“The Interface Between Cartons and Flexible Packaging” a Report Commissioned by Pro Carton

Pro Carton The PRISM Study 2005

Usages of Cartons and Flexibles (All = 238 Billion Units)

Paper Based Alu Foil Paper Foil Combinations 15 9 12

Folding Cartons 40% = 95 Billion

Flexible Packaging (Plastic Based) 45% = 107 Billion “The Interface between Cartons and Flexible Packaging” A Report Commissioned by Pro Carton

End Users’ Packaging Preferences for a New Premium Product % of FMCG Companies

No Preference Cartons 32% 57%

Flexibles 11 % Association of European Cartonboard and Carton Manufacturers Pro Carton The PRISM Study 2005

“The Interface between Cartons and Flexible Packaging” Index

Introduction Franz Rappold, President of Pro Carton Page 3

Overview of the study Richard Dalgleish, Managing Director of Pro Carton Page 4

Key findings from the study Current market position Page 5

Market expectations up to 2010 Page 6

The perceptions and attitudes of brand owners and retailers Page 7

Shelf ready packaging Page 8

Consumer multi-packs Page 9

Microflute packaging Page 10

Sleeves and combination packaging Page 11

Quality perceptions Page 12

Purchasing intentions Page 13

Environmental issues Page 14

Contacts Contacts for further information Page 15

What is Pro Carton? Back page

2 Pro Carton The PRISM Study 2005

Introduction

I am delighted to be able to present • What are the perceptions of this summary of the key points from the brand owners and the study commissioned by Pro retailers of these different Carton from PRISM*. types of packaging?

We felt it was important that an • What are the key trends in independent study was carried out the markets? that would look at the interface between cartons and flexible packaging • What are the purchasing and this report seeks to highlight intentions of FMCG companies? the main findings of this study. I feel sure that this summary provi- It is of course important that the best des an accurate and informative possible understanding is reached to review of the findings of this study find out more about the following which summarises the main fin- “We felt it was questions: dings. I therefore hope that you find important that an the information it contains both independent study • What is the current status interesting and useful and that it was carried out that in the markets for cartons offers additional information about would look at the and flexible packaging? this interesting and ever changing interface between sector of the packaging market. cartons and flexible • What are the prospects for packaging.” the future? Franz Rappold President Pro Carton Vienna, September 2005

* “PRISM – Packaging Research Intelligence Strategies & Marketing Limited – was launched in 2003 by Simon Southern following the acquisition of Marketpower Ltd by Landell Mills Ltd. The Company provides market research and strategic marketing consulting dedicated to the packaging industry.”

3 Pro Carton The PRISM Study 2005

Overview of the study

Pro Carton is pleased to be able to ing is well placed to take advantage introduce a summary of a members of the growth opportunities in only report it has recently commis- European consumer goods markets. It “For this ambitious sioned. “The interface between car- closes by saying “Cartons offer brand qualitative and tons and flexible packaging” was owners the opportunity to provide quantitative report, commissioned from PRISM and looks product differentiation and a quality PRISM interviewed at the current market, the expecta- image using packaging that has 49 of the leading tions for the future and the percep- distinct merchandising advantages FMCG (Fast Moving tions of the major players in the and display appeal when compared Consumer Goods) market. with competing types of packaging”. companies across Europe as well as It also investigates the probable We hope you will find the following 10 leading retailers trends in the market and looks at pages interesting and if you need any and over 20 industry various developments that will further background please contact experts to gain an impact on both cartons and flexible Pro Carton either at insight into the packaging. By independently looking www.procarton.com or through your current market in depth at this market and the local office of which details can be breakdown and trends, carton suppliers will be found on page 15. trends that were better able to understand and react upcoming in the to the needs of the brand owners Richard Dalgleish next 10 years.” and retailers. Managing Director Pro Carton The report highlights the importance Brussels, of packaging as it adds to its con- September 2005 ventional role of protection and becomes in addition a medium of promotion and brand building. The report concludes that carton packag-

4 Pro Carton The PRISM Study 2005

Key finding Current market position

The report begins by looking at the of paper based flexible packaging, current market position of cartons multi material packaging and other and flexible packaging in the FMCG smaller types. Therefore in the (Fast Moving Consumer Goods) mar- markets studied across Europe about kets. The product areas covered are 40% of the units are manufactured very wide and include all packaged from cartons whilst 45% are made food products with the exception of from wholly plastic flexible packag- fresh foods, liquid foods and pro- ing. Of the remainder cessed canned and bottled foods. It (15 %/36 billion) some 40% are also includes all non food consumer paper based packaging. products with the exception of consumer durables and industrial The report adds that in many pro- products. duct categories, switching between different types of material is not so In the European FMCG markets the apparent as had been the case some report states that approximately 238 years ago but this still occurs and billion units of cartons and flexible depends in some cases on the pro- packaging are used annually and of duct formulations. For example, these 95 billion are cartons. Of the recent moves from powders to remainder, 107 billion are entirely tablets in the detergent markets A change in the form of a product flexible plastic packaging with the have led to an increase in the usage in a field such as detergents may 36 cause a change in the type of remaining billion being made up of cartons at the expense of plastics. packaging used.

Usage of Cartons and Flexible Paper Based Flexibles (Other Material) Packaging in Europe for FMCG Alu Foil Paper } 15%=36 Billion Units Billion Units Combinations Folding Cartons 95 15 9 Flexible Packaging 143 Bio. 12 Bio. Total 238 Bio.

Folding Cartons Breakdown of Flexible 40% = 95 Billion Packaging into Types Billion Units Flexible Packaging Paper Based 15 (Plastic Based) 45%=107 Billion Aluminium, Foil and Paper 9 Aluminium Foil and Plastic Foil Combinations 12 Plastic Based 107 143 All = 238 Billion Units Usage of cartons and flexible Total package in Europe for FMCG.

5 Pro Carton The PRISM Study 2005

Key finding Market expectations

The study finds that between 2005 perceptions of carton packaging, and 2010 the European market for this will have a positive impact on cartons will increase by approxima- carton usage. tely 1.8 % per annum. The market for flexible packaging will, over the Price pressure will continue but the same period increase by between report adds that the pressure on 1.5 % and 2 % per annum. prices for flexible packaging will remain high and on balance, in the As well as organic growth, it adds future, it appears that the effect of that there will be increases in the global oil prices and currency deve- market for cartons in several areas lopments will have a greater impact such as shelf ready packaging, on flexible packaging prices than on multi-packs and display packs. The the prices of folding cartons which need for improved visual appeal and are made from a naturally occurring • Demand for the requirements of shelf ready and renewable material. cartons will grow packaging will create particular opportunities for cartons made from Another change foreseen in the • Need for both cartonboard and microflute. report is the increasing focus on improved visual environmental issues and it conclu- appeal of Another area highlighted for growth des that the folding carton industry packaging in carton packaging is the own is well ahead of flexible packaging brand sector where retailers will on the two critical environmental • Increase in the continue to position their own brands issues, the use of a renewable need for shelf more directly in competition with resource and recyclability back to ready packaging, leading brands and with the quality new packaging. multi- and display-packs

• Additional packaging demands from the growth in retail own brands

• Increasing focus on environmental issues

6 Pro Carton The PRISM Study 2005

Key finding Perceptions and attitudes

Overall there is a strong preference Flexibles are perceived to have better for cartons amongst the FMCG com- barrier properties but increasingly panies interviewed. The main reasons cartons are being combined with for this preference are the protection, flexibles in such markets as ready graphics and merchandising appeal meals and pet foods to offer both offered by folding cartons, their functionality and the point of sale environmental attributes and their attraction that cartons offer. It also suitability for differentiating pre- reports that almost a third of the mium products. respondents mention merchandising difficulties and relatively poor pro- The key factors influencing the choi- duct protection when using flexibles ce of packaging are display appeal, and 20% expressed concerns on packaging costs, speed of filling and environmental issues. merchandising/shelf stacking attributes. Folding cartons score well for The report states that when launch- all these features though cost is ing a new premium product, 57% of more favoured for flexible packag- FMCG companies prefer to do so in ing. However, many filling lines for cartons whereas only 11 % said they cartons such as tobacco and deter- would choose flexible packaging. The gents are amongst the fastest and strongest preferences for cartons lie most efficient. Additionally, it is well in the confectionery, detergent and known that offset printed cartons convenience food markets where have a cost advantage in the context visual appeal on the shelf is seen as of frequent switches of packaging most important. The table shows the strengths of folding cartons mentioned by FMCG design for example in the seasonal companies, without any prompting and promotional packaging sectors. from the researchers.

End Users’ Packaging Preferences Key Advantages of Folding Cartons for a New Premium Product % of FMCG Companies % of FMCG Companies 0% 10 % 20% 30% 40% 50% Product Protection No Preference Cartons Graphics 32% 57% Merchandising Environment Premium Look Ease of Filling Flexibility of Design Flexibles Provision of Information 11 % Transit Efficiecy Cost

7 Pro Carton The PRISM Study 2005

Key finding Shelf ready packaging (SRP)

The increasing usage of shelf ready diversity on the shelf. This need will packaging is highlighted as a major therefore lead to an increase in the growth area in the coming years. use of attractively printed outers These initiatives which are designed reflecting a strong brand image of to not only to increase the efficiency the product. It is probable that com- “SRP is set to of shelf stacking in the supermarket binations of cartonboard display become a perma- but also reduce out of stock situa- outers with corrugated transit hoods nent feature of the tions, have grown in recent years and will be used increasingly to fulfil retail sector, as this growth will accelerate across both the transport and point of sale retailers seek to Europe but most notably in the UK, requirements. streamline their Benelux, France and Germany. operations and Ease of use at the point of sale will maximise space Transit outer sizes will reduce as be critical so that the outer protec- productivity.” their role moves from transit protection can be easily removed whilst tion to display. This is because retaining the overall brand image on display outers will be designed to the shelf and avoiding unnecessary display one or two unit packs in unpacking and shelf stacking of “Future SRP designs order to satisfy the needs for greater individual products. work for a complete range of retail products including sachets, trays, food cans, bottles or jars.”

Convenient for retail markets: Shelf ready packaging and displays are efficient and will increase in the coming years.

8 Pro Carton The PRISM Study 2005

Key finding Consumer multi-packs

It is forecast that the usage of multi- Cartonboard multi-packs have tradi- packs will extend greatly beyond the tionally been successful in those traditional uses in the drinks and markets where the product has an dairy markets. Multi-packs are easy integral stacking strength but the to stack in store offering simplicity rapid development of new styles and and efficiency. They are convenient systems will offer opportunities in for the consumer to select and han- other market sectors. dle and are simple to merchandise. With the increasing need to promote Markets that are suggested as brands, multi-packs offer a greater growth areas in multi-packs are in surface area for high quality printing the pet foods, chilled and ambient to reinforce the brand. Additionally, foods and up market dehydrated offering a number of products in a foods. For example pet food pouches simple to buy pack, leads to an will increasingly be sold in carton- increase in sales value. board based multi-packs that will provide a better brand opportunity and offer greater convenience both for in store efficiency and consumer “Special growth convenience. areas in multi- packs are in the pet foods, chilled and ambient foods and up market dehydrated foods.”

Multi-packs will also capture the market in those fields with which they are not traditionally associa- ted. They are convenient for consumers and easy to handle. For retailers they also offer a lot of advantages.

9 Pro Carton The PRISM Study 2005

Key finding Microflute

The microflute market accounts for 75% of the microflute market is held about 20 billion units annually and by decorative processes including will continue to grow at a rate of litho lamination, high quality post around 4.7 % per annum so that print flexo, preprint flexo, screen usage by 2010 will be nearly 32 bil- printing, and direct printed litho. lion units. This growth will be driven This latter method has only emerged by demands for improved visual comparatively recently, and the appeal and growth in multipacks carton suppliers are well placed to and display outers. meet this challenge and offer solutions. “Carton suppliers The growth in shelf ready packaging are well placed to will have a significant impact on the Demand for these decorative proces- meet the challenges microflute market, because of the ses is forecast to grow at an average of transit protection, increasing need for smaller display rate of 4.8 % p.a., whilst unprinted display appeal and outers. Increasingly, decorative containers and those printed on con- merchandising microflute containers will be adopted ventional in-line flexo presses will effectiveness espe- as a substitute for conventional cor- grow at a much lower rate of 1.1% p.a. cially with new rugated. These containers will be types of microflute.” sufficiently robust and visually appealing to satisfy the joint requirements of transit protection, display appeal and merchandising effectiveness.

The increase of displays and shelf ready packaging also leads to a growth in the microflute market.

10 Pro Carton The PRISM Study 2005

Key finding Sleeves and combination packaging

Cartons have been criticised for Another area identified is the increa- their lack of barrier properties and sing use of barrier boards to manu- flexibles for their poor display and facture cartons. With the growth in merchandising properties and for the prepared food markets, allied to this reason the report finds that the developments in barrier techno- there will be growth in the use of logy, cartons can now be used for a cartons in combination with other whole range of different applications materials. in the food and related fields. Again in using cartons the brand owner and One major sector will be the continu- retailer can ensure the best possible ing development of ready meals where image for the product and this is the food is packed into a plastic tray becoming particularly important in “There will be and a sleeve made of cartonboard used the own brand sector where growth growth in the use of to cover the tray so providing both is forecast to be high. cartons in combina- additional protection and high quality tion with other print to help with the merchandising of Barrier boards allow difficult products materials, plastics these products. Whilst this market is to be packed directly into cartons extrusions and well developed in some countries in without the need for additional inner laminations.” Europe, there is an increasing demand wrapping or lining. This is done with for ready meals and the combination of a wide range of extrusions and cartonboard and plastic will continue laminations of base boards such as to grow. With the rapid development folding boxboards (FBB), solid especially in Eastern Europe of the bleached sulphate (SBS), recycled ready meals market this multi materials boards (WLC) and solid unbleached system that exploits the best properties board (SUB). of both materials will continue to grow.

Combinations of cartonboard and plastic will continue to grow as for example the demand for ready meals increases. Ready meals are often packed into a plastic tray and a sleeve made of cartonboard.

11 Pro Carton The PRISM Study 2005

Key finding Quality perceptions

When launching a premium product nity to maximise sales in these 57% of FMCG respondents said that areas. Cartons allow this product they would use cartons as a first differentiation across the range of choice whereas only 11 % said they different types of products and the would use flexibles. The strongest quality image of cartons can be preferences for cartons were in the enhanced still further for the higher confectionery, biscuit and conven- grade own brand products. ience food sectors and none of the respondents in the these markets The stronger preference for flexibles said they would prefer to use flexibles. is in the dehydrated food market but even then less than a third expressed Product differentiation in the own a positive preference and over 50% label sector at the point of sale, had no firm preference. The reasons needs to distinguish between pre- for the preference for flexibles in mium and general own label pro- these markets has been the develop- ducts and FMCG responses indicate ment of attractively printed pouches. that cartons offer the best opportu-

Cartons are first choice in the premium sector.

12 Pro Carton The PRISM Study 2005

Key finding Purchasing intentions

When asked whether they would be dehydrated foods sectors but it likely to switch products into folding also adds that whilst pouches will cartons, flexible packaging or com- continue to grow the use of cartons bination packs in the future about in combination with pouches will half of the respondents said they increase to help with the promotion were likely to make changes. and merchandising of these products.

Of these 40% expected to use more FMCG companies see the best oppor- cartons as a replacement for flexi- tunities for folding cartons in multi- bles. A further 40% anticipated using packs and shelf ready packaging as more cartons in combination with this is where the combined proper- flexibles and less than 20% expected ties of cartons and flexibles can be to make changes from cartons to exploited to the best effect in terms flexibles. The report adds that the of merchandising and projecting a most likely areas for gains in cartons quality image. are the confectionery, detergent and

Flexibles Cartons 20% 40% Cartons Combinations Flexibles

Packs expected to gain share in future.

Combinations 40%

Purchasers in fast moving consumer goods companies see the best opportunities for folding cartons in multi-packs and shelf ready packaging.

13 Pro Carton The PRISM Study 2005

Key finding Environmental issues

Most FMCG companies recognise the report that “Attempts by the flexible environmental argument in favour of packaging industry and its suppliers cartons and end users are well aware to develop more environmentally that flexible packaging has a problem friendly products have met with only in this respect. When asked for the limited success, and the level of key advantages and disadvantages flexible packaging recycled back into of cartons and flexible packaging, packaging is effectively nil.” In environmental issues were seen additions it is stated that over 80% as a clear advantage for cartons but of flexible plastic packaging used a clear disadvantage for flexible in Europe is based on non renewable packaging. resources.

The two most important elements Respondents also felt that cartons on environmental matters raised by were rightly regarded as a natural FMCG’s were the recyclability and material and therefore had a natural the use of a renewable resource. In and friendly image at the point of both instances cartons were seen as sale. clearly better and it is stated in the

Awareness of the environment is important for younger and Recycling Rates for Paper & Board Packaging older consumers. Cartonboard is, (Source: EU Data 2002) and has the image of a natural 90 material and thus complies with Paper & Board Packaging the demands of environmental 80 Recycling Rate compatibility and responsibility. 70 60 50 40 30 AT BE DK FI FR DE GR IT NL PT ES SE UK

14 Pro Carton The PRISM Study 2005

Contacts Contacts for further information

HEAD OFFICE ITALY Phone: +32 2640 4955 Phone: +39 02 76320924 [email protected] [email protected] www.procarton.com www.procartonitaly.com

AUSTRIA NETHERLANDS Phone: +43 1 218 6918 Phone: +31 7031 23911 [email protected] [email protected] www.procartonaustria.com www.procartonnetherlands.com

BELGIUM NORDICA Phone: +32 2343 6474 Phone: +46 650 740 445 [email protected] [email protected] www.procartonbelgium.com www.procartonnordica.com

FRANCE SPAIN Phone: +33 1 5389 2480 Phone: +34 93 481 6165 [email protected] [email protected] www.procartonfrance.com www.procartonspain.com

GERMANY SWITZERLAND Phone: +49 6251 136995 Phone: +41 1 266 9923 [email protected] [email protected] www.procartongermany.com www.procartonswitzerland.com

GREECE UK Phone: +30 210 3610143 Phone: +44 20 7915 8390 [email protected] [email protected] www.procartongreece.com www.procartonuk.com

15 Pro Carton The PRISM Study 2005

What is Pro Carton?

Pro Carton is the European Associ- ation of Cartonboard and Carton manufacturers. Headquartered in Brussels, it has offices in 11 countries in Europe who, through various publications, activities and events, promote the use of Cartons and Cartonboard to a wide variety of people and groups.

HEAD OFFICE

Pro Carton 250 Avenue Louise B-1050 Brussels Phone Belgium: +32 2 640 4955 Phone UK: +44 1635 298192 [email protected] www.procarton.com