October 4, 2016
The current U.S. economic expansion is in its seventh year, making it the second-longest on record. While growth has been subpar during this lengthy expansion, consumer spending still remains a robust contributor to economic growth. Overall, consumer spending accounts for about two-thirds of domestic economic activity, and it has continued to grow at a pace between 2.5 percent and 3 percent for the past several years, as the chart below depicts.
This year, spending on goods has been growing at an annual rate of 3.4 percent, outpacing the service sector’s 2.4 percent annual growth rate. Since goods are much more packaging-intensive than services, that is good news for independent corrugators. Even though adverse exchange rate conditions have encouraged imports and discouraged exports of packaged goods, demand for corru-gated packaging has still grown by 1.6 percent through the first half of this year and is poised to continue growing apace during the rest of this year.
The latest data from the U.S. Census Bureau confirm how rapidly consumers are changing their shopping habits from traditional in-store shopping to e-commerce media—the internet and other online systems. This shift is accelerating as online platforms expand from computers to smartphones, smart TVs, and most recently, speech-activated options such as Amazon’s Echo Alexa voice-activated speaker platform.
Between the first quarter of 2007 and the first quarter of this year, e-commerce sales have grown from 3.2 percent of total retail sales to 7.8 percent of total sales. Over that period, total quarterly retail sales grew by 20 percent while online sales almost tripled from $31.7 billion in the first quarter of 2007 to $92.8 billion in the first quarter of this year. During this year’s first quarter, online sales surged by 15.2 percent, while total retail sales grew by 2.2 percent.
Even though internet shopping is having a dramatic impact on how consumers shop, and accordingly, where and how purchases are packaged for delivery to consumers, other significant shifts are occurring in how consumers satisfy their demand for goods and services. The chart on Page 8 shows the percentage of growth during the first half of 2016 for total retail and food service purchases, and also shows the various growth rates that different kinds of businesses reported to the U.S. Census Bureau for the same period.
Overall retail and food service sales grew by a healthy 3.1 percent during the first half of the year, but the chart highlights some of the dramatic differences in growth rates at competing outlets.
Auto and truck sales and furniture sales, at 3.2 percent and 3.9 percent growth rates respectively, do not differ markedly from total retail and food service sales. While much research is done online when shopping for these goods, the purchases are still made in the store for the most part.
For several years now, consumers have shown a growing and lasting preference for eating out instead of purchasing foods and beverages for off-premises consumption, even though grocery stores have made major shifts to add convenience and prepared foods to the choices offered to shoppers, and they are gearing up to add internet-ordered home-delivery services. The most recent numbers show that this trend is continuing. Eating and drinking establishments racked up a 6.4 percent first-half sales gain this year, while traditional food and beverage stores grew sales by only 2.5 percent.
Building material stores, which include garden equipment and supplies dealers, posted a relatively high 7.7 percent gain during the first six months of this year. Aided by continuing low interest rates, the construction sector of the economy has continued to lead nonconsumer growth. Also, the growing popularity of do-it-yourself projects has supported the above-average growth in this sector.
Pharmacies and drugstores, aided by the tailwinds of subsidized medical care, have also posted above-average sales growth, measuring 7.5 percent during the first half of this year. Department and general stores, which include traditional department stores as well as warehouse clubs and supercenters, have suffered the most, as consumers have migrated to online shopping platforms. Compared to the 10.6 percent growth in retail sales by nonstore retailers, these traditional stores have advanced sales by only 0.4 per-cent. Nonstore retailers include mail order houses as well as online shopping platforms.
Changes such as these have a paradigm-shifting effect on corrugated packaging demand. Focus on shelf-ready packaging for supercenters often contrasts with the needs for greater size selection of corrugated packaging at online fulfillment centers to provide for efficient packaging of smaller individual orders. The traditional types of corrugated packaging used for so many years to deliver food supplies to grocery stores differ greatly from the packaging needs of food and beverage ingredients being sent to restaurants and taverns.
Fortunately, the flexibility and innovation shown by independent converters keeps them in the vanguard of economical and effective packaging options for goods, regardless of how consumers choose to receive them.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
