Tony Smurfit, chief operations officer at Smurfit Kappa Group, talks to Tim Sykes about the driving trends in the transit packaging segment, the position of corrugated packaging, and his own company's drive to spread the word about its all-round excellence.
Tim Sykes:
From your observations what are the big market drivers in secondary and tertiary packaging?
Tony Smurfit:
The biggest driver today is undoubtedly the move towards more display-ready packaging. This means more print and more colour so that private label or branded products in the supermarket catch the eye of impulse buying consumers. I've heard of research which indicates that only 20-25 per cent of purchases on the retail floor are pre-planned, which leaves a great deal of purchase decisions that can be influenced by packaging.
The rise of display-ready packaging is therefore a huge trend, reflected in the exponential growth in both coated and regular recycled and Kraftliner white papers. It has been broadly recognised that it's no good having nice looking primary packaging if the secondary packaging undermines the visual appeal. On the other hand, in some cases it is possible to downgrade primary packaging if the secondary packaging has been upgraded. The opportunity to put secondary packaging on the shelf allows you to be very innovative. There are plenty of examples of this in Smurfit Kappa, from our 3D Store Visualiser to the way we perforate boxes to optimise the visual impact of the product inside.
Clearly, this trend is ultimately driven by the need to eliminate costs in the store and the supply chain. Opening up a box and putting it on a shelf takes about a third of the time of store filling. In this context, this transition to shelf-ready packaging has been accelerated by the recession. Since the start of the crisis people have been more careful about their purchases. Slightly smaller quantities are being sold, individual shopping trips are downsized. A consequence of this is that discount retailers such as Lidl and Aldi have experienced growth. It was the low cost retailers which pioneered shelf-ready packaging as they sought to cut costs by eliminating the step of filling up displays on the shop floor. These retailers subsequently led the push for higher quality packaging, recognising that putting an unattractive box on the shelf was counterproductive, a false economy. So these kinds of discount retailers were at the forefront of the trend, which gained momentum as other retailers got behind it. Today a lot of the new machinery installed across the industry has printers behind it.
Tim Sykes:
How is the industry responding to the growth of e-commerce?
Tony Smurfit:
Whereas books and magazines are seeing displacement as a result of the internet, e-commerce is a good news story for packaging companies. Mirroring the trend in physical retail spaces, we are beginning to see a shift from lower specification packaging, e.g. a scruffy looking brown box, to branding the products that arrive at your door. At the moment the high quality internet retailers are doing this. I think we'll gradually see more and more mid-level e-commerce adopting high quality packaging.
Tim Sykes:
Where are the key points of competition between corrugated and competing materials in secondary/tertiary packaging and how is it faring?
Tony Smurfit:
Corrugated is an incredibly versatile material in terms of size, thickness, grades of fluting. You can play with corrugated endlessly to fit any purpose. In addition, there is great flexibility with regard to colour and appearance.
From a sustainability point of view, its renewable feedstock can be monitored through Chain of Custody and at the end of life it is 100 per cent recyclable. Even if it ends up in the ground it will decompose. We contend that return trip plastic containers have a greater environmental impact in terms of energy use, as well as being more expensive. They are also associated with water wastage, since, unlike corrugated, plastic crates need to be washed after usage. Obviously, this is an argument which goes to and fro and it is one that the corrugated industry hopes to win.
The world is looking for ever lower costs and decreased environmental impact. In response, corrugated is moving to lighter weight packaging which is still fit to use: we are using ever thinner papers, a trend that has accelerated as newer paper machines have come into the market.
Tim Sykes:
Smurfit Kappa recently unveiled its 'Open the future' brand strategy, the result of a year- long global research programme to establish what brand owners really from the packaging industry. What is 'Open the future about and what does it reflect in terms of the placement of the business?
Tony Smurfit:
One of the things we have been doing since the merger with Kappa Packaging in 2005 is harnessing the combined capabilities of the organisation by implementing the best systems and ideas. Smurfit Kappa now has over 41,000 employees, including 700 designers, who can generate an enormous amount of innovation. 'Open the future' is another step in this process of harnessing the potential of the company. We want to explain to our customers how we can give them insights as to how they can sell more. We have a great deal of intelligence about the marketplace that we can share with them, tests that we do for our customers, and tools such as the Store Visualiser.
We are opening an experience centre in Amsterdam's Schiphol airport so that lots of our customers can easily visit in one day and we can open their eyes to our capabilities and the future possibilities of what Smurfit Kappa can bring them.
I'll give you a recent example of how we can work with a customer. We spent a year helping a partner develop standardisation across their corrugated packaging throughout European, standardising the colours, making sure they have the right stock, fine tuning their supply chain. At the end of the process the customer was astounded by the results and the savings, and we won a tremendous amount of business as a consequence. This was down to the insights into their business that we were able to share with them.
This is very much the way we are looking to work with all of our forward thinking customers today.
We operate in every country in Europe and we are nearly the number one or number two in every one of them. In addition to the major experience centre in Amsterdam we have local centres at the headquarters/manufacturing plant in each country. These are on a smaller scale but offering a great deal of local expertise.
When people visit one of our plants they see the same cleanliness, together with efficiency and significant investment, when they visit our experience centre they are amazed by the level of innovation, when they visit our paper mills they see the amount of investment that goes in. They know we are good on costs, ethics, environment and service. All of this also comes down to the quality of the people who work for us. Part of our mission is to let the public know how important we are to their lives. The more that people understand the role that packaging plays, the more we will attract people and skills into the industry. Part of the role of the experience centres is to sum up all of these things and show the world what kind of company we are.
Tim Sykes:
The last point you made chimes with the comments of a previous Big Interviewee, Erik Bouts of O-I Europe, who told us that he wants to reposition glass as a business to consumer industry. Is your approach analogous to this?
Tony Smurfit:
At the end of the day we all have to feel we are relevant to the markets we serve. If you are a pure commodity, you are not going to add any value to your supply chain. Anyone can make a brown box and sell it cheaply but eventually they will not make enough return for their shareholders and go out of business. The only sustainable solution is to find a way to add value to the supply chain. At the same time, you won't get enough business if you are being innovative and charging too much. You need to find the balance between being the perfect service provider, making yourself relevant, and achieving a return for your owners.
At Smurfit Kappa we are particularly proud of the fact that we are investing 420 million Euros this year across many different businesses: investing in bag-in-box, in completing a large plant in Spain, upgrading mills in our paper business, numerous machines for corrugated lines across Europe and Latin America, in MG papers - the list goes on. Such investment is what underpins our ability to stay relevant and innovative while manufacturing on a competitive basis.
Tim Sykes:
Which markets do you identify as key to Smurfit Kappa's next phase of growth?
Tony Smurfit:
We have a large business in Latin America, where we have been investing heavily. We recently made an acquisition in the northern Mexico area. That region is growing very strongly again as growth lost to China starts to come back due to logistics costs and complications. We are also looking seriously at the USA, where we currently have a small presence in Texas and California. When we look at the macro trends towards onshoring and the general state of the US economy, which is more dynamic than the European economy at the moment, together with our skill set, we see that as an area of opportunity for us.
As for Europe, there are particular segments and even countries that are performing strongly and we are investing behind these, whether it is bag-in-box, MG or sack paper. In other markets it is difficult because there is very little growth. In these we are investing in cost reduction measures so we remain competitive and survive whatever storm is out there.
