Opportunity’s Still Knocking

One packaging segment that usually takes center stage at this time of year is that of flexible packaging when supermarket shelves are stuffed with bulk packages of candy for many of us to use on Easter Sunday. This makes sense since retail food is the biggest revenue generator for flexible packaging, according to the Flexible Packaging Association (FPA, www.flexpack.org) 2008 State of the Industry Survey. Last year, according to preliminary data from the survey, retail food accounted for 47 percent of the $25.9 billion U.S. flexible packaging industry.

It’s not all rosy right now, however. The flexible packaging segment is predicted to show negative growth in 2009 versus 2008, according to the FPA. Many economic pundits predict that although the contraction of the economy may slow during 2009, the economy will not show signs of growth until the second half of 2010.

Flexible packaging segment snapshot

During his presentation of the FPA’s State of the Industry Report at the association’s annual meeting held in February, James Love reported that U.S. packaging is a $136 billion industry. Flexible packaging accounts for 18 percent of the industry, with total sales of $25.9 billion. The compounded annual growth rate (CAGR) of this segment has been 3.4 percent during the last decade. Contributing to this growth are 420 companies encompassing nearly 1,000 manufacturing facilities employing almost 80,000.

The largest portion of the revenue generated for the flexible packaging segment comes from large companies with greater than $500 million in revenue—accounting for 54 percent of the revenue in the U.S. Medium companies (revenues of $50 to $500 million) account for 26 percent of the flexible packaging revenue, and small companies, with revenues of less than $50 million, make up 19 percent.

Since 2006, the flexible packaging industry has grown its sales from $24.9 billion to $25.9 billion in 2008. But, although sales have been growing, industry profits and overall U.S. GDP have been down or flat. For example, the U.S. GDP was 2.9 percent in 2006, while in 2008 it was 1.3 percent with reduced profits.

For 2009, sales are expected to fall to $25.6 billion, along with –1.4 percent growth for the GDP. Because of the negative GDP, overall flexible packaging revenue for 2009 is expected to be down compared to 2008. Lower capital spending is also predicted for 2009, with expenditures primarily for replacements and upgrades, according to Love’s presentation.

Generally, the flexible packaging outlook is for slow near-term growth with gradual improvement to 2–3 percent per year. Also expect to see further consolidation of the market, volatile raw material costs and availability, globalization and imports (into the U.S.), and pressure on margins and profitability.

“Efficiency is now the word,” comments Dr. Rani Stern, global head of research and development, CLP Industries, Ltd., on the current state of this industry. “From raw material through setups and changeovers, high-speed, in-line lamination and reduction in waste, we are all about efficiency. [CLP] accomplishes it through thorough training and by implementing international standards. Improving our efficiency gives us the opportunity to be very competitive in price compared with our competitors.”

Success stories

Innovation has proven to be the secret to success for many companies. Stern cites double-gusseted pouches as one example. “This is a new era for us as our double-gusset pouch reaches shelves in Europe [soon],” he says. “Its unique technology allows us to accommodate more volume in a pouch that stands rigid on the shelf and is easy to handle and dispense from. We are seeing a lot of interest in Europe and the States among manufacturers of beverages and other liquids, sauces, and gels.”

Innovation helped fuel continued growth in 2008 for Sonoco. Extending its Smartseal™ easy-open and reclosable packaging for Kraft Foods’ Nabisco® cookies was a big part of that growth. In fact, according to its annual report, Sonoco is focusing on increasing flexible packaging sales in fast-growing markets like hard-baked goods and confectionary.

The company also devotes significant R&D to deliver new sustainable packaging solutions for its customers without sacrificing performance or aesthetics. Sonoco cites its one-pound bags for PJ’s Coffee that comprise a three-layer structure of polyester, foil, and polyethylene sealant as one example. The structure yields a bag that uses 10 percent less material and 15 percent less energy, while generating 10 percent fewer carbon emissions compared to a traditional, four-ply structure.

At Bemis Company, flexible packaging accounted for $3.2 billion in net sales during 2008, about 84 percent of the company’s total net sales. “This has been a demanding year for our flexible packaging business,” says Bemis President and CEO Henry Theisen. “We recorded improved sales volumes in several of our key markets, including packaging for meat and cheese, dairy and liquids, and medical markets. The benefits of this sales growth were offset by declines in sales volume for protective display films as well as packaging for industrial, confectionery, snack, pet food, and multipacks markets.”

According to Theisen, the company moved to recover increasing raw materials costs during the second half of 2008, but economic conditions during the fourth quarter created a difficult operating environment for many of Bemis’s businesses. Be that as it may, Theisen claims, “We are entering 2009 with a strong core business and well prepared to react promptly to future market fluctuations.”

Where it’s at

Though the market has slowed, and negative growth is expected, there are opportunities to be had out there.

For Stern, the economy has been an opportunity. The company recently invested in a new flexo machine—a Windmoeller & Hoelscher 47˝, eight-color press that runs up to 1,640 fpm. “Because of the world economic situation, we were able to get it in quite a short time. It will be installed in May,” he says.

Until things stabilize, though, converters will continue to adjust their businesses as necessary. “Of course, we can’t ignore the economy,” Stern says. “In some markets we still keep going like we did before. Some markets have been more negatively affected. At CLP, we have decided to see this as an opportunity.” pP