Advantage: Flexible Packaging

Sustainability and shelf appeal are two advantages flexible packaging can leverage as the economic recovery continues.

Consolidation

There is a general consensus that the U.S. flexible packaging industry will continue a steady march toward consolidation. In his review of FPA's State of the Industry report, Baumann noted that there are currently about 414 flexible packaging companies in the U.S. As one indication of the industry consolidation, the revenue share of larger companies (those reporting annual revenues greater than $500 million) has risen from 30 percent of total industry revenues in 1996 to 52 percent in 2009, according to data compiled by FPA.

Tom Blaige of Thomas Blaige & Company (www.blaige.com) says there is every reason to believe that "flexible packaging is due for significant consolidation." In his presentation at FPA's annual meeting, he noted the impact of industry consolidation during the past decade. Of the top 50 flexible packaging companies in 2000, 32 percent have lost their identity, 12 percent have changed ownership, and 40 percent have used M&A to achieve strategic goals, he reports. He also compared the evolution of other, more mature packaging types to make a case for further consolidation. For glass packaging containers, three companies currently control 90 percent of the market, and for metal cans, four companies have 80 percent share. This compares to 34 percent share for four companies in flexible packaging in 2010.

Market opportunities

As a packaging segment, flexible packaging offers a number of advantages. These include material source reduction benefits that appeal to sustainability efforts and continued distinctiveness on store shelves. In its "U.S. Converted Flexible Packaging to 2013" study, The Freedonia Group (www.freedoniagroup.com) predicts demand for converted flexible packaging to increase 3.4 percent per year to a level of $18 billion in 2013. According to the study, "Converted flexible packaging's source reduction capabilities will be increasingly important in light of initiatives by major retailers such as Wal-Mart to evaluate the packaging used by their suppliers in terms of environmental friendliness and cost reduction."

One of the fastest growing categories in flexible packaging continues to be pouches, in all variations. The Freedonia Group predicts that demand for pouches will increase 4.7 percent per year to $7.9 billion in 2010, which actually reflects a decreased rate from the period of 2003 to 2008. This is due, in part, to a larger established presence in a number of markets.

Food is the single largest market for flexible packaging, and in a separate study, "Food Containers to 2013: Rigid and Flexible," The Freedonia Group projects pouch use to increase 4.2 percent yearly to $5.6 billion in 2013. According to the study, healthy gains will continue for flat pouches in markets such as produce, frozen specialties, meat and related products, soups and canned specialties, and sauces and condiments. Although the use of pouches has become fairly common in many packaging applications, "[pouches] remain distinctive in appearance, and demand will benefit from continuing efforts by firms to differentiate their products with packaging that stands out," says Freedonia.

Sustainable future

Sustainability remains an area of ongoing focus. Although it took a back seat in recent months as companies focused on managing their businesses through the recession, it will again come to the forefront as the economy ramps up.

The importance of sustainability to the flexible packaging industry is illustrated by the FPA's proactive introduction of the "Sustainability Advantages of Flexible Packaging Education Toolkit." It has several components including a Resource Guide, a Case Story brochure, and a Fast Facts brochure, which compare such things as energy consumption, emissions, weight, waste, and product-to-package ratio of flexible packaging and other packaging options. The Toolkit is designed as an educational resource that FPA members and the flexible packaging industry as a whole can use to understand the sustainable benefits offered by flexible packaging.

The use of bio-plastic films is one area that will garner a lot of attention during the next few years. In its Market Intelligence Guide for Packaging, Pira International (www.pira-international.com) listed the use of natural polymers in packaging as the number-one disruptive technology in terms of both acceptance and impact. Further, in a study titled, "The Future of Specialty Films," Pira reports that "biodegradable, water-soluble, and food contact versions of specialty films have been performing well despite the current economic climate, with their projected sales growth expected to be 13, 9.8, and 8.3 percent, respectively, in the forecast 2009-14 period."

A stacked deck

As long as the economic recovery maintains a steady course through the rocky road ahead, flexible packaging should experience positive growth. The industry is playing in the game with a good hand. Its "aces" include advantages in sustainability and shelf appeal—not a bad hand to be dealt. pP

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