Under contract11 September 2017
Outsourcing packaging has been a common practice for decades. As brands continue to innovate with their packaging requirements, Dave Howell discovers that the expertise today’s contract packagers now offer is vital to the success of many branded products
The contract packaging market continues to expand and diversify. The sector is typically dominated by pharma and food brands that leverage the cost-effectiveness of contracting out their packaging requirements. Taken as a whole, the contract packaging market was worth an estimated $22 billion in 2016, and is projected to reach $39 billion by 2021, according to Modor Intelligence.
When it comes to pharma, the latest research from Technavio shows the global pharmaceutical contract packaging market is projected to reach $7 billion by 2021, a CAGR of nearly 15%. “In 2016, plastic bottles occupied a majority, or 34%, of the pharmaceutical contract packaging market,” says Sharan Raj, a lead analyst at Technavio for packaging research. ”The segment is expected to continue its lead due to the adoption of technologies such as digital printing, vision systems and high-end packaging machinery.”
Of course, packaging isn’t just focused on primary customer-facing design. Increasingly, brands are looking to logistics service providers for secondary packaging contracts, as the industry changes to become more integrated across the design, manufacture and delivery channels.
The future will see more integration, with contract packaging organisations and logistics providers merging to offer the streamlined systems that brand-owners are looking for – not to mention the reduction in packaging and associated costs these mergers would bring. For instance, Sonoco recently announced it would be investing $20 million to develop a new packaging centre to support Duracell’s new battery packaging location in North America.
Sonoco will install and operate state-of-the-art primary packaging equipment at the new centre, and will provide all packaging materials. In addition, the company will produce retail merchandising displays that will also be packed out at the same facility.
“This unprecedented ‘go to market’ packaging solution for Duracell is unlike any effort provided in our industry,” says Jack Sanders, Sonoco president and CEO. “Because Sonoco is a solutions company that offers multiple packaging products and services, we are able to meet all of Duracell’s unique packaging and retail merchandising needs.”
Brands are clearly forging closer working relationships with contract packagers, who are an essential component of their brand communications. Packaging is now such a vital element of every product that contract packagers are increasingly being seen as critical partners to deliver innovation.
Contract packaging, as a growing service sector, is making some substantial investments. Duracell are partnering with Sonoco. Earlier in 2017, Sharp Clinical Services, part of the UDG Healthcare group, announced it would make a £9.50 million ($11.59 million) investment in a new plant that will triple its ability to service pharma and biotech customers.
The announcement included £500,000 ($644,000) in business finance from the Welsh Government. Frank Lis, president of Sharp Clinical Services, says, “The efficient nature of our extended operation will allow us to seamlessly move clients’ late-phase clinical projects to commercial scale within our wider global Sharp network of facilities. This really is a major milestone for our business in the UK and will ultimately deliver huge value to our clients in North America, Europe and Asia.”
For brands, the choice is between whether to continue with their in-house packaging, outsource to a contract packager, or use the help of a contract packager to further develop their existing packaging production systems. But all brands are looking closely at how to improve their packaging supply chains.
Matt Suggs is CEO and founder at PartnerSlate, an online B2B marketplace that helps food and beverage brands make the right strategic partnerships to get their next product built. “[The market] appears to be growing, with companies ranging from start-ups to the top brands in the world all using co-packing in some capacity, whether using other co-packers to produce their products, or offering co-packing for other brands to fill empty line time,” he says.
For brands that need to innovate with their packaging to maintain and expand their market penetration, contact packaging will continue to play a critical role. Packaging Today spoke with John Mazelin, executive director for the Contract Packaging Association, who outlined how the service sector is moving forward.
“Because of the proliferation of SKUs, and the shorter life cycles of any given item, brands are turning to contract packagers as the more economical solution than in-house packaging,” he says. “With the speed of change increasing, brands recognise that the nimbleness and flexibility of contract packagers can be exploited to better serve their customers. This nimbleness and flexibility is not only a benefit in the production of product but also in the decision-making for capital expenditure and the like, for quicker start-up and change-over.
“Concurrent with these manufacturing changes are supply chain changes regarding how product is delivered to customers. Ecommerce was once thought to mean changing the delivery of standard SKU packages: that is, wrap a bottle in bubble wrap and put it in a box for small-package shipment. Now, ecommerce products have specific and different packages: for instance, not a bottle now but a pouch, configured to fit in a different case. And the shipping stresses on the package are different.”
Mazelin concludes, “The future is changing rapidly for contract packagers and the direction of change will also be altered because the ability of the consumer to get what they want, when they want it and under the circumstance they dictate, is fluid. The consumer no longer tolerates the choices the manufacturers give them, but can demand unique solutions.”
Packaging development mirrors the rapid changes in consumer demand that has taken place over the past decade. Diversity across the packaging industry has led contract packaging service providers to expand their reach. Where once they delivered highly focused production, today they are involved in every aspect of packaging design and development. Brands understand the skills that contract packagers must offer and are leveraging these skills right across their product lines.
There is little doubt that the contract packaging sector will continue to expand. Brands are in constant need of packaging innovation, which they create in association with their contract packaging associates. For some sectors, notably pharma, brands will increasingly look to South America and Asia, as these regions expand their contract packaging capabilities. The low labour costs in these regions point to high levels of expansion, as pharma brands look to further cut their costs.
PartnerSlate’s Matt Suggs believes closer working relationships between brands and contract packagers will enable them to refocus on customer service. “In the food industry, more food and beverage CPG [consumer packaged goods] brands are moving towards co-packing and co-manufacturing to get their products made,” he says. “By outsourcing the production and packaging of their product, it allows the brand to focus on sales and marketing, and be confident that production is taken care of by a certified, experienced co-packer. While it can still be expensive to use a co-packer, it requires much less upfront capital for a brand than investing in their own equipment.”
The wide remit of contract packaging has placed it at the forefront of packaging design. Named and private brands are growing with the packaging innovation that the contract packaging services sector has delivered. For instance, FMCG brands that mostly rely upon packaging innovation are in effect bringing contract packagers into their design and manufacturing teams.
A great example of a brand that leverages the expertise of a contract packager is Life Support, a hangover remedy company founded by Cheryl and Jim Krueger of Cheryl’s Cookies.
"We talked to 30 contract packagers," Jim Krueger, who is director of operations, explains. "After some initial discussions, they all essentially said the same thing: ‘Call us when you get to one million units.’ Case Mason was different. They were a willing partner from our very first conversation. We were immediately impressed by their comprehensive expertise, quality standards and their overall operation."
As the Life Support brand transitioned from glass to plastic bottles, so did the packaging operation. Life Support shipped its existing bottling line to Case Mason, which incorporated segments into its own operation. Case Mason and Life Support teams worked in close collaboration, and initial production runs began shipping out of the Case Mason facility in June 2017.
Scott Miller, chief growth officer at Case Mason, says, “We view ourselves as the bridge for brands that need assistance at this critical juncture: just beyond initial start-up and before mass production, typically the million-unit mark.”
In this example, the assistance of a contract packager was vital to the brand to bring their product to a wider audience. Closer working relationships like this between brands and their contract packagers has become commonplace, as brands have pushed innovation.