ibisworld procurement report: 35508191 trash bags€¦ · procurement report: trash bags november...

WWW.IBISWORLD.COM Master Page Head in the US May 2013 1

IBISWorld Procurement Report: 35508191Trash Bags

Deonta Smith

2 At a Glance

3 Executive Summary

4 Price Environment4 Price Fundamentals

4 Benchmark Price5 Pricing Model

5 Price Drivers5 Input Cost Drivers6 External Demand Drivers

7 Recent Price Trend8 Price Forecast

9 Product Characteristics9 Product Life Cycle

9 Total Cost of Ownership10 Product Specialization10 Related Goods10 Substitute Goods10 Regulation11 Quality Control

12 Supply Chain & Vendors12 Supply Chain Dynamics

12 Supply Chain Risk12 Geographic Locations13 Imports

13 Competitive Environment13 Market Share Concentration13 Vendor Company Types

15 MarketProfitability

16 Switching Cost

17 Purchasing Process17 Buying Basics

17 Buying Lead Time17 Selection Process17 Buying-Decision Scorecard

18 Key RFP Elements

20 Negotiation Questions

21 Buyer Power Score Components

22 Jargon & Glossary

About this Report

Table of Contents

www.ibisworld.com | 1-800-330-3772 | [email protected]

This report is intended to assist buyers of trash bags. Trash bags are converted plastic products used to hold and dispose of various waste items. Suppliers include manufacturers, wholesalers and retailers. Other types of plastic bags, such as plastic shopping bags, merchandise bags and packaging bags, are excluded from this report.

November 2016

This report was provided toJohn Jenkins (2125729732)by IBISWorld on 21 June 2017 in accordance with their license agreement with IBISWorld

WWW.IBISWORLD.COM Procurement Report: Trash Bags November 2016 2

At a Glance

Vendor Cost Benchmarks

Major VendorsKey Price Drivers

Arrow indicates trend during past year and next year.

$37.63

3.6

per 100 trash bags

See p. 21 for details.

Benchmark Price

Buyer Power Score

0.6%

0.7%

Recent Price

Forecast Price

In the three years to 2016, rising demand for trash bags, propelled by an expanding economy, has fostered product price growth.

Heightened demand growth is expected to prompt operators to raise prices at a faster pace during the next three years.

2013-2016

2016-2019

Growth percentages represent annualized data.

LOW

MEDIUM

HIGH

LOW

LOW

MEDIUM

LOW

MEDIUM

Market Characteristics

Market Risk

Availability of Substitutes

Recent Demand Driver Volatility

Market Share Concentration

Recent Price Volatility

Product Specialization

Vendor Financial Risk

Switching Costs

Supply Chain Risk

Price of plastic materials and resinAveragewages–plasticfilm,sheetand bag manufacturingConsumer spendingPopulationNumber of businesses

The Clorox Company >25%Reynolds Group Holdings Ltd. 20-25%Berry Plastics Corporation 5-10%W.W. Grainger Inc. <5%Newell Brands Inc. <5%

5.9%Profit

11.8%Wages

61.9%Overhead20.4%

Purchases

Provided to: John Jenkins (2125729732) | 21 June 2017


Executive Summary

The trash bags market has a buyer power score of 3.6 out of 5, which indicates shared negotiation power for both buyers and suppliers. Buyers derive negotiation power from a low level of product specialization and low switching costs associated with changing vendors. However, rising prices for trash bags and the low availability of substitutes negatively affect buyer power.

Trash bags are homogeneous goods that do not require specialized machinery or knowledge to manufacture or distribute. As a result, the difference in product quality between suppliers varies minimally. Because all suppliers carry ready-made trash bags, buyers have substantial power in negotiations in that they can effectively leverage alternate suppliers to obtain a discount. Buyers also benefit from low switching costs. Market products are commoditized and buyers do not have to invest significant capital or time adjusting to products from new suppliers. This greatly benefits

buyers by providing leverage that can be used when negotiating with any of the large number of trash bag suppliers to seek the best combination of price and related goods.

However, buyer negotiating power is hindered by the rising price of trash bags and the low availability of substitutes. Buyers are not able to directly substitute trash bags with other goods because there are no substitutes that can match the structural integrity and cost-effective nature of trash bags. Paper bags, for example, can hold trash but lose structural integrity with moisture. Moreover, the price of trash bags is expected to continually increase in the three years to 2019, in line with rising demand. Suppliers will be able increase prices along with growing demand for trash bags, stemming from rising consumer spending. Due to rising prices, buyers are encouraged to engage in contracts or seek discounts based on volume to keep the cost of trash bags down.

Buyer Power Score

The IBISWorld Buyer Power Score is a weighted score based on a number of quantitative and qualitative criteria associated with buying a product or service. The score is calculated between 1 and 5, with 1

signifying low buyer power and 5 meaning high buyer power. The more power a buyer has the greater leverage they have to get lower prices and better contract terms. For more information see page 21.

Executive Summary

Price Trend

Supplier Power Buyer Power1 5

Market Structure

Market Risk

4.0

2.6

3.5

3.65



Price Fundamentals

Benchmark PriceThe average price for trash bags with a 45-gallon capacity is $37.63 per 100 trash bags; however, prices vary widely, ranging from $5 to $250 per 100 trash bags. The greatest factors that determine prices are the bags’ volume, quality of materials, features and sustainability. Of these factors, the volume of the bag and quality of materials are major determinants of price because suppliers must account for the type and amount of plastic material used. For example, trash bag capacities range from 10-gallon bags to 175-gallon bags. Larger volume bags require extra material to ensure that the bags can support additional weight. The quality of materials also affects price; trash bags made of stronger plastic materials are typically priced higher because manufacturers must use more plastic to reinforce those bags. The added

costs incurred to produce larger or stronger trash bags are passed to buyers in the form of higher prices.

Trash bag features also impact price because specialty trash bags typically require more complex manufacturing processes and materials. For example, drawstring trash bags are designed with a single plastic string that users pull to seal the bag, using the excess as a handle. This feature costs more because it requires more material and a more extensive manufacturing process. Another feature that could increase the price is the use of odor-eliminating materials such as odor-killing substances that must be embedded within a bag’s material or odor-neutralizing substances applied on the finished product.

Finally, the sustainability of the product affects the price of trash bags. For

Price Summary

Price Environment

Three-yearPrice Trend 0.7%

Three-yearPrice Forecast 0.6%

Factor is a threat to buyerFactor should be investigatedFactor is not a threat to buyer

% C

hang

e

16

−8

−4

0

4

8

12

2008 10 12 14 16 18Year

Price of Manufactured GoodsPrice of Plastic Bag & Pouch Manufacturing

Producer Price Index – Price of Plastic Bag & Pouch Manufacturing vs. Sector

SOURCE: IBISWorld

Average Price $37.63 per 100 trash bags

Price Range WIDE: $5 to $250 per 100 trash bags

Key Pricing Factors Bag volumeQuality of materialsFeaturesSustainability



Price Environment

Price Drivers In the three years to 2016, the trash bags market has been displaying a medium level of price driver volatility. There has been significant volatility in plastic costs due to the fluctuating price of crude oil. Still, steady population growth and slowly growing consumer spending and business trends have tempered overall driver volatility. Consumer spending and the total number of businesses have been rising in line with the recovering economy, boosting demand for trash bags at a steady rate. As such, moderate price driver volatility within the trash bags market will have little impact on buyers’ ability to make contract decisions or ad hoc purchases without the risk of significant shifts in prices.

Input Cost DriversPrice of plastic materials and resin: Plastic materials, such as polyethylene, make up a large portion of suppliers’

purchase costs, accounting for 46.3% of total revenue. In the three years to 2016, the price of plastic has been decreasing at an estimated annualized rate of 3.9%, lowering suppliers’ purchase costs and limiting the rate at which trash bag prices rise. However, plastic prices have fluctuated due to volatile crude oil prices, a primary input of plastic materials and resin. High volatility in plastic prices has discouraged suppliers from lowering their product prices to maintain healthy bottom lines, offsetting some of the benefit that falling plastic prices have had for buyers. In the three years to 2019, the price of plastic is anticipated to further decrease at an annualized rate of 1.6%.

Average wages – plastic film, sheet and bag manufacturing: Wage costs account for 11.8% of the average vendor’s revenue, in 2016. During the past three

Price Fundamentalscontinued

instance, biodegradable bags are those that can effectively degrade in landfills more quickly than traditional plastic trash bags, which take more than one thousand years to degrade in a landfill. Eco-friendly products are those made from organic or recycled materials; these materials form a thin plastic that reduces landfill wastes. If the bag has biodegradable components, it will typically cost more because such trash bag materials require specialized processing and are far costlier than the plastic typically used in trash bags. This characteristic is similar for products made from recycled plastic inputs. Additionally, some bags are manufactured with eco-friendly materials, which are more expensive due to the complex production process they require and, therefore, higher-priced materials.

Pricing ModelSuppliers of trash bags use a cost-plus pricing model to determine prices for

trash bags, accounting for the total cost of production and a profit margin. Suppliers pass on input costs directly to buyers to account for the higher production cost of larger bags or more specialized bags. Odor neutralizing bags, for example, typically require manufacturers to incorporate odor-killing substances within the products’ material or apply odor-neutralizing substances on the finished product. Such bags require extra costs for suppliers with the necessary extra materials and mechanical processes; suppliers then pass these costs on to buyers. The pricing model exposes buyers to risk from volatile input costs, such as plastic, as those costs will also be passed to buyers in the form of higher prices. Buyers can mitigate this risk by engaging in supply contracts. Also, buyers should seek discounts based on the total value of the contract or order and the volume ordered.

Price DriverVolatility Level MEDIUM



Price Environment

Price Driverscontinued

years, the average salary for trash bag producers has been increasing at an estimated annualized rate of 0.7%; however, suppliers’ overall wage costs as a percentage of revenue have been falling. The decrease is due to suppliers’ investment in automation processes and technology, reducing the need for labor. This trend has been alleviating pressure on operators to raise trash bag prices more significantly. In the three years to 2019, average wages are anticipated to increase at an annualized 0.3% rate but will continue declining as a percentage of total market revenue. This trend will keep labor costs in check and will not have much impact on trash bag prices.

External Demand DriversConsumer spending: Changes in consumer spending levels influence demand for trash bags. An increase in spending on goods leads to higher levels of generated waste; such waste is disposed of through the use of trash bags. Due to improving economic conditions,

consumer spending has been rising at an estimated annualized rate of 3.0% in the three years to 2016. Consequently, demand for trash bags has risen, allowing for suppliers to raise prices. During the next three years, consumer spending levels are anticipated to grow at an annual average rate of 2.6%. As a result, demand and prices for trash bags are projected to trend upward.

Price Driver StatisticsPrice of Plastic

Materials & Resin(Index)

Change(%)

Average Wages – Plastic Film, Sheet & Bag

Manufacturing($)

Change(%)

Consumer Spending

($b)Change

(%)Population

(Million)Change

(%)

Number of Businesses

(Million)Change

(%)2006 198.39 2.80 51,007.13 0.36 9,821.70 3.00 298.38 1.00 7.60 1.402007 195.91 -1.30 51,426.52 0.82 10,041.60 2.20 301.23 1.00 7.71 1.402008 215.02 9.80 50,814.56 -1.18 10,007.20 -0.30 304.09 1.00 7.60 -1.302009 190.81 -11.30 51,152.34 0.66 9,847.00 -1.60 301.46 -0.90 7.43 -2.202010 210.12 10.10 53,018.33 3.64 10,036.30 1.90 306.60 1.70 7.40 -0.502011 229.66 9.30 53,541.26 0.98 10,263.50 2.30 306.60 0.00 7.35 -0.602012 235.20 2.40 53,841.91 0.56 10,413.20 1.50 309.14 0.80 7.43 1.102013 245.27 4.30 54,897.56 1.96 10,565.40 1.50 311.54 0.80 7.49 0.802014 257.02 4.80 55,876.50 1.78 10,868.90 2.90 314.11 0.80 7.56 1.002015 228.01 -11.30 55,989.17 0.20 11,214.70 3.20 316.51 0.80 7.76 2.702016 217.39 -4.70 56,066.26 0.13 11,544.72 2.90 318.93 0.80 7.83 0.802017 208.88 -3.90 56,273.16 0.36 11,852.16 2.70 321.39 0.80 7.90 0.902018 206.93 -0.90 56,382.99 0.19 12,132.06 2.40 323.88 0.80 7.97 0.902019 207.36 0.20 56,544.29 0.28 12,478.82 2.90 326.41 0.80 8.03 0.802020 209.09 0.80 56,647.40 0.18 12,747.45 2.20 328.96 0.80 8.09 0.80

SOURCE: IBISWorld

% C

hang

e

12

−12

−8

−4

0

4

8

2008 10 12 14 16 18Year

Price of Plastic Materials & Resin

SOURCE: IBISWorld



Price Environment

Recent Price Trend

The average price of trash bags has been increasing at an estimated average annual rate of 0.7% in the three years to 2016. Rising demand has underpinned price growth, though falling operating costs have helped limit more significant increases in price.

Demand for trash bags has been rising due to generally positive economic conditions. Recovering economic conditions spur growing consumer spending and encourage entrepreneurs to open new businesses. Growing consumer spending raises demand for trash bags because increased consumption leads to more waste generation, which requires trash bags for safe disposal. Meanwhile, a

rise in the number of businesses has also contributed to greater demand. Businesses such as restaurants, hospitality firms, retailers and supermarkets use trash bags to dispose of waste; growth within these sectors contributes to greater demand and price growth for trash bags.

However, falling operating costs have limited the rate of price growth, somewhat benefiting buyers. To produce trash bags, manufacturers must purchase significant volumes of plastic inputs such as polyethylene. In fact, plastic material purchases make up 46.3% of suppliers’ operating costs on average. During the past three years, the price of plastic

Price Driverscontinued

Population: Shifts in the nation’s population size impact demand for trash bags. Larger populations tend to consume more and consequently create more waste, boosting demand for trash bags. During the three years to 2016, the population size in the United States has been growing an estimated annualized 0.8%. This slow growth can be attributed to the decelerating birth rate. Nonetheless, the rise in population size has spurred greater demand and has encouraged suppliers to raise trash bag prices. In the three years to 2019, population growth is expected to remain steady and continue growing at an average annual rate of 0.8%. Continued population growth will increase consumption levels, thereby causing demand and prices for trash bags to follow suit.

Number of businesses: Fluctuations in the number of businesses influence demand as various commercial businesses (e.g. manufacturers, restaurants, hospitality businesses, retailers and supermarkets) use trash bags to dispose of various waste

accumulated in their operations. Boosted by rising consumer spending and positive economic activity, the number of businesses has been growing at an estimated average annual rate of 1.5% during the past three years. Thus, the growing number of businesses will bolster demand for trash bags, prompting suppliers to raise prices. This trend is expected to continue in the three years to 2019, with the number of businesses expected to grow at an annualized rate of 0.8%.

Vendor Average Cost Structure

Proportion of Revenue

(%)Profi t 5.9Wages 11.8Purchases 61.9Plastic Materials 46.3Packaging 7.0Other 8.6

Overhead 20.4Rent & Utilities 4.6Depreciation 2.5Other 13.3

Total 100.0SOURCE: IBISWorld

Three-Year Average Annual Price Trend:

0.7%

PriceVolatility LOW



Price Environment

Price Forecast During the three years to 2019, the price of trash bags is forecast to grow at an average annual rate of 0.6%. Domestic demand is expected to increase, underpinning trash bag price growth. However, the steady decline in suppliers purchase costs as a percentage of revenue is projected to mitigate price growth.

Suppliers will have leverage to raise prices as demand for trash bags continues to increase. The population is forecast to grow during this period, consuming more products and requiring more trash bags to dispose of the resulting waste. Rising consumer spending, driven by positive economic conditions, will further boost demand for trash bags because larger volumes of purchased goods will create more waste. The number of businesses is expected to continue to grow as well, bolstering overall demand for trash bags. Rising demand for trash bags will allow suppliers to increase prices without risking significant client losses.

Keeping rates low will be the continued decrease in suppliers’ purchase costs. As OPEC nations struggle to agree on a solution to crude oil production levels, prices are expected to remain below pre-recessionary highs. This trend will continue to place downward pressure on the price of plastic materials during the next three years. Because trash bags

are produced using plastic material inputs, such as polyethylene, falling plastic material prices will keep purchase costs down for suppliers. Consequently, these input cost savings will be reflected in the price of trash bags.

Buyers will benefit from continued low price volatility during the period, however. Low volatility reduces the risk of drastically shifting prices and makes it easier for buyers to budget and plan for purchases. Additionally, low price volatility will allow buyers to make more deliberate purchasing decisions. Nonetheless, in light of anticipated price growth, buyers should seek to enter supply contracts or obtain discounts based upon volume when possible.

Recent Price Trendcontinued

materials has been falling in line with crude oil prices. In addition, trash bag suppliers have been investing in automated processes and technologies, reducing their need for a large labor force. Due to falling operating costs, suppliers have been able to generate higher profit margins without raising trash bag prices more significantly.

Also aiding buyer power, trash bag prices have displayed minimal volatility

in the three years to 2016. Buyers can make more deliberate contractual decisions or make ad hoc purchases without risking significant shifts in price. However, buyers should still engage in supply contracts due to the anticipated rise in the price of trash bags in the coming years. Contracts will allow buyers to lock in lower prices and leverage a larger amount of capital to receive per-unit discounts.

$ pe

r 100

tras

h ba

gs

40

30

32

34

36

38

2008 10 12 14 16 18Year

Trash Bags – Benchmark Price

SOURCE: IBISWorld

Three-Year Average Annual Price Forecast:

0.6%



Total Cost of Ownership

The total cost of ownership for trash bags is low. Total ownership costs primarily come from identifying a supplier. Still, there are some additional costs to consider, such as trash bin costs and waste disposal costs. Trash bags are designed to be disposed of using typical trash removal services. Storage costs for trash bags are minimal and can be easily stored in a typical office infrastructure

without the need for additional facilities or specialized conditions.

Buyers can reduce the total cost of ownership by sourcing from local operators, which reduces the distance goods are shipped, mitigating transportation risks and costs. By determining total company need for trash bags and related goods, buyers can further reduce total cost of ownership.

Product Life Cycle

Trash bags are in the mature phase of the product life cycle. Demand for trash bags has been growing in the three years to 2016, driven by rising consumer consumption, which has produced more waste. More trash bags have been needed to dispose of such waste, which has been spurring trash bag sales growth. This trend is expected to continue during the next three years. Despite growing demand for trash bags, there are other factors that indicate that the market is mature. Product changes have been moderate, whereas the scope of distribution has largely remained the same. Buyers in a mature market are able

to purchase from a variety of well-known operators.

Product Characteristics

Life Cycle Factor Trash Bags Characteristics

Price Trend Prices have been increasing in the past three years due to steadily growing demand. Growth in the US population and greater consumer spending has lead to higher waste generation levels, boosting demand for trash bags. However, the rate of price growth has been subdued by falling input costs. Prices are expected to increase at a slightly slower pace in the next three years as plastic input prices continue to fall.

Product Change There has been a moderate level of product change. Suppliers have developed bags that neutralize odors and offer an increasing line of biodegradable bags.

Distribution Scope The distribution scope for trash bags has largely remained stable. Trash bags are widely available offered through numerous manufacturers, wholesalers and retailers, though generally follow population density.

Marketing Trends Operators invest very little into marketing because marketing costs account for less than 1.0% of total market revenue. Marketing efforts typically target existing markets.

MaturityLife Cycle Stage:

Intro

duct

ion

Mat

urity

Dec

line

Sale

s Vo

lum

e

Time

Gro

wth

Total Cost ofOwnership LOW




Regulation There is limited regulation that affects production or purchasing trash bags, and the pace of regulatory change has been slow. Manufacturers of trash bags are subject to various water and air pollution standards at the federal government level. At the local and state level, producers, depending on the location of their facilities, can be

subjected to certain mandates. For example, in California, plastic trash bag manufacturers are required to ensure that its products contain a quantity of recycled plastic postconsumer material equal to at least 10% of its weight. Complying with such standards increases the cost of manufacturing trash bags, the costs of

Substitute Goods

There is a low availability of substitutes for trash bags. Although there are other products that can similarly hold trash, none combine the structural integrity and cost effectiveness of trash bags. Buyers can temporarily substitute trash bags

with paper bags, but paper bags cannot handle trash with significant amounts of moisture. The lack of substitutes harms buyer power, giving buyers no equally viable products to leverage during negotiations.

Related Goods

Trash bags are often sold with various food storage products such as food sealing wraps and sealable plastic bags. Trash bag manufacturers and distributors typically offer other home

goods, many of which are also made of plastic. Buyers can bundle such goods when purchasing from a producer or wholesaler to negotiate for lower overall costs.

Product Specialization

Trash bags are commoditized goods that do not require significant experience or knowledge to manufacture or distribute. Low specialization benefits buyers because they can switch between

suppliers without risking significant differences in quality. Thus, buyers are able to select suppliers based on other factors such as price, which increases their negotiating power.

ProductSpecialization LOW

Related Goods DescriptionFood Storage Products Food storage products, such as food sealing wraps, plastic food containers and sealable plastic

bags, are often sold with trash bags. Buyers can bundle such goods to obtain a discount.

Substitutes Description

Paper Bags Paper bags can be used to dispose of trash. However, the structural integrity of a paper bag can be compromised if the waste contains a significant amount of moisture. Paper bags are not a viable long-term substitute for trash bags.

Availability ofSubstitutes LOW

RegulatoryChange LOW




Quality Control

The key elements to take into consideration when evaluating the quality of trash bags include the product’s durability and consistency as well as the breadth of suppliers’ product offerings. Of these factors, the durability of the bag is the most significant factor in quality control. Higher-quality bags can hold more trash and reduce the potential of possible breakage. A compromised trash bag would require additional time and labor to ensure that waste is properly disposed of. In terms of costs, buyers pay more for higher-quality bags that are able to hold heavier weights. Thus, buyers must determine if the quality of the bag matches the price paid for the bag by requesting samples prior to making purchasing decisions.

Consistency is another important quality control factor because trash bags are typically manufactured and

distributed in large quantities. A minor error could compound over a large order of trash bags. Lastly, the breadth of product offerings is a factor that buyers should consider. Trash bag requirements differ between buyers as products must meet varying standards and specifications depending on the specific buyer’s waste generation levels and end use. Buyers need to ensure that suppliers can meet their trash bag size and quality requirements.

That being said, trash bags are largely commoditized and differ minimally in quality between suppliers. To mitigate quality risks, buyers can request samples and inquire about supplier quality control practices to ensure that proper procedures are in place to check for product integrity and manufacturing consistency.

Regulationcontinued

which are reflected in product prices. Still, in the past three years, there has been little regulatory change that

affects the buying or supplying process. This is not expected to change through 2019.

Key Quality Factors DurabilityConsistencyBreadth of product offerings



Supply Chain Dynamics

Supply Chain RiskIn the trash bags market, the level of supply chain risk has been moderate during the three years to 2016. Much of this risk comes from plastic and resin manufacturers and this segment’s supplier, petroleum refiners. Purchases constitute more than half of suppliers’ revenue; thus, changes in major raw material prices, such as plastic materials, directly affect trash bag prices. The price of plastic materials is subject to changes in crude oil prices, which is the primary input into plastic production. During the past three years, the prices of crude oil and plastic have been declining but highly volatile. Overall, however, suppliers are able to procure plastics from various domestic and foreign upstream suppliers, thus reducing supply chain shocks and ensuring product availability.

There is a low level of risk on the buyer side of the supply chain. Without a wide availability of substitute goods,

buyers must continue to purchase trash bags despite rising prices. Furthermore, overall demand from buyers has continued to increase as improving economic conditions have allowed consumers to purchase more, thereby increasing waste volumes.

Geographic LocationsThe geographic distribution of trash bag distributors is similar to the overall US population distribution. The top four regions with the highest concentration of market establishments are also among the regions with the highest percentage of people. The Great Lakes, Mid-Atlantic, Southeast and West are the top four regions with the highest concentration of market establishments. This distribution of market establishments benefits buyers because buyers can more easily source from localized operators, reducing transportation costs and possible risks, such as lost or damaged supply.

Supply Chain & Vendors

High risk

Medium risk

Low risk

Trash Bags

Education Institutions

Businesses

Restaurants

Consumers

Petrochemical Manufacturers

Adhesive Manufacturers

Oxygen & Hydrogen Gas Manufacturers

Organic Chemical Manufacturers

Petroleum Refi ners

Plastic & Resin Manufacturers

2nd Tier Suppliers 1st Tier Suppliers Vendor Key Buyers

SOURCE: IBISWORLD

SupplyChain Risk MEDIUM

AverageVendor Risk MEDIUM




Competitive Environment

Market Share ConcentrationThere is a high level of market share concentration in the trash bags market, with the top four companies accounting for more than 50.0% of total market revenue. Although there are more than 14,000 suppliers of trash bags, the market has been largely dominated by the Clorox Company and the Reynolds Holding Group. As such, the level of market share concentration has remained stable during the three years to 2016; stable, yet high market share concentration has discouraged new producers from entering the market, which has hindered competition.

Despite the dominance of the two major suppliers, the market still has a large pool of operators offering a wide variety of products. Many major wholesalers and retailers, for example, offer a generic alternative to brand name trash bags offered by the largest companies in the market. Consequently, there are many suppliers for buyers from which to choose when seeking the lowest price. Because most of the smaller competitors specialize in lower-end trash bags, only buyers of

specialized trash bags are typically limited by the selection of suppliers.

Vendor Company TypesThere are many companies with a national presence supplying trash bags throughout the nation. IBISWorld estimates there are more than 14,000 suppliers in the market. Manufacturers, wholesalers and retailers distribute trash bags, offering various advantages in service and price. Although manufacturers dominate much of the market in terms of market share, there are still numerous suppliers due to the low specialization required to distribute such products.

Manufacturers: IBISWorld estimates that about 7.3% of trash bag suppliers are manufacturers. In fact, the largest companies in the market are manufacturers and include large household goods manufacturers such as Clorox Company and Reynolds Group Holdings. These two manufacturers are the most dominant players in the market, with Clorox operating under the Glad brand and Reynolds Group Holdings

Supply Chain Dynamicscontinued

Additionally, there is a moderate level of globalization with major suppliers, such as Clorox, that have manufacturing facilities abroad. Buyers with international needs for trash bags can leverage a larger volume of demand to seek larger discounts.

ImportsOverall imports account for a small portion of the market, comprising close to 9.9% of total domestic demand. During the three years to 2016, imports have been increasing modestly at an estimated average annual rate of 5.4% to $191.5 million because the rising value of the dollar has made imported products

comparatively cheaper than domestic products. However, given the low per-unit cost of trash bags, high transit costs are typically not worth potential savings unless the buyer has a significant level of demand for trash bags. The top four importers of trash bags are China, Canada, Mexico and Thailand. In recent years, Asian countries like China and Thailand have been able produce more cost-efficient trash bags than those in the United States, spurring more aggressive price competition in the domestic market. For most buyers, imports are not a practical alternative to domestic products because shipping costs and risks for imports are high relative to the cost of trash bags.

Market ShareConcentration HIGH




Competitive Environmentcontinued

operating under the Hefty brand. Despite the presence of dominating companies, there are still numerous manufacturers of trash bags because of the low barriers to entry required to manufacture trash bags. Overall, manufacturers offer the lowest prices of the different vendor company types because manufacturers strictly use a cost-plus profit model and account only for the manufacturing cost and a certain profit margin. To obtain the lowest prices, however, buyers must order a significant volume or enter into a contract.

Wholesalers: IBISWorld estimates that about 24.4% of suppliers are wholesalers, which offer a variety of plastic and other household goods products. Wholesalers offer prices that are higher than manufacturer prices because wholesalers add a markup to account for their own profit. Even from a price standpoint, wholesalers can be a practical alternative for buyers with a medium to low level of demand for trash bags. Buyers without

substantial demand for trash bags might not be able to obtain substantial per-unit discounts from manufacturers, making wholesalers the better option. Also, buyers can benefit from more localized wholesalers that can reduce various transportation costs and risks.

Retailers: Retailers account for 68.3% of all trash bag suppliers. In the trash bags market, retailers typically have the highest prices because they source trash bags from manufacturers and wholesalers. Retailers must account for their own profit margins, charging an additional markup to buyers.

Vendor Statistics – Trash BagsUS Product

Market Share (%)

Market Share Performance

(3-yr trend)

Total Revenue

($m)1Profit Margin

(%)Financial

Risk Level2

The Clorox Company >25 Increasing 5,761 18.5 Low

Reynolds Group Holdings Ltd. 20-25 Increasing 11,666 -2.5 Medium

Berry Plastics Corporation 5-10 Steady 4,881 8.4 Low

W.W. Grainger Inc. <5 Steady 9,973 13.0 LowNewell Brands Inc. <5 Increasing 5,916 10.2 Medium

Bemis Company Inc. <5 Decreasing 4,071 10.1 Low

Simplehuman LLC <5 Steady 100-250 N/A N/AInteplast Group Ltd. <5 Increasing 2,000-5,000 N/A N/A

Sigma Plastics Group <5 Steady 2,000-5,000 N/A N/A

Uline Inc. <5 Steady 2,000-5,000 N/A N/A1: Revenue refers to the latest fi nancial year for which data is available. Private company revenue is expressed as a range.2: Financial Risk Level is based on the Altman Z-Score, which uses a formula to predict a company’s risk of bankruptcy. See Glossary for more details.

SOURCE: IBISWorld

Enterprises by Employment SizeNumber of Employees

Share(%)

0-9 32.910-19 13.420-99 29.1100-499 15.4500+ 9.2

SOURCE: IBISWorld and US Census Bureau




Market Profitability

The average profit margin for suppliers in the trash bags market is 5.9%. Suppliers achieve profit based on cost-plus pricing practices; consequently, manufacturers, which supply bulk buyers, have higher profit margins because wholesalers and retailers must apply smaller markups in order to keep prices competitive. In general, the average profit margin has been rising slightly due to increasing demand for trash bags. Rising consumer spending has been leading to higher waste generation levels, causing demand for trash bags to increase. The average vendor maintains a moderate level of profit

overall, which may increase a supplier’s ability and willingness to offer discounts.

The average vendor in the trash bags market carries a moderate level of financial risk. Despite rising demand for trash bags, the average supplier operates in competitive conditions. The large number of trash bag distributors intensifies market competition among suppliers. Buyers must properly research suppliers before engaging in contracts. Otherwise, buyers risk supplier bankruptcy, which can cost the buyer the supply of trash bags and capital invested in the contract or order.

Competitive Environmentcontinued

However, larger retailers, such as Walmart, can offer their own generic trash bags to compete with other market products. These bags are typically offered at lower prices than bags from larger manufacturers with brand-name trash bags. Despite offering low-end generic bags for consumers, retailers still charge much higher prices than the other supplier types. Retailers are a somewhat practical alternative for buyers with small or infrequent needs.

Supplier diversity: The trash bags market contains some opportunities to

source from traditionally underrepresented businesses. Minority and veteran suppliers are amply available in this market, holding a greater share than in the overall economy. Women-owned businesses, however, will be more difficult to find; there are only about 13.4% of women-owned enterprises in the trash bags market, which is notably lower compared with the overall economy. Therefore, buyers seeking to fulfill diversity requirements increase their chances of doing so when searching for minority- or veteran-owned businesses.

Supplier Diversity

Ownership CategoryThis Market

(%)Overall Sector

(%)Overall Economy

(%)Women 13.4 14.2 19.4Minority 18.8 10.6 17.5Veteran 9.1 9.3 7.5

Ownership is defi ned as owning at least 51 percent of a fi rm, which is the defi nition used by the Small Business Administration for government procurement programs.

SOURCE: IBISWorld and US Census Bureau

Profit Level MEDIUM

Profit Trend RISING




Switching Costs

Switching costs for trash bags are low. Trash bags are generally commoditized products and differ minimally in terms of quality or functionality. Thus, buyers can easily switch between operators without having to worry about significant declines in quality or having to invest time and labor into various set up costs. There are some costs, however,

in researching the financial stability of the new supplier. Buyers must be sure not to source trash bags from a financially compromised operator, which could cost the buyer the supply and capital already invested in the order or contract. Buyers benefit overall from low switching costs because of the ease with which it is associated.

SwitchingCosts LOW



Buying Basics Buying Lead TimeThe buying lead time for trash bags is short and lasts up to one month. Trash bags are commoditized products that differ minimally in quality and functionality between suppliers. Buyers can check for quality by requesting samples. Much of the lead time is spent researching the financial stability of the supplier. Sourcing from a financially compromised supplier could cost a buyer the supply of trash bags or the capital invested in the order or contract.

Buyers can shorten lead times by fully determining company demand for trash bags and other related goods. This way, buyers can begin to eliminate the number of suppliers researched. Buyers must also consider that bundling certain products with trash bags can extend the overall lead time and should be careful to balance cost savings with the need for timely deliver. Buyers can also shorten lead times by sourcing trash bags from local operators to reduce transit time and risks such as lost or damaged goods.

Selection ProcessTrash bags are typically procured using a transactional buyer-supplier relationship. This type of relationship is common for products that can be obtained at a low cost and with minimum time commitment. Trash bags are highly standardized and readily available on the market, making it easier for buyers to compare products between different

suppliers. Although buyers do not have many ideal substitutes, they can choose to purchase cheaper imported trash bags, which further ensures widespread and consistent access to these products.

Buyers further benefit from the low level of market risk. Despite a high level of market share concentration, the trash bags market is highly competitive, with a multitude of suppliers spread out across the country, thus, making it easier for buyers to shop around for the best deal. Further, low product specialization and minimal switching costs allow buyers to easily find a new supplier should the relationship turn sour. As a result, buyers generally do not spend a significant amount of time on the procurement of trash bags relative to other trash bag products. Overall, a transactional relationship underpins buyer power because it affords buyers greater flexibility in choosing suppliers.

Buying-Decision ScorecardThe Buying-Decision Scorecard outlines the key criteria a buyer should consider when purchasing this good or service. When weighing the importance of each factor, we assume that a buyer has narrowed down potential suppliers to those that meet the technical and price criteria specified in the RFP. The criteria and weights assigned below can be used as guidelines to help further differentiate already qualified vendors.

Purchasing Process

BuyingLead Time SHORT



Purchasing Process

Key RFP Elements

Specific information to impart to suppliers in the RFP includes:

• Total products desired, including product specifications and detailed price ranges

• The expected volume of orders and frequency

• The total value of the contract and desired length of the contract

• The desired lead time for each product, including lead times for rush delivery

• The terms of contract renewal, including adjustments to potential price growth and input cost growth

• The exclusivity of the contract and the usage of third party supplier

Specific information to gather from suppliers in the RFP includes:

• Total products offered, with lead times and prices

• Discounts offered with larger volume, bundled goods

• Operational capabilities and the location of such operations, differentiating with manufacturing locations, warehouses and billing locations

• Peer reviews for the company and customer reviews for the products offered

• Financial information, including detailed earnings

• Detailed customer service protocols for delayed or defective products as well as the average turnaround time

Buying BasicscontinuedBuying-Decision ScorecardFactor Weight

(%)Description

Technical Factors 70.0

Customer Service 25.0 Manufacturing errors can compound over a larger order of trash bags. Proper customer service procedures can quickly remedy such potential issues.

Production Capabilities

10.0 Buyers with significant needs for trash bags must be sure that the supplier can meet the volume and frequency needed by the buyer.

Additional Products

20.0 The profit margin for the average vendor is low, limiting supplier flexibility with discounts. Bundling other goods with trash bags is an important way for buyers to seek discounts, leveraging a larger overall value.

Location 15.0 Location is important for buyers and localized operators can reduce potential transportation cost and risks. Also, sourcing from closer operators reduces lead times.

Cost 30.0

Price 30.0 Prices are an important factor when determining which supplier to use. Buyers should inquire about any discounts or bundling options that might be available.

Total 100.0



Purchasing Process

Key RFP ElementscontinuedStandard Elements in an RFPOverview & Scope This tells the vendor about your company, why your company needs this product and what you

hope to achieve from its purchase. Deadlines for steps in the procurement process should be clearly defined in the section.

Vendor Qualification This section details the features a winning company must possess, such financial size, scope of work completed or geographical reach. This section will also explain the criteria used in evaluating the bid and its relative importance in your scorecard. This section might disqualify some companies, such as suppliers to your competitors.

Technical Specifications

This section details the technical and functional specifications of the product you want. The more detail provided, the shorter the procurement cycle since all vendors are bidding to the same, exact specifications. Further, if all needs are specified there is less chance of additional costs will surface down the road. This section will also look at service level agreement needs.

Financial Factors This section is where vendor quotes prices for the product or service being supplied. This section should specify cost breakdowns, billing frequency (with specific dates, time periods), billing methods (mode of payment, including currency) and taxes.

Legal Framework This section should reference the legal jurisdiction in the event of a dispute, methods for arbitration and contract termination mechanisms. Nondisclosure agreements are also part of this section, as are escrow agreements (mainly in the event of shared proprietary knowledge).



Negotiation QuestionsIssue QuestionsCustomer Service: Strong customer service procedures are essential when handling potential issues with trash bags because minor errors can compound over a typical order.

• What is the best method to reach your customer service representatives? Does this change based upon the type of issue?• What is the typical turnaround time for a customer service inquiry?• How do you track customer questions and problems? How do you utilize such information to adjust services? • Do you have references from similar buyers?

Quality Control: Defective trash bags require additional labor and costs to compensate. Proper quality control procedures can limit the risk of such products.

• What kind of quality control procedures do you have in place? How often to you check for quality?• How do you test for the effectiveness of your quality control procedures? • How often do you update your procedures? • What kind of training do your employees receive? How often is training content updated? How often are employees refreshed?• What are your employee expectations? How do you ensure that these are met? • What is your turnaround for damaged or defective products?

Financial Stability: The average vendor in the market carries a significant amount of financial risk. Sourcing from a financially stable supplier protects the supply and capital invested in the contract or order.

• How does your company differentiate itself in the market? What is your overall market strategy?• How do you compete with larger vendors?• How has your company fared compared with the overall market? Who are your key buyers? • How have you strategized to expand your customer base?

Cost Control: Plastic price volatility can cause uncertainty in suppliers’ operating costs. Managing costs is essential to offering competitive prices to buyers.

• How has your company adjusted to plastic price volatility?• What procedures do you have in place to ensure operational efficiency?• How often do you check for operational efficiency? • How do you ensure that your input material vendors offer the best prices? How is this reflected in my prices?

Distribution Capabilities: Strong transportation procedures and capabilities can shorten lead times and reduce costs for buyers. Proper procedures can also reduce various transit risks.

• How many manufacturing locations do you have? How about warehousing operations?• What are the production or distribution capabilities for each of your locations? Which of these locations will be supplying my business?• What are your transportation procedures? How do these procedures affect my costs? • How do you limit transportation related risks?

Scope of Product Offerings: Bundling goods together will allow buyers to gain cost savings. As such, buyers are advised to source from vendors with a wide scope of offerings.

• What additional products do you offer?• Do you have reviews for such products? How do your other products match up with competing products?• How do you adjust prices for larger volume? How about larger orders? • How does ordering multiple goods affect lead time?



Buyer Power Score Components

IBISWorld’s Buyer Power Score is a calculation based on weighted quantitative and qualitative factors that measure a buyers’ ability to negotiate lower prices and favorable contract terms. The higher the Buyer Power Score, the greater the average buyer’s negotiating strength for this product. The overall score is composed of three components: 1) Price Trend: compares this product’s average recent and forecast price change to the economy-wide inflation rate2) Market Structure: assesses the availability of alternatives and ease of purchasing in this product’s marketplace3) Market Risk: measures elements of volatility and risk impacting a buyer’s confidence in making long-terms deals with suppliers of this product.

Overall Buyer Power Score 3.6

Price TrendFactor Defi nition Weight ScoreRecent Price 40% 4

Favorable Compound annual growth rate in benchmark price over the past three years 0.1-1.4%Forecast Price 60% 4

Favorable Compound annual growth rate in benchmark price in the next three years 0.1-1.4%Weighted Score 50% 4.0

Market StructureFactor Defi nition Weight ScoreAvailability of Substitutes 35% 1

Low There are few viable substitutes for this product/serviceMarket Share Concentration 25% 1

High The top four suppliers of this product/service have equal to/greater than 50% market share

Product Specialization 25% 5Low The product/service is assessed as having a low level of specialization

Switching Costs 15% 5Low The cost of switching from this product and/or supplier is assessed as low

Weighted Score 20% 2.6

Market RiskFactor Defi nition Weight ScorePrice Driver Volatility 25% 3

Medium Average absolute difference in percentage change of external drivers 2.0-3.4%Recent Price Volatility 25% 5

Low Average absolute difference in % change in price over last 3 years < 1.0%Vendor Financial Risk 25% 3

Medium The average level of financial risk for product/service vendors is assessed as mediumSupply Chain Risk 25% 3

Medium The average level of product/service supply chain risk is assessed as mediumWeighted Score 30% 3.5



Jargon & Glossary

Jargon

Glossary

Drawstring Bags Bags with a single piece of string wrapped around the top. When pulled, the string seals the bag and forms a handle for the user.

Household Goods Various items used within a home including various kitchen and cleaning goods. Often sold with trash bags. Biodegradable Able to be decomposed by natural processes.

HS The Harmonized Commodity Description and Coding System is maintained by the World Customs Organization as a standardized system of names and numbers for classifying traded products.Life Cycle All products and services go through periods of growth, maturity and decline. IBISWorld determines a life cycle by considering factors such as pricing trends, the level and speed of product or service change, the extent of a product’s distribution and the maturity of marketing trends.Market Share Concentration Determined by the market share of the top four vendors for a given product or service: high is when the top four vendors account for more than 50.0% of the product or service market share, medium is from 30.0% to 50.0%, and low is less than 30.0%.NAICS The North American Industry Classifications System is the standard by which industries (not products) in the United States, Canada and Mexico are classified.Price Driver Volatility Level Determined by the average absolute difference in the percentage change of input cost items and external demand drivers over the past three years: high is 3.5% or greater for all drivers, medium is from 2.0% to 3.4% for all drivers, and low is 1.9% or less for all drivers.Price Range The difference between the upper and lower price bounds divided by the benchmark price: wide is greater than 50.0%, medium is from 25.0% to 50.0%, and narrow is less than 25.0%.Price Volatility Level Determined by the average absolute difference in the percentage change of the benchmark price over the past three years: high is 3.5% or greater, medium is from 2.0% to 3.4%, and low is 1.9% or less.

Producer Price Index (PPI) This index represents the change in the amount that producers receive for their products or services, as opposed to the prices that consumers pay for them.Profit IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.Profit Level Determined by the average profitability of the industry in which a product or service vendor operates, compared to the average profit margin for all industries in the US. There are around 700 industries in the US classified using the NAICS taxonomy (see NAICS).Total Cost of Ownership Level Determined by the total cost of ownership as a percentage of the benchmark purchase price per year: high is when the total cost of ownership is greater than 100.0% of the benchmark purchase price per year, medium is from 50.0% to 100.0%, and low is less than 50.0%.UNSPSC Coding for each report title is based primarily on the United Nations Standard Products & Services Code. The code is a hierarchical classification codeset of expenditure items.Wages The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.Z-Score The Altman Z-score formula is used to help predict a company’s chances of going bankrupt within the next two years. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. Z-scores above 2.9 are defined as having a low financial risk level; scores between 1.23-2.9 are at a medium risk level and scores below 1.23 are a high financial risk level.


Disclaimer

This product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use by its authorized licensees strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from

the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication – in papers, reports, or opinions prepared for any other person – it is agreed that it will be sourced to: IBISWorld Inc.

At IBISWorld we know that industry intelligence is more than assembling factsIt is combining data with analysis to answer the questions that successful companies ask

Our procurement and strategic sourcing research helps clients engage and negotiate effectively with suppliers, internal stakeholders and C-level executives. Our insight on price trends, major suppliers and supply chain risk helps clients better manage the entire sourcing process.

Who is IBISWorld?We are strategists, analysts and researchers. We provide answers to information-hungry, time-poor businesses. Our goal is to provide real world answers that matter to your business in our Procurement and Industry report collections. When tough business decisions need to be made, our suite of products give you deeply researched answers quickly.

IBISWorld MembershipIBISWorld offers tailored membership packages to meet your needs.

Copyright 2016 IBISWorld Inc

www.ibisworld.com | 1800-330-3772 | [email protected]


ibisworld procurement report: 35508191 trash bags€¦ · procurement report: trash bags november...

Documents