The packaging industry continuously evolves. End-consu-mer preferences are changing, sustainability is growing in importance, and brand owners are increasingly fighting for shelf-space. There is fierce competition among both retai-lers and brand owners, leading to strong focus on cost ef-ficiency. But how will packaging be affected by the ongoing developments and trends? What will brand owners of the future consider as critical when assessing and eventually selecting their provider of packaging solutions? This view-point will discuss potential developments and underline key areas for the food packaging industry in 2016 and beyond.

Introduction to the food packaging industry The food packaging industry is broad and includes a wide array of segments, packaging alternatives, and packa-ging materials. Dominant end-use sectors include proces-sed food, fresh food and beverages. The three dominant packaging alternatives used are primary, secondary, and tertiary: primary packaging is used in direct contact with the

Food packaging viewpoint - 2016 and beyond

products; secondary packaging combines several primary packages; and tertiary packaging is used for transportati-on purposes by combining several secondary packages.

Of the total global packaging market, fibre based mate-rials (including corrugated, carton, liquid carton, etc.), rep-resent 31% of the total value. Within corrugated materials, food is the largest end-use market, accounting for about 40% of the total consumption. The total global consumption volume of corrugated board is projected to grow at a CAGR of 4.3% up to the year 2017 (Smithers Pira: The Future of Global Markets for Corrugated Board Packaging to 2017).

This viewpoint will focus primarily on packaging aimed at protecting and transporting a product, i.e. secondary packaging. However, as there are commonalities with other types of packaging as well, several of the conclusions will be valid also to primary packaging. We will also address those aspects where the packaging has an additional pur-pose to, e.g., communicate a message, create awareness or to support differentiation of food products.

Stora Enso viewpoint 1/2014

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The food packaging value chain

Value chain dynamics – i.e., the power play between the diffe-rent value chain steps – continuously evolve over time. From a packaging perspective there are at least six specific deve-lopments:1. Retailers generally gain more power as markets mature. In

mature markets, e.g., Finland, Sweden, the UK, or Fran-ce, retailers already dominate the value chain; in emerging markets, however, e.g., in Russia, brand owners still tend to have a relatively strong position. However, this situation is likely to change as retail consolidation moves forward and retailers begin to more aggressively promote their private label products as in mature markets.

2. Evolving consumer behaviors also impact the value chain. Increasingly informed, demanding, and value-oriented con-sumers exert price pressure on the retail market, pushing the already fierce competition amongst brand owners and retailers even further.

3. The role of logistics providers will grow as a potential lever for operational efficiency. The trend of increasing product and packaging variations, further enhanced by the growth of online retail, will make the need for efficient logistics so-lutions even stronger.

4. The growth of online retail will be a game-changer in food retail, as it opens a completely new competitive dimension. This will not only affect retailers and online operators, but also other players in the value chain that have to adapt to the new requirements and online-tailored solutions genera-ted by this development.

5. Consumer demands for more sustainable solutions com-bined with intensified regulatory requirements regarding ex-tended producer responsibility will affect the whole value chain going forward. New legislative measures may focus on taking responsibility for used products and subsequent management of waste with financial responsibility. Therefore, material choices are likely to be reevaluated.

6. Brand owners are squeezed by strong retailers and try to differentiate their offerings. One area that receives specific attention is how to extend the shelf life of food products, where also packaging is a major influencer.

Overview of key trends and their implica-tionsThe food packaging industry faces five major trends that will affect the future of the respective players in the value chain. 1. Increasing importance of design and shelf standout: In

the increasingly competitive retail landscape, differentiati-on and product standout will grow more important. Brand owners and retailers alike are increasingly fighting for con-sumers’ attention at point of sale, and use packaging as a tool to do so. Secondary packaging will grow in importance as a brand vehicle and retailers and brand owners will inc-reasingly invest in higher quality printing and differentiating design solutions.

2. Increasing competitive intensity in the value chain drives cost focus: The increasing competitive intensity will drive the players in the value chain to cost reduction measures and optimization of their operations. Packaging and related logistics solutions will be part of these measures.

3. Sustainability and environmental friendliness are gro-wing in importance: Increasing end-consumer pressure and intensifying regulations in the area will lead to an in-creased focus on environmental aspects throughout the value chain. Retailers and brand owners alike are upping their game, changing sustainability from a buzzword to an actual business issue.

4. Intelligent packaging will grow stronger in the future: Intelligent packaging has been an important topic for many years, and will be just as important in the future. Solutions like RFID, sensor technology, etc., have emerged in some markets; the trend has not been as strong, however, in smaller markets like Finland and Sweden, it will still take time before brand owners and retailers implement these solutions on a full scale.

5. E-tailing volumes will continue to increase: Online food retail will experience strong growth in the future, driven by consumers’ requirements for convenient and time-saving alternatives for grocery shopping. This will lead to new de-mands regarding transport packaging as it will need to en-sure that the food has been safely handled and is free of tampering, at the same time as complex logistics challenges have to be addressed.

These trends will have implications for all players in the value chain, but to different degrees. As brand owners are the focus of this viewpoint, they will be covered in detail in the next section; the effects for retailers, online retailers and logistics will be covered in brief here.

Note: CCM = Corrugated Case Material

Contract filling

/packers

Logistics providers

Brand owner

Logistics providers

Consumer

Converting (incl.

corrugation)Warehouse

Wholesale

RetailDesign

Online

Retail

Recycled fibre

Virginfibre

Recycled CCM

Virgin CCM

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Retailer’s future outlook

Competition will continue to be fierce in the retail segment, making cost the center of attention. To increase profitability retailers will increasingly look for solutions to improve in-store efficiency, e.g., shelf-ready packaging that is easy to unpack, easy to handle, and easy to dispose of. Post consumption is an area that retailers are focusing on, demanding thinner and lighter secondary packaging in order to save space. Ease of disposal is important also from a retail staff perspective, as handling used boxes is considered as unergonomic and time consuming. Further, retailers will increasingly seek logistics-friendly packaging solutions through which they can optimize stock-keeping, call-off times, pallet use, and other aspects of their operations.

Secondary packaging will not only assist retailers in redu-cing cost, but will also be important from a brand point of view as retailers increase their private label portfolios. The growth of private labels will lead to a change in relative importance bet-ween primary and secondary packaging. Secondary packa-ging will increase its presence in in-store logistics. The packa-ging providers will need to meet this trend by differentiating designs in order to secure shelf stand-out and point-of-sale effectiveness.

The growing share of online sales will affect retailers dra-matically, opening a totally new channel to interact with consu-mers. Retailers now become responsible for ensuring that the ordered products are delivered intact and in good condition to the consumer. In order to respond to this trend, retailers may strengthen their competitive position by securing that the on-line channel and offered services are well interlinked with the physical stores to provide one integrated customer experience. Packaging plays a very important role in achieving this.

Besides securing online sales, retailers need to handle the cannibalization effect online has on physical store sales. Especially traditional retailers, who have made large capital in-vestments in store networks, need to address the risk of lower capital utilization as sales shift online and as a consequence reduces the space requirements in traditional stores.

Further, retailers are increasing their focus on sustainability and environmental issues in order to manage consumer de-mands and regulatory requirements. Retailers will focus even more on environmentally friendly products, making their stores more sustainable, and reducing food waste. They will also work more actively with supplier requirements in order to ensure sus-tainability in the whole value chain.

Online future outlookThe role of secondary packaging in transport will be increased significantly. The products must be transported in a safe man-ner, imposing new structural demands (e.g., liquid/moisture resistance features) on packaging. Consumers, in turn, are in-creasingly expecting shorter times between order and delivery, creating challenges for both packaging and product producers. As a consequence, there will be an increasing pressure on fle-xibility of deliveries.

Packaging solutions have potential to be further optimized for online logistics. As a consequence of increased individuali-zed orders, the demand for flexible and multipurpose packaging will increase. Thus, the balance between an one-size-fits-all so-lution and tailored secondary packaging has to be optimized. Brand owners state that they have so far been less impacted by online demand and that the challenges lie further down the value chain. However, it is likely that retailers of the future will impose demands on brand owners to develop packaging systems and solutions optimized for online distribution, in the same manner as they today impose requirements for efficient in-store packaging through, e.g., retail-ready packaging features.

Logistics future outlookLogistics is expected to gain importance in the overall value chain. Safe and secure transportation of goods has to be en-sured at same time as tackling the new supply chain challen-ges. Lowering food waste will be one of the real challenges of the logistic flow of food. The growth of online retail, discussed above, will set new requirements on the logistics operations. Current solutions, including packaging solutions, will not suf-fice in the new environment, but need to be adjusted and ret-hought. By providing smart packaging solutions the efficiency of the logistics operations can be increased. Improvements such as optimized loading/ filling, stacking, and weight reduc-tions can be used to drive costs down and make operations run more smoothly. Automated and integrated supply chain set-ups will be further elevated as means of end-to-end opti-mization. Examples of such efficiency improvement measures applied today include just-in-time methodologies (JIT), vendor managed inventories (VMI), and electronic data interchanges (EDI). Flexibility and ability to adapt to changes will be increa-singly important in the future, both for logistics players and packaging providers.

Key success factors The trends discussed above, and their impacts at stages further down the value chain have implications for how a brand owner should act. Success will come from focusing on at least five di-mensions. Consequently, packaging providers must ensure that these five dimensions are addressed to support brand owners.

Text

Support brand value

building

Optimize operations

Reduce cost

Enable basic functionality

Communicate the value of

being sustainable

Key success factors for packaging in 2016 and

beyond:

1. Enable basic functionality

Basic functionality is about meeting the agreed requirements and having the needed capabilities to qualify for the order. The main task of packaging in the food industry is providing security and protection for the products throughout the supply chain. To deliver basic functionality at the correct level the following areas should be considered:

2. Reduce cost

It will be increasingly important for packaging to help decrease costs, both in terms of the packaging itself but also the sur-rounding cost elements. Cost innovations will come in three key dimensions: • Solution: An innovation that redefines the packaging solu-

tion in order to reduce costs is one of the most important activities of a packaging provider. This type of cost innova-tion puts the focus on the problems that packaging needs to solve, adopting a holistic perspective. A typical example is the integration of primary and secondary packaging.

• Process: An innovation that optimizes how the box is used. This type of innovation looks at what can be changed in usage to reduce cost. Examples include redesigning packa-

ges in order to fit more on the same pallet, thus improving loading capabilities

• Features: An innovation that focuses on improving the ac-tual packaging functionality. This is the nature of most cost innovations today. Examples include light weighting or right-sizing of packaging. Feature innovation calls for thorough understanding of the entire process, and serves as a basis for fit-for-purpose package design.

3. Optimize operationsPackaging suppliers are not restricted to delivering the packa-ging, but they need to assist in enabling customers’ operations to run more smoothly. Packaging providers may assist in optimizing the supply chain by providing an array of operations services.

Reliable and flexible inbound logisticsPackaging suppliers may assist in increasing the reliability and responsiveness of inbound logistics by proving just-in-time (JIT) logistics set-up with short call-off times, vendor managed in-ventories (VMI) ensuring availability, and establishing electronic data interchange (EDI) to exchange data in an automatic, swift and correct manner. Flexibility and speed are of the essence in managing fluctuations in demand in an effective way.

Disturbance free productionSecuring high utilization of production lines is key for brand owners, as disturbances and production stops induce high costs. As the variety of packages increases, the challenges get even bigger as the packaging line must be able to hand-le the greater variation but at the same time remain cost effi-cient. Packaging suppliers can assist with optimizing packing lines to enable an efficient and flexible production of a high variety of products. In addition, risk planning and mitigation by troubleshooting bottlenecks and critical parts of the process, thus preventing downtime in a proactive manner, will be key in securing disturbance-free production. This risk planning may be done in cooperation between machine developers, brand owners, and packaging suppliers.

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Secure consistent

performance

Meet requirements

Support withservice

Consistency is a must in several dimensions, e.g., surface design, structural capabilities, printing performance, run-ability, and quality of final product. Delivery consistency is aligned across borders and between different plants.

Products are designed to meet specific customer requirements, whether they are related to durability and firmness for protection and transportation or to the ability to provide solutions for retail-ready packaging to retailers

High reliability and precise deliveries supported by both flexible and fast responses in case of production disturbances.

Creating cost innovation in 3 steps:

• Improve what is already there

Features

Process

• Improve how the box is used

Solution

• Look beyond the box to find solutions that meet the requirements

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In-store efficiencyPackaging suppliers play a key role in assisting brand owners in resolving their customers’, i.e., the retailers’, efficiency chal-lenges. By suggesting designs incorporating, e.g., retail-ready packaging features or pallet-optimizing dimensioning, brand owners may efficiently address the needs of their customers.

4. Support brand value building Packaging design will receive more focus from a marketing and sales perspective. Brand owners face fierce competition on the retail shelves not only from competing brands, but also from the retailer’s private label introductions. Graphic design and visual impact play important roles in packaging to help consumers recognize and remember brands in a competitive environment. A classical marketing framework recognized at most universities is the 4P model: product, place, price and promotion. To further develop this model, packaging also needs to be included, as packaging plays a key role in differentiating the product in the stores and attracting attention at points of sale.In the future, packaging will work as an increasingly important tool in the brand owners’ marketing mix. In short, the key areas where packaging will help brand owners are:

• Capturing end-consumer attention at point of sale• Influence the perceived brand value• Create brand awareness• Differentiate products, e.g. economy vs. premium • Convey green image with a renewable and recyclable

product• Protection, so both the content and the box looks good

when they arrive

Packaging

Promotion

Price

Place

Product

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5. Communicate the value of being sustainable Sustainability considerations will become an increasingly impor-tant product attribute influencing shopper decisions. Consumer attitudes towards the environment have changed and this trend will continue as natural resources are depleted and waste be-comes a bigger problem. In 2016 and beyond, sustainability will be a serious theme, no longer merely a word. In particular packaging providers of corrugated materials can contribute to making the world sustainable because such materials • are made from fibre where the origin can be traced • are from renewable raw materials• are recyclable• helps fulfill EU targets with extended producer responsibility

for re-use and the recycling of waste

Adding extra value

So, is mastering these five key success factors, and demonstra-ting successful cases, going be enough in 2016 and beyond? We believe that this will only be the baseline for success. We believe that success stories do not come from reactive respon-ses, but from proactively providing total solutions. In order to become a true packaging partner, suppliers need to consider not only what they can provide, but also how these solutions are delivered.

The first step to add value beyond supplying a brown box is to deliver proactivity. In other words, having the capabilities to resolve the customer’s business issues is not enough if the-se capabilities are exercised in a reactive manner. A packaging supplier will need to be able to proactively suggest innovative improvements based on insights and expertise. Packaging suppliers must become much more active and constantly strive to challenge current solutions in order to find new and better solutions suitable for tomorrow’s needs. A way of becoming more active is facilitation of joint-development with customers, e.g., at design studios. Here the packaging solution provider and the customer have an opportunity to together come up with innovate solutions for the value chain and the consumer.

In order to be considered a true partner, the packaging supplier needs to be able to address the total scope of the customer’s packaging needs, and not be restricted to offering only selected services. Suppliers will need to challenge them-selves and adopt a holistic perspective in order to find solutions that look beyond optimizing only primary, secondary or tertiary packaging, or providing only one type of material. A solution includes several components, e.g., exterior, inner packaging, accessories, or services. Packaging suppliers will need to use the full scope of the fiber-based portfolio, but also include multi-material knowledge and solutions, in order to solve problems.

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SituationThe customer, Epicur, was producing and selling poultry and eggs in central Russia. The company had started a project to develop new packaging for eggs under the brand “Leto”, and requested Stora Enso Packaging So-lutions’ assistance in developing a new and innovative solution for the new product line.

Proposal Stora Enso Packaging Solutions provided a new rigid structural design, proposing the use of corrugated ma-terial. The solution also included the development of an eye-catching and attractive design in order to appeal to the consumer at point of sale.

Results• Shelf utilization increased from eight boxes to 11-12 boxes• Sales increased by 40%• The new design raised the number of boxes that could be stacked in

one truck by 60%• The size of the box was reduced by 20%• The rigid structure significantly reduced the amount of breakage, allowing

the packages to be carried more easily by consumers and securing sa-fety during transportation.

Increased logistics efficiency Reduced box sizeIncreased sales Shelf space utilization

+40,0%

Sales afterSales before

Sales volume

+60,0%

Boxes afterBoxes before

Filling of trucks

-20,0%

Size afterSize before

Box size

+37,5%

Boxes before Boxes after

Number of boxes fitting in shelf

Case: Increasing egg sales by 40% through design improvements

Moving beyond the baseline

To further excel, packaging companies must:

• Proactively suggest innovative improvements based on insights and expertize

• Actively challenge the status quo, push new ideas and find new technologies that will help customers in their business

Holistic solution

Proactive

Key success factors

Understand the big picture to deliver performance:

• Develop interior and exterior solution

• Find synergies between primary, secondary and tertiary packaging

• Use the full width of the fiber based portfolio and even consider multi-material knowledge

The 5 key success factors form the base of a satisfying customer needs:

• These areas show what will be important for brand owners, but to take the next step in adding value packaging suppliers must also work on how they deliver the 5 areas

“Proactivity would be a real differentiator for a packaging supplier”

– Brand owner, packaging development director

Text

Support brand value

building

Optimize operations

Reduce cost

Enable basic functionality

Communicate the value of

being sustainable

Key success factors for packaging in 2016 and

beyond:

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Contacts

Retailer power in the value chain is high, and retailers are projected to continue to increase their dominance through consolidation and private label introduc-tions. In this competitive setting packaging is gaining a more important role, both as a lever to reduce cost and as a tool to increase sales. Moving forward the food packaging industry will be shaped by five key trends that will have substantial implications for the entire value chain. These trends are:1. Increasing importance of design and shelf standout 2. Increasing competitive intensity in the value chain driving cost focus3. Growth in importance of sustainability and environmental friendliness 4. Future growth in importance of intelligent packaging 5. Continuing increases in e-tailing volumes

Five key success factors can be isolated that will shape packaging in 2016 and beyond: • Enable basic functionality: the basic need to ensure reliable high-quality

packaging that is tailored to its purpose.• Reduce cost: there will be a need for innovation in packaging solutions,

processes and features to reduce costs for brand owners.• Optimize operations: brand owners do not only need a box, they need a

reliable and high-performing packaging operation.• Support brand value building: packaging design will be increasingly impor-

tant from a marketing and sales perspective. • Communicate the value of being sustainable: sustainability considerations

are increasingly influencing shopper decisions, and as awareness grows value must be better communicated.

These areas address aspects that will be important for brand owners, but to take the next step in adding value packaging suppliers must also work on how they deliver in the five areas.• Brand owners will require packaging companies to proactively suggest

innovative improvements based on insights and expertise. Thus, reactive responses to customer-initiated development activities will not be enough.

• Brand owners will require packaging companies to deliver a total solution addressing the entire scope of their packaging needs. Suppliers will need to adopt a holistic perspective, not only providing services within one packa-ging category or packaging material.

So what is Stora Enso Renewable Packaging offering to meet these challen-ges and addressed aspects? • We focus on proactively suggesting innovative packaging solutions for our

customers to enable less weight, less waste, less unused space, and less impact on the environment.

• We’re happy to provide our global packaging expertise to support our customers to strengthen their brands with attractive design that stands out on the shelves, innovative constructions and materials for optimum performance and lower cost.

• We strive to minimize our impact on the environment and actively work to help our customers create sustainable resource efficiency. We do this by using renewable raw materials as well as our own recycling organizations to take care of our customers’ recycling needs.

Executive summary

Hannu AlalauriSenior Vice President Stora Enso Renewable Packaging, Packaging SolutionsEmail: hannu.alalauri@storaenso.com

Björn ThunströmVice President Marketing & Customer LoyaltyStora Enso Renewable Packaging, Packaging SolutionsEmail: bjorn.thunstrom@storaenso.com

Fredrik StenssonMarketing Manager Stora Enso Renewable Packaging, Packaging SolutionsEmail: fredrik.stensson@storaenso.com