Flexibles Fly High, Aim Higher

As growth rates get more comfortable and application areas open up, flexible packaging converters remain keen on expansion.

By Susan Friedman

Could flexible packaging be on the cusp of a growth comfort zone? The Flexible Packaging Association (FPA)'s finalized economic statistics for 1997 reveal 5.2 percent growth that pushed shipment values to $17.1 billion—the second highest growth rate recorded in the last five years. Projections for the years following '97 indicate shipment values will ultimately near $19 billion in 2000.

In 1999, packagePRINTING's Top Flexible Packaging Converters survey showed smallest converters ($10 million in annual sales or less) posting the most impressive growth rates, at 23 percent. By contrast, the largest converters ($50 million plus in annual sales) reported a still-robust 9 percent growth rate.

Are any dark forces looming that could hold all this progress back? Barry Goldberg, head of Tappa Group International, a Deerfield, IL-based marketing/consulting firm specializing in packaging, points out Y2K concerns may have slightly inflated sales at the end of '99, causing a slower start at the outset of 2000. "Many major companies over-bought in '99 out of concern with getting caught without critical elements for their packaging," he explains. "However, due to economic and industry dynamics, 2000 should be a good year."

Material matters

According to FPA's 2000 Outlook Survey, film's overwhelming popularity shows no signs of abating. Ninety percent of converters reported using film in 1999, and 93 percent plan to put it to work in the next five years. Bret Biggers, FPA's director of business and economic research, reports fresh spikes in popularity for co-extruded barrier films, aluminum oxide,and silicon oxide. Polypropylene's strong growth pattern continues, with 45 percent of converters using it in 1999, and 60 percent predicting usage in the next five years. Ten years ago, 33 percent used this material.

A check on specific structures shows stand-up pouches capturing ever-more elbow room on store shelves. According to Goldberg, faster, more efficient packaging machinery is contributing to their rise, with conversions still most common for cracker, cereal, and other box-in-a-bag package constructions. Goldberg adds some shipping cartons turn into display packs to more easily keep pouches upright.

Zipper improvements are also working in stand-up pouches' favor, emphasizes Andrea Mandel, president of consulting firm Andrea S. Mandel Associates, Princeton Junction, NJ. No longer limited to high-end packages, zippers now work better and cost less to make. "This provides increased opportunities for flexibles to get into applications where opening and closing a product is critical," Mandel states. "Improved printing capabilities combined with better closures should push this package design along even more."

Mandel believes non-liquids still do the best in flexible packages, but she sees an untapped liquid opportunity in single-serving water containers. (Some flexible designs have hit test markets.) A flexible package could get smaller as it is used, could incorporate a handle or strap, and would be flat for easier transport, she points out. Improvements in diecutting could give water packages a more squeezable shape, she adds.

Snappiest apps

In tallying the markets with top growth potential in 2000, respondents to FPA's Outlook Survey returned fresh produce to the number one spot—a position it last held in 1998. Converters reported fresh produce applications continue to capitalize on consumer convenience needs, while demand has begun spilling into the fresh fruit segment. 1999's top growth market—surgical/medical—tied with drugs for second place in 2000's ranking. Pet food, a new end-use market in the survey, captured fourth place, likely reflecting flexible packaging's stand-up pouch in-roads in this category.Finally, snack foods checked in at fifth place.

One familar application—case ready meats—appears to at last be picking up steam. Modified atmosphere packaging (MAP) of red meat, typically by contract packagers, is starting to be accepted as a realistic alternative for retail-size fresh packaging, says Goldberg. "Case-ready is finally ready to take off from a market perspective because MAP machinery has caught up with the material technology," he adds.

Of particular significance are the marketing and branding opportunities case-ready opens up, Goldberg notes. Printed films and/or labels will play a bigger role in creating product appeal, giving red meat packagers the opportunity to achieve brand recognition on par with what Perdue and Tyson have achieved in the chicken market. Printed films and/or labels can also help market specific meat grades, or low-fat/low-cholestorol content.

Another application primed for real-world exposure is intelligent packaging—an area Mandel believes "presents an opportunity, a challenge, and a risk all in one for flexible packaging."

Intelligent packaging includes instructional codes readable by the microwave or refrigerator that enable monitoring and automatic adjustments during preparation, such as the amount of cooking time appropriate for a bag of microwave popcorn.

Mandel says intelligent packaging could motivate the next jump up in flexible packaging quality, or leave it vulnerable because of consumers' preference for more rigid microwave containers they can eat from. Even if rigid wins out, she predicts flexible lid stocks will be a likely package component. Flexible packaging converters who decide to tread in this new pool of applications will face code printing challenges. The codes must be readable across a wide array of kitchen environments and food preparation equipment, and will need to be highly fool-proof, she notes.

Expansion patterns look familiar

Twenty-fiveflexible packaging-related merger and acquisition transactions hit the books in 1999—a frequency slightly down from 1998, in which 29 M&A deals closed. The M&A total might be down from last year, but Biggers emphasizes 1999 was host to the largest number of domestic deals yet recorded—24. Domestic tallies reached 22 and 21 in '98 and '97, respectively.

Two behemoth deals poised to close later in 2000—Alcoa's purchase of Reynolds Metals, and the three-way blend of Alcan, Lawson Mardon, and Pechiney—confirm M&As' continuing appeal. FPA reports further that of the 55 percent of converters planning some type of expansion in 2000, 35 percent are leaning toward a domestic merger. A greater number, 59 percent, plan to expand an existing domestic plant, while 35 percent anticipate building a new domestic plant.

Does enthusiasm for expansion without a merger mean, for some converters, overcapacity concerns are lifting? FPA's survey showcases a mixed bag of perceptions, with 53 percent of converters and 65 percent of suppliers seeing overcapacity present throughout the industry. Forty-three percent of converters and 32 percent of suppliers saw overcapacity only in selected markets, and 3 percent in each group saw none at all. packagePRINTING's survey also captured varied levels of capacity utilization: 43 percent of converters reported using 80 percent or less of capacity in 1999, while 11 percent confirmed 95 percent to 99 percent utilization.