Forward supply, forward service
In the past ten years, the global packaging industry has maintained steady growth due to changes in substrate selection, expansion of new markets, and changes in ownership dynamics. Changes include increasing the use of plastics to replace other substrates and meeting consumer demand for convenience, economic prosperity in China and other emerging regions, and greater industry consolidation and growing private equity.
Growth will continue in the next ten years, but there may be more pressure and disruptive changes. Although China's growth is slowing, it will remain the industry's largest growth engine outside of North America, like other markets in Asia. At the same time, the use of plastics has soared, but the burden on the environment is prompting more and more restrictions.
So, by 2030, how should processors prepare? In order to find the answer, McKinsey conducted extensive interviews with retailers, FMCG companies and packaging industry executives on the main final end industries and main substrates, and conducted in-depth preliminary research and analysis. Its analysis identified five major trends that will change the packaging industry in the next ten years or more.
However, to be successful, packaging companies need to refocus their strategy on the agenda. It is not effective to just do what others are doing. On the contrary, packaging companies need to embark on the path of change under urgent circumstances: for them, it is vital that they must change their approach from a way that is mainly based on continuous improvement actions and depends on market growth.
Part 1: The need to reset intuition in the ever-changing packaging world
There are opportunities for profitable growth in North America; the fastest growing market segment is the smallest market segment. China has surpassed North America and is now the world's largest packaging market. By 2022, China's rapid growth will make it the "King of the Hill" in the packaging industry, with a global market share of approximately 28%. Despite this dramatic change, its 22% global market share is still significant due to the size and speed of innovation in the North American market.
In a mature market like North America (and Western Europe, which accounts for 17% of the global market), processors who shift their sights to a more granular perspective will find it easier to find growth points and successfully decide how, when, and where to compete .
In the next five years, the entire food market is expected to grow at a moderate rate of 1% per year, but there is still some room for high growth. In particular, grocery delivery and ready-to-eat meals are expected to generate double-digit growth rates. In addition, organic label foods, takeaway restaurants and new niche brands are expected to grow at a rate of about 10% per year.
Overall, packaging has the ability to increase product value and cost competitiveness, so the industry can expect continued growth, roughly in line with world GDP. However, at the same time, given its middle position, the industry is inevitably under pressure from multiple directions in the value chain. The industry is also still fragmented, which also makes processors vulnerable to greater pressure. The upstream price rises and the shortage of raw materials, the downstream comes from industrial, fast moving consumer goods, retail customers, and consumer demand to improve economic efficiency and creativity.
Therefore, many processors may have to work harder to ensure their share in the moderate growth of the industry on the rugged road of development in the future.
Part 2: Five major trends will change the rules of the game in the packaging industry in the next 10 years
Five major trends:
1. E-commerce is everywhere. Strong attention to increasing packaging requirements, including requirements for new products, and last-mile delivery innovations
2. Change consumer preferences. The demand for more personalization, convenience, health and affordability pushes SKU to new heights
3. Compression of FMCG and retail profits. The profits of fast-moving consumer goods (FMCG) manufacturers and retailers are further compressed, and the pressure is passed on to processors, thereby increasing the threat of bankruptcy
4. Radical rights defenders conduct reviews and continuously improve the sustainability requirements of all links in the value chain
5. Digitization/Internet of Things (IoT). This not only reduces costs, but also gains more and more competitive advantages with consumers throughout the 10 years. For example, creating greater customer value and service through technology integration in packaging
Although these trends are not new, most of them are out of the initial stage and face processors directly, and their pressure and speed continue to increase, which may bring devastating effects. Sudden turbulence may catch a single company or some part of the supply chain by surprise.
These five trends are constantly approaching with different advantages and speeds, among which digital trends have a special role. The greatest pressure is expected to come from e-commerce, which will shift from early acceptance to early majority proliferation. The second wave of new pressure may come from digitalization. Initially, the role of digital technology was mainly to increase cost-effectiveness through automation, and then gradually became the source of customer-oriented interactive tools to convey information and emotions and collect data.
The other three trends, namely changing consumer preferences, profit compression and sustainability, have been moderate to strong in terms of their impact, and their intensity will gradually increase.
Part 3: The road to change to maintain value and gain growth
All major improvement methods provide some opportunities. The question here is how to arrange them or combine them effectively.
The breakthroughs made by the winners of the packaging industry on the road to change in the next ten years will be diverse. Some seemingly bold or almost impossible tasks will bring great rewards and praise, and then be widely imitated. Other goals can be achieved through intuition, giving competitors a strong competitive advantage that is difficult to release.
Others will be the result of careful study of the physical properties of the substrates and how to make the most of them, including production and supply chain features that may not be visible.
These five game-changing trends will produce different tailwinds and headwinds, depending on the company's attention to the substrate. Most people are in favor of continuing to use plastic alternatives, but the premise is that plastic packaging manufacturers can create more sustainable and recyclable products.
Processors who use the trends, basic elements and process knowledge in the value chain to transform into a new business model will have the best opportunity to preserve value and capture growth.
Designing a successful formula for the road to change will involve deep insights into the characteristics of the substrate, and how the company can change its approach and strategic focus to make the best use of these characteristics for a given end use and geographic location. Answers and follow these trends towards success.
The development of e-commerce has been subtly affecting the development of the packaging industry. But I believe that whether it is the metal packaging industry, paper packaging industry or other packaging industries, the future development prospects must be con