Investing in an Innovative Future for Packaging

For any sector, the levels of investment in R&D offer an invaluable insight into the trends and sentiment behind commercial performance. Insights from L.E.K. Consulting’s 2024 European Brand Owner Packaging Survey show investment and innovation in rude health across the region, with increases of over 5% in some geographies.

What’s driving this trend? Our data shows a majority of respondents seeking material or cost reductions, closely followed by the desire to hit sustainability targets and the quest for improved performance (see Figure 1).

Smart packaging on the rise

Smart packaging features are increasingly gaining popularity, a growth driven by the desire to both differentiate at the point of sale and enhance customer engagement, interactions and brand loyalty.

Quality indicators such as temperature gauges top the list of smart packaging features adopted, rising from 47% in 2022 to 64% in 2023 — an encouraging increase of 17% over a 12-month period (see Figure 2). This is closely followed by an increase in the number of consumer engagement QR codes being used at 61% — a leap of 22% on the previous year.

Respondents cited positive support for smart packaging from across sectors and geographies. Their feedback highlights the multiple benefits of smart packaging, making a compelling case for its future:

“Our customers really appreciate the company’s commitment to effective, safe pharmaceutical products, monitored in real time, [which] leads to increased brand loyalty.”
— French health and wellness brand

“A temperature indicator in the packaging proved to be a strategic move that increased both profits and sales.”
— UK food and beverage brand

“The smart labelling identifier offers personalised product suggestions and discounts based on customer preferences obtained from the collected data.”
— Spanish food and beverage brand

“This smart packaging method will significantly increase consumer satisfaction and engagement by providing valuable information and instructions on how to use and benefit from the product.”
— German household brand

Ecommerce clicks with consumers

As online shopping continues to grow in popularity, brand owners are looking for new ways to tailor packaging to suit specific channels.

The brand owners taking part in our survey expect ecommerce to continue to gain market share to 2027 and beyond, an increase driven primarily by growth in ecommerce marketplaces. They told us that they anticipate a further decline in sales at bricks-and-mortar locations. In addition, they said the troubled direct-to-consumer model is facing difficulties, especially among brands that are largely supported by venture capital and relying on buying revenue rather than generating it organically.

The rise of ecommerce is a trend common across all end markets (see Figure 3), with substantial growth in online sales for beverage, health and household, and food brands over the past four years of c.79%, c.54% and c.39%, respectively. Much of this growth can be attributed to the impact of the COVID-19 pandemic, and this trend is expected to decelerate in the future, pointing to a more subdued outlook for ecommerce in these sectors.

In contrast, our survey shows pet food and consumer electronics categories exhibiting a more consistent and viable penetration of the ecommerce channel, with steady trajectories and sustainable growth at 10%-15% over the past four years.

Consolidating stock

Throughout the COVID-19 pandemic and the cost-of-living crisis, there has been a progressive consolidation of stock-keeping units (SKUs). Brand owners taking part in our survey put this down to a combination of the removal of failed products, the complexities of managing a broader product range and incremental supply chain costs.

Over 80% of respondent brand owners experiencing an increase in SKU count cite product innovation as the driver. Their primary areas of focus include enhancing added value of existing products beyond packaging, creating innovative packaging formats for current products, and introducing new products within existing brands.

The Big Picture

In our next article we look at how the sustainability agenda is continuing to make its presence felt in the packaging sector. You can also read our summary on the demand trends driving brand owners’ packaging decisions.

If you would like to talk with us about these topics or access the full survey results, please contact us.