- February 01, 2003, Corey M. Reardon, AWA Alexander Watson Assoc.
This is a time of change in the packaging industry: a time of issues and challenges; a time for re-establishing the horizons of business; and a time for defining strategies for a successful and profitable future.
The complex and dynamic packaging industry is worth an estimated $417 billion globally (Europe $129 billion, North America $116 billion, Japan $81 billion) — representing a significant percentage of global GDP and a major contributory factor in the food chain, product marketing and merchandising, and logistics.
Clearly there is a need to identify winners and losers, the end-user markets, and trends in materials and consumer product packaging and preferences. Now this information is available in a 530-page study, “The Global Packaging Market: The Top 100 Players.”
While in recent years major packaging-related companies' stocks and shares performed very poorly, there are indications a recovery is underway — fueled primarily by merger and acquisition activity, globalization, and by the increasing demands for packaging in developing countries.
The consumer market dominates the global packaging industry. It accounts for an estimated 70% of sales, with industrial applications taking the remaining 30% share. The food industry is the single largest end-user market, valued at around $145 billion, followed by the beverage industry at approximately $75 billion.
Geographically, there are marked differences. Industry concentration is highest in North America, where one-third of sales are represented by the top 10 players. In Europe, this figure is below 18%, and in Asia Pacific and Latin America, it is lower still.
Consolidation Paid Off
Of the 100,000 companies operating in the industry (with some five million employees), the top 100 companies accounted for approximately 45% of world packaging sales in 2000. However, the top 10 companies accounted for only 14% of this. By analyzing the sales of the companies in the industry, we come to an “entry level” value of $3.6 billion for the top 10 (and in this fragmented industry, this is quite an achievement); $2.8 billion for the top 20; and $400 million to break into the top 100 table. At 76%, publicly quoted companies makeup the majority of the top 100. Privately owned companies represent an 11% share, private-equity-owned companies 10%, and subsidiaries the remaining 3%.
Consolidation can be a key factor in success, illustrated by the fact that within the top 100 companies, generally it's the largest that have experienced the strongest sales growth. Mergers and acquisitions accelerated between 1996 and 2000, with well over 2,000 deals completed during that period. Activity peaked at 434 deals in 2000, valued at $55.5 billion, but is dropping off now — perhaps an indication that, overall, the packaging industry has completed the major part of its realignment.
The Challenges Ahead
But what are the remaining major issues facing the packaging industry today?
Research highlights the fact that it is one of the worst-performing sectors of the world's stock markets and an unattractive investment prospect in world capital markets. Its poor image makes it difficult to attract “best of breed” managers. A general lack of innovation is a reflection of low R&D budgets and increasing commoditization, while productivity is low and costs too high (by 20% to 30% in some sectors) with a resultant low margin performance.
Quality processes such as Six Sigma, waste minimization, and optimization of supply-chain efficiency through, for example, e-commerce initiatives, can contribute much to improved performance — as can “added value” products and services and an imaginative approach to meeting the customers' needs. In a world where commoditization is a fact, it's evident companies that develop unique products and services that represent genuine “out-of-the-box” solutions to end-users' problems will gain a significant competitive edge.
These are just some of the highlights “The Global Packaging Market: The Top 100 Players” offers in its analysis of the world's leading industry players, all of which are profiled. The study can be ordered from AWA via its website, awa-bv.com.
Corey Michael Reardon is principal of AWA Alexander Watson Assoc., a leading specialist international market research, consulting, and publishing company in the packaging, coating, converting, and printing industries. The company is headquartered jointly in Amsterdam, The Netherlands, and McLean, VA.