Packaging plays an increasingly important role in supply chain efficiency. But it is also crucial to product protection and an important communicator with staff and shoppers. On 14 December, the city council of Capitola, California (a small community on the Pacific Ocean near scenic Monterey Bay) joined about 100 other towns across the state by passing a law banning polystyrene foam food packaging and mandating the use of compostable materials by July 2007. The campaign was certainly not unusual. For years, legislation by local governments in both Europe and the US has had an impact on packaging. The bottom line is that it is no longer just about putting on a pretty face.
Sparked by increased government regulations, consumer awareness and retailer demands, packaging has emerged as an integral part of the food industry’s long-term strategy and a product’s success can often be determined by whether its packaging is sustainable, efficient, ‘green’ and perhaps most important of all – retail ready.

Balancing act
“The trend today is looking at the product and making sure packaging fits the purpose,” said Tarun Patel, head of supply chain and ECR for IGD. “In some cases, products warrant reusable packaging while others don’t. There’s also a call to reduce packaging. But if you strip out too much, it could lead to product damage and even greater waste. It’s a real balancing act.”
Xavier Hua, director of supplier relations for French retailer Carrefour, agreed. “Existing laws force everyone to reduce the amount of packaging being used. We have to cope with all regulations and those around sustainability are becoming more constraining.”
This has an effect on the type of packaging material companies have to use, noted Bernard Fradin, international customer supply manager, Kraft Foods, who, along with Hua, co-chairs the ECR Europe Shelf Ready Packaging project.
Clearly, government intervention is becoming more pervasive. In a recent interview with the BBC, UK environment minister Ben Bradshaw asked consumers to report companies they feel use excessive packaging. He made the comments following a meeting with 13 of the UK’s largest grocery retailers who have already cut packaging waste by some 35,000 tonnes. The UK’s Waste and Resources Action Programme (WRAP) calls for producers and retailers to cut packaging waste by 340,000 tonnes by 2010. Legislation on packaging waste would be considered if it was not done voluntarily, Bradshaw said.

Wal-Mart goes "green"
Wal-Mart, as part of its new ‘green’ strategy, has already taken the initiative with regard to sustainable packaging – moves which have been met with enthusiasm by environmentalists and scepticism by the chain’s union-backed critics. Overall, the chain’s goal is to reduce packaging by five per cent in its global supply chain by 2013.
“A two per cent reduction in package size is worth millions and millions of dollars,” said Matt Kistler, vice president of product and packaging innovation. “You can get more in a container, more in a truck and more in a boat. The numbers are just amazing,” he said in a recent interview. In fact, when excess packaging was cut from its private label toy line, the company saved about US$2.4 million in annual shipping costs.
Wal-Mart is willing to back up suppliers who conform to its new smaller-is-better philosophy. For example, Unilever was reluctant to cut down on the size of its laundry detergent for fear of losing shelf space. However, Wal-Mart made it a VPI product – in-house vernacular for volume producing item – and compensated Unilever with product heavy promotion and end-aisle displays with lots of signage.
However, Wal-Mart has also begun scorecarding suppliers on how well they help the chain reach its reduced packaging goals. The scorecard also enables suppliers to compare and evaluate themselves with other suppliers on specific metrics known as the “7 R’s of Packaging” – remove, reduce, reuse, recycle, renew, revenue and read.
The metrics, developed by the Packaging Sustainable Value Network, determines how things like packaging innovation, environmental standards and energy efficiencies compare with their peers. The scorecard is broken down as follows: 

. 15 % will be based on material value;
. 15 % on product/package ratio;
. 15 % on cube utilisation;
. 10 % on transportation;
. 10 % on recycled content;
. 10 % on recovery value;
. 5 % on renewable energy;
. 5 % on innovation.

The initiative began with Wal-Mart’s 2,000 private label suppliers and slated to be available in February to 60,000 suppliers throughout its supply chain. By this time next year, the chain will begin using the scorecard to measure the performance of all its suppliers.

Retail ready rollout
However, the big buzzword in retail and manufacturing circles this year is retail or shelf ready. “Demand for shelf-ready packaging (SRP) has continued to develop in the UK, Germany, France and Scandinavian countries and has become a requirement of some leading retailers,” said Kraft’s Fradin. “Demand is expanding into new geographies such as Italy, Spain and Belgium. It’s one of Carrefour’s requirements in South American countries such as Brazil, Argentina and Colombia and shelf-ready packaging is being pushed by Coles and Woolworth in Australia who have made it a requirement for suppliers,” he said.
However, this is not available for all products, nor is it the panacea for price. “One of the guiding principles of SRP is that it should drive value to consumers. But it is not a value driver in all cases. In some instances, implementation could translate into additional costs in the supply chain,” Fradin remarked. “For example, factories may require some additional capital investment. Moreover, SRP may translate into additional packaging for which extra cost would not be offset by efficiencies at retail.
Fradin and Hua echoed the comments made in the recently published ECR Bluebook, which they feel is a fair representation of the industry’s attitude toward shelf-ready packaging. “But in itself, SRP is not a best practice and has to be considered in the context of existing best practice recommendations, such as efficient unit loads. It must also be viewed on a case-by-case basis and we are proposing a collaborative process to assess the potential benefits and risks of SRP,” Fradin said.
Carrefour’s Hua added: “I don’t think it could ever become a best practice in the same sense as other issues. Success depends so much on the quality of execution.” Additionally, over the past couple of years, a multiplicity of country-specific initiatives and retailer guidelines have emerged. “This is the reason ECR Europe established a work group to define pan-European principles that can be applied to SRP,” he said.

Focus on replenishment
While a combination of factors is driving SRP, product replenishment is the major one.  “If a product is not available, shoppers could walk away from the entire brand or the store. The other issue is navigation. They are faced with a plethora of messages when they shop but may have difficulty finding products,” said Patel. “Shoppers could see retail-ready packaging as an industry solution to create a better shopping experience.”
Patel, as other observers, has a mixed opinion of whether retail ready equates to less packaging. “The industry has already taken a lot of packaging out of merchandising units. But for the first time as an industry, we are reappraising all products and re-evaluating secondary packaging and asking whether packaging really has a purpose. The driver is improving in-store productivity – getting product from the back of the store to the shelf,” said Patel.
However, retail-ready packaging is not without its challenges due to changes in the existing supply chain infrastructure. “You may have a single product line in Europe producing one item that goes into a single cardboard case which is then placed on a pallet for shipment. Retail-ready packaging may eliminate the case, with products instead delivered on a series of trays. This can be an expensive change in configuration,” Patel said. “The question is how suppliers can manage the cost and whether the benefits of retail-ready packaging outweigh the cost changes they bring.”
Another issue is around standardisation. “If you have a single plant producing a single product, do you want different packaging configurations for Tesco, Metro, Carrefour and Ahold because retailers are always looking for a point of differentiation; or, do you try to standardise as much as possible? This is a potential barrier.”
The study on shelf-ready packaging conducted by Accenture for ECR Europe, states that shoppers are unwilling to pay any extra costs related to SRP implementation. However, it also noted that the industry is still working through the cost factors and benefits for different products have yet to be measured. Furthermore a collaborative and consistent business case approach is required to assess costs and benefits of implementation – a process which many in the industry are currently going through; but the research is unequivocal – the industry could do a lot better. “This is not just a packaging issue,” Patel remarked. “It’s about store operations, buying and production. It has to be a business-led issue.”