According to recent industry predictions, the flexible laminated polymer packaging market in Asia grew annually by 3.3 per cent (CAGR) between 2010 and 2015, which accounted for more than 70 per cent of the total packaging industry volume in 2015.
This is forecast to continue to grow, reaching 4.1 per cent between 2015 and 2020. The forecasts are understandable, with the Chinese flexible packaging market valued at more than US$8 billion in 2015, while Thailand’s flexible packaging market was valued in excess of $1.08bn.
In ASEAN – the ten-country grouping known as the Association of South East Asian Nations – the driver of this growth has been the successful implementation of both the ASEAN Free Trade Agreement (AFTA) and the ASEAN Economic Community.
Between 2000 and 2010, AFTA reduced Intra ASEAN tariffs on all products to zero, conditional upon proof of manufacture, such as a a Country of Origin Certificate, which is the warranty that no less than 40 per cent of all components originate in an ASEAN country. There is no requirement that the 40 per cent is actually produced in a single country.
Therefore, in the case of a personal care product, the chemicals could be sourced from Singapore and Malaysia and shipped to Thailand, the package could be manufactured in Vietnam and the whole product filled in Bangkok, labelled and exported to retailers in Indonesia, the Philippines or any other ASEAN country and incur no import duty at any of the border crossings.
This allowed brand owners the flexibility to locate their production plants in the most logical, low-cost countries and export to their markets. Flexible packaging obviously scores big-time over alternative materials, such as rigid plastics, due to lighter weights and the reduced shipping costs.
The AEC, introduced in 2015, effectively established a South East Asian Economic Community promoting the free movement of capital investment and labour. The 2015 AEC saw hitherto ‘local brands’ expanding across borders to become regional brands, a classic example being the Thai Bev acquisition of F&N Singapore in the beverage sector, Thai firm Berli Jucker’s acquisition of French company Casino’s retail assets in Vietnam, and Philippines-based San Miguel-Yamamura’s expansion of its packaging footprint in Vietnam and Australia.
The benefits of these macro regional policies are felt at street level; between 2000 and 2015 the average individual disposable income across the region has risen from an annual US$50 to $300 – a huge 600 per cent. This has effectively put more money in the consumer’s pocket.
Certainly, the region still has high poverty levels, but even low-income families aspire to life’s luxuries occasionally, which accounts for the dramatic rise in modern retail trade over the past eight years. Vietnam is the strongest performer, hitting a sales growth of 9.5 per cent in 2014 before settling down to an average of 6-6.5 per cent over the last year, while most other ASEAN economies average between 2.9 and 5.5 per cent.
Japan, on the other hand, barely limps along with 0.2-0.4 per cent sales growth, a perfect explanation for why Japanese retail giant AEON has been making significant investments in South East Asia and is now the dominant player in Vietnam, Malaysia, and Cambodia.
Japanese brands such as Nissin, Kirin and Ajinimoto dominate supermarket shelves in each market through a local joint-venture partner, usually a different partner in each country.
While Japanese converters such as DNP (Dai Nippon Press), Toppan and Rengo have all invested in flexible packaging production plants in Vietnam, Indonesia and Thailand, there is plenty of room to grow. Even with modern retail sales growth ranging between 2.9 and 6.5 per cent, the ‘modern retail trade’ represents less than 33 per cent of the total market capacity and has done since 2010.
Despite the growth in modern supermarkets and retail malls, traditional retail – the street stalls and wet markets – still hold more than two-thirds of sales and has done for more than a decade. The reality is that although modern retail is showing robust measurable growth, the village mom-n-pop stores are actually out-pacing the big organisations in sales performance.
The Indonesian department of commerce estimates that in rural areas, over the past three years village-level new store openings have been expanding at a yearly rate of more than 200 per cent. Typically, when a family gets some disposable capital after paying school fees, buying the TV with cable and the motor-scooter, the next move is to open a store, usually in the front room of their home, and begin trading.
Again, flexible packaging dominates the front room, with single-portion packs of everything from shampoo to tobacco hanging from the ceiling in perforated strips. It is literally the flexibility inherent in the pack that gives flexible packaging the edge in the market; detergents, shampoo and personal care products can be found in similar pouches to condensed milk – almost entirely replacing canned milk, or RTD (Ready To Drink) tea – replacing the PET bottle.
A walk through the typical small town mini-mart is an eye-opener to the inventiveness of brands when it comes to flexible packaging use – and it dominates the retail shelves across South East Asia.