State of the Flexible Packaging Industry

At the Flexible Packaging Association's (FPA) Annual Meeting in 2012, James Mize, VP, global sector—food packaging solutions for Sealed Air Corporation and 2012 FPA chairman, provided an overview of the association's annual state of the flexible packaging industry report. In his presentation, he listed several items as significant market opportunities:

• Overall economy slowly improving;
• Growth in emerging markets;
• Conversion from rigid to flexible packaging continuing;
• Sustainability advantages of flexible packaging;
• Ongoing industry innovation.

The economic environment in the U.S. is improving, albeit, just as described—slowly. The pre-election posturing in Washington that was highlighted (or low-lighted) by "bandaidsmanship" that avoided a number of economic calamities has evolved into the same thing (if you can evolve into the same thing)—now called post-election posturing. It makes for a very uncertain business environment, with a seemingly perpetual storm cloud hanging overhead. Despite this cloud of uncertainty the U.S. economy is making steady progress in the right direction, with GDP growth in 2012 estimated to be in the neighborhood of 2 percent.

Emerging markets will continue to present growth opportunities for years to come for the multi-national companies that can take advantage of them. The key growth driver in these markets comes from growth in spendable income from a growing number of people in these regions. However, risk and reward go hand-in-hand and investing to get a market position in emerging markets is not for the faint-of-heart or those with shallow pockets. Volatility and "bumps along the road" will be continuing issues in many of these regions.

2012 portrait

A peek at annual results from several major companies in the flexible packaging market can provide a good snapshot of the overall 2012 business environment.

Sonoco reported a year-over-year sales increase of 6 percent (2011 to 2012). However, Chairman and CEO Harris E. DeLoach Jr. was disappointed with the overall performance. "Our performance in 2012 was not what we expected when we began the year. We did not fully anticipate the negative impact that rising commodity costs would have on consumers' spending for packaged food, or the extent to which the European recession and slowing emerging market economies would reduce demand in our industrial-related businesses."

Bemis experienced a net sales decrease of 2.3 percent for its U.S. Packaging segment in 2012. Although facility consolidation costs negatively impacted operating profit results, the company reported its operating profits for 2012 at 12.1 percent of net sales, compared to 10.1 percent for 2011.

Facility consolidation work at Bemis will continue into the first quarter of this year and the company expects these efforts to result in $37 million incremental savings in 2013. Henry Theisen, president and CEO, explains, "We are aggressively managing our business to improve earnings and returns. We expect recent sales mix improvements to be sustainable as we continue to drive volume growth in barrier packaging. …We are on pace to achieve the cost savings associated with our 2012 facility consolidation program."

Sealed Air reported a net sales increase for 2012 of 37.8 percent, the great majority being the result of an acquisition. Organic sales increased 2.3 percent and is reflected in comments by Sealed Air's President and COO, Jerome A. Peribere: "We continue to operate in a challenging economic environment, particularly in Europe. However, we are confident in the fundamentals of our business. We are committed to increase profitability and aggressively manage our cost structure."

Another interesting perspective on the flexible packaging business environment comes from the supplier side of the supply chain. Matt Fyffe is the VP/general manager of Meech Static Eliminators USA, a company that does a good amount of its business supplying auxiliary equipment (static and cleaning systems) to plastic processors, extruders, converters, and printers. He says the biggest difference he has seen in the past two years is the shift in the type of customers that are spending money for new auxiliary equipment. Two years ago, end users (converters/printers) were spending money on upgrading existing equipment, rather than spending precious capital on larger capital investments. Meech's OEM business was down as much as 30 percent during this time. "In the last six months or so, this has turned around," reports Fyffe. "Companies are starting to invest in larger equipment, buying new machinery versus upgrading existing equipment. Our OEM business is just about back to where it was prior to a couple years ago."

Fyffe also says he's more optimistic now than he was even before the recession hit several years ago and believes that companies will continue to spend money on equipment investments. "Unfortunately, I've had some good customers go out of business during the downturn. Now, because of the recession and industry consolidation there are less companies, but they seem to have more money to invest."

Sustainability and innovation

The last three bullet points in Mize's presentation are closely related and do represent the main reasons for optimism in the flexible packaging sector. Even though the business environment requires 'aggressive management' to keep businesses heading in the right direction, flexible packaging has a lot going for it. Maybe not to the same extent as 'plastics' mentioned in the 1967 movie, The Graduate ("One word: Plastics!"), but there continues to be a great future in pouches. An excerpt from recent promotional material from Muller Martini for its variable sleeve offset printing (VSOP) press tells a big part of the story: "One glance at a grocery or drug store shelf says it all: pouches are replacing cans, jars, and bottles as the container of choice for many of today's food and pharmaceutical manufacturers."

With the relatively recent emphasis on sustainability throughout the entire supply chain, rigid containers and even other packaging configurations have found themselves in the crosshairs of change stemming from the use of flexible plastic materials. The Freedonia Group in its report, Plastic Film to 2016, says, "Advances will reflect the performance and source-reduction advantages of plastic film over other packaging materials and opportunities in film products such as pouches for drugs and medical products, and in modified atmosphere packaging for food."

Malcolm Cohn, director of sustainability for flexible packaging printer/converter Accredo Packaging, expands on these advantages. "Flexible packaging is in a continuous state of development and in today's highly sophisticated packaging market, the use of plastics in packaging offers lightweight, easy-opening packs with excellent moisture and gas barriers for prolonged shelf-life extension. Processing flexible films and subsequent conversion into finished packs has become particularly efficient, thereby increasing productivity and reducing waste, cost of manufacture, etc."

The proliferation of pouches on the store shelves is happening in many areas besides food and pharmaceutical/medical, and a recent example can be seen in the article on p. 30, Eco All Around. For a long time, motor oil was packaged in metal cans and reconfigured not too long ago in rigid plastic containers. Now, one company, Universal Lubricants, has introduced its line of re-refined synthetic blend motor oil in a stand-up pouch. The development of this new product packaging demonstrates the innovation—in terms of material selection, pour spout, and pouch and graphic design—that is typical in the flexible packaging industry. Brian Votaw, director of sales and business development for Star Packaging, the printer/converter for this project, also points out one of the hurdles facing new pouch implementations. "The biggest barrier to transitioning to pouches is the existing capital investment in rigid packaging equipment," he maintains.

Steady as she goes

The flexible packaging industry continues to play to its strengths in sustainability and novel and distinctive packaging configurations. It is doing this while using one of the key tools in its arsenal—innovation. So even though companies in this segment must maintain a tight ship during the economic up-hill climb, the future for this industry continues to be bright. pP