Packaging: Evaluation of Vertical Markets & Key Applications by Karstedt Partners, LLC 8843 Hammond Drive Eden, NY 14057-1409 (716) 992-2017 kevin@karstedt.com 2012 PRIMIR/NPES
Packaging: Evaluation of Vertical Markets & Key Applications Table of Contents I. Executive Summary... 1 A. Introduction... 1 Why This Study is Important... 1 B. Objectives... 3 C. Scope... 3 D. Methodology... 6 Basic Terms and Definitions... 6 Vertical Market, Vertical and Sub Verticals... 7 Application(s)... 7 SKU Proliferation... 7 The Various Types of Printers who Print Packaging... 8 Fulfillment House, Contract Packer, Contract Manufacturer... 8 E. Conclusion and Findings... 9 The Nine Key Points from the RFP... 9 Trends in Packaging Segments... 9 Size of Applications... 11 Print Decision Process by Vertical Market... 12 Role of the Retailer in Packaging Decisions... 13 Role of Private Brands... 15 Role of Trade Shops in Packaging and Print Decisions... 16 Sustainability and Recycling Requirements by Vertical Market... 18 Package Printing by Channel... 20 F. The Consumer Gap Principle... 23 G. Implications for PRIMIR Members... 23 Implications Facing all Supplier Segments... 24 Prepress Equipment Supplies & Software Manufacturers... 24 Overall Observations... 24 Impact by Vertical Markets... 27 Ink, Toner, Coatings & Chemical Manufacturers... 28 Overall Observations... 28 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications i
Impact by Vertical Markets... 30 Paper/Synthetic Substrate Manufacturers & Distributors... 31 Overall Observations... 31 Impact by Vertical Markets... 34 Traditional Press Manufacturers (Offset, Flexo, Gravure)... 35 Overall Observations... 35 Impact for Vertical Markets... 39 Post-Press Equipment Manufacturers... 39 Overall Observations... 39 Impact by Vertical Markets... 40 Digital Press/Output Device Manufacturers... 41 Overall Observations... 41 Impact by Vertical Markets... 41 Print Firms & Trade Shops... 42 Overall Observations... 42 Impact by Vertical Markets... 44 Contract Manufacturers, Contract Packers & Fulfillment Houses... 44 H. Changing of the Product and Packaging Lifecycle... 45 I. Value vs. Volume... 47 II. Introduction... 49 A. Objectives... 49 B. Scope... 50 C. Methodology... 51 Basic Terms and Definitions... 52 Vertical Market, Vertical and Sub Verticals... 53 Application(s)... 53 SKU Proliferation... 53 The Various Types of Printers who Print Packaging... 54 Fulfillment House, Contract Packer, Contract Manufacturer... 54 Value vs. Volume... 55 D. Limitations... 55 E. Conclusions and Findings... 56 External Conclusions & Findings... 58 Retail Initiatives... 60 Enhanced Shopping Experiences... 60 Enhanced Operations Effectiveness... 61 Growth of the Dollar Store Segment... 62 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications ii
Vertical/Brand Owner/CPC Initiatives... 63 The Double Edged Sword of Increased Order Volumes... 63 Unanswered Questions... 64 Effects on Packaging and the Packaging Supply Chain... 64 Game Changer... 65 External Factors Affecting the Supply Chain... 65 III. Retail Segment... 69 A. Product Origination and Retail Channels... 69 Product Origination... 69 B. Retail Segment Overview... 71 Growth of the Dollar Store... 73 A New Challenge in Retailing... 73 C. Retail Segment Performance and Issues... 74 Excess and Incorrect Inventory... 74 Ineffective Product Development... 74 Irrelevant Assortment... 75 Saturated Space and Outlets... 75 Off Target Promotional and Marketing Investments... 75 How do these Issues Affect Packaging?... 75 D. Retail Trends and Initiatives Impacting Packaging... 76 Supplier Collaboration... 76 Anti-Theft... 76 E. Store Brands and Private Labels... 77 Consumer Acceptance... 77 National Brands Slow the Growth of Private Brands... 78 Sustainability at the Retail Level... 79 Package Design... 80 Summary and Outlook for the Retail Segment... 81 The Impact on Packaging... 82 IV. Vertical Markets/The Brand Owner... 84 The Consumer Gap Principle... 84 How Brand Owners Measure Solutions... 84 A. Food... 86 Relevant Food Vertical Facts and Interview Insights... 88 Issues in the Food Vertical Directly Affecting Packaging... 91 B. Beverage... 93 Relevant Beverage Vertical Facts and Interview Insights... 95 Issues in the Beverage Vertical Directly Affecting Packaging... 97 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications iii
C. Household Products... 99 Relevant Household Products Vertical Facts/Interview Insights... 101 D. Personal Care... 103 Relevant Personal Care Vertical Facts and Interview Insights... 105 Issues in the Personal Care Vertical Directly Affecting Packaging... 106 E. Healthcare... 107 Relevant Healthcare Vertical Facts and Interview Insights... 108 Issues in the Healthcare Vertical Directly Affecting Packaging... 109 F. The Role of Sustainability in Vertical Markets... 111 G. Key Findings from the Vertical Interviews... 113 Would You Pay More for Solutions?... 115 The Global Footprint... 117 View of the Converter... 117 How Converters Get Global Presence... 118 The Future of a Global Presence... 119 Global Presence for Graphic Service Providers... 119 V. The Supply Chain Partners... 121 A. Graphic Service Providers... 121 B. Contract Packagers... 124 C. Commercial Printers... 125 D. Packaging Converters... 126 Overall Print Segment Usage... 126 Sustainability Within Converter Segments... 127 Key Findings from the Converter Interviews... 128 Folding Carton Converters... 130 Corrugated Converters... 136 Flexible Packaging Converters... 141 Label Converters... 145 VI. Value vs. Volume... 151 A. The Product and Packaging Lifecycle... 152 B. Volume Producers Alignment with Volume Suppliers... 154 C. The Impact on Converters... 160 D. Quadrant Needs... 166 Emerging Products The Value Segment... 166 Mainline Products The Volume Segment... 167 End of Life The Irritation Segment... 169 Brand Owner Importance: Product Cost vs. Product Functionality... 170 Converter Responses... 173 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications iv
Brand Owner Comments Relating to SKU Proliferation... 176 Data Synchronization... 176 SKU Counts... 176 Order Requirements... 176 Logistics Complexity... 176 Interview Key Takeaways... 176 Unmet Brand Owner Needs... 177 Incremental Change... 190 Material Changes within the Same Material Classification... 190 Material Changes with Similar Material Classifications... 191 E. Change with the Potential to Impact the Entire Supply Chain... 191 Source Elimination... 191 Packaging Conversions... 192 Why Change is Done Cautiously... 193 Areas of Development Aimed at Unmet Needs... 194 Substrate Developments... 194 Technology Developments... 195 Inks/Coatings Development... 195 Application Development... 195 Material Substitutions... 196 F. Conclusions... 196 Top 10 List of Changes to Monitor... 196 VII. Suppliers Implications for PRIMIR Members... 201 Implications Facing all Supplier Segments... 202 Sustainability... 202 SKU proliferation... 202 Anti counterfeiting, Track and Trace, Anti diversion Technologies (Pharmaceutical, Food, Electronics)... 203 Other Innovations... 203 A. Prepress Equipment Supplies & Software Manufacturers... 204 Overall Observations... 204 Impact by Vertical Markets... 206 B. Ink, Toner, Coatings & Chemical Manufacturers... 208 Overall Observations... 208 Impact by Vertical Markets... 210 C. Paper/Synthetic Substrate Manufacturers & Distributors... 211 Overall Observations... 211 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications v
Impact by Vertical Markets... 213 D. Traditional Press Manufacturers (Offset, Flexo, Gravure)... 215 Overall Observations... 215 Impact by Vertical Markets... 218 E. Post-Press Equipment Manufacturers... 219 Overall Observations... 219 Impact by Vertical Markets... 220 F. Digital Press/Output Device Manufacturers... 220 Overall Observations... 220 Impact by Vertical Markets... 221 G. Print Firms & Trade Shops... 221 Overall Observations... 221 Impact by Vertical Markets... 223 VIII. Conclusions... 225 No Game Changers?... 225 Conversion to Microflute... 225 Supplier Collaboration... 226 Incremental Change... 226 SKU Proliferation... 226 Sustainability... 227 Substrates... 227 Printing... 228 Finishing... 228 Workflow and Prepress... 229 Packaging Applications... 229 IX. Appendix... 231 Glossary... 231 Converter Questionnaire... 242 Brand Owner Questionnaire... 244 Converter Interviews Titles and Company Type... 247 Corrugated... 247 Folding carton... 247 Flexible packaging... 248 Labels... 248 Brand Owner Interviews Titles and Verticals... 249 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications vi
Table of Exhibits Exhibit I-1: Value of Retail Vertical Sales & Packaging Shipments by Application U.S. (2010 2015)... 5 Exhibit I-2: Initiatives by Brand Owners and Their Effects on Packaging... 10 Exhibit I-3: Value of Packaging Shipments by Applications... 11 Exhibit I-4: High Satisfaction Ratings for Private Label Products... 15 Exhibit I-5: Customers Willingness to Pay a Premium... 19 Exhibit I-6: Brand Owner Initiatives Affecting all Suppliers... 24 Exhibit I-7: Press Usage by Folding Carton Interviewees... 37 Exhibit I-8: The Product and Packaging Lifecycle... 46 Exhibit I-9: Value vs. Volume Changes to Monitor... 48 Exhibit II-10: Project Interviews Conducted... 52 Exhibit II-11: Overview of Supply Chain Drivers from the Consumer to the Supplier... 57 Exhibit II-12: Ranking of Most Important External Factors Brand Owners... 66 Exhibit II-13: Ranking of Most Important External Factors Converters... 67 Exhibit III-14: How Offshore Manufacturing Impacts Packaging... 69 Exhibit III-15: U.S. Retail Sales by Channel (2009 2011)... 71 Exhibit III-16: U.S. Retail Sales of Select Verticals by Channel (2009 2011)... 72 Exhibit III-17: Private Label Products with High Consumer Satisfaction... 78 Exhibit IV-18: Food Vertical Packaging Use by Application (2010 2015)... 86 Exhibit IV-19: Food Vertical Packaging Used by Provider (2010 2015)... 87 Exhibit IV-20: Select Sub Verticals Manufacturers Revenue 2010 (U.S. $ millions)... 88 Exhibit IV-21: U.S. Retail Food Sales Through Mass Merchants (2009 2011)... 91 Exhibit IV-22: Beverage Vertical Packaging Use by Application (2010 2015)... 93 Exhibit IV-23: Beverage Vertical Packaging Used by Provider (2010 2015)... 94 Exhibit IV-24: Select Sub Verticals Manufacturers Revenue 2010 (U.S. $ millions)... 95 Exhibit IV-25: Household Products Vertical Packaging Use by Application (2010 2015)... 99 Exhibit IV-26: Household Products Vertical Packaging Used by Provider (2010 2015)... 100 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications vii
Exhibit IV-27: Select Sub Verticals Manufacturers Revenue 2010 (U.S. $ millions)... 101 Exhibit IV-28: Personal Care Vertical Packaging Use by Segment (2010 2015)... 103 Exhibit IV-29: Personal Care Vertical Packaging Used by Provider (2010 2015)... 104 Exhibit IV-30: Select Sub Verticals Manufacturers Revenue 2010 (U.S. $ millions)... 105 Exhibit IV-31: Healthcare Vertical Packaging Use by Segment (2010 2015)... 107 Exhibit IV-32: Healthcare Vertical Packaging Used by Provider (2010 2015)... 108 Exhibit IV-33: Select Sub Verticals Manufacturers Revenue 2010 (U.S. $ millions)... 108 Exhibit IV-34: Brand Owners Willingness to Pay More (from Vertical Interviewees)... 115 Exhibit IV-35: Ranking of Most Important External Factors Brand Owners... 116 Exhibit IV-36: Brand Owner s Impressions on Suppliers Responsiveness... 117 Exhibit V-37: Distribution of North American Packaging Graphic Services to GSPs (estimated for 2010)... 122 Exhibit V-38: North American Printing Process by Application (2011)... 127 Exhibit V-39: North American Folding Carton Use by Key Verticals and Sub-Verticals (2005 2015)... 130 Exhibit V-40: North American Corrugated Use by Key Verticals and Sub-Verticals (2005 2015)... 136 Exhibit V-41: U.S. Corrugated Imports and Exports 2010... 137 Exhibit V-42: North American Flexible Packaging Use by Key Verticals and Sub-Verticals (2005 2015)... 141 Exhibit V-43: North American Label Use by Key Verticals and Sub-Verticals (2005 2015)... 145 Exhibit V-44: Estimated Label Volume by Number of Labels per Job (2010) North America... 148 Exhibit VI-45: The Upstream Supply Chain Scorecard (2011) North American Retailers... 151 Exhibit VI-46: The Product and Packaging Lifecycle Historical View... 154 Exhibit VI-47: Concentration of U.S. Brand Owners by Sub-Vertical (2010)... 155 Exhibit VI-48: U.S. Top 5 Folding Carton Converter Share (2011)... 156 Exhibit VI-49: U.S. Top 6 Corrugated Converter Share (2011)... 157 Exhibit VI-50: U.S. Top Flexible Packaging Converter Share (2011)... 158 Exhibit VI-51: U.S. Top Label Converter Share (2011)... 159 Exhibit VI-52: Converter Production Requirements Original Model More Volume, Fewer Orders... 162 Exhibit VI-53: The Product and Packaging Lifecycle Today's View... 163 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications viii
Exhibit VI-54: Impact of SKU Proliferation on Converters New Model More Orders, Less Volume... 164 Exhibit VI-55: Impact of SKU Proliferation on Operations Original Model vs. New Model... 164 Exhibit VI-56: Impact on Converters by SKU Proliferation... 165 Exhibit VI-57: The Value Segment... 166 Exhibit VI-58: The Volume Segment... 168 Exhibit VI-59: The Irritation Segment... 170 Exhibit VI-60: Interviewees Brand Owner Ratings Packaging Functionality vs. Cost... 171 Exhibit VI-61: Interviewees Brand Owner Ratings Packaging Types... 171 Exhibit VI-62: Interviewees Brand Owners Willingness to Pay a Premium (Overall)... 172 Exhibit VI-63: Interviewees Brand Owners Willingness to Pay a Premium (Price Buyers)... 173 Exhibit VI-64: Interviewees Converter Orientation Value vs. Volume... 174 Exhibit VI-65: Interviewees Brand Owners Would you be Willing to Pay a Price Premium?... 175 Exhibit VI-66: Interviewees Converters Would your Customer be Willing to Pay a Price Premium?. 175 Exhibit VI-67: Importance of Unmet Needs for North American Brand Owners & Retailers (2011)... 178 Exhibit VI-68: Impact on Level of Interest with a 15% to 20% Price Premium... 179 Exhibit VI-69: Interviewees Corrugated Converters View Tendency of Verticals Value vs. Volume... 181 Exhibit VI-70: Interviewees Carton Converters View Tendency of Verticals Value vs. Volume... 182 Exhibit VI-71: Interviewees Flexible Converters View Tendency of Verticals Value vs. Volume... 183 Exhibit VI-72: Interviewees Label Converters View Tendency of Verticals Value vs. Volume... 184 Exhibit VI-73: Brand Owners Opportunities for Value and Volume Solutions by Application... 185 Exhibit VI-74: Materials Opportunities by Application and Vertical... 187 Exhibit VI-75: Packaging Materials Development Value vs. Volume... 188 Exhibit VI-76: Inks & Coating Developments Value vs. Volume... 189 Exhibit VI-77: Print & Imaging Developments Value vs. Volume... 189 PRIMIR Packaging: Evaluation of Vertical Markets & Key Applications ix