Packaging Outlook 2017
This report is an excerpt from the 2017 Packaging Outlook Report, featured in Packaging Strategies NEWS.
Food and Beverage Sustain Growth
PMMI’s “2016 State of the Industry: U.S. Packaging Machinery Report” analyzed 28 packaging machinery categories and revealed the value of domestic shipments of packaging machinery is projected to grow at a compound annual growth rate (CAGR) of 2.4% from $7.51 billion in 2015 to $8.5 billion in 2020.
More than half of shipment revenues came from the food (37%) and beverage (21.7%) sector, while the pharmaceutical industry is forecast to grow the fastest of all markets through 2020, at a CAGR of 2.8%. The beverage sector is second to pharma in forecasted growth at a CAGR of 2.4%.
General economic development influences growth in the pharmaceutical industry—and, as more people can afford access to drugs, this will, in turn, drive an increase in packaging and packaging equipment for pharmaceuticals. In addition, individuals in the U.S. are becoming increasingly health-consciousness; they are adopting healthier lifestyles, which helps to increase life expectancy. In turn, this will lead to greater demand for pharmaceutical products required for the growing number of seniors.
While the expiration of patents has hurt the leading suppliers in the pharmaceutical market for some blockbuster drugs—also known as the patent cliff—this has also resulted in competitors entering the market with low-cost alternatives. Although this has lowered total revenue in the industry, it has also increased the number of goods sold to the market. More products mean an increase in the production of different packages.
The beverage industry is also prone to growth via economic development, but there are trends unique to this sector. In recent years, the size of drinks marketed to consumers has been changing. Coca-Cola, the world’s largest beverage company, has in the past couple of years launched new, smaller sizes of cans and bottles. As well as just giving consumers more variety, it enables them to compete with less expensive alternatives without devaluing the brand. It also may appeal more to consumers with health concerns related to carbonated drinks, as there is less liquid per can/bottle.
Pharma Growing Fastest
As noted above, the U.S. continues to be the largest market for pharmaceutical and medical devices, confirming research contained in PMMI’s “2016 Pharmaceutical and Medical Devices: Trends and Opportunities in Packaging Operations.”
As the global demand for medicines and devices rises, processors are concerned with issues such as changing consumer demographics, regulatory issues, the need for cost containment, advances in 3D printing and updating legacy lines.
Faced with the regulatory challenges of serialization and unique device identification (UDI) and pressure to produce at a low cost, healthcare manufacturers are looking at new equipment to replace outdated production lines. Nearly half of healthcare manufacturers interviewed continue to replace legacy equipment and buy new equipment, while two-thirds of participating companies predict spending more on capital equipment in the next two years.
Looking globally, branded and specialty drugs and innovative medical devices will likely drive spending growth in the developed markets, while an overall increase in the use of pharmaceuticals and medical devices are projected to spur development in emerging markets, particularly China and India. Contract manufacturing and packaging for pharmaceutical products in developed markets are forecasted to grow at 6% CAGR through 2018, according to PMMI’s research. Mergers and Acquisitions will also remain a major component of strategic growth, with mergers up 66% from 2014-2015 and predictions of strong continued activity.
As the report highlights, pharmaceutical manufacturers are subject to some of the most rigorous standards for package printing and labeling. It is critical that pharmaceutical and medical device manufacturers stay abreast of the ever-evolving requirements, including essential counterfeit prevention and security features.
Protecting the Brand
When purchasing consumer packaged goods from a store, consumers look for assurance that the products they select will be safe. However, as brand manufacturers continue to source from an ever-growing list of ingredients and supplies, the question, “Is this product safe?” continues to increase in priority.
Of the top 10 most valuable counterfeit markets, pharmaceuticals rank number one and food number four according to the “2016 Brand Protection and Product Traceability Market Research Report.” PMMI compiled this report from the insights of 75 brand manufacturers, industry experts and technology suppliers who shared their experiences complying with traceability regulations in the food, beverage and pharmaceutical industries.
The solutions available in the global anti-counterfeiting market are predicted to witness significant growth in the next five years with CAGRs ranging from 12.8-16.1%. In fact, the growth of the global anti-counterfeiting market will outpace the overall market segment growth of food, beverage and pharmaceutical industries by roughly two-to-three times in the next five years.
The entire supply chain requires checks and balances to close the gaps when tracking, authenticating and locating products. In most instances, these solutions will go far beyond the idea of a simple fix, creating added layers of supply chain security. A fully integrated track-and-trace solution includes:
- A layered suite of solutions
- A fully integrated infrastructure—inks, vision, data collection and print technologies
- Flexible solutions adaptable to changing needs
- A centralized, universal system to track product movement
- Data that is easily retrievable and readable at every stage of the supply chain
- Full integration for immediate data retrieval during a recall
Within the layered approach to brand protection are overt – barcodes, holograms, watermarks, embossing and etching – and covert technologies – taggants, UV, infrared and fluorescent inks, Smart technology and radio frequency identification (RFID).
Another factor that will ensure protection in the U.S. food supply chain is the Food Safety Modernization Act (FSMA). While large food companies and OEMs are well on their way toward compliance with FSMA, many food companies are still struggling to understand all aspects of the new law. The latest “FSMA Update Report” by PMMI analyzed responses from 47 food industry stakeholders on FSMA preparedness and identifies what food manufacturers need from supplier partners.
According to the report, fresh fruit and vegetable processors and small food companies are expected to have the most difficulty with compliance. With only limited regulatory oversight before FSMA, these businesses have been making more investments in new equipment to help meet compliance. Additionally, small food companies and farms are challenged with overhead costs, while those that source ingredients from foreign-based suppliers must now ensure that their suppliers comply with the law’s food supplier program.
Despite difficulties, most companies are not investing in new equipment or equipment upgrades because of FSMA. They are primarily making procedural changes, such as how the manufacturing environment is organized, operated, cleaned and maintained; what people are trained on; and how activities are documented. Changes to cleaning processes and operations can often make up for machines’ less-than-ideal food safety designs.
The PMMI report notes that many managers still need clarification on deadlines, as well as specifics on what parts of the law are relevant to their facilities.
An additional challenge with FSMA is the continuing roll-out of new documentation requirements. Some companies are still awaiting guidance from the Food and Drug Administration (FDA). Since FSMA is performance-based and does not require specific equipment designs, preparation activities focus mainly on internal staff training on new procedures and protocols, establishing preventive control and instituting more documentation.
The fact that some companies may struggle to comply with all aspects of the FSMA by their deadlines may not be a large issue, as some experts believe the industry will actually take up to 10 years to fully get to the state of safety the law intends. The FDA is expected to “gently” guide companies to better food safety standards until all the final guidelines are published. Some experts even believe that to improve its working relationships with food companies, the FDA may begin offering incentives to companies that are in compliance to inspire more companies to comply quickly.
Charles D. Yuska, president and CEO, PMMI, The Association for Packaging and Processing Technologies, www.pmmi.org
Glass Packaging Overview
- Glass bottle shipments for spirits rose by 13 million in 2016, while beer remained the largest customer segment.
- Shipments of ready-to-drink alcoholic coolers and cocktail glass bottles increased by 4%.
- U.S. shipments of glass containers to customers approached 28 billion bottles and jars in 2016.
- A strong global customer demand for food and beverage packaging grew exports of glass containers.
- 2016 surveys found that 71% of craft beer consumers say glass bottles offer the best tasting beer, and 95% of wine drinkers prefer drinking wine packaged in a glass bottle.
In North America, the glass container industry’s key indicators highlight a steady stream of glass container shipments to customers, nearly on par with 2015. According to shipment and production data collected and aggregated by Precision Consulting, the U.S. glass container industry shipped roughly 28 billion bottles and jars in 2016.
Spirits and Ready-to-Drink Alcoholic Beverage Containers
Shipments of bottles for liquor and other distilled spirits increased by nearly 13 million containers in 2016, signaling continuing demand for glass-bottled premium spirits. This increase reflects an overall strong market for domestic and global distilled spirits. While 2016 numbers are not yet known, the distilled spirits industry enjoyed an overall volume increase of 2.3% in 2015. Reinforcing customer demand in the alcohol beverage space, glass container shipments of ready-to-drink beverage coolers and cocktails increased 35 million in 2016.
Beer held steady as the largest market segment for glass containers, representing 56% of the overall glass container packaging mix (GCPM). Data from the Beer Institute highlights strong global demand for beer, including an 8% growth for imported glass bottles in 2016. Glass beer bottles (both import and domestic) improved their volume by 1% in 2016. Nearly a dozen states experienced growth of 5% or more in 2016.
Food, Beverages and Wine
Glass bottles and jars for food products made up 18% of the GCPM in 2016, followed by non-alcoholic beverages—up half a percentage point in the GCPM—to 10%. This increase reflects the continued resurgence of a variety of innovative, functional and premium beverages being packaged in glass. Shipment of wine bottles made up 8% of the GCPM, followed by ready-to-drink, liquor, and cosmetics and pharmaceuticals.
Customer demand for glass packaging for food and beverages remains strong. Exports increased by 1.9 billion containers, a rise of 3% over 2015, supplying the global base of food and beverage customers. This increase in exports is consistent with longer term trends, as export markets for glass containers have risen 11% overall since 2008.
As premiumization, along with consumer desire for authentic and natural packaging, reach all food and beverage categories, brands continue to see glass as the preferred packaging choice. This is especially true in the spirits and beer sectors, where glass offers unlimited design potential to support brand identity and convey a premium, high-quality image.
Every year, the vast majority of new products launched in beer, wine and spirits are packaged in glass containers, and in 2016 the Glass Packaging Institute recognized seven innovative designs through its Clear Choice Awards. These winners reflect the natural simplicity brands are able to attain with glass packaging when introducing new products – or reinvigorating established brands.
Glass packaging is inert and impermeable, and doesn’t require a plastic liner to interact with food and beverages, protecting taste. This offers food and beverage brands that package in glass a clear advantage when it comes to product protection, taste and shelflife.
Several 2016 surveys highlighted consumer preferences that reflect the desirability of these properties. For example, results of a March 2016 Mintel survey found that 71% of craft beer consumers say glass bottles offer the best tasting beer, compared to 15% who say that about cans and 14% who don’t have a preference.
In late 2016, a SurveyUSA poll also found that 95% of wine drinkers prefer drinking wine that comes in a glass bottle, with taste (80%) and quality (81%) leading as the top reasons consumers prefer wine packaged in glass.
The glass container industry has 45 glass plants and 59 cullet processors in 29 states. Recycled glass is a critical feedstock in the manufacture of glass containers, and the industry is committed to fostering an efficient recycling system that can produce a high volume and quality of recycled glass.
A 2016 Sustainable Packaging Coalition study found that 81% of the U.S. population have recycling programs available for glass beverage bottles. This is essential, as a 2016 SurveyUSA poll found that 90% of Americans say it is important to recycle materials rather than sending them to the landfill. And, 95% of those who live in a community that recycles glass say glass should continue to be collected by recyclers.
In 2016, the glass container industry stepped up its efforts to boost glass recycling to meet consumer expectations and the sustainability goals of leading beverage brands. In May, the Glass Packaging Institute (GPI), along with beverage leaders including Diageo and New Belgium Brewing, and the glass processing and recycling industry, formed the U.S. Glass Recycling Coalition (GRC – glassrecycles.org) to help make glass recycling work across the U.S.
Additionally, over the past 30 years, the weight of glass bottles has been reduced by approximately 40%. New glass bottles are designed to maintain high quality and enhance consumer appeal, while lessening the overall environmental impact by requiring less energy demand, transportation impact and CO2 emissions.
In 2016, for example, glass manufacturer O-I worked with Adnams to develop the lightest branded 500ml glass premium ale bottle – weighing in at 280g. And Ardagh Group debuted its 1.5L Bordeaux wine bottle, which weighs in at a mere 670g (24oz).
Made in America
U.S. glass container manufacturing is a $5.5 billion-dollar industry that operates 45 plants in 22 states, employing 18,000 Americans in high-paying, benefit-provided careers. When brands choose to package their product in glass, they are selecting an American-made container produced at facilities employing men and women who represent multiple generations of glass factory employees.
Glass is also the only type of single-serve packaging commonly used for beer whose raw materials can be completely sourced within North America. Most glass customers and suppliers are within less than a day’s drive (300 miles) of a glass container plant. In fact, transportation accounts for less than 5% of a glass packaging material’s total carbon footprint.
Additionally, Ardagh Group was awarded four ENERGY STAR® plant certifications in 2016 for superior energy performance from the Environmental Protection Agency (EPA). Meeting strict energy efficiency performance levels set by the EPA, Ardagh Group’s recognized glass facilities are, on average, performing within the top 25% nationwide for energy efficiency when compared to similar plants across the country.
On Tap for 2017
The demand for premium, natural and clean label food and beverages is likely to remain robust in 2017, with brands turning to glass packaging to meet customer expectations for high-quality, pure and natural packaging. Consumers also care about sustainability, and that’s good for glass bottles and jars, which are 100% recyclable in a closed-loop system, with many going from recycling bin to store shelf in as little as 30 days.
Spirits consumption growth rates are strong, and high-end spirits are growing slightly faster than spirits overall, with brands capitalizing on the exceptional appeal and protective qualities of glass packaging. Glass bottled ready-to-drink alcoholic beverages are also expected to show continued growth, as consumers seek more convenience. The trend for brown spirits is likely to continue in 2017, as spirit brands have aggressive and broad growth plans. While craft spirits will also grow, it remains a smaller portion of the overall market.
The premium trend in beer is likely to continue in 2017, and that will no longer exclusively mean craft beer. Additionally, imports are especially popular, including brews from Mexico. While total beer is not in decline in the U.S., there is a shift to premium and imports, which have a natural affinity for
The U.S. continues as the leading country for wine consumption globally, with steady growth expected. This bodes well for glass packaging, as wine drinkers overwhelmingly prefer wine in glass packaging for taste and quality.
The outlook for glass packaging is also strong for non-alcoholic beverages that are expected to continue their popularity in 2017. This includes cold brew coffees, functional beverages and all types of waters, where there is a blurring of category lines between water and carbonated beverages.
Glass is also the first choice in the premium food segment, the only segment that is growing in the food category (up 5% from 2013-2014). Future growth for sauces and condiments is about 1%. Herbs and spices, chili sauces and soy sauces are among the fastest growing categories — 3% over next few years — where glass bottles and jars have a strong presence.
Consumer preferences for authentic, healthy, sustainable and premium products in 2017 will continue to keep glass packaging in strong demand among brands that hope to meet customer expectations and distinguish their products on the shelf.