Manufacturing: How much does a typical FMCG company spend on the packaging? How can technology help?

Packaging is an integral part of the production process, especially for the FMCG industry.

As packaging is a crucial strategic factor for brand differentiation and identity, it’s no wonder that the global spending on packaging now exceeds US$500 billion.

To increase efficiency, the logistics and distribution systems usually require secondary and tertiary packaging. The unit pack is also considered the primary package, and it plays an essential role in product protection and shelf life and presents information and sales incentives to consumers.

Stages of Packaging

Compared to the primary functions, which mainly care for the technical requirements of the packaging, secondary functions relate to communications. There are three categories of packaging functions, each divided into specific sub-functions:

Primary functions:

• Protective function — One of the main goals of packaging is to protect the goods from the environment and vice versa.
• Storage function — The packaging containers have to be stored in multiple diverse locations before the goods’ packaging and after the package contents have been used. As a result, packaging must fulfill a storage function.
• Loading and transport function — Handling FMCG goods involves designing transport packaging so the products can be held, lifted, moved, set down, and stowed quickly, efficiently, and safely.

Secondary functions:

• Sales function — This type of packaging enables the sales process and makes it more efficient.
• Marketing/promotional function — Promotional material on packaging plays an important role; its purpose is to attract the potential buyer’s attention and positively impact purchasing decisions.
• Service function — Here, we can find the essential information about the contents and use of the particular product, such as the number of dosage units, list of the active components, and the benefits.
• Guarantee function — An undamaged package is the manufacturer’s guarantee that the details on the packaging correspond to the contents.

Tertiary functions:

Additional function — This function relates to the extent to which the packaging materials may be reused after the contents have been utilized. e.g., the recycling of paper, paperboard, and cardboard packaging as waste paper.

How much does an average FMCG company spend on the packaging?

Manufacturers spend over $150 billion every year on product packaging. We can calculate the cost of the packaging as a percentage of the total selling price. The result will vary greatly. This percentage typically ranges from 1.4 percent to 40 percent, Roughly the average cost of packaging is $1 for every $11 spent. We pay around nine percent of the amount we spend on any product for its packaging.

In 2019, the FMCG Packaging market was estimated at over USD 710 billion, and it is expected to go over USD 935 billion by 2025. The market is estimated to grow at a CAGR of 4.6% over the next five years.

As packaging represents a big part of the overall cost, FMCG companies are always exploring alternative methods to package their product to offer packaging on par with the changing trends.

As a result of the recent changing consumer preferences, FMCG companies are looking to adopt new technologies and measures to put them ahead of the competition and stand out. Packaging vendors embrace modern packaging technology to enhance the quality of packaging to serve a broader range of customers (FMCG companies) and to empower them to differentiate their products.

Smart technologies can decrease the complexity, time, and cost of package designing.

To give you an idea of what’s new on the market, we have reviewed several technologies that can transform your packaging value chain.

Computer Vision

Computer vision is one of the latest packaging technologies that helps engineers achieve things that were not possible before and do it quickly.

The main advantage computer vision brings to packaging is its ability to guarantee an error-free finished product. This technology can compare files, scanning pixel-by-pixel to catch any printing errors, thus allowing FMCG companies to reduce overruns and prevent misprinted packaging from getting shipped to the customer.

Based on Statista’s findings, the computer vision consumer goods market will almost double in just one year, going from $9.4 billion this year to $17.7 billion next year.

Beyond the ability to see errors that humans cannot, computer vision enables apps to identify products by their packaging, allowing them to find that product and quickly purchase it. For example, Amazon Flow can recognize products on a physical retail shelf, in your friend’s fridge, at the office, or wherever you will go. Then it offers you options for buying that product, conveniently delivered by Amazon.

Virtual reality

The designing and testing phases of a new packaging used to take months. Now, packaging designers can take advantage of virtual reality technology (VR) to create a 3-D virtual mockup. Instead of spending hours designing, printing, cutting, and folding mockups, they can present their virtual mockup on a screen or through a headset. Changes can be performed almost instantly, while the new concept can be inspected from all angles, even in a virtual store.

Kellogg has launched a new campaign and used virtual reality (VR) merchandising solutions. It used eye-tracking technology embedded into a mobile VR headset in order to obtain deeper behavioral data. During the testing phase, Kellog discovered that placing its product on lower shelves was better than displaying it on top shelves. The position adjustment resulted in an 18% increase in brand sales during the test.

Augmented reality

Through augmented reality (AR), consumers can use their phones in-store to see what the package will look like.

Even though the consumer adoption of AR adoption is in its early phases, FMCG companies can try the technology, as it offers a lot of contextual evidence as to how the product packaging will look in the real world. In addition, this technology can save time, as companies will no longer need to set up and shoot product photos at different locations, for testing and for selling purposes.

Speaking of teleporting, confectionary brand Kinder provides shoppers a unique virtual experience with their “Jump into Africa”. The 3D augmented reality portal took consumers to explore the African Savanna right in the middle of a supermarket. Once inside the portal, consumers were able to admire animated 3D safari animals alongside fun infographics.

Connectivity

The same way connectivity changed the way consumers shop, it has also shaped how the packaging industry operates. The connected world we currently live in has given companies a better idea of who their customers and competition are, allowing employees to communicate and connect brand leaders with suppliers in real-time. Connectivity has the ability to solve issues before they turn into real problems.

Connectivity enables the entire value chain to communicate with increased responsiveness, which means a higher quality of work and greater speed.

Automation Tools

With the right automation tools, your packaging process will become more seamless and transparent. Automation is the key to solve any snags or bottlenecks to find problems, thus saving you valuable time, increasing speed, and cutting costs.

In Conclusion

As the world shifts towards superior and sustainable methods, packaging manufacturers and buyers will also benefit from the efforts. As a result, the FMCG industry will be able to revolutionize customer experience, manufacturing, and environmental protection.

Organizations and brands capable of anticipating these future trends and incorporating them into their packaging strategies will reap the benefits of being ahead of the curve.