The consumer packaged goods (CPG) industry faced several major challenges in 2021. The industry seems to be weathering the COVID-19 pandemic, and CPG companies’ spend on packaging is no exception — with spending on packaging continuing to increase in line with long-term trends across a range of brand product categories. And expectations are that the trend will be sustained. Sixty-five percent of brand owners expect to increase their packaging spend over the next two years. And for Tier 1 brands, the number is even higher — 78% of Tier 1 brand owners plan to increase their packaging spending.

But as in other sectors, the pandemic has served to accelerate and intensify changes impacting packaging demand that were already underway, such as the resumption of stock keeping unit (SKU) proliferation after a temporary reversal in some segments and the accelerating penetration of ecommerce. In parallel, there is rapidly growing pressure for sustainable packaging solutions from consumers and regulators — pressure that brand owners are hard-pressed to meet.

The result is a set of significant and growing challenges for brand owners with packaging decision-maker power. Meeting those challenges represents opportunity for packaging manufacturers and suppliers as well as investors in the packaging space.

To better understand how brand owner packaging needs are evolving — and the implications for the industry and investors — L.E.K. Consulting conducted its fourth annual brand owner packaging study in summer 2021.

We asked about brand trends and their impact on packaging, as well as changes to packaging itself. Specifically, we wanted to know:

• What do brand trends mean for demand and what are the implications for packaging? How has the total number of sub-brands and SKUs evolved, and how did SKU count evolve during the pandemic? What impacts are these trends having on packaging run lengths? How has packaging changed over the past several years, and how will it continue to change?
• What is the impact of sustainability trends on packaging? How do brand owners define sustainable packaging? What percentage of brand owners have a medium-term (i.e., 2025) sustainability goal, and what progress are they making toward it? How do brand owners expect their use of sustainable materials in packaging to develop over the next several years, and what do they expect will be their primary actions moving forward?
• How is ecommerce evolving, and what does that mean for packaging? How does ecommerce use vary by end market, and how is it expected to trend? What percentage of brand owners use ecommerce-specific packaging formats, and how does that spending compare to packaging designed for brick-and-mortar use? What new ecommerce-specific packaging features are brand owners introducing?

Here’s what we learned.

Packaging spend on CPG brands has grown over the past two years. According to the self-reported numbers provided in the survey, overall growth over that period was 3.7% in 2019-20, approximately 200 basis points above the 1.6% rate of inflation as measured by the U.S. Consumer Price Index. Fifty-six percent of brand-owner respondents increased their spend on packaging during that period.

The biggest spending increases involved Tier 1 brands, where overall, 78% of those surveyed reported increased spending (and 36% increased it by 6%-10%). But private-label brands registered the most variability — 24% of those surveyed reported a spending increase of more than 10%, and 12% decreased it by more than 10%.

Going forward, respondents expect spend on packaging to increase further. Sixty-five percent of those surveyed said they anticipate growing their spending in 2022 and 2023, and nearly a third (31%) plan a 6%-10% increase. But most of the expected increase appears to be in Tier 1 brands — fully 78% of Tier 1 brand owners and decision-makers anticipate increasing their spend on packaging, with 18% forecasting a more-than-10% increase and another 18% looking at a 6%-10% increase. Only 4% of Tier 1 brand owners report they expect to spend less on packaging in the next two years.

Tier 2 and micro brand owners’ packaging spend forecasts are roughly in line with the overall forecast, and a degree of variability is expected to continue in private label, with 11% planning an increase of 10% or more, and another 11% expecting a decrease of 10% or more.

What are brand owners spending on? In a nutshell: brand promotion and sustainable and ecommerce-friendly packaging. Changes in graphics and printing lead the pack, especially in household and pet products. Spending to reduce the size of packaging (for example, by downgauging) is almost equally high. Changes in primary packaging materials, changes in packaging shape and format, and increasing use of sustainable materials are all the focus of spending increases. Change is in the air — only 3% of those surveyed report they expect to make no changes to their packaging in the next two years (see Figure 1).