Last chance to save $100! Cutting-edge Trends for Every Industry at PACK EXPO Southeast
Discover packaging & processing solutions for all industries at the all-new PACK EXPO Southeast in Atlanta, GA, March 10-12, 2025
LAST CHANCE! Register ASAP for $30

Co-Pack/Co-Man Industry is ‘Vibrant, Strong, and Growing’

The Contract Packaging Association’s fourth State of the Industry Report depicts a contract packaging/contract manufacturing industry growing at double-digit numbers, despite massive market changes.

According to the report, the market has been growing at an 11.9% CAGR for the past five years.
According to the report, the market has been growing at an 11.9% CAGR for the past five years.

For those in the contract packaging/contract manufacturing industry, the Contract Packaging Association’s recently released 2018 State of the Industry Report is something to celebrate. According to the report, the market has been growing at an 11.9% CAGR for the past five years, an astonishing two- to four-times faster than the industries it supports. By 2020, the CPCM market is forecast to break the $75 billion mark—a conservative number, notes the report—rising from $53.6 billion at year-end 2017.

“The 11.9-percent growth is on top of two decades of slightly in excess of double-digit growth,” says Carl Melville, COO of The Melville Group, whose firm conducted the study. “We [CPCMs] are no longer an upstart industry. We’ve been growing at an incredibly fast rate for quite some time.”

The report is based on 100-question interviews with more than 120 CEOs and senior industry executives, with qualitative and quantitative primary and secondary research. Among the areas explored in its 140 pages are industry demographics, the rise of private equity, industry consolidation trends, the labor market, and other topics—all of which present CPCMs with both challenges and opportunities. Note, the report does not include private-label companies, except for those providing specific contract packaging services. The reason, notes Melville, is that the private-label market is so much larger, “it would swamp the boat.”

Melville, it seems, is fond of nautical analogies. His most oft-used expression in discussing the report is “the perfect storm” it depicts. “Something is happening in our industry that has been happening for a while, but it is really, literally coming to a perfect storm this year,” he says. What follows is just some of the data contained within the report that highlights the confluence of trends reshaping the CPCM industry.

Growth opportunities are extensive

In looking at revenue growth for CPCMs, the report breaks the industry down into five categories that include Contract Manufacturing, Food; Contract Manufacturing, CPG; Secondary Packaging; Contract Packaging, Food; and Contract Packaging, CPG (see Figure 1). The largest category is Contract Manufacturing, Food, while the smallest is Contract Packaging, CPG. Based on historic trends, the report predicts these combined core sectors will reach $75 billion in North American revenues by 2020.

Growing at up to four times the rate of the industries they serve, it would seem CPCMs could eventually run into some headspace problems, with no room left to grow. Not so, says the report. In fact, the CPCM industry makes up just 5.8% of the overall food and CPG market (see Figure 2). “So we’re still massively smaller than the industries we serve,” Melville says. “The growth opportunities are extensive.”

One interesting side note Melville shares about the 11.9% growth rate is that “while it sounds like a nice, smooth number, it hides a lot of turbulence under the waves.” Eighteen percent, or one in five CPCMs interviewed, report flat to negative growth. “It doesn’t mean these folks aren’t profitable,” he says. “But they are not growing at the tempo of the times.” Meanwhile, 62% of those interviewed predict continued strong gross margins.

Related to capital expenditures, 90% of those interviewed are increasing CAPEX in 2018, and 38% are committed to increases in 2019 and beyond (see Figure 3). Eighty-one percent report having sufficient or greater access to capital for current organic growth plans.

Looking at regions by volume, the numbers have been steady for years, with the largest U.S. market being the Midwest, followed by the Northeast, the South, and the West, after which are Canada, Mexico, Asia Pacific, and Europe. “The one growth component that has moved quite a bit is Mexico,” says Melville. And, growth in offshore markets is a concern for CPCMs, the study shows, with 22% saying they believe it will be a factor in the next three years. When Mexico is included, that number rises to 46%.

When it comes to company size and scale, there is a large spread. Nearly 20% of respondents are under $5 million in revenue. Many of these are start-ups, while some are small, family-owned concerns. At the other end of the spectrum, 6% of CPCMs are now in excess of $1 billion.

Most interesting, in terms of the perfect storm scenario, is the average age of CPCM owners (with “owners” being the correct terminology, as 94% of businesses in the industry are privately held). Thirty-six percent are aged 56 to 65, typically called “the legacy years.” Sixteen percent are over the age of 66. “So 52 percent of the respondents are at legacy or greater at a time when their business is worth more than it’s ever been worth before,” says Melville. “A lot of these folks have legacy in place. They are family businesses that will pass generationally. But a fair number are going to move into a merger and acquisition mode.”

As growth continues in the CPCM industry, so too does interest by private equity firms in acquiring CPCM businesses—among them those run by owners in their legacy years—and then forming platforms. “They are buying Company A and stacking B, C, and D on top of that to form Company Z, and they are bringing new value to the market,” explains Melville. “When they do, it doesn’t just affect them, it affects everyone in the CPCM industry. I’ve been with private equity folks, and I’ve also run companies that are not, and they are materially different. Platforms are a concern.”

Business development becomes more sophisticated

Business development within CPCM concerns is evolving rapidly and radically due to new market pressures. According to the report, in the past, the owner of the company—in this business and in this category nearly always male—used to be the principle sales agent. Today, the report shows, just 24% of owners/CEOs are the ones primarily responsible for revenue, while 33% of businesses have a small group of key executives who handle sales as well as other activities, and 39% have professional salespeople. (Four percent responded “other.”) As the data shows, the larger a company gets, the more they use professional salespeople.

Why this shift from owner to executive group or dedicated salespeople? Melville says data shows it’s due to the complexity of the sales process, the duration of the process, and the number of people involved on the customer side. He adds that while the quantity of opportunities has grown, leads have not. “People believe they’re being awarded more projects, but they are harder to get,” he adds.

A majority of CPCMs also reported that they will be hiring more salespeople: 59% said they would be increasing their sales force over the next 24 months, 40% said they would stay the same, and just 1% said they would decrease.

The complexity of the sales process has had another impact as well. In the last five years, the number of CPCMs that have adopted CRM (customer relationship management) applications has doubled.

To market their businesses, 52% of respondents said they have implemented e-mail marketing campaigns, although they have not been entirely pleased with the results. Only 12% still purchase leads. “Purchasing leads is usually a sucker’s bet,” says Melville. “It’s very hard to find good ones unless you have the right criteria and know what you’re buying. They tend to be a dead end.”

As for social media, only 15% of respondents have found it to be valuable or effective. “This is a common complaint in and out of the industry,” says Melville. “It’s basically an amplifier. So if you don’t have a sound strategy that suits amplification, you probably shouldn’t be doing it because it can get very expensive and time consuming. And because of that, a lot of members have soured on it.”

Hands down, respondents replied that the most effective strategy to grow their businesses, at 85%, is through networking and personal referrals—a strategy Melville says in this B2B, or “belly-to-belly” business, as he calls it, may never change. “Although some of the other tools and processes and best practices may make that more efficient,” he adds.

New e-book on Flexible Packaging
In this e-book, you’ll learn key considerations for vertical and horizontal f/f/s and how to choose between premade bags and an f/f/s system. Plus, discover the pitfalls to avoid on bagging machinery projects.
download
New e-book on Flexible Packaging
LAST CHANCE TO SAVE $100! New Trends for All Industries at PACK EXPO Southeast
The exciting new PACK EXPO Southeast 2025 unites all vertical markets in one dynamic hub, generating more innovative answers to your production challenges. Don’t miss this extraordinary opportunity for your business!
REGISTER ASAP FOR $30!
LAST CHANCE TO SAVE $100! New Trends for All Industries at PACK EXPO Southeast