(Conclusion. Read the beginning in issue № 4.2018)
Modern product differentiation solutions are not limited to labeling –a product package may stand out on its shelf due to its material, color, shape, and sealing design, as well as thanks to the amount of product within the package, offered to the consumer at the same price. The latter trend, involving reducing volumes of goods in a package for the purpose of better meeting the current consumption situation as well as consumer budgets, is called downsizing and is worthy of a separate mention. In terms of technologies, packing the same volume into smaller packages constitutes a task for manufacturers to manage to fill said volume into more units of packaging within the same period of time, which requires equipment with higher performance.
Industry standards have been changing under the influence of production opportunities and modern consumer trends. For instance, in packing whole milk and kefir, manufacturers initially aimed at the volume of 1 liter, whereas in the segment of drinking yogurts single-serving package volumes of 0.25 and 0.5 liters are popular. However, against the backdrop of raw milk shortage, a number of manufacturers reduced their standard doses to 0.9 liters per package for milk and 0.45 liters for drinking yogurts without decreasing prices per unit. It took consumers a bit of time to notice the change, as they did not suffer significantly in financial terms and were quite content with the new volume due to the universal trend of ‘package individualism’. Said trend, which is characterized by a reduction of package volumes and development of individual packages, is accompanied by an expansion of flavor ranges with the aim to try and please everyone, so to speak. Even family consumption is affected: if in the past mothers would buy a large package to split between two kids, now they would likely buy one smaller package for each, possibly with different flavors. The dairy industry did not stop at decreasing the traditional package volume from 1.0 liter to 0.9 – today this is not connected with raw material shortage, but rather with growth in consumer trust to and interest in farm products, perceived as more natural and healthy, which is particularly important for the dairy segment. During the past few years in the market, in particular in the regions of Russia, new players with relatively small-scale production of 5–7–10 tonnes per day have emerged. Unlike large manufacturers, economically, they are unable to use the advantages of production scale. Upon entering the market they face 2 main challenges – selling the whole volume of goods produced at the highest price possible to the widest possible audience, primarily in order to introduce consumers to their products. It is interesting to note that, when it comes to farm products, consumers consider them to be more natural and high-quality, thus being ready to pay more for them – or, for that matter, to receive a product of a lower volume but of better quality at the same price. This gives smaller manufacturers a perfect opportunity to develop successfully. At the same time, studies on dairy consumption habits reveal that, when a package around 1 liter in volume, only part of it (0.3–0.8 liters) is used for drinking of cooking right away. The product then stays in the fridge until next time, which usually follows on the next day. In this context, a package that can be opened and closed repeatedly is advantageous – however, even under proper storage conditions, product quality begins to deteriorate rapidly after the package is opened for the first time. It has also been established that product leftovers from the previous day often turn out to be insufficient next time, and consumers have to open another package, which, in turn, will also not be used fully within the day. As a result, part of the precious product remains unused in numerous households, and up to 20% end up being thrown away due to lost consumer properties. Research on the consumption situation indicates that sales of goods in smaller packages, corresponding with the volume that can be consumed at once, are actually beneficial for manufacturers, consumers, and stores. In the segment of milk said volume is estimated at around 0.6 liters.
Considering that a lot of consumers lead an active lifestyle and the volume of food products consumed outside the home has been on the increase, packages shrinking to single-serving consumption are understandable and justified from the point of view of both consumers and producers. Today individual packages grouped together in one become relevant.
Is has been found that sales in the segment of ‘family package’ primarily maintain their rates not due to the fact that consumers need large amounts of goods, but rather due to buyers being unwilling to visit stores often. The trends towards package shrinkage may be linked to the trend of hypermarket development and consumers preferring making purchases for 3–7 days at a time, covering multiple categories in one place. For this scenario, the optimal solution is selling goods in smaller packages but combined into a group package with the volume consumed by a household during the time period between grocery shopping (that is, 4–6 bottles per package). The use of group packages also provides companies with trade marketing opportunities and possible growth in sales through attracting consumers with various special offers, for instance ‘4 for the price of 3’ or ‘1 package for free when buying 5’. Group packaging allows buyers to consume goods in a fresher and thus quality form, and manufacturers get to sell the same volume to a wider audience at a higher price. Average-sized bottles of up to 0.6 liters in volume are characterized by low height, which makes it easy to place them in a fridge both in the store and at the consumer’s home. Group packages are convenient in terms of layout in stores, accelerate turnover of goods with a short shelf life, and increase the average check size.
The trend towards a reduction of package volumes can be observed in other segments along with dairy goods. For instance, in the context of developing winemaking, manufacturers face the goal of introducing new wine varieties to as many consumers as possible and forming a certain culture of quality alcohol consumption both in their region and beyond. Split and half bottles from 0.187 to 0.375 liters in volume are perfect for this purpose. Wine in small containers is not only perceived as an alcoholic beverage by consumers, but also as a potential souvenir from its place of origin, especially if the product’s name is associated with the grape variety used and the place of growth and production. Wine in small bottles is an excellent option for tastings; it can serve as a great reminder of certain locations visited in the past, or as a small gift for friends and relatives. The use of said containers can not only increase sales in the product’s sales area, but also make the manufacturer more well-known in other regions. In addition, products in smaller containers typically have higher margin potential, ensuring higher profits from selling volumes produced.
The potential of the Russian market is interesting to both foreign and domestic manufacturers of packaging equipment. The peak in production equipment setups fell on the mid 2000s, when the whole food and drink industry was switching to selling packaged goods. Today, growth rates in the market are slower, and most sales fall on upgrades and expansion of already existing and operating machinery and facilities. A number of clients base their decision on their own past experience with packaging equipment operation in addition to equipment performance, container type and financial capabilities, and therefore their requirements for quality have become much higher. The nationwide import substitution strategy in the form of state subsidies of up to 15% of the costs of acquired production facilities and the possibility of getting lower interest rates while purchasing food processing equipment on credit, combined with increasing exchange rates in 2014 led to a reduction in effective demand for imported equipment but did not affect its image in the eyes of potential consumers. This is especially true for large multinational enterprises which, deep down, still prefer highly efficient production lines by manufacturers from Italy, Sweden, Germany, Bulgaria and other European countries (“AVE”, “Ecolean”, “Galdi”, “GEA”, “GTL-packaging”, “Index-6”, “Krones”, “SIG Combibloc”, “TetraPak”, “WeightPack” and others), but have been opting for domestic alternatives due to the ratio between performance and lower costs. Chinese machinery is not as demanded in Russia as Chinese goods in the FMCG segment – entrepreneurs understand that by saving on quality of productive assets they risk suffering significant losses in the process of using them.
As filling and bottling are among the most complex forms of packing and work in the field of machine building requires considerable intellectual resources and production equipment, a number of manufacturers follow the strategy of specialization on a single type of equipment or a single product variety. For example, “Profiteks” LLC (Pyatigorsk), having started their business with equipment for packing yogurt and sour cream in plastic cups, expanded to machines for filling liquid dairy goods in Pure-Pak containers, plastic buckets, polyethylene bags, PET cans and bottles over time.
It should be noted that industrial machine building is more developed in Saint Petersburg than in the Central region, where representative offices of foreign players as well as engineering companies are located, for the most part. For instance, “Lenprodmash” CJSC in Saint Petersburg specializes in production of rotary filling machines for beverages (alcoholic and non-alcoholic drinks, carbonated and still), vegetable oil, milk, sauces and syrups. Filling equipment for dairy and other viscous products, including equipment for packing in doypacks and Pure-Pak, is offered by “Tauras-Fenix” CJSC. “Megamash” LLC manufactures linear and rotary bottling lines for the beverage, fats and oils, and household chemicals industries. Other regions also have plenty of goods to offer: bottling equipment is produced by “PKC “Orelpishemash” LLC (Oryol), NPO “Kompaniya (Company) “AVIS” LLC (Izhevsk), “VIYa” LLC (Sverdlovsk region), and others.
A wide variety of offers can be found in the segment of linear production lines simpler in terms of technologies used and having lower productivity (up to 1 thousand packages per hour). Demand for said equipment as well as separate units for rinsing, filling and capping has declined in recent years and is mainly expressed by companies looking to perform upgrades of their operational production lines. Machines combining several functions in one packing zone are most demanded in the market today; these include uniblocks (filling and capping) and triblocks (rinsing, filling and capping) operating non-stop using the rotary packing technology. Several steps being performed within a single packing zone helps manufacturers achieve higher levels of safety and hygiene, especially when combined with the use HEPA filters and equipment being connected to a CIP system.
Demand for packaging equipment and materials goes hand in hand with demand for particular food categories, undergoes ups and downs along with it, and adapts technologies to relevant trends. Together with the beverage industry, packaging manufacturers enjoy hot summers and consumers’ active lifestyle. Both alcoholic beverage producers and the packaging industry suffer from the rise in excise duties and prices for final goods, as well as bans on advertising and sales of beer in large PET containers. The capabilities of food producers are always limited by the capabilities of equipment that they use, and food and beverage companies are always interested in using equipment that is both reliable and convenient to maintain and ensures proper cleanliness of the product line and ease of cleaning, in new sealing methods and in additional options for extending product shelf life or reinforcing fragile containers (e.g. liquid nitrogen dosing). At the same time, packaging machine building is a technically complex industry, which requires specific knowledge of technologies and engineering as well as considerable investments in production facilities. Not all Russian machine building companies are quick to react to market signals and changes in consumer trends and are capable of competing with Western manufacturers of packaging equipment. For instance, in terms of technologies, packing of the whole volume of goods produced by a given company in smaller containers is supposed to be carried out at faster rates and with frequent switches between flavors, which dictates how the filling process should be organized and creates requirements for hygiene in the packing zone. But it is technology solutions that often determine global trends in the packaging market for several years ahead, and therefore we will be closely monitoring further development of this sector, which is so important for Russia’s domestic food and drink industry.
Strategic Marketing Specialist
in the food and drinks industry