Finding Your Niche Equals Success

The state of the folding carton industry is hard to pin down. Walking up and down the supermarket aisles reveals no shortage of folding carton containers. But as we all know, there’s far more to the folding carton market than just food packaging. The majority of large consumer electronics items come in corrugated or paperboard packaging. These items, however, are often manufactured in foreign countries, and are therefore packaged there as well. So the North American folding carton market takes a hit. Couple this reality with changes in the supply chain, and some might consider the North American folding carton market in difficult straits. The answer, though, according to some, is to find your niche market and focus on it; stay away from consumer electronics packaging if that’s hurting you.

To some converters, the threat of offshoring manufacturing and packaging to China is of the greatest importance, while to others, consolidation is. Still others find supply chain issues as the most significant problems for converters in America. The northwest North American mills that used to sell paperboard to the Middle East now face stiff competition from China, and in some cases are going out of business. The paperboard industry in general could be in for difficult times, but there’s no reason to fear just yet.

Folding carton market

There are a variety of indicators that measure the health of the folding carton market, including supply chain costs, markets using folding cartons, threats from alternative packaging options, consolidation, and so on.

According to The Freedonia Group study titled, Paper Versus Plastic in Packaging, paper packaging is expected to post marginal advances or continue to decline in most competitive markets through 2010 due to inroads from plastic. That said, the study predicts above-average opportunities in food service, dairy, and soy milk applications, with organic milk as a growth niche. The study states, “While most dairy applications for paper are mature, heightened demand for ice cream novelties, especially reduced-fat and bite-sized varieties, will support folding carton opportunities. Solid prospects for paper in soy beverage packaging will result from the ongoing movement of soy beverages into the mainstream marketplace and the general preference for paperboard containers in promoting a natural image.”

During February’s Packaging and Label Gravure Association Global (PLGA Global) Tenth Annual Operational Conference, Michael Nowak, president, Coating Excellence International, stated that the North American paperboard market is being impacted by globalization. Northwest mills have lost their position in the Far East, resulting in many mills shutting down during the past ten years. According to Nowak, paper growth has gone to the Far East. China and India are the fastest growing markets for paper demand. China is expected to have the most advanced paper making machinery, with paper mills producing 100 million tons and exporting 50-60 percent of their total output. Nowak stated that the U.S. is set to see massive imports, with the North American paper market becoming less competitive. “U.S. converters will need to start looking at foreign suppliers to stay competitive,” he says.

The folding carton market itself has experienced a 1 to 2 percent annual growth during the last twenty years, according to Tony Corsillo, manager, new business development, folding cartons, Cascades Boxboard Group. “I think folding cartons have always [experienced] stable growth. The entire industry has only had a 1 to 2 percent [annual] growth over the last 20 years if memory serves me,” he says. “I don’t think that has changed nor will it change in the years ahead, not by a significant amount.” Corsillo points to the dips and dives that have always existed in the market, and that any dip has never been more than a percentage point.

According to Ben Graham, vice president of finance, sales, and supply chain, Bell, Inc., growth has been stagnant in the folding carton market specifically because of that 1 to 2 percent growth. “It’s stagnant as it compares to inflation. It’s about a 2 percent growth industry, so obviously it’s not growing,” he says. If you are growing, it’s probably at the expense of another converter. Graham states, “Obviously there are only so many end users out there … and you don’t see a lot of new entrants, new innovation, or new designs to grow our industry. So if you’re out there getting new business and you’re growing, chances are you’re taking it from someone else.”

Ben Markens, managing partner of The Markens Group states that growth in the folding carton market is spotty. “Some people are having really great, banner years, and some people are not doing as well as they had in previous years,” he says. Markens attributes this disparity to converters not having the right strategy and niche, plus a sales force that can execute.

Challenges

In addition to some of the challenges already mentioned, consolidation and sustainability impact the market.

To Markens, consolidation isn’t going to go away, and in fact, it’s the companies that “nibble around the edges” that are successful. “Ten years ago, the top 10 players had [about] 40 percent of the market. Now, five players have the top 60 percent of the market,” he says. “So the large companies have become a significantly larger portion of the market. They have a fair amount of sway. That’s why the people who are successful are the [ones] who are nibbling around the edges. You don’t want to tug on Superman’s cape.”

The inevitability of consolidation results from the cost of doing business. “In order for you to be successful, you have to find a way to drive costs out of your organization. One way to drive costs out is to get bigger.” Graham states, “We’ve seen some consolidation. I think we’re going to see a lot more. I think there’s a place in the industry for large independents who can source paperboard in a global marketplace.”

Sustainability’s impact has been largely due to marketing, or lack thereof. “I think plastic has done a pretty good job until today getting out in front of folding cartons by convincing people that ‘plastic saves lives’ and the folding carton guys cut down trees,” says Markens. “We plant trees to make our boxes. It’s a totally renewable resource. Plastic is from oil by-products and it’s not always recyclable.” Markens sees folding carton market doing a better job of marketing itself on the sustainabilty issue and hopes that the industry “stays out ahead to convince the Wal-Marts and other retailers that plastic is not a better alternative to folding cartons.”

Corsillo adds that consumers openly share their frustrations about how bad “clamshell” packaging is, yet the packagers still haven’t switched from plastic to paper. “We’re celebrating using cheaper, thinner plastics instead of saying why does that have to be in a clamshell? And they’re going to say security reasons. There are paper alternatives that are just as safe and secure where pilfering won’t become an issue or theft won’t become an issue,” he says. From a folding carton standpoint, Cascades tries to show the benefits of folding cartons. But, according to Corsillo, there’s always some major reason for them to move to plastic. It’s not always clear to him why, but he states it’s usually marketing. “Until consumers and the industry understand that there are certain assumptions that are wrong, that’s going to continue happening.”

Strategize, reinvest, define your niche

The key to survival in the folding carton market at this stage is to strategize and define your niche. “The people who are doing better are people who recognize that they sell solutions, and by solutions I mean bundles of services that people want to buy,” says Markens. In addition, “they have a very specific, well-niched business where they understand the market and rigorously adhere to [what they’re really good at.]” Graham concurs. “We have clearly defined our market niche in being able to be competitive. We’ve clearly differentiated ourselves against the competition,” he says. And that, he states, has allowed Bell, Inc. to grow with the types of growth it is seeing. “Having a strict niche is the way to go, and that’s where we’ve been successful,” he adds.

Markens contends that companies must establish and communicate a strategy. “If our strategy is to double the size of the company, or our strategy is to become the most well-known carton company in the country, we need to actually articulate that, and then we need to tell people what we’re doing,” he says.

It’s also important to embrace new technology. According to Corsillo, North America hasn’t done enough to upgrade equipment during the past ten years. “We’re just starting to, and only some of the players are doing it,” he says. pP

Resources

The Freedonia Group www.freedoniagroup.com
The Markens Group www.markens.com
Bell, Inc. www.bell-inc.com
Bert-C www.bertco.com
Cascades www.cascades.com