The industry is a key player as consumers and other sectors adapt to the COVID-19 outbreak. Here is a three-step plan that can help packaging companies through the crisis.
As the coronavirus outbreak has spread and its humanitarian impact has grown, industries that help provide for essential needs, such as getting food and required supplies safely to consumers, are increasingly affected. With food packaging being the packaging industry’s largest area of activity, the $900 billion per year worldwide industry is on the front lines. The coronavirus crisis has already led to some of the sharpest declines in recent times in demand for certain types of packaging while accelerating growth for others—such as packaging for e-commerce shipments that are emerging as lifelines in this new world. Such changes are presenting many packaging companies with a new set of challenges. In this article, we present a three-step plan to help them navigate through the crisis.
Packaging demand is expected to move through three phases during the outbreak
We expect that the impact of the coronavirus crisis on the packaging industry will be mixed—and this pattern has already been playing out in countries such as China and South Korea, which have been the first to confront the pandemic. Demand will rise sharply for packaging for groceries, healthcare products, and e-commerce transportation. At the same time, demand for industrial, luxury, and some B2B-transport packaging could decline. The impact on packaging players will depend on their portfolios and exposures to different regions, end uses for packaging, and substrates (Exhibit 1). As the pandemic tightens its grip on other regions, packaging demand in those regions is likely to move through three phases.
Phase one is the period of initial shock, which typically lasts at least four weeks but can extend for much longer. Changing consumer sentiment1 translates to cutbacks in a number of categories, reducing demand for certain types of packaging. The immediate demand shocks to the packaging industry are less drastic than for sectors such as travel and hospitality, but they could be substantial in several areas:
- Industrial, bulk, and transportation packaging. Demand for this type of packaging is closely linked to the trend in GDP and the level of industrial activity, so the sharp decline related to COVID-19 leads to a reduction in packaging demand. However, some of this is being offset by industrial customers stockpiling purchases of intermediate bulk containers and drums, which causes a temporary spike in demand. At the same time, several segments—such as packaging for the food and pharmaceutical industries—continue to see robust demand. High growth in demand for corrugated packaging for e-commerce and grocery deliveries is also offsetting some demand lost elsewhere with industrial customers.
- Consumer packaging. Demand is likely to shift drastically in the food area as the pandemic shuts down restaurants and food-service outlets. Consumers will thus continue to move to grocery purchases, for which packaging demand will rise. Consumers’ wishes to stockpile and their panic purchases of food, beverages, and home-care necessities have accentuated this trend. But demand for nonfood and premium-good packaging is being hit as stores are required to close and as consumers start to cut back on their spending.
- Healthcare packaging. Demand will rise across different healthcare packaging types and related substrates, including flexible blister foils, pumps, closures, and rigid plastics. Similarly, demand will rise for packaging used in dietary supplements, such as vitamins, and for essential supplies, such as allergy medication, that consumers will need in a lockdown situation.
- The packaging industry also needs to be ready for second-order effects triggered by the COVID-19 crisis. As crude oil prices have fallen (partly because of the pandemic’s effect on demand), the cost of oil-based raw materials, such as plastic resins for the packaging industry, is likely to fall. The strengthening of the US dollar has improved the relative competitiveness of packaging-raw-material makers based elsewhere. At the same time, border closures are leading to challenges for companies with extended supply chains and those that rely on teams to be able to move internationally to overhaul equipment. These developments spell a period of high uncertainty for many areas of packaging demand and different packaging substrates. The unpredictability of how government actions to mitigate the adverse economic effects of the pandemic might play out further clouds the outlook.Phase two covers the period when countries and regions bring the pandemic under control. The length of this period is, of course, uncertain, and it is realistic to consider a number of scenarios for its duration, from a few quarters to longer than one year.2 Reduced household disposable income and weakened corporate balance sheets are expected to lower demand across most end-use segments for packaging, with the exception of healthcare and certain food categories.
During this phase, we expect certain consumer behaviors, such as stockpiling, will slow while others, such as grocery purchases via e-commerce, will accelerate. Key implications for packaging include nongrocery retail likely coming to a near halt, demand for low-cost private-label goods likely increasing, and demand for high-end packaging likely declining. The fight to defeat COVID-19 could also start to affect packaging choices, favoring packaging designs and substrates that demonstrably address hygiene and consumer-safety concerns—for example, those that minimize the possibility of the virus’s survival on the packaging surface.
Packaging players also need to ready themselves for other developments. Depending on the severity and duration of the crisis, lower household disposable income and weakened corporate balance sheets at the companies that are the customers of the packaging industry could result in significant pressure to reduce selling prices and costs along the whole packaging industry value chain. Companies need to prepare for scenarios under which small and medium-sized enterprises and heavily indebted companies could end up bankrupt—events that could sweep away customers, subsuppliers, and printers. In our view, the severity and duration of phase two will be highly dependent on governments’ actions to mitigate adverse economic effects.
Phase three is the rebound, in which we expect to see packaging demand gradually return. Some sectors, such as packaging for foodservice, should see a rapid rebound of demand. For others, the rebound is likely to be slower, as consumers are likely to be more hesitant to return to luxury products, travel, and the hospitality industry. Consumers’ purchasing behavior could stay soft as businesses emerge only weakly from the crisis and employment levels suffer. The speed of packaging players’ recovery will be differentiated largely by segment, depending on the degree of disruption among the segment’s customers and challenge to different players’ supply chains.
How will COVID-19 affect the industry’s megatrend drivers?
The COVID-19 crisis is likely to alter some of the megatrends at work in packaging4 (Exhibit 2). Consumers across the globe are going to be increasingly inclined to buy their products through different channels from those they used before the pandemic, leading to a strong acceleration of e-commerce shipments and other home-delivery services. US consumers are changing their behavior in the light of the crisis: research suggests they intend to double their spending at online-only grocery stores.5 A similar pattern has been seen in China: online sales of fresh food by a large online retailer grew more than 200 percent during a ten-day period in late January 2020 compared with the same period in 2019, with sales of meat and vegetables increasing more than 400 percent.6 Cost pressures on the packaging industry are also expected to increase, with its customers under strong pressure, consumers becoming even more price-sensitive, and packaging converters needing to win a sufficient volume of orders to keep their plants well utilized.
How will the sustainability agenda that has become an important issue for the packaging industry be affected by COVID-19? It seems likely that concerns about hygiene and food safety in the context of the pandemic might become a higher priority while the sustainability performance of different packaging substrates could become a lower priority—at least for the short term. Because of the pandemic, there is a new appreciation by consumers and industries of the hygiene advantages plastic packaging can offer that seems to be outweighing concerns about recyclability and plastic-waste leakage into the environment. For example, a global coffeehouse chain is temporarily banning reusable cups amid the outbreak. At the same time, in the current state of emergency and concerns about virus-contaminated surfaces, numerous cities, and retailers around the world are putting off the introduction of bring-your-own-bag measures and suspending recycling services for both residential and commercial customers. Some recycling contractors have also suspended services because of inadequate staffing.
The open question is, whether this reevaluation by consumers of the trade-offs between hygiene, safety, and sustainability performance marks a permanent shift, or whether sustainability performance could reemerge as a source of competitive advantage that could help some packaging players as they come out of the crisis—particularly if they take such trade-offs into account? A resourceful packaging company might be able to help both customers and consumers if it found a cost-effective and sustainable substrate on which the novel coronavirus has minimal viability. There is plenty of room for improvement: a recent study showed that the virus’s survival rates varied from 24 to 72 hours on different packaging substrates, with the longest being on plastic and stainless steel. Packaging players could also consider using temporary spare capacity in plants to scale their pipelines of new, more sustainable packaging materials for end-use segments in which demand is still high.
Actions for packaging companies to consider
Leaders of packaging companies could consider a three-part response to the crisis.
Part one: Navigate the now
As a first action, a packaging player can create a crisis-response nerve center that can steer the organization and serve as the core information source. The center can manage risks and responses and align all stakeholders. A key priority should be to support and protect employees’ health. Besides that being arguably a moral responsibility of an employer, it is also a pragmatic first line of response to maintain an enterprise’s ability to function at all.
Acting on this top priority can happen in several areas. The company can monitor health risks and communicate about them through updates on its intranet, postings at the entrance to its sites, and regularly conduct training on how to handle them. It can also provide personal protective equipment, including masks, gloves, and hand sanitizers, and can regularly clean its buildings. It can also implement targeted processes and policies that include checklists, new travel and meeting guidelines, and the splitting of teams into shifts when operationally possible.
The company can also review its production footprint and what it will need to ensure that it can keep running by creating country-specific plans and clear checklists for plants. Related to this is the need to screen the supply chain to understand the risk of disruptions—such as dependence on a single supplier source for raw materials or on printers that might close—and then take actions to address anticipated disruptions and shortages.
Once the top priorities to maintain health and operations have been dealt with, a leadership team can set about understanding how consumer sentiment may be evolving—for example, to an acceleration in e-commerce shopping and higher-than-previous demand for grocery packaging—and how that could make some shifts necessary in its portfolio of packaging offerings. Based on that assessment, a leadership team can review its operating model to evaluate its packaging-production flexibility. For example, it can take steps to understand where demand will be temporarily high and assess its ability to shift production appropriately to fulfill new demand patterns. At the same time, the leadership team can evaluate what it needs to do to ensure the company’s financial health by identifying and mitigating risks of declining demand from certain segments and by monitoring raw-material-pricing indexes closely to protect its margins.
Part two: Plan for the comeback
Leadership teams in packaging companies should build a recovery strategy that will include a mix of financial resilience, operational plans (such as restarting operations at packaging plants that it might have had to temporarily close and assessing future market-demand potential), and strategic customer-focused moves (such as understanding the impact of COVID-19 on particular customers’ packaging-substrate choices).
Companies can take steps to identify packaging categories that are likely to return to strong levels of demand. They can also consider the supply-chain requirements and production planning—including addressing the footprint and rebalancing supply—that they will need to cope with that return. They can also look out for new pockets of growth potential with different packaging end uses and different substrates. Last, companies can review the packaging product designs and associated capabilities that they would need to manage new trends in consumer sentiment and requirements, such as safety, health concerns, and more e-commerce.
Based on those assessments, leadership teams can sharpen their companies’ value propositions to deliver on the next normal in demand. Such propositions could include the ability to adapt packaging designs best to the needs of e-commerce while simultaneously adhering to consumer preferences and, at the same time, always delivering greater cost efficiency.
Part three: Shape the next normal
Packaging-company leadership teams should assess which shifts are getting underway in customer and consumer sentiment and which behaviors may stick after the crisis—for example, hygiene requirements, e-commerce, and resurgent concerns about sustainability. They can also consider rethinking their business portfolios so that they can ensure stable cash flows and healthy balance sheets that can protect their companies.
Steps that packaging companies can take to this end can include narrowing the range of substrates they currently use. They can also extend to evaluating acquisition opportunities of assets in the market that could strengthen their business. And finally, companies need to make a regular practice of the kind of vigilance that served them well at the start of the crisis: thinking through the network implications for their plants and supply chains and the potential risks related to single sources of raw materials and packaging components.
Beyond COVID-19: The next normal for packaging design
The coronavirus pandemic has reshaped industry megatrends in ways that will have major short- and long-term implications for packaging design.
The COVID-19 pandemic has reshaped the megatrends buffeting the $900 billion-a-year packaging industry. As the world manages through—and begins to emerge from—the great public-health and economic crisis, we expect these megatrend shifts to change packaging design in fundamental ways.
To prepare for these changes and the move to the next normal, packaging companies must rethink packaging design beyond “must-haves,” such as reasonable costs, convenience, and performance. Three major requirements must be addressed: first, a good sustainability narrative; second, design with hygiene in mind, given recent heightened consumer-safety concerns; and third, design for e-commerce, ship-ready design, and direct-to-consumer models.
With the right focus and innovation capabilities, these megatrend shifts and the resulting design challenges could help packaging converters grow by enabling customers to revise their packaging portfolios with improved design. To help companies navigate through the future and stay ahead of the competition, we propose five critical moves they can make to jump-start their packaging-design change journey.
Progressing megatrends: The next normal of packaging
The COVID-19 pandemic has changed key megatrends already reshaping the packaging industry before the crisis:
Sustainability reemphasized and redefined, with hygiene concerns addressed. Although sustainability has recently taken a back seat, it remains a key industry-shaping trend. Packaging sustainability goals have not been abandoned by leading fast-moving consumer goods (FMCG) companies and retailers, which remain committed to achieving high recyclability across their packaging portfolio over the long term. However, given the strong emergence of the new hygiene megatrend—one likely to become a key element of the next normal in packaging—companies will have to rethink the materials and design requirements of sustainable packaging.
E-commerce everywhere. As a result of the stay-at-home orders in many countries, consumers have dramatically increased their digital engagement—in particular, for online grocery shopping. In the United States, online penetration in this segment has increased hugely. Some industry forecasts predict that penetration will reach 10 percent in 2020, compared with 2 to 3 percent before the crisis. This will have significant implications for packaging design. Understandably, most of today’s packaging has been optimized for traditional brick-and-mortar requirements, not online shipments.
Rapidly changing consumer preferences. The pandemic has brought about major channel and category shifts. In packaging’s next normal, we expect consumers to go on being price sensitive, to further accelerate their online shopping across all categories, and to focus even more on health and hygiene. These changing consumer preferences will make it necessary to rethink the product mix at FMCG and retail customers. Inevitably, there will be implications for packaging design.
Quickly changing cost pressures and more regional supply needs. Before the COVID-19 crisis, FMCG companies and retailers facing significant margin compression passed these pressures up the line to converters. This issue has already affected packaging design in multiple ways: for example, the substitution of different packaging materials, “light-weighting,” redesigned formats to increase filling efficiency and volume density, smaller pack sizes, and shelf-ready packaging. Given the crisis, we expect such cost pressures to continue, and this could amplify the existing need to use packaging design to reduce costs.
Speedier digitalization of the value chain. Another expected outcome of the pandemic is increased digitalization of the value chain through automation and the more widespread use of AI—not only for cost efficiency and productivity but also to make supply more resilient and transparent through real-time tracking. The result could be a greater need to integrate technology—radio-frequency identification (RFID) tags and near-field communications (NFC)— into packaging. Innovative packaging designs will play an important enabling role. Packaging companies will need to reassess their strategies in light of these evolving megatrends.
The next normal’s impact on packaging design
Packaging design already plays a critical role in several dimensions:
- Supporting the consumer decision journey. The consumer’s perceptions of both the actual product and brand value depend highly on the packaging—both its tactile feel and its look. It is therefore a key component in promoting products and helps to differentiate the introduction of new ones—particularly in today’s world, with rampant SKU proliferation and robust competition on shelves for the consumer’s attention. Primary packaging is also an information carrier that educates consumers about the product inside and ways to use it.
- Ensuring that products have a cost-efficient delivery system. Packaging plays a basic role in containing and protecting the product—for example, helping to preserve food, extending its shelf life, and to minimize waste.
- Facilitating the consumer’s need for convenience. The consumer’s changing behavior and lifestyles have imposed new demands on packaged goods—for example, reducing the preparation time of food, packaging ready-to-eat fresh meals, and enabling “portability,” portability, and smaller individual packs. Packaging design has played an important role in fulfilling these requirements by incorporating, for example, easy-to-open and resealable closures.
As we move to the next normal, packaging companies should further rethink packaging design, beyond these existing must-have factors. Any packaging launched during the pandemic or in the near future should take into account three other important requirements.
1. Design with a strong sustainability narrative: The broad spectrum of design opportunities to improve the sustainability narrative can be split into two major groups, which can be addressed in two stages:
- Step one: Low-hanging fruit. The design improvements here are no-regrets moves, carried out with only a minimal impact on operating costs and capital expenditures for customers and packaging converters alike. These moves include eliminating unnecessary packaging, increasing the use of recycled content in the packaging material when this would be easy to do (for instance, in less sensitive applications, such as nonfood items), and helping to communicate sustainability narratives more effectively (for instance, by showing consumers how to recycle packaging).
- Step two: Harder but doable. Actions here include packaging design enhancements that can promote more extensive improvements than those in step one by taking into account the full circular economy and the direct environmental impact of producing packaging materials. This effort could involve packaging design to take advantage of recent innovations in materials and to use more mono-materials. It could also involve introducing packaging designs in new shapes and forms for easy recycling, with new substrates. If several layers of packaging are needed (for instance, for barrier requirements), delaminated packaging could be developed, so that the consumer can easily separate multisubstrate packaging (Exhibit 1). It will be necessary to ensure that these design choices do not have undesirable indirect consequences—such as increasing food waste, which could have a larger environmental impact than the packaging itself. The packaging-design moves mentioned here will typically require close collaboration (or even partnering) with customers and upstream suppliers for implementation in cost- and resource-efficient ways. Packaging converters must therefore proactively ensure that they have the right partners (for instance, raw-material suppliers) to give them access to innovative ideas for sustainability.
2. Design with hygiene in mind: The consumer’s awareness of hygiene and safety concerns have increased dramatically and will probably persist long after the pandemic subsides. A recent survey showed that more than two-thirds of US consumers worry about contracting COVID-19 from food packaging and that more than 40 percent use household disinfectants to clean the products they buy. In the short term, during the crisis, the consequences seem to be an increase in single-use packaging—for example, take-out food typically requires more packaging than food at quick-serve restaurants. Retailers are applying new safety and hygiene approaches to protect consumers—among other things, banning reusable bags, requiring face masks to be worn, and limiting the number of shoppers in stores.
Given heightened concerns around this issue, it will have a profound long-term impact on packaging designs and functionality. Several aspects must be addressed through new, improved packaging designs, particularly for foods and beverages, as well as other uses that require consumers to engage directly with packaging (for example, personal care and healthcare products):
- Ensure that the virus is minimally viable on the packaging surface. The choice of substrate can affect the viability of the novel coronavirus, so there could be plenty of room for enhanced packaging designs. For example, a study published during the pandemic indicates that coronavirus survival rates vary from 24 to 72 hours, depending on the packaging-material substrate.
- Develop new delivery mechanisms for packaging. The consumer’s demand for convenience has sparked developments such as advanced closures and delivery systems that promote on-the-go consumption, as well as easy opening and closing of small single-use packs (examples include stand-up pouches for baby food and energy-gel pouches). Such systems typically require consumers to touch the surface of the packaging with their hands and to put it in their mouths to consume the contents. These exposed surfaces are prompting hygiene concerns that must be addressed. One way forward could be to further explore the internal delamination of different packaging materials; in other words, consumers could “peel off” a film to reveal a clean inner surface that can safely be put in contact with their mouths. This type of peel-off-film technology, which already exists for food packaging applications, is often used in easy-open and easy-seal containers. It could also be applied in new ways with revised packaging designs.
- Ensure tamper-proof packaging and communicate it to consumers. Another issue is how to enhance consumer confidence by further improving tamper-proof packaging. The goals are to ensure protection against contamination, particularly for food and beverages, but not creating more packaging waste by adding materials and protective closures. Packaging design and printed information should be used to explain that products are safe and therefore to build trust with consumers.
3. Design for the e-commerce, ship-ready, and direct-to-consumer models: The number of products passing through the online channel is vastly expanding. Many packaging designs will therefore need a major update, especially if they were originally intended for traditional retail channels. Packaging designs can optimize products for e-commerce in many ways, such as preventing product damage, boosting productivity, and improving the consumer experience (Exhibit 2).
Although several of these e-commerce packaging trends are not new, they will intensify as more products go through the online channel. One emerging trend is the merger of primary and secondary packaging, a combination that is intended to use minimal added transport and protective packaging and can be shipped in its own container—a direct-to-consumer model. We also expect to see more packaging converters partnering directly with e-retailers to adapt packaging designs to the needs of the online channel. These designs will be approved by e-retailers (which is necessary to ensure that brand owners feel comfortable using the new packaging, such as leak-free, e-commerce–approved spray pumps and closures).
Five critical elements for starting on new designs
Clearly, the bar for good packaging design will rise in response to the next normal’s imperatives. Converters that do nothing risk falling behind their more proactive, fast-moving peers. Packaging converters should start their change journey with the following five moves to help customers align their packaging designs with the three emerging design requirements:
- Develop a clear view of how the megatrends will affect your end-use areas. Packaging companies must understand the full range of implications and possibilities. Establish clear strategic priorities and create road maps to determine proactively which customers will probably need immediate help to redesign and develop packaging.
- Embed a consumer-safety-first mentality when you introduce new packaging. In many end-user segments, concerns about food safety and hygiene will be a critical new packaging megatrend. Any new packaging to be launched during the pandemic or in the near future will have to address it. Consider how you can use existing or new materials and solutions to develop a winning approach.
- Assume that everything must be ready for e-commerce. Develop a deep understanding of what e-commerce means for your packaging designs. The requirements will range from more robust, cost-efficient packaging to designs that build consumer engagement and excitement around brands.
- Ensure that you have a strong sustainability narrative. Harness the latest innovations and smart-packaging designs to prevent waste and incorporate more recycled content. It’s important to compare the pros and cons of different packaging substrates along the full length of the value chain. Look at the environmental footprint of producing and converting the packaging material itself and at the whole life cycle, from raw materials to consumers to recycling and disposal. Consider trade-offs: for example, compare lightweight, multilayer pouches with higher fill rates for truck shipments serving online channels with packaging made from alternative materials that could be more recyclable. Assume that customers will increasingly ask for comprehensive environmental footprint assessments of all packaging solutions.
- Do not take into account only one megatrend. Address the full range of packaging megatrends by taking a holistic approach.
The bar for good packaging design will rise in response to the next normal’s imperatives.
The next normal will put packaging designs in the spotlight as the evolving megatrends reshape the business. Winning designs will have to address the needs of the online channel, sustainability, and hygiene, as well as the basics: cost, performance, and convenience. With the right focus, these design challenges could power significant growth. Conversely, converters that do nothing will fall behind their faster-moving peers.