Snapshot: The Market For Packaging Buyers 2011

3 August 2011 (Last Updated August 3rd, 2011 18:30)

The outlook from buyers within the packaging industry is optimistic, with growth expected in almost every area. In this first segment of our Packaging Market Snapshot for 2011, Packaging Gateway draws on detailed market data to map the prospects for packaging buyers in 2011.

Snapshot: The Market For Packaging Buyers 2011

The outlook for buyers within the packaging industry for 2011 is primarily positive, according to an extensive online survey conducted by ICD Research during March 2011.

The report 'global packaging industry outlook survey 2011-2012: industry dynamics, market trends and opportunities, buyer spend and procurement strategies' reveals that 59% of respondents across the packaging industry are more optimistic about revenue growth for their company over the next 12 months into 2012, than the previous 12 months.

Reasons behind this trend include strong growth in emerging markets such as India and China, decreased global economic uncertainty, a rise in sales innovation, increasing production and process efficiency.

Flexible packaging is expected to be one of the fastest growing sectors of packaging, driven by industry consolidation and sustainability initiatives.

In addition, technological developments such as improved recycling techniques and the development of compostable packaging materials have helped increase the profitability expectations of industry respondents.

Packaging companies plan to expand, improve operational efficiency, and introduce new products and services for 2011

"The outlook for buyers within the packaging industry for 2011 is primarily positive."

The top three future development expectations for packaging companies include expansion in current markets, the improvement of operational efficiency, and the introduction of new products and services, as expressed by 74%, 71% and 68% of buyer respondents respectively.

Companies are looking to increase their product lines and expand facilities in their present locations.

For example, Borealis, which provides chemical and innovative plastics solutions, introduced a new packaging film, BorShape, in 2010.

Key innovative packaging solutions planned for introduction across the industry in 2011 include:

  • Easy-peel packaging (Sealution peel polymers from Dow)
  • Easy-open aseptic cartons
  • Protective packaging (honeycomb)
  • Steam valve for easy dispersion of various product types
  • Adhesives (Technomelt SupraCool adhesives from Henkel)
  • Shrink sleeves

Mergers and acquisitions in the packaging industry expected to increase in 2011

Executives from packaging buyer companies expect increased levels of consolidation over the next 12 months into 2012, with 49% of respondents predicting at least some increase.

Due to margin pressure and high raw material costs influenced by rises in international oil prices, companies are switching to inorganic growth.

The reduction of operating expenses or costs is another major driver behind merger and acquisition activity.

The US, Germany, Singapore, China, South Korea and India emerge as top five growth regions

The top five growth regions in the packaging industry are the US, Germany, Singapore, China, South Korea and India.

"59% of respondents across the packaging industry are more optimistic about revenue growth for their company."

The stringent regulations enforced by the US government over the food and beverage sector have forced packaging suppliers to invest in research and development (R&D).

Meanwhile, the strong demand for packaging materials for disposable beverage bottles has driven the market in Germany.

Furthermore, increased domestic and regional consumption, driven by strong economic growth, in the Asia-Pacific region has increased the demand for packaging in countries such as Singapore, while buyers and suppliers consider India and China to be the two most important markets for potential growth.

Raw material prices, pricing pressures and cost containment remain leading concerns

Raw material prices, pricing pressures and cost containment are the most pressing immediate business concerns for the global packaging industry. This is largely due to recent volatility in the petroleum market, which has pushed up operational costs.

Companies are therefore taking various measures to contain costs, including investment in sophisticated technologies, such as robotics, to increase efficiency.

Buyers expect reasonable prices, innovative products and improved customer service from suppliers

Buyers consider price reductions and product innovation to be the leading actions for suppliers to secure business from buyers, as expressed by 51% of respondents.

Improving customer service and the reduction of costs are also given high importance by buyers, with 45% of respondents giving a positive response to each factor.

Suppliers can also invest in R&D and develop unique IT solutions to enable buyers to optimize their processes and reduce costs. One such example is the development of a cost optimization packaging system (COPS) by the Singapore Institute of Standards and Industrial Research (SISIR's) packaging centre that will help buyer companies to minimize their distribution costs by optimizing the use of space and packaging materials and rationalizing logistical costs.

Average annual procurement budget of buyers increases to US$94 million

The average size of the global annual procurement budget for packaging buyer respondents is estimated at US$94 million for 2011. In particular, annual budgets in the range of US$1-US$10 million and US$50- US$500 million have increased substantially.

At present, companies are looking to add value to their packaging as an effective strategy in today's highly competitive industry. ICD Research's industry survey revealed that, on average, buyer budgets are expected to rise by 9% over the next 12 months, while 55% of respondents expect their budget to increase by between 5% and 25%.

Quality, price and level of service are critical factors for supplier selection

Quality, price and level of service are considered to be the most important factors for supplier selection by buyers in the packaging industry, while the proximity of supplier operations, a supplier's environmental record and a supplier's corporate social responsibility (CSR) reputation are considered least important.

The top three future procurement priorities for buyers are internal operating cost reductions, locating lower cost sources of supply and pursuing joint cost reduction efforts with selected suppliers.

While 32% of buyer respondents expressed their intention to either implement and or exercise limited deployment of e-procurement initiatives, 15% are in the process of evaluation or pilot use of the process.

Notably, 41% of respondents are either unsure or have no intention to implement the new process.

Merger and acquisition activity expectations by buyers

"Flexible packaging is expected to be one of the fastest growing sectors of packaging."

Executives from packaging buyer companies expect increased levels of consolidation in their industry over the next 12 months going into 2012, with 49% of respondents predicting either a significant increase or an increase in M&A activity.

High raw material costs, resulting from a consistent rise in international oil prices, exerts pressure on bottom-line performances and acts as a stimulus to switch to inorganic growth, such as through industry consolidations.

A rise in consolidation expectations among buyer companies may suggest an associated rise in bargaining power, changes to existing contracts with suppliers, and a potential need to meet new compliance procedures or work more closely with leading suppliers.

Attempts to reduce operational costs and increase organizational efficiencies are also major factors in the rise in consolidation expectations. For instance, Gerresheimer acquired the Brazilian pharmaceutical plastic packaging maker Vedat to strengthen its position in the South American market.

Another example is the acquisition of a packaging and manufacturing plant in the US by Daiichi Sankyo, a Japanese pharmaceuticals company. The acquired facility will provide packaging solutions for a number of marketed products in the Daiichi Sankyo portfolio.

Leading business concerns for 2011

Of all the challenges packaging industry executives will face over the coming years, raw material prices, responding to pricing pressures and cost containments, are the most immediate business concerns.

While 63% of packaging companies rated raw material prices as an important business concern during 2009-2010, 54% said responding to pricing pressure was an important concern, making these actions the first and second most important concerns respectively.

As raw material prices have remained the leading business challenge, many companies are seeking innovative solutions, including switching to cheap and renewable sources such as paperboard.

For example, Flint Group of Europe focused on reducing the price of its packaging inks when an acute shortage of key raw materials and a steady base chemical cost increase, due to crude oil prices, increased the price of its usual operations. Packaging converters source a large amount of raw materials from upstream.

To purchase the full version of Packaging Industry Outlook Survey 2011-2012: Industry Dynamics, Market Trends and Opportunities, Buyer Spend and Procurement Strategies, please click here.

iCD Research is a full-service market research consultancy providing both online and offline research capabilities. Our areas of expertise include online research, qualitative and quantitative research, custom approaches, and actionable insights. Our capabilities provide a one-stop research and analysis service with full-spectrum consulting, from problem recognition and conducting fieldwork to the delivery of strategic recommendations. We deliver our expertise across a broad range of industry sectors and product lifecycle areas. From product innovation to brand management and CRM, we offer full service research and analysis that drives loyalty and lifetime value.