What’s the Next Move

In today’s packaging markets, constant change is just the starting point. Technology is moving rapidly, with flexible packaging now playing a major role—in the form of pouches, often barrier-coated—as the container of choice for many snack foods, drinks, and other consumer products. Molded packaging is a major feature on supermarket shelves, as are all rigid plastics; and metal containers are also showing growth.

Increasing awareness of the good environmental characteristics of paper-based products has led to a resurgence of interest in cartonboard as a packaging medium. In the product-decoration field, sleeving in all its forms, is growing fast.

Print technologies have also moved on, with flexo now the dominant narrow- and medium-web print technology, and digital label printing continuing to grow, and developing a broader base of market niches. Above all, the advent of RFID is creating interest throughout the packaging supply chain—particularly in the self-adhesive label world.

All these developments are happening within the context of a broader geographic playing field which, as well as creating significant opportunities worldwide, also represents a threat in many areas of the package-printing industry.

In North America for example, our recent research in the label market shows 3-4 percent overall annual growth. However, the “traditional” product decoration and identification technologies are somewhat static. Glue-applied label usage is declining at 0.5-1 percent, and self-adhesive label usage is growing at just 2-2.5 percent. The newer technologies are performing better: in-mold labeling (from its small but growing base of 2.3 percent of the market) is increasing at 4 percent per year; and the sleeving technologies as a whole are showing the highest growth, with annual rates in excess of 15 percent (shrink sleeving at 7 percent).

The influence of world-leading product manufacturers such as Procter & Gamble and global retailers like Wal-Mart is felt throughout the package-printing industry. The volumes of packaging involved in doing business with these two prime industry sectors today are at the center of their aggressive purchasing policies, which have created margin pressures throughout the packaging value chain, and show no signs of diminishing.

For FMCG (fast moving consumer goods) companies, the importance of maintaining brand identity and integrity across continents is now also a major driver of their purchasing practices. Manufacturing and packaging products from a central location for export is one way to achieve this—but the costs of exporting can be high and the logistics complex.

There are strong arguments for establishing manufacturing and packaging facilities in the developing economic regions of eastern Europe, China, India, or South America, where labor costs are lower, production can be oriented to the local market, and import tariffs and transport costs avoided. Packaging industry suppliers—paper, board, film, label substrates—are already establishing a supply base in these new markets, and many of them offer the globally-available products that enable brand owners to protect the consistency of their brand image throughout the world.

For the world’s retailing giants, there are two product pathways: branded and private label goods. The long print runs represented by the high-volume, relatively low-cost private brands are attractive volume business for the packaging industry. Where retail groups are expanding into developing markets, it is likely that local sources of printed packaging for their own brands will be found to keep costs down. Suppliers in the company’s home country will be unlikely to benefit from such market growth.

In fact, as we are already seeing—particularly in China and other parts of Southeast Asia—local entrepreneurs are already replicating the capabilities of their western counterparts in the packaging-print market. Locally-manufactured printing presses, packaging substrates, inks, and other ancillaries are already being used—at prices which render the products from developed markets often uncompetitive. Indeed, there is evidence 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.

Exciting opportunities

Product security, track-and-trace functionalities, and other “intelligent” packaging are three such niche markets where there is considerable activity in the packaging industry. Active packaging such as time/temperature indicators, the emerging field of nanotechnology, and an improved and much broader range of barrier coatings are attracting interest from packaging buyers.

The newly-established Brand Protection Alliance (www.brandprotectionalliance.org) has brought together a significant proportion of the professional packaging industry suppliers in this sector to create an advisory and information source for buyers throughout the world. With much of the world victim to product forgery and substitution, packaging remains a perfect medium for authentication and tamper evidence.

Still to be fully commercialized in the retail world, RFID—the electronic barcode—nevertheless remains at the forefront of a whole new technology base. Presently relying on a self-adhesive label laminate as a carrier, RFID is illustrating to retailers ways in which they can not only manage their purchasing, their inventory, and theft, but also how they can expand, almost infinitely, their customer knowledge base. With the power of such retailers as Wal-Mart in the U.S. and Tesco and Metro in Europe behind it, RFID and other track-and-trace systems are certainly here to stay.

Flexible packaging—particularly barrier-coated, unsupported film—is the driver in the packaging industry today. Its many forms, such as portion packs, drinks, snacks “to go” and ready meals, are taking greater market share, both for children’s needs and for the increasing “grey” population. Sachets and pouches, direct-printed, are replacing traditional rigid and semi-rigid containers which would have carried a traditional label in the past—changing the market profile yet again. Mature markets such as North America, Europe, and Japan are embracing flexible packaging more slowly than emerging economies, where the lack of an installed base of packaging equipment makes it easier to take a technology jump to flexibles.

Environmental impact

The pressures of the global-warming debate continue to affect the packaging world. Waste management and recycling are taking on more importance—particularly for such items as PET bottles and other petrochemical-reliant packaging. Paper-based products are finding new markets—especially in combination with today’s advanced barrier coatings—for packaging liquid foods and detergents.

With secondary packaging now considered undesirable, and a move towards lower-gauge films and lower-caliper papers and boards, the overall volumes in the packaging industry are threatened. To achieve cost savings, to be environmentally-responsible, and to please environmentally-aware consumers, brand owners and retailers are increasingly working with waste management groups to minimize packaging and packaging waste. The “new kid on the block,” grain-based bio-packaging film, is yet in its infancy, but could herald a major shift in packaging substrate technology for the future.

Spiraling energy costs

While the world of package printing has been in a phase of active change in the last year, one factor has affected it more than any other: the high cost of oil. Films and plastic substrates, inks, adhesives, and many other items that are involved in the package-printing world, as well as shipping and transportation, have all seen cost increases that show no signs of receding. Upwardly-spiraling costs for the production of materials and for printing or otherwise decorating them, have negatively affected the profitability of the whole packaging industry, particularly as the demand side of the value chain continues to be reluctant to accept price increases in the face of an intensely-competitive business environment.

Consolidation within the various levels of the value chain is essential if the package-printing industry is to remain healthy. While this has already taken place among suppliers, converters still remain a fragmented base of mainly small- to medium-sized enterprises that need to achieve economies of scale, either through formal mergers or through business partnerships with other players.

As the world gets smaller, the package-printing industry needs to reinvent itself, not only to fight the threat to existing business from developing markets, but also to be strong enough to take advantage of the many new opportunities that the smaller, more accessible, world represents. n

Corey Reardon is president and CEO of AWA Alexander Watson Associates, a global market research and consulting company with a focus on the specialty packaging, coating, and converting industries.