From 2007 to 2012, although the number and size of stores decreased and the overall volume of carton shipments (i.e., the number of units sold) grew only at an average annual rate of 3 percent, the average number of grocery store SKUs increased by a whopping 26 percent. If the volume of packaging has remained constant, how can there be so many new products on the store shelf? And what has driven this demand for smaller, more frequent folding carton orders? But perhaps most importantly, what other industry segments might overtake converters who do not embrace this new market trend?
A 2014 study conducted by Packaging World and Cal Poly provides insight. When asked to identify the top reason(s) for packaging SKU proliferation at their companies, 45 percent of CPG respondents indicated that it was due to the introduction of new product variations while 36 percent said that it was due to retailer demand for varying packaging sizes and configurations. In addition, about a quarter of all respondents agreed that SKU proliferation could be attributed to an increased emphasis in tailoring marketing messages to specific demographic groups as well as an uptick in demand for unique promotional packages and private labeling.
Thus, SKU proliferation does not correspond to an overall increase in the demand for goods (which would mean more work and more profit for converters), but instead to an increase in the demand for variety. In other words, order volumes are remaining constant while work becomes more complex.
For example, consider the growing private label business where CPGs manufacture one product that is then marketed and sold under a variety of brand names. Instead of designing packaging for one retailer, a converter must instead design and produce packaging for as many as 50, each with a different requirement. The problem is that creating multiple designs for a single job places a strain on all parts of the supply chain, from package and graphic designers to order entry, prepress, and manufacturing. Even the process for packaging approval, along with the steps taken prior to printing the first production piece of a low-volume job, can be cumbersome and problematic.
It is a fact of life that consumers today desire more variety and CPGs are responding by producing more SKUs. Thus, converters should begin to prepare themselves for a future where short-run jobs play a more dominant role, especially considering that competitors—in particular, commercial printers—are currently seeing this growth as an entrée into the industry.
Commercial Printers Poised to Compete
Today, as the market for brochures, catalogues, and other paper goods succumbs to the digital age, commercial printers are looking for new ways to generate revenue. They have recently discovered that their digital presses allow them not only to print their usual products efficiently, but also to produce short runs of folding cartons. In fact, 34 percent of commercial printers in the survey indicated that they are currently undertaking packaging work and plan to do more.
Even though commercial printers have little experience in folding, gluing, and other finishing processes—and therefore may struggle to provide high-quality cartons — converters should certainly keep an eye on this industry segment, and the history of digital technology tells us why.
When digital presses first entered the market in the late 1970s, commercial printers rejected the technology as too risky. Yet when consumers began to desire full-color, on-demand printing in the 1980s, quick printers such as Kinkos soon emerged to fill that need. Only after acknowledging this missed opportunity a decade or more later did commercial printers begin to go digital.
Similar to the quick printer of the 1980s, today’s commercial printer is poised to sweep in and snatch short-run market share if skeptical converters take a “wait and see” approach to optimizing their operations for short-run work. Instead, converters should pay close attention to any increases in short-run orders and, whenever possible, embrace this new demand. By transforming the challenges posed by low-volume orders into lucrative opportunities, paperboard packagers will not only open themselves up to new revenue streams, but will also prevent commercial printers from gaining a significant foothold in folding carton manufacturing.
Before investing in any short-run printing solution—or making operational changes to accommodate growth in short-run work at one’s plant—converters should not only understand the market forces driving the new demand, but should also research the benefits and drawbacks of analog and digital short-run presses. To begin this important research, start with PPC’s video series on short-run solutions for paperboard packaging: paperbox.org/shortrun.