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Winning with new models in packaging

The global packaging industry could change significantly by 2030. Here is what you need to know to stay competitive.

Over the past decade, the global packaging industry has enjoyed steady growth driven by shifts in choice of substrates, expansion of new markets, and changing ownership dynamics. Headline changes include increased use of plastics to replace other substrates and accommodate consumers’ demand for convenience, the economic boom in China and other emerging regions, greater industry consolidation, and growing private-equity ownership.

Growth will continue in the decade ahead, but heavier pressures and more disruptive changes are likely. Against this backdrop, we sought to understand better what is in store for packaging converters through 2030.1 To find answers, we conducted extensive interviews with retailers, fast-moving-consumer-goods (FMCG) companies, and packaging-industry executives in major end-user markets and across the main substrates. We also carried out deep-dive primary research and analyses over the period of September 2018 to March 2019.

The findings form the basis of our new report, No ordinary disruption: Winning with new models in packaging 2030. In it, we offer a snapshot of where the packaging industry and its major segments stand today, unpack trends reshaping the industry, and consider the implications for substrates in particular, as well as the focal points for action more generally. The remainder of this article looks at highlights from the report.

The trends reshaping packaging

Five major trends will change the game in the packaging industry and raise the bar for performance in the next five to ten years (exhibit).

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Much higher levels of innovation and agility will be required to deal with the pressure and potential disruptions emanating from these trends:

  • E-commerce everywhere. The rise in e-commerce could place an intense focus on increased packaging requirements, including for new products, along with last-mile-delivery innovations.
  • Changing consumer preferences. Demands for much more personalization, convenience, health, and affordability are driving SKU proliferation to new heights.
  • FMCG and retail-margin compression. Further margin compression for FMCG companies and retailers, with pressure passed back up the line to converters, may intensify the threat of insolvency.
  • Sustainability. Requirements for sustainability are rising at every step of the value chain—with rising activist scrutiny.
  • Digitalization and Internet of Things (IoT). Digital efforts are being used both to drive down costs and, increasingly, to gain a competitive edge with consumers—for example, by generating greater customer value and service by integrating technology in packaging.

All five trends are approaching at varying strengths and speeds, with a special role for digital trends. The biggest increase in pressure is expected from e-commerce, which will move from early adoption to early-majority diffusion. The second rush of new pressure will likely come from digitalization. Initially, digital’s role will mainly be as a cost-efficiency booster via automation, and then, increasingly, as a source of customer-facing interactive tools, both to convey information and emotion and to collect data. The other three trends—changing consumer preferences, margin compression, and sustainability—are already having a moderate-to-strong impact, and they will increase in strength.

Implications for the packaging industry

Preparing for these changes requires new ways of thinking—“intuition resets”—about a packaging company’s focus and market approach. While growth in China is cooling, the country, together with other markets in Asia, will remain the industry’s top growth engine alongside North America, which China has displaced as the global leader in packaging. Notably, while the use of plastic has soared, the ecological burden is provoking heavier restrictions as demand rises for more sustainable solutions across the board.

The overriding implications of these packaging trends differ according to substrate and will demand substrate- and channel-specific strategies. Despite the surge of sustainability pressure, the combined power of plastics’ attractive attributes with regard to cost, automation, and quality will likely buoy up rigid and flexible plastic substrates, if converters can increase recyclability and recycled content. Paper and board will continue to benefit from e-commerce growth and are ideal for integrating digital and IoT solutions (using quick-response codes, radio-frequency-ID tags, near-field-communication protocols, and so on). Paperboard will likely see more of the convergence of primary and secondary packaging, a shift in focus or buzz around the last mile (as will plastics), as well as more local or even captive converting operations to increase FMCG companies’ agility. Glass and metal have an uphill battle in this more omnichannel world, but their traditional strengths and sustainability profiles (recyclability and using recycled content) still offer ways to fend off substitution by other substrates.

Even with deep substrate expertise, most converters need to think through an array of moves and revamp their approaches accordingly, giving attention to five priorities:

  • investing in R&D and innovation to secure a portfolio of competitive options
  • handling SKU proliferation driven by consumer preferences—for example, through more flexible and agile processes to manage shorter manufacturing runs and through faster new-product-development times to market
  • reallocating resources and assets and pursuing M&A—for instance, to achieve a global–local footprint
  • strengthening collaboration with FMCG companies and input suppliers, including technology suppliers
  • shifting the product mix (and processes) toward greater sustainability

All the improvement levers that these five focal points imply offer some opportunities—the question is how to line them up or combine them effectively. While plans will have to be adapted as the journey proceeds, attention to these five elements now will provide the platform for building a winning formula. Controlled urgency is essential in all five areas. Overall, this is most needed in reviewing and revamping R&D and innovation programs within the next 18 to 24 months in order to have a portfolio of projects with horizons of a few months to two to four years. At the same time, “controlled” refers to using sufficient quality gates and milestones, with financial and market reality checks, and adapting projects as needed or exiting. This is not only about how to make the most of a company’s current strengths and relationships to secure growth and profits but also about developing an outlook on where the pockets of growth are located (even if currently unserved), where they will appear, and when to pivot and tap them.

Download No ordinary disruption: Winning with new models in packaging 2030, the full report on which this article is based (PDF–512KB).

About the author(s)

David Feber is a partner in McKinsey’s Detroit office, Daniel Nordigården is a senior expert in the Stockholm office, and Shekhar Varanasi is a partner in the Silicon Valley office.

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