Some thoughts on Ball exiting PET

It's been 15 years since Ball Corp. joined the PET bottle market. The decision, announced today, to sell the business to Amcor Ltd. for $280 million says a lot about the rapidly changing market.

Ball first made noise about entering the PET market in 1994. "We anticipate being in the market in 1995," Harold Sohn, then-vice president for corporate relations, told Plastics News in a Dec. 4, 1994 story. "We have been exploring the opportunities there might be to enter the market at a high level."

At the time, the company was the third-largest maker of glass packaging in the world, and it was No. 4 in both metal beverage cans and metal food cans.

In anticipation of the move, the company formed a plastic container division, and had staffed it with three former executives from Atlanta-based Constar International Inc.

Packaging analyst Tim Burns told us at the time that Ball was a big player in two very mature packaging markets, glass and metal, and was interested in finding a position where more growth was possible.

"This is a plain case of Ball facing the music, seeing the PET parade going by, and knowing that they need to get into the parade," Burns said.

This, apparently, was a company that had done its homework. If anyone was ever prepared to tackle a big, important new market, Ball was ready in PET.

Within weeks, Ball had made its move.

Ball was building its first PET bottle plant in California to supply Pepsi-Cola Co. The rest of the PET market had to take notice -- this was a new player that had the ability to hit the ground running.

In May, George Sissel, then president and CEO of Ball Corp., went to New York for the PaineWebber Packaging Wrap-Up to tell the investors and analysts how excited he was to be in PET.

Compared with Ball's traditional glass, steel and aluminum product lines, PET looked like a growth market. Sissel added that Ball already made either glass or metal packaging for most of its potential PET bottle customers.

"I'm not preoccupied with whether or not we're late entering the PET market,'' he said. "If we're late, so be it. But we're not too late. And if we had waited another year, we'd be even later."

"In our opinion, the growth is still in its infancy," he added.

Now, 15 years later, Ball is getting out of PET. The market has changed dramatically. Carbonated soft drink makers moved to self-manufacturing -- a trend that was already beginning before Ball's move. As the CSD market matured, consumers turned to water, sports drinks, energy drinks and tea -- and those bottlers, too, turned to self-manufacturing.

That's the big picture, at least. There's still room in the market for custom blow molders. But clearly its not the potential high-margin, high-growth niche that Ball was hoping to capitalize on back in 1994.

According to a recent report from the International Bottled Water Association, U.S. consumption of bottled water dropped 2.5 percent in 2009. Likewise, consumption of carbonated soft drinks fell 2.3 percent; sports drinks fell 12.3 percent; packaged fruit beverages fell 2 percent; and flavored and vitamin-added bottled water dropped 8.8 percent.

Those aren't numbers that make your CFO -- or your investors -- smile.

Meanwhile, bottles have downsized to the point where they're more like bags than rigid containers, and profit margins have gotten to be razor-thin. The PET market is officially mature.

Some still hope for a "next big breakthrough" -- like beer packaging. But the fact that Eastman Chemical Co. also is looking to exit PET is a pretty clear sign that the changes in this sector of the industry have been powerful.

It's been interesting to watch these changes first-hand, and I look forward to seeing how Amcor's strategy will succeed.