Consolidation, globalisation, commoditisation… sound familiar – that was mostly the story last year. So will it be the same old story in 2004?
Retailers to lower food prices out of their own back pockets… paper mills to reduce material costs unilaterally by 10%… such things are about as likely to happen as Wolverhampton Wanderers staying in the premier league. Still you can dream.
In the meantime, it probably doesn’t need a crystal ball to predict that life in the supply chain is likely to continue to pose difficulties over the next 12 months. Having directly or otherwise squeezed home-based packaging manufacturers until the pips rattled, retailer pressure on margins this year will spark any number of unpalatable knock-on effects reckons MY Holdings chief executive John Monks.
“Locked in their own struggle for market dominance, the major multiples have little regard for another industry’s problems despite it being an essential part of their supply chain. Permanently low cost is here to stay; together with aggressive demands for faster response, more innovation and better service.
“2004 may see retailers sourcing more ready packaged products from overseas, and developing links to design and origination houses, which in turn may become fulfilment hubs for packaging components.
“Continental competition is likely to grow and more end-user direct material supply agreements may develop as misguided mill groups bite the hand of the industry that feeds them. E-auctions will continue to drive prices down but without realising the cost savings promised. A few more businesses might fail but the ‘suicide pricers’ will – lemming like – rush to fill the void.”
Amcor deputy chief executive John Durston, while acknowledging that the multiples are firmly in the driving seat, takes the view that: “We need to be listening to them to understand exactly what their needs are. They may be different to what we perceive them to be. For example, their second biggest cost is labour. What they want is something that delivers packaging onto the shelf and reduces stacking time.”
Furthermore, says Durston, the added value requirement of imaginative packaging will be very much to the fore of brand owners’ marketing strategies.
“Many of our food industry customers have raised innovation to the top of their agenda, recognising the need to support their key brands with special features such as easy open, re-close, pourability – all of which are in demand. There is growing interest in ‘intelligent’ and ‘active’ packaging materials. Biodegradability is also back on the menu.”
Among retailers there is also a general consensus that biodegradable packaging will indeed become more important. Innovation, however, might be another matter as the price war in the High Street may mean that, for own brands to remain competitive and avoid cost increases, some new innovations and new designs will have to be put on hold.
While retailers might have sufficient clout to stop the creative clock, brand owners have each others products to compete with, let alone lower-priced own label alternatives.
“Never has been more demanded of a brand, not only to build strong equity but also to retain those vital consumers when their pounds are being pinched as well,” says Novas International design director Kevin Vyse.
“There is growing interest in intelligent and active packaging materials. Biodegradability is also back on the menu ”
John Durston, Amcor deputy chief executive
“Budgets and manpower are being stretched to a point which leaves little room for long-term strategic thinking. Typically, a six-month response time from brief to shelf is now the norm.
“For packaging design to act as the originator of good sense in brands and packaging then more time must be allowed to think the process through from start to finish.”
More wish than prediction, perhaps? Design might not yet have become just another commodity within the supply chain but is clearly having to face up to the realities of a prevailing just-in-time culture.
Indeed, it is generally agreed that retailers will become more reliant upon repro specialists to manage overall packaging print requirements, something that should potentially suit North-East based Reproflex 3.
“The management of print spec through an intelligent MIS, JDF, or PDF workflow will enable digital artwork to be directed quickly and efficiently to the point of print, with the Web facility allowing instant global access for the remote printer.
“My take on the future is that all of this will increasingly be undertaken by a repro studio,” says managing director Andrew Hewitson. “There is no reason why this concept can be completed externally. I totally agree with the non-UK sourcing outcome.”
So where that creativity will be outputted into actual packaging is very much up for grabs. As far as retailers are concerned, packaging is becoming more of a commodity item and taking advantage of lower prices and overheads from such countries as China, Sri Lanka, Malaysia, Japan and even India can only increase.
The main drawback is time. UK print companies can respond much quicker and, as run lengths get shorter [also a continuing trend this year] the development of overseas printers being sourced for UK suppliers, particularly own brand products may be limited.
The role of the contract packer also looks likely to benefit from the gathering trends towards outsourcing within a manageable time frame, says Custom Packaging managing director Alan Town.
“There is an increased expectation across a range of sectors, including food, cosmetics and toiletries, pharmaceuticals and general chemicals for a much deeper service in sachet and bottle filling.
“We not only receive pre-made bulk product, but are also providing a full manufacturing supply process. I can predict without hesitation that vertical integration within the supply chain will continue apace.”
“Permanently low cost is here to stay; together with aggressive demands for faster response, more innovation and better service ”
John Monks, chief executive, MY Holdings
Location is one way to counter overseas sourcing of packaging. “We have to do this because the market isn’t just pan-European. With our big customers it’s truly global,” acknowledges Amcor’s John Durston. “We’re having to follow them wherever they want to be. We need to be reasonably close to both their manufacturing and their markets”.
Fair enough for the Amcors and MYs of this world but what of the bulk of SMEs making up the industry, for which the alternative is all too obvious. The general prediction is that some companies will not make it to the end of 2004, with some already showing a negative profit for the last year.
“Caught in a pincer grip between giant raw material suppliers and the all-powerful retailer, the packaging manufacturer is feeling very sorry for himself,” reflects the Institute of Packaging’s outgoing chief executive John Webb-Jenkins.
And there’s worse to come, with the EU ranks about to be swelled by the imminent arrival of 10 brand new countries. “Except that they are not brand new,” says Mr Webb-Jenkins, “they are old and well established with a high level of skill, a hunger to succeed and grow, and enjoy privileged access to the European market by virtue of relaxed requirements with respect to legislation, especially EU 94/62: the Packaging Waste Regulations.
“They also benefit from lower wages and cost of production and so will be formidable competitors. How can the UK compete and retain it’s position except by investing in the ‘knowledge economy’? We will be hard put to compete on volume production, but we are still well placed with regard to inventiveness and entrepreneurialism. This is where a sound programme of education and training comes in and where the IoP can play a pivotal role in 2004.”
Education is an ongoing commitment. Investment in new equipment could represent a more immediate short-term fix.
“After three years of stagnation in capital goods, companies now need to re-equip, both to sharpen their competitive edge and to grasp new product opportunities,” says Graham Hayes of Bradman Lake.
“Technology will continue to drive machinery developments. Lower cost robots are spreading the benefits of productivity and flexibility to smaller producers. Less obvious is that robotics help to solve the problem of a dwindling labour pool seeking more attractive job opportunities.
In 2004 expect to see more attention paid to total packaging line efficiency with intelligent machines, predictive diagnostics and comprehensive management information systems.”
So, a mixed bag of predictions for 2004, but the one sure one is that it’ll be followed by 2005.