Is the Packaging Sector Unraveling?

The global consumer packaging market (paper and board products and rigid plastics) is currently worth an estimated $400 billion.1 But it is an industry under pressure.

Read Upside - Autumn 2018

Consumer spending, raw material inflation, the drive to reduce waste and even the impacts of product innovation and supply chain management are adding to a complex picture for the consumer packaging sector.

Consumers tend to have a love-hate relationship with packaging. While they recognize its importance in protecting goods as well as the information provided on some consumer packaging, consumers are increasingly concerned about its implied cost and environmental impact when packaging is regarded as unnecessarily excessive or wasteful.

Similarly, the UK government amongst many are also taking an increasing interest in the environmental aspects of packaging, seeking to curb waste and increase recovery and recycling rates.2

The health of the packaging industry is inextricably linked to that of the world economy. However, reliant upon upstream industries for their raw materials, packaging converters must cope with fluctuations in raw material prices, dependent upon levels of supply and demand.

In a climate of low overall inflation, rising prices for raw materials has added pressure on some converters. Brand owners and retailers alike are also exerting downward pressure on prices, which are exacerbated by moves toward consolidation at all levels of the supply chain.

In addition, packaging buyers moving toward central purchasing has also affected margins. The growing use of e-commerce and reverse auctions has made the entire materials-sourcing business (especially in commodity areas) much simpler, promoting cost efficiency for users of consumables.

What will these trends mean for businesses in this space? As pressure from environmental regulations, demographic changes and developments in e-commerce increases, we may see an increase in the rate of consolidations and mergers, as well as failures. Packaging converters must make use of the latest business stabilization strategies to aid their survival through this realignment of the industry, including accurate forecasting and financial modelling, options analysis, stakeholder management, sensitivity analysis and stress tests.

Sources:
1. https://www.omicsonline.org/conferences-list/food-packaging-industry-scenario-in-italy
2..https://www.theguardian.com/environment/2018/apr/14/government-sets-aside-fund-to-fight-plastic-waste-oceans

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