CARTON PACKAGE AND DEVELOPMENT OF CARTON MARKET

 

The discussion will be restricted on package product of liquid milk. In the liquid dairy product market in China, fresh milk and UHT milk take roughly 50% and 30% respectively of the market. UHT milk will dominate the market in the forecast period while the fresh milk will keep a steady and medium growth in the 20 big cities. The construction of national refrigeration system is driving force to help the fresh milk take back shares but it is unlikely to happen within the coming decade.

 

3.1Main dairy packaging product line during the period of 2006-2014

 

China dairy market is highly diversified with various kinds of consumers and demographic difference. The future trend of key package will not be two or three choices.

 

Quoted by the interview with the packaging specialists and managers, some key factors shall be put into consideration as follows:

l       Package size shall meet family consumption requirement

l       Various kind of shapes to meet customized preference

l       Wide usage for milk products

l       Competitive cost

l       Portable and long shelf-life with convenient storage condition

l       Environment friendly

 

The main criteria to select the key players are cost structure and potentials to reduce cost. And consumer’s preference also deviates the trend of

 

 

The dairy consumers are mostly living in the urban area, especially in some big cities which we call First Line and Second Line cities. Most of families are price-sensitive when consuming milk. The idea of drinking milk is good for health is well adopted by these consumers. Many consumers take milk at their breakfast or drink before sleep. Some dairy producers are promoting milk for dinner. If the price can be lowered down the consumption will rise sharply. The space to lower the price lies in cost reduction of packaging material and saving during transportation, though the later are heavily rely on the condition of national logistic infrastructure, thus the focus are still on how to improve the package while continually reduce the cost. The competition might happen between carton and plastic if no breakthrough of new low-cost and fit-for-use material occurs in this period of time.

 

Environmental protection is eventually realized and the proceedings on recycle the carton package and plastic bottles shows optimistic results have been adopting by local companies and new environment friendly packaging technology is undergoing to upgrade the classic carton and plastic packaging. We can not see huge blocks hinder the use of the above mentioned products.

 

 

We outline a list of the potential candidates of the competition as follows,

 

Product	Price	Advantages	Shortcomings	Trend Analysis
Aseptic Bloc	RMB0.3-0.5/250ml	Long shelf life	High cost	High cost is the key factors to increase market share
House-shaped Box	RMB0.38/250ml	Natural taste, full nutrients, microwave heated, environmental	High cost, Medium shelf-life (7-10days) Under refrigeration	Steady at high-end market in the near term and might lose shares to HDPE barrel
Ecolean Fresh Pouch	Lower price	Easy to recycle, microwave heated, environmental		This kind of package is key competitor to House shaped box in the near term if the producer take aggressive strategy to promote it
Aseptic Pillow	RMB0.30/500ml	Same as aseptic bloc		Steady growth as family consumer grows
Wan Rong	RMB0.07/250ml	Same as the other aseptic blocs with 90 days maximum shelf-life		Compound plastic film package with extreme low cost, it might perfectly fit for low-end market but the manufacturer is weak in promoting it
PrePak	RMB0.12-0.13	Long shelf-life Maximum 180 days		Compound plastic film package with low cost. Steady growth in low-end market
Carton cup	Lower price	Same as House Shaped Box but with shorter storage (5days)		It might be competitor of glass bottle
Plastic bag	RMB0.04	cheap	Low quality	It might take huge share of rural market
Glass bottle	Low price	Reusable, environmental	Heavy, fragile	Very small player
Plastic bottle/pouch (HDPE,PET,BOPP)		Wide usage, HDPE pouch is suitable for fresh milk and with price advantage than Aseptic blocs		HDPE bottle is recognized by more and more consumers. It provides flexibility and fit for Chinese traditional preference. New environmental materials such as PET, OPS are also potential key player of middle and high end market.

 

We can anticipate that the key players in the forecasted period might be carton package and plastic package. They are active competitors in the current mature marketplace such as big cities in China. Carton package is still the dominator in the dairy product market but it shows many deficiencies in the competition. The cost is still the focal point that it takes 30% or 40% of the cost of UHT milk product. Dairy producers have weak bargain power against the retail channels and it is unlikely to reduce transportation and storage expenses due to poor logistic infrastructure. Another unfavorable factor for carton package is its inflexibility of change the shape design. Thus the dairy producers always have initiatives to find alternative package materials with lower cost and flexibility of differentiation of product design. Some kind of plastic package, such as HDPE bottle or pouch presents characteristics to solve the problem and there is no technical hindrance to use it into mass production. Why it has not be widely adopted might due to hesitation of huge investment and cost of replacement of carton package system.

 

 

Plastic pouch dominate the low-end market and will survive for a long period due to mass population of low-end consumer. HDPE and other plastic bottle will be the key driver of next growing on high-end segment among most of  big cities not only for its fancy shape on branding also for its open manufacture system with controllable cost.

 

The Rural market is a huge gold mine for dairy producers in China. It is much harder to develop due to lack of enough shopping outlets in the countryside area, and dairy products are not traditional food for Chinese rural population. If the government promotes drink milk campaign in the countryside, the cost is obviously the determinant of selecting packaging material.

　　

3.2 Development trend of carton package and alternatives

 

The trend of China dairy packaging industry is high variety and low cost.  Aseptic package will be the dominating due to UHT milk takes the overwhelming percentage of total dairy consumption. The high end segment has very few channels and they are mainly hotel and restaurants. This situation makes the high-end consumers have limited power to affect the main stream of packaging industry.

 

The citizen consumers are the main part of the dairy market. They usually buy milk products from supermarket or shopping mall. Many of them are house wives who are very sensitive to price and loyal to brand. They tend to be conservative and prefer middle price products. Aseptic carton package fits in it very well and it ensures a steady growth in the forecast period. Alternative package with lower cost is welcomed by this group of consumers but since the giant dairy producers have difficulties to shift to the new package solutions due to heavy investment of transform of equipment. Alternative package such as compound plastic film is unlikely to take over the position of aseptic cartons.

 

A potential competitor to aseptic cartons is plastic package. There is no technical problem to use HDPE bottle as a wide-range packaging solution for various drinks, even for fresh milk and UHT milk. PET is another choice which is widely used for soft drinks. The new technology protect milk taste in PET bottles can be adopted by Chinese dairy producers without any legal constraints. They have comparably low cost than the aseptic cartons in the market. Another competitive edge is its flexibility for various customized shape which outperform the carton package.

 

The plastic bottle might win dairy producers since the carton gives them little space to differentiate their products with the other competitors’.  There is also evidence from western country that younger consumers are more favorable of plastic bottled milk and they think the quality is better than the carton boxed milk. Actually many Chinese people has similar prejudice that carton is a cheap package than plastic or glass bottle. They view fine glass bottle as the top quality package and then the plastic bottle while carton takes less and plastic bag the last position.

 

Another attraction to the dairy producers is based on consideration of using attractive package will improve milk product sales. It is a remedy for civil dairy producers which always have a profit margin of 10%.

 

Plastic bottle is more convenient for use than the carton package. And the physical characteristics such as water-resistant and leak-proof are better off. Benefited from the technology advance, the plastic raw material consumed for same volume milk is less than that of the aseptic carton. The turning point might come if the aseptic carton manufacturers can not tremendously reduce the cost level. The aseptic carton package has little leading edge compared with plastic bottle. Even the change to plastic bottle becomes true we believe the process of transformation will be gradually conducted and supported mainly by foreign equipment suppliers.

 

As a rough estimate, the required quantity of carton packages is around 20 billion pieces and consumption of aseptic cartons is more than 15 billion pieces per year. The demand of aseptic cartons is still very large.

 

Urbanization brings opportunities to economical packages in new towns. UHT bag is cheaper but with fair quality to fit in the consuming power of new citizens. The plastic bag milk takes nearly 70% shares of the northern and low income middle-western market though it is not convenient to drink and with shabby outlook. The sales increase of aseptic carton milk in the northern regions shows there is positive correlation between the income level and package cost. And the demand on plastic bag milk is depending on the progress of urbanization. Another possibility in the new emerging market is flavored milk drink which is a good match to PET bottles.

 

Compared with the history of past two decades, the global trend of packaging industry gives the result that plastic package has taken the dominant position previously occupied carton-plastic compound package. This has been witnessed in North America and many European countries. Take HDPE bottle as an example, it grows continually with 15% annually world wide. There are success records achieved by some civil dairy producers, such as Weiquan, Danone, Bright, Mengniu and Sanlu.

 

HDPE and PET are environment friendly materials. In China, recycle and reuse of PET bottles is proved a success. Power consumption and material usage by making plastic products is 1/2 and 1/5 of that for paper product. And paper product contributes much heavier pollution to water body.

 

It is suggested to pay attention to HDPE and PET bottle in the coming future.

 

3.3 Trend of package size

 

The package of 250ml, 500ml and 1000ml are common volume in the market. In some mature marketplaces such as Beijing, Shanghai, single consumers always buy 250ml package for one-time consumption and 500ml package for one day consumption. And family consumers prefer 1000ml package. Most of them are young couples. For bigger family with 3 or 4 adults the most favorable size is 1.5L-1.8L package. As quoted from Sanyuan, a dairy producer sales of 1.5L-2L package milk is increasing mildly and it is estimated become bestsellers in 5 to 6 years.

 

The attitude towards package size is a little bit different in the northern and southern market. 250ml and 1000ml package are best sellers. But in the southern 1.5L-2L package are welcomed. According to the historical statistics in western country, we are confident to say that 250ml and 1L-1.8L package will take the main role on the shelf.