Packaging Companies pack a punch on the back of FMCG players

Even as fast moving consumer good (FMCG) companies are grappling with single digit (9 per cent) growth due to lack of consumer demand, FMCG packaging companies are witnessing galloping growth rates at 15 per cent.

The need for greater volumes through new product launches, attractive freebies and competitive intensity is rising among FMCG players, untowardly ensuring that packaging companies get robust business.

Since most of the packaging contracts are for a fixed tenure and a rate that is non-negotiable, it makes for a stable yet growth oriented business for packaging majors like Essel Propack and Manjushree Technopack, who have been riding their strong growth rates mostly on the back of FMCG companies.

The largest oral care packaging company, Essel Propack, has not witnessed any lack of demand from its clients Colgate and Dabur. ``There is no slowdown in categories like oral care. While consumer demand may have shifted in some of the other FMCG categories, packaging companies have not been impacted. Oral care players give us fixed returns and the contracts are between 5-7 years. There was no shrinkage in demand even during the peak of the last financial crisis in 2008,’’ said Ashok Goel, Vice Chairman and Managing Director, Essel Propack, the makers of plastic laminated tubes.

With FMCG companies fighting competition with new product launches, there is a greater proportion of spends assigned to raw and packaging materials. Recently, the market leader in oral care Colgate added a new variant, Colgate Maximum Cavity Protection, to fortify its position as the market leader.

``Overall, FMCG growth has weakened. With new competitors, we are in an aggressive mode. It is about getting price led volume growth,’’ said Prabha Parameswaran, Managing Director, Colgate Palmolive, during the recent launch of the new toothpaste variant.

Typically, nearly 7-10 per cent of a FMCG company’s turnover is spent on packaging, but it tends to vary across categories. Beverage companies that make carbonated drinks and water may tend to spend more on packaging with pet bottles, unlike personal care categories like creams and shampoos.

In the non oral care FMCG segments too, demand for mass consumption products have remained unaffected by the slowdown, insist packaging majors.

``It is costly, discretionary FMCG products where demand is slowing, unlike mass consumption daily use products. We add 3 lakh middle class Indians every day who have the purchasing power for FMCG products, and this makes packaging companies stay in business,’’ said Vimal Kedia, Managing Director, Majushree Technopack. The latter has clients like HUL, Pepsico, Bisleri and Coca Cola.

Creating freebies for promotions is also an added revenue generator. As Kedia said, `` We also have the job of making gift items like mouthed jars and sippers, as consumers get attracted to such promotional freebies. During a slowdown, FMCG companies would rather spend on such consumer offers than on advertising.’’

FMCG companies also appear to be graduating from glass to new packaging techniques like pet containers which add visibility and convenience at modern trade outlets. `` Packaging plays a crucial role when FMCG brands are fighting for shelf space. This gets acute during a slowdown,’’ said Kedia. According to the Indian Institute of Packaging, the packaging industry stands at Rs 15 lakh crore ($ 24.6 billion) and is growing at 15 per cent.

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