This article originally appeared on LinkedIn.
Past growth drivers
Over the past decade, several drivers have generated above-GDP demand growth for pressure-sensitive labels (PSL):
- Growth of consumption of FMCGs in rigid packaging
- Decoration technology (dectec) transfer has been particularly gaining versus wet glue
- Convenience packaging, like fresh fruit and prepared fresh meals
- Emerging markets
- Legislation and regulatory information requirements leading to more and larger labels
If we project the outlook post-COVID for the coming decade we might not see the same impact from consumption growth, dectec transfer and emerging markets. E-commerce will continue to grow. Hygiene and food safety will remain important, although hand sanitizers were probably at their peak in 2020. Consumption from home will probably gradually reduce to a new normal somewhere in between where we are now and where we started pre-COVID. Convenience, resealable and personalization will remain key trends, but not necessarily drive demand growth.
Innovation will be key to the future of PSL
Avery Dennison is spending more time in the ecosystem to understand customer problems. I’d like to encourage all players along the value chain (suppliers, laminators, converters, end-users, and new partners like recyclers) to work together to re-invent our industry.
Let’s have a look at some actual developments in consumer behavior that are impacting innovation. Nearly half (49%) of consumers follow diets or health programs that impact how they shop for food; three-quarters of consumers avoid specific ingredients when shopping for food. My impression is that the majority of the population is selecting the wine on the basis of the label. So, it is fair to say that labels will continue to play an important role in the food and beverage segments.
Supermarkets, like Walmart and Kroger, are developing new retail concepts. What does that mean for the shelf appeal, the shopping behavior and the potential functionality of the label? In parallel, we saw over the last ten months consumer shopping behavior made a large shift towards digital. In 2020 from March to June, online shopping for groceries rose by 80% (from $4 billion to $7.2 billion) in both click-and-pickup and home delivery. The rise of meal delivery kits, such as Hello Fresh or Blue Apron, was anywhere from 120-160% in 2020. Consumers are continuing to utilize services like Instacart for grocery shopping and are interacting less at the shelf themselves. All of these offer opportunities for innovative label solutions such as better performing all-temp adhesives, new security solutions, better clarity on films, etc. With these consumer and retail trends, strategic or even disruptive innovation will be key to protect and grow the PSL industry towards 2030.
A few potential areas for future innovation
First, we have innovations that focus on the label as a material, like thinner constructions, linerless, compostable laminates, recycled contents (which requires technology and supplier development to enable raw material availability, in which the EU is probably ahead of other regions). A lot of these efforts will focus on the reduction of material usage and a reduction of waste. This category is probably more defensive to protect the industry. We need to anticipate the developments and relative value proposition of other packaging and decoration technologies.
A second category of innovation offers more exciting potential by focusing on the label as a system component enhancing the value proposition of the branded product. With respect to the sustainability requirements, the label industry can have an important impact by enabling a circular economy and the recyclability of the container. We need to deliver solutions that do not deteriorate the recycling yield, in order to achieve bottle to bottle capability (mono-materials, easily removable labels with features that enable the separation of waste streams). This requires the development and alignment of an ecosystem to enable an efficient collection, sorting and recycling of packaging.
Another important opportunity is the emerging impact of digitization and the IoT, connecting the digital and physical identity of products, and the possibilities that this offers for labels.
- Intelligent/smart labels can support cost efficiency in the supply chain. E-retailers are increasingly using AI and automation to fill orders and manage inventories, and speed and productivity are critical in these sectors.
- Intelligent labels can create additional capabilities to enable connecting to the customer, enhance the experience and strengthen the trust in the product and the brand, as well as collecting data for the supplier or retailer.
- With respect to recyclability as mentioned earlier, intelligent labels can provide a sensing technology to enable advanced sorting and support the waste sorting and recycling processes.
Collaboration across the value chain (brand owners, retailers, converters, raw material suppliers, recyclers) will be a key requirement for the PSL industry to truly innovate and move forward. We will need to share customer/CPG market insights, test new technologies and identify opportunities for the label to add value. We should work together to provide education, influence changes in regulations and shape the evolution of a circular ecosystem.
We’ve already started to collaborate as an industry, but there is an opportunity to do more. Here are a couple of examples from 2020:
- The launch of CELAB (circular economy for labels) - This is a global consortium of more than 30 companies in the PSL value chain that are partnering to offer solutions and provide education throughout the industry to enable matrix and release liner recycling. The goal is to be able to leverage scale and collaboration across the value chain to develop cost-effective and environmentally favorable solutions. Currently, only 52% of matrix and liner waste is recycled globally and CELAB is pushing to increase that to greater than 70%. Avery Dennison is one of the founding partners of CELAB.
- Avery Dennison invested recently in a technology start-up called RoadRunner. RoadRunner offers “technology for an efficient collection of specific waste streams to avoid landfill”. This pilot started in North America and is focused on the collection of matrix waste at label converters.
- In the intelligent labels space, we are working with brand owners and converters, but also with system integrators, and software companies. We benefit from the experiences and learnings that we gained in the apparel segment where the adoption of RFID and smart labels took off earlier. The acquisition of Smartrac further accelerated our growth and the expansion of our capabilities.
Over the next 10 years, our growth drivers may evolve, but innovation, big and small, will certainly be a key driver for growth moving forward. The step-changes in our industry will happen when we partner together to tackle the big challenges and help drive real change.
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