US flexible packaging majors lose market share

Flexible packaging sales in the United States, Canada and Mexico topped US$23.5 billion in 2016, growth of 4.5% year-on-year. Yet some of the largest players, including Bemis and Coveris, reported static or even declining sales. This has been ascribed to flat consumer demand in some end-use categories and lower raw material input costs, which were passed through in lower prices to customers.

Some commentators suggest that disappointing financial results from the leading players mean that real flexible packaging sales growth in North America was only 3% in real terms.

This fails to take account of the speed at which flexible packaging is replacing rigid formats in many applications. Nor does it account for how changing consumer spending patterns are affecting major brands and their converter suppliers.

Indeed, we see the leading brand owners losing out to new specialty brands because they are supporting existing high-volume brands instead of focusing on innovation and introducing new products. 

Many of these new products come from food startups that are growing much faster than their large established competitors and often source their flexible packaging from small and mid-sized regional suppliers.

Market fragmentation and the proliferation of new niche food brands also play to the strengths of small and mid-sized converters. Many such companies are adept at quickly — and more profitably — turning around relatively small orders.

Private label, although much less important than in Europe, is also now growing rapidly in the US. It is not only driving giant retailers such as Wal-Mart but also smaller regional chains. Minimum order sizes are getting even smaller, and small to mid-size converters are growing their business.

This in turn is increasing use of flexible packaging formats for retailer-label products, such as cereals. But it's not necessarily benefiting the major converters: some have begun cutting their smaller, less profitable accounts.

Contract manufacturers and packers are picking up profitable business in growing markets too. Stand up pouches markets are growing fast, at the expense of large converters. Industry sources indicate that stand-up pouches and pouch laminate from Asia, particularly South Korea, are up to 20% cheaper than US-produced pouches.

In the face of these competitive headwinds, major converters that rely too heavily on supplying the major brand owners will need to change their models. Now, they must equip themselves to address the needs of successful small and mid-sized speciality food companies too. Because it is those companies who will continue to take a growing share of US grocery spending in the years ahead.