PRIMIR Packaging Study Identifies Global Mega Trends
Sustainability, government regulations and high energy costs are three of the 20 trends affecting the North American packaging industry, according to a soon-to-bereleased PRIMIR Study, “Global Trends in Packaging Affecting North American Converter & Supplier Markets.” As with all industry segments, packaging has been impacted by the economy during the past year. Printed packaging 2008 shipments were estimated at $79.7 billion, according to the study.
But in 2009 the picture changed. “Some markets are horrific, some just very bad,” comments Dave Costa of State Street Consultants, who conducted the research.
The PRIMIR study goes on to provide the market estimates to 2013 broken down by the four packaging segments studied (corrugated, flexible, tags and labels and folding cartons). Little growth is anticipated for corrugated with shipments in 2013 estimated to be $26.5 billion, up from $25.8 billion in 2008. Folding cartons also shows little growth during the period, only climbing to $11.58 billion from 2008’s $10.9 billion. In contrast, flexible packaging and tags and labels show moderate growth in the years ahead. Flexible packaging, with industry shipments totaling $28 billion in 2008 is estimated to grow to $31.1 billion by 2013. Tags and labels, with shipments of $15 billion in 2008 are expected to grow the most to $17.5 billion in 2013.
Although factors differ in impact among the four segments studied, just six of the 20 trends identified will have the greatest impact—sustainability, government regulations, high energy costs, retailer involvement, global economics, and offshore manufacturing. We discuss three of these factors in this article.
Sustainability represents the most talked about trend underway. Retailers, with WalMart leading the charge, are touting a “save mother earth” philosophy. And, by the way, let’s make money, cut costs and increase profits at the same time. Retailers’ emphasis on reducing packaging is planned through a number of initiatives:
• A reduced product-topackage ratio strives for packaging inside of the box being reduced, thus allowing for packages with smaller footprints;
• The increased use of recycled content in packaging;
• Cube utilization such as the use of trays and shrinkwrapping around larger quantity products like bottled water and canned goods; and,
• Packaging material sustainability.
Folding cartons and corrugated segments will be most affected by reductions in packaging materials and sizes of the packages. For example, the move from full-boxes to plastic wrapped trays will reduce the amount of corrugated used. On the other hand, flexible packaging will move to thinner substrates (providing a bright spot for press manufacturers as newer presses are better suited to handle these materials). Finally, label use will be negatively impacted as rigid containers convert to flexible packaging.
Government regulations are expected to take center stage as the new administration looks at potential new legislation. Pending is the Employee Free Choice Act, which would amend the National Labor Relations Act to make it easier for employees to form unions. Many experts are concerned that this legislation will drive more product manufacturing outside of the United States. If that were to occur, it would likely be harder for U.S. converters to compete with the pricing of offshore packaging sources.
Sustainability-related regulations also may have a direct influence on packaging in the years to come.
Regulating greenhouse emissions (Cap and Trade) is of concern to converters as no one knows what this will cost and how it will affect manufacturing operations. Also unknown is how recycling will impact substrates.
Will the cost of recycling balance the yields obtained? As the FDA gains greater power, the organization is expected to extend the use of warnings on tobacco packaging.
These warnings would be much larger— so large that it could mean fewer graphics and changing printing requirements. The PRIMIR study implies that it is possible some food and tobacco-related packaging will move to black-and-white as a result of these new regulations.
The packaging industry is also impacted by the drive toward a greater emphasis on food safety. The ability to track and trace ingredients is desired and packaging/labeling will play a big role in this effort. In general, labeling will become more varied as the government requires more and more information displayed regarding food ingredients. Sodium content, for example, will be the focus of much attention, resulting in new designs, more components and more print work to change label contents.
A third major trend identified by the PRIMIR study is high energy costs. Working in conjunction with sustainability efforts, there is a drive to produce packaging with a smaller footprint and lighter-weight packaging in general.
Because of the high energy costs involved, it is entirely possible that there will be a shift in substrates, with paper replacing plastics in some arenas, for example. The PRIMIR packaging study also evaluated various scenarios that could play into the future of packaging. The most likely of those is the “extreme retailer influence,” which assumes that retailers take full advantage of their size and buying power to keep costs at the lowest possible level. “The best for the least” philosophy pits WalMart, Target, major grocery chains and national retailers such as Big Lots and Dollar General against one another. In the battle for market share, graphic packaging and innovative structures will be the primary weapons. This could result in:
• Frequent graphic changes;
• A proliferation of SKUs;
• Greatly expanded private labels;
• Best practices in printing required across the board; and,
• Better graphics and print quality in all sectors.
The increased use of private labels could lead to a promotional push for those labels to be perceived as “better than national brands.” In order to support this drive, packaging will have to be innovative (to match innovative national brand products being introduced).
This drive for private label branding and the increase in SKUs will mean more test marketing— giving those who specialize in shortrun, sample packaging a step up in the market.
Retailers will support these efforts with heavy marketing, coupled with direct sales programs in catalogs and on the Internet.
Extreme retailers will look to converters to supply innovation, demanding R&D in the areas of substrates (don’t forget sustainability), various unique types of closures, eye-catching graphics, and cost-effective inks and coatings with strong shelf impact. In this scenario, says Kevin Karstedt, who worked with State Street Consultants on the study, converters will need to “use the best to the best it can be used.” Efficiency will play a huge role in future successes. Converters with the best processes, best equipment, best-trained employees and best supplier network will win out.
Automated and efficient processes will be required to be competitive in order to provide fast turnaround, short-runs, innovations and quality packaging at low costs.
Akin to “tough love,” concludes the study, the extreme retailer influence would require all participants in the packaging supply chain to become more agile, more efficient, more innovative, more cost conscious—and better corporate citizens.
The report, “Global Trends in Packaging Affecting North American Converter & Supplier Markets,” was distributed exclusively to PRIMIR and NPES members. Contact Jackie Bland, Managing Director of PRIMIR at phone: 703/264-7200 for membership details.