While storing food in containers is a practice that is thousands of years old, and selling food in bottles and cans is prevalent since 1700s and 1800s respectively, the modern age of food packaging began in 1890s. Crackers were first sold in sealed waxed paper bags inside a paperboard box and plastics and other synthetics began to appear in the 1920s and ’30s.
That being the background, today the packaging industry is growing at a fast pace and rides on increased industrial production and international trade. The demands on package converters have become more intense and sophisticated.
Interestingly, while India has the second-largest GDP among emerging economies based on purchasing power parity and is the fourth largest economy in terms of purchasing power parity, the packaging industry in the country is one of the fastest-growing industries which has its influence on all industries.
Rapid growth
The Indian packaging industry is growing continuously. Its total worth is about US$24.6 billion. The average annual growth rate is about 13 - 15%. However, there is great growth potential in the sector since India’s per capita consumption of packaging is only 4.3 kg whereas Asian countries like China and Taiwan show about 6 kg and 19 kg, respectively. This clearly indicates that there are many more commodities which need to be marketed in packaged condition and thus, a great business opportunity stands for the Indian packaging industry.
Moreover, the Indian retail market is the fifth largest retail destination globally and has been ranked the second most attractive emerging market for investment. The market is currently valued at US$350 million and is expected to rise to US$1.3 trillion by 2015. The packaging industry is expected to grow at a CAGR of 12.3% during the forecast period, to become the fourth-largest global market, with sales of US$43.7 billion in 2016.
Two challenges
Manufacturers of consumer packaged goods face two key challenges in 2015. The first is continued slow or negative growth in people’s disposable incomes. The second is changing consumer attitudes toward products and brands, as the the great fragmentation of consumer markets takes another turn. In response, companies must dramatically shift the route they take to reach consumers in terms of both product distribution and communications.
In many markets, consumer wages have been static for five years. Even where economies are starting to perform better, the squeeze on after-tax wages, especially for the middle-class, younger people, and families, is affecting consumer spending. Although growth in developing countries is still better than in the United States and Europe, a slowdown in emerging countries such as China — where many companies had hoped for higher sales — has translated quickly into lower-than-expected consumer spending growth. It is expected to continue regardless of which way macro GNP uncertainties break.
Consumer behaviour
Fragmentation is manifested in consumer behaviour and market response. In both developed and emerging markets, there is a wider variety among consumers now. Growth is evident both at the top of the market (where more consumers are spending for higher quality food and other packaged goods) and at the lower end (where an increasing number of consumers are concentrating on value). But the traditional middle of the market is shrinking.
Further, individual consumer behaviour is more pluralistic. We are used to seeing, for example, spirits buyers purchasing a premium brand in a bar, a less-costly label at home for personal consumption, and yet another when entertaining guests. But this type of mixed shopping has now spread to the grocery basket. Fewer consumers are making one big stocking-up trip each week. Instead, shoppers are visiting a premium store and a discounter as well as a supermarket, in addition to making frequent purchases online. In the recession, more shoppers became inclined to spend time hunting for bargains, and as some traditional retailers either went out of business or shuttered stores, retail space was freed up and was often filled by convenience stores, specialty shops, and discounters.
Multiple channels
A decade ago, companies had only a handful of sales channels to consider - supermarkets, convenience stores, hypermarkets in advanced economies, and traditional small and large retailers in emerging and developed countries. Economising consumers have been pleasantly surprised by the savings generated by spreading their business among multiple channels, as well as by the variety and product quality they find. We will see more and more such behaviour, and continued experimentation and innovation by retailers as they try to respond.
The result has been greater demand for more products and brands, with different sizes, packaging, and sales methods. At most companies, SKUs (stock keeping units) are proliferating, despite there being little increase in overall consumption. A better outcome can be seen at smaller food and beverage suppliers, which are benefiting from consumer demand for variety and authenticity.
Consumers’ media usage has also fragmented with the rise of digital content and the proliferation of online devices. Each channel — from the web, mobile, and social sites to radio, TV, and print — has its own requirements, audience appeal, and economics, needing specialised attention. But at the same time, media campaigns need to be closely coordinated for effective consumer messaging.
Collectively, these shifts challenge the way companies manage their brand and business portfolios, and call for a rethinking of their go-to-market approach, with an emphasis on analytics. Among business leaders, applying analytics — especially for tracking consumer behaviour and product and promotional performance — is considered one of the most effective ways to improve results and outpace the competition. But it’s not just about insight; it’s also about using the insight wisely to determine how to manage costs. The more knowledgeable about customer needs and preferences a company is, the smarter and more focussed it must be in managing its own economics to cost-effectively deliver both variety and value to the squeezed consumer.
Attention to cost
This attention to cost does not mean simply a pruning of the portfolio of lagging products, but realignment around a more intelligently chosen set of brands that cover the spectrum of consumer needs efficiently, with minimal overlap. Indeed, the ability to handle product line complexity cost-effectively can in itself become a competitive advantage. In many cases, companies will need to expand the overall brand and product footprint in order to reach imperfectly served consumer needs and proliferating retail channels. They may have to serve premium channels, but also serve discounters — or outcompete discounters with their own value brands.
In the same way, as companies move to cover more retail channels, they need to simplify trade terms and promotional spending. Managing the wide variety of outlets and marketing opportunities is not a simple, cut-and-dried activity. Over time and especially during the recent recession, marketing and promotion campaigns have proliferated and overlapped as companies have desperately chased limited sales volume. Rationalisation and simplification are overdue. Current practices add cost for both companies and retailers, far beyond their contribution to industry growth. Analytics can help with this job too. They tell you which marketing efforts work and which are failing, and why, as well as which single campaign can do the job of several initiatives.
Large companies may also need to minimise and concentrate their business portfolios to succeed in a more fragmented marketplace, rethinking entire categories of brands. Adapting to the fragmentation of marketing channels has stimulated many companies to innovate in managing more digital merchandising and communications paths. What they need now is to move on in the innovation cycle, and identify and double down on what really works, as opposed to what is merely possible or interesting or promising. For many, it is time to consolidate the lessons from using digital channels. They can apply a new generation of analytics’ capabilities to assess, monitor, and focus investment in communications that are successful. In the process, they can add valuable insight for retailers, which often see their shoppers in aggregate, but are somewhat blind to the preferences of the individual consumer.
The good news is that the data and analytics capabilities that underlie effective multichannel delivery and marketing are also scale-sensitive and work across businesses and markets. They will play an important role in managing costs in today’s wage-restricted consumer environment.
To thrive in the leaner and more fragmented marketplace of the future, companies should focus on seven key capabilities.
Seven key capabilities
Building a comprehensive data set of sources on consumer, brand, product, and competitive behaviour
Developing analytical skills, tools, and routines that use the data in the ways that are critical for the specific business
Translating those insights into actions at the product, brand, and retail level
Planning the portfolio of brands and products to efficiently cover full market variety and using this as a lens for M&A plans
Managing the expanding portfolio of retail channels to provide the right incentives, reflecting differences by channel in how consumers and retailers interact
Managing the interactions between the retail channels
Managing complexity rather than merely trying to minimise it
By concentrating on these key capabilities and combining them in a coherent fashion, CPG companies can increase their returns on investment and position themselves to outperform their peers in the leaner and more fragmented marketplace of the future.
