State of the Industry-Flexible Packaging

FLEXIBLE PACKAGING CONTINUES to be an area for growth opportunities in the package printing industry, even in an economic recovery that is spotty at best. Several market drivers for this growth potential were identified in a study done in 2002 by The Freedonia Group titled, "World Converted Flexible Packaging." These drivers include: the expansion of end-use markets such as snack foods, pet and prepared foods, and pharmaceuticals; the continuing trend for conversion of rigid packaging to new flexible packaging alternatives; the need to reduce packaging costs and volume; and the increased use of stand-up pouches and liquid flexible packaging.

The Flexible Packaging Association's (FPA) "2002 State of the Industry Report" identified the flexible packaging market as a $20 billion industry. This amounts to 17% of a $114 billion total packaging market and makes it the second largest category. While the U.S. market for converted flexible packaging is by far the largest, The Freedonia Group predicts that China will replace Japan as the second largest market by 2005.

Economic pressures

The National Association of Printing Leadership's "NAPL 2002 - 2003 State of the Industry Report," published annually by NAPL's Printing Economics Research Center (PERC), provides a broad analysis of the printing industry, including a wide spectrum of commercial and package printing. Chapter 1 starts off: "There are a lot of ways to describe our industry's business environment. 'Erratic' is the kindest."

Of the markets in the NAPL survey, package printers were the most positive in terms of what they saw for growth potential. Nearly 53 percent rated packaging's growth potential as being above average, double the 25 percent that saw it as below average. According to those surveyed, their confidence comes from the fact "that they are prepared for a market that increasingly requires a more complex job, produced faster, and on shorter runs."

Bill Klein, executive director of the Packaging and Label Gravure Association (PLGA), saw 2002 as being down more in dollars than in unit volume. He believes this is partly due to the impact from reverse auction bidding, which is making its impact felt throughout all segments of package printing.

Even with 2002 being a down year, Klein said that about one third of the converters he contacts had a good year, with a good portion of these posting record numbers. "These successful converters were generally more aggressive and creative," says Klein.

For 2003, Klein sees a gradual upturn with overall unit volume growing 3 to 5 percent. "A lot of converters and suppliers are noticing improved sales; very few are not seeing some evidence of an upturn," he reports.

Positive industry trends are also being seen be Terry Clark, industry consultant with Fairport, N.Y.-based Crescent Associates. She believes that the flexible packaging industry may have fared better than many markets in 2002. "I've collected no comprehensive data, but industry news and company earnings statements throughout the year convince me that the flexible packaging market outperformed the national average for all markets."

Plastic films are a major component in flexible packaging, accounting for 70 percent of the global demand for flexible packaging materials says The Freedonia Group's study. Further, it predicts that its use will steadily increase due to continuing improvements in performance and price.

But these opportunities don't mean things will be easy for film producers. Robert Poirier, president of Crescent Associates, said that many film producers had a difficult time in 2002, "with tight economic conditions and the industry in a state of flux." Consolidation is still a factor, for two reasons says Poirier. "Investors found opportunities to buy companies, apparently at prices that were attractive for future profits. … Then, there are those companies with foresight and ideas who are identifying new markets, investing in new equipment, and growing their companies."

Clark and Poirier both point to overseas manufacturing as a continuing competitive threat. It will be an issue in the flexible packaging market for the foreseeable future.

Growth areas

Klein points to several growth areas for flexible packaging: shrink tubes and wraps, retort packaging, pouches, and shelf-stable food packaging. Flexible packaging offers advantages that are in demand in many marketing efforts.

High-end, decorative shrink wraps offer marketers a means to provide an appealing point-of-sale message, even on different shaped containers. Because of the skill level required by converters to maintain accurate graphics on the container, this is an area where a few skilled converters could have dominant positions, says Klein.

It's in the food industry where many opportunities lie for flexible packaging materials, with retort packaging and pouches heading the list for growth potential. Packages designed for retort applications can withstand the sustained, higher-level temperatures required to kill bacteria in food processing. Pouches, especially stand-up pouches, are answering the call for small, convenient packaging that can improve shelf stability for longer product life.

As one example of what is coming, Klein points to current testing of flexible packaging for tuna fish, which may eventually replace the traditional metal cans. For a peek at what may be in our future, he makes the point that Japan and Europe are way ahead of the U.S. in packaging applications for shelf-stable foods.

The Freedonia Group released a study in November titled, "Pouches," in which it projects the demand for pouches in the U.S. to increase nearly seven percent each year through 2006, representing a $4.6 billion business. Overall, the food and beverage markets will account for $3.6 billion of the total pouch market in 2006.

Although flat pouches will remain the dominant configuration, stand-up pouches are projected as a high-growth area—16.6 percent per year through 2006. Stand-up pouches have increased their status in mainstream packaging because of their visual appeal, product differentiation, increased convenience, reclosability, and product freshness protection.

Key strategies

What can flexible packaging converters do in these difficult economic times to position their companies for success and to pick up some of the business in the growth areas?

Klein points to those converters that were successful last year. "Be creative and aggressive, especially with your own internal processes. Hi tech should also be high touch; get to know your customers and their processes and how you can make your customers better."

Clark says to "take a smart contrarian approach. Don't do what everyone else is doing. Sure everyone must contain or reduce costs, but challenge common thinking. If your direct competitors are holding back spending capital on new equipment, maybe it's a good time to invest in a new printing press, or make a technology upgrade on existing equipment. You may get bargain pricing and more attention from the supplier due to low demand. And you would be positioned better with quality and operating costs when the economy picks up."

Poirier says simply: innovate. "Find new business or new products, improve quality, and reduce costs. Turn your ideas into dollars."

-by Tom Polischuk

Editor-in-Chief