Editor’s note: This story is the latest installment in a monthly series looking at trends that will shape the food and beverage space in 2018. Previous articles sponsored by BMO Harris Bank can be found here.
For decades, consumers made their weekly pilgrimage to the local supermarket, loading up their shopping cart with produce, milk, bread, canned goods and other household staples.
While some shoppers are reticent to bypass the chance to see, touch and select their own items, the growing emergence of e-commerce has changed the way many consumers get their groceries, and created once unheard of challenges for food manufacturers on how to ship those products to a person's doorstep. Shoppers may want the convenience, but they don't want to give up receiving foods and beverages that look like they were just plucked fresh from the grocery store shelf.
Mintel, a market intelligence agency, said packaging will take center stage for e-commerce retailers. With online grocery sales expected to capture 20% of the market by 2025, or more than $100 billion, grocers, food manufacturers, and packaging and shipping companies need to prepare for this surge.
“What the consumer is demanding has been changing,” Jorge Izquierdo, vice president of market development for PMMI, told Food Dive.
The rise of e-commerce brings new demands
Boxes. Wrappers. Flexible packaging. Like a roof on a house, it isn’t necessarily exciting, but if you don’t have one, or if it’s faulty, it can be a problem.
As consumer lifestyles and demands for their food changes, and as grocers and food manufacturers strive to meet those requirements, packaging is undergoing its own dynamic shift. There is a growing need for packaging that maintains brand image and quality during the long haul from the warehouse to the doorstep. That becomes even more difficult as people grow more concerned with the volume of packaging that is being used and its impact on the environment.
“When you open it, the chips are crushed by the soft drink. This is problematic for the manufacturer of the product…who is guilty? Manufacturers are losing control of the customer experience and are fighting to get it back.”
Jorge Izquierdo
Vice president of market development for PMMI
The connection between e-commerce and packaging creates a host of challenges, many of which may not be immediately transparent. The products ordered should be in the same packaging that is displayed online. While that seems logical, it isn’t always easy. Imagery is the number one thing that sells, according to Danielle Sauve, director of the product identification platform for Danaher, a provider of consumer packaging software.
A company can run into problems when it tweaks a design on its packaging and updates the website, but the old design is shipped out by retailers, she said. The same problem can occur when the packaging is updated, but the changes fail to get updated on the website. The risk is that the packaging doesn’t match customer expectations, which can diminish trust in the brand, manufacturer and retailer.
As more products are shipped using third-party sellers, these companies may not have the latest technology or insight to ensure the food items are packed properly so they don't arrive broken, bruised or flat-out unappetizing for the consumer.
“When you open it, the chips are crushed by the soft drink,” Izquierdo said. "This is problematic for the manufacturer of the product … who is guilty? Manufacturers are losing control of the customer experience and are fighting to get it back.”
Products that are shipped to consumers can create new challenges, often requiring different packaging than what is sold in stores. Coca-Cola, which thrives on impulse buys, is involved with nearly every way consumers are reallocating their purchasing power. The 132-year old company showcased at its investor day last November the special packaging it uses to ship soda bottles such as Mexican Coke, Sprite and Fanta throughout Florida.
The bottler is responsible for picking, packaging and shipping the order. While it's a small but growing business, Coca-Cola's CEO said sending items directly to the consumer is unlikely to ever become a big moneymaker for the world's largest non-alcoholic beverage maker.
"We’ve tried a few experiments and going direct to consumer, whether that’d be in developed countries or in places like China," James Quincey told investors at the company's Atlanta headquarters. "In the end, I think the ... large majority is going to go through the customer platforms and we are going to create value with them that way."
This potential, and the revenue that could come with it, has attracted the attention of other big-name companies. Campbell Soup has been bulking up its online business, highlighted by the hiring of a former Amazon and eBay executive for a newly created role that oversees digital and e-commerce initiatives. This month, the packaged goods giant is starting a pilot program allowing consumers to purchase products online directly from the company’s website.
Kellogg also is revamping its business model for e-commerce. The company announced last year it would end direct-store delivery for its snacks division, and instead shift resources and efforts to direct-to-consumer marketing. The manufacturer of Pringles, Pop-Tarts, Cheez-It and Nutri-Grain said at one point last year that U.S. e-commerce sales grew by 70%, and its global experience suggests it can capture more share through click-and-collect programs than in stores.
For packaging companies, the price point for which selling online is reasonable can vary, depending on the product, Izquierdo said. Shipping a box of Nespresso coffee capsules isn’t as expensive as shipping a six pack of soda, he says. But companies will sell online at a loss, just so they can have or maintain an Internet presence, he said.
Providing personalization adds variety, complexity
In today's retail environment, consumers have a multitude of products to choose from, Izquierdo said. With so many options available for the same type of item, many of which come in different shapes, sizes and sometimes with their own unique temperature requirements, packaging can be a challenge. As more variations are introduced, packaging and shipping becomes more complicated to ensure they are packed and shipped safely.
“There has been a significant explosion of variety of products you need to manufacture,” Izquierdo said. “Twenty years ago, if you went to the supermarket looking for milk, there were maybe three different types of milk. Now, there are easily more than 30, between amount of fat, enriched, strawberry, chocolate, rice milk, soy milk."
Even as consumers enjoy groceries delivered to their door or meal kits with pre-measured ingredients, many people worry about the additional packaging needed to deliver that convenience. Sixty-six percent of millennials said they would be willing to pay more for sustainable products.
Food and beverage companies have taken notice. DanoneWave and Nestle have partnered with a startup to make bottles from wood-based products instead of plastic. Coca-Cola announced earlier this month a goal to collect and recycle the equivalent of 100% of the packaging it sells globally by 2030. As part of its "World Without Waste" initiative, the maker of Coke, Dasani water and Minute Maid juice also aims to create packaging that has at least 50% recycled material within 12 years.
In recent years, other companies including Mars, PepsiCo, Unilever and Walmart have announced some type of pledge — most often focusing on where their products come from, who produces them, how they are manufactured and their impact on the environment.
Green Chef, one of the first USDA-certified organic meal kit delivery services, announced last year it was reducing packaging for its meal kits by 20% after cutting four pounds of ice from each delivery. This decision also helped decrease the amount of cardboard used, allowing more orders to be put on a delivery truck and reducing the company's overall carbon footprint. Jeff Yorzyk, Green Chef’s sustainability director, said end-of-life packaging hasn’t been extensively studied.
“We have a real challenge in the food industry in general; packaging has a real role in food quality and safety, and we can never forget that. The most important thing we can think of is making sure that people’s food is safe, and the quality is maintained in transit.”
Jeff Yorzyk
Green Chef’s Sustainability Director
Yorzyk told Food Dive that when trying to make products more environmentally friendly, companies must be careful not to sacrifice food safety.
“We have a real challenge in the food industry in general; packaging has a real role in food quality and safety, and we can never forget that,” Yorzyk said. “The most important thing we can think of is making sure that people’s food is safe, and the quality is maintained in transit.”
Shelf-stable foods often require a sophisticated plastic film, but that might not be biodegradable, he said. And while eco-friendly packaging means using fewer inks and colors, they may not attract customers. This highlights the disconnect that sometimes exists between what consumers say they want and what they actually want, Izquierdo said.
Although packaging companies have followed consumer trends, when it comes to the future of packaging, it may just beginning.
“E-commerce in general is changing the landscape of consumer packaging,” Yorzyk said. “Having things mailed to your home is changing the consumer role around packaging. We have a lot more of it in our lives and have an increased responsibility to handle it properly.”
The "A Balancing Act" series is brought to you by BMO Harris Bank, a leader in commercial banking. To learn more about their Food & Beverage expertise, visit their website here. BMO Harris Bank has no influence over Food Dive's coverage.
