Life Down Under
When compared to other markets, the metal packaging market in Australasia is relatively mature and has offered some substitution, particularly in the baby food sector. There have also been impacts recently due to imported filled goods (canned tomatoes, canned fruit, aerosol products) as the Australian dollar fluctuates.
However, metal packaging in Australasia remains a popular medium when compared to global share. The Australasian metal packaging market is fairly well consolidated with a small number of large competitors and like a lot of markets, the survival of cans depends on functionality and cost. All can formats are represented in the market and in the past the can metal market remained the preferred substitute for water-based paints with many brand owners.
Jamestrong Packaging Australasia operates out of five manufacturing facilities producing around 600 million cans in total, three in Australia and two in New Zealand. It services the human food, pet food and nutrition sectors with three-piece tinplate cans and produces aluminium and tinplate aerosols for several end-use markets. Jamestrong and its predecessors have over 60 years experience in the metal packaging market in Australasia and since the change in ownership, none of the senior management team have left due to the ownership change.
As in all markets, innovation is critical and whilst metal packaging incorporates plenty of ‘unseen’ innovation, it still continues to be a key offering. An example of this is in easy-open ends for food cans where Jamestrong has been working with Arthritis Australia to demonstrate the operability of the latest generation of easy-open ends.
Whilst within the Australasian market metal packaging growth is relatively stagnant, the region does have the potential to play a broader role within Asia Pacific. A number of foodstuff products in Australia and New Zealand have a very high reputation for quality. As the developing economies and increasing urbanisation drives a different consumer profile in the future, Australasia is well placed to meet some of that growing demand.
A good example of this is in the infant formula and adult nutrition products being filled in Australasia. Many brands are achieving success both domestically and through official or unofficial exports into China. This situation is evidenced by the Free Trade Agreements recently agreed between Australia, New Zealand and China and other Asian countries. The infant formula market in China is expected to grow from $18 billion per annum to around $33 billion per annum in three years. With the relaxation of the one baby per couple rule in China, perhaps this growth will continue.
Jamestrong Packaging itself has a strong pedigree in infant formula can making and recent investments will continue to ensure it keeps it at the forefront of product offering to this market. With Chinese ownership it also has the ability to leverage relationships domestically and internationally.
In the real world of metal packaging, providers face many challenges in the market within which they operate. Australasia is no exception due to the relatively low populations and high landmass in Australia and New Zealand and there are some particular challenges to address.
The metal packaging market is highly competitive and whilst there has been some consolidation, it still remains a market with over-capacity in many of the formats.
The relatively small size of the market does make it somewhat unattractive to new entrants with low growth in most markets and relatively high manufacturing cost. In addition, as we all know, our industry is fairly capital intensive. As commented on earlier, there has been some substituting with metal packaging. One of the key substitutes has been within baby food cans, which has had a fairly high conversion rate to pouches. Pet food cans have suffered a similar fate to some extent. Metal packaging does of course have some strong messages and positives to delivery with respect to sustainability (versus plastic), weight (versus glass) and supply chain robustness (versus composite). In the area of beverages, Australasia is still a relatively low adopter of aluminium bottles, but there are still opportunities within some markets where marketers see some potential and aluminium’s temperature retention and safety characteristics could be attractive.
As in many markets, packaging buyers are in a fairly strong bargaining position. However, their organisations are also generally facing huge pressure from the retailers. In Australia, Coles and Woolworths represent a large presence in the food retail market with over 70% market share. This contrasts with the US where even the biggest retailer Walmart only has a 15-20% share.
Due to consolidation of some brand owners and their global presence, benchmarking is a tool readily used by local purchasers. Again, the benchmarking discussion often returns to the issues around overall market size and economies of scale; this doesn’t alleviate the pressure though.
Metal Packaging providers are often accused of not bringing enough innovation to the market, but even when innovations are introduced, the response is often to do with price. This drives more innovation down the route of a value engineering/cost reduction focus.
On the other side of things, the suppliers to the metal packaging market also have some bargaining power. With no packaging steel in production in Australasia, the product is sourced from Asia or Europe. The canmakers generally do a good job in getting options around each specification to aid negotiations but the volatility in exchange rates ensures that currency protection is in place.
In relative terms, we consume low tonnage in the region but often the major mills see the volume as attractive and marginal, therefore pricing is not necessarily linked to volume. Outside of tinplate, other process materials are often sourced from overseas. The canmakers also need to make a choice around ‘make or buy’ strategies with respect to components. With many component manufacturers in Asia Pacific and Europe, again this is a decision based on local volumes and manufacturing scale.
Despite the challenges described, the local metal packaging providers have opportunities to contain the threat of imported goods. Given the Australasian geography and the power of the retailers, in an ideal world fillers want a local supply chain. If the local canmakers can ensure they keep on top of costs, maintain and invest in their equipment and people, then they can place themselves in a good defensive position.
There are both challenges and opportunities for metal packaging providers in Australasia. What Jamestrong believes is that through being flexible, responsive and agile, that is what will drive customer loyalty and reliance.
Clearly that can only happen through investment and sustainable maintenance in the areas of people and equipment. Growth opportunities in selected markets remain given Australasia’s food quality and safety reputation so the future for the region is more exciting now than ever.