asia packaging report

Asia Packaging Report 2019A.T. Kearney Point of View

A.T. Kearney February 2019 2

Packaging ecosystem

Packaging industry players

• Pulp manufacturers• Resin manufacturers• Metal sheet manufacturers• Printers, converters, and corrugators• Machine manufacturers

Direct consumers of packaging

• E-commerce companies • Consumer packaged goods, including food

and beverage, beauty and personal care, and retail and gifts

• Pharma, including drugs, vaccines, and consumer healthcare products

• Consumer durables, including electronics and home appliances

This report was developed based on A.T. Kearney’s recent projectsin Asia and extensive market outreach across the packaging value chain

Source: A.T. Kearney analysis


§ Macroeconomics and Packaging Trends

§ Market Landscape§ Paper-based packaging

§ Plastic-based packaging

§ Metal-based packaging

§ Packaging Excellence Strategies


In Asia, positive consumer sentiment is likely to continue in 2019,but with a few risksMacroeconomic factors affecting packaging industry

Macroeconomic factors

Business trendsPackaging trends

Design for e-commerce

Sustainable packaging

Smartpackaging

Design forvalue

Growth ofonline retail

Digitization and automation

Eco-friendly business models

Cost-reduction programs

Consumer trends shifting the paradigm

High economic and financial volatility

• Wage growth is at 5 percent in Asia and 3 percent in ANZ, which will power consumer spending.

• Millennials are surpassing Baby Boomers. Half of Asia’s population is under 31 years old.

• Internet penetration of 60 percent will shape new business models.

• The US–China trade war could bring growth down by 0.3 to 0.5 percent.

• Climate change is expected to cost South Asia about 1 to 2 percent of total gross domestic product.

• The cost of imports is likely to go up as a result of weakness in Asian currencies.

Note: ANZ is Australia and New Zealand.Sources: Statista, Euromonitor, World Bank; A.T. Kearney analysis

Macroeconomics and Packaging Trends


E-commerce growth in Asia Pacific is triggering a major shiftin packaging requirements

Impact of new business models on packaging

1

Growth of e-commerce Traditional versus e-commerce packaging

Parameter Traditional packaging

E-commerce packaging

Importance of appearance and sizeStrength and durability requirementsStandardization of product and packaging mix

HighLow –

436540

649761

869

2018 2020f20172016 2019f

+19%

E-commerce sales in China, Southeast Asia, and Australia($ billion)

Sources: Statista; A.T. Kearney analysis



Demand is growing for smart packaging that can engage with its environment to provide more benefits than traditional packaging

Smart packaging capabilities and applications

2

Conn

ect

Sense

Respond

Ability to respond by executing an action (for example, sending an alert)

Ability to connect with digital or smart devices such as phones and watches

Ability to sense changes in internal or external conditions

Unique capabilities Application

Not exhaustive


Source: A.T. Kearney

Improved user experience

Smart caps for bottles to monitor liquid levels

Smart bottles for medicines to monitor intake and reorder

Enhanced product safety and supply chain visibility

Labels to monitor optimal temperature and any breach

Packaging with radio-frequency identification to report movement and location of inventory


Sustainable packaging is helping brands improve their appealto new-age consumers and reduce packaging waste and costs

Sustainable packaging across industries

3

Recycled materials

Biodegradablematerials

Food andbeverage

• Recycled plastic bottles for water and soft drinks

• Oxo-biodegradable bags

Personalcare

• Recycled plastics for bottles and containers

• Biodegradable microplastics

Consumerelectronics

• Recycled foam and bubble wrap for protection from damage

• Starch-based plastics

E-commerce • Recycled paper for corrugated boxes • Sustainable paper tapes (instead of plastic tapes)

Pharma and health

• Bioplastics (for example, bio-PET), which can be easily recycled

• Paper-based blister packs

Note: Bio-PET is bio-based polyethylene terephthalate.Source: A.T. Kearney analysis


Not exhaustive


In their search for value, consumer brands are looking for innovation on low-cost, lightweight packaging with improved shelf attributes

Design for value

4

Illustrative

Low-cost pack

Lightweight

Improved shelf life

Shelf attributes

50%

50%

20%

20%

Less energy required to make stand-up pouches compared with plastic bottles

Reduction in layer thickness achieved by using materials such as EVOH and ionomer films

Increase in shelf life by using antimicrobial and ionomer films

Less space required by pouches compared with rigid packaging

20–30%

50–60%

15–25%

5–10%

Increase in shelf life achieved

Less plastic used by flexible packaging

Reduction in logistics cost

Less weight in flexible packaging compared with rigid plastics

Note: EVOH is ethylene vinyl alcohol copolymer.Source: A.T. Kearney analysis


Value determinations Potential benefits


The packaging category can be segmented based on the typeof substrate or feedstockPackaging subcategories Not exhaustive

Note: Excludes other smaller categories such as glass packaging, woven fiber, and textile packaging

Paper-basedA

Plastic-based

B

Metal-basedC

Paperboard

Corrugated

Flexible

Rigid

Aluminum

Tin

Steel

Market Landscape


Demand in the paper and paperboard packaging marketis poised for moderate growth over the next few years

A

• The overall market is expected to grow as a result of rising prices and moderate volume growth of 0.5 percent.

• The fragmented nature of customer demand results in relatively low buyer power.

• Demand for paper packaging expected to remain robust in 2019 since:

•The food and beverage industry is expected to grow by about 10 percent growth between 2018 and 2023.

•E-commerce industry is expected to grow by about 20 percent.

• The e-commerce industry is bringing new concepts to paper packaging such as ships in own container and frustration-free packaging.

180170

0

160150

172

2016 2017

165

Rev

enue

2021f

148155 159

2019f 2020f2018

151

+3%

48%

25%

6%6%Food and beverage

4% 5%

Agriculture

Electronics

Other

7%Furniture

Automotive

Clothing and footwear

Paper and paperboard packaging market size by overall revenue($ billion)

Paper packaging market revenue split by end-customer industry (2017)

Sources: Paper & Paperboard in Asia-Pacific, MarketLine, 2017; A.T. Kearney

Asia Pacific paper packaging market Demand outlook


Most large pulp and paper suppliers have been able to pass coststo consumers and have seen revenue and profitability growth

Sources: industry reports; A.T. Kearney analysis

• Revenues rose 8 to 35 percent year over year.

• Profits jumped 3 to 45 percent year over year.

Financial performance

• International Paper acquired APPM.• Mill closures in China led to market

consolidation.

M&A

Impact on category management

• Increasing consolidation means more supplier power.

• The changing nature of demand willinform useful strategies for buyers.

Major pulp and paper suppliers Not exhaustiveJapan

• Kokko Corporation• Nippon Paper

Industries• Oji Holdings

South Korea

Moorim P&P Co. Ltd.

China

• Nine Dragons Paper (Holdings) Limited

• Shandong Chenming Paper Holdings Limited

• Chung Hwa Pulp Corp.

• Xianhe Co. Ltd.

Australia

Australian Paper

India

• International Paper APPM Ltd.

• Ballarpur Industries Limited

Indonesia

PT. Indah Kita Pulp & Paper Tbk

A


• Pulp prices jumped between 2016 and 2018 because of rising input costs.

• Chinese environmental regulations and anti-pollution efforts have had a significant impact.

o Around 1,000 smaller pulp and paper mills have closed, leading to market consolidation.

o Stringent regulations and tariffs on the import of recycled paper led to a shortfall of supply.

• In Australia, the weakening Australian dollar has contributed to price increase.

• In India, anti-dumping duty on imports of uncoated paper from Southeast Asia has increased prices.

Paper packaging prices are expected to rise because of higher input costs, market consolidation, and regulatory changes

650

0

600

900

700750800850

2016

568

668

2017

876

2018

UKP commodity grade pulp price CIF China(net, $ per ton)

NBSK China($ per ADMT)

1,000

700

6000

800

900

600

20182016

700

2017

910

Note: UKP is unbleached kraft pulp; NBSK is northern bleached softwood kraft; ADMT is air dried metric tonnes.Sources: Outlook for Unbleached Kraft Pulp by Hawkins Wright, Paper Industry - Update by CARE Ratings; A.T. Kearney analysis

Asia Pacific pulp price trends Important pricing insights

A

A.T. Kearney February 2019 14Sources: Plastic packaging market research report by Grand View Research, 2018; A.T. Kearney analysis

Growing demand from the food and beverage industry will bring robust growth to the plastic packaging market

B

• Overall market to grow as a result of steady volume growth of 3.6 percent

• Flexible packaging accounts for 65 percent and rigid packaging accounts for 35 percent of market share

• Market for wraps and films is expected to witness highest growth (5 percent CAGR), among all categories

• China dominates with 58 percent demand share

• 2019 expected to see increased use of recycled plastic and other biodegradables

120

100

130

110

0

9093 97

Rev

enue

121

85

2017

89

2019f2018e 2020f 2021f 2025f

102

+4.5%

46 48 50 51 53 61VolumeKilo ton '000

Plastic packaging market size by overall revenue($ billion)

33%

22%

21%

24% Others

Industrial packaging

Food and beverage

Personal and household care

Plastic packaging market revenue split by end-customer industry(2017)

Asia Pacific plastic packaging market Market landscape and industry outlook

A.T. Kearney February 2019 15Sources: ICIS database, S&P Capital IQ, EMIS database, industry reports; A.T. Kearney analysis

Asian plastic packaging suppliers had mixed results in 2018with India seeing very high supplier competitiveness

Major plastic packaging suppliers Not exhaustive

• Revenue and profit performance was mixed across suppliers in the range of -13 to +16 percent year over year.


• Amcor acquired Qite in China, PIPL, and Uniglobe Packaging in India.

M&A


• Because of the increase in supplier power, buyers must use re-specification of demand and collaborative cost reduction.

Australia

• Amcor

China

• Nine Dragons Paper (Holdings) Limited

• Shanghai Zijiang• China Flexpak

India

• Jindal Poly• Uflex• Polyplex• Amcor India• Pearl Polymers

Limited• Graham Packaging

Malaysia

• Scientex Berhad• Thong Guan

Industries Berhad• Daibochi Berhad

Indonesia

• Panca Budi • PT Indopoly Swakarsa

Industry Tbk. • Avesta Continental

Pack

Philippines

• San Miguel Yamamura Australasia Group

• Mandaue Libertad Commercial Packaging

• Flexo Manufacturing Corporation

B


Plastic resin prices are expected to remain stable in 2019after cooling down from their 2018 peak

• Resin prices trended up in early 2018 because of the higher cost of feedstocks, strong demand in the United States, and anti-dumping duties across South Korea and Taiwan.

• Resin prices are below 2018 prices because of the decline in crude oil prices and lower demand in winter for soft drinks and water bottles.

• Higher supplier inventories also contributed to the fall in prices of PE.

• For most plastic resins, prices are expected to be stable or lower in 2019 based on a crude oil forecast of $60–70 per barrel during most of 2019.

HDPE (IM) Spot CFR and LDPE Spot CFR China ($ per ton)

PET Bottle Grade Spot FOB and PP Inj. Spot CFR China ($ per ton)

0

900

1,000

1,200

1,100

1,300

1,400

2018 Q4

2017 Q2

2016 Q2

2016 Q1

2018 Q3

2016 Q3

2016 Q4

2017 Q1

2017 Q3

2017 Q4

2018 Q1

2018 Q2

1,100

0

1,150

1,200

1,250

1,300

2017 Q2

2018 Q4

2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2018 Q3

2017 Q4

2017 Q3

2018 Q1

2018 Q2

Sources: Nexant; A.T. Kearney analysis

LDPE Spot CFRHDPE (IM) Spot CFR

PP Homo Injection Spot CFRPET Bottle Grade Spot FOB

Asia Pacific plastic resin price trends Important pricing insights

B

A.T. Kearney February 2019 17Note: BPA is bisphenol A.Sources: Global Metal Packaging Market 2018-2022 by Technavio, 2018; A.T. Kearney analysis

Higher consumption of beverages and deodorants is expectedto boost the growth of the metal packaging market in Asia Pacific

C

• Overall market growth is forecasted at 4.4 percent CAGR until 2021.

• The growing use of cans for deodorants and beer, tobacco packaging, and baby food packaging is expected to prompt growth of metal packaging.

• Beverage cans account for about 70 percent of the metal packaging industry.

• In 2019, the Asia Pacific beer market is likely to grow by 7 percent, the deodorant market by about 5 percent.

• The main demand trends in the metal packaging industry include:o Lighter weight of packaging and higher recycling rateso Phasing out of BPA because of health concerns

4038

36

0

3234

2021f2020f2019f

Rev

enue

2016 2017e

32

2018e

3335

3738

31

+4.4%

Metal packaging market size by overall revenue($ billion)

Metal packaging market revenue split by end-customer industry (2017)

Asia Pacific metal packaging market Market landscape and industry outlook

44%

24%

8%18%

FoodBeverage

OthersHealthcare

7%Personal care


Not exhaustive

A rapid increase in demand has triggered investmentsand capacity addition by leading suppliers in Asia Pacific

Major metal packaging suppliers

Sources: industry reports; A.T. Kearney analysis

• Revenues increased with double-digit growth in India and single-digit growth in Australia and Japan.

• Profits increased moderately


• In China, Ball Corporation plans to sell local unit to ORG Technology Co. Ltd. in 2019.

M&A


• Growing demand and consolidating supply base strengthens suppliers.

• Buyers must use re-specification of demand and collaborative cost reduction.

Japan

• Toyo Seikan• Universal Can

Corporation

China

• ORG Technology• CPMC• Pacific Can

Australia

• Amcor• Orora

India

• Hindalco• The Tinplate

Company of India Ltd.

Malaysia

Kian Joo Can Factory Berhad

Indonesia

• UnitedCan• Royal Industries

C


• Aluminum prices peaked in April–May 2018 but adjusted quickly because of slowing growth in China, which was exacerbated by the US–China trade war.

• Drop-in capacity, combined with diffusion of trade tensions and stimulus package in China, couldmarginally increase aluminum prices in 2019.

• In 2019, tin prices are expected to increase on account of metal’s usability in new technologies, such as electric vehicles, robotics, and renewable energy.

• Tin supply tightness could increase because of a crackdown on illegal tin mining in Indonesia, the world’s second-largest tin exporter.

Aluminum and tin prices are likely to go up in 2019 after dropping around 12 percent in 2018

2,200

0

2,000

2,100

2,300

OctAugFeb MayMar Apr Jun Jul Sep Nov Dec Jan

Aluminum Spot China($ per metric ton, February 2018 to January 2019)

Tin Spot China($ per metric ton, February 2018 to January 2019)

21,500

0

21,000

22,00022,50023,00023,50024,000

Aug SepAprMar JunFeb May Jul Oct Nov Dec Jan

Sources: Bloomberg; A.T. Kearney analysis

Asia Pacific metal price trends Important pricing insights

C


Packaging excellence can be achieved by taking full advantage of advanced analytics and the exchange-to-exchange packaging value chain

Deploy decision analytics Use packaging ecosystem

• Conduct competitive teardowns.

• Explore alternative materials and structures.

• Employ new designs in packaging.

Specification optimization

• Reduce costs by driving out excess SKU complexity.

• Maintain a clear view of packaging specifications and drawings.

Complexity reduction

• Use zero-based budgeting to determine the true cost of packaging by separating into value chain components.

Zero-based budgeting

• Use parametric pricing, and engage suppliers to unlock value in systemic costs when standard cost reductions in vendor margins are exhausted.

Collaborative optimization

Rapid and dynamic insights to identify predictors of value with quantified trade-offs

Use of the 360-degree ecosystem of upstream, convertors, and logistics suppliers

1A

1B

2A

2B

Note: SKU is stock-keeping units.Source: A.T. Kearney analysis


A.T. Kearney’s PERLab methodology uses real-time industrial design thinking to develop creative and tangible ideas in workshops

Specification optimization: PERLab approach

1A

Rapid consumer insights

BOM and BOP analysis

Product teardowns

Ideation and design workshop

Prioritized implementation funnel

Packaging Excellence Strategies

17%

8%

58%

18%

Breakdown of cost savings

Packaging

Electronics andinternal

mechanisms

Housing

Vacuum and seal

Note: BOM is bill of materials; BOP is bill of process.Source: A.T. Kearney analysis


To maximize the total value, complexity reduction opportunitiesneed to be evaluated across the product value chain

Complexity reduction

1B


Relevant actions

Offerings

Platform Formulae Raw material Packs Closures Brands Lines Labels SKUs

MaterialsTechnologies

Chassis

Below the skin:complexity not visible to end consumers

Above the skin:complexity that is visible to end consumers

# # ## # # ## # #

Customers

#

Spec optimization Supplier base optimization Portfolio and SKU simplification Eliminate under-performing

complexity in brands, lines, SKUs, platforms, chassis, formulae,

ingredients, and bottles.

Direct purchase of resins will eliminate risk premiums in the value chain by internalizing the commodity risk and taking over the management

of the raw materials cost.

Consolidate volumes under preferred specs, and use

common raw pack materials.



Zero-based budgeting is one of procurement’s most powerful tools to derive value during sourcing events

2A

Targeted cost cutting Zero-based budgeting

Justify what to keep.

Leave “no stone unturned” with a broadest possible set of cost levers.

Review activities and how they should be performed.

Develop detailed and comprehensive initiative design, planning, and execution.

Justify what to eliminate.

Focus on a narrow set of cost levers.

Improve how activities should be performed.

Create focused initiative planning and execution.




Unlike traditional RFP sourcing, the Collaborative Optimization®

approach addresses both vendor margins and systemic costs 2B


Traditional RFP sourcing Parametric RFP supported by analytics

No significant savings focusing on negotiated

margins only

Supplier engagement

Broad opportunities in supply, transparency, and optimized

end-to-end costs

Collaborative Optimization

Stakeholder engagement

Complexityhandling

No in-depth understanding of supply alternatives and what determines cost

Supplier bids according to current demand and rigid operating model

Limited ability to engage with business by taking requirements into account

Extensive understanding of underlying constraining factors and alternative solutions

Actively enlarged solution space and opportunities for greater efficiency for suppliers

Cooperative stakeholder engagement with what-if analysis and real-time scenario models

“Please give me an offer for this specific solution to my problem.”

“This is my problem. Please give me your best solution and offer.”

Improved analysis of alternatives but with limited understanding ofwhat determines cost

Increased savings from enriched scenario analysis and margin

negotiationNote: RFP is request for proposal.Source: A.T. Kearney analysis


A.T. Kearney has helped companies address more than $36 billionin packaging spend over the past five years


• Unparalleled tools, databases, benchmarks, and methodologies for identifying opportunities in packaging

• Process and ability to model and analyze total packaging costs concurrently

• Innovative rate and service proposal packages

• Off-the-shelf bid analysis software

• Comprehensive negotiation strategies and expertise

• Extensive best practices assessment methodology and stages of excellence review

• Knowledge resulting from wide range of successful engagements

• Knowledge transfer to the client team

Category Applications Number of projects

Approximate spend ($ billion)

Savings (%)

Cans and lids Food, beverages, chemicals, drums, aerosols, jar lids 40 10 4–12

Corrugated boxes

Graphic cartons, folding cartons for food and beverages, consumer products, industrials

150 12 10–20

Rigid material Bottles, cups, closures, consumer products, pumps 50 5 5–15

Flexible material

Shrink, stretch, pouches, overwrap, primary packaging for food and beverages

80 5 8–16

Glass Bottles, vials for food and beverages, pharmaceuticals 20 2 3–10

Labels Paper- and flexible-based, pressure-sensitive, cut-and-stack, roll-fed, shrink sleeves

60 2 10–25

Notes: Global projects executed by A.T. Kearney across all industries and clients. Savings primarily includes sourcing savings and in some cases specification optimization savings.Source: A.T. Kearney analysis

Packaging tangible results


Americas AtlantaBogotáBoston

CalgaryChicagoDallas

DetroitHoustonMexico City

New YorkSan FranciscoSão Paulo

TorontoWashington, D.C.

Asia Pacific BangkokBeijingBrisbane

Hong KongJakartaKuala Lumpur

MelbourneMumbaiNew Delhi

PerthSeoulShanghai

SingaporeSydneyTokyo

Europe Amsterdam Berlin BrusselsBucharest

CopenhagenDüsseldorfLisbonLjubljana

LondonMadridMilanMoscow

MunichOsloParisPrague

RomeStockholmViennaWarsaw

Zurich

Middle East and Africa

Abu DhabiDoha

DubaiIstanbul

JohannesburgRiyadh

A.T. Kearney is a leading global management consulting firm with offices in 40 countries. Since 1926, we have been trusted advisors to the world’s foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

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