Follow the money5 May 2020
E-commerce is fast reaching parity with traditional retail models, and it won’t be long before the majority of shopping takes place online. What does this mean for packaging? Ruediger Hagedorn, of the Consumer Goods Forum, tells Abi Millar what kind of special considerations apply
E-commerce is fast reaching parity with traditional retail models, and it won’t long before the majority of our shopping takes place online. What does this mean for packaging? Ruediger Hagedorn from the Consumer Goods Forum tells Packaging and Converting Intelligence what kinds of special considerations apply.
Over the past few years, e-commerce has become a force to be reckoned with. Valued at $3.5 trillion globally in 2019, e-commerce sales are expected to nearly double to $6.5 trillion by 2023. This comes at a time when overall retail sales are climbing only gradually. By 2023, e-commerce is expected to make up 22% of the retail market, up from just 7.4% in 2015.
This means that, while digital sales are still significantly lower than physical sales, brands can’t afford to ignore this trend. In the first half of 2019, UK retailers closed 2870 stores, and a number of big-name brands (particularly fashion retailers) fell into administration. This pattern has been widely attributed to people doing their shopping online, rather than braving the high street.
Clearly, this poses challenges for the consumer goods industry – but it brings opportunities too. As Ruediger Hagedorn of the Consumer Goods Forum points out, the biggest impact for industry is that suddenly you have a global market for your products.
“Previously your product would be in the store round the corner, but with e-commerce, that store moves online and it becomes visible to the entire world,” he says. “Then you either say no to international shipping, or you find a way to ship the product, which can create its own problems.”
Another question is how you guide the consumer towards making an educated decision. In a bricks-and-mortar store, a consumer can ask the staff for recommendations. Online, you need to find other ways to provide that data. This means assessing how many sales you’re expecting through different channels, and working out whether a heavy data investment is worth your while.
“It’s difficult for companies to find the right balance, because honestly it can be more interesting for them to invest money in offline marketing than to invest money in a data partner for an online store,” says Hagedorn. “ We’re in the twilight zone between old world and new world – offline and online.”
Needless to say, this strange limbo land creates a few issues for the supply chain. Although direct to consumer sales are accelerating, we haven’t yet reached the stage where dropping the product on someone’s doorstep is an efficient mode of delivery.
“If everybody ordered online, e-commerce would be highly efficient and convenient – you could buy something that would get delivered the next day because there would always be a truck driving down the street,” says Hagedorn. “But to get from low e-commerce to high e-commerce is very costly, so it’s a classic logistical riddle to solve.”
As companies think about how best to allocate their resources, they will also need to think about their packaging. At present, the industry is designed for multipacks – products are
shipped in bulk to the store. While this makes sense within a traditional retail model, it can prove highly wasteful when you’re shipping a single item to someone’s home.
“If you want to adapt to e-commerce packaging, you have to do some investment,” says Hagedorn. “Either you go with more packaging – so you break up the six pack and then repackage the single pack before sending it – or you start thinking about what do we need to do as designers to ship single items. That’s expensive, so for the time being I think we’ll just produce more packaging.”
As is often the case in the packaging industry, reducing waste and keeping costs down may appear to be at odds. Hagedorn points out that packaging sustainability is a complex issue for e-commerce brands.
“If you let the consumer choose between the same product packaged with highly sustainable packaging and less sustainable packaging, they will usually go for whichever is cheaper,” he says. “Currently everything that’s more sustainable seems to come along with a higher production cost. As soon as someone finds the inverse, that will highly impact the market, but it hasn’t happened yet.”
The Consumer Goods Forum has been tuned into this issue for quite some time. In 2011, it released its Global Protocol on Packaging Sustainability (GPPS) standard, which aimed to provide a shared reference point for the consumer goods and packaging industries. This contains over 40 environmental, economic and social indicators for packaging sustainability, and was adopted by GS1 in 2013.
It has also worked on a Modularisation Project, which aimed to find more effective ways to package units. By rolling out modularised packaging, brands can reduce waste, improve stackability and increase transportation efficiency. This issue will become increasingly important as delivery sizes get smaller and the shift to e-commerce becomes more pronounced.
“Modularisation means using re-usable crates and modular containers, which are stackable by design,” says Hagedorn. “As well as stacking containers on a ship, you can downsize that to the kinds of crates you see at fruit and vegetable markets.”
The challenge for companies is to improve durability at the same time as reducing waste. Especially within e-commerce, the supply chain can be long and complicated, and it’s important that a package is built to survive some wear and tear. However, consumers are becoming increasingly eco-conscious and no longer have much tolerance for over-packaging.
A simple nod to eco-friendliness might be to print instructions on your packaging, telling consumers how it can be recycled or even upcycled. You might invest in sustainable packaging materials, like biodegradable bioplastics, and you’ll probably want to get better at matching your products with appropriately sized boxes.
Although these changes might require an upfront investment, it can become a point of differentiation in the market, improving your eco credentials and strengthening your brand. It may even prove quite lucrative. In a 2018 survey by Deloitte, it emerged that 75% of millennials and 87% of Gen Z would pay more for products certified as ‘socially compliant’.
After all, packaging is a key pillar in brand identity – and that’s no less the case in e-commerce than it would be in a physical store.
“In a physical store, you scan the shelves and you look for things you know or things that surprise you – that’s how we’re designed,” says Hagedorn. “Online, it’s the same thing. While you won’t look for the product on a shelf, you’ll type it in and click on the image. And it’s important for you to see a logo or some familiar branding because that conveys trust.”
Relatedly, the packaging plays an essential role in mitigating against counterfeit goods. In recent years, the industry has developed an array of solutions that help ensure the consumer is getting what they ordered.
“This is getting more technological – people are experimenting with technologies like RFID tags, near-field communications, QR codes, invisible codes that can be scanned with your phone but you can’t see with your eye,” says Hagedorn. “We’re seeing a dramatic increase in these kinds of experiments and pilot projects.”
So how is this conversation likely to evolve over the years to come? Hagedorn feels that any shifts in e-commerce packaging will be largely consumer-driven. This will in turn depend upon what customers are reading about online.
“The customer makes choices, and these choices are based on information they get from social media,” he says. “So social media will drive consumers’ buying criteria and this is what will drive the packaging industry. Social media is also the place to educate consumers and share information, separating fake news from real facts.”
For instance, we may see more discussion about sustainability and how our buying decisions impact our immediate environment. This will give brands the chance to position themselves as responsible packagers and will, suspects Hagedorn, lead to greater change than the imposition of some blanket regulation.
“Regulation can play a vital role if it’s done together with industry in a smart way, rather than as a political reaction to some demand,” he says. “It’s a question of how we can go down that road together.”
In the meantime, the Consumer Goods Forum will continue to work with its members to help them with their e-commerce packaging. Anything it produces needs to be collaborative and pre-competitive, meaning it can’t change the current balance of competition within its members. Rather, it should be looking to help everybody and drive costs out the system, leaving all its members on an even playing field.
“First there’s a general gathering of information out of the industry, and then we can share recommendations in a pre-competitive way,” says Hagedorn. “We can go where a single company would never go alone, because either they would fail or they’d really need the help of the industry. We come together on a regular basis to share best practices, and eventually we come up with new technologies and present them to the group. This is a good example of how we work together to drive positive change.”