Trends Shaping Today’s Packaging Industry

Recently, the JM Search Paper and Packaging Practice spent several days interfacing with numerous executives, investors, and advisors from the packaging ecosystem at the 2023 Pack Expo event held in Las Vegas. With over 32,000 industry experts in attendance, this annual event presents an opportunity to speak to C-Suite leaders and private equity investors about how they are navigating the current market climate, as well as trends they are seeing and solutions they are deploying to address today’s greatest challenges.

Many of the executives that we met with shared that they are still weathering a very challenging year, yet there was significant optimism regarding demand improvement over the next several quarters. In our conversations with over 100 executives during the three-day conference, several tangible themes surfaced, including: sustainability, operational efficiency and automation, deal flow, and improvement of packaging volumes.

Sustainability – Persistent inflation has diminished the drumbeat of ESG to some degree in 2023 as cost considerations have taken the spotlight. However, we believe this will be a short-term trend as customer demand for renewable and recyclable materials, lower waste, and lower carbon footprint materials are continuing to drive investment. The increased demand for fiber-based materials, reusable containers, technologies to improve product shelf-life, lightweighting, and alternative raw materials are all part of the sustainability consideration. Fiber-based materials that can mimic resin-based material performance will be resilient and in peak demand for the foreseeable future.

Cost-Out, Operational Efficiency & Automation – While top line revenue has been significantly impacted by weakened consumer demand, persistent inflation, and “destocking” of packaging inventories, many executives have used 2023 to focus on deeper integration of assets, network optimization, footprint rationalization, increased investment in automation and upgrading to more efficient capital assets. From a talent standpoint, many of our clients have experienced significant growth in the last couple of years and are using this “plateau” to catch up in their infrastructure resources, including creation of additional specific roles to drive focus in Continuous Improvement, Supply Chain Effectiveness, and Automation/Engineering to drive cost-out opportunities.

Deal Flow – Relative to the second half of 2022, M&A activity has increased in the packaging sector, particularly in add-on transactions. However, PE deal exit and corporate carve-out transaction volumes remain at a historically depressed level due to interest rate hikes and negative top-line performance. There is mixed sentiment as to the return to higher exit volumes as a factor of higher interest rates and the looming election year in the United States. Most believe that the second half of 2024 is more likely to show return to elevated transaction levels. With the still-present potential of a mild recession, the packaging markets remain one of the most sought-after segments for strategic and financial investors due to the recession-resistant nature of underlying demand.

Packaging Volumes – Interviews with dozens of investors, board advisors, and executives indicate that the “trough” of weakened customer demand for packaging materials and containers has been more persistent than initially forecast. However, we are seeing near-term improvement in packaging volumes as lead times for delivery of product is beginning to trend upwards again, indicating that order volumes are beginning to improve as customers work through their “over-stock” of packaging inventory.

With this year’s expo boasting record-breaking attendance levels, it’s clear that this industry continues to thrive and is striving to be at the forefront of the most innovative, sustainable, and effective solutions the world has to offer.