Study outlines impact of economic crisis on packaging industry
Return of discretionary spending on the horizon?
Private labels gain prestige with consumers

Study outlines impact of economic crisis on packaging industry

After converters reported sales declines of nearly 20%, one report outlines the road ahead for packaging producers.

According to survey, U.S. and European packaging sales plummeted to record lows in the final quarter of 2008, with most manufacturers reporting sales declines of up to 20%. The survey also indicated that packaging producers are projecting a continuing negative trend throughout the first half of 2009, but at a gentler decline than was previously experienced: Most North American and European companies are projecting negative growth of below -2% and -5%.

Likewise, Asian packaging sales also dipped, but only at an average of -5.6%. The decline reverses that region’s recent high growth rates back to pre-2006 levels and suggests that most developing Asian countries will not dip into recession during this current economic crisis. The report’s publisher, Stuart Hoggard, suggests that there are two different, yet simultaneous economic crises afoot.

“The profile of the Asian crisis is altogether different from the West’s experience,” says Hoggard. “Asia is suffering a crisis of market collapse rather than a shutdown of financial and credit systems.”

Most companies participating in the survey expect flat employee counts throughout 2009 and 2010, but a significant number will be slashing staff, mostly by about 5%, but as high as 40% or more. A small proportion of companies surveyed plan on hiring in 2009, growth that is confined mainly to Asia.

As is to be expected in such economic doldrums, more than half of all packaging producers reported a capital expenditure freeze and have no investment plans through 2010. Of those that have 2009 capital expenditure plans, only 10% have budgeted more than $2 million. For those that are taking the opportunity to make capital investments, the report indicates that converting equipment tops converters’ shopping lists, followed by printing presses (digital, offset, flexo and gravure).

Return of discretionary spending on the horizon?

Survey suggests pent up demand may gradually push consumers to start spending again in the neat future.

Consumers-clinging to mantras of restraint, savings and fiscal responsibility-may indulge once again in the near future says arecent Nielsen report. The return to discretionary spending may not conjure up images of dams bursting, but may instead resemble a steady trickle as an economic recovery gains ground.

In the survey-conducted in April-56% of consumers said they were spending less on new clothes. However, only 22% said they would continue to do so with an economic recovery predicted by year’s end. Further, 53% of respondents had cut down on out-of-home entertainment and still only 20% anticipate continuing this behavior. Finally, while 45% of those surveyed shied away from take-away meals, only 24% plan on avoiding these more expensive meals moving forward.

Still, consumers clearly indicated that they wouldn’t forget all of their new-found habits, including moderation and even green lifestyles, any time soon. More than half of respondents (51%) said they made efforts to conserve gas and electricity in April; 40% of consumers said they would continue to keep an eye on such services.

Private labels gain prestige with consumers

Once considered bland and of low quality, consumers now believe private-label brands are unique and lower only in price than national brands.

The proliferation of high-quality, store-brand products has shifted consumer perceptions of private-label brands, according to aJ.D. Power and Associates Private Label Industry Report. In particular, consumer attitudes about many store brands have shifted: Rather than being considered low-quality products in plain packaging, private-label brands have gained a new status, now considered unique and having the same quality that consumers expect from traditional brands. While the report found that quality and flavor of private-label products drive the highest sentiment, consumer trends indicate private-label pricing and packaging also motivate a consumer’s purchase.

“It’s clear that consumers have begun to discard the idea that private-label brands are of lower quality than traditional brands, which provides an opportunity for retailers to differentiate themselves with high-quality, reasonably priced store brands,” says Janet Eden-Harris, vice president of J.D. Power and Associates’ Web Intelligence Div.

The report indicated that sentiment for non-food private-label products-including diapers, paper products and cleaning supplies-is not as high as that of food products, suggesting that consumers view these products as commodities and buy them purely for their lower cost rather than as a preferred, quality brand.

“While retailers continue to gain ground with their private-label products, there is still enormous opportunity for consumer packaged goods manufacturers,” says Eden-Harris. “Innovation is still a big growth driver, and [consumer packaged goods] companies still lead in that regard. New and differentiated products that are priced to value will win market share.”

Chemical Market Associates Inc.
DeWitt & Co. Inc.
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