Follow the money

7 May 2020



E-commerce is fast reaching parity with traditional retail models, and it won’t be long before the majority of shopping takes place online. What does this mean for packaging? Ruediger Hagedorn, of the Consumer Goods Forum, tells Abi Millar what kind of special considerations apply.


Over the past few years, e-commerce has become a force to be reckoned with. Valued at $3.5 trillion globally in 2019, e-commerce sales are expected to nearly double to $6.5 trillion by 2023, per Statista. This comes at a time when overall retail sales are only climbing gradually. By 2023, e-commerce is expected to make up 22% of the retail market, up from just 7.4% in 2015.

This means that, while digital sales are still significantly lower than physical sales, brands can’t afford to ignore this trend. In the first half of 2019, UK retailers closed 2,870 stores and a number of big-name brands (particularly fashion retailers) fell into administration. This pattern has been widely attributed to people doing their shopping online rather than braving the high street.

Clearly, this poses challenges for the consumer goods industry – but it also brings opportunities. As Ruediger Hagedorn, of the Consumer Goods Forum, points out, the biggest impact for industry is that there is suddenly a global market for its products.

“Previously, your product would be in the store around the corner, but with e-commerce, that store moves online and it becomes visible to the entire world,” he says. “Then, you either say no to international shipping, or you find a way to ship the product, which can create its own problems.”

Another question is how a company can guide the consumer towards making an educated decision. In a bricks-and-mortar store, a consumer can ask the staff for recommendations. Online, company’s need to find other ways to provide that data. This means assessing how many sales it is expecting through different channels, and working out whether a heavy data investment is worth its while.

“It’s difficult for companies to find the right balance, because honestly it can be more interesting for them to invest money in offline marketing than to invest money in a data partner for an online store,” says Hagedorn. “We’re in the twilight zone between oldworld and new-world – offline and online.”

Needless to say, this strange limbo land creates a few issues for the supply chain. Although directto- consumer sales are accelerating, it hasn’t yet reached the stage where dropping the product on someone’s doorstep is an efficient mode of delivery.

“If everybody ordered online, e-commerce would be highly efficient and convenient – you could buy something that would get delivered the next day because there would always be a truck driving down the street,” says Hagedorn. “But to get from low e-commerce to high e-commerce is very costly; so it’s a classic logistical riddle to solve.”

Invest to adapt

As companies think about how best to allocate their resources, they will also need to think about their packaging. At present, the industry is designed for multipacks – the products are shipped in bulk to the store. While this makes sense within a traditional retail model, it can prove very wasteful when shipping a single item to someone’s home.

“If you want to adapt to e-commerce packaging, you have to do some investment,” says Hagedorn. “Either you go with more packaging – so you break up the six-pack and then repackage the single-pack before sending it – or you start thinking about what do we need to do as designers to ship single items. That’s expensive, so for the time being, I think we’ll just produce more packaging.”

As is often the case in the packaging industry, reducing waste and keeping costs down may appear to be at odds. Hagedorn points out that packaging sustainability is a complex issue for e-commerce brands.

“If you let the consumer choose between the same product packaged with highly sustainable packaging and less sustainable packaging, they will usually go for whichever is cheaper,” he says. “Currently, everything that’s more sustainable seems to come along with a higher production cost. As soon as someone finds the inverse that will highly impact the market – but it hasn’t happened yet.”

The Consumer Goods Forum has been tuned into this issue for quite some time. In 2011, it released its Global Protocol on Packaging Sustainability (GPPS) standard, which aimed to provide a shared reference point for the consumer goods and packaging industries. This contains over 40 environmental, economic and social indicators for packaging sustainability, and was adopted by GS1 in 2013.

It has also worked on a modularisation project, which aimed to find more effective ways to package units. By rolling out modularised packaging, brands can reduce waste, improve stackability and increase transportation efficiency. This issue will become increasingly important as delivery sizes get smaller, and the shift to e-commerce becomes more pronounced.

“Modularisation means using reusable crates and modular containers, which are stackable by design,” says Hagedorn. “As well as stacking containers on a ship, you can downsize to the kinds of crates you see at fruit and vegetable markets.”

“Previously your product would be in the store around the corner, but with e-commerce that store moves online and becomes visible to the entire world.”

The challenge companies are facing is improving durability at the same time as reducing waste. Especially within e-commerce, the supply chain can be long and complicated, and it’s important that a package is built to survive some wear and tear. However, consumers are becoming increasingly eco-conscious and no longer have much tolerance for over-packaging.

A simple nod to eco-friendliness might be to print instructions on a company’s packaging, telling consumers how it can be recycled or even upcycled. They might even want to invest in sustainable packaging materials, such as biodegradable bioplastics, and they will probably want to get better at matching their products with appropriately sized boxes.

Although these changes might require an upfront investment, it can become a point of differentiation in the market, improving companies’ eco credentials and strengthening their brand. It may even prove quite lucrative. In a 2018 survey by Deloitte, it emerged that 75% of millennials and 87% of Generation Z would pay more for products certified as ‘socially compliant’.

After all, packaging is a key pillar in brand identity – and that’s no less the case in e-commerce than it would be in a physical store.

“Regulation can play a vital role if it’s done together with the industry in a smart way, rather than as a political reaction to some demand. It’s a question of how we can go down that road together.”

“In a physical store, you scan the shelves and you look for things you know or things that surprise – that’s how we’re designed,” says Hagedorn. “Online, it’s the same thing. While you won’t look for the product on a shelf, you’ll type it in and click on the image. And it’s important for you to see a logo or some familiar branding, because that conveys trust.”

Relatedly, packaging plays an essential role in mitigating against counterfeit goods. In recent years, the industry has developed an array of solutions that can help ensure the consumer gets what they ordered.

“This is getting more technological – people are experimenting with technologies like RFID [radio-frequency identification] tags, near-field communications, QR codes and invisible codes that can be scanned with your phone but you can’t see with your eye,” Hagedorn continues. “We’re seeing a dramatic increase in these kinds of experiments and pilot projects.”

A consumer-driven future

So, how is this conversation likely to evolve over the years to come? Hagedorn feels that any shifts in e-commerce packaging will largely be consumerdriven. This will, in turn, depend on what customers are reading online.

“The customer makes choices and these choices are based on information they get from social media,” he says. “So, social media will drive consumers’ buying criteria, and this will drive the packaging industry. Social media is also the place to educate consumers and share information, separating fake news from real facts.”

For instance, there may be more discussion about sustainability and how a person’s buying decisions impact their immediate environment. This will give brands the chance to position themselves as responsible packagers, and will, suspects Hagedorn, lead to greater change than the imposition of some blanket regulation.

“Regulation can play a vital role if it’s done together with the industry in a smart way, rather than as a political reaction to some demand,” he says. “It’s a question of how we can go down that road together.”

In the meantime, the Consumer Goods Forum will continue to work with its members to help them with their e-commerce packaging. Anything it produces needs to be collaborative and precompetitive – meaning it can’t change the current balance of competition within its members. Rather, it should be looking to help everybody and drive costs out of the system, leaving all its members on a level playing field.

“First, there’s a general gathering of information out of the industry, and then we can share recommendations in a pre-competitive way,” says Hagedorn. “We can go where a single company would never go alone, because either they would fail or they’d really need the help of the industry. We come together on a regular basis to share best practices, and eventually we come up with new technologies and present them to the group. This is a good example of how we work together to drive positive change.”


$6.5 trillion

Value that e-commerce sales are expected to nearly double to globally by 2023, previously valued at $3.5 trillion in 2019. Statista

75%

Percentage of millennials that would be comfortable paying more for products certified as ‘socially compliant’.

Deloitte

Ruediger Hagedorn speaks to an audience of business figureheads, hoping to spark the evolution in e-commerce.
The Consumer Goods Forum catalyses packaging and delivery innovation through collaborative means.


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