Food Packaging Market of Eastern Europe

The Eastern Europe region is characterised by its many developing economies, and has proved to be particularly vulnerable in the recent economic downturn. This has drawn a new picture of daily life for consumers, manufacturers and retailers. At the same time, the region has not been uniform in terms of its reaction to the recession. Countries of the region were hit by the recession to differing degrees, and this makes the analysis of Eastern Europe more colourful and interesting.

The packaging industry did not escape unscathed – the economic downturn has brought new challenges, expectations and requirements for packagers. With consumers re-evaluating purchasing decisions and preferences for commodity products such as packaged food, brand owners have followed a number of strategies to maintain share and remain in profit in the throes of these new challenges.

A number of trends impacting the packaging industry can be identified:

• Movement towards more cost effective food packaging
• Bulk purchases in response to new consumer habits
• Convenience still a driver for packaging
• Using health awareness to maintain value proposition.

Difficult economic situation influenced on Eastern European packaging market as well where food packaging retail volume growth over the 2008-2009 year period was not more than 3%.

MOVEMENT TOWARDS MORE COST EFFECTIVE FOOD PACKAGING

One of the most widespread responses across all industries driven by the weakened economic climate was a drive to reduce, wherever possible, production costs. The food industry was no exception and packaging was one of the first areas where cost cutting was looked at. With lower disposable incomes, consumers started to look for cost savings, however the majority of packaged food purchases are everyday necessity items, rather than luxury, and as such cannot be eliminated from the shopping basket. At the same time, some categories, like confectionery or cakes, take up the position of indulgence products, becoming sometimes the only affordable luxury.

However, in many Eastern European countries these products could not remain on the same price point, as lowered disposable income, together with a growing importance of big retailers (hypermarkets, supermarkets and discounters), heavily pushed manufacturers towards lowering the end retail price to the consumer. This affected new choices in terms of packaging. For example, Ukraine has seen a sizable shift to flexible plastic within breakfast cereals, cookies, biscuits, confectionery, away from the previously used folding carton and flexible plastic and/or other plastic trays combination pack. On the shelves of big retailers Russian consumers find herbs and spices packaged under retailer’s private label in a very simple flexible pack. Rigid plastic is widely introduced within wet/cooking sauces in Czech Republic, as a cheaper alternative to glass jars, which has previously dominated this category. These packaging shifts, however, were dominated by local manufacturers, with imported goods indicating fewer obvious packaging changes, perhaps as international brands place more value in the brand recognition that the pack type offers.

This move to simplicity in packaging is allowing brand owners and retailers to offer a lower final end retail price, keeping these products within the financial reach of consumers.

BULK PURCHASES IN RESPONSE TO NEW CONSUMERS’ HABITS

While manufacturers are thinking of a new ways to present products to consumers at the most attractive price, consumers in many Eastern European countries are changing their food purchasing habits.

Czech and Polish consumers, mirroring the dominant trend across Western Europe, are increasingly moving away from repeated small daily purchases towards a larger weekly shop. Previously a high number of independent small groceries allowed and supported daily food purchases in the afore-mentioned countries. However, now two reasons arise for this shift towards less regular, weekly grocery shopping.

On one hand, decreased disposable income and the fragile financial situation of many consumers during the economic downturn has pushed them to seek different spending control options, of which doing a weekly grocery shop was one. On the other hand, and also supporting larger shopping occasions, an ever-growing number of big retailers, such as hypermarkets, supermarkets and discounters are present across Eastern Europe as the retail environment develops, further encouraging this change in shopping habits.

Russian shopping habits look slightly different. Economic downturn did not have any obvious impact on grocery shopping. On the contrary, quite good economic situation over the last five years allowed many consumers buying new, better cars. For such car owners it became much easier to do bigger weekly grocery shopping in the big malls, which are mostly situated outside centres of big cities. This trend was noticed in the bigger cities, thus, small grocery shops and daily visits to them are still very popular.

This trend has not passed packagers and food manufacturers by. These companies have responded by offering multipacks, bigger ‘family’ packs or suggested special discount offers such as ‘3 for the price of 2’.

For example, where previously yoghurt was commonly purchased in pack sizes up to 500ml, now family packs of yoghurt in rigid plastic packaging of 1 litre can be found n Czech Republic, or similar bigger value packs, also in rigid plastic, are to be found within chewing gum in Russia and Czech Republic. In Russia 1 litre yoghurts in rigid packaging could be found in earlier years, before economic downturn changed the surface of industries. However, these big volumes were related with manufacturers’ attempt to develop regular umbrella brands by suggesting economy, cheaper products for family consumption.

CONVENIENCE STILL A DRIVER FOR PACKAGING

Packagers and food manufacturers may have put packaging innovations on hold, choosing not to risk investments at this time of economic uncertainty. However, innovation has not ceased, as demand for conveniently packed, easy to prepare and easy to carry food packaging remains important. Despite the economic slowdown, the pace of life for Eastern Europeans did not slow down, and in some respects has become more hectic, as those with jobs work harder to keep them.

Under these conditions certain types of food, for example canned/preserved food and ready meals, gain in popularity. This has driven a demand for certain pack types. For example, aluminium trays for ready meals have become more visible and popular in Czech Republic. Such packaging is convenient, affordable, allows direct heating of the food. “Euromonitor International” predicts that by the end of 2010 these trays will account for 5% of unit retail packaging within ready meal packaging in Czech Republic. In Russia, aluminium trays appeared within packaged/industrial cakes in 2007 and this type of packaging appears to be very well perceived by consumers. Within ready meals, Russian consumers can find products packed in ready meal trays with peel-off plastic closure. This packaging is gaining popularity very quickly and it is predicted, that at the end of 2010 they will occupy 15% of unit retail packaging within ready meal packaging in Russia.

Closure innovations in Czech food industry are also worthy of mention. These are mostly related to convenience, offering easy-open features. “Euromonitor” forecasts that easy open can ends will occupy up to 50% of the Czech market of canned/preserved food by the end of 2010. Easy-open closures on cans are also popular in Russia, however, in some cases, for example, for cheap brands of canned/preserved beans or vegetables, the quality of closure is poor and easy-open closure in reality becomes ‘hard’ to open. Plastic dispensing closures are also proving dynamic, appearing in table sauces, herbs and spices and even chewing gum in 2010 in many Eastern European countries. Within chewing gum, plastic dispensing closures on other rigid container, a novelty in 2010, is predicted to grow and develop, reaching 60% of all other rigid container closures.

HEALTH AWARENESS RETAINS IMPORTANCE DESPITE DIFFICULT ECONOMIC ENVIRONMENT

Even in times of recession consumers are conscious of their health and will do all they can to take care of it. The focus on better-for-you and healthy foods, which started to boom just before the recession, despite slow down in 2009, is still ongoing and drawing new lines of opportunity in food packaging. There are even separate shelves in retail outlets dedicated to healthy, functional food. Manufacturers invest a lot of effort in emphasising healthy features, or a lack of preservatives and other unhealthy ingredients on the product packaging.

Functional drinking yoghurts are very popular within Eastern Europe, supported by heavy marketing campaigns. Thus consumption of functional drinking yogurt managed to increase by 6000 tonnes in 2010, helping HDPE bottles to achieve unit growth of 3%. Indeed this category is expected to continue to grow at a retail volume CAGR of 9% to 2014.

Novelties in liquid stocks and fonds in Poland led to introduction of thin wall container of 28g with the product positioned as containing less salt and fats and being better-for-you. The use of thin wall plastic packaging in this case enables brand owners to offer a liquid style stock that stands out from the standard solid stock cube. At a time when consumers are perhaps moving away from eating out and placing a greater importance on home cooking this enables the brand to position itself as offering a premium product.

The desire for good health also boosted small packs of breakfast cereals and fruit snacks, which in general are considered as healthy. But at the same time, manufacturers attempt to make it more appealing for busy consumers and offer on-the-go variants of packs. For example, fruit snacks were launched in 20g flexible plastic in Poland in 2010.

WHAT WILL HAPPEN AS COUNTRIES RECOVER?

The economic situation in many Eastern European countries is already improving with financial stabilisation expected to come in the next 5 years, whilst others are still struggling with new post-recession problems. However despite this stabilization, some of these newly emerged trends such as bulk sizes, increased use of multipacks and use of cost effective packaging solutions are predicted to continue.

Food manufacturers are expected to continue to choose cheaper packaging formats in order to keep down final retail prices to the consumer. The hot 2010 summer, which brought a poorer than expected harvest, is forecast to bring price increase of the basic commodities. Thus manufacturer will be again looking at ways to minimise the possible knock-on effect to retail pricing as this might be the crucial factor for consumer purchasing choices.

Diversification in packaging is expected to be strong, as the competition in the marketplace grows. And if the recession removed some players, stabilisation of the economies will no doubt bring new brands and manufacturers. Packaging is one the strongest product communication tools, in making any new food pack entrance noticeable, attractive and appealing to the consumer.

Though Eastern Europe still lags behind Western Europe when it comes to packaging innovations, the fast recovery of Eastern economies open up opportunities for brand owners to promote new and innovative packaging for food.