Packaging is vital to the FMCG market

Sustainability, functionality and convenience are driving the £10bn UK packaging market for fast moving consumer goods (FMCG). Andrew Don investigates.

An understanding of the packaging market is essential for anyone starting a new FMCG business for the first time.

Start-ups should familiarise themselves with market trends, the issues that matter most to retailers and changing consumer preferences.

Independent business information provider Visiongain, publisher of FMCG Packaging Market 2012-2022, says the industry is characterised by high turnover of products sold at relatively low cost.

Importance is placed on advertising and visual appeal of the packaging to attract customers because the profit margins are low and competition high. Packaging is, as a consequence, considered to be the most vital component of FMCG products.

Packs for profit

Visiongain says packaging is instrumental for companies to stay profitable in the FMCG marketplace. Such packaging should be cost-efficient and provide value to generate revenue. It should also be attractive to consumers, lean on resources, recoverable and protect its contents form external contamination.

Bharat Mistry, director of Global-One Pak, a provider of plastic packaging components, says packaging is the key differentiator for brands in many markets and he cites the different bottle shapes of shampoo brands in evidence.

Cost of competition

Daniel Harrison, lead analyst at Visiongain, says, ‘Packaging and communication of that brand image is increasingly seen as the only way to differentiate product on increasingly competitive shelves.’

Mistry adds that any new FMCG businesses navigating this market for the first time needs to be aware that packaging can account for up to a fifth of the product cost and therefore can influence the retail price.
They should also understand that the packaging is frequently an integral part of the end-user experience.

Mistry, explaining the hurdles that new FMCG firms might encounter when sourcing packaging for the first time, points out that very few new brands have the luxury of developing truly unique packaging because their volumes will not allow this.

However, smaller packaging suppliers can support new businesses wanting to innovate, such as giving advice on mixing components and using colour or finishes to create that point of difference. He warns that many suppliers will specify a minimum order quantity (MOQ) which may be too large.

Different packaging components might have different MOQs: a bottle may have MOQs of 20,000 units, while for labels it might be 100,000. So businesses will have to factor in the excess stock they may have to buy.
Those that only want small volumes will inevitably be restricted to buying off-the shelf packaging which will give them a standard pack rather than something that has a unique selling point (USP).

Mistry also points out lead times to supply packaging after the design has been completed can be up to three or four months.

He warns of a multitude of options to consider. ‘Six different fragrances could be six different labels, bottles and caps – that is 18 components to source, buy and manage.’

Shelf stand-out

David Bird, senior packaging analyst at Datamonitor, the market research company, stresses the importance of a USP. ‘We see in consumer goods generally a wider proliferation of choice compared with 20 or 30 years ago because of supermarkets getting bigger and it becomes more important for packaging to play a role in terms of stand-out on the shelf.’

Bird says to enhance shelf presence is particularly important. ‘With that, it is vitally important to consider what consumers are looking for when designing your packaging. Increasingly, packaging is having to work a lot harder.’

Market view

Visiongain values the UK FMCG packaging market at £10bn. Euromonitor puts the volume of the market at 122bn units in 2011 excluding consumer healthcare packaging which is not within its scope.

The market research company subdivides everything else up into food, 76.2bn units, beverages, 23.3bn, tobacco, 8.6bn, dog and cat food, 4.6bn, beauty and personal care, 3.4bn. home care, 2.8bn and tissue and hygiene, 2.7bn.

Euromonitor’s growth forecast spread over a five-year period and expressed in percentage compound annual growth rate terms are total FMCG packaging, 1.5%, food, 1%, beverages, 1.5%, tobacco, 4%, dog and cat food, 3.1%, beauty and personal care, 1.5%, home care, 0.3%, tissue and hygiene, 1.8%.

Recession is the key driver to pushing costs down at the moment, hence the market is highly cost driven in a manufacturing environment in which material and operating costs are rising, says Global-One Pak’s Mistry. The resulting low margin is not encouraging investment or appetite for innovation, he says.

‘As a result...it is likely that volumes and key contracts will be crucial for survival. Also costs will be driven down by investment in automation and larger tooling meaning greater homogeny of pack design.’

Cost factors affecting the development of the FMCG packaging market are increasing oil prices which are impacting on both raw materials, such as polymers and transport costs, Mistry explains.

One pack fits all?

Mike Jarvis, portfolio deployment manager at Tetra Pak, says apart from the basic needs of packaging to protect and preserve food quality, there are many more demands of packaging that require increased consideration.

Probably the most high-profile trend over recent years has been the drive for environmentally-sound packaging materials and formats with focused effort on reducing overall primary and secondary packaging weight, he says.

This ranges from the ability to be recycled to whether its components are sustainable.

Jarvis says space efficiency is key not only for transit but also while on-shelf. ‘The more packs you can transport in a single load, the better the environmental and cost profile is.’

He adds that the more packs you can get in a set space in-store means less replenishment time because the square shape or profile of their packs ensure that not only are they suited to the distribution chain but also utilise the maximum shelf space available, particularly compared with other formats such as plastic bottles.

Demand is increasing for packaging that has visual appeal and has improved functionality to address consumer needs of all ages.
Consumers are increasingly looking for packs that are easier to open, to reseal, to pour and to drink from. ‘If the package does not fulfil their demands, they will simply look to substitute their product with another that does, hence the importance of brand owners getting this right,’ Jarvis says.

‘Packaging is now a lot more than just a way to ‘condition’ a product. It’s about the entire value chain – functionality, visual differentiation, environmental performance, cost, and importantly food safety.

Form and function

Functionality is something Tesco has scored particularly highly on with its trial packaging designed to keep fruit and vegetables fresher longer. It also picks up points for its environmental credentials.

In May, the supermarket giant announced it was testing life-enhancing packaging on its Jersey Royal Pearl potatoes. Tesco says that it will look at extending the packaging across more of its produce if the trial proves successful.

The packaging film used for the potatoes is called EVAP and is named after the Yorkshire packaging company that developed it.

Different fruit and vegetables have varying rates of respiration and EVAP film can be tailored to suit individual produce.

Richard Swannell director of design and waste prevention at WRAP, the Government funded organisation helping businesses and individuals reduce waste, says, ‘Packaging innovation plays an important role in helping reduce food waste...by increasing their shelf life consumers will have more time to eat the potatoes they buy, which in turn will help reduce the amount we throw away, and save us money.’

Datamonitor’s David Bird also emphasises the importance of packaging’s sustainability with lighter formats, which feature heavily in the drinks industry. ‘PET packaging is better weight and can often be made from recycled material,’ he says.

Communicating that a lot of the packaging is made from recycled material is ‘key’ for the packaging industry, he adds. ‘Sustainability is the number one issue because the retailers are driving it. They put pressure on suppliers to reduce the amount of packaging.’

Bird says sustainability often goes hand in hand with cost reduction: less space and less packaging, which means lower expenditure on fuel, on employing drivers and vehicle wear and tear.

Euromonitor stresses the increased importance of value for money over the next few years. It sites Carlsberg’s release of a 500ml PET bottle for its Export product which was meant to be more suitable for impulse purchase, and Listerine mouthwash in 1-litre PET to offer an economy format.

In the future, PET will further penetrate the juice market, Euromonitor says, and it sees further threats to food cans with growth of microwavable thin-wall plastic containers, and pouches in preserved ready meals, pasta and sauces.

Brand owners will offer more added value in the home, Euromonitor says. And personal care sectors will increasingly use pump closures and occasionally trigger closures to position products as higher quality.