This guest post is by Thilo Henkes, Jeff Cloetingh and Rory Murphy. Henkes and Cloetingh are Managing Directors and Murphy is a Principal at L.E.K. Consulting. They are based in Boston.

The plastics market is thriving; the Economist reports that global production is increasing nearly three times faster than the world gross domestic product (GDP). From the convenience of grocery bags and water bottles to the lifesaving properties of impact-resistant car parts, plastic is embedded in our everyday lives. However, with increased plastic production comes proliferating plastic waste — and growing awareness of its effect on our environment.

As the spotlight on plastic pollution shines brighter, U.S. consumers have become empowered to use their wallets as an instrument of change, choosing sustainability over convenience in growing numbers. According to Nielsen, 48% of consumers say they’d change their consumption habits to reduce their impact on the environment, and the growth rate of their purchase of sustainable products is four times larger than the growth of their purchase of conventional products. It seems inevitable, then, that “green” packaging will become increasingly prevalent, which raises a question: Can sustainable packaging and plastic packaging coexist in the same evolving landscape?

L.E.K. research shows they each can succeed – by expanding the pie of packaging materials, or substrates. This opens up opportunities for brands, packaging companies, and investors to add another – sustainable – substrate to their lineup, particularly in the single-use product category (e.g., straws, grocery bags, beverage cups, etc.) which is getting more consumer attention, and concern.  In our 2019 survey of 250 major brand owners, 85% recently made at least one change in packaging substrate material, mostly to increase the ease of recycling.

We believe brand owners should be looking for opportunities resulting from the expansion of the packaging pie. They should be reassessing strategies based on consumer trends. And they should always be asking a few key questions:

  • Does a brand or sub-brand extension (based on sustainability and sustainable packaging) make sense?
  • Would adding green single-use SKUs to the mix be the right move?

And packaging converters should consider expanding — but not entirely replacing — current offerings with new eco-friendly options.

The global consumer and regulatory context related to views and practical constraints around sustainable packaging is evolving, and also important to consider. As images of plastic-clogged oceans spur a tsunami of media attention, the sustainability movement has become a worldwide trend. But the drivers of change are vastly different depending on where you look. For instance, Europe has adopted a model of wide-sweeping national government regulation, beginning when France said au revoir to plastic bags in 2015, followed by the country’s total ban on plastic cups, plates, and cutlery by 2020 — the first time a country has taken such action. Following suit, the EU recently passed a ban on all single-use plastics, such as plates, cutlery, straws, and even cotton swab sticks.

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However, nation-wide government bans on single-use plastic products are unlikely to reach American shores in the near or medium term. While single-use plastic bans have occurred at the state and municipal levels (e.g., New York’s ban of single-use Styrofoam food containers), the U.S. sustainability trend has been led by consumers and brand owners with regulation playing a much less significant role relative to Europe.

Starbucks, for example, will eliminate single-use plastic straws from its 28,000 stores around the world by 2020, offering straw-less lids or alternative-material straw options instead. Coca-Cola plans to collect and recycle the equivalent of every bottle or can it sells globally by 2030. Unilever is pledging to ensure all plastic packaging is designed to be reusable, recyclable or compostable by 2025. Consumers are being offered greener options (e.g., paper straws, plant fiber-based paper plates) in big-box stores like Walmart and Kmart. And sustainable packaging is gaining traction across end-user markets from foodservice to food and beverage to consumer products.

Does this mean the beginning of the end for plastic? Will consumers be eating their takeout with potato-starch bioplastic forks, with no plastic ones in sight? While it’s true that foodservice-ware by its very nature can create a zero-sum game for plastic (e.g., you either offer a plastic straw or you don’t), there are plenty of opportunities for sustainable and plastic packaging to each succeed by expanding the spectrum of packaging substrates in various markets and formats (e.g., some QSRs will offer a polystyrene coffee cup but with an upcharge).

For example, imagine a quiver filled with three substrates used in three types of single-use dinnerware: plastic plates, paper plates, and biodegradable plates. The budget-friendly plastic option may appeal to a consumer who makes buying choices based on cost or convenience, while some eco-conscious millennial consumers may choose to spend extra cash on the green option. The brand has two additional SKUs on the shelf, and the consumer has a choice of good, greener and greenest at three price points.

Another example of expanding consumer choices, and opportunities for brands: In 2016, Unilever acquired eco-friendly home care and goods company Seventh Generation. This well-established brand offered something that wasn’t in Unilever’s existing lineup – plant-based cleaning products sold in innovative, recyclable packaging.

Take, for example, its line of laundry detergents, available in 2X and 4X concentrations, as well as in ultra-concentrated form. The 2X concentration bottle is composed of 100% post-consumer resin — an environmentally friendly packaging option made from recycled polyethylene terephthalate (PET) bottles and other plastics. Seventh Generation’s 4X concentration boasts a bottle made from 70% recycled cardboard and 30% recycled newspaper. (The detergent itself is contained within a recyclable shell inside the bottle.) Most recently, the company rolled out its ultra-concentrated laundry detergent in a bottle made with 100% recycled PET. This compact 23-ounce bottle can wash 66 loads and is geared toward easy dosing and more efficient shipping.

In short, while there continues to be headroom for plastic, there is an outsize opportunity for packaging converters, brands and investors to leverage the sustainable packaging trend by expanding lines and offerings, especially in the single-use category. Even though sustainable single-use products and other recycled materials often cost more for brands and suppliers right now, based on our clients’ experiences, we believe that increasing competition from innovative players, emerging technology and consumer demand will eventually drive prices down — opening up the market to tremendous growth and investment opportunities.

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