Almost every product you buy comes in some kind of packaging. The packaging can play a number of important roles: protecting the product, providing useful information, and sometimes even making you feel happy about your purchase. In this episode of the McKinsey on Consumer and Retail podcast, McKinsey’s David Feber and Monica Toriello talk with Amcor CEO and managing director Ron Delia about the biggest trends in packaging, insights from recent consumer research, and exciting innovations that could transform the packaging industry. An edited version of their conversation follows. Subscribe to the podcast here.
Monica Toriello: Hello, everyone. As you know, on this podcast, we talk about the most important topics in the retail and consumer packaged goods [CPG] industries. Today, we’ll be zeroing in on the P in CPG. Consumer packaged goods, by definition, have packaging around them, and packaging is evolving in many ways: what it’s made of, what it’s shaped like, what words or images are on it. Two of the biggest factors driving those changes are the rise in e-commerce—products now need to be easy to ship, not just easy to stock on a store shelf—and sustainability. We’ll talk about both on this episode.
To guide us into the world of packaging are two people who have deep expertise in this topic. David Feber is a McKinsey partner based in Detroit. He is one of the core leaders of our global work in packaging. He works primarily in the CPG and industrial sectors, advising companies on a range of topics, including growth, M&A, and organizational design. He is the coauthor of several articles on packaging, including four recent articles on sustainability in packaging.
And we’re happy to have Ron Delia here with us as well. Ron is the CEO and managing director of Amcor, a global packaging company with more than 45,000 employees and an annual revenue of more than $12 billion. Amcor makes lots of different kinds of packaging, from soda bottles to resealable pouches to blister packs to shrink wrap to the little piece of foil that goes around the top of your wine bottle. Ron joined Amcor in 2005, and his work has taken him all across the globe. He’s lived in Melbourne, Brussels, and Miami, and he is now based in Zurich.
Thank you both for being here with us today. David used to work at Amcor, and Ron used to work at McKinsey, so the two of you are somewhat familiar with each other’s worlds, and you both probably have a fuller perspective of the packaging industry than some of your peers. I’d love to start this conversation with a pretty specific, and maybe provocative, question: Is there any type of packaging that has no future? Like, in five or ten years, it won’t exist at all?
David Feber: That’s a tricky one to start with. I think the types of packaging that won’t have a future are the ones that truly are not sustainable and are super resource intensive and have better solutions coming up behind them.
Ron Delia: The packaging that may not have a future is any packaging that provides a function that can be provided by something else. I think it’s that simple. The packaging that Amcor makes is all primary packaging for consumer products (mostly food and beverages), medical devices, and pharmaceuticals—and by “primary,” I mean the package touches the product as opposed to being an outer shipper or container. So if I think about the role that our packaging plays, it’s a number of different things, from extending shelf life to facilitating distribution to making it easy for the consumer to use, et cetera. It’s not clear that there’s another way to provide all those functions and benefits to a consumer.
You can just take that a few steps further to think about other forms of packaging and what role they play. Ask yourself, “Is there another way to provide that functionality?” If the answer is yes, then you may not see that packaging in the future—and it could be for environmental reasons or for cost reasons. That’s the lens I would look through.
David Feber: It’s a great point. I think as we look forward and we think of e-commerce acceleration, we will continue to see an optimization across primary, secondary, and tertiary packaging to make things more efficient to ship directly to consumers.
How e-commerce is changing packaging
Monica Toriello: So the flip side of that question: What is the future of packaging? David, you mentioned e-commerce, so let’s start with that trend. There are lots of considerations and opportunities in e-commerce. The package should be tamper proof, leak proof, and easy to ship. But also, depending on the product, maybe it should give the consumer a pleasant unboxing experience, right? They get the thing delivered, they open it up, it looks nice, they feel good about buying it, and they’ll buy it again. Talk a little bit about how the rise in e-commerce is changing packaging.
David Feber: E-commerce has hit a tipping point, especially in some parts of the world. In the United States, for example, we saw really strong acceleration in one big category that involves a lot of packaged goods: grocery. E-commerce in grocery went from almost nothing—3 percent of all sales—to almost 17 percent. We see this trend continuing and reaching up to 20 percent within the next five years. This puts very different demands on the package. A lot of packaging hasn’t been designed to be shipped directly to consumer, so there’s been a strong focus to try and improve this.
Ron Delia: It creates more demands on the package. Just take any grocery item; it could be pasta sauce in a rigid container or rice in a flexible package. Everything that the item’s package does in a traditional brick-and-mortar retail channel, it has to do in the e-commerce channel—and then some.
The package needs to be stronger to protect against the demands of the e-commerce channel. In promoting the product, it needs to be compelling in that moment of truth when the consumer opens the outer shipper because they’re not faced with a wall of on-shelf presentations. They’re opening the box, and that’s where the moment of truth comes.
What we know from brand owners is that they believe this moment of truth is even more important when the product’s being sold through the e-commerce channel than it is in traditional retail because there’s just not as much to support it when it’s coming out of a box by itself. So everything that we’re doing today becomes that much more important and that much more demanding through the e-commerce channel.
The transition or migration from glass to plastic in many categories is happening for a number of reasons, including the environmental footprint and the cost. But also, shipping a glass container through the e-commerce channel is a whole different proposition than shipping a plastic container. So that’s an example of an adaptation that was probably evolving anyway. The migration from glass to plastic in most categories has been well under way for a long time, but it also supports this move toward the e-commerce channel in a way that creates a robust package for the consumer.
The concerned—and confused—consumer
Monica Toriello: Let’s talk about sustainability. Two things are equally true about consumers: they’re concerned about sustainability in packaging, and they’re confused. David, in your article, “True packaging sustainability: Understanding the performance trade-offs,” you say this: “One key finding, which is not always well understood by consumers, consumer-facing companies, and regulators, is that the lowest-carbon material does not always have the highest recyclability or use of recycled content, requiring a decision on which aspects of packaging sustainability get prioritized.” Now that’s complicated. How should companies be weighing these trade-offs?
David Feber: When we step back and think about sustainability, there are three big concerns on the world’s mind. One is that we’re going to use up the resources of the world if we keep this linear economy of taking resources out of the earth and using them once. So there’s a real focus on circularity and recyclability. The second concern is we’re producing too many greenhouse gases, and the third is we just fundamentally have too much plastic waste.
The challenge is that no single package is good at addressing all three of those concerns. And depending on what the application is or where you are in the world, one of those is typically more important than the other two.
Ron, I know that Amcor recently started discussing putting carbon-footprint information on your packaging. What’s driving that?
Ron Delia: It’s an idea to help educate consumers. You mentioned that they’re concerned and confused—and rightly so. There is a role to be played by the packaging industry in providing information in terms of, for example, what resources go into the production of the package.
It may be counterintuitive, but in many formats, plastic will actually have the lower greenhouse-gas emissions and therefore the lower environmental impact, as long as you’re doing the right thing at the end. So the idea would be to help educate people on the total impact of the package, including the greenhouse-gas profile.
David Feber: Plastic packaging has gotten a bad rap, right? Consumers perceive it as being worse. They don’t fully understand the differences in plastic. How does Amcor think about plastic? Will it disappear? Will it stick around? What’s its role in the future?
Ron Delia: I don’t think “plastic for plastic’s sake” has been the driver of the growth in plastic over the past several decades. Plastic has evolved to meet the consumer’s requirements, and if that’s still true going forward, then I think plastic has a big role.
I also believe that, when it comes to the environmental profile, there’s no reason why plastic packaging has to be disadvantaged. Most of plastic packaging can be made with recycled material, and most can be designed to be recycled or composted at the end. Now the infrastructure’s not always there, and the consumer may not understand that yet. But over time, those two things will be addressed. So I think there’s absolutely a future for plastic in the segments and categories where it plays a unique role.
David Feber: I do too. I think it comes back to your point of educating consumers.
Ron Delia: The consumer should not have to feel guilty or concerned about the package that they’re using. In some cases, it’s just a matter of getting people to recycle things that could easily be recycled today. Take a plastic bottle or beverage container: in the United States, we only collect about 30 percent of those. There’s really no reason for that. The infrastructure exists, so the impediment is just getting consumers to change their behavior and feel good—or not feel bad—about that particular packaging. What’s exciting for us is a world where they don’t have to think about it, because the environmental profile is such that the packaging is at least neutral in terms of its impact on the environment.
Will people pay more for sustainable packaging?
Monica Toriello: The other thing about consumers is that they’re concerned about sustainability, but it’s actually pretty low on their list of buying factors. David, your consumer research showed that when US consumers buy something, they consider price, quality, brand, and convenience. Packaging and environmental impact are pretty far down that list. Do you think that’ll change? How should companies think about willingness to pay when they’re making decisions about sustainable packaging?
David Feber: The silver lining is that, when we researched it, consumers said they are willing to pay more for sustainability elements in packaging now than they used to. That’s a plus; we’ve seen positive movement in willingness to pay. But it still ranks fifth or sixth on the list of key buying factors, which means it doesn’t translate very efficiently to actual increases. So beyond certain subsegments of the market, it will take getting closer to parity or slight premiums for real accelerated adoption by the mass market.
Ron Delia: There’s probably a difference depending on where you are in the world and also what generation of consumer you’re talking to. We’ve seen the whole topic of sustainability, as it relates to packaging, evolve around the world at different rates. I think consumers will increasingly be focused on things that are good for themselves and good for the environment. An analogy that I would point to is the ability to price for organic products. There’s a subset of consumers who will pay a premium for organic products, and it’s a pretty significant premium.
In packaging, the cost of making a more sustainable package—if I could use that term, versus a more conventional package—is insignificant as it relates to the retail price. There are some examples where we’ve moved companies from a package made of purely virgin material to one made of 100 percent recycled material, say for a beverage container or a food container. Yeah, there’s a premium on the package cost, but if you were to just flow that through to the retail price, you would only have to raise the retail price by 1 or 2 percent to fully compensate for the extra cost.
David Feber: That would be within the range of what consumers are indicating they’re willing to pay. Our research has shown that it’s up to 5 percent in many segments.
Ron Delia: Right, so 5 percent on retail, for most of the fast-moving consumer goods [FMCG] space, will create a lot of “headroom” for the package costs.
I also think there’s a number of factors at play. You have supply-and-demand economics, like you have with any commodity. To some extent, the COVID-19 pandemic held back the growth of supply. For a commodity like PET [polyethylene terephthalate], which is the plastic that goes into most beverage containers, in the US, as an example, collection rates were down during the pandemic, so supply was a big constraint. On the other side, you have almost infinite demand. For products that can use recycled material, which is most of the things that Amcor packages, we could convert every pound or every ton of recycled material that we could get access to—so the demand side of the equation is almost exponential.
David Feber: Just to underscore that, we added up the aspirations of the top 25 FMCG companies for the percentage of recycled content they wanted. That added up to three times of what’s actually collected today. Demand has outstripped supply by a factor of three, so it’ll take real movement for supply to catch up.
‘Consumer back’ innovation
David Feber: Ron, I know Amcor has a strong innovation capability. Where are you seeing the most promising innovations? Anything we can get a sneak peek at? What are you excited about?
Ron Delia: In some of the big categories that we participate in—like protein packaging—there are high barrier requirements, and quite often, that’s supplied with types of plastic that are not compatible with existing recycling streams. Some of the medical packaging uses PVC [polyvinyl chloride], which is a product of concern for a number of reasons, including its end-of-life profile. Our ability to innovate and to take those materials of concern out of the package, without the brand owner or the consumer having to sacrifice any functionality or change out their plants or their equipment, is where we really set ourselves apart. Those would be two examples.
Monica Toriello: I imagine that a lot of innovation can come out of collaborating with your customers: CPG companies, food manufacturers, online retailers. Do you have any cool stories where a customer comes to you and says, “Can you help us develop a packaging solution?”
Ron Delia: That’s what we do all day. It relates to sustainability, but it’s also just thinking “consumer back.” Take the coffee market as one example: consumers used to consume coffee in bulk. You would buy a half kilogram or a pound of coffee in a can or a big pouch. It became pretty clear to the brand owners in that space that there’s a convenience opportunity there if you can provide consumers with a coffee option that’s easier, and that’s where you get things like single-serve capsules. We had a long period of development to come up with a package to support that single-use system.
There are other examples where the brand owner has a format that they’re comfortable with today. Pet food would be one. The category has gravitated toward a stand-up pouch, and consumers have come to really like this format. It’s lightweight, easy to open, et cetera. But the challenge is making that product more environmentally friendly, because it’s made of a set of materials—in some cases, over nine different types of materials—sandwiched together, which are then incompatible with each other in the recycling stream.
So our innovation challenge and opportunity were to make that product in a way that had a better environmental footprint without compromising any of the consumer functionality. That’s a good example of the kinds of things that our innovation capabilities enable us to do.
Monica Toriello: What about smart packaging? Say a little bit about technology and how you envision it being embedded into packaging in the future.
Ron Delia: There are a couple of big areas of interest in this space—let’s call it “connected packaging.” The first would be the ability to track the package through the value chain. That would allow the consumer to be connected to the brand owner for things like loyalty programs but also allow the brand owner to track the movements of the package and understand consumer behavior to better target their marketing efforts. That’s one form of connected packaging.
Another, which we’re increasingly excited about—and it’s pretty nascent at this point—is the ability to create a digital watermark that identifies a package’s components and then helps direct that package at the end of life to the right waste-management stream. That’s emerging. It’s not necessarily commercial yet, but there are a few initiatives in that space that we’re pretty excited about because they would facilitate the waste-management sorting and separation that’s necessary to make the recycling process more efficient.
David Feber: I think the Internet of Things and digitization trends in packaging are just beginning to accelerate. The integration of packaging into consumer communication and product shelf life is going to increase. For example, there’s a new technology of rewritable labels on packages: they have the ability to digitally reduce the price on a perishable product as it gets close to its end-of-use date to try and decrease food waste and move products more dynamically. It dynamically lowers the price as opposed to having to resticker or relabel the product. I think this integration is something that the packaging industry has just started to scratch the surface of.
Monica Toriello: So if yogurt is about to go bad, then it automatically becomes cheaper? That sounds so futuristic. How far away do you think that is, David?
David Feber: There’s an early-stage technology company out there that’s piloting it now.
‘We can’t be scared to talk about it’
Monica Toriello: What advice would you give to a forward-thinking brand that wants to make packaging a competitive advantage?
Ron Delia: I would say lean into it and don’t apologize for it. The package is at the core of many of the brands we support. If you think about it, why would a consumer pay a few dollars more for crackers or a candy bar? Or to go back to the coffee example, why would you pay a dollar per serving for a single-use coffee pod when you could buy a pound of coffee and take that unit cost down to 20 cents or even lower? The reason, primarily, is packaging.
Some brand owners have been great at this; others not as much. But there’s an opportunity to lean into it and embrace the benefits that packaging provides for their brand and their business and not necessarily move away from the topic just because there’s an environmental requirement now that wasn’t there ten or 20 years ago.
I think consumers can have everything they have come to benefit from, and brand owners can continue to provide all of it and also do the right thing by the environment. But we can’t be scared to talk about it. Brand owners should continue to lean into it, and those that are the most progressive are doing that.
David Feber: I love that point of, “Lean into it.” Everyone’s talking about purpose now. “What’s our purpose? Why are we doing things?” When you take a step back and look at the purpose of packaging, it’s to extend the food and medical supply chains to the world so people get the fresh, hygienic products that they need. Packaging is almost a trillion-dollar global industry. It touches almost every human being on the planet. I love it. Lean into it.