Buying plans strong for '99

Purchasing plans for packaging machinery will outpace inflation in '99, says a survey conducted for PMMI. Pharmaceutical/medical and beverage businesses see biggest gains, while three industries expect declines.

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The data was collected from 369 phone interviews with packaging machinery purchasing decision makers from nine major industries within U.S. manufacturing. The sample consisted of a balanced mix of small, medium and large companies. The research was conducted by Industrial Research Associates, LLC (Madison, CT). This second annual study displays excellent continuity; 82% of the '99 respondents had participated in the '98 study.

The prediction for a 6% increase in spending comes in the face of mixed economic conditions. The positives include the strong domestic economy and the continuing influence of new technology on productivity gains. On the other side, hard economic times in many overseas markets affecting U.S. manufacturers, slower capital spending growth after years of near-record increases, industry consolidations, and concerns about corporate profits were all seen as negative factors.

Overall narrow range

With some business segments reporting gains and others expecting declines from the year-earlier spending figures, the total range is a fairly narrow 25%. The largest increase in spending predicted this year, the 15% top end for the pharmaceutical/medical field, is not totally offset by the 10% maximum decline foreseen in chemical products.

In general, five segments showed increases (see Chart 1). The beverage business was close to matching the gains in spending predicted in pharmaceuticals, food was up a respectable 7% to 9%, and hardware and industrial and nondurables predicted smaller increases in spending on packaging machinery this year. Three industries expect outright declines, but personal care and durable products didn't expect the decline reported in chemicals. One industry, grouping converters, printers and others, cumulatively expects to spend about the same as last year.

To convert these industry estimates to an overall estimate, the research company weighted each industry's historical relative impact on total domestic spending for packaging machinery. So, although the nine industries showed both positive and negative predictions, the 5% to 6% increase will be achievable because the three leading markets for packaging equipment (food, beverages and pharmaceutical/medical) all predicted solid gains. Based on information developed in PMMI's Fourth Annual Shipments & Outlook study, food (38%), beverages (16%) and pharmaceutical/medical devices (9%) collectively approach nearly two-thirds of all packaging machinery shipments.

Expansion, replacement drive

When asked for each company's primary reason for buying packaging equipment in 1999, two factors were most often mentioned (see Chart 2). Leading the way is expansion of production or packaging capacity, apparently reflecting the near 4% domestic economic growth in the U.S. last year. This is being propelled by strong consumer spending.

However, the second cause, machinery replacement, has become even more important in '99. Although cited as crucial last year, more manufacturers in the study are acting on it this year. Nearly one-fifth of all respondents said machinery replacement was at the top of the list.

Similarly, the responsibility to package additional new products played a more important role for '99 than it did last year. Although it may be difficult to explain this across the board, researchers speculated that many new products may require totally different packaging than existing machinery can handle. This response ties in closely with another, "changes in package design, shape or material," that was mentioned by nearly 10% of respondents.

Even when the existing machinery can accommodate the new products or packaging, the report's executive summary points out "the added burden of excessive downtime for changeover. . . has convinced many companies to install new units with quicker changeover capabilities." This answer also relates to "increasing speed and productivity" that was mentioned as the primary reason by 5.5% of purchasers in the study.

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