Opportunity’s Still Knocking

Even amid turbulent economic times, flexible packaging converters find ways to improve their bottom lines.

April 2009 by Chris Mc Loone

multipage

One packaging segment that usually takes center stage at this time of year is that of flexible packaging when supermarket shelves are stuffed with bulk packages of candy for many of us to use on Easter Sunday. This makes sense since retail food is the biggest revenue generator for flexible packaging, according to the Flexible Packaging Association (FPA, www.flexpack.org) 2008 State of the Industry Survey. Last year, according to preliminary data from the survey, retail food accounted for 47 percent of the $25.9 billion U.S. flexible packaging industry.

It’s not all rosy right now, however. The flexible packaging segment is predicted to show negative growth in 2009 versus 2008, according to the FPA. Many economic pundits predict that although the contraction of the economy may slow during 2009, the economy will not show signs of growth until the second half of 2010. 

Flexible packaging segment snapshot

During his presentation of the FPA’s State of the Industry Report at the association’s annual meeting held in February, James Love reported that U.S. packaging is a $136 billion industry. Flexible packaging accounts for 18 percent of the industry, with total sales of $25.9 billion. The compounded annual growth rate (CAGR) of this segment has been 3.4 percent during the last decade. Contributing to this growth are 420 companies encompassing nearly 1,000 manufacturing facilities employing almost 80,000.

The largest portion of the revenue generated for the flexible packaging segment comes from large companies with greater than $500 million in revenue—accounting for 54 percent of the revenue in the U.S. Medium companies (revenues of $50 to $500 million) account for 26 percent of the flexible packaging revenue, and small companies, with revenues of less than $50 million, make up 19 percent.

Since 2006, the flexible packaging industry has grown its sales from $24.9 billion to $25.9 billion in 2008. But, although sales have been growing, industry profits and overall U.S. GDP have been down or flat. For example, the U.S. GDP was 2.9 percent in 2006, while in 2008 it was 1.3 percent with reduced profits.

For 2009, sales are expected to fall to $25.6 billion, along with –1.4 percent growth for the GDP. Because of the negative GDP, overall flexible packaging revenue for 2009 is expected to be down compared to 2008. Lower capital spending is also predicted for 2009, with expenditures primarily for replacements and upgrades, according to Love’s presentation.

Generally, the flexible packaging outlook is for slow near-term growth with gradual improvement to 2–3 percent per year. Also expect to see further consolidation of the market, volatile raw material costs and availability, globalization and imports (into the U.S.), and pressure on margins and profitability.

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