As we covered in our annual Executive Forecast for 2022, the pandemic may not be at the forefront of everyone’s minds directly, but its ripple effects are still spreading outward. Those ripples are impacting the current state of the industry. This year, we’re sharing which six areas we see having the greatest impact on flexible packaging. While we’re breaking these out into categories, many of them are so intertwined that they influence each other and it’s hard to separate them. That said, e-commerce, supply chain, employment/staffing, mergers and acquisitions, food packaging, and sustainability are what we’ll be focusing on. Much has already been written on each one of these, so we’re breaking out key points within each segment.
E-commerce leads us off since it seems to have the greatest downhill impact on the other categories. In one of our recent articles on the subject, L.E.K. Consulting notes that 56% of brand owners have “increased their spending on e-commerce packaging relative to regular formats.”
“Players in the packaging industry that are able to work with sustainable materials without sacrificing performance — or design packages that reduce weight but still provide robust product protection for e-commerce — will find themselves with a unique competitive advantage,” says Thilo Henkes, L.E.K. Managing Director and co-author of the 2021 Brand Owner Packaging Study.
PMMI’s senior director of media and industry communications, Sean Riley, says that the key to taking advantage of e-commerce’s emergence is to understand that the packaging must fulfill a different need since the e-commerce shopping experience is different from in-store experiences. “Unlike conventional retail, where consumers hold a product as part of the purchase decision process,” Riley says, “online consumers only experience a physical product after it arrives at their homes. The product must meet the expectation of the consumer that they formed from viewing the product online.”
He adds that implementing these changes often means using new machinery, “Given the amount of ongoing change, machine flexibility is key, with rapid changeover times and machines that are future-proofed to handle new materials is an absolute must.”
Everything that has stemmed from e-commerce directly affects the supply chain. As stated earlier, companies are rethinking their machinery to maximize flexibility to meet the demand. That focus on operations is leading to greater consideration for integrations and other automated tools, according to Steve Shebuski, VP of Digital Strategy at Blue Horseshoe. It also means that new solutions are coming that will challenge traditional warehouse automation.
“Automation is a path toward stability and predictability, especially as it relates to addressing throughput needs for warehousing and distribution center operators,” Shebuski says. “The issue, however, is that many industry leaders are not prepared to make seven-figure-plus investments to automate existing operations. In the next few years, traditional automation designs that rely on technologies, such as conveyance, will be challenged by increasingly flexible solutions and vendors that offer subscription-based services, such as RaaS (Robots as a Service). This category of services will allow for less capital upfront and more flexibility to respond to new Omni-Channel designs and ever-evolving customer needs.”
“In regards to inks, the supply chain began having problems related to ocean freight in 2019, and it will likely remain an issue through this year and beyond,” says John Hrdlick, president and CEO of INX International Ink Co. “Overland freight has also been impacted and the causes are not easily overcome in either area. The raw material supply chain has been an issue since early 2021, and we also see that remaining a concern through 2022. Even though some improvement has surfaced, it seems that every product line has some key raw materials where the supply remains unstable. Supply chain issues have directly impacted our ability to maintain consistent delivery of products to our customers, and we have incurred significant costs to mitigate the problems as much as possible.”
Employment / Staffing
Questions about sustainability, with the packaging itself as well as with a company’s operations, are important to consider when it comes to e-commerce and supply chains. That will be addressed later since the concept of automation is more directly tied to employment and staffing. Shebuski says that improving technology and warehouse accessibility will help retain workforces.
“Warehouse work, particularly work that requires miles of walking each day, is demanding and can be physically exhausting for the average employee,” Shebuski says. “Industry leaders must help their workforce engage in ways that aren’t as physically demanding, including automation and robotics. By doing so, organizations will better retain their workforce, expand the available pool of talent and make it more attractive to those who have never performed physically demanding tasks before. In 2022, new and advanced technology must evolve around and for employees in order to expand available workforce, allow employees to more effectively contribute to the bottom line and incentivize them to stay.”
Craig Souser, president and CEO of robotic solution provider JLS, says his customers are having challenges staffing their lines, including their automated ones, which is driving up machinery orders. “Automation is growing on all aspects/elements of the packaging line, but the largest growth has been on primary handling,” he says. “These are historically more technically challenging and considerably higher investments, but they also save a significant amount of labor where the cost and availability of that labor is problematic.”
“Maintaining full employment in our facilities, mainly in manufacturing, has been a growing problem for five years and the impacts of the pandemic have greatly increased the concerns,” says Hrdlick. “We compete with every manufacturing industry to fill open positions and it has become increasingly difficult to retain manufacturing workers. Our benefits package has always been very good, but over the past few years our starting wages for manufacturing have increased significantly just to remain competitive. Our human resources group and facility managers have become very creative in their efforts to recruit workers.”
Not all companies are seeing terribly unusual labor issues, though. Kevin Mauger, president of SideDrive Conveyor Co., says that while a combination of illnesses and close-contact events have contributed to keeping people away, “It is generally hard filling roles for highly skilled or highly experienced personnel, but this is not a new phenomenon.”
When it comes to automation, though, “We’ve seen a tremendous amount of attention paid to both shorter order runs and multi-pack type projects,” says Mauger. “It seems our customer’s customers want bespoke orders rather than larger batches. Food producers are being asked to customize orders instead of simply shipping massive batches. This has always existed, but seems to be growing in prevalence.”
According to Lauren Dunford, co-founder and CEO of factory optimization provider Guidewheel, “Labor constraints aren’t going away any time soon. Technology can enable plants to get ahead by freeing workers from tasks that add less value to focus their time instead on boosting efficiency and profitability. Increasingly, cloud-based factory operations, or FactoryOps, will help companies adjust to the new normal of bringing both the best of workers and the best of machines to reach peak performance.”
Mergers / Acquisitions
APR Acquires JVI Solutions, Berlin Packaging Acquires Premi S.p.A, AWT Labels & Packaging, Inc. Acquires MacArthur Corporation, MULTIVAC Acquires TVI Holdings, Sun Chemical Acquires SAPICI, Ranpak Acquires Recycold Cool Solutions BV — each one of these headlines were announced between December 2021 and January 2022, and they’re only a drop in the bucket compared to that happened in the past year. The knee-jerk reaction might be to rationalize that business hardships caused by COVID were behind all of the packaging industry mergers and acquisitions (M&A), but while that may have happened in some instances, that’s not necessarily the case overall.
M&A in the packaging space has been rapid for more than 20 years, according to Blaige & Company, an investment banking firm concentrated on plastics, packaging and chemicals. Blaige & Company completed last year a detailed analysis on activity in plastics, packaging and chemicals from 2001 to 2021. The firm found that activity more than doubled in the past 20 years total, and that the packaging subsegment has tripled during that time. The driving force behind all of the activity? Strategy. The firm reports that in 2020, 76% of all plastics M&A deals were strategically motivated.
This video of a panel discussion posted by the Contract Packaging Association on growth strategies after COVID sheds further insight into what’s already happened and what some possibilities are moving forward: https://www.youtube.com/watch?v=igEVDeCml2Q
Of course, this is all just one look at a report that has far more data than can be shared here. Suffice to say, however, mergers and acquisitions have been and will continue to be a big part of the packaging industry moving forward.
It shouldn’t come as any surprise that food packaging is shaping flexible packaging since this segment is a natural fit for flexibles. But an action plan announced by the White House earlier this year for “A Fairer, More competitive, and More Resilient Meat and Poultry Supply Chain” could offer a boost.
The idea behind the plan is to create a more competitive, fair, resilient meat and poultry sector with better earnings for producers and more choices and affordable prices for consumers. The four main tenements of the plan expects to:
- Dedicate $1 billion to expand independent processing.
- Strengthen rules that protect producers.
- Increase transparency for fairer prices.
And, no, the plan itself doesn’t necessarily directly address packagers, but the idea is that expanding capacity for independent producers will shift production away from the four largest producers of beef, poultry and pork. This will, in turn, mean more producers looking to have their products packaged, which would provide more opportunities for packagers.
Where so much begins with e-commerce, everything seems to come back to sustainability. “(T)he pandemic has accelerated the move to more sustainable packaging choices for e-commerce,” says PMMI’s Riley.
As we’ve reported before, sustainability is very important to consumers who are willing to pay more for sustainable products, especially younger generations. Flexible packaging is inherently better at offsetting energy consumption in its creation, and especially with e-commerce and the associated energy use for transportation.
A recent report by The Sustainability Consortium (TSC), “THESIS Industry Insights: Performance by Company Size,” shows that company size is not a determining factor in improving the sustainability and transparency of consumer goods supply chains.
Jessica Ginger, TSC senior director at THESIS Impact, says, "Through our THESIS data, we are pleased to see that small-to-medium enterprises are making the same, if not better, improvements than large companies. We now know that dedicating at least one person to integrating sustainability practices into the business, no matter the size, significant improvements in supply chain sustainability is feasible.”
TSC’s report found that there are differences in how small-to-medium enterprises (SME) deal with implementing sustainability as compared to their larger counterparts, with advantages and disadvantages for each. What is critically important, however, is a dedicated sustainability staff. According to the report, around 25% of companies that had no sustainability staff reported they had made changes in sustainable product or packaging design, while more than 40% companies with sustainability staff reported they had done the same.
In an effort to help brands deliver more sustainable packaging, The Pack Green Coalition was formed.
The primary initiative of Pack Green is to replace unnecessary single-use plastic from supply chains, and focus on renewable and more sustainable alternatives, including paper and other biobased solutions, with an emphasis on protective packaging and other short-term uses, such as food service items.
“Consumers are more sensitive than ever to the impact of their purchasing choices on the environment, and the launch of Pack Green is a crucial step to meet consumers’ desire for a more sustainable option to plastics,” says James Asali, Pack Green’s president and chief executive officer.
The organization aims to raise awareness with consumers, retailers, brands and policymakers, and then to bring solutions to the single-use plastics crisis. “Last year in the U.S. alone, consumers received more than 20 billion packages,” says Asali. “Many of those packages contained unnecessary single-use plastic products — air pillows, bubble wrap or Styrofoam — that can be easily replaced by renewable paper packaging. Whether it’s packaging, food service, or countless other single-use applications, there are solutions that exist today to reduce single-use plastic waste.”
While there are all sorts of varying forces pushing and pulling the flexible packaging industry, the six aforementioned items are currently having the greatest impact. Yes, we could have included more legislation and more specific government legislation taking place on this list, but the root of most legislation involving packaging is sustainability. That’s not to say legislation will always be focused on sustainability or that it can’t pivot to force other changes in the industry. For now, though, sustainability is the driving force behind the legislation.