5 trends that can shape the Packaging Industry Post-COVID-19
The packaging industry is often said to be one of the most resilient industry but certainly, the pandemic has affected it to the core. A simple example of the same is the recent mandate by Indian government to allow companies to use pre-printed packaging material stock till September 30 because of COVID. Under the laws, in normal circumstances, relabelling or putting stickers on earlier dates are not permitted. However, keeping the current situation in mind, the exemption has been given. A second example is lift on ban of single use plastic by UK Govt.
The article discusses the impact pandemic has put on the packaging industry in detail and post-COVID market trends for the industry. As the packaging industry is deeply integrated with numerous other industries especially FMCG and E-Commerce, The change in consumer behavior, shifting patterns, and concerns in one industry would surely put a compounding effect on others. To start with what consumers think, Let's have a look results of the survey by Packaging Europe, of consumers on the expected packaging trend post-COVID-19.
63% believe it will accelerate the e-commerce trend. Over a third believe there will also be a shift in consumer preference around packaging materials/formats and a reduction in consumer enthusiasm for refill/reuse packaging systems. 34% have an eye on supply chain traceability, expecting more demand from consumers, and 30% believe there will be a shift towards increased investment for automation. Promisingly, just under half of all respondents (45%) believe there will be a greater societal appreciation of the positive role of packaging. That is though public perception, we would be discussing on each and every point of impact one by one in detail, further in the article.
Before that it is important that we understand the expected market trends and trends of packaging industry with interlinked sectors. That would give us an understanding where packaging industry is headed with better insight of challenges.
Expected Market Trends
As per the insight firm, Infiniti research, based on its market research the global packaging market is going to take a steep jump with compound annual growth rate (CAGR) of 5.5%, post-COVID (Fig-2). The major drivers for this steep increase are said to be increased demand for FMCG and Pharmaceutical packaging & rising e-commerce sales because of lockdown.
Based on material type, the plastic segment is projected to lead the packaging market during the forecast period as we will see further in the article. While based on application, healthcare is one of the fastest-growing segments of the packaging market amidst this pandemic and is speculated to grow further post-COVID. Fig-3 (Source: Infiniti Research) does a growth comparison of various packaging market year wise.
“World has awakened to the potential risks of COVID-19; there has been a massive effort to add capacity to the healthcare system rapidly. Healthcare packaging products, such as syringes, vials, and cartridges, are required on a large scale amidst this pandemic to fulfil the increasing global demand and owing to increased hygienic concern that is expected to continue further for packaging market.” As per insights team of infiniti research.
That gives us enough pre-requisite to discuss potential impact and opportunities of due to COVID-19 in the packaging industry. Let’s look at each in detail.
Impact and Opportunities
Impact: Supply Chain Disruption
It’s evident from the previous discussion that COVID-19 might have had a positive effect on the demand for packaging. Also as many countries were under shut down due to this deadly virus, stock up on necessary supplies such as medicines, dairy products, food, sanitizers, face masks, disinfectants, and many more has been in high demand. All these products require packing, and their production has been higher than ever before. The consumers and customers around the world prefer packed products rather than initially available and sold lose products such as fruits, vegetables, etc. Hence, the demand for the packaging industry has increased due to the pandemic. But the issue comes from the supply side, The concern is would the supply be able to meet the demand?
With increasing demand, the supply chain has been disrupted for almost every industry because of lockdown. The same is true for the packaging industry as well, at least in the case of India. As per economic times, “the packaging supply chain is at a standstill as India has halted imports from China, a major hub for plastics and as local manufacturers struggle with permissions to operate under a lockdown.”
There is much news of raw material shortage for the packaging industry. Online retailers, sellers, and takeout joints are facing a shortage of packaging material, such as boxes, tapes, labels, and cartons, which are crucial for doorstep delivery of essentials. Though this supply chain disruption is being put in the category of short-term effects. When industries would be fully operational they would be able to meet the demand or else the void created would be an opportunity for Indian start-ups to take the space.
As per Sachin Agarwal (President, Gujrat Packaging Association) global packaging sector is a vast and relatively mature market. While some segments are growing faster than others, the overall industry growth rate tends to broadly track GDP in the long run.
Though recovery might not be the uniform for every sector of the packaging industry, some segments have been hit hard than others. One speculation is that for use of paper in packaging, Cost is most likely to rise. After the Covid-19 pandemic, most developed countries are either burning wastepaper or using it for landfill to avoid the spread of coronavirus. This would result in a huge shortage of raw material for Indian paper mills. And in result, costs of craft and other writing papers are expected to increase sharply post the Covid-19 lockdown due to a huge shortage of wastepaper and high penalty levied on consignments of imported raw material lying at ports. Many small paper mills in Gujarat are on the verge of closure, putting over one crore direct and indirect employment at risk.
Impact: Shifting Consumer Preferences & E-Commerce
Consumer habits are a major factor influencing the industries drastically. It is evident from historical experiences that every major global event has made a drastic change in consumer habits, be it Spanish Flu, World war, or Great Recession. During the Great Recession, consumers cut back spending on nonessentials, traded down, & shifted channels of shopping. Here again with the cut in non-essential we are seeing the shift to online shopping. Lockdown measures around the world have led to nesting behavior, with staying at home replacing visits to coffee shops, spas, restaurants, and other activities.
So essentially pandemic has fuelled the acceleration of e-commerce. The demand for grocery e-commerce is expected to shoot up more post-COVID-19. Some industry forecasts predict that US online grocery sales will settle at or above 10 percent already this year, compared with 2 to 3 percent before the crisis. A similar trend is expected for Asia as well. That will have significant implications for the packaging industry. Below is the comparison of e-commerce revenue before and after COVID-19:
We have seen massive technological growth in the e-commerce market, E-retailers are increasingly using AI and automation to fill orders but no such boost has occurred for packaging, in e-commerce especially, E-commerce packaging is currently required to be 3-4 times more robust than traditional on-the-shelf packaging. Products delivered online at least have two levels of packaging (primary & secondary) & for some products it can go to tertiary or to the fourth level as well. Taking full advantage of e-commerce technologies to enhance speed & productivity will require novel approaches to packaging and redesign; for example, primary and secondary packaging are more and more likely to merge in single robust packaging or use of smart packaging can be explored further.
Impact: Redefined Sustainability with Hygiene
Before the pandemic the biggest concern people had regarding packaging was of “Sustainability” of material, how it will impact the environment. But now Sustainability has taken backseat against Hygiene in a list of concerns. In the UK, for example, The Department for Environment, Food & Rural Affairs (Defra) has pushed back the ban on plastic straws, stirrers and cotton buds. It may be the case that single-use materials do flourish post COVID due to hygiene concern. In the packaging industry, by material, the plastics sector has the highest demand as depicted below.
This can be due to the fact that plastic also helps in stopping the spread of the diseases and helps keep the products packed in it from reacting, getting spoiled and rotting. During the shutdown period, the products are supposed to have a longer shelf life, and expiring soon would lead to starvation as the public would not be able to buy new replacements for the expired as most of the production units are closed. Many foodservice chains have already stopped using personal and reusable packaging. Much and much emphasis is being given to hygiene by consumers and hence on single-use material.
So, does that mean with rise about concerns for hygiene the environmental concerns might be forgotten? I believe COVID-19 is unlikely to put a halt to sustainability goal in the long run, there may be some impact in the short term.
One thing COVID-19 certainly did is that it has increased our awareness about how day-to-day activities impact our planet. And in long term sustainability needs to be defined alongside hygiene.
One speculation is that volatile raw-materials prices and interruptions to recycling services could further disrupt markets. In response, companies could test new avenues for promoting sustainability agenda for example, by introducing truly biodegradable (compostable at home) packaging materials to reduce the leakage of packaging materials into the environment.
We can say that Enhanced focus on hygiene and food safety is likely to become an element of the next normal and a high priority for both consumers and packaging customers (FMCG companies and retailers) indeed, across the entire value chain. And surely in near future sustainability concern would pop up again and from this perspective, packaging companies will have to address both sustainability and hygiene concerns alongside cost, performance, etc.
Impact: Digitization of value chain and Increased efforts towards smart packaging
A rather good consequence of pandemic, I believe, is increased awareness & efforts towards digitization of all parts of the value chain, to reduce supply-chain and production risk. Also, there are expectations of more automation, AI, and remote support tools.
With increased digitization and real-time reporting and analytics, transparency will increase. For the packaging industry, this move could offer opportunities for the integration of smart packaging more and more. Increased digitization will certainly affect the packaging industry and there might be a drastic increase in efforts to develop and use smart packaging. R&D may also get a boost, new players may step into the sector, and the customer themselves might expect of such transition. The ripple effect might change the packaging industry drastically. Increased use of Near Field Communication Devices, Printed electronics in packaging, and smart labels into the packaging sector would surely change the way we do shopping.
Such systems may also be used not only to ensure product protection and quality but also to minimize waste and increase productivity in the supply chain. Also, research is underway into the antibacterial and antiviral polymers and biopolymers packaging materials that are enhanced with effective, active drug elements and display low toxicity (Active Packaging). Demand for these materials in everyday consumer products may rise dramatically after COVID-19.
Impact: Global Opportunity for Indian Packaging Industry
China, which is the leader in the packaging sector, lost its clients, and its economy is expected to decrease by up to 50% during and after the pandemic. This is because all the companies who were relying on China for packing are now shifting their businesses to other second world countries such as India. Also, after the control of the coronavirus outbreak, many companies prefer to rely on other nations rather than China. This would open up doors for Indian Industries to strengthen its global presence and would surely boost the start-up ecosystem of India as well.
The industries are understanding the new normal and challenges COVID has put in front of them, the response of industries shows the same. They are continuously developing and innovating to shape this new normal. McKinsey suggests a 5-tier framework for packaging industries to stay resilient in these times. I have put a screenshot of same below:
Though overall the crisis has created more opportunities than challenges. The need is to identify those opportunities and create proper support systems to leverage those opportunities.
“I recently graduated from college in chemical engineering and have a strong interest in the social impact sector and understanding the industry trends especially the innovation it would lead to. Please note that I am just an amateur reader and no industry expert :p. The points I have put forward in the article are backed by either real facts or strong research by market leaders. To get detailed references and data points presented in the article, please mail me directly at akhtar.iitd20@gmail.com .”
Stay Tuned. Keep Reading :)
