Packaging plays a pivotal role in consumers’ experience with respect to the brand and the overall purchasing experience. There are four major functions of packaging—containment, protection, communication and utility—that are intended to maximise sales and profits while reducing losses and wastage; and all of them are critical for enhancing consumer experience. In a traditional brick-and-mortar commerce, packaging was used to create distinction and increase shelf presence through attractive and easy-to-spot colors, shapes and graphics. When damage is occurred in a brick-and-mortar store, it was easy for the consumer to keep the damaged product aside and pick an undamaged one placed right next to it. Loss of product was not necessarily compounded by the loss of sales or customer. In an e-commerce world, however, the effects of a damaged product are very different. A consumer makes a purchasing decision at the click of a button and to contend with a damaged product, after delivery wait time, can lead to a conclusive decision against the online retailer. As per eMarketer, 83% consumers are unlikely to purchase from an online retailer again after a poor experience.
Having realised the impact of their packaging decisions, companies are investing to enhance e-commerce packaging to meet consumer expectations and positively impact their perceptions and purchasing decisions.
Rise of the Indian e-commerce sector
India has been witnessing a surge in its e-commerce sector over the last 5-6 years. The Indian e-commerce market is projected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017. This growth is likely to be propelled by an increase in internet and smartphone penetration and the ongoing digital transformation in the country. After India locked down in March this year, the e-commerce segment witnessed a momentary decline for a few weeks; however, re-opening of markets led to recovery and subsequently, an upsurge. Marketplaces as well as direct brand websites witnessed an overall 130% spike in online orders.
Since June, the sector has recorded massive sales events such as Myntra’s End of Reason Sale, Flipkart’s Independence Day Sale and Amazon’s Prime Day Sales, boosting order volumes. In fact, recently, Walmart declared (in its latest earnings report) that Flipkart’s GMV (Gross Merchandising Volume) has exceeded the pre-COVID 19 levels.
Another driving factor for this surge in e-commerce transactions is the emergence of first-time shoppers and the digital-first approach. Social distancing has led to significant growth of first-time online shoppers. While India’s top 5 metropolitan cities continue to dominate the e-commerce sector, Tier II and III cities have also joined the race with a rising share of online shoppers. Amazon and Flipkart have gone a step further in supporting this growth in smaller cities by offering their platform content in local languages.
Surge in e-commerce to continue post pandemic
The post-lockdown numbers indicate a systemic shift in consumer purchasing preferences from offline to online. Customers are increasingly getting used to the comforts of online shopping.
Local retail outlets (Kirana shops) are also digitising and starting to deliver online to keep up with changing customer preferences and not lose business to large marketplaces such as Amazon and Flipkart. This is largely adding to the convenience of customers—in having everything delivered to their doorstep and saving time.
In a post-pandemic scenario, whether consumers go back to their old ways of purchasing or will the comfort, ease and discounts of online shopping continue to lure them remains a question. Nonetheless, it can be assumed that not all consumers will switch back to in-store shopping and continue buying online in the near future.
Another point to note is the change towards hygienic living—sanitisation, personal hygiene, social distancing or using healthy products—as this is expected to have a lasting impact on consumers even after the pandemic.
Mixed impact of e-commerce on the packaging sector
Amid the e-commerce surge, the Indian packaging industry is witnessing steep growth and is one of the strongest growing segments. According to the Indian Institute of Packaging (IIP), packaging consumption in India increased 200% in the past decade, from 4.3 kgs per person per annum (pppa) to 8.6 kgs pppa.
The industry is expected to reach US$ 204.81 billion by 2025 from US$ 50.5 billion in 2019 at 26.7% annually. The e-commerce segment of the packaging market was estimated at US$ 451.4 million in 2019 and is forecast to reach US$ 975.4 million by 2025 at 13.8% annually.
The packaging sector is categorised into two major segments (by type)—rigid and flexible packaging, with rigid packaging accounting for 64% market share. In terms of packaging materials, 55% of the sector is dominated by plastics, followed by paper & cardboard (20%) and glass (10%).
Food processing is the largest consumer of packaging at 45%, followed by pharmaceuticals (25%) and personal care products (10%). Increasing demand from these end-user segments is creating a huge potential for expansion.
Amid the pandemic, the demand for packaging for groceries, healthcare products and e-commerce transportation has increased exponentially; but, at the same, the demand for industrial, luxury and sections of B2B-transport packaging has declined. Some of the key end-user segments will witness mixed impact of the pandemic owing to a sharp increase in demand for some sub-segments and dip in others. For example:
- Food and beverages packaging: The packaged food and beverages segment is witnessing an upsurge due to a demand spike for essential food products and shelf-stable foods. Demand from the grocery and dairy product segments has subsequently fuelled the demand for vacuum packaging, trays and protective films including PVC film and shelf life-extending modified atmospheric packaging and others. However, demand from offline food chains including cafes and restaurants, which have been either entirely closed or operating partially, is negatively impacting the market.
- Transit and omnichannel packaging: Demand for this type of packaging has nosedived in the past few months due to reduced industrial activity. However, some of the negative impacts have been offset by the spike in demand from other end-user segments—such as disposable takeaway packaging for food and pharmaceuticals, and corrugated packaging for e-commerce and grocery deliveries.
- Consumer packaging: While the demand for packaging continues to be accentuated by the sharp increase in home deliveries for grocery purchases and other home care products, the demand for non-food, premium/luxury and non-essential purchases has been hit with stores remaining closed or consumer cut backs on spending.
- Healthcare packaging: Demand for all types of healthcare packaging and related substrates, including flexible blister foils, pumps, closures and rigid plastics, has soared. Similarly, the demand has also spiralled for packaging used in dietary supplements such as vitamins and essential supplies needed by consumers in a pandemic situation.
Packaging: A vital bridge for adapting to change and staying relevant
Since the pandemic, companies have been tweaking their products, marketing strategies and service offerings to cater to the evolving needs of consumers – highlighting what matters most today – safety, immunity and health. Swiggy, for instance, introduced a double-layered packaging that keeps food safe and fresh. Similarly, Nature’s Basket switched from cloth bags to single-use paper bags that can be disposed of immediately after use. Packaged food product companies are focussing on packaging materials that support longer shelf-life. A few others are updating their packing designs to include communication around appropriate sanitisation. A few months back, the world was busy shunning single-use plastics; however, consumers have re-adopted it for better hygiene. Irrespective of the strategy adopted by the company or consumer, each of that strategy boils down to an impact on packaging.
Packaging is now seen as a key bridge between consumers and brands to effectively communicate that hygiene is maintained, safety is prioritised and product or service quality is not being compromised.
Packaging already had a pivotal role in consumer buying experience in the e-commerce world. And now, its impact has even grown bigger. This sector will continue to ride the e-commerce wave long into the future.