Packaging Trends Beyond COVID-19
APICS Greater Detroit serves local supply chain professionals by providing knowledge and education needed to compete in today’s world. Next week we are looking forward to hearing from Camille Chism of Indigo Packaging and Consulting, LLC at our Supply Chain Community Connect speaking to the topic of e-commerce packaging and how it is affecting the supply chain.
As we think about packaging effects on the supply chain, McKinsey & Company recently shared how packaging megatrends are expected to evolve post COVID-19 in their recent article, “Shaping the next normal of packaging beyond COVID-19” summarized below.
McKinsey suggests that, “Packaging companies will need to rethink their focus and market approach. We expect the impact of the pandemic to alter important megatrends that were already reshaping the packaging industry before the crisis and raising the bar for performance.” They have outlined five impacts to packaging megatrends summarized below.
- Redefined sustainability: Before the COVID-19 crisis, sustainability was top of mind for the packaging value chain, particularly in relation to regulatory and public concerns regarding single-use packaging waste. However during the pandemic, sustainability has taken a back seat to concerns about hygiene and food-safety issues. Although sustainability will likely remain a key industry-shaping trend, it should be redefined alongside hygiene and consumer safety concerns. In fact, the present 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—indeed, across the entire value chain. From this perspective, packaging companies will have to address both sustainability and hygiene concerns alongside cost, performance, and convenience requirements. Moreover, volatile raw-materials prices and interruptions to recycling services could further disrupt markets. In response, companies could test new avenues for promoting the sustainability agenda—for example, by introducing truly biodegradable (compostable at home) packaging materials to reduce the leakage of packaging materials into the environment.
- E-commerce demands: The pandemic is spurring drastic changes in consumer habits. During the crisis, consumer spending on groceries—particularly food—has dramatically increased, and shoppers are buying their goods online, fueling a strong acceleration of e-commerce shipments and other home-delivery services. Demand for e-commerce will likely remain high post-COVID-19 and in the long term e-commerce as the next normal will have significant implications for the packaging industry—particularly for primary and secondary packaging, given that most packaging has yet to be optimized for the e-commerce channel. Many manufacturers will seek packaging that facilitates e-commerce shipping. E-retailers are increasingly using artificial intelligence and automation to fill orders and stock warehouse products. Taking full advantage of these technologies to enhance speed and productivity will require novel approaches to packaging and redesign; for example, primary and secondary packaging are more and more likely to merge.
- Shifting consumer preferences: During the COVID-19 crisis, we have seen noteworthy shifts in consumer behavior, both by category and by channel. There is a stronger consumer focus on essentials, both up- and down-trades, and a strong pull-back of discretionary spending. There are also signs of consumers returning to larger, more well-known brands. There has also been a significant shift to online shopping. In addition, lockdown measures around the world have led to so-called nesting behavior, with staying at home replacing visits to coffee shops, spas, restaurants, and other activities. In the future, many consumers may conclude that their home is a more convenient and less expensive option to meet their social needs. If these behaviors are sustained after COVID-19, the implications for packaging companies, including shifting profit pools, will be widespread. Operational processes must become more flexible and agile if the companies are to speedily develop products that will meet new and existing consumer demands, including a demand for convenience.
- Fast-moving cost pressures and more regional supply needs: Consumers are pessimistic or unsure about the pandemic’s lasting effects: for example, about half of US consumers are being very careful about spending their income. In addition, cost pressures in the packaging industry are expected to increase across regions as customers decrease their packaging budgets. In a recent global B2B survey, some 27 percent of respondents expected to reduce their packaging budgets by 4 to 10 percent in the short term; about 12 percent, by 11 to 25 percent; and 12 percent by as much as 25 percent.5 As a result, to keep their plants cost competitive, packaging converters must further assess and take advantage of cost-reduction opportunities. Packaging customers are also revisiting and adapting their supply chains in the COVID-19 crisis. In particular, customers that currently rely on global supply are now considering making their footprints more regional, by either adding regional suppliers or replacing current cross-regional ones. Packaging converters with global sales and, more important, raw-materials suppliers must explore how they can develop a regional supply chain (possibly through co-location with customers) as well as greater vertical integration. Their aim will be to increase the flexibility and resilience of packaging production, and, among other goals, to create transparency for customers regarding stock levels and backup plans for supply. These shifts could also present opportunities for working together with customers, for example, through joint packaging research and development and production planning.
- Speedier digitization of the value chain: A further consequence of the pandemic is an expectation that all parts of the value chain will become more digitized, to reduce supply-chain and production risk. We also expect more automation, AI, and remote support to drive productivity and result in greater resilience. With real-time reporting and analytics, customers will aim to track supply chains far more closely than before, perhaps shifting from annual or quarterly to weekly monitoring. Increased transparency is not only a matter of cost efficiency, but also a way to help build a more resilient supply chain and assure the health and safety of products. For packaging converters, this move could offer opportunities to support customers by increasing the integration of technology in the packaging itself—for example, through radio-frequency identification.
McKinsey urges packaging companies to assess their ability to address the changing megatrends and offers suggested strategies moving forward in their complete article here.
Looking for more information on packaging and it’s impact on supply chains?
JOIN US next week on July 14th at our Supply Chain Community Connect to hear from Camille Chism of Indigo Packaging and Consulting, LLC speaking to the topic of e-commerce packaging and how it is affecting the supply chain. There will plenty of time to ask questions and connect with other supply chain professionals. More info below.