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Sector Focus: Contract packers aim high for 2011

February 7, 2011 Comments Off Print Print

Unlike some other sectors of the industry, contract packers experienced a generally positive 2010. The result is that several players in the market are eyeing up further growth in the coming 12 months. Gordon Carson investigates

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The economic downturn in the UK has claimed many victims but it has not all been bad news for the contract packing sector.

As brand owners concentrate on their core business functions, increasing opportunities are cropping up for those contract packers able to take a more prominent role in managing projects.

Rodney Steel, chief executive of the British Contract Manufacturers and Packers Association (BMCPA), which represents almost 100 companies in the sector, says 2010 was a “pretty good year” for contract packers and he is fairly optimistic for 2011 as well – even if he admits that his members are “probably not ecstatic about margins”.

“From the brand owner or retailer’s perspective, with all of the uncertainty of the recession they didn’t really want to invest in anything, whether it was people, machinery or new buildings,” he says. “A few have brought some things in-house but this was more than compensated by other business.

“The contract packer used to be at the centre of the operation. Before that somebody came up with the design then sent it to the contract packer. But now a lot of that is being done by the contract packer in conjunction with the client, and at the other end of the scale the contract packer in a lot of cases is doing the pick-and-pack fulfilment.”

He adds that one of the great attractions from his members’ point of view is that by broadening their offering, they’re getting more business out of existing clients.

Steel’s comments match the experience of Martin Tedham, who returned to the contract packing sector in 2009 with the acquisition of Wasdell Packaging in Swindon. Tedham started his career in the pharmaceutical industry 23 years ago as an engineer at Wasdell, and went on to set up TD Packaging, which he sold to United Drug back in 2005.

Tedham says the market has not changed in the intervening period, and there are “significant opportunities for growth for a flexible, customer-focused contract packaging company”.

Wasdell, which opened a new 5,600m2 purpose-built site in Swindon in August last year, works primarily for UK clients in the pharmaceutical and cosmetics sectors, though it is also winning new business in Germany.

Tedham says: “It’s not what you know but who you know as well as the requirement for big volumes and fast turnaround.We see that the big pharmaceutical healthcare and cosmetic companies are becoming marketing facilities, reducing headcounts and giving the contract packaging sector a lot more opportunities.”

Good time to acquire
He is aiming to expand Wasdell’s workforce from 200 to 280 and plans to buy another contract packing firm by the end of 2012. The firm’s turnover should grow from £4m to hit £9m this calendar year, and Tedham says general business prospects look strong. “I believe it is the time for anybody to purchase businesses, as I believe we are on the up,” he says.

Others have shown similar ambition to Wasdell by investing in new facilities and equipment. One big spender has been Complete Core Business Solutions, based in Pontypridd, south Wales, which has opened a new facility for confectionery packing. Its spending does not stop there, and managing director Steve Nicholls is identifying a new site for the business because it has outgrown its current premises.

He has targeted 15% growth on last year’s sales of £4.8m and, to help achieve that aim, is investing in a new liquid blending and mixing line. Nicholls echoes Steel and Tedham, saying customers are bringing a wider range of work to contract packers rather than doing most of it in-house.

While Wasdell has managed to secure new business in Germany, Steel says contract packing work has been returning to the UK from China as costs increase in the rising economic superpower.

“Flexibility is absolutely the key for retailers because they have to be very nimble in the recession,” he says. “If their goods are on the high seas for six weeks they don’t have that flexibility. We’ve also noticed a lot more enquiries from mainland Europe, particularly because of the currency changes.”

The rise of internet retailing could offer further opportunities for growth. “Very often it’s just a guy sitting in an office at home who has never seen a shrink-wrapper or inkjet coding machine in his life,” says Steel.

Major multinationals already have a strong presence in the UK contract packing sector. One of these is AmerisourceBergen, the US pharmaceutical services giant, which owns Brecon Pharmaceuticals in Hay-on-Wye.

Steve Kemp, Brecon’s business development director, says the firm continues to “invest heavily in equipment and facilities”. It is setting up bespoke facilities for storage and distribution, has installed a new bottling line for tablet counting, and has invested in label printing.

Although Brecon’s core market remains blister packing, the company, which also produces the increasingly popular Burgopak, is also seeing a market move into large molecules, including biologics and injectables, with a focus on secondary packaging such as labelling of syringes.

Kemp says that a major issue is customer demand for smaller production runs. “Investing in new advances in technology has to be the key to maximising production efficiencies while minimising costs,” he says.

Efficiency will, as always, be crucial, as customers continue to focus on keeping down prices. In addition there’s the increase in VAT.  However, given all these pressures, the contract packing sector seems to be in rude health, with many companies entering 2011 in good shape.

THREE CHALLENGES FOR CONTRACT PACKING IN 2011

Red tape
This is a problem when hiring temporary labour but sector experts believe the government is likely to reduce requirements.

Overseas competition
The threat of outsourcing to cheaper competitors in emerging markets exists, although there is evidence of work coming back to the UK and exports growing thanks to the weak pound

Credit
The difficult economic conditions could present problems in judging the creditworthiness of clients and obtaining credit for investment

INDUSTRY IN NUMBERS

3,600,000,000 – Annual turnover, in Euros, of French logistics group Norbert Dentressangle when it completes its acquisition of rival TDG.

9,000,000 – Turnover target for Wasdell Packaging in 2011

300 – Percentage Increase in turnover of Hallam Beauty from 2005 to its purchase by Mibelle in 2010.

30 – Companies that will exhibit at this month’s Contract Pack show at the NEC.

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