Developments in the U.S. Beverage Packaging Market

Several trends are at work in beverage packaging in the United States. Some developments reflect the increasing popularity of particular beverages, such as bottled water and energy drinks.

19/10/05

Trends

Several trends are at work in beverage packaging in the United States. Some developments reflect the increasing popularity of particular beverages, such as bottled water and energy drinks. Others indicate changes in packaging material preferences, as evident in plastic’s enlarging share of the market. Still others reflect responses by the packaging and beverage industries to environmental concerns as well attempts to make use of packaging as a marketing tool.

Plastic continues to be a strong performer. In addition to prominence in the massive carbonated soft drink (CSD) segment, it is the preferred package for rapidly growing categories such as bottled water and sports beverages.

Glass is a player in most beverage segments, with an especially large unit volume in the giant beer segment. It also holds a dominant position in wine and has an extremely strong presence in distilled spirits. Since many upscale products use this format, glass benefits from the willingness of consumers to indulge themselves with small luxuries like premium and super premium products. Suppliers of organic beverages, especially milk, often choose glass because it evokes an image of old-fashioned goodness and purity.

CSDs have been affected by concerns about nutrition and obesity. A growing number of school districts are restricting CSD consumption and encouraging consumption of fruit beverages, dairy drinks and bottled water.

Functional beverages are being introduced on an almost weekly basis and include products such as calcium-fortified orange juice, which has been available for some time. More recent examples include berry-flavored, artificially sweetened 7UP Plus, which contains fruit juice, calcium and vitamin C; Sanfaustino Calcium Water; and BE beer from Anheuser-Busch. The latter, a cross between a beer and an energy drink, is infused with caffeine, guarana and ginseng.

Packaging by Beverage Category

The U.S. beverage packaging market continued its steady upward march in 2003. Unit volume increased by 2.1% to reach 218.2 billion units, nearly 4.6 billion above 2002’s 213.6 billion. The market grew by a compound annual growth rate (CAGR) of 2.4% in the six years from 1997 to 2003 and was 15.3% bigger at the end of that period than in 1997, when it comprised 189.2 billion packaging units.

The market for RTD beverage packaging consists of 11 key segments and multiple packaging formats and sizes. The largest segment is CSDs, followed (in decreasing size as measured by number of units) by beer, bottled water, milk, fruit beverages, sports beverages, RTD tea, wine, distilled spirits, energy drinks and RTD coffee.

Eight segments – beer, fruit beverages, bottled water, sports beverages, wine, spirits, energy drinks and RTD coffee – set seven-year record highs in 2003. These segments also were the market’s positive performers for 2003, with growth rates ranging from 0.4% to 40.3%. Three of the eight segments also passed major milestones in 2003: Bottled water jumped above 20.0 billion units; sports beverages exceeded 4.0 billion; and distilled spirits broke the 2.0 billion mark. For distilled spirits, this was the highest unit volume recorded since 1988.

The relatively new energy drinks segment was the market’s number-one performer in 2003, leaping by 40.3% to 724.3 million units. This was more than double the unit volume energy drinks registered in 2001 and greatly above the 15.1 million units posted in 1997. Despite this performance and the fact that energy drinks have been the market’s best performer for at least six consecutive years, growth is slowing for this segment. In fact, 2003’s gain was the smallest increase it recorded since 1998. Nevertheless, consumer interest in functional beverages that do more than quench thirst or accompany a meal will keep energy drinks on an upward spiral for the foreseeable future.

Clocking in at number two on the growth scale, bottled water packaging unit volume grew by 25.2%, continuing its multi-year string of double-digit increases. Bottled water has shown phenomenal growth for at least the past decade. Now an ubiquitous accessory for consumers of all ages, it is benefiting from publicity about the health benefits of properly hydrated bodies and concerns about consumption of calorie-laden beverages in our largely overweight society. Other sales drivers include a disdain for tap water, the availability of highly portable, reclosable packaging and new enhanced offerings with flavoring or functional ingredients like vitamins, herbs, oxygen or tooth-protecting fluoride. For bottled water, 2003 was the fourth year out of five that the segment had the market’s second highest growth rate. Bottled water ranked third in unit volume with 21.0 billion units, nearly five times larger than it was in 1997.

RTD coffee also registered double-digit gains in 2003. Unit volume enlarged by 16.9% to 365.8 million units and benefited from consumer demand for convenience.

Sports beverages increased by 14.2% to reach 4.1 billion units in 2003. This was approximately double the size of the segment in 1998. Sports beverages are perceived as having a better nutritional profile than CSDs yet are less expensive than fruit juice or dairy beverages.

Single-digit but still robust gains were turned in by wine and distilled spirits, up 5.1% and 4.1%, respectively, to 2.4 billion and 2.0 billion units. Wine is benefiting from publicity about the health benefits of red wine, economical pricing due to abundant supplies and boredom with beer as well as concerns about the carbohydrate count of malt-based beverages. Distilled spirits are experiencing an upswing due to the continuing revival of the cocktail and to a proliferation of flavored offerings, particularly in the rum and vodka lines.

The remaining two positive performers, fruit beverages and beer, recorded modest increases of 0.8% and 0.4%, respectively, in 2003. Each segment added about 200 million units to put fruit beverages at 17.3 billion and beer at 59.9 billion. Unit volume growth for beer, which also includes flavored alcoholic beverages, or malternatives, like Bacardi Silver, was kept in check by consumer obsession with low-carb diets and competition from distilled spirits and wine. Encouraging sales in the beer segment is the adoption of the popular Fridge Pack, a two-by-six can dispensing multipack originally seen for CSDs, which has been enthusiastically embraced by consumers.

Of the 11 most prominent beverage packaging segments, three – CSDs, tea and milk – lost ground in 2003. Soft drinks slipped by 0.3% to 88.3 billion units; tea fell by 2.3% to about 3.6 billion units, and milk dropped by 3.5% to 18.4 billion units. CSDs are struggling against strong competition from beverages viewed as having better nutritional profiles, including bottled water, fruit beverages and sports beverages.

Tea packaging unit volume declined despite publicity about tea’s positive health benefits, including reducing the risk of stroke, heart disease and some types of cancer. RTD tea lost ground three out of the past four years. Reasons for the erosion include a preference among regular tea drinkers for fresh-brewed, a relatively high calorie count for sweetened formulas and a higher price point than some other beverage options.

Although milk has some positive nutritional characteristics and there has been a proliferation of products in single-serving sizes, the segment has not been performing particularly powerfully. Consumers are accustomed to buying milk by the half-gallon. In comparison, the single-serve sizes tend to be more expensive per ounce. Some milk products also pack in a staggering amount of calories. A major problem with milk, however, is its convenience quotient. Unless aseptically packaged or retorted, milk products spoil within hours unless kept refrigerated. Once open, aseptic and retorted products also need refrigeration if not consumed in an hour or so. This poses a problem for today’s active consumer who likes a beverage close at hand that can be sipped as he/she moves through the day.

The U.S. beverage packaging market is quite lopsided. Two segments, CSDs and beer, accounted for 68.0% of the 2003 market. The top five segments, CSDs and beer, plus bottled water, milk and fruit beverages, accounted for 93.9%. This means the bottom six segments divided up the remaining 6.1% and accounted for market shares ranging from 0.2% to 1.9%. CSDs continued to account for the largest market share with 40.5% of the market. Beer remained firmly in second place at 27.5%. Neither beverage will lose its position any time soon, but even though unit volumes have increased since 1997, market share numbers have steadily declined. This is amply illustrated by the fact that CSDs and beer owned 74.7% of the market in 1997, 6.7 points more than in 2003. Bottled water, with nearly 10.0% of the market, has been taking share from competitors for years. In fact, it more than tripled its share of the market in six years, rising from 2.9% in 1997 to 9.6% in 2003.

Milk and fruit beverages also lost ground to bottled water and some of the smaller players. Milk held 7.9% of the market, down from 8.0% in 2002 and 10.0% in 1997. Fruit beverages slipped to 7.9% in 2003 from 8.0% in 2002 and 8.7% in 1997.

Packaging by Material Type

Two segments, plastic and glass, accounted for all of the growth in 2003, with plastic rising by 9.4% to 61.9 billion units and glass increasing by 0.9% to 36.7 billion units. Plastic unit volume has nearly doubled since 1997, when it stood at 34.1 billion. Plastic has been the market’s only consistently positive performer with growth rates ranging from 7.2% to 17.5% for the 1998-2003 period.

Although growth is slowing, glass beverage packaging hit a seven-year high and added more than 2 billion units since 1997. Its 0.9% gain in 2003 was the format’s best performance since 1999, but not as good as the 3.6% growth rate recorded in 1998. It should be noted that during the past six years, glass recorded only one negative year, a 0.7% loss in 2001.

Cans, paper and aseptic packaging lost ground in 2003, falling by 0.7%, 4.7% and 0.5%, respectively, while the pouch segment increased to approximately 3.3 billion units.

Paper recorded its fourth consecutive loss in 2003, dropping by 4.7% to 15.2 billion units. This decline was the largest among the four decliners in 2003 and also was the biggest loss for the beverage packaging market overall for the 1998-2003 period.

Aseptic packaging also is on a multi-year downward trend, dropping by 0.5% in 2003, on top of 1.3% and 2.2% declines in 2002 and 2001, respectively. Unit volume stood at 2.5 billion, roughly the same level as in 1997.

Despite registering losses four out of the past five years, cans remained the dominant beverage packaging format at 98.5 billion units in 2003, roughly 36.6 billion units ahead of plastic. Plastic ranked second followed by glass, paper, pouches and aseptic.

Rankings have been relatively stable for the past seven years with two exceptions, pouches overtook aseptic in 2002 to drop aseptic into last place and plastic rose into second place over glass in 1998. Rigid containers (cans, plastic, glass and paper) accounted for 97.3% of the market, and this number has not changed significantly since at least 1997.

The biggest shifts in market share have been experienced by cans and plastic with the remaining segments reporting variations of less than a percentage point between 2003 and 2002. Plastic was the only segment that gained market share in 2003, rising 1.9 points to 28.4%. Cans slipped to 45.2% in 2003 from 46.4% in 2002. In 1997, with cans at 52.5% and plastic at 18.0%, the two were 34.5 percentage points apart. By 2003, the difference had shrunk 16.8 points. At this rate, parity could be reached between 2010 and 2020.

Despite its growth in unit volume, glass also edged downward to 16.8% in 2003 from 17.0% in 2002. Paper lost even more, dropping to 7.0% in 2003 from 7.4% in 2002. Shares for aseptic packaging remained unchanged in 2003 at 1.2% for the third straight year. Pouches gained a tenth of a point, hitting 1.5%.

Environmental Issues

High unit volume makes for high visibility in the waste stream. As a result, beverage packaging is particularly vulnerable to criticism about litter, recyclability and recycled content. Declining recycling rates contribute to complaints by environmentalists. Collecting 218.2 billion containers poses a huge challenge because so many beverage containers are emptied “on the run” away from residential recycling bins. Such containers either end up in a trash bin or as litter. Either way, the ultimate destination is the landfill.

Recycling programs are struggling. Low prices for recycled materials and rising collection costs are forcing municipalities to rethink collection schemes, and some entities have scaled back or even eliminated curbside recycling and drop-off collection operations to balance budgets and preserve services viewed as more essential. Of course, not everyone has access to curbside recycling programs, which often are not practical in rural areas and are difficult to organize in densely populated neighborhoods with high-rise buildings where waste is disposed of via chutes.

With a growing share in virtually every beverage segment, the number of polyethylene terephthalate (PET) containers being produced is growing much faster than the number being collected. Bottle collection actually shrinks some years. This was not the case in 2003, however, when 841 million pounds of post-consumer bottles were purchased by U.S. reclaimers or exporters, compared to 797 million pounds in 2002, according to figures from the National Association for PET Container Resources (NAPCOR). In fact, 2003 set a new record for pounds of PET bottles collected.

Even so, the recycling rate declined to 19.6% in 2003, down from 19.9% in 2002 and 39.7% in 1995, primarily because the number of bottles produced is growing much faster than the number collected and recycled. According to NAPCOR, the quantity of PET bottles on store shelves also set a record in 2003, rising to 4.3 billion pounds from 4.0 billion pounds in 2002 and 1.9 billion pounds in 1995.

Strong demand from other countries, especially China, resulted in prices for bales of PET bottles from non-deposit states rising from $0.09 per pound to as high as $0.20 per pound. This has tightened supply and raised costs for manufacturers who depend on recycled PET (RPET) as a raw material. RPET is used in carpet, fiber fill, nonwovens, strapping, containers and other products. Use of RPET declined in 2003 with two major exceptions: (1) film and sheet and (2) food and beverage bottle applications. The latter increased for the third straight year, rising to 106 million pounds in 2003 from 86 in 2002 and 77 in 2001. This would seem to indicate that the big cola providers are increases recycled content. Most other applications consumed less RPET in 2003 than in 2002 due to tight supplies, higher costs and extremely competitive pricing for virgin resin.

PET is not the only packaging material with a declining recycling rate. Aluminum, glass and other plastics used in beverage packaging also are experiencing a downward trend in recycling rates. Although each aluminum container is worth about $0.01, collection and recycling rates have been falling and now stand at about 50%, a considerable slide from 1992’s high point of 67.9%, according to statistics compiled collectively by the Aluminum Association, the Can Manufacturers Institute and the Institute of Scrap Recycling Industries. Despite the downturn, aluminum cans remain the most recycled packaging material in the U.S. In addition, when recycled content is considered, aluminum cans again top the list with an average level of about 50%. Beverage cans also offer a very fast turnaround with as little as 60 days between purchase by the consumer and return to the store shelf.

Meanwhile source reduction, or lightweighting continues, and today’s containers weigh far less than their predecessors. Using less material reduces material costs as well as waste. Aluminum beverage cans have been particularly successful in this regard with weights reduced to the point where it takes 29 to make up a pound. While consumers profess a preference for environmentally friendly packages, it should be noted that they will not pay extra for such products or inconvenience themselves much to practice recycling.

Packaging as a marketing tool

Many beverages are purchased on impulse. As a result, in the milliseconds it takes for a consumer to notice an item on the shelf, the beverage package must convince the consumer that it somehow will enhance his or her day. This means the package must connect with the consumer on an emotional level, communicate its message and convince him or her of the product’s value.

Function also is a vital attribute for today’s harried beverage purchasers. Therefore, it’s imperative that the product be easy to select, purchase, open, consume, reclose and store, hence the popularity of RTD beverages, single-serve sizes, cup-holder-friendly footprints, threaded caps on gabletop cartons, sports caps and finger grips.

A complex interaction of package aesthetics and functionality makes the sale. Beverage makers must consider the basics: package material, shape, and size, as well as label graphics and product visibility. Functional characteristics also are important including ease of handling, opening, reclosing and storing.

Packaging material communicates positioning. For example, glass generally is thought of as upscale. Aluminum and paperboard are economical. Aluminum also is seen as environmentally friendly. Plastic often means portable, particularly in sizes of 24 ounces or less.

Investing in a proprietary container often is worth the extra cost of the custom tooling because the uniqueness of the resulting silhouette can provide brand recognition.

Product visibility also can be an important sales cue, hence the growing use of clear, pressure-sensitive labels, which provide a “no-label” look and showcase the product’s color, or in the case of water, vodka or gin, its clarity. The opposite extreme is popular too, where the product is completely masked by full-body shrink sleeves vividly printed with head-turning graphics.

Interactive qualities should not be overlooked. A novel package that amuses the consumer captures his/her attention for a longer period of time than the expected format and fosters brand recognition. Examples include thermochromic labels, which change color when exposed to a certain temperature, and audio-chip-equipped bottles, which play a tune when picked up. The former can deliver a functional advantage too by indicating when the product has reached the optimum temperature for consumption.