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Prepare for EPR Regulations and Trends Affecting the Industry

Megatrends, consumer sentiment, and EPR regulations are soon coming into play, driving the industry’s future and impacting manufacturers.

Panel starting from the left: Ron Puvak of CPA, Eric Klingenberg, of Mars, Steve Sena of Truvant, Robert Cotton of PepsiCo, and David Feber of McKinsey & Company.
Panel starting from the left: Ron Puvak of CPA, Eric Klingenberg, of Mars, Steve Sena of Truvant, Robert Cotton of PepsiCo, and David Feber of McKinsey & Company.

Dan Haney, president of Haney's Packaging MicrofactoryDan Haney, president of Haney's Packaging MicrofactoryContract Packaging Association (CPA) held its 2023 regional event in Cincinnati, hosted by CPA member, Haney’s Packaging Microfactory. The company focuses on small batch packaging for experimental trial to market in sustainable materials, contract packaging and fulfilment, and the Via Alliance program. Via Alliance brings together companies dedicated to sustainable packaging materials, both recyclable and compostable, in a consultancy and advisory capacity. Via Alliance is a program founded to help sustainable packaging get tested and out on the shelves.

Via Alliance is a program founded to help sustainable packaging get tested and out on the shelves.Via Alliance is a program founded to help sustainable packaging get tested and out on the shelves.At this regional event, insights into the packaging industry—and by extension the contract packaging industry—showed three key players reshaping its future, which are megatrends, consumer sentiments on sustainable packaging, and Extended Producer Responsibility (EPR) regulations, according to David Feber, global leader of the packaging service line and senior partner at McKinsey & Company.

Mega trends affecting the industry

Feber outlined five key mega trends that promise to significantly impact the packaging industry in the coming years:

  • Sustainability, which has transitioned from buzzword to critical consideration across the value chain, propelled post the COVID-19 pandemic that served as a catalyst.
  • E-commerce, which witnessed a surge during the pandemic and has not slowed down. Rather, it is now being transformed by sustainability and cost-effectiveness into a blending of primary, secondary and tertiary packaging.
  • The looming recession, marked by inflation and labor challenges. It is uncertain how strongly it will hit the economy, the country, and the rest of the world.
  • Rapidly-changing consumer preferences that are trending more towards customization and personalization, leading to massive SKU proliferation, which will continue but to a lesser extent than expected, according to McKinsey & Co. research.
  • Digitization of packaging and IoT packaging to ensure authenticity, tracking, compliance, but also recycling recovery, digital watermarking, and other technologies. “We predict IoT is going to become big in packaging. As the cost rates come down, this will become more ubiquitous,” says Feber.

Consumer sentiment on sustainability

David Feber, global leader of the packaging service line and senior partner at McKinsey & Company.David Feber, global leader of the packaging service line and senior partner at McKinsey & Company.The three main environmental sustainability concerns identified by McKinsey & Co. are circularity, leakage into the environment, and greenhouse gas emissions, though Feber points out that there is no single packaging solution that can apply to them all, but this leaves consumers and regulators very confused.

McKinsey & Co. sends out a global consumer sentiment survey every two or three years, receiving results from 10,000 to 11,000 consumers across 11 countries. It revolves around consumer perceptions of sustainable packaging, providing actionable insights to the industry.

The survey revealed that quality convenience and environmental impact are the most important criteria in purchasing decisions, especially among the younger age groups, though results also showed that willingness to pay for sustainable packaging is very price-sensitive. Compostable packaging also came back as the perceived most sustainable packaging type, though a number of plastic packaging types scored higher depending on the framing of the question.

Feber noted that package appearance dropped down in terms of overall scoring but willingness to pay remained consistent in comparison to the previous consumer sentiment survey. Most answers concerning sustainability responsibility pointed back to the brand owners and manufacturers, which is a high expectation for the industry to live up to. Further research by McKinsey & Co. concluded that packages with ESG claims have experienced higher sales growth than other packages, and the more specific the quantitative attributes, the higher it performed.

Extended producer responsibility regulations

McKinsey & Co. collected nearly 600 proposed and implemented regulations throughout the world, with the United States contributing 90.

“I think the industry is just starting to wake up to the fact that we're in for a bit of a ride. These regulations are coming. This is going to be a big part of all of our lives in the packaging of consumer products and the value chain. And five years from now, I think we're all going to be much deeper experts in these regulations than we are now whether we like it or not,” says Feber.

These regulations are also becoming more stringent and nuanced, which changes and limits the materials manufacturers can use in packaging. Feber suggests the United States look to Europe’s regulations as a guide for what to expect and aim for.

The top five proposed regulations for 2030 are:

  • Plastics must contain 10% to 35% post-consumer recycled content depending on product type
  • Compostable plastics restricted to those with clear benefit
  • Uniform recycling to be introduced across member states, and labeling must reflect changes
  • Between 10% and 20% of sold containers must be reusable for a list of specified end-use applications
  • Mandatory deposit returns systems must be set up in each member state for beverage containers by January 1, 2029

An industry survey by McKinsey & Co. highlighted that 75% of organizations have sustainable packaging commitments, but a capability gap exists between commitment and actual preparedness to meet those goals. Companies are witnessing shifts in substrates, claims, and technologies as they race to align with consumer needs and regulatory demands. Feber says companies will need a portfolio of packaging solutions to satisfy consumer needs.

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Pros and cons for manufacturing

Panel starting from the left: Ron Puvak of CPA, Eric Klingenberg, of Mars, Steve Sena of Truvant, Robert Cotton of PepsiCo, and David Feber of McKinsey & Company.Panel starting from the left: Ron Puvak of CPA, Eric Klingenberg, of Mars, Steve Sena of Truvant, Robert Cotton of PepsiCo, and David Feber of McKinsey & Company.A panel at the event emphasized the struggles companies face with EPR regulations, especially as they vary on a state-by-state basis in North America. However, infrastructure is seriously lacking. Robert Cotton, research & development director of packaging sustainable materials at PepsiCo, emphasized that EPR regulations should be taken to a national level as they cannot easily be adhered to on a state-by-state level.

Cotton also pointed out that a critical challenge lies in ensuring that the funds collected for EPR adherence are genuinely directed towards beneficial infrastructure, particularly in terms of collection and sortation. Eric Klingenberg, materials science lead at Mars, also noted that education across the board is lacking as well, so Mars is pushing to drive “scientifically-based positive fact to reduce the amount of confusion that's out there,” says Klingenberg.

Concerns brought up by the panel include getting the consumer population on board; SKU proliferation increasing supply chain complexity and its impact on forecast accuracy; opportunities for innovation being limited or eliminated by regulations; certifications and legislations being unattainable for small companies and thus keeping them out of the game; and a lack of recycled content and other sustainable materials to allow the industry to meet regulations. However, Feber points out that constant performance checks will not only challenge companies to meet their sustainability goals but will also create momentum for innovation.

Looking ahead to the enforcement of EPR regulations in 2025, Cotton revealed PepsiCo's focus on creating "optionality," developing paper-based packaging, and exploring innovative solutions. Klingenberg emphasized the need for robust systems to track packaging and comprehensive reporting, anticipating the complexity that EPR will introduce.

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