Effective, lightweight, economical, recyclable – rigid plastic packaging ticks all the boxes when it comes to our requirements for a sustainable, practical packaging material. What’s not to love about plastic?
Certainly, brand owners are smitten. Not only does it have benefits such as barrier properties, ease of opening, oven-friendliness, stability and transparency, but properties such as shapeability and the ability to overprint on the material mean that it is a staple of packaging in sectors from food to healthcare.
“We’ve been using it for over 30 years,” says Haulwen Nicholas, Müller Dairy’s head of packaging for UK and Ireland. “Yogurts have never been in anything else. It’s cheap, it’s light, it’s recyclable, it’s readily available.”
One of the main advantages of rigid plastic is its lighter weight compared to metal and glass, notes Visiongain commercial director Sara Peerun. “This creates significant weight savings for transporting packaged goods in large quantities – and the resulting fuel and costs savings can be passed on to the consumer.”
Visiongain’s most recent report into the sector, Rigid plastic packaging market forecast 2015-2025, suggests the market will be worth $167.4bn in 2015, with steady growth predicted for the next decade. Factors involved in the sector’s seemingly relentless rise include the developed world’s ageing population and rapid economic growth in developing countries. Peerun points towards the need to cater to an on-the-go lifestyle, and the need for more convenient, easy-to-carry, light, safe and functional packaging, that does not compromise on barrier properties and cost-effectiveness.
“This has given rise to a shift to rigid plastic packaging as this is a light, malleable and durable material that can adapt to various packaging designs and requirements,” she says.
“You have to look at it from a global perspective,” adds Foodservice Packaging Association executive director Martin Kersh. “Formerly developing countries with a rising population have a growing middle class seeking to buy protein. In order to have that coming in perfect condition into their homes, they need plastic to meet that need. Plastic is meeting a world demand.”
“Rigid plastic packaging remains one of the most preferred choices for both brand owners and investors,” agrees Paul Boyce, market analyst at Smithers Pira and author of the report The Future of Global Rigid Plastic Packaging to 2020. “Despite volatile resin prices in recent years, consumption has been growing strongly, particularly in Asia. In turn, this rapid growth has encouraged investment from both investors and brand owners alike.” Smithers Pira puts the market figure for 2015 just a sliver higher at around $170bn – but either way it’s a very healthy slice of the total global packaging market.
In short, what’s good for brand owners and consumers is also good for manufacturers and investors in the sector – which is why rigid plastics is such a busy area for corporate M&A activity. “The particular attractions of rigid plastic packaging have ensured that it is consistently one of the top segments for growth in the overall packaging industry,” says Nicholas Mockett, head of packaging M&A at Moorgate Capital. “Globally, year in year out, about half of all packaging M&A activity is plastics-based.”
This figure does include flexibles as well as rigids – and sometimes, of course, companies supply both. Recent activity has included the 2015 acquisition of Olefinas in Mexico by Coveris, and the purchase of Avintiv by Berry Plastics for $2.45bn. “The UK’s RPC continues to be a leading rigid plastics consolidator,” adds Mockett. “In the past 12 months RPC acquired Promens for €386m, which took RPC into new territories as well as bolstering its offering in key markets and product areas.” UK Private Equity House 3i has also been a serial investor in packaging, and recently acquired Weener Plastics in Germany for €250m.
All this means that 2015 looks set to be the highest ever packaging M&A year, surpassing 2007’s $33bn of deals. And given that private equity firms are sitting on huge cash piles to invest, while other potential acquirers are being encouraged by shareholders to invest rather than pay large dividends, the outlook for 2016 also looks favourable.
“Ongoing M&A activity will helps to consolidate the industry,” argues Mockett. “So you would expect to see margins improve as larger packaging companies can enjoy economies of scale and are in a better position to negotiate with large suppliers and customers.”
The only real fly in the ointment is the consumer. Plastic may be feeling the love from brand owners and financial markets, but consumers are much more ambivalent about the material. According to the Wrap survey on Consumer attitudes to food waste and food packaging carried out in 2012, consumers were more concerned about the environmental impact of plastic pots, tubs and trays than any other packaging material apart from film, and claimed it was nearly twice as difficult to recycle as cardboard, paper, or cans and tins.
Yet plastic is embedded in the consumer experience, as Nicholas observes. “The public are quick to complain about all packaging for food, but expect it and demand it on cosmetics, personal care, electrical, toys and other products. The industry as a whole has to give back a balanced view on packaging to correct the wrong assumptions being made.”
But the spotlight shines on plastics for a reason. “Petroleum-derived rigid plastics will always face sustainability issues because of the nature of their production,” says
Boyce. “And because consumers are not widely informed of what can or cannot be recycled, this leads to perfectly recyclable materials being sent to landfill. Even if consumers are fully educated, it is still likely that they will mistakenly put packaging in the wrong waste stream, hence eliminating the possibility of full sustainability.”
The availability of recycling facilities also remains a factor. “For rigid plastic packaging, the issues remain around them not being collected widely enough by local authorities at the kerbside to be classed as ‘widely recycled’ by OPRL,” says Claire Shrewsbury, Wrap’s programme area manager for packaging. “The latest data from Recoup suggests that around 70% of local authorities collect – the required figure for OPRL is 75%.” Other issues include the weakness of markets for recycled plastics, thanks partly to the current low price of oil.
Black rigid plastic is a particular bugbear, as it is invisible to plastic sorting technology. Initially promising work on laser diffraction technology to aid plastic sorting failed to materialise in a commercially viable form, so the focus is now on using specialist inks.
Research on food grade polypropylene packaging has found that fluorescent marks applied directly on the label or packaging by conventional means could be an effective and economical way to identify food contact packaging with over 99% purity – and, according to Wrap, would require minimal modification on existing sorting equipment. Promising results from marking technologies have been seen in the EU’s Polymark project, as well as a trial on black CPET ready-meal trays run by Marks & Spencer and Sainsbury’s in 2014.
Biodegradable plastics could be part of the solution. “Both Coca-Cola and Pepsi have introduced bio-based PET bottles into the market in recent years,” says Boyce. “However, bio-based materials are still not as widely produced and are expensive due to a lack of supply.” And of course there’s always that consumer confusion that could send biodegradable plastic in sealed bags to landfill. On the plus side, Peerun notes that there is a trend towards reconditioning, reusability and recyclability in industrial packaging such as drums and intermediate bulk containers.
She also points out that new product development is a key defining characteristic of this sector. Innovation has seen a drive towards lightweighting that has given way to “rightweighting” and the optimisation of packaging structures. Now companies such as Greiner are developing injection blow moulding techniques that include a barrier layer within a lightweight PET jar, giving it the clarity of glass, with the same barrier protection against oxygen and light.
Other developments in the sector include the use of filler layers within plastic containers made of non-oil-based minerals such as calcium carbonate, which leak harmlessly back into the environment when the plastic degrades. Away from the sustainability agenda, Boyce points out that technological developments in hot-fill have allowed rigid plastic packaging to develop a stronger presence in products such as jam, oils, sauces and other preserved foods.
Hybrid packs are also moving into the spotlight, as retailers and foodservice companies experiment with different combinations of materials, such as cardboard and plastic. Last year, for example, saw Pret a Manger heat and display its range of hot food in board boxes with a removable lid that featured a clear plastic window to display the contents without steaming up. In other markets, Boyce suggests that flexible packaging can also be used to enhance rigid packs; an example being shrink labels used for plastic bottles. “These labels not only provide attractive decoration features, but also additional levels of barrier protection against oxygen or light,” he says.
“We see continued growth in hybrid or mixed-material packs, until a suitable single material can be found that is equally as good or better,” says Peerun. Nicholas adds a word of caution however. “There will still be a demand for these in certain markets – but the question is are they sustainable and can they be recycled?”
Regardless of the sustainability debate, analysts see no end to the rigid plastic success story any time soon. The outlook for 2016 is strong and sustained growth, though with a few regional wobbles, as Latin America and eastern Europe navigate choppy economic waters and China’s slowdown is balanced by growth elsewhere in Asia.
And those ambivalent consumers? “People don’t think about what they’re saying when they demonise plastic,” reflects Kersh. “People look at plastic in isolation without necessarily considering the job it has to do throughout the supply chain. There are times that plastic is essential to allow products to be transported without damage. God forbid you should ever take it away.”
Converter viewpoint – Jarek Zasadzinski, chief executive, Greiner Packaging
Rigid plastic is vital for packaging, but there is always pressure from the market to reduce plastic content. Now we are at the limit of downgauging plastic content without putting the client’s brand at risk by, for example, reducing the quality of the product. There are technical limits beyond which the product quality and finish can deteriorate, leading to wastage in the supply chain if products get damaged.
Several recent developments offer enormous benefits for rigid plastics. Greiner’s K3 technology, for example, allows the plastic content of a cup of pot to be reduced by up to 60% by replacing the plastic body of the container with a cardboard wrap. By making this removable simply through the use of a tear-off strip, we can help consumers easily recycle the cardboard and plastic elements of the product separately. Recently added features to K3 include a deformable version to allow custom-shaped branded containers and a version with a full cardboard wrap to hide the product’s plastic foot.
Another promising development is the introduction of fillers such as calcium carbonate. These use a layer of mineral filler between two thinner layers of plastic to create a strong structure with a reduced plastic content. As the mineral is not derived from oil, it will be released harmlessly into the environment when the plastic degrades.
At the same time there is an intense search for new types of barrier technology to protect the end product against contaminants such as light and oxygen. Multi-barrier technology helps foods achieve longer shelf life by embedding a special barrier layer such as EVOH or PA during injection stretch blow moulding directly in the standard PP or PET packaging. Inert barrier technology, in contrast, involves placing a silicon oxide layer on, say, a plastic cup to minimise the migration between the filling and the packaging.
It is innovations like these that continue to drive the rigid plastic packaging sector forward.
Three challenges facing rigid plastics in 2016
Flexible plastics may eat into the market for rigid plastics, as they offer less material usage, are more lightweight and hence can be a more cost-effective solution. There is a drive towards flexible packaging in healthcare, and also a growing consumer preference for the convenience and aesthetic benefits of flexible packs.
Recycling streams are still largely underdeveloped, even in mature markets, and do not provide a short-term solution to the sustainability question. Recycling rates have been improving gradually in Europe, but consumer behaviour and lack of awareness is likely to prevent a fully sustainable material. The argument is whether the cost of educating consumers should fall with governments or packaging converters.
Politics and economics
Predicted rises in interest rates will create an inevitable drag on corporate profits and will increase borrowing costs, which may affect the financing of M&A activity, while the continuing trade embargo between Russia and Europe is likely to have an ongoing effect on eastern European consumption into 2016.