Tighter margins here to stay despite renewed optimism

01-Dec-2010 - Last updated on 01-Dec-2010 at 12:33 GMT

Related tags Equipment suppliers Cent Packaging Value added

Packaging and equipment suppliers to the food industry may have to get used to tighter margins despite renewed optimism in 2010, according to industry experts at Emballage in Paris last week.

There is little doubt that the packaging is sector is on the road to recovery. According to the annual Observatoire de l’Emballage survey of the French packaging sector, 64 per cent of food and beverage packaging buyers expect to increase their production volumes over the medium term.

As volume prospects improve, packaging and equipment suppliers are beginning to plan for expansion.

Positive signs

The Emballage survey found that 32 per cent of packaging manufacturers are planning to increase investment in 2010 while 54 per cent expect investment to remain stable. Packaging equipment suppliers reported similar, if slightly less optimistic figures.

Regarding employment, 22 per cent of packaging suppliers said they intend to increase recruitment, compared to 18 per cent who are planning to cut back. The employment picture was more positive in the packaging equipment sector where 34 per cent said they plan to up recruitment versus 18 per cent who are cutting back.

During a conference session at Emballage, set up to discuss the survey results, Jean-Marc Doré, president of French processing and packaging equipment association GEPPIA, said the higher demand from equipment suppliers reflected their struggles to find suitably qualified candidates to fill vacant posts.

Margin pressure

While many of these figures suggest that the industry is moving in an upward direction, there is continued concern about tightening margins and rising costs.

For packaging suppliers, 34 per cent said margins are deteriorating, 25 per cent saw an improvement and 41 per cent recorded stable margins. This is a slight deterioration on the figures reported in 2009 but an improvement on 2008 when high oil and commodity prices meant as many as 40 per cent saw margins declining.

In the food sector, over the 18 months, consultant Annette Freidinger-Legay, Coté Emballage, said higher metal and paper prices have hit milk carton and beverage can makers in particular.

While margin pressures caused by hikes in raw material prices may ease in the short, there is little doubt that the packaging sector will have to live with tighter margins over the long term.

Higher energy costs other resource burdens are set to become a perennial issue for packaging manufacturers. This will put pressure on margins but suppliers will also have to beware of lower consumer buying power.

What about 2035?

Giving a talk at Emballage on packaging in 2035, trend consultant Philippe Cahen said lower buying power is one of the few predictions, along with an ageing population and continued technological innovation, one can make with any degree of certainty.

For packaging suppliers, the reality of tighter money belts means that products will have to do more to persuade consumers to part with their money. In this context, Cahen said packaging will have to offer more added value and ‘cleverness’ if it is to attract buyers.

He added that potential examples could include holograms giving cooking instructions or packaging that is simply sprayed directly onto food.