Latin America looking up

5 September 2005 (Last Updated September 5th, 2005 18:30)

With much of Latin America showing signs of recovery from a period of uncertainty, Peta Conn, head of consumer packaging research at Euromonitor International, runs through the findings of in-depth research on the region's packaging industry.

Whilst growth rates have lagged behind the more dynamic counterparts of Eastern Europe and China, the performance of consumer packaging in Latin America has been strong. According to the latest research from global market analyst Euromonitor International, total consumption of packaging grew by almost 14 per cent between 1998 and 2004, led by a shift to smaller sizes and solid consumer demand in Mexico, Brazil and Chile.

An improved economic performance in the region, compounded by an increasingly sophisticated consumer, has shaped the direction of the packaging market, resulting in the emergence of higher quality packaging, offering convenience and visual appeal.

Mexico underpins growth

Leading growth in the region is Mexico, where average annual growth rates for consumer goods packaging stood at almost 4 per cent between 1998 and 2004. The rise in sales and a shift away from unpackaged products has boosted packaging consumption.

Deregulation of the Mexican market and free trade agreements with the USA, Canada, South American countries, the EU and Israel has transformed the retail landscape from the protected marketplace of the 1980s to a competitive one in the late 1990s. The North America Free Trade Agreement (NAFTA) is now in its last phase and will be concluded in 2008, with the opening of markets for agricultural products that include products like corn, beans, orange juice and powdered milk.

Brazil and Venezuela

Euromonitor International's research shows that the Brazilian market was marked by a mixed performance between 1998 and 2004, with economic uncertainty impacting on consumer demand levels. Key growth areas in the market were folding and liquid cartons. The substantial growth in folding cartons can be attributed to greater demand for convenient snacks and easy-to-prepare foods.

As a result, folding cartons expanded in line with the rise in consumption of sweet and savoury biscuits, ready meals, frozen processed food, and dried processed food. Gains in liquid cartons were based on a strong performance of brick liquid cartons. Demand for long life UHT milk skyrocketed between 1998 and 2004, as retail prices competed with those of fresh milk, allowing consumers to take advantage of UHT's longer shelf life without incurring a greater cost. This demand surge benefited brick liquid cartons, as the sole pack type for UHT milk in Brazil.

In Venezuela, despite registering some degree of recovery in 2004, consumer demand levels in key categories such as confectionery and dairy products remain below those in 1998, resulting in a negative performance for the 1998-2004 period.

Packaging shirks Argentine crisis

In spite of economic crisis during the early 1990s, the Argentinean packaging industry remains one of the most dynamic industries in the country. This can be explained by the fact that packaging manufacturers developed creative solutions to minimise further losses and adapt to the current situation. A key strategy employed by manufacturers has been the introduction of smaller sizes for products such as yoghurt and half-litre bottles of oil and milk.

New pack types are also stimulating interest in the industry, and unusually in foods, folding cartons are gaining ground at the expense of flexible packaging in impulse ice cream and chocolate.

Lightweight and durable

Amid a mixed economic performance throughout the region, the increased use of flexible packaging materials is a trend Euromonitor International has observed not only in Argentina but also in other Latin American countries like Brazil. Flexible materials have reduced production/transportation costs and proved to be more convenient not only to manufacturers but consumers as well, through its light weight, easy handling, transportation and storage.

Although penetration levels are still low, pouches are also making inroads into the market in Latin America, available for a wide range of products, including sauces and condiments, cereals, biscuits and sweet spreads.

PET drives growth in rigid plastic

Rigid plastic packaging also posted a dynamic performance between 1998 and 2004, underpinned by gains made by PET bottles in soft drinks particularly carbonates and bottled water. Dynamism in yoghurt has also elevated demand for thin wall containers further, benefiting the rigid plastic industry, whilst the nascent fermented dairy drinks segment with brands Yakult and Actimel has driven up sales of smaller size plastic bottles.

Surprisingly, since Mexico is one of the largest national markets for carbonates in the world, carbonates and bottled water were by far the leading products stimulating growth in rigid plastics. Euromonitor International's latest research suggests that growth in volume sales of bottled water in Latin America has been bolstered by several factors. The health trend has propelled consumers to opt for bottled water as an alternative to carbonates.

The increased availability of bulk bottled water in all retail outlets and improved delivery services in direct sales has further contributed to widening the consumer base for water. In Mexico, for example, bottled water maintained high levels of growth between 1998 and 2004 due, in part, to consumers' interest in consuming healthy beverages, but also to ensure the quality of the products they consume.

At similar growth levels to rigid plastic, liquid cartons also gained packaging share in the Latin American market. In addition to strong gains in milk, liquid cartons witnessed healthy increases in cream, flavoured milk drinks, and fruit and vegetable juice. New areas such as beans in Mexico are representing new innovations in the liquid carton market, whilst penetration in areas such as wet sauces and baby food are also contributing to growth for liquid cartons.

Glass falls from grace

Facing intense competition from lighter, shatterproof and more portable packaging types, glass was the only pack type to register a decline in Latin America between 1998 and 2004. Competition against rigid plastic has caused a downturn in glass for soft drinks, its most important application, which undermined growth in other food categories such as sauces, dressings and condiments and fragrances.

The decline in glass in soft drinks has been a trend of the past few years, as manufacturers are increasingly attracted to liquid cartons in fruit and vegetable juice and PET bottles in carbonates. Price has also influenced manufacturers packaging decisions. For example, in Mexico PET costs 60 per cent of an equivalent packaging in glass.

Brazil, the key growth market for fragrances, was stimulated by the marketing efforts of leading direct sales players such as Natura and O Botic‡rio, which increasingly focused on higher-quality colognes, made with local ingredients that matched the quality standards of international products.

Convenience foods bolster paper

The rise in usage experienced by paper-based containers in Latin America was primarily driven by increases in consumption of key end-use applications such as frozen foods and ready meals. Mirroring trends in the more developed markets of North America and Western Europe, consumers in Latin America are increasingly opting for packaged food products that offer greater convenience, can be stored for longer periods of time and are easy to prepare.

Use of folding cartons almost doubled in ready meals and frozen food between 1998 and 2004. Confectionery, cosmetics and toiletries, notably bath and shower products, oral hygiene and hair care were also important to the rise in paper-based containers.

Bucking the trend of growth in foods and non-food areas, tobacco was the largest end-use application for paper-based containers but witnessed a downturn as the number of smokers in the region declined.

Metal's lacklustre performance

The flat performance of metal packaging in Latin America is indicative of shifts to alternative pack types in main end-use applications. Beer remains the most important market for metal beverage cans, followed by carbonates. Whilst beer has continued upward momentum for cans, competition against PET in carbonates has resulted in a decrease in metal beverage can in this category.

Cans continue to take a share from glass in beer in Mexico and Brazil, the two largest beer markets in the region. In Mexico, the packaging industry has benefited from growth in demand for beer, and offers standardised, customisable packaging. This standard packaging is especially important for the growing microbrewery segment, which requires distinctive packaging while avoiding identification with the higher-volume products.

A bright future

Euromonitor International forecast that the outlook for continued development of the Latin American packaging market is positive, anticipated to reach around 3 per cent per year between 2004 and 2008. Economic recovery in Argentina and Brazil and the continued strengthening of the Mexican economy have created an environment ripe for growth in demand.

Rigid plastic packaging will be the fastest growing pack type in Latin America, spurred by the replacement of packaging traditionally in glass or metal to plastic, notably in soft drinks and some food categories. Despite growth in rigid plastic however, competing pack types will not suffer as much as previous years.

Glass is expected to resurge as improved disposable incomes lead to greater purchases of premium products, and key areas such as alcoholic beverages witness a stronger recovery. Although registering the slowest growth, metal packaging is also anticipated to pick up, as pack substitution trends reach a degree of equilibrium in core areas such as soft drinks towards the end of 2008. Flexible packaging will also benefit from increased product demand, particularly in foods.

Bakery products and confectionery will lead gains in unit volumes as consumers shift to packaged products away from home made and artisanally produced brands. Tobacco is also expected to see gains in flexible packaging usage, as despite government initiatives to reduce smoking, improvements in spending confidence are expected to result in some additional spending on cigarettes.

The levels of convenience offered by a given product, or more specifically by its packaging, are expected to become even more important factors in purchasing decisions. Disposable income levels will also increase as unemployment rates in the region drop. This offers strong challenges to packaging manufacturers requiring products to offer convenience, both in terms of the product itself but also in how the product is delivered to the consumer.

Author

Peta Conn manages the global research programme for the consumer packaging industry at Euromonitor International, which she joined in 1994. Euromonitor International is one of the world's leading market analysts, specialising in FMCG market research. In her current post, Peta Conn has direct responsibility over Euromonitor's consumer packaging research, which provides strategic analysis of the global market and in-depth coverage of the ndustry in 25 countries worldwide. She is also responsible for managing the international client base of Euromonitor's online packaging Integrated Market Information System (IMIS).