Exclusive | F&B Packaging Decision Report Newly Released

Abstract

Differentiation may be the biggest expectation of all packaging decision-makers, but honestly speaking, it is not a simple process of replication and production, as the balancing game of technology, cost and effect is always occupying the decision-makers' mind, affecting the implementation of the final package plan. Interestingly, however, we paid little attention to how the brand owners make packaging decisions comparing to the searching of new materials and new structures. The asymmetric information system between upstream and downstream players has caused lots of breaks on the packaging manufacturing value chain, which means just one loophole would affect the realization of differentiation.

How do the brand owners make packaging decisions? What are their pain points? What package trends do they concern? Located in Asia Pacific where consumes most FMCG packages, we chose food and beverage (F&B) industry, the heaviest user of package[1], to be our respondent. 30 senior packaging executives from 24 top companies accepted our interview in less than two weeks, and here are FIVE MAJOR FINDINGS:

1. Packaging decisions are results of multi-department cooperation.

2. Packaging structure innovation has become the pain point of F&B industry.

3. New technology brings new options of differentiation.

4. Plant-based materials are eye-catching, but the road is tough to go.

5. Packaging will be the key breakthrough point in product segmentation.

Differentiation must begin with packaging decisions – not only decisions from brand owners, but from the whole packaging industry value chain.

We think the fundamental of product differentiation lies in the revolution of packaging decision mode:

1. For brand owners:

- Create a golden triangle of R&D, packaging and marketing to allow the packaging department to make the best of themselves.
- Pay more attention to package aesthetics as the market is becoming more and more interested in product appearance.

2. For packaging suppliers:

- Increase capital and technology investment to strengthen the independent R&D capacity and make the new products meet the need of brands and markets.
- Focus on product segmentation innovations and provide real-time solutions.

3. For design agencies:

- Enhance cooperation with the brand owners and the suppliers, for innovating structure design as well as solving the SOP problem to comfort the industry pain point.
- Guide the brand owners to attach importance to graphic design.

Content

-   Abstract

-   Packaging Decision Models for Brands

-  The Factors to Consider in Packaging Decisions

-   Future Packaging Trends

-   Summary and Advice

-   Glossary Explanations

-   References

Packaging Decision Models for Brands

The formation of a packaging decision model is mainly subject to the inner framework of the company. As organization structures vary according to companies, there are various kinds of packaging decision models and procedures. Besides, the style sense of a decision maker and the attention he or she pays on package are also important factors that cannot be neglected. Through a qualitative research of 24 food and beverage companies in the Asia-Pacific areas, we have found certain principles and concluded into three major packaging decision models after an intensive study of their complex status quos and subjective opinions.

*Based on enterprise types registered by the department of Administration for Industry and Commerce, we divide the interviewed companies into domestic enterprises, Hong Kong-Macao-Taiwan invested enterprises and foreign funded enterprises to illustrate and analyze‚[2].

1. Foreign-Funded Enterprises: with clear structures but rigid procedures, it's difficult for giants to shine.

The overall packaging innovation of foreign-funded enterprises takes the leading position, which has a great matter with their clear packaging functions inside the companies. The packaging department, usually subordinated to R&D department, has two functions: design optimization of package structures and evaluation and execution of packaging schemes. The graphic design of a packaging work, however, is brought out by the marketing department in collaboration with a third-party design agency, or decided directly by a brand manager. In short, for a packaging work, the packaging department is responsible for its structure, and the marketing department for its graphic design. The final application and implementation is executed by the packaging department again. All is clear and definite.

However, in the context of competitive Asia-Pacific market, this model limits brands' further development.

Traditional foreign companies, especially those food and beverage giants hold very abundant research and development resources and powerful strength, which presents a certain explanation for bringing packaging work into R&D department. It also conforms to actual consideration on business production lines to separate packaging industrial design and graphic design. However, as the current packaging department only pays attention on structure design, and structure innovation is susceptible to multiple challenges from productivity, cost, brand value and market acceptability, the space left for the packaging department to innovate independently will be limited, thus causing awkward situations such as new structures or new packing materials disable if a company's strategy has a slight deviation.

In addition, for the purpose of graphic design, the packaging department personnel are lack of professional design education and can only carry out packaging schemes based on given structures with opinions of brand positioning from the marketing department. In this model, the packaging department, with a feeble decision power, is more like a sourcing and performer of the marketing department. But, what companies really want about establishing a packaging department is to improve the overall design power for products and strengthen brands' core competitiveness. In this way, the stiff organization architecture holds the bottle-neck of packaging innovation in foreign enterprises. The foreign food and beverage enterprises will lose their advantages if they sit idle without enhancing the strength and subjective initiative of the packaging department.

 "Actually, for a packaging department, it shall be as sensitive as the marketing department and as professional as the technology department. It shall not be a pure executor of the marketing department as previous was, rather, it shall even lead the work of the marketing department actively."  - Quoted from a senior executive in a famous F&B brand

2. Taiwan-Funded Enterprises: a closed-loop type decision model, supported by a well-established system

When it comes to a packaging design of food and beverage, Taiwan enterprises act rather distinctively from other enterprises in the Asia-Pacific areas. Most Taiwan enterprises pursue for the real "craftmanship", and pay attention to the polishing of details, just like what Japanese enterprises do. For example, in Uni-President, the launch of a product means constant refinement and continuous optimization of the packaging design before it meets everyone's satisfaction. Behind it shows a great support of Taiwan businesses to the packaging decision from the aspect of organization systems.

Take Uni-President as an example. There, packaging designers are employed to specialize in packaging aesthetics and modeling, as well as connect with a third-party design agency. The designing scheme he/she submitted will be reviewed by brand managers, business units and the general manager before optimization and carried out by Packaging Technology Division. Before its launch, a blind test from some consumers can provide data support to avoid influence of personal preference on brand packaging decision. There are checks and constraints at and between all levels. Although two different packaging teams match up together and manage to accomplish design and practice respectively, they play to their strengths inside the organization. Thus, with each one giving full play to his/her professional skill, and the decision-maker putting forward certain suggestions at a proper time, comes a closed loop for packaging decision. It is very advanced of an organization architecture to split a package project into different functions and allot the functions to different departments. It can provide the most powerful guarantee for packaging innovation and establishment of the enterprise knowledge base from the source.

3. Domestic Enterprises: gradient layering, fast innovation and changeability in a transitional period

The packaging upgrade of domestic enterprises mostly benefits from the competitive effect by foreign companies. There are two kinds of competitive effects: short-term negative competitive effect and long-term positive competitive effect[3]. According to our calculation, although the average annual growth of China's foreign direct investment (FDI) inflow from 2005 to 2015 has slowed down to 8% (the same number of FDI inflow from 1985~2007 once reached 22.8%, much higher than 10% annual growth of GDP of the same period), domestic companies have managed to take a big step forward by making full use of the current production technology and increasing efforts on production R&D and packaging innovation. We owe it to the great technological effects brought by a number of foreign investment accumulated over thirty years and the long-term competition domestic companies confronted face to face. Some domestic companies, such as NongFu Spring, Three Squirrels, Yili and Mengniu, have even surpassed their foreign counterparts considering the speed of packaging innovation.

However, as we take further research on the packaging decision models of domestic companies, an obvious stratification phenomenon shows up. The packaging decision model is subject to the strategic positioning of a company, both presenting an echelon distribution.

Furthermore, an interesting scene concerning packaging arises as e-commerce undergoes an unprecedented development. Apart from companies like Three Squirrels that earn their first bucket of gold from e-commerce, other companies also notice the importance of packaging. In order to catch up with the constantly changing steps of e-commerce, domestic food and beverage companies present three kinds of responsive solutions focused on packaging.

a. Make equal allocation between online and offline resources and speed up packaging innovation, but no difference between online and offline products. As a proverb goes, "Meet changes with constancy". E.g. Yili Group.

b. Take e-commerce packaging in the lead and launch limited edition at a special time. E.g. commemorative Spring Festival edition of NongFu Spring

c. Total difference between online and offline, not only in products packaging, but also in products R&D. The online products are only offered in corresponding channels. E.g. Tian Xiaohai yogurt offered by Mengniu Group.

On the whole, it is a transitional period of packaging transformation and upgrading for domestic enterprises. With geographic and cultural advantages and abundant resources, domestic enterprises have much more room to play and play more accurately than foreign companies. Food and beverage companies on the first echelon attempt to establish a specialist packaging department to coordinate multilateral cooperation trans-department and inter-enterprises, integrating packaging resources with professional packaging suggestions to ensure the final packaging decision. Companies on the second and third echelons are bound to improve their aesthetics and inspect and listen to more professional opinions if they want to take a share of the spoils. They shall realize that packaging is no more about cost, but about the truth of added value. 

The Factors to Consider in Packaging Decisions

The personnel on the decision-making chain are important, but what is more important are the factors influencing the decision procedures and affecting the final solution. Here are the factors in terms of importance we concluded from the interviews.

Analysis 1: Cost is important but not the first.

The cost is always an important factor that influences the packaging decisions, but we found that not all companies put it as the first consideration. It is widely thought that the packaging decisions should be the best if the budget allows. Yet the basic starting point of packaging decisions is to meet the need of brand position and segment requirement, which result in that the medium- and low-end products often put cost at the first while the high-end products have more pursue other than cost efficiency.

Analysis 2: Packaging structure innovation has become the pain point.

An outstanding packaging appearance is essential, as it makes products eye-catching on shelves and hence, differentiates the product and the brand.  With such common sense, the FMCG companies, especially the food and beverage companies are all very interested in creative packaging structures and even some abnormal ones. Design agencies also have brilliant works of innovative structure plan. However, the plant capacity is always the biggest obstacle. Establishing a new production line is usually over millions, and except for filling technology, a brand-new packaging structure also arouses issues including but not limited to printing, coloring and food safety. In the end, not all companies can afford the whole investment. In this situation, big companies usually carry out their financial calculation to make sure it is worthy or not, but the uncertainty of ROI more or less makes them lost the eager to launch new packages.  More disappointedly, realizing new packaging structure is not only a financing challenge for the giants, it even builds higher barriers for startups and e-business brands, which is a disaster as the latter is often more open to creative ideas and flexible to innovate. Losing support from the upstream only because small companies do not require much mass production is not beneficial to build an eco-system for the packaging industry from long term.

Analysis 3: The brand owners are conservative to the new materials.

The development and promotion of new materials have become the lifeblood of many packaging suppliers. But we found that many brand owners are not very willing to use new materials. On the one hand, it is related to the protection of existing brand values while on the other, some interviewees have expressed their concern of new materials' universality. In Nestle, they argued for more than 10 years to change their instant coffee can to PET bottles until the company inside recognized there was clear and big demand for material conversion in the market. Associated British Foods said that they even would not use a kind of material that only 2/3 suppliers can provide, which for sure is because universal materials are good for cost control and easy production. Yet the good news is that most interviewees have positive attitudes towards trying new packaging materials, indicating its market potential waits to be explored.

In such cases, we suggest that the packaging suppliers conduct market tests (or cooperate with consulting companies) before promoting new materials. With data in hand, it is easier and more convincing to prove the market acceptability of the materials and help brands resolve doubts. Or they should try offer one-stop services to brands, starting from new material/structure adoption, filling process, to graphic design, printing and so on, like what ORG Packaging Co., Ltd. is doing. This method improves cooperation efficiency but does require a higher level of profession for packaging suppliers.

Analysis 4: Environmental protection is easier said than done.

It is generally accepted that packaging industry should be sustainable in Asia Pacific, but it is easier said than done. For example, sustainability is an interesting proposition in China. Most Chinese are fond of natural and safe food, yet they know little about trash sorting and barely have sense to buy recyclable packages, which has put brand owners into a dilemma. If they use recyclable materials, cost rising will definitely influence pricing which in turn affects sales and profits. Whereas without material improvement, according to World Economic Forum, there will be more plastic than fish in the sea by 2050.

Although FMCG giants like Coca-Cola, Danone, Mars, PepsiCo and Unilever have issued a joint statement to support the New Plastic Economy and promised to enhance the recycle rate of plastic packages to 70%-100% in 2025, the world does not only belong to the giants, besides people cannot put all their hope in corporate social responsibilities. Obviously, the government should give stronger support to environmental protection causes and stimulate the economies of scale of plant-based materials. Finally what we urge for is to keep plastics as valuable materials in the economy, and out of the ocean.

Download the Full Report

Link：Dropbox:

https://www.dropbox.com/sh/x9jleu2ter2swjz/AACgUYB-VdhmFSV8zDCRaqjXa?dl=0

References:

[1] Downey, D. 2017. Global Packaging Market in 2017: Emerging Markets and Pack Size Variation. [Online]Available at: http://blog.euromonitor.com/2017/07/packaging-market-2017.html

[2] National bureau of statistics of the People's Republic of China. 2006. Provisions on Classifying Enterprise Registration Types. (In Chinese)

[3] Liu, W. 2011. Study on Impact of Foreign Direct Investment on Technological Innovation of Domestic Companies. (In Chinese)

[4] Cui R.G., Gai Y.J., & Gao H.F. 2005. An Introduction to Commodity Packaging. (In Chinese)

[5] Xi T. 2015. Survey Report on Chinese Family Sizes and Structural Conditions. (In Chinese)

Chief editor: Isabella Hsu

Editor & Writer: Shushu Li

Data Collector: Shushu Li, Anna Hu, Vicky Gan

Layout Designer: Longfeifei Peng

Source：WeChat Official Account FoodInnovation