Post-COVID Outlook for Labels and Packaging
“This recession is rooted in biology, not economics,” noted Andrew Paparozzi, chief economist, PRINTING United Alliance, as he reviewed the business impact of COVID-19 during a session of the Virtual Digital Packaging Summit. What this means, he explained, is that the pandemic’s effects won’t be fully behind us until we’re once again free to gather, meet, and intermingle like the biological beings we are.
But that day is coming, Paparozzi declared, adding that when it does, it will be accompanied by a robust economic rebound that bodes especially well for producers of labels and packaging. He and Lisa Cross, principal analyst, NAPCO Research, sketched a road map to recovery for producers who are prepared to navigate the new realities of a post-COVID marketplace.
The two critical questions, according to Paparozzi, are what is ahead for the American economy; and whether the changes brought by COVID-19 are temporary or permanent.
His answer to the first was decidedly upbeat: “The news is good. Recovery is underway, and all signs are that the economy will strengthen significantly as 2021 progresses.”
Paparozzi cited data showing the start of a rebound in the third quarter of 2020, when consumer spending on durable goods and business investment in equipment and software rose by 16.2% and 14.2%, respectively, over the previous quarter. This indicates that confidence is on the rise in both sectors of the economy, he said.
Quoting a participant in the ongoing COVID-19 Print Business Indicators Survey by PRINTING United Alliance and NAPCO Research, Paparozzi said the challenge of the second question lies in “determining which fundamental and/or structural business behaviors won’t go back to pre-pandemic ways.” For instance, business travel and trade shows might not generate the same revenue they once did if post-COVID demand for them is less than it used to be.
Paparozzi acknowledged that there are factors slowing the economy as well as factors boosting it, and he admitted that no one knows when the recovery will return it to full strength. He maintained, however, that “forces pulling the economy up are now stronger than the forces pulling it down.” That view is shared by a panel of economists surveyed by The Wall Street Journal, who have forecasted that GDP will grow by 3.7% in 2021.
Good May Get Better
Such a rise, Paparozzi commented, would create an additional $681 billion worth of final goods and services – all of which will need packaging and other kinds of print support. He added that “game changing” vaccines and fiscal stimulus from the federal government will cause projections for GDP growth to be revised upward as their healing effects start to be felt.
Paparozzi advised having “relatively modest expectations” for holiday retail sales, given that the economy is still in the grip of COVID-19. But, he pointed out that the pandemic is accelerating e-commerce sales, for which some market watchers are predicting increases as high as 40%.
Cross also mentioned e-commerce as a path to success in her overview of what she called “the influencers of the new reality” for the label and packaging industry: digital printing; brand owner demands; supply chain shifts; and consumer demands and changing behaviors.
She said that digital printing gives label and packaging producers the advantages of agility, efficiency, and opportunity – and that brand owners favor suppliers with digital capabilities. Eighty percent of brand owners surveyed by NAPCO Research said that they preferred to work with printers and converters that offer digital printing, according to Cross, who also noted that demand is growing across the board for label and packaging applications that can be printed digitally.
She said NAPCO Research has identified shorter run lengths and personalization as brand owners’ leading demands, both of which are specialties of digital printing. The technology also comes into play as brands try to deal with business model shifts in the supply chain that force them to rethink traditional methods of distribution and sales.
For example, PepsiCo is now selling direct to consumers through PantryShop.com and Snacks.com; some restaurants have taken to selling groceries as well as take-out meals as a hedge against restrictions that limit on-premises dining. Cross added that consumers are making shifts of their own in terms of product choices, with implications for the kinds of packaging these products require.
A surge in alcohol sales, for example, is driving a corresponding demand for digitally printed labels on the bottles and cartons. Cross cited a study by Shore Packaging Corp. in which 66% of consumers surveyed said that they had changed their purchasing habits as a result of the pandemic – most notably in paying more attention to the packaging and labels of unfamiliar products that supply-chain shortages were obliging them to buy.
One, and Done
A rise in demand for single-use packaging is another consequence of the pandemic, according to Cross. She also urged label and packaging producers to take note of the “meteoric” rise of e-commerce sales, which, according to the U.S. Census Bureau, amounted to $211.5 billion in the second quarter of 2020 – up nearly 32% from the previous quarter.
Achieving greater supply chain efficiencies in the face of these shifts will be the No. 1 priority for many brands in 2021, Cross observed. This will involve, among other things, an increasing use of digital printing; a demand for labels and packaging that drive customer engagement; and stepped-up requirements for speed, productivity, and support of multiple SKUs.
Because label and packaging producers with digital capabilities have what it takes to work with brands in these ways, Cross concluded, “I share Andy’s optimism for the year ahead.”