Focus on packaging and logistics
Common consumer drivers behind consumer food packaging and tissue
By Saara Söderberg and Petri Vasara, Pöyry Management Consulting
1. The consumer food packaging curve
Globally, cartonboards are estimated to grow at a pace of almost 3% per annum through to 2025. Paper and paperboard is the largest packaging material in terms of value. Food and beverages followed by industrial packaging are the largest end-use segments, and the growth in those will remain healthy. During the past few years Asia has passed North America and Europe and become the largest packaging market, and it now drives a significant proportion of the future growth.
What is behind this curve is largely GDP. Overall growth in economy, industrial production and merchandise trade, population growth and urbanisation along with increasing disposable incomes and higher standard of living, drive further growth in packaging material demand. Many consumers can afford things they previously only dreamt of. It is also impacted on by demographics. In the developing economies, a more affluent middle class and aspiring middle class, including educated young people, is evolving. A vast majority of the world’s teenagers and young adults will live in BRIC (Brazil, Russia, India and China) countries. The western world, especially western Europe, is aging and in about 40 years the median age in western Europe will reach 52 years. The stagnated population growth will attenuate packaging material demand, but will also be setting new requirements for packaging.
The DNA of spending differs quite a bit between the western world and the east, urban dwellers and rural population as well as between the combination of the two extremes. However, there are distinguishable average urban dwellers, and accordingly identifiable trends in each segment.
Consumer behavior is amongst the strong underlying drivers for packaging and tissue. An often overlooked but increasingly powerful part of this is diet and diet changes.
2. The global diet curve
Whatever diet happens to be fashionable in the western world, its impact is minimal compared to shifts in global eating habits and diet. The western diet has been the richest; now, emerging nations are emulating: adapting western food patterns. The consequences are global and potentially very significant. The key drivers are urbanisation, in addition to growing wealth. Urbanising emerging countries and their mega-cities weigh very heavily in this diet. Whether the earth gets indigestion at some point in this change process remains to be seen.
As somewhat simplified examples, let us pick a western diet (a mix of western Europe and the US), the Chinese diet, the Russian and Brazilian diets. India is left out this time, partly due to dietary restrictions among the main population groups, although the proportion of income spent on food is a record high there, 40+%.
As it is the global urban consumer we are dealing with, the motives are fundamentally simple but decorated with additional flourishes: fear and desire.
‘The changes in global diet directly translate to changes in many linked issues – the market for tissue and hygiene products is one.’
Fear and loathing in the diet value chain
Health and safety issues around food are constantly growing. The E.coli outbreak in Germany this summer is one of many concrete events to reinforce this trend. The urban consumer is afraid of getting sick because of the food consumed. The allergy business is part of this: a recent report foresaw an 11bn euro food allergy sector by 2017 (according to the Global Industry Analysts recent report, Food Allergy and Intolerance Products: A Global Strategic Business Report). Foodrelated diseases (obesity and its consequences, coronary ailments, diabetes, gout etc.) connect to this chain.
The increased expectations here are on the food value chain operational safety. This includes parts where human manual labour is involved – with a consequent need for increased hygiene and hygiene products. Likewise, eating protocol change with additional napkins and accoutrements increase tissue and hygiene product consumption.
Desire, enjoyment and status in the diet value chain
Being able to eat undeniably delicious items that, furthermore, have earlier been only on the menu of the rich and globally renowned, is a great temptation. Thus, the diet in many emerging countries shows a very clear trend towards:
- fish, where it has been rare
- beverages: milk, juices
Here, the increased expectations are on higher food value chain delivery volume.
The global food basket consequences
The following “shopping carts” of Western, Chinese, Russian and Brazilian variants show projected general changes in typically urban shopping carts, and their consequences:
Health and safety dominate. More than in the other food carts, we are dealing with the same foodstuffs in a safer foodchain. It is unlikely that we would see an increase in meat, eggs, dairy – rather the opposite. A bathtub curve is possible: for reasons of health and safety, we might have both further processed food and less processed organic food, with the current level of processing losing out. The western urban consumer is used to buying processed food; the change will not be as large as in places where that is the major new thing.
If wealth accrual and middle class formation continues, the country is growing toward a more western diet. Furthermore, a national average pattern of saving 30% of income and using 20% on food gives a profile of frugal diet improvement. What the world outside the Middle Kingdom knows as Chinese cuisine is really Cantonese, due to extensive emigration from Guangdong. Inside China, more meat, fruit, fruit juices and dairy products are consumed, with a negative impact on water resources. Regardless of a possible change in Chinese population policies, the “little Emperor”, the single male child, will get the best in food parents and grandparents can provide.
It is filled in an environment of decreases in life span and nutrition, and around a quarter to a third of earnings spent on food. The pattern points towards spending on food as soon as it is possible. The food should, furthermore, be enjoyable, and possibly also expensive – personal budget allowing.
Another variant, with Brazilians in polls declaring a willingness to spend extra income primarily on food. According to a study by federal statistics bureau IBGE, a shift from the balanced and healthy traditional rice-beanmeat menu is ongoing: “The ingestion of some components of a healthy diet, such as rice, beans, fresh fish and cassava flour, decreases as the per capita family income increases. In opposition, the consumption of pizza, fried snacks, sweets and soft drinks rises. The ingestion of fruits, vegetables and diet/light dairy products also increases in this income range”. The average Brazilian eats 63.2 grams of cattle meat and 53 grams of pão francês (the standard mini-loaf) a day.
In summary; in BRIC countries, the trend is towards more of the environmentally heavier load-bearing food, as soon as financials permit. Peaks of consumption may clash with other peaks.
3. The hygiene product change curve
The changes in global diet directly translate to changes in very many linked issues. The market for tissue and hygiene products is one of these. We can take factors and foodstuffs, and concisely analyse changes in the hygiene and tissue sector that are sometimes linked to packaging:
Fear for safety:
The need for operational safety in the value chain is dominant. Consequences are both increased use of sanitary products in handling and increased need for tissue/hygiene products linked to rising hygiene standards and to the packaging. Likewise, the ritual of eating itself is open for additional use of napkins and sanitary material which is furthermore emphasised with increased travelling and tourism. These factors apply to essentially all foodstuffs.
Health and wellness:
Health and wellness often equate to smaller, carefully chosen packages of food items which simultaneously provide convenience. The same attributes are often associated with tissue and hygiene products. Including napkins/tissue/wet towels in packaging is also a possibility. This, in equal measure, applies to all relevant foodstuffs.
Additional impact from meat:
A significant proportion of the global meat flow is transported as frozen/vacuum packed shipments. Replacing packaging or bolstering it with tissue seems unlikely.
Additional impact from dairy and fruit juices:
The biggest issue is the need for more liquid packaging board, and possibly introducing further antibacterial properties in it, with links to hygiene products – again, maybe directly connected to the packaging.
Additional impact from eggs:
Moulded fibre is, functionally, still likely to be the egg packaging medium of choice. However, lining with tissue/antibac coating might not be as hypochondriacal as to be impossible.
4. Russian doll of curves
Inside a curve on global food packaging development, we find a curve on global diet directions. Inside global diets, we find a curve on impact on tissue and hygiene. This does not make forecasting, or planning strategies and investments any easier. However, the cultural coupled consumer dimension should finally find its natural place also in traditionally highly “sanitised” prognoses. This does not increase the use of tissue or hygiene products, but certainly makes the consumer an even more integral part of whatever curve is produced to help in strategic planning. The next time you hear of a new food fad spreading, take care – it might grow to affect your global strategy.
Saara Söderberg is a director and head of global consulting practice at Poyry. Petri Vasara is also a director and head of global consulting practice.
Pöyry on logistics: Mega-city supply chains will need vital re-structuring
Disruptions join forces
Potentially disruptive global changes operate separately but also combine forces. Urban consumers are affected by these and simultaneously are one of the great drivers. Urbanisation is proceeding at a never before seen scale. In emerging markets, growing megapolises are giant people magnets, behaviour changers… and completely unable to fulfill their needs.
Western megapolises do not achieve the same dramatic growth, and are also showing signs of a “longing for the rural”. Health is a key push, whether through ingested wellness or protection against the harmful.
Food produced locally or as near a western megapolis as possible, or a preference for the organic and products believed to be sustainable, are not yet a major trend, but are linked to the need for health and safety.
For emerging megacities, the point is feeding all hungry mouths and meeting an increasing middleclass demand for a better life. A new megacity needs an ever larger hunting ground to stay alive. It also needs a flow of tissue and hygiene products to build up its “immunity shield” of safety.
‘Growing middle classes demanding a better life and a flow of tissue and hygiene products to build up its “immunity shield” of safety’
Global changes in consumer demands are affecting the logistics for food and hygiene producers in two key ways:
- operational safety in the logistics chain, for health and safety
- dramatically increased flows in the chain for urbanising emerging middle classes and megacities.
As the demands made on responsible western operators are the same regardless of geography, both drivers are in force at the same time.
Consequences for logistics
The throughput imperative puts a strain on already large flows, necessitating solutions for:
- even larger scale optimisation
- no single empty backhaul
- the tension between ever larger spheres of provision vs. the local nature of the tissue products and business
The safety imperative implies, for example:
- the growing need for sensors monitoring product safety, spoilage and bacterial activity, and countermeasures,
- and even harder demands on unbroken cold chains. In some cases, the drive for safety means a shift towards more value added hygiene products, which are also more efficient to transport.
The logic of safe megacity logistics
Overall, the logistic chain also needs to become ever more aware of consumer behaviour changes. With smaller niches, logistics could be solved reactively without much waste of money and time. However, when emerging market mega-cities and growing middle classes enter the picture, the volumes are so vast, that major re-optimisation of logistics may be necessary. Likewise, the increasing health and wellness demands spare no single part of the logistics chain.
To keep the thermometer of the mega-city below fever level, re-optimised logistics flows of tissue and hygiene are absolutely necessary.