After a short pause due to the pandemic, the contract packaging industry is massively booming, with changing supply chains and innovation paradigms reshaping the industry.
FREMONT, CA: Despite the pandemic severely affecting businesses, the contract packaging or contract manufacturing (CP/CM) industry is a market meeting challenges, combating them, and moving forward at a rapid growth rate.
Reports reveal that the CP industry is forecast to grow to reach 121 billion USD in revenue in the near future. However, while celebrating this growth, CPs also need to be aware of several industry headwinds, where some were caused and exacerbated by the pandemic, and a few had already begun pre-Covid 19, like expanding value chains, SKU rationalisation, repatriation rates, upstream sustainability, and labour shortages. Along with these issues, the short and long-term effects of the pandemic, merger and acquisition (M&A) activity, and packaging equipment statistics are also crucial to ponder.
CP/CPs provide contract packaging, manufacturing, and secondary packaging services for food and consumer packaged goods companies. The industry exhibits significant growth despite the turbulence caused by the pandemic. This was an essential business last year, and CP/CMs, for the most part, have done incredibly well, adding significant value to the economy.
M&A activity set new records yearly for a decade before coming to a halt in early 2020. The bond market froze up during the early days of the crisis but actively picked up efficiently as the year progressed. New co-creation happens for every big merger, and more people are still entering the space.
This huge influx is not just meant for the CP/CM industry but includes several sectors. Constant industry consolidation through M&A will transform the industry by significantly impacting the supply chain, investments, and the way customers interact with suppliers.
As such, larger and larger platforms form and take companies to different levels, and when they combine that with different organisations, the result is an even larger business where value propositions for customers change. The extensive services a customer receives from a provider change, and the supply chain scope continues to enhance the value chain. Providing customers with more services along the full supply chain will be a significant differentiator as one of the challenges is growing customer expectations. This is caused by budget cuts, changes within legacy food companies, and small, upstart firms seeking a more expansive services suite.
These increasing expectations present both challenges and opportunities.
The biggest barrier for CP/CM is not just how to serve these needs, but also how to serve them without adding to their cost structure. Customers increasingly search for innovation from their CP/CMs in almost every area. Simultaneously, brands continue to imbibe innovation from anywhere they find it. These include product innovations, packaging, materials, processes, equipment, formulation, and business and financial areas. Thus, brands demand change from their suppliers.
Customers value process innovation above everything else and look to CP/CMs to provide them with ways to make things better than they can themselves on a cost, quality, volume, or speed-to-market basis. Today, the brand relationship with the largest food companies has become much more strategic, sophisticated, and strongly bound.
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