Packaging: A Change Continuum

The packaging market is certainly going through a period of change—evolutionary, not revolutionary. Macro ­issues outside the control of even leading companies are causes for concern and bringing pressures to bear on the sector. Currency exchange rates complicate and inhibit international trade, particularly with the weakening U.S. dollar. Retailer competition in the consumer market is intense. Globalization has become a reality for many companies and, in some cases, an imperative for continuing success.

For the packaging industry supply chain, the complexities are also complicated by high raw material costs and an increasing choice of technologies available to the brand manufacturer to package, identify, and decorate products. Margin and cost pressures are creating the need for consolidation and rationalization. In the face of climate change, the desire to use less energy and create fewer VOC emissions is also increasingly becoming a part of the equation—and in some countries now, or soon to be, forced by legislation.

New geographical opportunities

Geographically, Europe and North America are mature markets, and companies based in these areas are taking advantage of many new exporting opportunities in the world’s developing economies. ­Russia, China, India, and some countries in South America are providing current business growth for North America and European companies, but the real future will lie in establishing subsidiaries in these locations, or losing out to the fast-growing base of local suppliers.

In general, where major retail groups are expanding into developing geographical markets, it is likely that local sources of packaging printed for their own private label brands—an area where there has been a surge of activity—will be found to keep costs down, with consequent reductions in print orders in the home market. Suppliers in the home country will not likely benefit from such market growth. We already see in these geographies a proliferation of locally manufactured printing presses, substrates, inks, and other ancillaries being used in the domestic market. We see strong evidence today that package printers in countries like China are actually competing in North American markets for business—and winning not only on cost, but with a quality product.

Political and economic uncertainty may constrain quick decision making in this respect, but many companies have already made the decision to expand geographically to grow their businesses by responding to the need to “act global, think local.” With dynamic local growth in technology, the window for successfully building a business presence in these developing economies will only be open to the rest of the world for a short while.

Cost concerns

Raw material and energy prices are a major concern at all levels of the packaging industry today. Even in the realm of papers and boards, the new emphasis on sustainability and forest stewardship certification (FSC and, in Europe, PEFC) is affecting the prices paid for pulp-based materials by product manufacturers and packaging suppliers with integrity and a sense of environmental responsibility. The advent of the European REACH chemical control legislation—which affects imports to the region as well as domestic product—has major implications for the print industry globally, particularly in inks and label adhesives.

Product decoration

Traditional glue-applied labels still dominate package decoration (including the glue-applied wraparound sleeves which predominately appear on PET bottles). Self-adhesive labels continue to offer high-quality solutions, particularly where added-value functionality is required (the “no-label” look, RFID, overt and covert security features, package reclosures, leaflet labels, etc.). While together these two technologies represent around 90 percent of the world’s labeling needs, brand owners now have a much broader range of choices available to help sell the product off the shelf.

Sleeve labels—particularly shrink sleeves—have been a real phenomenon in the packaging market, but we see growth leveling off today as the market becomes saturated and the novelty value declines. Together, the sleeve technologies now command more than 7 percent of the world label market, with the biggest market share in Japan, and North America and Europe sharing second place. In-mold labels are now contributing significantly, particularly in high-volume, fast-moving consumer goods applications like margarine and ice cream tubs.

The ever-increasing need for more product information (food values, dosage for medications, etc.) is also contributing positively to package printers’ efforts to optimize capacity usage. The increasing requirement to help the visually challenged consumer through the availability of Braille on a product package is an interesting challenge, particularly for carton printers.

Smart labels

Despite the amount of attention they have claimed in recent years, RFID and related “intelligent” on-pack technologies have still not been fully commercialized. Niche applications, like airline baggage tags and cradle-to-grave security tracking of ethical pharmaceuticals have certainly embraced RFID. However, full-scale, item-level adoption of the system in retailing and other logistical applications has been slow—still hampered by the cost of the tags, which is perceived to be too high. Other on-pack functional add-ons, like time/temperature indicators and color-changing freshness indicators offer real possibilities, but to date, their growth has also been constrained by cost.

Environmental impact

Packaging’s latest innovation, bio-films based on polylactic acid (PLA), have also yet to gain significant market share. Growing corn to make this medium, and also for the production of nonpetroleum-based bio-fuels, originally was seen as a huge global opportunity, benefiting arable farmers in North America and across the globe. The enthusiasm this has initiated has, however, compromised the amount of land available for growing food crops. The environmental credentials of bio-films have been put into question by recent reports of recyclability problems. These, plus the lack of rigidity of plastic bottles made from PLA film, means more work is needed if these products are to become major factors in packaging.

The way forward

Consolidation through mergers and acquisitions has been a strong feature of the packaging market in recent years, but only at certain levels of the supply chain. Margin pressures indicate that further rationalization must be expected. While paper and film sources are concentrated on a small core of large multinational companies, package printers and converters remain resolutely smaller entities.

The high number of companies in the market and the lack of consolidation at this level make some fallout inevitable. We see two viable pathways for converting companies: to grow or partner with other companies for cross-border trading to meet the needs of the multinational brand owners and retailers; or to set their sights on excellence in a local geographical region, or a niche technical market where they can offer excellence and a unique proposition. pP

(Editor’s note: For specific reports on flexible packaging, tags and labels, and folding cartons, see upcoming ­issues of packagePRINTING.)

Corey M. Reardon is president and CEO of AWA Alexander Watson Associates, a global business-to-business market research, publishing, and consulting company with an industry focus on the specialty paper, film, packaging, coating, and converting industries.