Navigating changes to food and drink packaging: A guide for investors

Mark Field, director and founder of Prof Consulting Group, outlines what investors need to know about packaging in the food and drink sector 

Setting the scene 

Food and drink packaging is undergoing major transformation with innovations at each stage of the value chain. By responding to regulatory, consumer, and supply chain challenges, companies are finding new ways to reach customers and help them shop more sustainably. The role of packaging is to keep food and drink intact, safe and fresh along its journey from producer to consumer. It provides a space to communicate information to customers and to represent a brand. Carefully managed, it is a window to showcase a company’s values, but poor execution risks significant brand damage. 

Shifts in the regulatory and commercial landscape 

Regulation – responding to concerns about environmental pollution and climate breakdown, the regulatory landscape is shifting to place responsibility on producers for the packaging they put into the market.  

In Europe, the upcoming PPWR is part of the region’s circular economy plan to value waste and minimise its environmental impact. The new regulation updates existing rules and aims to harmonise how packaging is managed throughout EU countries, making trade smoother. PPWR will require all countries to increase the share of reusable packaging which includes deposit return schemes, targets, economic incentives and minimum percentages of reusable packaging. In addition, 70% of all packaging by weight must be recycled by 2030. For some companies this might mean investing in new packaging equipment to handle new materials, for example, in the transition from plastic to paper. For others it can mean an entirely new way of selling, such as using returnable glass jars instead of plastic pots. 

Nations in the UK are considering (England) or have implemented (Wales) deposit return schemes where consumers return packaging to a retail outlet and receive money back. This requires investment into infrastructure such as reverse vending machines. Others are working with digital technology to trace their products through the recycling system starting with the home curb side collection and rewarding customers who participate.  

The UK’s plastic packaging tax charges a flat rate per tonne of plastic packaging with less than 30% recycled plastic. Companies must ensure they have accurate information on the packaging they buy to submit data to a government register.  

Communication on packaging sustainability must be accurate and not mislead consumers according to the upcoming EU Green Claims Directive and the UK’s existing CMA’s Green Claims Code. One of the goals is to ensure that consumers are empowered to participate in the circular economy and can make informed choices. Consumers and NGOs are alert to greenwashing and don’t hesitate to call out companies who overstep the line.  

A new UN treaty to regulate the production and disposal of plastic is expected at the end of 2024. Brands are calling for a limit to the amount of virgin plastic produced and for support on recycling and reuse systems. 

Consumers – people expect companies to ensure their packaging is sustainable and research shows they want to participate in the transformation. According to global surveys, recycling packaging is the most popular sustainable behaviour, practiced by 62% of people. Companies can respond to these needs with clear and accurate disposal communication and with innovation in packaging formats. 

Supply chains – extracting raw materials places undue pressure on natural resources and creates pollution that worsens climate and nature breakdown. Reducing the extraction of virgin raw materials, such as oil and timber, is urgent. Food and drink companies can limit their contribution to these challenges and take the opportunity to strengthen their resilience in the face of shortages and rising costs. UK and EU packaging leaders are moving from efficiency and lightweighting towards new materials, recyclable and recycled, and reusable packaging formats. For example, alcoholic drinks companies are experimenting with infinitely recyclable aluminium instead of glass, and being lighter, the product has fewer transport emissions. 

Risks and opportunities 

Companies who are unable to understand or keep pace with regulatory changes face increased costs resulting from levies on non-recyclable packaging, fines for misleading green claims and increased costs of excess packaging. Evidence shows that if customers are disappointed, companies will lose sales.  

However, leading companies in the sector are embracing the transformation and innovating across the value chain. For example, with smart packaging technology using freshness tags; using alternative materials to plastic such as seaweed coatings and mushroom fibre cushioning; and using more reusable and refillable packaging. Infrastructure to support circularity is also growing, with refill stations, mobile and fixed reverse vending machines, and scanning and tracking technology increasingly prevalent. Cameras and cloud-based systems can be used to enable traceability and visibility over each process involved in collecting, recycling and cleaning packaging.  

Companies that can promote and support convenient sustainable living will succeed in today’s crowded market. Many value-driven brands are entering the market and winning customers on this basis. 

What should investors be asking? 

Investors who want to understand the sustainability of packaging used by food and drink businesses should be asking management teams the following questions: 

• How does the business actively prepare for upcoming regulatory change and comply with existing regulations? 

• Does the business follow industry codes and benchmarks? 

• How does the business track the competitive landscape and identify gaps and innovations that resonate with consumers?  

• Does the business understand how customers use and dispose of their packaging? 

• Does existing packaging have clear recycle/reuse instructions? 

• Can the business substantiate claims on packaging sustainability? 

• Does the business know and manage the full life cycle along the value chain from raw material production through to disposal? 

• Does the business communicate their sustainability status openly e.g. on website linked to a QR code on packaging? 

• How does the business collaborate with stakeholders in all markets to ensure their packaging is reused/recycled correctly? 

Prof Consulting Group helps to lead business to success in the UK and Australian food industry with its team of industry-leading experts and extensive range of services. For more information or to discuss how Prof. Consulting Group can support your business, please visit https://www.profcg.com/contact/