When, in March 2020, we last chatted to Smurfit Kappa about its sustainability strategies, perhaps neither the interviewer nor the interviewee fully appreciated quite how profoundly the pandemic would impact on everyone’s activities – nor how long it would last. Around the anniversary of the first European lockdowns Tim Sykes catches up with Arco Berkenbosch (VP Innovation & Development) to review how the market has changed since then and the progress made on the backdrop of Covid.
As Packaging Europe has reported extensively over the last two years, ‘Better Planet Packaging’ was introduced both as an initiative to instil sustainability throughout Smurfit Kappa’s culture and as a concrete agenda with associated innovation projects. Have the conditions of the pandemic slowed down the transformation envisaged by the corrugated packaging giant?
“There are two sides to every coin,” Arco Berkenbosch observes. “We do miss physical meetings but the virtual world opens up lots of opportunities to collaborate with brands, customers and suppliers. For example, without the travel it’s much easier to set up a half-hour meeting. And in the past we were happy to have 500 participants at customer events, whereas recently we held a virtual Better Planet Packaging event and 1700 customers turned up. Overall, the pandemic has been challenging but it hasn’t prevented Better Planet Packaging from having a lot of impact. We’ve already implemented over 140 projects replacing unsustainable packaging.”
Among the more interesting recent launches are new portfolios addressing sustainable packaging demands for e-commerce (the explosion of which we’ll discuss later). At the start of 2021 Smurfit Kappa introduced a range of single- and multi-bottle formats for beverages. The business has also been investing heavily in bag-in-box – which Arco describes as the “ideal e-commerce packaging format for liquids,” considering that, for instance, Amazon certification requires that a package must survive as many as 17 drops. Indeed, in April Smurfit unveiled an Amazon Frustration Free Packaging certified three-litre bag-in-box. A first for a generic packaging design, this pre-certification could be a game-changer for e-tailers, who can avoid time-consuming testing in ISTA-certified laboratories by opting for an off-the-shelf product.
In addition, a first high-speed packing line for TopClip can multipack toppers has been installed, and an equivalent solution for PET applications is in the pipeline. At a more fundamental level, Smurfit Kappa is continuing to put a lot of research into recyclable coatings, with a particular focus on moisture protection to cope with challenges (which are, once again, all the more important in the context of e-commerce) such as melting ice or leaking detergent.
Considering the FMCG landscape overall, I wonder whether we can detect any subtle shifts in the sustainability priorities we’ve been following in recent years, particularly the pressure to embrace alternatives to single-use plastics. In Arco’s view, there has been a change but maybe not in the bigger picture. “Sustainability is always a luxury position – you don’t care about it if you are starving,” he says. “This principle also applies during the pandemic, with a greater emphasis on food safety vs recyclability relative to before. Perhaps we’ve seen a bit more emphasis on the low-hanging fruit over the last year, with people for example more reluctant to touch areas where there’s a tension between improving sustainability of packaging and food safety. However, looking at longer term values, there’s the ‘build back better’ trend (exemplified by governments setting greening conditions for rescuing airlines). There’s a shared sense that Covid itself is linked to the environmental vulnerability of our planet. So sustainability is still very much on the agenda and the number of sustainability projects certainly isn’t decreasing. In addition, there has maybe also been a slight power shift away from companies and towards governments, and perhaps that has elevated climate change to be on a par with packaging waste as a priority.”
For some time sustainability and e-commerce have been the two biggest market drivers for Smurfit Kappa. As readers know, the e-commerce trend accelerated dramatically over the last year, with Smurfit seeing something like double-digit growth thanks to consumers’ reliance on click-and-collect and home delivery channels at a time of social distancing. Within this picture, however, the demands on packaging are more mixed. For example, turnover in the food segment is high but the role of retailers in delivering orders has, broadly speaking, not dramatically impacted on packaging. On the other hand, the alcoholic beverages market has lost festivals, pubs, etc. as a channel, and so e-commerce has become incredibly important for the segment – but it’s also one of the most challenging products to ship.
So have we seen an upsurge in e-commerce packaging innovation to match the growth in the market? “Over the last year, the challenges around e-commerce have often been more mundane than you’d expect,” Arco suggests. “Everyone has faced huge challenges around meeting the peaks of demand, around material supply, and like any big company we’ve had Covid cases ourselves, which occasionally meant stopping shifts. Meanwhile, you might be surprised how much of the packaging stays the same. I’m an innovation guy, so this may sound off-message, but it’s useful to remember that 70% of e-commerce packaging is still done in a box that was designed in 1917. For the market over the last year the first priority has been simply to get hold of a box and ship it to the consumer. The story of Covid has to an extent been about going back to basics: securing materials and transportation. Brands had to adapt fast, taking ‘emergency action’ to find new channels, often relying on existing entities such as contract packers (who have probably had a very good year). Maybe that shifts the balance away from innovation and creativity – but after this first wave of growth, there will be a second wave when the market can pay attention to packaging optimization, consumer experience, unboxing, etc.”
This is not to imply that product innovation has taken a backseat altogether, as the e-commerce-orientated product launches mentioned above exemplify. According to Arco, one of the keys to bringing innovation to market in challenging conditions is adopting an agile ‘launch and refine’ approach. “Big brands have huge R&D departments that rigorously test new formats over several months before bringing them to the market,” he says. “While it’s commercially attractive to go with big volumes right away, we prefer to launch a product faster and on a small scale, learn from it, refine it, and quickly bring out a better version.” Applying this model when launching TopClip with Budvar in a single domestic market, for instance, and gathering its learnings on small scale, arguably enabled Smurfit Kappa to perfect the format faster than would have been possible had it initially partnered with a much larger brand.
However, perhaps more interesting than product innovation is Smurfit Kappa’s more strategic thinking about the omnichannel ecosystem. The business has been spending time examining opportunities such as more agile automation, and working with customers to devise forward-looking packing lines to serve all channels, Arco reveals.
Making advances around the logistics of omnichannel, creating flexible formats such as different case count permutations in the same box, machinery that can handle different box dimensions, should be high on the e-tailer’s agenda, according to Arco. “The overarching trend today is increasing diversity,” he says. “While e-commerce is growing fast, at the same time the big retailers are still there, the discounters are still there. So it’s very important to have the agility to switch from one supply chain or one project to another, and this is a huge driver of innovation.”
Arco suggests a brand should be asking itself strategic questions about how to achieve flexibility with the greatest efficiency and speed of implementation. For instance, when is the optimal point to insert customization? The later you go from generic to customized, the more flexibility you have to serve different supply chains. (As such, Smurfit Kappa is exploring customization within its own production and will be investing more heavily in digital print.) To take another example, would it enable greater flexibility to have four lines packing 5000 cases per hour instead of one line with a throughput of 20,000?
If the pandemic has accelerated change, what can we expect from the new normal as society opens up again? While e-commerce will continue to grow and (in the corrugated context) we might have already seen the apex of the shelf-ready packaging and of the rise of the white box, Arco doesn’t envisage the ongoing growth of e-commerce as an absolute shift away from retailers to brands. “Most big brands expect a retailer to still be in-between them and the consumer,” he says. “With their infrastructure and their network of stores – which are essentially big warehouses – the big retailers are well placed to adapt to a hybrid world of physical and digital shopping. The balance will change, and physical retail needs to reinvent itself: consumers probably don’t want to walk around a large store for their regular stock-up. I think we’re also seeing a more permanent shift to e-commerce for non-food retailers. This raises questions about whether hypermarkets will survive: do we really need a store where you can buy everything? That concept was already losing market share before the pandemic, and seems particularly unsuitable to the hybrid world.”
The coming years will be fascinating as the most viable channels for particular types of consumption begin to emerge, and e-commerce maximalism isn’t the inevitable destination. Arco speculates that for certain markets the amount of buffering and overpacking currently required suggests there is scope for more cost-effective delivery models: perhaps not drones and AI robots, but a preference for models such as self-collection. Similarly, we are seeing capability for ever-faster delivery times in certain supply chains – but how quickly do we really need basic everyday products?
Ultimately, according to Arco, the omnichannel challenge is about making it easy to do business. “Providing convenience will be the big driver: how easy is it to order online, how easy to return?” he concludes. “The key to the post-Covid world will be managing the complexity this convenience creates for the supply chain. In packaging the ones who can manage complexity in a cost-effective way will prosper. Because the complexity is here to stay.”