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MP29017

MAPS PACKAGING AND END OF LINE MACHINERY NOVEMBER 1997

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Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The market for packaging machinery has seen a steady growth, since the economy’s recovery from the recession of the early 90s. Growth has been stimulated by increases in capital investments and modernisation aimed at reducing costs while increasing productivity. The UK market in terms of installation of Packaging and End-of-Line machinery is largely dominated by foreign products. The industry association PPMA estimates that around 60 percent of installation in the UK are imports. The main reason for the dominance of imports is the speed and quality of these machines, which exceed those of the domestic machines. Of late, the strong value of the British pound, compared to the US dollar and Deutsche mark has led to increased imports of equipment, thus stimulating further market expansion.

Production of packaging machinery in the UK has been considerably geared towards worldwide exports, with some companies exporting around 70 percent of their production. In 1996, exports of packaging machinery from the UK amounted to £149.6 million of which 60 percent was exported to non EU countries and the balance to EU countries.

In 1997 the total market value of the packaging machinery industry in the UK is estimated to be in the region of £299.8 million. In 1996 this figure was £290.8 million, reflecting a growth of 3.1 percent over one year. Since the recession in the early nineties, the market has recovered and is set to reflect continuos growth right into the next century.

The main end-user industries is the food industry, accounting for 24.5 percent of sales followed by the pharmaceutical and medical supplies manufacturers, who account for 15 percent of the market share of packaging machinery.

The market is a specialised and professional market and is intimately inter-woven with the manufacturing industries. These manufacturing industries rely on smooth production and packaging cycles and on the flexibility to change production in accordance with the demands of industrial or private consumers. As a consequence, the packaging machinery industry depends on high levels of after sales service, technical expertise and experience.

The market is characterised by a large degree of fragmentation. A large number of small and medium sized companies offer an even larger number of machines. With the market being supplied by so many companies, competition is a very important factor. Both UK and non UK suppliers are constantly driven to stay ahead of competitors. The speed of competition is likely to increase in coming years.

An effect of the fragmentation is that suppliers tend to concentrate on certain types of applications, machinery and end-user. Simultaneously, the market lacks definition and regular data monitoring. Thus, many suppliers operate in a relatively narrow field of activity.

The strong competition in the market results in a need for permanent technical improvements and innovation, to stay ahead in the race for market shares. One of the major factors in sales is the quality and technical performance of a product. The market is strongly technology driven and suppliers have to make efforts to supply the latest stage of development.

The suppliers of packaging machinery provide technical support through every stage of the sales and after sales process. Faults in packaging processes need to be attended to quickly, to avoid financial losses. Technical and professional training is thus an important aspect of the industry. However, companies frequently have problems recruiting skilled personnel, caused by lack of professional training in the UK, which is widely rated below that of competitor countries, like Scandinavia, Holland or Germany.

With the market demanding technical development and ever better performance and quality, research and development (R&D) is a crucial tool for manufacturers. R&D also has to meet the needs of end-users of packaging equipment, who are constantly challenged by the requirement to save costs and to optimise production and packaging. Saving energy costs and personnel costs, while increasing lead times is an important factor contributing to the sales of packaging machinery.

R&D activities can nevertheless be restricted due to the company’s size. Many of the UK companies are of small to medium size, with regard to capacity, capital and personnel. This has resulted in some companies only being able to introduce marginal improvements to their machines and packaging products, as they go along.

The main technological trends have moved towards greater functionality, including the ability to easily clean and wash down equipment, to increase the speed of part exchange and for larger operations - programmable logical control (PLC) machinery. Additional improvements are the development of modules, which are used to assemble different machines in accordance with their application and size.

The UK market for packaging and end-of-line machinery exhibits growth and promises positive returns for the coming years. A large number of companies in the UK have been successful in reaching higher standards of product and service quality whilst being able to keep prices very competitive. By the year 2002, the packaging and end-of-line equipment market is forecast to reach a total value of £348.9 million (in current prices), reflecting a compound annual growth rate of 3.1 percent between 1996 and 2002.

The main selling point for this market in future would be, installation of high speed and energy efficient equipment. Due to the likely increase in competition in this industry, the price of the packaging machine would also be pertinent.

The international industry quality certification ISO has recently become more important for manufacturers, particularly when trying to gain orders from large corporations. More manufacturers now seek ISO certification.

The governing legislation applied to the packaging industry are national and international health and safety regulations, which have to be applied during the manufacturing process and on site, where the equipment is installed and operated.

Distribution is mainly divided equally along the line between foreign and domestic suppliers. Most domestic suppliers distribute their products in the UK directly, they also provide direct technical support and services through their own engineers. Direct distribution accounts for 37.5 percent of all distribution.

The suppliers of imported machines largely distribute and service their machinery through their own subsidiaries or agents. The large foreign companies usually choose to operate through their subsidiaries to save costs. A number of distributor companies are amongst the market leaders. They offer a whole range of machines from different, mostly foreign manufacturers, either as a single application or as complete packaging line solution.

The competitive landscape, due to its fragmentation, shows that the leading players hold no more then 10 percent market shares each, while most of the small and medium sized companies hold market shares below 2.2 percent.

Industry representation in the form of a trade association is limited to one body, the PPMA. The main activity of this body is promotion of its around 321 UK and foreign members’ products. The PPMA organises the only exhibition for the industry, but otherwise focuses on promotions in export markets.

The main difficulties which this industry is likely to face is the growing globalisation of manufacturing processes and the competition from low cost markets. Increased competition is likely to lead to decreased profit margins. It also remains to be seen, how the international competitiveness of the UK market will be effected by the EMU and the fact that the government is sceptical about joining it.

Text © 1997 MAPS

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