The market will see continued growth, driven mostly by an increasing demand for stand-up pouches.
FLEXIBLE PACKAGING FACES a bright outlook for 2004. Currently, flexible packaging—a $20 billion industry—is the second largest packaging category in the United States, according to the Flexible Packaging Association's Web site. Furthermore, industry experts and studies only expect the market to see continued growth over the next several years, despite a slowly recovering economy.
"There's going to be continued growth in the market," said Dennis Calamusa, president of ALLIEDFLEX Technologies, Inc. and a sales and marketing consultant providing global flexible packaging machinery to the North and South American markets. "The typical growth we've seen is 10-15 percent, and as much as 20 percent in some market segments."
Several factors are anticipated to drive the growth. According to a study by The Freedonia Group called "Converted Flexible Packaging," much of the expansion will stem from developments in barriers, breathable films, resealable stand-up pouches, and the need for performance packaging with enhanced graphics.
Areas of growth
Food packaging will continue to contribute the most growth to flexible packaging, with projected annual increases of 2.6 percent to 5.1 billion lbs. in 2008, according to The Freedonia Group. This success will be due in no small part to the proliferation of pouches on store shelves—a phenomenon well on its way.
StarKist® set an example for U.S. brand food companies when it introduced its Flavor Fresh Pouch of tuna less than five years ago. In that time, use of retort foil pouches has grown to make up about 10 percent of the company's total tuna sales, Calamusa said. What's more is the pouch's sustained success with the company's new marinated tuna StarKist Tuna Creations®, introduced in July 2003. The new product represents 4 percent of all pouched tuna sold and exceeded the company's expectations by 37 percent, according to an August 2003 company press release.
Pouches are a trend that's catching on with some of the nation's largest brand food companies, who want to see what replacing their traditional packaging with flexible packaging can do for them. As a way of testing the marketplace without a large capital investment, multinationals have started to introduce pouches as value-added packaging with the benefits of recoverability, improved graphics, better flavor, recipe labels, longer shelf-life, and in some cases, cost savings. They are able to do this gradually with reduced risk by outsourcing the pouch jobs to contract converters, Calamusa said.
By 2007, pouches and bags used in food packaging are expected to make up $7.2 billion of the market of the U.S. demand for food containers—anticipated to reach $18.7 billion in the next three years, according to another Freedonia study called "Food Containers: Rigid & Flexible." The study also reports that pouches will present better opportunities than bags, expanding by 6.3 percent annually to 2007.
"Flexible packaging is making inroads into rigid packaging and folding cartons, but it's gradual," Calamusa said. This is understandable as most of the packaging being replaced or partnered has been in place for decades. "Conversion will not happen overnight. It will be a transitional process," he added.
Besides pouches, interest in flexible packaging is escalating as a slow, but proactive movement of folding carton and rigid packaging companies begin to investigate the assets of the substrate group. Two main areas where rigid packaging can't compete with flexible packaging, and where flexible packaging offers dramatic monetary savings, is warehousing and transportation. For example, one truckload of flexible packaging (pre-made pouches or rollstock) can equal 25 truckloads of rigid packaging, Calamusa said. "Companies are realizing that logistics can offer substantial cost savings and added benefits to their total cost structure, and they are beginning to take these savings seriously."
The competitors
The U.S. flexible packaging market will continue to face competition from its old rival rigid packaging. In today's post 9-11 world, can-industry associations are highlighting the security benefits of cans, Calamusa said. Also, in order to compete with the conveniences of flexible packaging, metal can companies are adding convenience features like e-z open pull lids. "Flexible packaging growth in the marketplace is definitely getting the [can companies'] attention, and making them produce more modern-style packaging to compete more effectively. These improvements are good for the U.S. consumer," Calamusa said.
Another newer, tougher challenge for the U.S. flexible packaging market may lie ahead in the form of competition from competent foreign flexible packaging suppliers and converters, Calamusa said. Foreign companies dealing in flexible substrates are a step ahead of U.S. packaging businesses. For the last several years, flexible packaging has constituted a large majority of flexible packaging technologies from abroad, where a variety of pouch and material innovations have already become mainstay.
The threat from overseas is made more serious by the fact that most European and Asian flexible packaging companies are vertically integrated, and they are ready to expand into the global economy. "What we have to do as an industry is make sure we are prepared to accommodate the drastic growth that lies ahead of us," Calamusa said. "The biggest challenge to the North American flexible packaging industry is going to be flexible packaging suppliers abroad. They look at the U.S. and see the population and consumer products volume that we have, and they see endless growth potential.
"I think we're also going to see many more strategic alliances in the coming years between U.S. and foreign flexible packaging companies," Calamusa added. Alliances could play a large role in helping U.S. companies compete in a global market, he added.
Part of being ready for the future increase in flexible packaging is being well situated now, said Elizabeth A. Fessenden, president of Alcoa Flexible Packaging. "Controlling what we can during a slow economy is critical to delivering acceptable financial performance during the slump," she said. "It is also critical to be poised to take advantage of the upswing when it comes."
Fessenden speaks from experience. Alcoa recently implemented the Alcoa Business System which has helped the company focus on improving its cost structure, including "managing the work activities that make up the product processes to reduce product variability and detect problems which are then quickly solved. The result has been increased productivity, reduced waste of materials and resources, and the ability to better satisfy and serve our customers," Fessenden said.
by Kate Sharon, Associate Editor
Resources
ALLIEDFLEX Tech. www.alliedflex.com
Flexible Packaging Assoc. flexpack.org
The Freedonia Group freedoniagroup.com
Inst. of Pkg. Professionals www.iopp.org