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COVID-19 Survey: Early Results Reflect CPGs’ Current Resolve, Future Uncertainty

At press time, survey responses indicate that companies producing packaged goods are handling the disruptions, and though strained, supply chains remain intact. But when asked to forecast the future, there’s less consensus.

Covid19 Getty Images 1205740031

In response to COVID-19, Packaging World magazine polled readers who are Consumer Packaged Goods companies or brand owners to begin to see how the industry was dealing with the crisis. The survey was sent via e-mail to a targeted audience between March 26-30, netting highly qualified responses from food and beverage, healthcare, cosmetics, personal care, and other packaged goods manufacturers. Removing any self-identified suppliers from the data set left 111 respondents that are highly representative of the CPG packaging industry. Job duties ranged from engineers to package design and development, but the largest portion, at 24% of all responses, were CEOs or senior management.

Chart 1—Respondents’ job functionChart 1—Respondents’ job functionWe first asked if people were coming into the plant or office or working from home. 62% of respondents are still coming into the office, with the remaining 38% working from home. It should be noted that the lion’s share of respondents (81%) come from the food and beverage industry, with others in healthcare packaging, so most respondents’ industries are deemed essential by the government. Of industries surveyed, Food and Beverage was most likely to still be coming into the plant, which stands to reason.

When we looked more closely at job duty, we found that CEOs and upper management were just as likely to be coming into the office as plant floor workers, operators, engineers, etc.

Food is essential, others refit for aid production
An impressive 19% of respondents are either in the process of refitting or retooling their manufacturing, or considering doing so, in support of production to help governmental and health organizations with respirators, masks, or other critical healthcare materials relevant to suppressing the spread of COVID-19.

On Friday, March 27, while survey data was being collected from the Packaging World audience, the White House indicated it would fully invoke the Defense Production Act, potentially compelling private sector manufacturers to produce essential healthcare materials, both PPE (personal protection equipment) and ventilators.

But at the time of this analysis, only General Motors has been asked, and not yet compelled, to comply. Still, 12% of Packaging World survey respondents already are doing so, and another 7% are discussing ways to do so. Again, 81% of respondents are in the food and beverage industry, so they are likely ill-equipped to switch production to safety masks, gloves, or ventilators, plus most are already producing an essential product. For most, both of those are true.

Chart 2—Are you working from home or coming into the plant/office?Chart 2—Are you working from home or coming into the plant/office?Where food manufacturers might be making some changes in the coming months is in SKU reduction or product mix adjustment. We asked them how their companies would cope if government shutdowns continue for months into the future. Many said they will be attempting to maximize production by streamlining their product range and allowing themselves longer runs of single products deemed essential or especially fitting for the current landscape (for instance, nutritious but non-luxury SKUs). Illustrating this, respondents said they would cope by:

“Adjusting product mix for maximum efficiency.” Or “Managing min/max inventory levels and constantly communicating with vendors.”

One exception worth noting is that both cosmetics manufacturers and distilleries (see sidebar above) have been leaders in switching production from high-end spirits and perfumes to hand sanitizer, since they are so well-equipped and motivated to do so. Meanwhile, many OEMs—thermoforming machine builders, for instance, who can make dies and thermoform shapes like masks—have similarly switched some production to the COVID-19 medical relief effort. Also upstream, there have been many notable cases of packaging materials providers or converters rerouting polymers for protective masks. In fact, this has caused some worry among brands who fear packaging material supply disruption. More on that a little further below.

Supply chain disruption?
Speaking of supply chains, a remarkable 53% of respondents say that supply chains have not been disrupted, at least not in the short term. One respondent added:

“Only a small portion of our supply chain is affected; some ingredient delays and sanitizer shortages,” and another said “Ingredients were initially the issue, but our carriers have since bounced back. Otherwise, it has been surprisingly good for us.”

But on the other side of that coin, of the remaining 46 respondents (47% of all survey-takers) who had experienced supply chain disruption, 24 (23% of all survey-takers) identified raw materials and ingredients sourcing as a problem, and 12 (11% of all survey-takers) identified packaging materials sourcing as a problem. In their words:

“Ingredients and packaging material lead times have been increased exponentially,” and “ingredients and packaging material [are hard to source because] vendors are running limited production and because of other ingredients to make semi-finished goods.”

On the positive side, machinery seems to be a bright spot, with only 2 respondents in 111 saying that spare parts have been a problem, along with a few mentions of OEM shipments being late due to logistics and trucking disruptions, mostly from offshore sources.

Looking forward
Despite the positive tone about how well the supply chain has held up so far, the future is less certain to respondents. When asked how they will keep up with business in the future if restrictions remain in place for more than 2-3 months, such stark responses as:

“May not survive,”

were entered on the survey. Those, though, are balanced by more optimistic, though pragmatic, answers. For instance, one respondent said:

“As long as ingredients/materials continue to come in and our clients are still taking product away, we don’t really see any issues with a longer restriction. The core issue would be the morale of our employees. 2-3 months is a long time to be under a shelter in place situation.”

The most representative and repeated (in spirit, at least) answer to the question about what the future holds was:

“Do not know yet. Everything is very fluid!”

Uncertainty around human and capital assets
That sort of uncertainty was prevalent when respondents were asked about anything forward-looking. When asked if hiring and interviewing are frozen, respondents were split down the middle, with 49% of responding companies having such practices on hold, and the other 51% continuing on with personnel acquisition.

Nearly the same story can be told about capital expenditures—55% of respondents report that capital expenditures are on temporary hold, with the remaining 45% saying they aren’t on hold. The division of answers in these two categories illustrates the lack of certainty or industry-wide agreement on what the future holds.

Perhaps the clearest evidence of this is crystalized in how respondents reacted when they were asked—this time in a multiple choice format—how they foresee future capital equipment buying habits. The majority of respondents, 57%, say that it’s too early to tell whether or not there will be any changes in capital equipment buying. Of the outliers to this opinion, 21% foresee limiting their capital expenditures, and 5% expect to expand them. And the remaining 17% foresee business-as-usual with regards to procuring equipment.

Of respondents saying they would be procuring more equipment, the following responses represented the reasons why:

“More automation [is] needed with less labor,” or “Product mix changes.”

that will precipitate new equipment.

Chart 3—Have your supply chains been disrupted?Chart 3—Have your supply chains been disrupted?Of respondents saying they will be doing less CAPEX, most cited an expectation for reduced production as the reason. Some interesting commentary could be found in the responses, though. Non-U.S. manufacturers drew the ire of one, saying:

“Currently some contractors, especially those overseas, cannot provide on-site support so capital projects are on hold,” or “Lack of capital means we’ll move to leasing.”

But once again, the most common answer was one of uncertainty. Summed up one respondent:

“Likely will wait to better understand long term effect of downturn on buying habits.”

Workforce under COVID-19: Safety & attendance concerns
We asked our audience directly, “What is your company’s biggest challenge related to COVID-19?” This was left as a write-in answer with no multiple choice or other prompting. Sifting through the varied results revealed two major categories of challenges into which just about every answer fit. Companies are having difficulty handling their workforce, and they are having difficulty navigating the demand shift from Foodservice to Retail sectors. First, we’ll look at the people-problem.

For those answers falling into the ‘people/workforce’ bucket, a few themes emerged. There were those worried about safety above all else. And there were more nuanced answers that showed concern about attendance, where to find labor in the case of poor attendance, or worse—COVID-positive employees. Some respondents identified both of these problems, so these answers aren’t mutually exclusive, but the numbers illustrate that both are top-of-mind. 

The number-one most referenced worry or challenge around this pandemic is keeping people safe. Of the 111 respondents, 25% (26 people) directly reference worker safety and keeping workers safe. Of course, some of this is just basic altruism and care for your fellow person. On another level, this stands to reason in an era where qualified labor was hard enough to find before the pandemic hit.

The number one verbatim answer, and there were two dozen versions or permutations of it:

“Keeping people/workers safe.”

A more detailed response said:

“Making sure all employees stay healthy and continue to practice safe hygiene at home the same as done in factory. Also, worry if their families are doing correct sanitation hygiene and their surrounding environment.”

But answers that expanded beyond the basic safety element worried about some human capital specifics. Communications was a common theme, with CPGs apparently challenged to effectively communicate to employees facts about the pandemic, like when to come to work and when to stay home. In fact, 13% of our respondents were specific about communication and education when it comes to worker safety. Said a few of their biggest COVID-19 challenge:

“Communicating company updates regarding COVID-19 to associates and reacting to changes.”

“Keeping employees informed and educated so they will each make the right decisions.”

“…ensuring anyone with symptoms does not come into work until cleared.”

And quite a few answers were quite specific about how social distancing would work on a factory floor. For instance:

“Social distancing of 6’ on the production floor,”

said one, and refrained two others:

“social distancing employees.”

“Keeping our employees separated, keeping the PPE they need and keeping them and their coworkers safe.”

One notable response indicated some worry about how stress and strain might lead to mistakes. Said the respondent:

“Ensuring the work force is healthy and not making mistakes due to crisis happening in the world.”

Of the 111 respondents, 23 said attendance and finding labor has been their biggest problem when it comes to COVID-19. This is the other side of the coin when it comes to CPGs’ workforce worries, not just keeping them safe, but keeping them there—especially during a hiring freeze (remember, 45% of respondents indicated a hiring freeze at their company is now in effect.)

Most of these were simple answers, as evidenced by responses citing:

“Employee attendance.”

“Keeping our employees working and paying bills.”

“Staffing issues,” or “Staffing.”

And, provocatively said one respondent:

“Today it’s labor. When we open back up it’s going to be credit.”

Shifting landscape for retail and foodservice
Among about 40% of the 111 respondents writing in, there was a tale of two problems. For about 21%, it was the problem of keeping up with increased demand. This fell mostly on the supermarket retail side. For the other 19% of respondents, the problem was the opposite. The closure of foodservice and non-grocery or non-essential retail locations meant that demand had plummeted. At least temporarily, the balance between supermarket retail and foodservice and other retail has been severely upset. This is felt most specifically for food and beverage, but also in other sectors.

Getty ImagesWhile those with declining or held-up orders have it bad, those who are struggling to keep up have another problem to consider: supply chain disruptions that could shut them down when they are needed to be cranking the most.

Consider these two thoughtful responses describing their biggest COVID hurdles:

“Since retail demand is so high and foodservice has declined, our biggest challenge is getting enough packaging film to repackage product for our retail customers that was supposed to go to our foodservice customers. Printers are so overloaded they can’t deliver enough packaging for our production plants.”

“Dropping/sporadic foodservice and industrial business demands, meanwhile skyrocketing retail food product demand; and still there is no way to predict what customer and consumers will do next. Glad people are still shopping for and apparently consuming food.”

Those CPGs and food and beverage manufacturers who saw sales plummet are rightfully worried. Here’s what they had to say:

“Downturn in overall product sales due to retail establishments being closed.”

“Cancellation of bulk (foodservice) orders.”

“The impact that it has had on some of our largest customers in NYC has significantly reduced our revenues during this early stage.”

“The closing of all bars and restaurants changing the focus on which packages take priority.”

One specialty bakery referenced food distribution holding up payment:

“We are a wholesale specialty bakery. Our normal business mix is 90% foodservice and 10% retail. Our foodservice orders have all basically been cancelled in the last week (some hours before pick-up) and our retail has increased but not to the point that it can cover the lost sales. I have to lay some people off. Also, now my customers (large distributors) are holding up payments. Very frustrating.”

Chart 4—Are any new capital expenditures on temporary hold?Chart 4—Are any new capital expenditures on temporary hold?On the other side of the coin, 21% are going like gangbusters, and just trying to keep up with demand. Here’s what they had to say about their biggest challenges with COVID-19:

“Meeting the demand for our products, we have experienced a 274% increase over the past two weeks.”

“Since we supply products to supermarkets, we are running 7 days a week.”

“Producing enough food to meet customer demands.”

“Keeping up with the increased demand from our retail customers.”

“… we produce snack foods and volume has increased over the last few weeks to astonishing levels never seen before.”

Seems like a good problem to have, right? But for those struggling just to keep up, there’s a worry about supply chain disruptions and problems with logistics to keep them on track. Here’s what they had to say:

“As a food manufacturer, our finished goods inventories are being depleted.”

“Worrying about ports and transportation of our product and whether we will have to shut down in the near future.”

“Supply chain risks and meeting unexpected increases in demand.”

“Packaging supply.”

"Bottle and label supply.”

Also important to note, those who are just trying to keep up with soaring demand may in fact be less likely to innovate; they don’t have the time to decommission a packaging line for a week to add new or better equipment. Consider these two prophetic responses:

“If we are going to add automated or update equipment on a production line, the production line will have to be shut down while the new equipment is installed and validated. To allow for that down time required to install new equipment, we would run additional line time to build inventories. Right now, we are getting a strong demand for our products so our inventories are being depleted and we cannot build up inventories. We are just concentrating on keeping our DC’s supplied and our supply chain stocked.”

Or more succinctly put:

“We have stopped allowing vendors in our plants—this significantly impacts bringing on new production lines & new capacity. We have stopped most trial work—this significantly impacts progress for new product/package innovations.”

Chart 5—Do you foresee ongoing changes to your capital equipment buying?Chart 5—Do you foresee ongoing changes to your capital equipment buying?Of course, the reverse should also hold to be true of those who are seeing reduction of demand for their consumer packaged goods. After all, what do toy manufacturers do after Christmas, and candy manufacturers do after Halloween?

Forward-thinking CPGs spell downturns and slow times with equipment upgrades, new lines, plant improvements, and other innovations that will make them that much more efficient when the better days inevitably return. But in the results of this survey, still very early in the crisis in a time of uncertainty, we have yet to see this dynamic play out.

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