Sean Riley: You are listening to Unpacked with PMMI, where we share the latest packaging and processing industry insights, research, and innovations to help you advance your business. Hi, and welcome to Unpacked with PMMI. I'm your host, Sean Riley. In this episode, we sit down with PMMI Vice President of Market Development, Jorge Izquierdo, to discuss the latest trends in contract packaging and manufacturing, as revealed in a recent industry report. Jorge highlights the critical role of contract packagers in supporting CPGs, especially in areas like small-scale startups, private label brands, and seasonal or test products. The conversation covers how E-commerce, automation, and data integration are reshaping the industry, as well as the growing demand for flexible, fast, and user-friendly equipment. We also explore the impact of sustainability initiatives, including the shift to recyclable materials and reusable packaging. Jorge concludes with insights on the double-digit growth forecast for the sector and its increasing importance in driving innovation and efficiency. Let's have a listen. So, with all the fancy introductions out of the way, welcome back to the podcast, my good friend Jorge Izquierdo. How are you, Jorge?
Jorge Izquierdo: Sean, I'm doing great. Thank you very much for having me. It's always a pleasure to have the opportunity to chat with you about the industry.
Sean Riley: The pleasure is all ours. Today we are chatting contract packaging and manufacturing, about the latest report that has come out about that. And I guess to set a baseline, how relevant is contract packaging and contract manufacturing for CPGs? And is it something that's sort of changed in the last few years?
Jorge Izquierdo: Contract packaging and contract manufacturing is big. Really, it's very significant for, I would say, CPGs, also Pharma, medical devices. But you're right, for sure, food and beverage are the most significant segments. The number is 63% of manufacturers contract out between 10 and 49% of their business to CPGs and contract manufacturers. Three main reasons for this: when you're talking about the small companies, the small startups, maybe companies concentrating on a specific market, most of the time they concentrate on premium markets, right? On markets that are looking for high-end packaging with a lot of value added from packaging. So you're talking about maybe technologies like aseptic or high-pressure processing that certainly offer a lot of value for the product, for the food and beverage industry. Without the help from contract packaging, contract manufacturing, it would be almost impossible for a small company to get to this market.
But that's one of the big segments that we have, right? Small companies that are just starting, maybe not enough manufacturing needed to justify their own operations, right? Then we have all the private label. In general, most of the time, they don't manufacture their own products, but they rely on contract packaging, contract manufacturing for all of this. And as I'm sure you've seen in past years, private label used to be the lowest.
Sean Riley: Right, bottom of the ring. Yeah.
Jorge Izquierdo: Lower, right? That has changed significantly and that's thanks to contract packaging. They upgraded what they offer, the products, the way they look, the functionality of the packaging, shelf life. It's a different game already, but I guess that would be number two. And of course number three, CPGs, they excel at manufacturing some of their star products, the one product that they have the line running 24/7. But then sometimes, for example, seasonal products like Halloween, Thanksgiving, holidays, Super Bowl, they have special releases, that's number one. Or new products that they think they have a winner, but they want to test it first, make sure that the market accepts it. And if it works well, and if it grows as expected, maybe they will take it in. But those are, I guess, the three main areas where we see contract packaging bringing a lot of value into the industry.
Sean Riley: Would E-commerce have an effect on that?
Jorge Izquierdo: Oh, absolutely.
Sean Riley: Yeah.
Jorge Izquierdo: Fulfillment, for sure, is big. As I was mentioning earlier, CPGs excel at doing that one thing that they need to do thousands of times. But when you have something in the process that is different, for example, fulfillment, that's a strength really, that contract packagers, contract manufacturers are bringing into the CPGs. They can perform fulfillment much better. They're much more flexible. They can address many of those needs very well and fill this gap.
Sean Riley: Okay. So as they are growing and as they're evolving, I would have to assume that their technology and automation needs are also evolving. So what can you tell us about that? How are they keeping up?
Jorge Izquierdo: Contract packagers, years ago, they were pretty much like big warehouses and hundreds of people, maybe thousands of people, doing a lot of this by hand and that has changed significantly. Now there's a lot of technology, a lot of equipment, lots of automation. And not just in terms of machines in their operations, a lot of it is integration, right? When you look at CPGs, the level of integration they have with the supply chain, many companies now have full visibility in terms of sales, what's happening with the product, what flavor of what product is selling, when they need to scale that product back into production again. So that's now to be expected in many CPGs.
And as CPGs look at contract packagers, contract manufacturers as part of their own operations somehow, they need to integrate that level of data management, making sure that they know how fast manufacturing is going, what type of product is being manufactured, what are the formats, what are the flavors, when these are being scheduled, and how to sync all of that with their own supply chain. I think one of the main changes we're finding in contract packagers is the use of data, the integration of their data with their clients.
Sean Riley: What are specifics that co-packs and co-mans are looking to invest in? Can you share some specifics on the type of equipment that is in demand for them right now?
Jorge Izquierdo: Contract packaging has been growing double digits for a number of years, and the expectation is for that to keep happening in the near future. The level of integration with their clients also, it's increasing significantly. So timely deliveries and throughput and scheduling are significant challenges for them.
In terms of equipment, one of the demands that we're finding, being very specific, is palletizing. Contract packagers did a lot of the palletizing by hand, and still, it's happening. It's one of the areas that contract packagers are mostly in demand. These days, palletizing is becoming very flexible, very easy to adapt because of robotics, and that's helping a lot. So again, palletizing, case rate handling, label decoration, and coding are some of the types of equipment in demand from contract packaging.
Sean Riley: Okay. So if I'm an OEM that offers that type of equipment, what can I do to stand out? I know we have a show coming up in Pack Expo Southeast in March. What can they do? What's important to the co-packs and the co-mans that they want to see in this equipment?
Jorge Izquierdo: Number one for contract packagers and manufacturers is flexibility. That's by far number one. If you look at the way contract packagers work, in many cases, they work with many different companies, many different CPGs, and they run one product for maybe a day, a few days, maybe a week, and they need to change that line to a different product, right?
Sean Riley: Right.
Jorge Izquierdo: So flexibility is very significant in terms of format and sizes. The next one, as you can imagine, is fast changeovers because the runs tend to be relatively short compared to CPGs. So they keep changing their products, their formats, what they're packing frequently. So by far, flexibility and fast changeovers are the most important ones. Machine interfaces that are easy to use, that are simple, that don’t require a lot of training. More equipment is getting more sophisticated on one side, but the people operating the equipment don’t have as much training or there are significant skill gaps. It’s very important that the equipment is very easy to operate, intuitive, and that training the operators on the equipment takes just a short period, right?
And more and more, contract packagers are also looking for more sophisticated technologies like predictive maintenance that can help them improve their operations and reduce downtime on their equipment. These are some of the top demands that they have from OEMs. It's very interesting. Pack Expo Southeast is more like a regional show for us, for PMMI. We have two very large trade shows, Pack Expo International and Pack Expo Las Vegas. What's different with Pack Expo Southeast is it's regional.
Sean Riley: Right.
Jorge Izquierdo: Contract packaging tends to be also, to some degree, a regional business because contract packaging, the product is manufactured by the CPG. You get the product, you package it, you maybe change the format, maybe do some mixed products, whatever, and you return the product or you ship it to the retailers. Pack Expo Southeast being a regional trade show is exactly what's needed in this industry.
Sean Riley: How about sustainability? Is it something that has to apply to co-packs and co-mans as well?
Jorge Izquierdo: Brand owners, private labels—they are all concerned about sustainability. All the pressure that they feel from consumers is reflected in contract packaging. The most important way that contract packaging is feeling this is through switching to new materials. 34% of them reported that they're consistently switching to new materials, they're being requested to switch to new materials that are more recyclable or that have more recyclable content, formats that are easier to recycle. In many cases, when you switch to these materials, there's a significant impact on performance. So for sure, there's a significant involvement. CPGs are not designed for reusable packaging. There are a couple of initiatives where many CPGs are testing reusable packaging in different regions of the country, so they don’t need to rely on contract packagers for the implementation of these initiatives.
Sean Riley: What are the expectations going forward? Do we expect it to continue to grow? Do we expect more investment? Where is co-packing and co-manning going in the future?
Jorge Izquierdo: A lot of the drivers for this come from more investment in connectivity and integration with the CPGs they are working with. More customization, more personalization. Significant investment in terms of cleaning, tracking the product. I'm sure you've heard about recalls lately. The bar keeps raising. There’s more demand, and a lot of investment is going into inspection technologies. Track and trace as well. So those are some of the things that we’re finding for food and beverage.
But when you look at other areas where contract packaging is significant, like personal care and beauty products, what we are finding is closer collaboration. Now, contract packagers are moving into being part of the innovation process, using more digital printing, and being closely integrated into contract packagers. They are developing more innovation and delivering more innovation faster to CPGs. Contract packaging is an integral part of our business. And for smaller manufacturers, it's their opportunity to get into business. So for sure, it will continue growing and will be playing a significant role in our industry.
Sean Riley: Fascinating. This was wonderful. I could talk to you all day, Jorge, but I don't know that people want to listen to us all day, so we'll have to do that offline. So I want to thank you for taking time out of your day to come on here and talk about the co-pack, co-man report.
Jorge Izquierdo: No, love it. And Sean, see you at Southeast in a few months.
Sean Riley: Absolutely.
Jorge Izquierdo: Take care.
Sean Riley: You too. Please rate, review, and subscribe. To do that, go to the iTunes Podcast or Spotify app on your phone and search for Unpacked with PMMI.
