Industrials Insights from Clearwater International 2016 ...cle · PDF fileIndustrials Insights...

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  • clearthoughtIndustrials Insights from Clearwater International 2016

    PackagingThe drive towards greater innovation and client preference for global players is leading to rapid consolidation of the sector

    Going for growth

    The packaging sector remains a huge global industry which continues to see major corporate activity among leading players.

    The global volume for packaging units was 3.576 trillion in 20151, by 2018 this figure is expected to reach 4.029 trillion units. The largest global volume areas are flexible packaging, which accounts for 36% of units, paper and board (24%), and rigid plastics (20%). The largest end markets are food (40%), soft drinks (26%) and tobacco (12%).

    The current trends in innovation and environmental regulations put great pressure on both ends of the supply chain. This demands large investments by packaging manufacturers in order to innovate and negotiate with powerful manufacturers of raw materials, while at the same time they are having to reduce production batches in response to greater personalisation of products.

    The packaging market has historically grown at least at the same rate as the GDP trend in developed countries, and at an even higher rate in emerging nations. It is projected that the global packaging market

    will grow at 3.5% per year to 20202, with sales reaching 873bn in 2020. More established markets will undergo significant business and demographic changes that will transform value chains in the packaging segment in areas such as glass, metal, rigid and flexible plastics, and board.

    Consolidation

    Such drivers should also be set against the context of a fragmented industry, especially in sectors such as the rigid plastic and flexible packaging markets. This reflects not only the broad range of print, packaging and labelling solutions which are used in an array of manufacturing and wholesaling industries, but also continuing innovation in packaging which encourages new entrants to the industry. It is essential for packaging manufacturers to have sufficient scale to compete, and to set up subsidiaries across several countries.

    Against this backdrop, large trade groups have the cash to continue to buy smaller regional competitors, while the market continues to see plenty of interest from Private Equity in backing opportunities too.

    Consumers favour brands and products with clean-label messaging that enhances brand transparency and builds purchasing confidence. The term refers to products that are free from artificial ingredients and are natural or organic. Brand owners, design agencies and packaging manufacturers are increasingly incorporating this messaging into packaging materials;

    The sustainability agenda means weight reduction and the recycling of packaging has become key;

    On the go consumption is driving the development of materials which give packaged food a longer shelf life;

    E-commerce is changing packaging needs, driving requirements for versatile and visually appealing packaging solutions; and

    The rise of single-parent family homes, a growing elderly population, and the independence of the millennial generation are all having a huge impact. For instance: an ageing population puts demands on packaging functionality such as how easy the product is to open and re-seal.

    A number of significant trends are driving huge change across the industry:

    1 Canadean: research, November 20152 Smithers Pira: The Future of Global Packaging to 2020

  • Industrials Insights from Clearwater International clearthought | 2016

    The global market

    Europe

    Europe is set to experience consistent growth in its packaging market of around 2.1% compound annual growth rate (CAGR) between 2014 and 2018, reaching a total of 1.043 trillion units in 20181. Flexible packaging and rigid plastics dominate the market while the food sector, in particular bakery and cereals, is driving the growth of more flexible packaging.

    In recent times, paper and board packaging has seen fluctuations in its growth as a result of changing demand patterns from food and tobacco products. Meanwhile, demand for rigid plastic packs is forecast to reach 292.87 billion units by 2018 with the food sector the largest end-use market.

    The UK has performed particularly well in recent years with the food, pharmaceutical, and health and beauty sectors being particularly strong drivers. This is supported by rising consumer spending, which drives demand for added-value packaging solutions and design concepts that offer an alternative to the homogeneity of the mass market.

    The Spanish industry saw growth of 2.5% in 2015 as its wider economy revived. This was accompanied by a significant increase in the number and size of investment

    projects and consolidation of exports which saw strong growth too. Among the largest exporters were Mivisa Envases, Armando Alvarez, Vidrala and Smurfit Kappa.

    The Portuguese market has been growing at a steady rate in recent years, with latest estimates that the industry is now worth more than 2.3bn, while exports surpassed 730m in 2015. Cardboard packaging accounts for a third of the market and is dominated by foreign players such as Saica, Europac, Seda Group and aforementioned Smurfit Kappa.

    Both Germany and France have experienced high volatility in raw material prices but the markets are now showing stronger growth. For instance: the German market was valued at 34.8bn2 in 2014, a rise of 2.7%. France remains one of the largest glass manufacturing countries in the EU, while the total market for rigid and flexible plastic packaging stood at 11.5bn in 2014 - an increase of 3.1%3.

    Americas

    Flexible packaging and rigid plastics continue to dominate, accounting for 61% of the total market1. This is being particularly driven by demand from the food market for flexible packaging, followed

    by demand for rigid plastics from the food and non-alcoholic drinks sectors. As in Europe, growth for flexible packaging will be driven by the dairy, food, bakery and cereals markets.

    Asia-Pacific

    The market continues to enjoy strong growth with the number of packs expected to rise by a CAGR of 5.7% over the 2014-18 period1. Paper and board packs are forecast to register a CAGR of 4% between 2014 and 2018, while demand for tobacco products is increasing due to rising smoking levels. China remains the largest paper and board packaging market, while Indonesia is predicting the highest CAGR to 2018 of 4.8%.

    As elsewhere in the world, flexible packaging will witness strong growth reaching a total of 682.56 billion packs in 2018. China will remain the main consumer of flexible packaging throughout 2014-18, while India will register the highest CAGR of 8.6% in the same period.

    1 Canadean: research, November 20152 Research and Markets: Latest trends and key issues

    in the German retail packaging market3 Research and Markets: Latest trends and key issues

    in the French retail packaging market

  • clearthought | 2016 Industrials Insights from Clearwater International

    One-stop solutions

    As customers increasingly demand one-stop-shop packaging solutions, the industry has seen major consolidation as packaging groups develop a complete offering.

    A good example is UK company Essentra, a diversified supplier of consumer and industrial products. Prior to its acquisition of Contego Healthcare in 2013, Essentras existing packaging solutions in the pharmaceutical and healthcare markets consisted of labels, tear tape and authentication technology capabilities.

    However, the Contego deal significantly expanded Essentras capabilities with the addition of folding cartons, leaflets, self-adhesive labels and printed foils used in blister packs. The acquisition not only enhanced the range and innovation opportunities offered to existing Contego and Essentra customers, but also provided access to new customers for both companies.

    The acquisition of Dakota Packaging expanded Essentras presence in Ireland, while the acquisition of the specialist packaging division of Clondalkin Group a provider of secondary packaging solutions for the pharmaceutical and health & personal care industries - transformed Essentra's position in these end markets and significantly enhanced its geographic presence.

    Regulation

    The industry is facing increasingly stringent regulations, such as the European Unions recycling and environmental targets. Such regulations place an emphasis on packaging companies to explore lightweight initiatives while also achieving recycling targets and improved packaging recyclability by using more recycled, bio-based and compostable materials.

    For instance: France and Germany aim to achieve a 45% recycling rate in 20201

    for all packaging (both household and industrial) and to send zero plastic to landfill by 2025. Energy recovery will continue to play a big part in making this a reality.

    Design

    Packaging design can play an important role in adding value to products, and companies are acutely aware that they must compete on design while remaining flexible and efficient.

    A good example is the food industry, which has seen the successful adoption of stand-up pouches that not only offer greater shelf stability and shelf life, but which can also be produced in a wide variety of sizes and shapes.

    1 Asters: consultancy research2 Creative Bloq: Five biggest packaging design trends

    for 2016

    Market drivers

    A recent report from Creative Bloq2 suggested that packaging design can be just as important in terms of product differentiation as logo design. It highlighted five key themes prevalent in packaging design today:

    Keeping it simple: Text-heavy, bold and stra