The Bright Growth Potential of the Packaging Industry
Alongside the recovery of manufacturing sectors, the packaging industry also holds optimistic growth prospects in the foreseeable future as assessed by businesses within the sector.
Increasing Consumer Interest in Packaging
Packaging is a vital element in the daily lives of most consumers. It aids in the purchase decision journey at retail stores, creates an efficient cost-effective distribution system for brand owners, minimizes product damage and food waste throughout the value chain, while facilitating consumer needs. The importance of packaging and labeling has become more pronounced in recent years, with a significant number of individuals sharing 'unboxing' moments on social media platforms. This increasing trend indicates that branded packaging can be a powerful marketing tool.
Survey Results of Consumer Interest, September 2022. Source: Vietnam Report
According to a survey conducted by Vietnam Report in September 2022, consumers are highly concerned about the technical functions of packaging when shopping, particularly paying attention to information such as ingredients, expiry dates, and production dates printed on product packaging (4.67/5). 100% of consumers prioritize checking the ingredients, production dates, and expiry dates printed on packaging to ensure product quality and freshness. Environmental protection is currently one of the top concerns for consumers. Some businesses have faced consumer boycotts due to their use of environmentally unfriendly packaging. Therefore, criteria such as biodegradability and environmentally friendly packaging are among the factors consumers are highly interested in (4.4/5).
In addition to technical functions, packaging also serves as a marketing tool for businesses. According to the consumer survey by Vietnam Report, clearly labeled packaging (4.36) is the most important factor for consumers in terms of marketing. Businesses increasingly realize that they need to impress customers not only with a good product but also with superior packaging. Consequently, this ancillary industry has considerable growth potential.
Although society and the business community increasingly understand and appreciate the role of packaging in the commodity economy, the development of the packaging industry in Vietnam still faces many limitations. Vietnamese packaging companies, mostly small and medium-sized enterprises, are competing against foreign enterprises with superior capital, technology, management capabilities, and relationships with major partners. The survey by Vietnam Report has identified the primary challenges that packaging companies are currently facing.
Source: Vietnam Report
Nearly 86% of companies believe that the global economic downturn is the primary challenge, given Vietnam's high economic openness. Europe and the United States – our country's major export markets – are at risk of recession, leading to reduced imports. Furthermore, the packaging industry, which relies on 80-90% of imported raw materials, is susceptible to fluctuations in global prices of oil, natural gas, and coal.
Thus, changes in these factors will affect the prices of plastic raw materials, posing risks for packaging companies that cannot adjust their selling prices accordingly. Therefore, profit growth may be lower than revenue in 2022. According to the Vietnam Report survey, 100% of companies are under pressure to increase the prices of input factors. Most companies believe that this pressure will persist until the end of 2023 (43%).
In addition to issues stemming from the prolonged impact of the pandemic, such as logistics, distribution, reduced purchasing power, and ongoing Covid-19 outbreaks, there are also inherent issues from before that the industry has yet to address, as mentioned above. If Vietnamese packaging companies do not strive to improve themselves, they may lose not only domestic market share but also the value from the export market to foreign investors.
The Prospects of the Packaging Industry in the New Normal
Assessing the prospects of the industry in the final months of 2022, the majority of enterprises appear much more optimistic. 57% of businesses believe that the business situation in the second half of the year will be more favorable. This is entirely plausible, as up to 85% of businesses are confident in the rapid recovery and development of the Vietnamese economy.
The macroeconomic recovery, social consumer demand, and manufacturing sectors are favorable conditions for the recovery and development of the packaging industry. A survey by Vietnam Report conducted in August 2022 showed that nearly 60% of businesses in the industry achieved revenue exceeding 80% of pre-pandemic levels, with nearly 30% exceeding pre-pandemic levels.
Other external factors create many opportunities for businesses in the packaging industry, including: (1) The signing of free trade agreements; (2) The development of e-commerce; (3) Increasing domestic demand. The average growth rate of the packaging industry is forecasted to be over 13% per year, with packaging for the food industry consistently achieving an average growth rate of 15-20%; plastic packaging alone has reached a growth rate of 25%. The Vietnamese paper packaging market is expected to reach over $3.1 billion by 2027 with a CAGR of 7.5% during the period 2021-2027.
Source: Vietnam Report
Trends in the Packaging Industry Development
According to experts' assessments, sustainability and digital transformation (especially e-commerce) are two trends expected to create significant opportunities alongside challenges for businesses in the industry, thereby shaping the packaging market in the near future.
The Vietnam Report survey identifies three drivers that motivate packaging companies to pursue sustainable development goals: (1) Implementing a sustainable development strategy can enhance the value of the company; (2) Companies can identify risks and opportunities by implementing sustainable development strategies; (3) Customers value sustainable development actions that can be achieved.
The increasing trend of online shopping is creating and expanding new packaging needs, especially for sustainable protective and transportation packaging. E-commerce will change fundamental requirements: packaging will be designed specifically for each product to achieve efficiency in the supply chain and for home unboxing rather than appearing on retail shelves.
Source: Vietnam Report
Under the influence of these two major trends, the packaging industry is applying intelligent and sustainable solutions to make product packaging more consumer-friendly, brand-friendly, and environmentally friendly, including: Internet packaging, biodegradable packaging, digital printing packaging, automated packaging, active packaging, customized packaging, recyclable packaging, edible packaging, 3D printing packaging, and nano-packaging technology.
The main solutions of the packaging industry allow for smart packaging, including internet packaging, active packaging, and nano-technology. However, since the Covid-19 pandemic forced people indoors, packaging from online shopping has posed serious challenges related to packaging waste. Therefore, industry businesses are accelerating innovations in biodegradable, recyclable, and edible packaging. Additionally, the implementation of 3D printing and robot packaging simplifies the packaging process and reduces costs for consumer companies.
Source: Vietnam Report
These trends will create many challenges for packaging companies; however, they will also provide real development opportunities for businesses that pursue appropriate actions and priorities. Due to the high economic openness, domestic packaging production and business activities still largely depend on the global economic situation, which is still quite unstable. The top priority that industry businesses are aiming for is to strengthen internal resources, enhance resilience and recovery capabilities through strong focus on prioritizing resources and reallocating resources towards key growth areas. Resources here include: human resources, capital, and technology. The Vietnam Report survey indicates these are the three focal points that packaging companies are targeting in both the short and long term.
3 Solutions the Government Should Support the Packaging Industry
Results from the Vietnam Report survey of packaging businesses and experts indicate important solutions that the Government can support for businesses, including: (i) Improving the legal framework, transparency of information, and creating a fair competitive environment among businesses; (ii) Reducing import taxes on production raw materials; (iii) Developing national standards and regulations for products in the industry, especially regarding collection and recycling of packaging.
Source: Vietnam Report
Packaging is a fiercely competitive industry among businesses. The number of new entrants into the industry is high, however, there is not much difference in products, and the product lifecycle is short. Therefore, the Government needs interventions to ensure businesses have a fair competitive environment, avoiding activities that exacerbate conflicts among businesses.
Global economic recession and inflation are directly affecting business operations. To help businesses cope with challenges from this external factor, the Government can implement temporary import tax reduction policies to help businesses overcome immediate difficulties.
Environmental pollution is a controversial issue in many countries, including Vietnam. The packaging industry inherently uses a lot of energy, raw materials, and chemicals that can emit harmful pollutants, making it one of the industries that seriously affect the environment. Therefore, many environmental protection standards have been issued, such as BRC certification and FSC certification. To effectively protect the environment, the Government should build on these certifications and develop a set of national standards and regulations for packaging products.
Packaging is an auxiliary industry, taking the product it contains as the starting point and serving the goal. Through its technical and marketing functions, packaging can make even passive products smart and connected, allowing brands to create a "digital thread" for multi-directional interactions throughout the product lifecycle. Opportunities will be available to countries, businesses, and brands that invest wisely and seriously in packaging in the coming period.
Source: Economics and Forecast
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