By: Naveen A -- Research Analyst, Packaging
09 October, 2017
The e-retail industry reached close to $2 trillion in 2016 and is expected to grow to about 20 percent annually until 2020. The change in buying habits with consumers spending more time online and less time in physical stores has resulted in huge profits for online retailers. Therefore, it can be safely assumed that there is a transition from traditional buying to digital buying. This has triggered several changes in the supply chain and the need for companies to adopt new procurement and selling strategies. One such change is the increasing consumer preference for new designs in sustainable, cost-effective e-retail packaging options. Therefore, e-retail companies are looking to adopt sustainable packaging to cater to consumer expectations. Leading e-retailer Amazon introduced “Frustration Free Packaging” initiative in 2008 which is said to have eliminated close to 11,200 tons of packaging in the first five years of implementation. Furthermore, Amazon is looking to introduce package deliveries which will completely remove the need for logistic packaging. Other companies who have adopted sustainable packaging are Dell, Puma, etc.
The article hopes to shed light on how sustainable packaging solutions are adopted in the e-retail industry to reduce carbon print while increasing brand image.
“It’s a holistic approach. You start from when you are thinking about a new product and a new package comes into place on sustainability. Before, it used to be an afterthought. One thing I can tell you, the era of having sustainability as an afterthought is over. You are going to be a loser if you do that. So you have to rethink how you go right from the onset and incorporate all of the different aspects of sustainability” - Michael Okoroafor (VP of global sustainability and packaging innovation at McCormick & Co)
Introduction to e-retail packaging
Globally e-commerce sales are expected to grow at about 17 percent until 2018 with APAC being the largest demand region with 42 percent in 2016. APAC region surpassed North America in e-commerce sales in 2014 growing at more than 25% each year until 2017. The major demand region will be China which is expected to grow at more than 40 percent year-on-year until 2017. The expanding middle class, increasing mobile and internet penetration, and improving logistics will all drive e-commerce growth in the region.
In Western Europe, UK contributed to almost 45 percent of the e-commerce sales making it the major demand region in Western Europe. This is expected to decline to 43 percent in 2017 due to high year-on-year growth in e-commerce sales in Italy and Sweden. However, UK is expected to remain the major demand region in Western Europe until 2017 with the sales mostly concentrated in the categories of Clothing, Shoes, Entertainment and Travel.
The growing e-retail market is a major driver for companies to enter the online retail segment. Moreover, there are added advantages of reduced overhead costs and inventory levels. Stores can instead focus on a specific set of products with optimum levels thereby gaining a frictionless shopping experience. This in turn leads to increase in demand for secondary packaging material such as boxes, tapes, wraps, etc. Therefore, there arises a need to implement cost-effective packaging soutions which are also attractive to the consumer.
Role of packaging in traditional retail vs. e-retail industry
Traditionally, suppliers ship products in large quantities for safe and efficient shipping to a warehouse or stores. From this stage, the consumer picks up the product. Here, the logistics is mostly focused between the supplier, warehouse and retailer. The packaging directly in contact with the product is called primary packaging. The aggregated multiple primary packs are formed into a larger unit by the use of secondary packaging. These may then subsequently be aggregated again by use of tertiary packaging which includes pallets, shrink wrap, strapping, banding, etc.
However, e-retail platform changes this paradigm by introducing a digital platform which acts as the point of sale also making the logistical process complex due to introduction of more touch points (transport providers, sorting centers, regional hubs, parcel carriers). The importance of secondary packaging is increased as it is the form in which the product reaches the consumer. Moreover, the use of tertiary packaging is minimized thereby increasing the role of secondary packaging in the segment of product protection.
Trends in E-retail packaging
Dimensional Weight Pricing (DIM Pricing)
Introduction of Dimensional Weight Pricing (DIM Pricing) in 2014 prompted the need for e-commerce players to adopt optimized packaging solutions to reduce shipping costs. New technologies are being employed to reduce the weight of the packaging, especially by eliminating/reducing the usage of void fills. Example: Accufill Scanning System (Ranpak Corp) fills the packaging box with void fill depending on the dimensions of the package. Innovations such as Twistwrap (by Lil Packaging) are being introduced which are aimed at eliminating the use of void fills thereby reducing the amount of material used, weight and cost of packaging.
Increasing Environmental Awareness among Consumers
In 2017, a study commissioned by Pro Carton (European Association of Carton and Carton board manufacturers) said that 75 percent of the online consumers emphasized their interest to receive deliveries in environmental friendly packaging. Another recent survey conducted in India said that 94 percent Indians want to be part of any initiative for re-cycling of packaging material. These statistics suggest that environmental awareness of consumers is rising thereby forcing online retailers to adopt green packaging to meet customer demand. Consumer preference is shifting from plastic to paper and removal of excessive protective packaging components. E-commerce players are tackling this concern by reducing the packaging material inside the box and if possible customize the boxes according to the order to save shipping costs. This has led to the need for the introduction of post-consumer recycled content, bare minimum packaging and Life Cycle Assessment applications to make design decisions.
Case study: Uncommon Goods is a major online retailer with focus on sustainable packaging.
Challenge: The goal was to use environment friendly loose fill material which can help to transport fragile products such as glass, jewelry and unique gifts safely.
Solution: For this purpose, Uncommon Goods chose PaperNuts Corporation which offers proprietary environmentally friendly corn starch peanuts which are suitable alternatives for polystyrene beads for void fills. They are compostable and are applicable for glass and other fragile items.
In 2015, close to 30 percent of e-commerce consumers agreed that they would repeat purchases from an online retailer if the order came in upscale packaging. In 2016, the consumers preferring upscale packaging increased to 40 percent thereby increasing the need for branded or gift-like packaging. Several innovations such as the “Presentation Box” by BDMO and “Jetbox Cardboard” tubes by Bell Packaging were developed to grant consumers an enhanced interest in packaging. Process related developments such as “The FreeBox Technology” which is used to produce personalized on-demand boxes with option for printing of logos and graphics, has helped in creating better premium packaging for customers. Packaging design companies such as Oyster Packaging, The Dieline are helping companies to include attractive brand elements to increase the visual appeal of the packaging to consumer and generate positive first impressions.
Case study: Reddit and Process AG designed a Cat Box whose packaging can be re-used by the consumer
Challenge: The cat products sold by Reddit were not significant and similar products were available on other online platforms. Therefore there was a need for an interesting packaging design.
Solution: A shipping box which could be re-shaped to form a cat house was designed. Cat owners found this very purposeful. The packaging concept became viral because several consumers shared their reviews and photos on social media thereby creating a huge buzz for Reddit’s product
Why sustainability will have a major impact on the future of e-retail packaging
There is a growing trend where government regulations are being implemented by both developed and developing countries as part of their commitment towards protection of the environment. Measures being implemented circle around the factors of recycling, waste reduction and sustainable packaging. Example: Singapore’s National Environment Agency (NEA) in July 2016 announced that it will introduce mandatory requirements for companies to adopt sustainable materials in packaging to reduce packaging waste in the next 3-5 years. Netherlands introduced a carbon-tax for packaging materials in 2007 and it is the first country to do so for packaging. In the 2017 budget for UK, the Chancellor Phillip Hammond announced that by 2020, 75 percent of paper packaging, 64 percent of aluminum, 85 percent of steel and 48 percent of wood packaging must be recycled.
Benefits in terms of time and cost
A major limitation for adopting eco-friendly packaging is the cost. Sustainable packaging solutions are about 50 percent more costly compared to traditional packaging solutions due to supply-demand dynamics. However, with increased adoption of such solutions and increased investment in sustainable packaging material to meet sustainability targets and government regulations can bring about a significant change in the cost factor. The recent example is Unilever pledging to adopt 100 percent recyclable packaging by 2025. Therefore, in spite of cost factors, increasing government regulations and consumer preference for eco-friendly packaging are driving companies to consider the idea of making sustainable packaging part of their procurement objective. Furthermore, if quantity of packaging material can be reduced by about 20 percent, the efficiency in fulfilling of deliveries can be improved by about 8 percent which can lead to increased profitability of about 5 percent for an online FMCG retailer.
Optimizing package dimensions and weight by optimum use of void fill
Void fill is used for protection of the product during shipping. The common materials used as void fill are: Polystyrene, polyethylene and paper products. Of these, to produce one pound of either polystyrene or polyethylene, close to 6-7 pounds of carbon dioxide is formed. Whereas, producing one pound of paper-based loose fill creates 1-2 pounds of carbon dioxide. Also the additional weight of the paper-based void fill will be negligibly incremental. Therefore, companies have started adopting this as a key trend to reduce their carbon footprint.
Case study: Samsung required a 100% secure postal box which printed jet black internally and an internal black tissue paper
Challenge: Manual method for attaching the black tissue paper was costly. Another challenge was to identify efficient void fill material which can be aligned with the rich image of Samsung.
Solution: Breezebox, offered by Lil Packaging featuring an integrated black tissue paper which looks like the product inside the package is gift wrapped. Need for void fill material was removed
Increasing packaging functionality
The growing e-retail market has increased the demand for plastic bags, cardboard boxes and wrapping tape which has directly increased the packaging waste in countries. China alone generated close to 4 million tons of packaging waste in 2015. In the U.S., it is said that close to one-third of the trash contributes to packaging waste. Moreover, brands are becoming more conscious of this wastage and are looking to build functionalities into their packaging to make it more interactive and reusable. Several innovations in the field of NFC, augmented reality are being adopted by brands such as Coca Cola, Pernod Ricard, etc. to improve functionality, brand image and meet sustainability targets.
Case study: Samsung partnered with Stora Enso to launch their smart phone
Challenge: To make the packaging attractive to the customer while using minimum packaging material
Solution: The Samsung Galaxy S4 was packaged in a 100% recyclable box with a printed wood design on which the manual is printed thereby eliminating the need for a leaflet for instructions. It uses 100% post-user recycled paper and is printed using soy-ink which is itself an environment friendly printing ink. It is said to have resulted in the elimination of 1,000 tons of CO2 emission.
Few measures to implement sustainable e-retail packaging
Shopping event days such as Cyber Monday, Black Friday and Peak Packaging Monday in UK and the U.S. are expected to have increased the e-commerce sales by almost 11 percent. Similarly in China, the Singles Day organized by Alibaba is said to have set a record sales increase of more than 32 percent (close to $20 billion). This spike in sales traffic drives the need for ecommerce players to ensure efficient stocking of packaging material in order to meet order deadlines.
As the order inflow increases rapidly, the struggle to remain profitable while providing deliveries on time and in high quality increases. Now would be a good time for e-retail procurement managers to study and introduce new cost-effective and eco-friendly practices. Sustainable packaging demonstrates to consumers that the company is putting more thought into packaging thereby building brand image. The most preferred formats used in e-retail packaging are cardboard boxes, void fill machines and cushion wraps. Several innovations targeted at reducing packaging material are being developed in these categories to make them eco-friendly.
Therefore, current online retailers and companies looking to enter the e-retail segment to expand consumer base must start looking into sustainable packaging solutions for reaping the benefits of enhanced brand image and meeting sustainability targets. Procurement managers in E-retail segments must build in sustainability into their company branding. Though cost is a major constraint for sustainable solutions, the right practices will help companies to be fore-runners in the direction in which the industry is headed.
COVID-19: Assess impact on your suppliers and ensure business continuity with Beroe’s WIRE
(World Instant Risk Exposure)