It’s the same everywhere, or it should be. Safe health practices on the job today bring a new level of awareness that is relentless in its organization and execution. Or should. The crisis will end, but all agree that no business will “go back” to usual, because back doesn’t exist. Normal is over.
Companies in all industrial segments are rewriting the rules of engagement as needs become clear. Global packaging, a $900 billion industry, has its particular challenges that require immediate solutions, but mid- and long-term adjustments are critical for revival and for survival.
Demand is high on the list, perhaps highest. The impact on label and packaging players depends on their portfolios and exposures in different regions, end uses for packaging, and substrates, according to McKinsey & Company, a global management consultancy. Since the start of the shutdowns, the flow of commerce has shifted up and down in unforeseen ways. The initial shock period has passed, but its effects remain.
“Several segments – such as packaging for the food and pharmaceutical industries – continue to see robust demand,” according to a McKinsey analysis. “High growth in demand for corrugated packaging for e-commerce and grocery deliveries is also offsetting some demand lost elsewhere with industrial customers.”
Panic buying in the early weeks sent demand soaring for certain home necessities like food and beverages. Many continue to keep a larger supply of non-perishable and shelf-stable foods at home, though this might relax during recovery. Packaging and labels for high demand products are healthy, of course, but converters are acutely aware that parameters are in flux. Many retail products, especially luxury items, are not moving well at all and are expected to struggle once the health threat passes.
Labels and related packaging are expected to rise in the healthcare industry. Demand also will go up for packaging used in dietary supplements, and for other over-the-counter supplies that consumers consider essential in a lockdown.
Home delivery of everything is a reality, and consumers are expected to move strongly in that direction, as they have done rapidly since March. Researchers have seen online spending double for groceries. Cost pressures on the packaging industry are expected to rise, McKinsey says, with “customers under strong pressure, consumers becoming even more price sensitive, and packaging converters needing to win a sufficient volume of orders to keep their plants well utilized.”
COVID-19 has exposed the vulnerabilities in global supply chains. High demand, suffering demand, and health precautions at factories the world over have tied logistics into knots. That chaos is prompting manufacturers to re-examine the pipelines they use for materials and services, perhaps increasing the variety and capabilities of suppliers.
Global sourcing and the optimization of the supply chain are well established in order to minimize costs, reduce inventories, and boost asset utilization. It lets companies deliver more products at lower prices with higher profits. But these practices, refined over decades, have permitted the failure of a supplier to disrupt the operations of a company on the other side of the globe. The coronavirus has done that on a grand scale. Sales, production, manufacturing, working capital and inventories are, and could continue to be, handicapped.
The recent acceleration of trade conflicts, notably between China and the US, led many importers and exporters to rethink their supply practices and make changes. The sudden onslaught of the virus, however, took rethinking into disaster mode. Today, nobody is forecasting a recovery date. For some businesses, it’s not when, but if.
Some of the converters who focus on supplying labels to specific industries are rightly concerned about the future of their customers’ businesses. Freedonia Group, a consulting firm that studies packaging sectors, among others, has pointed to home improvement industries as an example. That’s a sector that consumes thousands of products, each of which has a label and/or package.
“2020 was supposed to be a good year for the home improvement market as low unemployment, wage growth and rising property values were set to encourage thousands of homeowners to undertake significant renovation projects: remodeling kitchens, adding bathrooms, replacing roofing or siding, or installing new flooring,” writes Freedonia in a new research report. “Instead, the home improvement industry faces a period of decline due to the COVID-19 pandemic.”
Spending on home remodeling in the US, the company says, is expected to decline into the first part of 2021. Construction is officially an essential business, but the industry faces stiff limits: “Homeowners dealing with unemployment (even if temporarily) and thus unable to invest in home renovations; consumers more broadly concerned about their future economic well-being and thus putting off home improvement projects; homeowners unwilling to let people into their homes to make estimates due to concerns about spreading coronavirus; slowdowns in the pace of work due to social distancing on job sites and other mandates; potential shortages of building materials as suppliers adjust operations in the face of reduced demand; and delays in the shipment of ordered materials due to a shortage of truckers carrying materials or logjams in ports.”
In the past few paragraphs we’ve been looking at professional home improvements. Let’s not forget the other kind, which tells a happier story. Freedonia takes a look at do-it-yourself retail: “Many homeowners – either working from home or furloughed – suddenly found themselves with plenty of time on their hands and decided to take advantage of the situation by engaging in projects around the house. Others, casting a critical eye across their home, decided now was a good time to transform their residence into something completely different. Either way, home improvement centers, hardware stores, garden centers and other retailers – to say nothing of the manufacturers of these items – have benefited.
“Sales have increased most for products that are best suited to DIY projects, particularly paint and wallpaper, flooring (most notably easier to install types such as luxury vinyl tile, laminate flooring, and decorative tile), garden supplies and tools, and outdoor furniture and grills. Cabinets, plumbing fixtures, drywall, and lumber appeal to customers who have the skill and tools to tackle larger or more complicated projects.”
Recycling is taking a hammering. Virus caution has led to an increase in paper and plastic waste from take-out food (don’t forget water bottles), recyclable waste from overcrowded hospitals and other industries, and overflowing home recycling bins, to name a few. From states on down to municipalities, regulations prohibiting single-use plastic bags, or requiring their purchase, have been suspended. Personal reusable bags, lauded for promoting sustainability just yesterday, are now viewed with alarm.
This doesn’t help. The recycling industry was suffering well before the pandemic, and now it’s worse. Prices are plummeting, costs are rising, workers are hard to find. Oil prices are ridiculously low, which makes plastic even cheaper to make. Why, then, would anyone want to pay good money for recycled plastic materials if they cost more than new plastic?
All this barely scratches the surface. Plenty of you have customers who are having a tough time meeting financial obligations: labor, overhead, supply. Their issues affect you, and yours affect your vendors. At the moment, we’re all up late working on the future. Here’s hoping for a good night’s sleep and a brighter tomorrow.
The author is president of Jack Kenny Media, a communications firm specializing in the packaging industry, and is the former editor of L&NW magazine. He can be reached at email@example.com.