Can.” Press Release 27 Feb. 2001.
- [MILK] Marcus Dairy, Inc. [Danbury, Connecticut]
- [NWCC] Norwegian Brewers and Soft Drink Producers. “Facts and Figures on Beer, Soft Drinks, and Water in Norway.”
http://www.brom.noThe ILSR based its calculations on data from this source. (L)
- [PPET] Valiante, Usman. “Pamper Your PET: Eco-efficiency and Refillable Plastic Bottles.” Solid Waste & Recycling 2.6 (1997): 18. (B)
- [SAPH] Saphire, David. Case Reopened: Reassessing Refillable Bottles. New York, INFORM, Inc., 1994. (B)
- [TMRA] Tomra Systems ASA. [Asker, Norway] Product data sheet and installation configuration for the Tomra 600.
- [TPOL] Toronto Police.
- [VKI] Verein für Konsumenteninformation. [Austria] “Einweg als Irrweg?”