HIGH-BARRIER FILMS SUSTAINABILITY RECOVERY STAND UP POUCH SHELF STABILITY COST SAVINGS PILLOW POUCH FLEXIBLE PACKAGING MARKET ASSESSMENT REPORT Executive Summary 2015 11911 Freedom Drive Suite 600 Reston, VA 20190 USA Findings of an in-depth market assessment on the flexible packaging market assessment as it pertains to the packaging industry.
2015 Flexible Packaging Market Assessment Report Executive Summary PMMI The Association for Packaging and Processing Technologies 11911 Freedom Drive, Suite 600 Reston, VA 20190 Phone: (571) 612-3200 pmmi.org/research Publication Date: September 2015 Jorge Izquierdo, Vice President, Market Development, PMMI Paula Feldman, Director, Business Intelligence, PMMI Copyright 2015 PMMI, The Association for Packaging and Processing Technologies, Inc. All rights reserved. The information contained herein shall not be distributed or shared by the recipient. No part of this document may be reproduced without the express written permission of PMMI.
NEED-TO-KNOW: Improvements in high performance films will evolve with better identification for recycling. >
EXECUTIVE SUMMARY SECTION ONE EXECUTIVE SUMMARY AND PERSPECTIVE "The cost trade-off between using flexible or rigid packaging is considered in both the packaging configuration and style." Primary Packaging Engineer, leading food company OUTLOOK FOR FLEXIBLE PACKAGING The unique benefits of flexible packaging have made it the second largest packaging segment in the U.S. The format has grown considerably in popularity over the last decade and has continued to take market share in the packaging industry. However, this growth may be starting to plateau as two in five brand owners interviewed for this report have reached a saturation level of flexible packaging in their products. Despite this, the market is expected to continue to grow at a healthy rate into the future as companies continue to introduce new products in flexible packaging. SIZE OF THE FLEXIBLE PACKAGING MARKET 2014 2004 2012 2011 2014 2013 2015 2014 3.8% 11.7% 4.2% 5.3% According to the Flexible Packaging Association s (FPA), 2015 State of the Flexible Packaging Industry Report the U.S. flexible packaging market reached $31.1 billion in sales in 2014, which represents a 3.8 percent compound annual growth rate (CAGR) from 2004. That annual growth rate has been quite uneven due to the great recession of 2008 2009 and the growth surge of 11.7 percent from 2011 to 2012. From 2013 to 2014, growth is estimated to have been 4.2 percent. In the U.S., flexible packaging is the second largest packaging segment, representing 19 percent of the $164 billion packaging industry. The U.S. flexible packaging industry is projected to increase to $32.7 billion in 2015, representing a 5.3 percent increase from 2014. 2015 $32.7B 2004 3.8% 2014 CAGR 19% The flexible packaging market is the second largest packaging segment, representing 19 percent of the total $164 billion packaging market. 1.1
EXECUTIVE SUMMARY FLEXIBLE PACKAGING DEFINED Flexible packaging for the purposes of this report is defined as a package or container made of flexible or easily yielding materials that, when filled or closed, can be readily changed in shape. The construction may be of paper, plastic film, foil or any combination of these. (Glossary of flexible packaging terms found in Appendix C.) Segments experiencing higher growth rates include stand up pouches, retort pouches and flow wraps. These segments drive growth by continuously offering a flexible alternative to existing formats in vertical markets where rigid packaging is the standard (e.g. beverage bottles to beverage pouches). Cost savings associated with materials, processing and distribution, combined with extended shelf life and improved retail display capabilities, offer a strong mix of advantages compared to often heavier rigid formats. Since the food and beverage space account for approximately 54 percent of all 2014 U.S. flexible packaging shipments, strides made in these vertical industries can be clearly seen in the breakdown for the overall flexible packaging space. FIGURE 1.1 Flexible Packaging Usage by Market 2014 54% Food and Beverage 12% Retail (non-food) 10% Consumer Products 9% Pharma & Medical 6% Industrial Applications 6% Institutional Food 3% Institutional (non-food) KEY TRENDS AND STATISTICS IT S ALL ABOUT THE COST Cost is a primary consideration for end users when determining whether to move product into flexible packaging. Respondents describe the cost tradeoff between flexible and rigid formats as foundational in the decision-making process. When determining whether to convert to a flexible format, brand owners will look at a wide set of variables including the cost of new equipment and line adjustments, production costs, transportation costs and also weigh in consumer preference to calculate if a change would be costeffective and worthwhile. As one packaging engineer from a leading food company put it, What is the cost trade-off? Each decision is cost-justified when considering packaging configurations and styles. Brand owners will only incur the upfront cost involved in changing their packaging line to produce a flexible package if all other variables are understood to outweigh that cost. "Flexible use continues to increase as more companies request flexible films and greener solutions are needed." Director of Packaging, materials supplier 1.2 USE OF FLEXIBLE PACKAGING IN THE OVERALL PRODUCT MIX HAS REMAINED CONSISTENT The market share of flexible versus rigid packaging currently being used by the companies interviewed in this report has remained consistent with the numbers seen in PMMI s 2010 report on flexible packaging. In both reports, flexible packaging usage is at 41 percent while rigid packaging retains a larger share at 59 percent. Although the statistics from 2010 and 2015 are identical, thirty-three percent of product manufacturers interviewed forecast moving more products to flexible packaging over the next five years. FIGURE 1.2 Overall Average Use of Flexible Packaging Compared to Rigid 59% 59% 33% 2010 2015 41% 41% Rigid Flexible of end users forecast moving more products to flexible packaging
EXECUTIVE SUMMARY PREDICTION OF CAPITAL SPENDING OVER THE NEXT YEAR Capital spending seems to be leveling out. The majority of end users interviewed, 58 percent, said their capital spending would more or less stay the same over the course of the next 12 months. This is a significant departure from the 2010 study, where only 18 percent indicated their spending would stay the same and the majority, 61 percent, in fact indicated they were going to increase capital spending. Five years ago, flexible packaging was in the early stages of its rising popularity. Today, as the format is more widely seen on the store shelf than ever, we see that two of three companies have reached their limit for spending on flexible packaging equipment. These companies have already made the switch to flexible packaging where it fits the product, have already purchased the necessary equipment and have therefore reached their current ceiling on capital spending. However, in 2015, one in three end users still forecast an increase in capital spending, indicating that while the flexible packaging boom might be slowing down at some companies, the industry will continue with a healthy amount of growth. FIGURE 1.3 Capital Spending in 2010 Compared to 2015 36% 6% 61% 18% 2010 2015 18% 58% 1 in 3 end users still forecast an increase in capital spending Same Increasing Decreasing CHANGES TO END USERS MANUFACTURING LINES OVER THE NEXT 12-24 MONTHS In the next 12-24 months, 68 percent of end user companies interviewed will be making changes to their manufacturing lines by either purchasing new equipment, modifying existing equipment or buying used equipment. This indicates a healthy market for machine builders. Sixteen percent of respondents do not plan to alter their lines in the next year to two years, while the remaining 16 percent are unsure whether a modification to their lines will be necessary and say it depends on what new products will be introduced. FIGURE 1.4 Two of Three Companies Plan to Make Line Changes in the Near Future 68% making changes 16% no changes / no purchasing 16% not sure 1.3 EQUIPMENT PURCHASES 2010 72% 2% 2015 74% FIGURE 1.5 End Users Purchasing New Equipment New Modify Used 74% of the companies that expect to make changes to their line, expect to purchase new equipment. This represents a slight increase from PMMI s 2010 study in which 72 percent of companies reported that they would be purchasing new equipment. Twenty-three percent will look to retrofit or modify their existing line, while only three percent will opt to purchase a used machine. 74% 23% 3%
EXECUTIVE SUMMARY SOURCING EQUIPMENT Only 12 percent of end users will look specifically for an equipment manufacturer from the U.S. first. The majority, 88 percent, will search primarily for equipment that best fits their particular needs. 12% of end users will look specifically for an equipment manufacturer from the U.S. first. 88% of end users will search primarily for equipment that best fits their particular needs. FLEXIBLE PACKAGING RESEARCH FINDINGS IN 2015 MEASURE UP TO PREDICTIONS IN 2012 The predictions of the flexible packaging industry made in Packaging World s 2012 Flexible Packaging Playbook are consistent with PMMI s findings in numerous ways. The comparison below illustrates the parallels seen across this three year uptick. 1.4 Flexible Packaging Predictions More easy-open, easyreclose options Clear high-barrier films Penetration into entirely new markets More products moving to flexible The slow roll of the cereal aisle More layers in co-extrusion Shaped flexible packaging More retortable pouches Flexible Packaging Research Findings The trend is consumer convenience; more easy-open and resealable closures are on the rise One of 3 companies desire high-barrier film transparency U.S. to follow Europe with more pouch usage Flexible growing in food service, food and medical Cereal companies are considering and testing packaging options, but nothing yet to report 4 of 5 manufacturers want multi-layer barrier films as their #1 characteristic to extend shelf life Reduction in overall packaging is driving new sizes and shapes Retort is becoming more popular in stand up pouches for sauces, salsa, dressings and more Pouches wide impact Sustainable packaging is taking new forms Source: Packaging World, Flexible Packaging Playbook 2012 Edition Over half of manufacturers are using a pouch to save on material usage and costs More products coming out with flexible refillable containers to achieve greater sustainability and less waste Source: 50 interviews in 2015 with packaging industry professionals using flexible packaging
EXECUTIVE SUMMARY ACTIONABLE SUGGESTIONS FOR OEMs 1. Look to strengthen relationships with customers to gain a complete understanding of the packaging challenges they face when moving to flexible packaging. 2. Frequently collaborate with end users to provide better services including training on new flexible packaging equipment, the addition of video instructions and condensed manuals. 3. Look to provide equipment with easier and faster changeover to handle a variety of flexible packaging sizes and films. 4. Stay up-to-date on emerging materials that will affect the flexible package of the future. 5. Stay attuned to regulatory changes to food and pharmaceutical traceability and labeling laws, as well as materials and emissions legislation that could affect future packaging changes. FIVE YEAR UPDATE In 2010, PMMI reported on the flexible packaging industry through a primary market research study in which the comments and opinions of packaging professionals were summarized regarding their current usage of flexible packaging and outlook for future growth. Five years later, PMMI takes another in-depth look at the flexible packaging market in order to provide an updated assessment and quantifiable outlook of the current climate, as well as a look at the future of the industry. Quantify the size of the global flexible packaging industry compared to the rigid packaging industry. Indicate how the demand for flexible packaging has changed in the past five years. Understand the factors driving future packaging equipment investments. Provide OEMs with an outlook of the future demand for packaging equipment. The 2015 Flexible Packaging Industry report summarizes extensive interviews with 50 packaging professionals who offer firsthand knowledge and experience into flexible packaging. Of these professionals, 37 are end users of equipment representing food, beverage, household products and pharmaceutical/healthcare products, 11 are materials suppliers, and two are flexible packaging industry experts. These packaging professionals provided deep insights into the drivers of the flexible packaging industry, its current state and what the future may hold for the industry. Interviewed Professionals 37 End Users 11 Material Suppliers 2 Flexible Packaging Industry Experts 1.5
LEARN MORE IN THE FULL REPORT The food industry has the highest level of flexible packaging usage compared to rigid packaging usage at 57 percent to 43 percent respectively. The majority of companies participating in this report indicated they have reached their saturation level for flexible packaging, with 61 percent indicating their packaging mix will remain the same over the next five years. The pillow pouch and stand up pouch are the two most frequently used flexible packaging types, as well as the two fastest growing packaging types. Sustainability remains top-of-mind as packaging moves into flexible packaging. Europe uses more flexible packaging with stricter disposal regulations compared to the U.S. Seventy-one percent of end users participating in this study report they expect or depend on innovation from their equipment and materials suppliers. 1.6 Three of four end users operate their facilities with more than 50% of U.S. sourced equipment. The majority of brand owners are using contract packagers to avoid capital expenses but only for 5% or less of their packaging requirements. Two of three end users are looking, considering or testing new materials for better barrier properties to extend shelf life. End users continue to look for equipment that offers easier and faster changeover to handle a variety of packaging sizes and films. The majority of packaging materials are sourced in the U.S. Half of end users report machine challenges as thinner gauge films come onto the market.
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