September 12, 2017
Since before the turn of the century, consumer nondurable goods have accounted for more than 75 percent of total demand for corrugated products in the United States, according to data published by the Fibre Box Association (FBA). Consequently, a correlation between growth in domestic production of consumer nondurable goods and corrugated demand should be expected.
The chart at right compares production of nondurable goods and box shipments since 2000. In Region B of the chart, between 2006 and 2012, there is, in fact, a close match with the decline of U.S. goods production, caused mainly by growing imports and U.S. box shipments. Prior to that time, box shipments were flat or declining, while packaged goods production was growing or stable. Much of the shift during those years was due to increasing packaging efficiencies, such as moving from boxes to shrink-wrapped trays that used less corrugated per unit of goods production and increased use of returnable crates for distribution from wholesaler to retailers in geographically suitable situations.
Starting in 2012, however, and accelerating in every year thereafter, box shipments grew faster than underlying goods production. In large part, that shift is due to the growing share that online sales or e-commerce constitutes of total retail sales.
In 1992, nonstore retail sales consisted almost entirely of catalog and mail-order sales, amounting to $78 billion. Total retail sales that year amounted to $1.8 trillion, making nonstore sales about 4 percent of the total.
Of course, what makes these sales so interesting to independent corrugated converters is that they use substantially more corrugated packaging per unit of goods than those distributed to traditional stores.
The bottom chart shows the explosive growth of these sales as online sales began to gain an increasing share of the total. During the 24 years since 1992, total retail sales grew at an average annual rate of 4.2 percent, while nonstore sales grew more than twice as fast, at an 8.6 percent average annual rate. Only during the recession years of 2000 and 2008 did sales falter. The U.S. Commerce Department reported that online sales, excluding mail order sales, grew at 11.6 percent last year—the fastest annual growth rate this century.
Online sales now account for more than 10 percent of total U.S. retail sales, so the additional corrugated consumption has become noticeable in the monthly statistical data. Through May 2017, U.S. production of nondurable consumer goods has declined by 0.7 percent while box shipments have grown by 3.0 percent, according to the FBA.
Amazon has been the major driver of this favorable trend. Last year, Amazon reported online sales that amounted to 53 percent of U.S. total online sales, a considerable share increase from 2015, when it accounted for 40 percent of all those sales. By maintaining a two- to three-day lead in shipping speed compared to its competitors, Amazon has sustained its advantage in this rapidly expanding retail trend.
Historically, some 40 percent of all corrugated has ended up in grocery stores. Amazon has been experimenting with innovative approaches to grocery shopping for quite some time. In addition to revised-format brick-and-mortar test stores, they offer Prime Pantry, an online format in which grocery and related items from the core aisles of grocery stores can be ordered in everyday sizes and quantities to fill a presized box. Depending on the items chosen, two-day shipping is either free or $5.99. This format also results in a larger corrugated footprint for the size of orders shipped than does traditional grocery distribution through wholesale and retail channels.
Additionally, Amazon’s recent acquisition of Whole Foods stores gives them hundreds of physical stores to implement decades’ worth of experiments in how people pick, pay for, and get groceries delivered. Not only that, but from these hundreds of additional physical locations, they may be well-positioned to further reduce delivery times in key markets.
Amazon’s competitors are moving to catch up to them in online sales. Walmart announced that its first quarter 2017 growth in online sales hit 63 percent, albeit from a much smaller base than Amazon’s. With the acquisition of Jet.com last August, they are also investing in the online sales platform.
Target is also investing heavily and focusing on e-commerce. It is paying off, as the company reported a 22 percent increase in online sales for the first quarter, ahead of the industry average.
With competitors now moving aggressively to match the format pioneered by Amazon, U.S. independent corrugated converters can anticipate a solid basis for continued strong growth of corrugated packaging that outpaces the underlying growth in nondurable goods production.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
