Packaging machinery demand growing

"The Atkins effect," RFID among the drivers in the food and beverage categories

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?        New machines are being added to expand automation and reduce labor costs. Fifteen percent of those ordering machines this year cited the need to expand automation and reduce labor costs as the primary reason for installing new packaging machinery. "Our company is determined to automate the configuration of our existing packaging lines this year; they're much too labor-intensive," said a maker of clinical foods and vitamin products.

?        There is a gradually emerging need for expanded packaging capacity. Despite the market's relatively limited success in reducing excess packaging capacity, emerging requirements for additional capacity have nonetheless prompted the need for new packaging machines to be installed in selective areas.

?        Accelerated depreciation tax write-offs for new equipment are helping. Though not widely mentioned by respondents, the accelerated depreciation deduction contained in the "Job Creation and Workers Assistance Act of 2003" allows an up-front tax break of 50 percent on all equipment ordered and put in service by the end of 2004.

?        Changeovers are becoming more frequent. End users are operating an increasing number of packaging runs owing to the proliferation of product varieties, product sizes and product configurations that packagers must handle on the same packaging lines. Therefore, the need for greater flexibility to handle the dissimilarities as well as to speed changeovers is growing rapidly.

?        New products and SKUs are planned for 2004. Roughly 10 percent of the sample claimed they are ordering new packaging machinery this year primarily to handle the addition of new products and SKUs to their lines. While the full impact of this factor on machinery demand will not be realistically measurable until later in the year (since many of the new introductions are not known at the plant or engineering level until near release time), anecdotal evidence and secondary research suggest that the rate of introductions will exert a higher impact than the 10 percent figure might indicate. In fact, food companies scrambling to capitalize on the low-carb diet fad will generate much of the new-product activity.

?        Super stores and large retail chains continue to impact packaging requirements. Nearly 61 percent of the total sample's respondents (including 69 percent of the food sample) reported that their customers, particularly the food super stores and food chains, exert a major impact on their packaging machinery order decisions, and 47.8 percent indicated that their influence is increasing. Both of these numbers are up compared with 2003. In many instances that influence necessitates the installation of a new machine to accommodate a particular requirement.

?        New and different package designs, shapes, sizes and materials continuing to be adopted by customers. Whether to reduce package cost, improve product shelf appeal, improve ease of product handling for consumers, or to conform to major customers' packaging requirements, there are shifts to alternative package designs, sizes, materials, and configurations.

?        Underlying consumer trends have positive effects. Several underlying trends will indirectly play key roles in sustaining growth in packaging machinery demand this year, including changing demographics, the low-carb diet trend, consumers' increasing preference for convenience foods and a growing health-conscious population.

?        More attention is being paid to ergonomics, product security, and safety issues. For 2004, approximately 6 percent of those ordering machinery reported worker ergonomics, safety, and or product security as one of their main reasons for ordering packaging machinery this year.

?        Don't forget RFID implementation. Based on requirements set forth by several major U.S. retailers (e.g., Wal-Mart, Target, Albertson's) and the Dept. of Defense, there is potential for a surge in demand late in 2004 for radio frequency identification-associated equipment, which relates to packaging.

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