Flexible packaging will grow into a US$25 billion business in North America during the next five years, according to a new forecast by UK-based market research firm PCI Films Consulting Ltd.
The market totaled US$20.7 billion in 2013, with 88 per cent of those sales coming in the United States, seven per cent in Canada and five per cent in Mexico, the report said.
North America represents about 30 per cent of the global consumption of flexible packaging, the report said. “After slowing in 2012 due to the economic downturn, demand for converted flexible packaging recovered to grow by around four per cent by value in the U.S. and Canada in 2013,” the report said. “However, the Mexican flexible packaging market slowed markedly during the year to around 1.5 per cent due to uncertainties following the change of government and slowing GDP growth. Weakening margins and other competitive pressures caused significant rationalization and restructuring in the region with many plant closures and divestments, especially amongst the leading players.”
The report notes that industry consolidation continues to be an important factor in driving change in this very fragmented industry with private equity firms continuing to play a key role. Important private equity deals in 2013 have included Constantia Flexibles’ acquisition of Globalpack, both portfolio investments of One Equity Partners, and Constantia’s subsequent purchase of the US-based Spear labelling group. Also, private equity firm Sun Capital brought together its Exopack Holdings business in North America and four of its packaging portfolio businesses in Europe to form Coveris Exopack Holdings.
“For the future, converted flexible packaging growth in North America is forecast to average around four per cent per annum to reach over US$25 billion by 2018 with growth in Mexico expected to bounce back to grow at U.S. and Canadian levels over the period,” the report said.
Per capita consumption of flexible packaging in Mexico is less than one-fifth of the U.S. figure, the report continued, illustrating its potential for future growth. The North American Free Trade Agreement also continues help drive demand in Mexico, with many U.S. packaged food companies manufacturing in Mexico for the U.S. market to take advantage of lower labor rates.
“While the economic slowdown adversely impacted the flexible packaging industry’s profitability, volume growth has continued to be sustained by servicing primarily defensive markets such as food, pharmaceuticals and pet food,” said PCI consultant Paul Gaster. “Also, as packaging technologies have evolved, flexible packaging is becoming a viable alternative to rigid formats in a growing number of applications, with the stand-up pouch enjoying strong volume growth.”