Packaging is considered a recession-proof industry, and analysts predict the market's demand for plastics will continue to grow in 2001, even if the economy takes a dive.
But while the outlook for flexible packaging is strong, according to several analysts, the market for PET bottles is cooling off.
Market analysts predict that PET will reach a plateau in the coming years as the pace of conversion from glass bottles begins to slow down.
"The focus going forward is going to be in the food category: tomato sauces and salsas," said Joel Tiss, senior vice president of equity research with Lehman Bros. Inc."In the soft drink side, volume growth should continue in the low to mid single digits — around 4-6 percent.
"Part of what's going on is you don't buy 2- and 3-liter bottles anymore because they go flat. The volume's shifting over to 16 ounce and 20 ounce."
Timothy Burns, a packaging consultant and president of Cranial Capital Inc. of Williamsville, N.Y., also predicts slower growth for PET.
"I've been increasingly negative about the growth projections for PET in that a lot of the easy markets have been converted: water, soft drinks, juices, etc.," he said. "The markets converting now—wide-mouth heat set — are relatively small numbers.
"Beer will eventually go when it's marketed as a niche packaging. To me that's a worry."
>From the numbers alone, it would appear that plastics packaging should be moving along at a steady growth rate of about 5.1 percent annually during the next four years. In fact, that rate surpasses the overall packaging growth rate of 3.4 percent per year, according to recent market studies by Cleveland-based research firm Freedonia Group Inc.
The studies report that the value of plastic packaging shipments should increase from $28.9 billion in 1999 to $37 billion in 2004. Total U.S. packaging shipments are expected to grow from $97 billion to $114.4 billion for the same period.
Plastic packaging growth was second only to paper — which is poised to enjoy steady growth as well — according to Freedonia.
Plastic container demand is slated to grow about 4.2 percent a year to 13 billion pounds in 2004, the Freedonia reports said. High density polyethylene rigid packaging will maintain its lead over PET and other materials.
Tiss expects flexible packaging to grow 4 percent a year in the next couple of years as new technologies improve film properties and resealable closures promise to open up new conversion markets.
The Washington-based Flexible Packaging Association's state-of-the-industry report estimates total flexible packaging shipments will reach a value of more than $19.2 billion this year — up from $18.3 billion last year.
Tiss said consumers are warming up to the idea of cereal, snacks, pet foods and even beverages in flexible, reclosable pouches.
"Some things that were a big promise five and 10 years ago are starting to catch on," he said. "When you think about conversion potential, it seems like flexible packaging has more potential than any kind of packaging out there. Nobody's expecting flexible to really convert paper in a big way, but it's starting to catch on a little bit."
Burns and Tiss believe flexible packaging will see gains in consumer food packaging and in protective and institutional food packaging. E-commerce will continue to boost the need for more and better protective packaging for warehousing and shipping purposes. And retailers are seeing the health value and savings that flexible pouches — as a replacement of metal cans — can offer their establishments, both said.
"Flexible works because it's environmentally sound," Burns said. "Stand-up pouches and resealable developments are opening up whole new avenues of growth. I continue to think flexible is the winner."
But will consumers be willing to spend more for the convenience of eating out, shopping online or enjoying a resealable cereal pouch? Bret Biggers, FPA director of business and economic research, said the industry is likely to follow the direction of the economy, but some segments of flexible packaging will always remain intact: mainly food packaging.
"The food industry is considered noncyclical and therefore, to some degree, the industry is minimally affected," Biggers said in a written statement. "If the economy sours, fewer people eat out, thus causing less packages being created to go to these types of establishments.
"But people need to eat, and packaging made for food sold in supermarkets benefits."
Burns and Tiss have mixed views on the fate of the economy, and subsequently its impact on packaging. Where the former expects a major recession to impact consumer spending negatively, the latter thinks American consumers will continue to coast on the economic prosperity of the 1990s — to a point.
Tiss does not expect shoppers, for example, to give up their favorite shampoo in the fancy bottle for a bargain brand whose makers don't invest in the attractive designs, shapes and graphics incorporated into the more expensive brand's container.
"If you're really hard pressed, you're going to switch from liquid to powder detergents because it's a little cheaper," Tiss said. "You're going to cancel your cell phone and cable before you get to that.
"Consumers are pretty spoiled."
Burns said that as automotive suppliers and technology-based industries announce layoffs, packaging companies will not be immune.
"The bottom line is all those businesses will be impacted negatively," he said. "As everybody tries to hang on to that last dollar of profit, it'll mean severe price competition and no end in sight to the squeeze that has been plaguing the packaging industry for a long while."
Burns added: "Packaging should not experience material declines in demand in a recession — especially when it's related to food, beverage, health-care and beauty products. But what can happen is, in a recession, raw-material prices work their way back south.
"In some cases where there's industrial sensitivity, people are not going to be spending like they used to, but maybe 30 percent of the total packaging pie starts to possibly go to a no-growth or negative growth scenario," Burns said.