PACK EXPO is one of the largest trade shows in the packaging industry, featuring more than 2,700 exhibitors from across the value chain and bringing together the broader ecosystem of brand owners and investors to McCormick Place in Chicago for the four-day event. With record attendance (over 77,000 attendees and exhibitors) as the industry heads into 2025, the mood was one of cautious optimism, which is reflected in L.E.K. Consulting’s key takeaways from the show.
- Packaging volumes on the road to recovery: Packaging volumes are starting to show quarter-over-quarter improvement, signaling that the worst of the destocking-related volume pressures are largely in the rear-view mirror. Converter volumes have experienced a “slanted J-curve” over the past 18 months with a sharp initial drop because of brand owner destocking and inflation. These challenges are forcing consumer trade-down or trade-out choices, with some stabilization and return to positive growth (see Figure 1). While there continues to be month-to-month choppiness, the overarching trend is toward recovery.
Packaging equipment automation is unlocking incremental value for original equipment manufacturers (OEMs): Product manufacturers continue to experience acute labor availability challenges, which is driving a continued shift toward more automatic equipment and away from semiautomatic and manual equipment. Automatic equipment not only enables manufacturers to reduce labor requirements but also supports higher throughput, typically enabling a positive return on investment within 12 to 24 months. Additionally, the shift toward equipment with greater complexity and connectivity is creating opportunities for OEMs to capture more high-margin aftermarket parts and service revenue.
The benchmark for leading packaging OEMs is generating 40%-50% of margin from aftermarket activities, which also creates greater customer engagement and provides greater revenue stability across the cycle. The packaging equipment market remains highly fragmented, despite recent M&A, with a long tail of smaller OEMs (e.g., 200+ end-of-line equipment players) that have opportunities to follow a similar playbook.
Sustainability targets remain a brand owner focus: The Ellen MacArthur Foundation, a leading nonprofit focused on the circular economy and sustainability, has been tracking brand owner progress against announced sustainability goals and commitments. While the industry overall has not yet achieved any of the goals it set in 2019, the foundation indicated more progress across the industry was made since 2019 than if these goals had not been set. Notably, the share of post-consumer recycled content in packaging has more than doubled since 2019 (6% to 13%) due to support by corporate initiatives and state-level extended producer responsibility (EPR) and other legislation.
Five states (California, Colorado, Maine, Minnesota, Oregon) have enacted EPR mandates, and at least 10 others have introduced potential mandates into local legislation. Further, having ambitious targets has been a net positive; it drives greater consideration of the sustainability impact of packaging decisions than would be the case had the goals not been initially set, because it allows both market participants and consumers to track progress against announced objectives.
Material innovation is leading to packaging innovation: Packaging converters are responding to brand owner demands by leveraging new materials to develop products that provide added sustainability, safety and/or functionality features. Meeting sustainability commitments has become an increasing brand owner priority. Packaging companies are responding through a broad range of innovative products that feature more recycled content, are lighter in weight and/or are more easily recycled. In addition to sustainability issues, there is increasing awareness around the potential for adverse health effects associated with certain inputs (e.g., phenol, PFAS).
To address consumer and brand owner concerns, converters are further vetting their supply chains, and reformatting where needed, to ensure products meet the latest standards. While delivering added sustainability features and necessary safety standards is critical, converters must also continue to deliver elevated functionality of the packaging itself. Ultimately those that can create packaging to address sustainability, safety and functionality themes are likely to gain advantage because they will be able to provide brand owners with a more differentiated on-shelf solution. For example, aqueous coatings on fiber packaging provide barrier properties in the form of an easily recycled package.
Despite a slow 2024, M&A optimism abounds heading into 2025: While speaking with attendees, we heard a note of optimism heading into 2025 that was due to four factors: inflation rates have decelerated from recent highs, packaging volumes continue to recover, there is near-term downward pressure on interest rates, and industry fragmentation remains across many areas within packaging (e.g., distribution, equipment, conversion). While global packaging transaction volume has declined by approximately 30% since a peak in 2021, portfolio assets are increasingly approaching the end of typical periods, creating a longer list of potential businesses that owners may bring to market.
Notably, assets aligned to secular growth themes such as healthcare, automation and tracking, and innovative applications are expected to the lead way as investor interest remains. Additionally, activity among larger strategics (e.g., the announced merger between Amcor and Berry Global on November 19) continues to be strong and may help to unlock broader private market activity.
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