Management Briefing

October 2010 Management Briefing – Drinks Packaging - Part III

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Emerging Markets Witnessing Creativity in Drinks Packaging Development

Drinks packaging can look quite different in emerging and developing markets compared to the more developed West. One issue simply is scale: Poorer consumers are often more interested in smaller-sized portions than richer. Then, there are temperature concerns. The emerging markets of Asia, for example, are often hotter and have less air conditioning than developed markets. Subsequently, drinks manufacturers have to take account of these issues.

Many African markets, for instance, are still riven with poverty, so the biggest driver of packaging innovation is affordability, according to industry experts in South Africa. Portfolio manager Shannon Yuill of Brandhouse, a South Africa beverage company with more than 40 premium alcoholic brands, says that trying to drive down the cost of producing drinks packaging – thereby allowing the consumer to pay less - is an overriding concern for many companies.

“With that in mind,” she says, “the returnable bottle has become a better value proposition for businesses and consumers. Other African countries, like Kenya, have come up with successful innovative formats to meet specific needs on price, like sachets and kegs.”

The development of new bottle sizes and shapes along with packaging innovations such as clear labels and etching, are ongoing, she explains, and the introduction of small pack spirits in sizes of 375ml and 200ml has provided consumers with a value offering they did not have before.

According to sales and marketing director Klaus Hass of South Africa’s Nampak Bevcan – which manufactures cans for carbonated soft drinks, beer, cider and fruit juice from locally-available materials – size and economic options are based on geographic circumstances, affordability and general infrastructure. However, tinplate cans are one of the preferred packaging types in Africa because they are stronger and more robust than other packaging, he says.

One new packaging innovation on the horizon for the region’s wine industry, meanwhile, is the introduction of recyclable PET bottles into the market to replace glass. Wineries such as Backsberg Estate Cellars in South Africa’s Western Cape are currently testing the packaging, saying it is more environmentally-friendly than glass. However, this is very much an industry focused at richer markets and reflects the longer-term future for most of Africa rather than the present.

In India, meanwhile, wealth is already being generated in sufficient measure to promote innovation in drinks packaging. Its drinks industry has matured with dozens of local and international brands adopting modern packaging. This April, PepsiCo India developed and launched an easy-to-handle ‘grip’ pack of 600ml PET bottles for its Mountain Dew soft drink brand. “It is important for us to continuously innovate ... through our new packaging design,” says the company’s India executive vice-president for flavours, Alpana Titus.

Rajiv Dhar, secretary general of the Aseptic Food Processing & Packaging Industry Association of India (AFPPA) and a former director of the Indian Institute of Packaging, stresses that companies are investing in new packaging technologies because the Indian economy has opened up since the early 1990s, providing consumers with a far wider variety of tastes. They have started considering healthier options, convenience, extended shelf life and hygiene, notes Dhar, adding that the country's drink packaging regulations now meet international standards – a critical requirement to help India's exports grow.

Regarding the availability of packaging materials, Dhar notes that all of the 6.3-micron aluminium foil, and 25% of the paper, used in aseptic packaging is imported into India. The global market in materials is helping multinational companies innovate in India: Tetra Pak India has, for instance, introduced a low-cost and longer shelf life Tetra Fino Aseptic (TFA) packaging material, combining multi-layered packaging material and a sealing system based on hot air induction. The company has concluded that such investment is necessary, where it may not have been in the past: “India is a unique market and today consumers are demanding value with no compromise on quality,” says a Tetra Pak communiqué. Even so, India is still an emerging market and Dhar notes that the size of drink bottles and cans can still be smaller than in developed mature drinks markets. In the US, Coca-Cola generally sells Coke in 330ml packs; in India, 150ml is usually considered enough to quench consumers’ thirst, he says.

China, meanwhile, is more prosperous and consumers’ demand for small packaging is as much about small being fashionable as it being good value. Zhang Xia, spokesperson for Yuyao city-based Ningbo Dongmu Beverage Packing, whose clients include the Chinese unit of Japanese vegetable juices manufacturer Kagome, says that this is why most of the orders Dongmu receives are for 500ml PET bottles, which are small for vegetable juice. “The more high-end the drink is, the smaller bottle it would use,” she says, giving the example of Kagome’s 250ml PET bottles for more expensive vegetable juice lines.

Increasingly-sophisticated consumer demand is promoting innovation in other ways: fast-growing demand for bottled tea drinks has increased demand for high-heat-resistant polyethylene terephthalate (PET) bottles. “Tea drinks require high temperature filling of 92° C, so high-heat-resistant PET is the most ideal material,” says Zhang Xia. The company also boasts of strict rules governing quality control. For example, it requires all the raw material suppliers to be ISO-(International Organization for Standardization) certified. “We also submit our samples to the third-party testing agency every year because our clients are very much concerned about food safety,” Zhang says. Although China updated its national standard for food packaging in 2008, it is still using a 1998 version for PET bottles, which is a concern to Yang Weiming, a guest professor at the Institute of Packaging Engineering at Henan University of Science and Technology in the country. “China has many small regulations and standards for drink packaging, but many of them are outdated,” Yang says, adding that the next trend in China’s drinks production could be flexible packaging. “Compared with the PET bottles, flexible packaging is much more transportation-friendly and more cost-efficient,” he says. “Though it has just started in China and has many hurdles ahead, I think it will be in huge demand in the future.”

Latin America is richer still than China – on per-head of population average at least. But, during the economic downturn of recent years, beverage companies in this region have been hesitant to introduce new products into the conservative market environment, making innovation in beverage packaging design all the more important to help revitalise product image. For example, customised aluminium cans (anything other than the standard 315mm size) have proved very popular in the last few years to help brands stand out from their competitors, according to Euromonitor International’s research team.

Sustainability and cost-effectiveness have also been key factors driving innovation. Abralatas – the Brazilian Association of Highly Recyclable Can Manufacturers – believes that this is the appeal of the aluminium can in countries such as Brazil. “Recently, some changes in the structure of the can-end have been made, as well as a reduction of 30% in the amount of metal used in the packaging, generating a reduction in the product’s price and also in its weight,” the association says. Abralatas notes that, between 1999 and 2009, sales of aluminium cans in Brazil rose from 8.26bn units to 14.81bn units – more than 90% of which were recycled.

Aseptic carton packaging is also making remarkable gains in the region with manufacturers scrambling to meet increasing demand. New Zealand-owned carton packaging supplier SIG Combibloc is opening its first packaging plant in the region this year, while Tetra Pak, its Switzerland-based main competitor, will invest US$35m into its Argentinian plant over the next three years.

According to an SIG spokesperson: “In South America, there is a trend towards small- and medium-sized packages. It is anticipated that, in the coming three years, carton packs in vo lumes from 750ml to 1-litre will account for around 86% of growth in the market, while around 13% of growth will be in packages of less than 330ml.”

Aseptic cartons, popular for their durability, light weight and recyclability, are used to package a variety of beverages in Latin America, including juices, dairies and even wines.

According to Lis Clément, marketing and communications manager for the trade association Wines of Argentina, “some wineries are trying to make the classic tetra pack more elegant (such as [using] a prisma format) to pack higher-priced wines. The ‘bag in box’ format used to be exclusively for Nordic countries, but it is starting to be more and more popular for Argentine wines sold in US and Latin American countries.”

Clément said that transportation costs, increased competition, and consumers’ concerns over sustainability are factors that will push wine producers in the region “to go through their packaging policies, producing wines in cheaper packages and thinner glass bottles”.

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