Packaging and Labeling Services

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 1,600 contract packaging establishments in the US generate revenue by charging fees (or a “toll”) for packaging customer products in finished form. Turnkey packaging refers to projects in which the contract packager purchases inventory for the customer and takes responsibility for final packaging services. Firms may also generate revenue through telemarketing services or the resale of merchandise.

Unpredictable Work Flow From Customers

Demand for contract packaging firms can be extremely unpredictable.

Capital-Intensive Operations

Packaging operations require significant investments in plants, equipment, and machinery.

Industry size & Structure

The average packaging contractor operates out of a single location, employs about 42-43 workers, and generates $5-6 million annually.

    • The packaging and labeling services industry consists of about 1,600 establishments that employ 61,900 workers and generate $8 billion annually.
    • Firms that generate less than $10 million annually account for 88% of industry participants but only 25% of revenue.
    • Firms that generate between $10 million and $25 million annually account for 7% of participants and about 19% of revenue.
    • Firms that generate more than $25 million annually account for 5% of participants and about 56% of revenue.
    • Some large contract manufacturers, such as Aphena Pharma Solutions and Hearthside Food Solutions, have integrated contract packaging operations. Packaging materials manufacturer Sonoco offers contract packaging services.
                                      Industry Forecast
                                      Packaging and Labeling Services Industry Growth
                                      Source: Vertical IQ and Inforum

                                      Coronavirus Update

                                      May 5, 2022 - Packaging Costs Rising
                                      • The Russia-Ukraine war is expected to worsen inflation and push prices for some packaging materials higher, according to a recent outlook by Rabobank. Due to their being energy-intensive to produce and the war’s pushing oil and gas prices higher, aluminum and glass packaging are likely to get more expensive. Higher oil prices are also expected to drive resin costs upward, affecting prices for polyethylene terephthalate (PET) used in packaging. However, the North American resin market may see some relief later in 2022 as several new polyethylene chemical plants come online. Higher energy prices are forecast to increase paper packaging costs by more than 3%.
                                      • US manufacturing activity grew in April 2022, according to the Institute for Supply Management (ISM). However, the ISM’s monthly Purchasing Managers’ Index (PMI) fell 1.7 percentage points to 55.4% in April from the March reading of 57.1%, and the April reading was the lowest the PMI has been since July 2020. Any reading above 50% indicates expansion, while anything under 50% indicates contraction. The new orders index decreased 0.3 percentage points to 53.5%. The production index fell 0.9 percentage points to 53.6%. The backlog of orders dropped to 56% from 60%. The employment index fell to 50.9 in April from the March reading of 56.3%. Of the 18 manufacturing industries tracked by the ISM, 17 reported growth in April.
                                      • When the coronavirus pandemic created sudden spikes in demand for food and cleaning-related products, many brands and manufacturers turned to contract packagers to ramp up quickly, according to the Association for Packaging and Processing Technology (PMMI). Contract packaging companies were able to rapidly retool to help customers meet the demand for personal hygiene and cleaning products, hand sanitizer, and food. Industry insiders note that contract packagers and co-manufacturers are agile by nature and specialize in meeting capacity expansion with quick turnarounds, making them well-suited to respond to the crisis.
                                      • Although the outlook for the contract packaging/contract manufacturing (CP/CM) is strong, the industry is facing some pandemic-related headwinds, according to the most recent State of the Industry Report by the Contract Packaging Association (CPA). The CP/CM industry in the US and Canada is expected to experience average annual growth of more than 10% through 2025, rising to $121 billion in annual revenue compared to $67 billion in 2019. However, industry insiders warn firms still face a few challenges. One issue stemming from the pandemic is SKU (stock keeping unit) rationalization by CP/CM customer brands. As demand for consumer packaged goods (CPG) rose during the pandemic, many food and beverage brands focused on key products, reducing their overall number of SKUs. Industry insiders expect many SKU rationalizations to be permanent, affecting CP/CM firms’ volumes.
                                      • The coronavirus pandemic has increased online grocery ordering. Some industry watchers suggest the trend could become a more ingrained consumer habit, creating opportunities for contract packagers. However, consumer packaged goods manufacturers and their contract packaging partners are learning that increased online grocery ordering brought with it changes in preferred packaging sizes, according to Packaging World. Demand has shifted to larger and single-serve packages for beverages, especially multipacks. Mid-size package sizes, such as 20-ounce bottles, have fallen out of favor. Some beverage makers have also noted an uptick in direct-to-consumer (D2C) sales amid the pandemic. Industry watchers note that packaging machinery lines need to be fast and flexible to quickly adapt to the logistical challenges of multipacks, D2C, and other evolving consumer preferences related to grocery e-commerce.
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