Growing consumerism and demand for value-for-money products are driving the packaging industry to develop innovative pack sizes leading to cost-savings.

 

Driven by the recovering economy and falling inflation rate, which enables consumers to buy more products, packaging has been registering a positive volume performance in India in the last couple of years. Nonetheless, Indian consumers are considered to be price-conscious and continue to seek value for money. This has led to rising demand for bulk packs, multipacks and smaller packaging, while discounting also remains prevalent.

 

The packaging industry is mostly thriving in the second-tier cities where packaging plays an important role in the launch of new products. Big FMCG giants like Hindustan Unilever, Nestle, ITC, Procter & Gamble, PepsiCo, Coca-Cola, Dabur, etc have also become quiet aggressive in this form of advertisement. Increasing number of joint ventures and partnerships between local and foreign firms is also propelling demand for packaging in India.

 

The total demand of F&B packaging segment accounts for around 85 percent market shares followed by pharmaceuticals and other market segments. In India, the fastest growing packaging segments are laminates and flexible packaging, especially PET and woven sacks. At present, flexible, rigid and metallic food packaging materials account for around 55 percent of the total food packaging material market, while printed cartons and rigid packaging segments together represent 28 percent market shares in value terms. Flexible materials such as food packaging laminates, flexible packaging foils, cookies packaging, etc constitute close to 24 percent of the overall packaging material market, followed by rigid food packaging material segment.

 

A packaging hub

 

With its high growth rate, India is becoming a preferred hub for packaging industry. Currently, the 5th largest sector of India's economy, the industry has reported steady growth over past several years and shows high potential for much expansion, particularly in the export market, according to Packaging Industry Association of India (PIAI). Costs of processing and packaging food can be up to 40 percent lower than parts of Europe which, combined with India's resources of skilled labour, make it an attractive venue for investment. A high degree of potential exists for almost all user segments which are expanding appreciably-processed foods, hard and soft drinks, fruit and marine products.

 

As per PIAI report, the Indian packaging industry has made a mark with its exports that comprise flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery, while the imports include tinplate, coating and lining compounds and others. Over the last few years, packaging industry has emerged as an important sector driving technology and innovation growth in the country and adding value to the various manufacturing sectors including agriculture and FMCG segments.

 

Compared to the global packaging industry, the market in India is witnessing rapid growth, primarily driven by industries such as pharmaceutical, food processing, FMCG, healthcare, and other ancillary units.

 

Plastics: The material of choice

 

The Indian packaging industry is expected to reach $ 73 billion in 2020 from $ 32 billion in FY 15, according to a report prepared by FICCI and Tata Strategic Management Group (TSMG). In the coming years, Indian packaging industry is anticipated to register 18 percent annual growth rate, with the flexible packaging and rigid packaging expected to grow annually at 25 percent and 15 percent, respectively.

 

Today, plastics are the material of choice in packaging for the sectors such as FMCG, food and beverages, pharmaceuticals etc. Globally, plastics comprise of 42 percent of packaging with the combination of rigid and flexible plastics in packaging. Plastics are used heavily for packaging due to innovative visual appeal for customer attraction and convenience. Additionally, they improve the hygiene quotient and shelf-life of the products especially in food and beverages segment.

 

According to the FICCI-TSMG report, “Plastics can help the user do more with less as it possesses versatile properties. One such property is light weight. As plastics are light in weight, they have a high product to package ratio which results in lighter weighed end product. For example, only 1.5 pounds of flexible plastics can deliver approximately 60 pounds of beverage; compared to three pounds of aluminium or 50 pounds of glass.” Thus, plastic packaging enables in shipping more products with less packaging material. And also brings down the fuel consumption and the overall transportation cost.

 

Besides this, plastics can be reused and recycled. Plastics, which have low energy requirements during production, consume about 25 percent less energy in production compared to other alternatives. This results in lower emission of CO2 gas. Thus, when compared to glass or aluminium plastics results in lighter environmental footprint.

 

India is a growing market for plastics and consumes about 12.8 million metric tonnes (MMT) of plastics annually against global consumption of 285 MMT per year. The plastics and polymer consumption is growing at an average rate of 10 percent. About 30,000 processing units with 113,000 processing machines have created manufacturing capacity of 30 MMT per annum in India. This has been achieved with a 13 percent CAGR of processing capacity during last 5 years. The industry has invested $5 billion in the machinery and it is expected to invest $ 10 billion more for increasing the capacity during the next 5 years.

 

India is among the top ten packaging consumers in the world. The low level of per capita plastics consumption in India is indicative of the massive growth potential of the plastic industry. Given the rising consumerism and modern lifestyles, it is expected that per capita consumption will be doubled in the next five years, added the FICCI-TSMG report.

 

Flexible: Leads the pack

 

As per Research and Markets (RAM) report, the soft drinks and food industries will be the highest packaging market share gainers (by units) with share growth of 3.4 percent and 1.3 percent respectively during the period 2016-2021. The growing organised retail sector has been a significant driver of the growth of the food & beverage industries, which in turn drives the growth of Indian packaging industry. In addition, innovations in the packaging industry, such as the development of lighter packaging with better barrier properties, add to the growth of packaging industry. In terms of packaging material, glass and rigid plastics will be among the major share gainers, with share growth of 0.7 percent and 0.6 percent respectively during  2016-2021.

 

Flexible packaging is the leading pack type in the Indian packaging industry and will grow at a healthy CAGR of 8.9 percent during 2016-2021, with major contributions from the food, household care, and cosmetics & toiletries industries, according to RAM study. This growth is largely driven by its low cost and flexibility to suit multiple shapes and sizes, convenience (zip-locks, plastic closures), and low-carbon foot print on the environment as compared to rigid plastics. In addition, the increasing prominence of low-density flexible packs in high protein foods is expected to drive the growth in the future.

 

Retail: The driving force

 

The growth of Indian packaging industry is expected to gather steam in the coming years mainly due to the thriving retail sector in the country, especially e-commerce. The growth of the Indian packaging industry will be heavily influenced by changing demographics such as growing urbanisation and the rising proportion of middle class consumers. These changes drive the need for new packaging formats, such as different sizes, materials, and strength.

 

The Indian packaging industry constitutes about 4 percent of the global packaging industry. The per capita packaging consumption in India is quite low at 4.3 kgs, compared to countries like Germany and Taiwan where it is 42 kgs and 19 kgs respectively. However, organised retail and boom in e-commerce, which offer huge potential for future growth of retailing, is giving a boost to the packaging sector.

 

Variations in product features, such as availability in solid and liquid formats, have led to launches of different pack types in India. For instance, according to Euromonitor study, laundry detergents have become available in flexible packaging, folding cartons and as liquid detergents in plastic bottles. Similarly, air fresheners are available in folding cartons, metal aerosol cans, plastic bottles and blister and strip packs. Moreover, combination packs of different types of products have gained prominence in the country, where companies use this strategy to cross-sell their different brands. In home care, this trend was first adopted by private label offerings, such as Caremate from Future Consumers, but has since been adopted by its competitors, including locals and internationals.

 

In addition to demographic changes, the packaging industry in India also has to respond to changes in the way consumers shop. Strategies have to be adapted to suit urban and rural areas,and also vary across regions in India. Many lower-income demographics are paid on a daily basis and can only afford to shop daily preferring local convenience stores as opposed to shopping on a weekly basis in city centre supermarkets. “This has boosted demand for lighter weight packaging as well as smaller formats as such outlets have less shelf-space to stock goods. Outlets such as these also require smaller transport packaging, given lack of space and a desire to minimise packaging waste. Moreover, products tend to be turned around faster, therefore the outer packaging has to be convenient for retailers to handle, dispose of or recycle,” said Euromonitor in its report.

 

Despite rising disposable incomes in the country, Indians remain price-conscious and seek value for money. As such, larger pack sizes offered at more competitive prices have become more common in categories, such as liquid soap and shampoo. Moreover, bar soap can also be found in a wider variety of sizes ranging from 90 gm to 200 gm. Euromonitor report stated that demand also rose for smaller pack sizes, which require a lower financial outlay, enabling consumers to afford products that may otherwise be outside their financial reach. Impulse purchases and single serve products have also boosted demand for smaller packaging, with smaller packs being easier to carry.

 

Value for money: The clear winner 

 

Despite rising disposable incomes, consumers in India remain price conscious and seek value for money. For manufacturers and retailers, rising environmental awareness will work in tandem with consumer demand, leading to lighter weight packs that are cheaper to transport and to produce. Thus leading to cost-savings, which can then be passed on to end-users. With consumers seek pack sizes that offer good value for money (whether large, bulk formats, for regular use or for sharing, or smaller packs for on-the-go or impulse consumption), pack sizing will become increasingly important in the future.