Abstract
Pricing Pressures Lower Profit Margins
Price competition in some of the more commodity type packaging markets, such as metal cans and
plastics to some extent have intensified during the last two years. Though, the prices have not
decreased so much as there has been an increase in the cost of manufacturing. The energy costs and
raw material costs that form an important part of the cost equation have increased constantly over
the last few years. Most of the packaging market participants have contracts With their customers
and are able to pass on the increase in raw material costs to their customers, while the energy
costs have to be borne by the suppliers and this squeezes their their profit margins. For example,
the weighted average price of the metal containers have reduced constant from approximately 5.40
cents per unit in 2001 to 5.20 cents per unit in 2004. This is because these markets have been
moving towards the commodity approach There by slowing the growth rates.
The price competition also increases with low differentiation in the products offered by the
competitors. For example, in the aluminum can market, the product differentiation between various
suppliers are low. The customers in such markets have higher bargaining powers and thus, the
suppliers are forced to lower their prices. Moreover, the pricing pressure is worsened by the
customer inclination to reduce the number of vendors, in order to have improved relationship over
the long term. These factors challenge beverage packaging suppliers to find ways of improving
profitability without losing significant profit margins.
Saturation in the End User Markets Forces New Product and New Application Development
The beverage packaging market has become mature, with growth rates less than the United States
gross domestic product rates. The industry growth rate seems to be driven by the modestly growing
plastic containers segment. With the increased risk of high capital investment going bad due to the
rapidly changing end consumer tastes, the suppliers of packaging products face a dilemma. The
customers want continuous innovation and improved products from their suppliers and at the same time
they are unwilling to pay appropriately. This forces market participants to further develop new or
enhanced products for new applications in order to bolster market growth and at the same time to
ensure their existence in the marketplace.
Thus, one of the most daunting challenges faced by the packaging suppliers is to identify new
segments that have high growth potential. This task becomes all the more difficult because the
pressure to differentiate their products is great. Though, there have been many new product
introductions in the recent past, the end consumers tastes and needs are to be kept in mind while
developing new products.
Multinational Customers Force Global Expansion
The major customer groups of beverage containers are huge multinationals manufacturers and
marketers of beverages such PepsiCo, Coca - Colas, Anheuser Busch etc. These companies are regularly
expanding their global operations. The increase in global operations is spurred by the fact that in
recent years, the domestic markets have become quite flat and the consumers have become more
demanding and health conscious. The look out for new avenues of growth opportunities has been
improved through Asian countries such as China and India and to some extent Brazil, showing strong
growth potential with gross domestic product (GDP) greater than 6.0 percent in 2003. This has turned
many of the major markets such as automotive and industrial to start their manufacturing in Asia to
serve the domestic market. These large customers are inclined to reducing their vendor base for all
their global requirements. This forces the packaging suppliers in the United States market to expand
to other parts of the globe as well. This is also due to the fact that as the United States market
gets increasingly commoditized, and the suppliers margins get squeezed, the competition becomes more
cut throat.
View Cart
