In Part One of this look at the challenges facing the packaging for CPG industry and the opportunities that industrial inkjet provides, we looked at trends in consumer tastes and preferences as drivers of change. In Part Two, we look at more macro, market-level forces driving change.
Megatrends in Packaging: Is Digital the Answer?
CPG and Retail Margin Compression
Many CPGs are losing the battle for shelf space and margin growth, which is increasing pressure on suppliers such as packaging manufacturers to decrease cost. That is likely to continue, and will likely have consequences on the full value chain that’s selling into consumer packaged goods,” said Feber.
In addition, a shift is taking place in terms of which companies are gaining share in categories, with small and medium-sized brands growing dramatically over the larger brands in their categories. “It’s occurring everywhere, and it’s changing the way a lot of us are positioned, in terms of our companies and the assets and who we sell to and how we design product, and it’s putting a requirement on us to become a bit more agile,” said Feber. “The more agile players will likely be the ones that pick the right winners going forward.”
He emphasized that these trends are putting downward pressure on margins. Store sales are decreasing, and that’s trickling all the way through to EBITA and return on investment capital within retail and within CPG. “It is a real challenge for the industry, which is why you see a lot of pivoting and a lot of diversification,” he said. “It’s going to continue to create a lot of pressure back on the channel on packaging, in terms of cost effectiveness, in terms of making sure packaging is really enabling a brands’ narrative and all the elements of that that are required.”
What does this mean for packaging producers? Quite simply, they are going to have to be more agile–they have to do more with their existing machinery by increasing throughput, perhaps through automated parts handling. Or, they have to do more with their existing production-floor footprint, which tends to favor conversion to digital product-marking due to quick changeovers and the ability to run many skus on one machine. Or perhaps they should opt to decrease unit costs, which again tends to favor industrial inkjet solutions since there are no clichés or negatives as there are with traditional contact forms of product marking, no wasted ink in inkcups at the end of the run with inkjet, and very little ink per part.
Rapidly Changing Consumer and Customer Preference
As discussed in greater detail in Part One, Feber identified rapidly-changing consumer tastes, preferences, and expectations as a trend driving change in the packaging industry. “If you walk into a big-box retailer or Walmart or a big grocery store, you tend to see 10 to 15 different products on the shelf of a given category. When you go to Amazon, you can see up to 2,000 different products in a category. And it’s really feeding this consumer desire for variety and customization. What you’re seeing is that the world’s changing, and consumers are desiring more,” said Feber.
Increased Pressure on Sustainability
For the first time in a long time brands are making serious commitments to make a difference, said Feber, and the consumer perception in this area has grown almost exponentially in terms of how frequently sustainability is mentioned. As a result, Feber said, regulations have continued to grow fairly rapidly across the world.
Over the past 12 to 15 months, public awareness of plastics leakage into environment has increased significantly to an all-time high. “This is one indicator of what’s really driving a lot of the sustainability sensitivity across the industry and across the world,” Feber said. “This is really going to create unprecedented change.”
Notwithstanding the challenges facing the packaging for CPG industry, all is not gloomy, as another McKinsey report suggests, and as we feel also, given the exciting applications we are building in our facility. Despite narrowing margins in the CPG industry, certain product categories are projected to grow at twice the rate of overall consumer spending, according to the report’s authors. The authors singled out anti-aging creams and mineral water as particular standouts.
Furthermore, the authors point out, a more granular perspective on geography yields micro-markets with aggressive growth forecasts, an environment that lends itself to digital inkjet product-marking solutions due to the ability to carry lean inventories, to produce just-in-time when and where needed, and to customize products at end-of-line stage, allowing for variation based on regional tastes and preferences.
“Partnering with players down the channel is more important than ever. What it really means is finding the right partners within your customers’ businesses to partner with.”
—David Feber, McKinsey & Company
So what can companies do to meet these challenges? “Number one is the investment in R&D and innovation,” Feber said. “Some of these products change very fast, but most of them have a very slow adoption, given risk aversion to change and high volumes, and if you’re on the machine side, it’s painfully slow because all of those are magnified. So the time to start innovating is now and to push your companies to think about where you should be spending your innovation dollars.”
Second, is to create more agile processes to adjust to SKU proliferation. A lot of packaging companies are set up for efficiency and high throughput, Feber notes, but the world is slowly changing to a lot more customization and SKU proliferation. So companies are going to need to be more agile and more flexibile to play in these spaces.
We hope you enjoyed this brief look at digital inkjet and the packaging for CPG industry. Want to learn more about how industrial inkjet printers can add value to your packaging, or lower unit costs? Let’s start a conversation!