Nobody’s seen anything like it! No more severe and swift impact has stormed through the market!
COVID-19 has wreaked havoc with public health and world economies. Packaging, in certain instances, is inarguably a bright spot; in others, it faces darker, less secure and far more challenging circumstances.
Essential needs prevail, so grocery packaging, particularly flexible pouches for food and corrugated boxes—the backbone of e-commerce shipments—are experiencing skyrocketing demand and have established themselves as critical lifelines in the sea of uncertainty.
Those areas aside, shutdowns and their impact are clearly evident. Package printers and converters are scurrying to find the right strategy to carry them through a global pandemic that no human saw coming. Still to be answered:
- How long will this health/economic crisis, and any ramifications linked with it, last?
- How will it impact production, the workforce, capital expenditures, the bottom line, the strategic plan and the future viability of the plant?
Initial shockwaves have subsided—true they are still continually talked about. Controlling the situation or weathering the storm is now the priority. Readying for rebound tops management’s agenda at package printers and converters the world over.
That said, McKinsey Co and its team of paper, forest products and packaging analysts—David Ferber, a partner in the Detroit office; Daniel Nordigården an associate partner in the same location; and Oskar Lingqvist, a senior partner in the Stockholm office—are recommending adoption of a three-stage plan:
- Navigate the now
- Plan for a comeback
- Shape the next normal
Impact & Implications
The trio notes, “We expect the impact of the coronavirus crisis on the packaging industry will be mixed. Demand will rise sharply for packaging for groceries, health care products and e-commerce transportation. At the same time, demand for industrial, luxury and some B2B-transport packaging could decline… With food packaging being the largest area of activity, the $900 billion per year worldwide industry is on the front lines.” Writing in an April white paper, they further contend, “Immediate demand shocks to the packaging industry are less drastic than for sectors such as travel and hospitality.”
“The fight to defeat COVID-19 could affect packaging choices, favoring packaging designs and substrates that demonstrably address hygiene and safety concerns—those that minimize the possibility of the virus’ survival on the packaging surface.”
Still, McKinsey maintains, “The packaging industry needs to be ready for second-order effects triggered by the COVID-19 crisis. As crude-oil prices have fallen, partly because of the pandemic’s effect on demand, the cost of oil-based raw materials, such as plastic resins for the packaging industry, is likely to fall.”
Analysts continue, “Strengthening of the US dollar has improved the relative competitiveness of packaging raw material makers based elsewhere. At the same time, border closures are leading to challenges for companies with extended supply chains and those that rely on teams to be able to move internationally to overhaul equipment. These developments spell a period of high uncertainty for many areas of packaging demand and different packaging substrates.”
What’s immediately ahead? McKinsey projects:
- Reduced household disposable income and weakened corporate balance sheets are expected to lower demand across most end-use segments for packaging—the exception being health care and certain food categories
- Key implications for packaging include non-grocery retail likely coming to a near halt, demand for low-cost private-label goods likely increasing, and demand for high-end packaging likely declining
- The fight to defeat COVID-19 could affect packaging choices, favoring packaging designs and substrates that demonstrably address hygiene and safety concerns—those that minimize the possibility of the virus’ survival on the packaging surface. Concerns about hygiene and food safety might become a higher short-term priority, while the sustainability performance of different packaging substrates could dip. Hygiene advantages of plastic packaging can outweigh concerns about recyclability and plastic-waste leakage into the environment
- Price-sensitive consumers mean packaging converters need to win a sufficient volume of orders to keep their plants well utilized
Navigate Now
Ferber, Nordigården and Lingqvist recommend a three-part response. Initial actions to consider:
- Create a crisis response nerve center that can steer an organization and serve as the core information source. Let it manage risks and responses and align all stakeholders
- A key priority should be to support and protect employees’ health—monitor risks, provide personal protective equipment (including masks, gloves, and hand sanitizers) and regularly clean buildings
- Establish new travel and meeting guidelines
- Split teams into shifts when operationally possible
- Screen the supply chain to understand the risk of disruptions—such as dependence on a single supplier source for raw materials
- Take actions to address anticipated disruptions and shortages
- Evaluate production flexibility—understand where demand will be temporarily high and assess ability to shift production appropriately to fulfill new patterns
- Identify and mitigate risks of declining demand from certain segments
- Monitor raw-material pricing indexes closely to protect margins
Plan a Comeback
“Build a recovery strategy that will include a mix of financial resilience, operational plans and strategic, customer-focused moves,” urges Ferber, Nordigården and Lingqvist. Among five critical recommendations they list out: “Take steps to identify packaging categories that are likely to return to strong levels of demand. Consider the supply-chain requirements. Look out for new pockets of growth potential with different packaging end uses and different substrates. Review product designs. Manage new trends in consumer sentiment and requirements.”
Leadership teams can sharpen their company’s value propositions to deliver on the next normal. How? Ferber, Nordigården and Lingqvist say:
- Adapt packaging designs to the needs of e-commerce
- Adhere to consumer preferences
- Deliver greater cost efficiency
Shape Next Normal
According to McKinsey’s trio of analysts, “Packaging-company leadership teams should assess which shifts are getting under way in customer and consumer sentiment and which behaviors may stick after the crisis—for example, hygiene requirements, e-commerce and resurgent concerns about sustainability.”
Steps that packaging companies can take can include, as the white paper cites:
- Narrowing the range of substrates currently used
- Evaluating acquisition opportunities of assets that could strengthen business
- Being vigilant and thinking about implications for their plants and supply chains; in particular, the potential risks related to single sources of raw materials and packaging components