Retailer Report Packaging

Retail Driven Change: How and Why
Retailers Influence Packaging Decisions

A Flexible Packaging Association Report
Prepared for FPA by:

Strategic Analysis Inc. and
Packaging & Technology Integrated Solutions
971 Corporate Blvd., Suite 403

Linthicum, MD 21090
410-694-0800
410-694-0900 fax
www.flexpack.org
2006 Flexible Packaging Association
Copyright 2006 by the Flexible Packaging Association. All rights reserved. No part of this publication may
be reproduced in any form or by any means, electronic or mechanical, including photocopying, without
permission in writing from the Flexible Packaging Association. Statements of fact or opinion are made on the
responsibility of the author alone and do not imply an opinion or endorsement on the part of FPA, its officers
or its membership. Address all questions or inquiries to the Flexible Packaging Association, 971 Corporate
Boulevard, Suite 403, Linthicum, Maryland 21090, 410-694-0800.
TABLE OF CONTENTS
EXECUTIVE SUMMARY ..................................................................................................... 1
INTRODUCTION ................................................................................................................. 3
Research and Resources............................................................................................. 3

Flexible Packaging Overview .................................................................................... 3
Exhibit 1. Flexible Packaging Market by Retail Area .............................................. 3
Exhibit 2. 2004 Retail Sales of Fresh Produce ......................................................... 4
Exhibit 3. PTIS Packaging Value Chain................................................................... 6
Purchase Decisions are Made in the Store................................................................. 6
Exhibit 4. Changing Advertising Effectiveness, 1995-2000 .................................... 7
THE CONSUMER PURCHASE DECISION ........................................................................ 9
First Moment of Truth ............................................................................................... 9

In-Store Marketing..................................................................................................... 11
Second Moment of Truth ........................................................................................... 11
Third Moment of Truth.............................................................................................. 13
Exhibit 5. Packaging Drives Consumer Moments of Truth...................................... 13
Shelf Impact and Package Design.............................................................................. 14
Point-of-Purchase Information................................................................................... 14
RETAIL CHANNELS ........................................................................................................... 15
Exhibit 6.
Exhibit 7.
Exhibit 8.
Exhibit 9.
Retailer Overview .................................................................................... 15

2004 Food Retailer Market Share by Channel........................................ 16
The Changing Face of Supermarkets ....................................................... 19
Topline Retail Channel Trends ................................................................ 20
CHANNEL TRENDS IMPACT RETAIL PACKAGING DECISIONS ................................... 23
Exhibit 10.
Exhibit 11.
Exhibit 12.
Exhibit 13.
Exhibit 14.
Channel Trends Impacting Retail Packaging Decisions ........................ 23

Household Shopping Trips..................................................................... 24
The Well Curve ...................................................................................... 25
New Formats Help Traditional Supermarkets Compete ........................ 26
New Formats Compete Against Traditional Supermarkets ................... 27
PACKAGING FOR THE RETAIL CHANNEL...................................................................... 29
Exhibit 15.
Exhibit 16.
Exhibit 17.
Exhibit 18.
Exhibit 19.
Exhibit 20.
Exhibit 21.
Packaging Implications / News Grocery............................................. 29

Packaging Implications / News Drug Stores....................................... 30
Packaging Implications / News Mass Merchandisers......................... 31
Packaging Implications / News Club Stores ....................................... 33
Packaging Implications / News Convenience Stores / Gas Stations... 34
Packaging Implications / News Dollar Stores..................................... 35
Packaging Implications / News e-Commerce ..................................... 36
NATURAL AND ORGANIC FOODS GROWTH DRIVING RETAIL................................. 37
Exhibit 22. Packaging Implications / News Natural / Organic.............................. 38

Organic Demand Greater Than Supply...................................................................... 39
PRIVATE LABEL RETAILER-CONTROLLED PACKAGING ......................................... 41
Exhibit 23. Private Label Share by Category............................................................ 43

Exhibit 24. Best Private Label Products by Retailer................................................. 45
MEGATRENDS: DRIVERS OF CHANGE AND THE IMPORTANCE OF PACKAGING.... 47
Exhibit 25. Consumer Impact on Retailer Packaging............................................... 49

INDUSTRY PARTICIPANTS ROLES................................................................................. 51
Exhibit 26. Industry Participant Influence ................................................................ 51

Consumer Product Goods Company (CPG) .............................................................. 52
Packaging Manufacturers........................................................................................... 52
RETAILER DIRECT INFLUENCE IN PACKAGING ..................................................................53
Exhibit 27. Retailer Direct Influence ........................................................................ 53

Retailer Point-To-Point Handling -- Supply Chain and Display Efficiencies ........... 53
Consumers Influence on Retailers............................................................................ 55
Exhibit 28. Retailer Positioning and Consumer Preferences .................................... 56
Exhibit 29. Global Sourcing by Retailers ................................................................. 57
IMPACT ON FLEXIBLE PACKAGING ...............................................................................61
Exhibit 30.
Exhibit 31.
Exhibit 32.
Exhibit 33.
Exhibit 34.
Exhibit 35.
Exhibit 36.
Exhibit 37.
Exhibit 38.
Exhibit 39.
Exhibit 40.
Exhibit 41.
Exhibit 42.
Exhibit 43.
Exhibit 44.
Exhibit 45.
Exhibit 46.
Exhibit 47.
Exhibit 48.
Exhibit 49.
Trend Analysis in Flexible Packaging Applications.............................. 61

Blister Packaging ................................................................................... 62
Multipacks.............................................................................................. 63
Bundling -- Prepared Food..................................................................... 65
Bundling -- Club Pack............................................................................ 66
Pre-Packaged Meat................................................................................. 67
Produce................................................................................................... 68
Dairy....................................................................................................... 69
Freezer Section....................................................................................... 70
Essential Luxuries .................................................................................. 71
Shelf Stable Foods.................................................................................. 72
Health and Beauty/Pharmaceutical Packaging....................................... 73
Health and Beauty/ Convenience - Pharmaceutical Packaging ............. 74
Pet Food ................................................................................................. 75
Lawn and Garden .................................................................................. 76
Dollar Bins ............................................................................................. 77
Shelf Impact ........................................................................................... 78
Promotional Displays ............................................................................. 79
Supply Chain Efficiencies (RFID, etc.) ................................................. 81
Shipping and Display Efficiencies ......................................................... 82
SUMMARY: RETAILER IMPACT ON PACKAGING DECISIONS .....................................83

APPENDIX A: QUOTES..................................................................................................... 85
APPENDIX B: REPORT PREPARATION.......................................................................... 87
EXECUTIVE SUMMARY
The challenge for retailers today is growing their business after a decade of cost cutting and
consolidation. The Flexible Packaging Association commissioned this market research report
that examines drivers and dynamics in the retail marketplace and their impact on packaging
decisions. Packaging is no longer just about cost. Rather, packaging is a key enabler and driver
for the retailer. Successful retailers are looking for value-added packaging solutions that do not
compromise performance.
Flexible packaging is currently a strong and positive aid to retailers. Based on key
growth markets across the retail channel, retailers will utilize more and more flexible
packaging to provide better shelf impact, as well as improved consumer and product
performance.
The significant shifts in the retail environment, particularly in new store formats, have important
implications for FPA members and their businesses. Retailers have come a long way in
recognizing the power of packaging. The relationship between consumers, retailers, consumer
packaged goods companies (CPGs), and packaging manufacturers remains dynamic.
The retailer has become the ultimate product marketer at the expense of the national
brand owners position. Now, 80% of consumer purchase decisions are made in the
store.1 Packaging is more important than ever, as more and more retailers understand the
significance of shelf impact in selling products from the aisle.
Consumer lifestyle demands, individual preferences, demographics, and the desire for new
products are major drivers that influence what consumers expect and will ultimately purchase.
Particularly significant, lifestyle trends of health and wellness, convenience, and sustainability
have driven impressive growth to fresh and organic retail channels, smaller, more convenient
formats, and big changes in retailer thinking about packaging. The Wal-Mart decision to use
biopolymers for fresh produce, despite the higher cost, surprised many. But this mass
merchandiser is also trying to attract the more affluent consumers who are headed for Costco and
Target by increasing their range of offerings, including more upscale and organic products.
Retailers have continued to increase their level of influence on packaging decisions. Its
not just about cost its about finding value-added solutions that attract consumers.
Due to their size and purchasing power, mass merchandisers and club stores have more influence
than traditional grocery and drug stores when it comes to package development. But new ways
that reflect collaboration rather than strict cost reduction are working. In April 2006, Wal-Mart
1
Six Seconds to Woo Consumers with Innovation, Donna Berry, March 24, 2005 , Dairy Business View, Ingredient Technology
Executive Summary
hosted a Packaging Fair in Bentonville, Arkansas, inviting 45 leading packaging suppliers from
across the industry. The packaging companies were invited to meet with over 400 product
vendors and begin individual discussions for ideas to consider changes to their packaging.
Wal-Mart is helping to facilitate connections between packaging and product vendors that will
lead to packaging that is more sustainable without compromising performance. Wal-Mart is not
demanding immediate change from suppliers; they are asking them to consider possibilities that
lead to a lighter environmental footprint. The message is to step outside current thinking and
consider change in materials, formats, technology, or supply chain that can lead to better
packaging solutions and present them for discussion in Bentonville.
A growing number of retailers understand and control Private Label Packaging nearly
one out of every four products purchased from a U.S. retail channel - mass merchandiser,
drug chain, or supermarket - is a Private Label product, controlled by a retailer.2
In some product categories the Private Label market share exceeds 50%. While many Private
Label products are in mature markets, retailers are adding premium product tiers, as well as
creating new categories - particularly in fresh foods. Retailers and their design agencies manage
package development and innovation here, as the CPGs are in direct competition for sales and
shelf space with the same retailers.
Retailers exert a growing influence on packaging that is increasing the complexity of

CPG supply chain and packaging operations.
In order to remain fresh in the eyes of both consumers and retailers, CPGs work with packaging
manufacturers for the development of innovative packaging. Retailers request and require
changes in package offerings, and CPGs are approached regularly for new ideas. The CPGs
marketing/procurement group and consumer packaging team typically get involved in
developing new initiatives, supported by design agencies. These teams generally understand
what packaging options are available to them, but work collaboratively with packaging
manufacturers for innovations in packaging technology.
Packaging manufacturers provide the R&D and investment for packaging innovation as well as
influence end-user consumption and retailers operational efficiency through packaging designs.
With long-term investments in new materials, resins, manufacturing technology, and packaging
systems for the end user, many suppliers have strong marketing groups that work interactively
within the industry. Long-term relationships have fostered innovations through cooperative
effort leading to packaging innovations that improve shelf life, functionality, convenience, shelf
appearance - a whole range of possible features and benefits.
2005 Private Label Share by Channel, IRI CPG Year in Review.
Executive Summary
INTRODUCTION
Research and Resources
This market research report on The Impact Retailers have on Packaging Decisions was expanded
for the Flexible Packaging Association (FPA) by Packaging & Technology Integrated Solutions,
(PTIS), LLC. PTIS is a leading packaging consultancy that has strong expertise across the value
chain and works across retail channels. The report also includes sections from the Retail Driven
Change: How and Why Retailers Influence Packaging Decisions research presented at the 2005
FPA Fall Executive Conference prepared by Strategic Analysis Institute (SAI).
At the request of FPA, this report was amended in April 2006, to focus on the new role of
retailers and their significant impact in driving packaging decisions that meet consumer needs
and expectations.
The objective of this report is to assist FPA members in understanding the policies and trends
among retailers across channels and their impact on packaging decisions. Procedures and
methodology are discussed in Appendix B: Report Preparation. The SAI research was conducted
for the exclusive use of FPA members.
Flexible Packaging Overview
Flexible packaging has been an integral part of the retail

growth reported across North America. FPA studies indicate
that applications for food packaging represent over 75% of
flexible packaging sold into the retail sector as shown.
Continuing innovation within the industry has led to new
formats, features, and materials that capture consumer
attention across all retail channels.
Exhibit 2. 2004 Retail Sales
of Fresh Produce
Source: International FreshCut Produce Assn.
Exhibit 1. Flexible Packaging Market

By Retail Area: $13.5 Billion
Source: FPA
Fresh produce is packaged under familiar brand names

like Dole, Birds Eye, and Green Giant, as whole fruits
and vegetables, ready to eat salads, cut-up fruits, and
ready to cook items, now represent over $5 billion in
retail sales annually. A new range of breathable,
microwaveable, easy open, and cook-in materials have
supported fresh produce sales and created new categories.
The fresh perimeter including the deli, prepared foods,
and bakery employ increasing amounts of flexible
packaging to maintain freshness and merchandising
appeal.
Introduction
Meat and poultry case-ready items requiring barrier lidding films and thermoforms are strong,
particularly in the ready-to-cook category. The center of the store includes stand-up pouches in
many categories from soup to nuts. Snack foods, dry foods, sauces, and entrees are providing
shelf impact with well-designed pouches that provide easy open
and recloseable features. Retort pouches have almost replaced
cans in the canned salmon and tuna category. Sparkling shrink
labels have created excitement in the dairy case, snack food
canister, and beverage categories. In the frozen food case,
stand-up bags are merchandising frozen meal kits to good
advantage, with many new entrants. The flexible packaging
innovation leading to these many new products/categories has
given retailers the means to differentiate and fuel retail growth.
Situation Analysis
The challenge for retailers today is finding ways to grow their business after a decade of costcutting and consolidation. Packaging is no longer just about cost. Rather, packaging is a key
enabler and driver for the retailer. Successful retailers are looking for value-added packaging
solutions that do not compromise performance. In recent years it was supply chain efficiency;
now, it is growing the topline. In today's increasingly competitive environment, retailers
understand that there is a heightened importance on accelerated growth and differentiation with
effective, innovative packaging as a competitive weapon.
Retailers have come a long way in recognizing the power of packaging. The reason is that 80%
of consumer purchase decisions are made in the store.3 With many similar products to choose
from, shoppers are less loyal to a brand and more likely to choose from what is available on the
shelf. Now that most purchase decisions are made at the point-of-sale, packaging is the key
communicator for the product. This means that regardless of how products are advertised,
brands are essentially being made or broken on the shelf, in the few seconds while a shopper
decides.
The relationship between consumers, retailers, consumer packaged goods
companies (CPGs) and packaging manufacturers remains dynamic. The
retailer has become the ultimate product marketer at the expense of the CPGs
position. With powerful mass and regional retailers driving the supply chain,
many package selections have become a retailer decision.
Six Seconds to Woo Consumers with Innovation, Donna Berry, March 24, 2005 ,
Dairy Business View, Ingredient Technology
Introduction
It is estimated that there are 1,000,000 SKUs (Standard Stocking

Units) available in the U.S. A CPG may offer over 50 SKUs of a
popular item, like Nabisco Oreos for example, but a retailer
displays a fraction of this number. An average supermarket carries
about 40,000 SKUs.
Club stores carry an even smaller number. Costco, for example, carries only 4,000 SKUs
nationally. Costcos 2005 sales topped $50 billion with 340 warehouse stores. These sales
figures place it fourth among all retailers in the United States, with less than 0.4% of the SKUs
available. In this channel, packaging must be well understood and carefully selected to sell the
product. The retailer is the key decision maker here, with strong results that support good
choices. (Costco was named 2005 Retailer of Year by Mass Market Retailer.)4
Further, Private Label packaging controlled by retailers now represents over
25% of total food sales.5 There seems to be an amazing number of products
sold under private label, with major chains offering up to four product tiers
distinguished by retailer designated packaging. Designs range from very
similar to national brands, basic generics, and traditional store brand, to
premium labels. Private Label is one of
the fastest growing retail areas, offering
shoppers a wider range of product
selection, while returning an average
15% to 25% more margin to retailers over national brands.
Private labels can also be unique to a retail chain, strongly
differentiating them from competitive offerings. Strong
store brands like Whole Foods, Trader Joes, Wegmans, and
Publix, have fueled growth and built solid customer loyalty.
Amidst the staggering number of choices, the consumer remains the ultimate decision maker.
Consumption is driven by changing needs and wants, but most importantly, by consumer
perception of value. Yet with all these products, an average family gets 80% to 85% of their
needs from 150 SKUs, often ignoring the thousands of items in that store. Retailers understand
the importance of packaging that drives the consumer purchase decision.
The traditional value chain has changed. It has become collaborative, with large retailers
exerting strong influence over CPGs and packaging manufacturers to achieve value added
packaging solutions. PTIS has developed the Sustainable Packaging Value Chain Model shown
in Exhibit 3. There is interest in packaging development across the value chain in all areas, each
4
5
massmarketretailers.com, April 14, 2006

Introduction
contributing to value-added solutions. These working relationships support innovation initiatives

as well as cost and productivity.
There is more comprehensive thinking about retail packaging in all areas including trade
associations, contract manufacturers, consultants, universities and design agencies. This new
thinking leads to research by universities in areas like RFID, active polymers, time temperature
applications, and more, extending the value of these developments for retail packaging. Growing
awareness of retail packaging within government agencies can lead to better working
relationships.
Exhibit 3. PTIS Sustainable Packaging Value Chain
Consultants
Material
Suppliers
Converters
Universities
CPGs
Packagers/
Manufacturers
Government
Retail
Channels
CONSUMERS
Equipment
Suppliers
Contract
Packagers /
Manufacturers /
3P Services
Disposal
Foodservice /
Institutional
Retailers understand that the focus has to remain on value + benefits rather than cost. Cost
driven initiatives no longer deliver the effective packaging retailers need to stay competitive.
Mass merchandisers and club stores have important influence due to purchasing power and high
volume of products. For example, more than 20% of goods produced by CPGs and 18% of
private labels is sold through Wal-Mart channels.6 Maintaining working relationships and
communications across the value chain has never been more important in todays competitive
retail marketplace.
Purchase Decisions are made in the Store
In todays competitive environment, retailers have taken control of the marketplace from
national brand marketers. Inviting new retail destinations that differentiate grocery stores from
discounters through upscale formats, fresh foods, private label, and natural/organic products
appears to be resonating with consumers. Retail managers understand the value and benefits of
packaging more than ever before. Many retailers are the decision makers for which packages
will appear on shelves. Retailers decide the ratio of profitable store brands with national brands
listed to their advantage. Consumers face more product choices than ever.
6
Introduction
Exhibit 4. Changing Advertising Effectiveness, 1995-2000
Changes in TV Advertising Effectiveness:

National Networks vs. Cable Channels
In 1995, with major network advertising, it took only 3 TV commercials to

reach 80% of 18-49-year-old women
In 2000, as hundreds of cable channels became available, it took 97 TV

commercials to reach the same group
Source: Pakintell, 2005 IFPA
With nearly 80 percent of all consumer purchase decisions made in the store aisle at the point-ofpurchase, product marketing and promotion have changed drastically. Retailer controlled instore marketing is quickly replacing mass media channels. While effective marketing outside of
the store may increase the chance of a consumer considering a particular brand while they are
scanning the shelf, product selection is inherently tied to the package. The product under
consideration by the shopper is the package. The marketer is depending on the package to
communicate all the value and benefits to the consumer from its shelf position. Considerations
that drive the purchase decision are understood in the consumers moment of truth.
Introduction
Introduction
THE CONSUMER PURCHASE DECISION

Leading retail marketers know success is about the real life buying experience and making the
consumer connection. When the consumer recognizes a brand package from the aisle, puts it
into the cart, and then purchases it the marketer has achieved their objective. Understanding
and influencing consumer in-store actions is the key to brand marketing strategies.
In work at Procter & Gamble (P&G), the idea or concept of Moment of Truth was refined to
focus marketing energy into these critical moments of consumer decision making.7 The next
step in the shoppers value judgment occurs as the product is used in the household. The critical
elements of this use experience are the Second Moment of Truth. For some leading experts, it is
becoming increasingly important to consider a Third Moment of Truth, as this impacts initial
trial as well as repeat purchase. PTIS believes this relationship between packaging and use
experience leading to brand repurchase is essential in understanding the consumer shopping
experience, and the retailers and CPGs are recognizing the relevance like never before.
First Moment of Truth
A consumer spends only a few seconds looking down the shopping aisle at any product display
before deciding what brand to put in the shopping cart. Understanding the first seconds when the
customer first sees the product (which is actually the package) on the shelf is the First Moment
of Truth (FMOT).
First Moment of Truth is the Consumer Purchase Decision
Procter & Gamble coined a term for the in-store equivalent of the 30-second commercial:
FMOT, or first moment of truth. The FMOT is the amount of time it takes shoppers to make up
their minds about a product somewhere around six seconds. The retail store is where the
'moments of truth' occur in business. It's when a consumer surveys the store shelf and votes.8
This concept is taken very seriously by P&G, who have established an entire team dedicated to
improving the chance that the consumers buy a P&G brand. A corporate position, Director of
First Moment of Truth, has been created. There is a 15-person FMOT department at P&G
headquarters in Cincinnati as well as 50 FMOT leaders stationed around the world, who
coordinate in-store displays and promotions. As part of FMOT, there is a commitment to using
as few words as possible in its product messages, realizing the limit of information absorbed by
busy shoppers in just six seconds.
7,8
Shelf Promotion: In a Shift, Marketers Beef Up Ad Spending Inside Stores, Emily Nelson and Sarah Ellison, The Wall Street
Journal, Sept. 21, 2005
7,8
Shelf Promotion: In a Shift, Marketers Beef Up Ad Spending Inside Stores, Emily Nelson and Sarah Ellison, The Wall Street
Journal, Sept. 21, 2005
The Consumer Purchase Decision
Recognition is the first step in product selection by the shopper. Shelf impact and package
stopping power are critical in the FMOT. The package must be easily visible from the aisle. The
difficulty of breaking through shelf clutter should not be underestimated. Only packages that
effectively grab a consumers attention will be successful in the FMOT. Stores typically carry
15-30 SKUs in a single category, all competing for shopper attention. Bright colors can attract
attention or be distracting for a shopper trying to locate a preferred brand. The shoppers eye
quickly sweeps across the shelves, searching for the specific item. Shoppers generally look to
the center of the display, reading from left to right, missing most of the packages on upper and
lower shelves. On average, the capture or recognition rate is believed to be about 20 percent for
all packages on the shelf as the customer walks through the aisle. Even when shoppers are
focusing in a category, over one third of the brands displayed are usually ignored. 9
For quick recognition, the package must be optimized for
viewing distance. Color and shape are the first things a shopper
will notice, followed by a brand logo, graphics, and texture. A
well-designed package quickly draws the shoppers eye, and then
must deliver the brand message clearly. To the consumer, the
package is the product until the product is removed. Welldesigned packages distinguish products from competition on the
shelf in these examples. There is no doubt that these packages
are easy to locate with colors and logo and that communicate
product function and convenience, and the shopper easily connects to brand equity. To the
consumers , the product on the shelf = product + packaging + brand equity + services. These
concepts are inseparable in the consumer frame of reference when they are searching for a
package on the shelves. The perceived product value is the basis for the purchase decision.
Packaging effectiveness must not be viewed in isolation away from the retail environment.
Competitive products surround the brand package, each fighting for consumer attention. Prices
are clearly marked, and savvy shoppers quickly do the math. During that First Moment of Truth,
in those few seconds where the consumer connection can be made, the package relays the
product message as well as its value equation to the consumer. For consumers, it is not just
about cost anymore. Value = product + benefits / retail price when compared to the other
products on the shelf.
Documenting the Business Value Of New Packaging Innovations, Scott Young, Perception Research Services, Fort Lee New
Jersey, Package Design, June 2005
10
10
In-Store Marketing
P&G insight into the six second FMOT is helping to

power a shift in the advertising business: the growth
and increasing sophistication of in-store marketing.
In response to the fragmentation of television and
print ads, brands are promoted in store. Package
design is linked from packaging concept to format to
special shelf displays as well as in-store advertising.
Digital shelf signage, interactive Point of Purchase
displays, and in-store TV advertising like the
Wal-Mart TV network are appearing across retail
channels. For all the excitement, agencies and
retailers face major challenges coordinating so many
marketing pieces.
Second Moment of Truth
The Second Moment of Truth (SMOT) occurs when a consumer uses the product. Every product
use experience is the opportunity to win consumers. Brand share is built on the trust earned
when moments of truth are won. If the use experience does not live up to expectations, the
consumer connection is broken and loyalty is lost.
Once purchased, different package features become significant. In
the home, the need for package visibility is reduced, although
consumers prefer packages with strong Shelf Impact that can be
quickly identified on pantry shelves. Consumers appreciate and
reward marketers that clearly identify packages with easily read
labels. It seems this lesson is often relearned, losing sales.
In the Second Moment of Truth, the product is actually used or
consumed by household members. In this consumer experience, the purchaser establishes
product value. Does the product live up to the promise on the package? Does the food product
taste good? Was it is easy to prepare? Does the purchaser believe the price was fair? Is the
household satisfied with performance? All of these questions are still related to the package is
it convenient to use? Can it be opened easily? Are the directions clearly spelled out?
Second Moment of Truth is Consumer Use Experience
11
11
The decision to repurchase is made in this moment, and is not easily undone. The consumer sits
in judgment as to whether the expected value was delivered or not. With so many competitive
choices, particularly in the center of the store, packaging can determine whether a product stays
on the shelf or not.
When the retort pouch for tuna was introduced, many shoppers and
marketers questioned the much higher price point, almost double the
price of the can. Once purchasers tried the new package, the pouch
quickly became the preferred product. Consumers saw the value of
eliminating problems with opening small cans and sharp edges. They
noticed better taste and texture, due to shorter processing times. The
retort pouch was far more portable for work or school, easy to open and
far less mess. The retort pouch easily become the category standard for
tuna with only basic generics remaining in the can format.
Package structures that provide functional benefits lead to an improved

usage experience and customer satisfaction. Good packaging ultimately
leads to stronger brand preference and loyalty. This is the essence of
SMOT only people who use the packaged product will experience the
functional benefits. Consumers easily form associations with the usage
experience, linking it in memory to package attributes recalled during
the next shopping trip.
Third Moment of Truth
The Third Moment of Truth (TMOT) occurs when the purchaser shops again and repeats the
consideration process. It may be another store, or in a crowded aisle, busy with other shoppers.
The package with strong Shelf Impact will create instant recognition and consumer connection.
The use experience comes quickly to mind as well in those few seconds to drive package
selection - or not. These few seconds as the shopper scans the shelves are where a package
billboard visually cues the purchaser, causing the consumer to stop and consider the product.
Stopping power completes the connection for repurchase. The packaging again is the brand
messenger.
The purchase selection is quick. Good package visibility leads to recognition and good usage
association drives repurchase. Shelf Impact and billboard attributes are just as important as in
the FMOT, particularly if the shopping trip is to a different location. Changing competitive
offerings, new shelf position, special promotions, and other factors can influence perception of
product value. The package must continue to clearly communicate product benefits to foster the
value equation.
12
12
Third Moment of Truth is the Decision to Repurchase
Winning these moments of truth requires that the package be the

key enabler. Packaging gives visibility to the product. The
package enables the product to be found as a busy shopper scans
the aisles. Only the packaging can provide Shelf Impact
getting the consumers attention in those short seconds of
FMOT. If they dont see it, they wont select it. The package
has brand colors, logos, and iconic designs that enable quick
recognition among competitive products. Packaging enables the
first consumer connection in choosing a product.
Packaging enables all the brand and product benefits to be conveyed in the blink of an eye. In
the store display, all the benefits are linked to the package that tells the product story.
Convenience is cued to the consumer with features like zippers, reclosable spouts, easy to open
caps. The product promises great flavor to be enjoyed from the design graphics and photos.
Freshness is cued from the package with transparent and foil materials, clear windows evoking
new and up-to-themoment style.
Consumer groups are fragmented, and retail executives need to understand the different groups
and what is important to them. Consumers buy based on perceived value, not on price, where the
benefits must be clearly communicated by the package. Retailers recognize that much of this
comes back to understanding the context and the value of the package.
The industry must consider the consumer behaviors in the purchase decision the Three
Moments of Truth can guide the priorities in package design for best impact. Effective
packaging will be the consumer connection needed to win these Moments of Truth.
Exhibit 5. Packaging Drives Consumer Moments of Truth
First Moment of Truth is Consumer Decision to Purchase

Six Second Decision in the Store where Shelf Impact is Key
13
Second Moment of Truth is Consumer Use Experience

Packaged product must deliver the Benefits to the Purchaser
Third Moment of Truth is the Repurchase Decision

Package Stopping Power + Good Experience drive repurchase
13
Shelf Impact and Package Design
Packaging that works communicates clearly in each consumer moment of truth product identity
and functionality, as well as telling the consumer why this is the right choice. Shelf Impact
refers to a packages ability to break through competitive shelf clutter and assists the consumer
in locating the package on the shelf. Stopping Power is the ability of the package to draw
consumer attention to the package as the shopper moves down the shopping aisle.
It is important to remember that what people see and miss in their few seconds at the shelf is
primarily physiological (what draws their eye) rather than psychological (a conscious decision of
what to look at). In other words, if a shopper comes to the shelf looking for a brand, he or she
will most likely find it - but this may not happen until the brands with Shelf Impact have broken
through label clutter and generated consideration. These brands will have created a sales
opportunity, while less visually prominent brands will not.
Because shelf visibility is primarily physiological rather than rational or considered, it is driven
by visual contrast with surrounding products. Most often this contrast takes the form of color
contrast, which speaks to the value of owning a color and creating a consistent brand block on
shelf. A bright red package may stand out in a sea of black or white, yet also become recessive
when surrounded by other brightly colored packages.
Point-of-Purchase Information
Packaging and point-of-sale decisions can't be made in isolation, such

as when marketers, designers, or consumers are viewing packaging on
a conference room table or on a computer monitor. To make
informed decisions, new concepts simply have to be viewed and
tested within a shelf context to document the visual contrast and
engagement that they create at retail. When a product like this is
shown on an overhead TV monitor in a Wal-Mart store, it has a much
better chance of standing out in memory than a traditional design.
While the network gives marketers another chance beyond the shelf to reach consumers, design
must be visually memorable to work in this media, where continuous ads for a wide range of
products are played in a loop. It is recommended that packaging decisions be part of a broader,
integrated point-of-sale strategy involving shelving and merchandising support aimed at ensuring
purchasing consideration.
Wal-Mart In-Store Network
Changing traditional advertising Wal-Mart TV network is seen by 130 million shoppers a

month, according to ratings data produced by Nielsen Media Research. Wal-Mart has created
a new mass audience for marketers. Wal-Mart TV even sells advertising like TV networks,
with rates comparable to cable channels.
The TV sets, which have sound, are located in parts of the store where people tend to gather,
such as the deli and checkout aisles. Last year, 122 new products were launched on Wal-Mart
TV, including goods from P&G, Unilever and Gillette.
- By Constance L. Hays, New York Times, Published: February 21, 2005
14
14
RETAIL CHANNELS
With 53% of flexible packaging used for food packaging at retail, the changes in the type of
retail channels strongly influence packaging decisions. The traditional grocery chains have
declined as mass merchandisers and convenience formats expand into the food business.
Exhibit 6. Retailer Overview
Food retailers today now include conventional supermarkets, superstores, supercenters,

membership clubs, discounters, convenience stores, dot coms, and gas stations. With busy
lifestyles, people are shopping where it is most convenient for them. Packaging opportunities
have been created in every channel, as the target consumer has clear expectations about the
shopping experience at each type of store.
Retail Channels
15
Exhibit 7. 2004 Food Retailer Market Share by Channel
From the Store Format Report, Willard Bishop Consulting, 2004 published 2005
16
Superstores account for the largest dollar share, 20.1%, within the traditional grocery
channel at approximately $163 billion dollars in annual sales. Supercenters continue to
be the most dynamic force in food retailing. Domestic supercenter sales reached $104
billion in annual sales, representing just 2,300 stores. Wal-Mart opened 370 new units.
Target assimilated the supercenter concept into its discount store division and has grown
to 120 units in this channel.
Food/Drug Combos and Conventional Supermarkets deliver the second- and thirdlargest sales to the channel at $114 billion and $100 billion, with dollar shares of 14.1%
and 12.4%, respectively. The major chains have strengthened their position through
merger and consolidation, fortifying themselves by claiming locations and adding outlets
for their store brands. Supermarkets are getting smaller, with a niche focus on organic,
gourmet ethnic, and specialty products.
Retail Channels
Fresh Format stores account for nearly 1% of dollars spent on grocery and consumables
in the U.S. in 2004. While that percentage is small in the overall store format landscape,
it is an emerging trend that presents an opportunity for both traditional and nontraditional operators.
Non-Traditional Grocery:
Non-traditional grocery now exceeds traditional grocery in total store count and sells nearly 32%
of all grocery and consumable products in the U.S.
Supercenters continue to dominate the non-traditional channel with approximately $104

billion dollars in sales. Their growth is fueled by price advantages over traditional
grocery retailers and aggressive increases in store openings and conversions. They also
increased their trip frequency and market basket size in 2004, a benefit of the inclusion of
grocery and consumable products to the mass format.
Mass Merchandise - This channel is blurring as more food items and Health and Beauty
(HBA) are being added to the selection moving stores into supercenter classification.
With 600 K-Mart stores gone, and transformation of several hundred Wal-Mart discount
centers, the channel continues to decline.
Club stores, the next largest format, came in at $54.4 billion in sales for 2004. Costco
leads this channel, targeting a more affluent consumer with premium items and service
areas. Reported sales growth at Costco for 2005 was over 12%, with just 340 stores.
Stronger differentiation at Sams and BJs Wholesale is expected as share competition
increases among the top three.
Dollar stores offer a compelling business model. The small footprint fits where mass
players cannot easily go, the compact size offers convenience over big box formats, a low
overhead/low cost formula keeps prices low, and high volume offsets low transaction
size. From a supplier perspective, the channel is fast becoming a viable and high-growth
sector that is taking consumers and market share away from competitive retail formats.
The channel represents an increasing number of outlets to place products and more
shoppers to see those products. One analyst says the concept is benefiting from the
"curiosity factor.
Drug Stores are growing aggressively, as Walgreens adds stores and increases product
selection in health and wellness to include foods and related items. CVS is poised for
growth in California, Texas, and Florida, home to increasing numbers of target
consumers. Rite Aid is also showing strength in this channel.
Retail Channels
17
The shifting landscape of grocery and consumables retailing is evident in the numbers.
In 2004, total dollar sales for the non-traditional channel equaled 68% of total sales of the
three biggest traditional grocery formats combined. The three largest traditional grocery
formats (Conventional, Superstore, and Food/Drug Combos) accounted for $376.4
billion in sales.
Convenience - The importance of convenience stores in grocery and consumables is

frequently underestimated. In 2004, convenience stores captured a 16% dollar share.
This channel continues to reinvent itself, feeling the pressure of high oil prices, reduced
in-store traffic from pay-at-pump technology, and changes in tobacco promotional
programs. These smaller format stores are primarily designed to serve Stop & Go
shoppers, but as the stores expand, so does their reach into traditional grocery markets.
Fresh foods are featuring heavily in much of this growth. In Philadelphia, WaWas
became the third largest grocery retailer last year.
Food Service will continue to grow in the U.S., as convenience options are important to
busy consumers.
Food Service packaging for retail is becoming more important with more in-store delis and takeout areas for prepared foods. While outside the scope of this study, food service packaging
continues to develop rapidly on many fronts. Opportunities are increasing for flexible packaging,
within the $500 billion food service industry.
18
Retail Channels
Exhibit 8. The Changing Face of Supermarkets
The Changing Face of Supermarkets
According to the Food Marketing Institute (FMI):
Supermarkets are getting smaller averaged 34,000 sq ft for 2004
Most new stores being built target a specific market such as gourmet foods, natural
organic foods, or a growing ethnic group
The most popular features in new stores included deli departments, fresh seafood,
floral/plant shops, prepared foods for take-out, ethnic foods, pharmacies, and in-store
bakeries
The fastest-growing features in new stores last year were dollar-item aisles/departments
and self-checkout lanes
Nearly one in five new stores featured specialized low-price/dollar-item sections versus
6% in 2002
Self-scanning checkout lanes were included in nearly one-third of new supermarket,

almost double the 2002 figure of 17.5 percent
Value and convenience are crucial for products of the future. Need to try to place products in
popular parts of the store and standardize where UPC code is placed.
The supermarket is continuing to evolve to meet the needs and rising expectations of the new
consumer. As newer stores are opened or remodeled, the impact is felt throughout all the retail
channels. As smaller footprint and specialty stores are developed, busy shoppers are less inclined
to visit the very large stores. Smaller, older locations for drug stores are being closed as larger
combo stores are built near grocery stores. It is a continuing ripple effect as the newer retail
formats are fine-tuning and attracting consumers.
Retail Channels
19
Exhibit 9. Topline Retail Channel Trends
Channel
Retail Grocery
Drug
Mass/Supercenter
Club Stores
Convenience and Gas

Stations (C&G and CStores)
Trend
Comments
More periphery and fresh. Adding more home meal

replacement. HH shopping trips declining. Looking
for unique reason for being. Consolidation will
continue. Growing emphasis on convenience and
freshness.
Womens convenience store. Pharmacists dont have
much say in packaging. Expanding offerings at frontend. Purported new growth area. New Target
prescription bottle is a hit.
20% of major CPG products go through Wal-Mart.
One-stop shopping increasing. Value driven. Wal-Mart
chain able to reach 100 million consumers / week.
Mass is losing slightly, but supercenter growth over
10%
Continued but slower growth. Significant amount of
major retail products go through this channel including
Procter & Gamble, Kelloggs, Kraft, etc. Branded,
good design important. Have rigid specs on packaging.
More new products, single serve, and convenience
focus. Nearly every gas station has a store. Drugstores
have also expanded to compete with C&G. Higher
margins, easier price points Not big $, but lots of
outlets. Bubba Store
Home and Office Stores
Significant growth in Home Depot, DIY stores.

Merchandising opportunities
Natural / Organic
Whole Foods, Wild Oats,
etc.
Growing 20% per year over 10 year period20032004 organic food sales, yet household penetration
down from 38%-30%? Focus on premium packaging.
20
Retail Channels
Dollar Discount Stores
Food Service
Vending
e-Commerce
QVC, Home Shopping,

Delivery
Still growing, but at a slower rate in number of stores

and penetration. Originally an outlet for overstocks
and products that havent sold but CPGs now produce
products just for this channel. Reaches 2/3 of U.S.
households once a month.
Significant increase in take-out and sit--down
restaurants. Takeout occasions have increased yearly
since the 1980s. Back of store issues include labor
reduction, space savings cleanliness / sanitation, speed
of service. 200% labor turnover in QSR. Will grow 3X
faster retail. New improved pacakaging focus and
convenience.
More dedicated sports drinks (Gatorade,
Powerade) and water vendingall about easy
access, availability
Dramatic year-over-growth but still a small percent of
total retail. Amazon and e-Bay lead general
merchandise. Grocery grew 40% in 2003, but still only
1% of retail food sales2004, up 23.5% and now
1.9% of sales
P&G launches Swiffer Wetjet on QVC, and other
companies use for strategic product launches.
Retail Channels
21
22
Retail Channels
CHANNEL TRENDS IMPACT RETAIL PACKAGING DECISIONS
As retailers have developed new shopping destinations, retail marketers need differentiation in
their product offerings. Store location, pricing, range of offering, store size, and layout are very
important. Nothing can influence the shoppers decision to purchase more than customized
packaging. Products that are easy to locate, have a clear product message, are right sized for the
category with good handling and easy open features attract target consumers. Bright graphics
provide shelf impact and engage shoppers as they head down the aisle. Packaging delivers the
right value message to make a retail destination stand apart.
Exhibit 10. Channel Trends Impacting Retail Packaging Decisions
Major Channel Trends Impacting Retail Packaging Decisions
Grocers touting freshness directing customers to fruit / vegetable aisles

-
Want to differentiate from Wal-Mart bakeries, fresh delis, home meal

replacement options
Private Label Quality Increasing
Bigger competitive threat to CPGs
Technology aids changing how consumers shop

-
RFID
Personal shopping assistants
Online ordering
Portability / Convenience
Healthy Options / Portion Control
As the number and choice of shopping destinations have changed, so have the shopping trips
per household. People will choose a store before they choose a product, based on time
available, urgency for purchase, and distance.
Channel Trends Impact Retail Packaging Decisions
23
Exhibit 11. Household Shopping Trips
Household Shopping Trips - 2004

Retail Channel
Mass Merchandise
16% drop since 2001, down from 24 trips per

household(HH)
Supercenters
Reached 27 trips per HH, up from 20 in 2001
Drug
Average 15 trips per HH
Convenience & Gas
Average 15 trips per HH
Club
10% Increase to 11 trips per HH in 2004
Dollar
15% Increase to 11 trips per HH in 2004
Grocery
8% drop to 69 trips per HH in 2004
Household shopping activity is flat in total, with average of 189 trips per year.
Grocery losing to value players, Dollar and Supercenters.
Dollar stores increased frequency and grew in penetration (>67%) with more consumers
turning to these outlets for basic household items.
The biggest change in food retailing is the number of new places that are now selling and
expanding food offerings. The majority of the largest global retailers are major players in food
with a wide range including discounters, grocery stores, discount grocery, and club stores. Many
non-food retailers are adding food items. Growth continues at the largest retailers, who have
added locations and new products.
24
With the proliferation of food shopping destinations, conventional food retailers are facing this
new reality. Shoppers no longer load up once a week at the local Safeway. They may head out
to Wal-Mart for the basics, and then go upscale to Whole Foods or one of the Fresh Formats
for specialty and gourmet items. The key word for consumers today is choice an amazing
number of products and locations to choose from. To successfully compete, the retailer must
understand the consumer very well, offering the selection that will build loyalty, as well as build
new business. The essential task is differentiation, with packaging playing a key role in this
important task. Target has handled this challenge especially well, identified for basic value in
many categories, but also providing new fashion designs, and exclusive, trendy household
appliances and products.
Exhibit 12. The Well Curve
25
Exhibit 13. New Formats Help Traditional Supermarkets Compete
Supermarket Store Formats Changing
FRESH IS THE CONSUMER TREND. Supermarkets continue to call attention to

their "fresh" perimeter departments, as shoppers tend to walk the perimeter and avoid
the center aisles.
Why?
o Shoppers no longer have the time to walk up and down every aisle
o Supermarket shoppers are buying center-store items elsewhere, particularly as
alternative retail formats offer highly competitive prices on many similar goods
o Conventional supermarkets are highlighting and emphasizing their fresh perimeter
departments as a key point of differentiation with competitors
Packaging needs to jump at a great opportunity for more smart displays.
Opportunity:
o Chance to differentiate from Wal-Mart with more freshness with better fruit
selection, bakeries, and a wide assortment of fresh meats that typically are not found
in the mass merchandisers with groceries
o Also placing complimentary items in the perimeter to compensate for lost center
aisle sales
Challenges:
o Other retail formats are also looking at ways to bring fresher items to their stores
o Supermarkets should not ignore the center area, but look for ways to counter other
retail formats that are taking their share
26
Look for products / packaging that can compliment fresh products; as a dual
pack, or stand alone item (ex. Caramel dip cups located by apples). Work with
retailers on center of store packaging and display opportunities
Exhibit 14. New Formats Compete Against Traditional Supermarkets
New Formats Compete Against Traditional Supermarkets
The future of supermarkets depends on how successful they are at re-inventing

themselves and giving shoppers a compelling reason to shop
Additionally, supermarkets are seeing growth in the health / natural food areas
Willard Bishop Consulting also feels that we will see supermarkets pushing more
differentiation strategies from the mass merchandisers with less emphasis on
products and prices
New format stores like Marsh in Fort Wayne, Indiana take a consumer
convenience approach the bread is near the peanut butter and jelly
Supermarkets will look for packaging to play a part in differentiation looking for
packaging with more shelf presence and features. More shelf organizers for value and
cost savings.
27
28
PACKAGING FOR THE RETAIL CHANNEL

The net effect of these retail dynamics, as channels shift and change in the quest to build a loyal
customer base, is a greater importance on packaging effective for the channel.
Exhibit 15. Packaging Implications / News Grocery
Packaging Implication
Trends: Grocery
Develop tie-ins / displays that work well in

Grocery stores touting freshness and
fresh sections ex. salad dressings next to
directing consumers to fruit / vegetables aisles bagged salads. Windows, zippers, foil, and
other materials and containers can signal
freshness to consumers
Increased use of self checkouts
Ensure its easy for consumer to find bar code

some wont buy if they need interaction / help
due to time constraints
Electronic Shopping Assistants / Technology

aids
Need to make sure you are on shoppers list

may be less likely to experiment with other
products
Channel Blurring stores encroaching on

grocery stores
Private Label high quality
New handling / shipping / storage concerns

do non-traditional food stores know how to
properly handle food items?
Need to try and differentiate from private label,
many which now have high quality products &
packaging
Next steps for differentiation in the grocery sector are:
Value adding products that save time (fish already seasoned, kabobs already skewered,
variety of salad options) as well as Dollar Store type items.
Convenience more one-stop options like a pharmacy, floral, health / beauty.
Extras coin-counting machines, gift cards.
Diversity of options more ethnic foods, wider produce selections, gourmet foods.
Home Meal Replacement (HMR) has become big business for grocery stores, and
provided another way for them to differentiate from Wal-Mart.
Packaging for the Retail Channel
29
Sales of dry grocery items at grocery stores fell 8.3% from 2001-2005; deli sales have
increased 22.1%.
Wegmans Food Markets are expecting prepared meal sales to have tripled from 2001
2005.
Exhibit 16. Packaging Implications / News - Drug Stores
Packaging Implications
Trends: Drug Stores
New packaging features can help generate

competitive advantage for drug stores
Convenience store, with larger beauty /

health section
New Target pharmaceutical package helps

them really stand out, while providing true
consumer benefits look for more drug stores
to place an emphasis on freshening up
traditional pharmaceutical packaging,
including OTC packs
More focus on beauty / health packaging &
convenient grab and go food items
Target gained a competitive advantage through packaging by touting its new

pharmaceutical package that incorporates a number of features, including:
o Flat surface for easier readability
o Colored Ring different color for each family member to reduce confusion
between family members
o Drug name at top and with color coding easier for users to identify their
prescription
o Integrated Patient Information Card more details about the drug in an easy to
access location on the bottle, rather than a paper pamphlet inside the carton
o Also backed up packaging with a large advertising campaign about package
features
30
Look for other drug stores to seek ways to use packaging to create differentiation /
competitive advantage. They do not want to lose customers to Target based on package
features!
According to a recent BusinessWeek article, Drug Store retailers are well positioned in
the intermediate term. Five drugstore chains collectively account for 60% of this retail
category - Walgreen, CVS, Rite-Aid, Eckerd, and Longs.
o As the American population continues to age, they will need more prescriptions to
be filled. Prescriptions account for about 70% of drug store sales, and growing.
o Non-pharmaceutical sales are also growing in these stores, showing that
consumers are increasingly happy with the service they receive in these outlets.
Use packaging focused on women target shoppers.
Longer term challenges include:

o Increased competition as other retail markets continue to add their own
pharmacies as they see the customer draw and profitability from pharmaceutical
sales
o More competition, lower margin payments from insurance carriers, and lower
drug
o price inflation could all lead to lower profitability in the future
o Look for Drug Stores to increase their selection of health and beauty supplies, a
growing area
o that supermarkets are trying to take over
o Increase in-and-out shopping convenience
Opportunity for makers of convenience food, health care, & personal care products to
develop packaging tailored to drug stores such as small end aisle displays, small check
out displays, etc.
Exhibit 17. Packaging Implications / News Mass Merchandisers
Trends:
Mass Merchandisers
More upscale packaging than traditionally

required fresher look in graphics and
package.
Wal-Mart looking to go upscale

Target = Trendy
Can displays be upgraded as well? Fewer

brown box displays.
Successful companies compete with
Wal-Mart by not competing on price
Can services be bundled with products? Can

packaging move upscale and product not be as
price sensitive?
31
Wal-Mart is starting to look for more affluent customers and upgrade its image so not to
cater solely to budget conscious shoppers. Affluent shoppers have more discretionary
income and are less affected by rising fuel prices, which hurt Wal-Marts current
customer base.
About 45% of Targets sales are on discretionary items like sporting goods, apparel,
electronics, and entertainment, to only 30% for Wal-Mart.
New changes include:

o New Marketing advertising showing kids / young professionals in more hip /
attractive clothing and gear
o Better Execution in Stores more tidy stores & quicker checkouts
o Improved Store Design and Display Try to make it easier for consumers to find
merchandise, eliminate some of the end of aisle displays, which add clutter
o New Merchandise look for more affluent opportunities like the George line of
clothing, popular in the UK and originally designed for the retailer Asda (which
Wal-Mart now owns)
o Committed to Value Still maintaining focus on their core customer
Culture Change at Target: How Target Became Trendy
Power to Designers previously, buyers made key design decisions, rather than designers
themselves.
o 3 pronged growth model trend right, customer focused, and designdriven
Target also believes that big market opportunities exist for companies that can bring
Mass Customization to market or find luxury in everyday items (example, Whirlpools
colorful washers & dryers) that combine beauty and functionality.
o Developers need to devote more thought to package design, not just functionality.
o Marketers need to stop taking lowest cost package option, and think of how
packaging can enhance the product.
Target introduced Method cleaning products, sold only at Target. Results are
impressive. The shapely containers were designed by Karim Rashid in 2002, and have
clearly resonated with consumers. The product was designed to be totally
biodegradeable and environmentally sound, as well as provide effective cleaning.
The bottle looks like a piece of sculpture more than a container for dish soap and looks
great on kitchen counters. For use, lift the bottle, point, and squeeze.
A self-sealing valve releases the liquid, a nice solution for dispensing.
32
Targets decision to offer Method cleaning products is based on distinctive packaging,

environmental consideration and a great product. It reinforces Target goals to become
a clear shopper destination for trendy products.
Exhibit 18. Packaging Implications / News Club Stores
Trends:
Club Stores
Still want attractive packaging not necessarily cheap,

industrial look
Club Store shoppers are
affluent and spending more
money at club stores
Consumers expecting convenience even though sizes are

large
How can packaging be more consumer friendly? Can product
be partitioned into smaller parts or print cooking instructions
on primary packaging?
Balance size of product vs. expiration date dont want
package so large that most consumers throw out a portion
because product spoils before use
Club Stores are gaining more affluent customers particularly Costco and Sams Club.
Most affluent shoppers still shop for personal items at Club Stores and spend about $148
/ trip, versus $120 / trip for middle market shoppers.
Well-to-do shoppers also drawn by savings on big tickets items like flat panel televisions.
Affluent shoppers at club stores may not necessarily want industrial looking packaging.
Adding better design can attract attention and increase sales.
While many say it's the value that keeps them coming back, more than half simply like
stocking up on food.
Properly storing and preparing bulk foods is a big concern among these shoppers, with
two out of three asking for advice.
Packaging that shrinks as product is consumed can be a huge benefit for food club
shoppers example: place cooking directions on primary packaging, not just secondary
packaging.
33
Exhibit 19. Packaging Implications / News Convenience Stores / Gas Stations
Trends: Convenience
Stores / Gas Stations
To showcase freshness (major barrier to nonsnack foods at c-stores), need to let consumer
see product but also incorporate new features
such as carry handles, include utensils, look for
ways to reduce mess
More fresh & premium items
Growing segment, especially for consumers

on the go
Packaging Implication
Need to try and incorporate travel friendly

features cup holder convenience, one hand
consumption, etc.
In an effort to appeal to more healthful / affluent consumers and shed its image for
overcooked hot dogs, 7-Eleven is starting to roll out more healthy options for consumers,
including:
o Formula 7 The companys own line of energy drinks and energy bars
o Cups of vegetable sticks, sushi (believe it or not), and wrapped chicken strip
Caesar sandwiches
o Also more flavored coffee drinks
7-Eleven also announced that they would be launching in 2006, a new line of Pick
Smart products fresh sandwiches and wraps that will have less than 10 grams of fat,
and 440 calories each.
In order to make new products stand out and call attention to the fact they are fresh,
packaging developers need to look for ways to grab consumers attention while still
showing off product in clear packaging brighter colors, innovative carry features, etc.
Circle K also recently launched line of pre-packaged salads and sandwich wraps.
In the convenience area, healthful and meal replacement options are a particular area of
growth.
o Product categories that have shown particular growth are yogurt (drinkable and
single-serve cups), granola bars, rice snack squares, and soups
Need new way of thinking for targeting convenience store consumers need to think
more fresh, portable, and highlight food product rather than hide it.
o Portability and portion control are primary drivers as well
o Portion control is a new packaging format that is just beginning to see benefits
34
Single-serve packaging, convenience features, fit in cup holders / water bottle holders,
spill proof, one-hand consumption.
Exhibit 20. Packaging Implications / News Dollar Stores
Trends: Dollar Stores
Growing market but low margins
Companies starting to look at marketing more

toward dollar stores due to growth need
basic, no frills packaging.
Looking to add more food items since not

discretionary items
Do dollar stores start to market their own

Private Label brands? Do major manufacturers
start to market more cost effective brands
toward dollar stores?
May be an opportunity to try out trial size
products / packages to get below the $1 price
point
Dollar General is testing the concept of adding groceries in their new Dollar General
Market stores, which are twice the size of a typical Dollar General Store.
o 30 stores are part of test, with an expansion of 700 stores planned in 2005
o Average consumer purchase in July 2005 was $8.77, up 12% from July 2004
but still very small compared to the $120 average bill per club store visit
With very small margins and spending per consumer visit, no frills packaging is required,
but do not want to dilute brand equity by using cheap packaging.
A new study by Retail Forward says that the dollar store format will continue to grow
over the next few years, but at a slower rate than seen recently.
o Dollar store sales were $31 billion in 1999, and $42 billion in 2004, but are
expected to grow only 5.4% annually through 2009. One reason: high fuel prices
are cutting into discretionary income for consumers shopping on a budget.
o Report believes that dollar stores will put more emphasis on food items in an
effort to retain/ gain more customers, since food is not discretionary spending.
Look for more emphasis on food products in this area stores may look to develop their
own private labels.
35
Exhibit 21. Packaging Implications / News e-Commerce
Trends:
e-Commerce
Online grocery growing, but still very

small percentage of overall market
For online ordering / customer delivery systems like

Peapod, not much packaging impact. CPGs could
work with online retailers to try to get favorable
positioning online, and potentially work on specific
packs for online retailer. Could use packaging to
give greater consumer confidence in freshness of
produce.
For direct consumer shipment (bulk / case quantity
direct to consumer), need to test for rough handling /
potentially extreme temperature conditions and
effect on product and consumer experience -- i.e., is
case beat up, dirty looking when arrives at
consumer?
Peapod, the online grocery service, is still growing at about 25% per year.
o New on-line customer interface has resulted in average order size growing from
$100 to $145
o Reducing overhead through new customer interface, resulting in 33% fewer calls
to customer service
o As of 2004, Peapod had approximately 150,000 active customers
o Currently operating in about a dozen markets
36
To date, market has been too small for CPGs to devote much packaging resources to
online grocery services, and online services have been too small to put much pressure on
major CPGs. There may be a new supplier opportunity here.
Online grocery sales of $2.4 billion in 2004 and expected to be $6.4 billion in 2008, a
growth rate of 42%...but still only 1% of the total grocery market.
Trouble areas: Keeping costs down so delivery charge is not too high to justify using
service, only works / appeals to consumers in large urban areas, and consumers do not
like others picking out their produce.
One way to benefit from consumers fear of poor produce is to brand and package fruit /
vegetables so they remain fresh. Rather than ordering peaches, consumers would order
Brand X Peaches, knowing that the packaging would help deliver fresher produce.
Maybe smart packaging or reusable packaging?
NATURAL AND ORGANIC FOODS GROWTH DRIVING RETAIL

It is clear that more Americans are intent not only on living healthier themselves, but on raising
the next generation in a healthier way. As a result, the organic and natural foods sector has
become an interesting mix of entrepreneurial leaders, legacy brands reinventing themselves to
join the party with organic product lines, and emerging brands carving out a niche within the
niche. The most prominent common denominator in determining success is a winning recipe of
taste and trust.
Consumers who purchase natural and organic foods are mindful of the foods they are eating and
are feeding to their children. They trust the brands they are buying, and are relying on these
brands to deliver taste and high quality. Building trust is essential in any organic and natural
food brand strategy. Packaging plays an essential role in communicating that trust.
Packaging is a key identifier in promotion of natural and organic products. Some forward
thinking companies market natural, preservative-free cookies and snacks in barrier laminate
pouches in a range of formats. Some will use Modified Atmospheres or oxygen absorbers to
maintain freshness, but the package is matte finished to look like paper. Easy open and
recloseable features are often included. The package is distinctive, with shelf life and product
quality benefits while delivering a clear message of natural and healthy to interested
consumers. Packaging guides consumers to products they perceive as better for them, by sharply
contrasting with brighter packages that appeal to fun and convenience purchasers and clearly
standing apart on the aisle shelf from the sweeter treats in bold and shiny formats. For retailers,
developing new loyalties and appealing to changing consumers expectations, well defined
packaging provides the roadmap for busy shoppers.
A major challenge in marketing these products is the variability in certification and the widely
used logos and terms. Many retail chains have developed their own identifiers for better for
you products like Publix Green Wise and Loblaws Blue Menu. By using a very strong
color and graphic across all the products in the store, consumers quickly recognize these
products placed next to conventional and national brands. Organic association groups have
indicated they believe retail private label in this category is the growth obstacle for their
independent labels that are flourishing at specialty retailers like Wild Oats and Whole Foods.
Natural and Organic Foods- Growth Driving Retail
37
Retail packaging has been extremely valuable for retailers in this category drawing in new
consumers and delivering a clear powerful message. The opportunity for distinctive
merchandising is recognized by retailers and used well to create profitable extensions. Natural
and organic foods might cost consumers more money, and brand owners realize the importance
of driving home the benefits. With the marked growth of this sector, specialized natural and
organic foods retailers have emerged as a competitive market all their own. As the go-to
locations for all of these brands, they are charged with building a brand that promotes the
lifestyle. The Wild Oats retail chain was built, according to its website, "on the vision of
enhancing the lives of our customers and our people with products and education that support
health and well-being."
In spite of the increased cost, Americans are flocking to these lifestyle retailers because they
offer something for everyone. Consumers at Wild Oats are somewhere along the spectrum of
health and wellness. For some, its the fresh prepared foods; for others, it's an organic diet, or
somewhere in between. The emphasis is on freshness and high quality, strong service, and
consumer information. Health and wellness seminars, cooking and nutrition classes are
available. Environmental commitment is promoted, as well as community service.
Exhibit 22. Packaging Implications / News Natural / Organic
Trends: Natural/Organic
High prices / profit margins affluent customers
More sustainable packaging options available
Packaging needs to reflect healthy, but still

attract attention use of glass or clear
bottles to show off product, or paper to give
more natural look. Matte finish on flexible
packaging can be used as well. Value
equation is key.
Organic / healthy stores present an excellent
opportunity to align the product, package,
and equity of a brand all together.
Natural / Organic like Whole Foods, Wild Oats, etc., are growing 20% per year over a 10 year
period. 2003-2004 organic food sales show household penetration down from 38% to 30%.
Supply issues are believed to be impeding growth in many regions.
38
Organic Demand Greater Than Supply
According to The Natural Marketing Institute's 2005 Organic Consumer Trends Report,
30% of U.S. consumers use organic products.
Sales were up 18% in 2004, and one of the main issues impeding further growth may be a
lack of available supply.
Recent study by Iowa State University showed that 40% of farmers are planning on
increasing the acreage they allocate to organic farming.
Huge opportunity for growth packaging often more simple, with a wholesome look.
Glass is an important material due to clarity and barrier properties. Also more use of
aseptic packaging. Movement towards biopolymers is beginning in Wild Oats and
Wal-Mart.
Whole Foods differentiates itself from conventional grocery store with completely
different shopping experience.
o Products you cannot find anywhere else
o Seating for dining
o Restaurant quality prepared meals
o High quality cheese / bread selection
o High prices will prevent runaway growth, but there are only 157 stores
nationwide (as of July 2005)
o Squeezing traditional grocery chains on high end, while Wal-Mart competes at the
lower price end
Higher priced products, higher margins packaging needs to reflect consumer

expectations of quality and taste.
Trader Joes has also built up a very loyal customer base, similar to Costco, focusing on
retaining good employees who are happy, which then results in a more pleasant shopping
experience for customers.
In his book about Trader Joes, Len Lewis lists some other initiatives Trader Joes offers
to employees to foster retention.
o Leadership Development Program empowers employees to make key decisions
about store operations
o Average hourly wage of $21 / hour
o Health insurance and retirement benefits
o Shows employees a career path and opportunities for advancement
39
From a packaging perspective, Trader Joes also looks for unique packaging like shaped
cans, innovative glass packages, as well as simple labeling. They also focus on and
deliver fresh in many ways.
Major opportunity for packagers and retailers to gain competitive advantage by using
materials / displays perceived as fresh.
A 2005 report by the Hartman Group says that consumers go through 4 phases of
adoption of organic foods, becoming more familiar with the term organic at each
phase, and the quality of the products:
1. Gateway Products dairy, soy, baby food based mainly on avoiding hormones
and pesticides in products
2. Child-focused / Low risk decisions juices, cold cereals, snacks, pretzels
3. Convenience Products pasta sauces, breads, hot tea, bulk foods
4. Core Consumers Transitioned completely to organic style products canned
goods, personal care items, organic fabrics
Gateway products will allow company to build credibility, and get more trial.
The recent development of biopolymer plastic packaging products made from corn or
sugar provides an extraordinary opportunity for consumer products groups to link organic
food products with sustainable packaging material.
Polylactic Acid (PLA) is used to make clear trays, bottles, films, labels, resins, and even
grocery bags.
o Naturally Iowa uses the tagline We Milk the Cows and Grow the Bottles! A
great tagline to merge product and packaging
o Wal-Mart will begin to substitute 114 million clear petroleum-based plastic
clamshell containers with corn-based plastic packaging for cut fruit, herbs,
strawberries, and Brussel sprouts
40
PRIVATE LABEL RETAILER CONTROLLED PACKAGING

Packaging is playing a huge role in Private Label (PL) growth,
providing retailers with means to differentiate their products
from competitors.
Retailers understand and control Private Label
Packaging there is no doubt that almost 25% of the
retail grocery and consumables sold in the U.S. are
directly controlled by retailers.10 Retailers and their
agencies manage package development and innovation
here, as the CPGs are in direct competition for sales
and shelf space.
PL grew four times faster than branded CPG in all channels measured by Nielsen (52
wk., 4/19/03).
PL now competes in 75% of all categories measured by Nielsen.
PLis now the category leader in 25% of its categories (unit share).
PL is not just in conventional grocery, PL is growing in Mass/Superstores and Club.
Private Label is a complex industry that involves a host of marketing concepts. While many
products are purchased frequently and represent mature markets, retailers are adding premium
and luxury tiers, as well as creating new categories - particularly in fresh foods. Nearly one out
of every four products purchased from a U.S. retail channel - mass merchandiser, drug chain, or
supermarket - is a Private Label product. In some product categories, the Private Label market
share exceeds 50% and the retailer is driving the segment. Private Label packaging is a huge
driver for retailer growth.
A 2003 Nielsen poll concluded that of U.S. consumers surveyed, 100% bought Private Label
with the intention of future purchases. The industry's major dynamic is its complexity of detail,
as evidenced by the vast number of stock keeping units (SKUs). Product, package, graphic
design, and size of orders are more variable in Private Label than for nationally advertised
brands. Both private label manufacturers and CPGs have increased the number of SKUs to
provide more consumer choice and deflect competition. Recently, a growing number of retailers
have adopted two- and three-tier store brands to differentiate choices. At the same time, some
CPGs are reducing SKUs to sharpen category management on crowded shelves. The
competition for share is fierce.
Retailers are struggling to maintain profitability as the landscape has shifted through the force of
mass marketer growth and industry consolidation. Increased emphasis on lower prices for
national brands has reduced tight margins even further. Private Label brands are viewed as an
10
Private Label- Retailer Controlled Packaging
41
important step to help retailers regain profitability. Margins may be 20% to 30% higher on store
brands, a very attractive option. Many new organizations and supplier cooperatives have
become prominent to service this growing business.
According to PLMA (Private Label Manufacturers Association), American consumers view
store brands like any other brand. In a nationwide Gallup study, 75% of consumers defined store
brands as "brands" and ascribed to them the same degree of positive product qualities and
characteristics - such as guarantee of satisfaction, packaging, value, taste, and performance - that
they attribute to national brands. Moreover, more than 90% of all consumers polled were
familiar with store brands, and 83% said that they purchase these products on a regular basis.
Store brands are an integral part of the marketing strategies of many retailers. These private
brands can make the store competitive in primary product categories as well as providing real
differentiation. In todays marketing battle, every retailer wants to become the shopping
destination. Well-chosen store brands can build loyalty and be an important factor in the
consumers choice of retail location. Todays busy shoppers are looking for the retailer who best
meets all of their needs quickly. The true growth rate of Private Label should not be
underestimated. In the past 10 years, the number of Private Label products has grown to a
conservatively estimated 20% of products sold at retail. All indications are for continuing
increases in category and product by retailers.
According to a 2004 article in Brand Packaging, retailers

are no longer looking at Private Label items as cheap
alternatives. They are using Private Labels to:
o Make their stores a destination example: Costco
and its Kirkland brand
o Market the store as a brand example: Trader
Joes (which claims to target the overeducated and
underpaid) 80% of the store is retailer branded
products.
o Signal premium value example: Target is using premium private label brands
that cost nearly as much as national brands but are more premium in nature
11
Private label quality has increased, allowing consumers to have more confidence in
buying private label products.
A new report released by ACNielsen, The Power of Private Label 2005, shows store
brands are capturing a greater share of sales worldwide. Between 2003 and 2005, private
label brands grew at a five percent rate compared to two percent for manufacturer
brands.11
Retail Wire Discussion By George Anderson Sept.28, 2005
42
Exhibit 23. Private Label Share by Category
Private Label Market Share
Product Area
Private Label
Share
Private Label
Growth
Refrigerated Food
32%
9%
Paper, Plastic & Wraps (PPW)
31%
2%
Frozen Food
25%
3%
Pet Food
21%
11%
Shelf-Stable Food
19%
5%
Diapers & Feminine Hygiene
14%
-1%
Health Care
14%
3%
Non-Alcoholic Beverages
12%
3%
Home Care
10%
2%
10
Snacks & Confectionery
9%
8%
11
Alcoholic Beverages
6%
3%
12
Personal Care
5%
3%
13
Cosmetics
2%
23%
14
Baby Food
2%
13%
Source: ACNielsen, The Power of Private Label 2005
Strategically, retailers worldwide seem to be placing more and more of an emphasis on branding
and marketing their private label wares to match the lifestyles and values of their shoppers.
From the Tesco Healthy Living range of products to Loblaw's President's Choice expansion into
organics and health-oriented lines, retailers are expanding their brands far beyond a singular
focus on low price points. According to Jane Perrin, ACNielsen, We are even seeing retailers
leverage the equity of their private label brands outside of fast-moving consumer goods into
areas such as personal finance, insurance and telecommunications. The simple fact, supported
by this research, is that consumers increasingly see private label as a viable and, in some cases,
preferable alternative to manufacturer brands. Sixty-eight percent of consumers interviewed by
43
ACNielsen either slightly or strongly agreed with the statement: "Private Label brands are a good
alternative to other brands."
There are many Private Label products on retail shelves:

o Publix has their private label brand on about 2,000 items
o Wal-Marts 1,650 private labels include Equate, Sams Choice, Great Value, and
are growing to include a new range of organic products for adults and children
o The Food Lion brand has 2,600 items
o Harris Teeter offers over 3000 products under names such as Harris Teeter,
Hunter Farms, Highland Crest and Premier Selection
o Over 7,500 Kroger private label items come with try it, like it or get national
brand free guarantee
o Wegmans has over 5,000 private label SKUs
o Loblaws, Canada, carries over 7,000 Presidents Choice and other store brands,
representing over 40% of product sales
o Tops carries 6,000 7,000 private label items
o Albertsons stores average nearly 7,500 private label items
o Safeway stores carry close to 8,000 private label SKUs
o Aldis carries over 90% private Label products in its U.S. stores
Many sources estimate the current penetration of private label at 20+%. All indications are that
this number is increasing, particularly in health care, bottled drinks, beauty, vitamins, and a
number of other areas. In the UK, store brands represent an estimated 38%. Most analysts
suggest that 50% is the maximum level of private label that retailers would carry, as product mix
with national brands is critical to keep customers. The marketplace is far too dynamic to
reasonably suggest likely outcomes, but the battle will be fierce with profit differentials of 10%
to 20% at stake for the retailer.
44
Many private label products are as good as, and sometimes even better than, branded
products. Below are some of the top store-brand products the experts at Consumer
Reports have tested in recent years. All were at least very good overall and are still being
sold in the formulations their experts tested.
Exhibit 24. The Best Private Label Products, By Retailer
Cereal
Wal-Mart, A&P, Kroger
Detergent
Costco, ShopRite, Sears
Chocolate Ice cream
Winn-Dixie
Peanut Butter
Kroger, Wal-Mart, A&P
Frozen Pizza
Kroger
Yogurt
Stop & Shop, Wal-Mart
Paper Towel
Costco
Source: Consumer Reports, August 2005 Issue
"I believe it's a wake-up call to the national brands. They need to take the products to the next
level through innovations in products, packaging and presentation."
-Bruce Tominello at Tabletop Consulting says of Private Label products
Private Label packaging is going upscale and becoming a brand in itself. It is a key
enabler in the new upscale, and fresh format retailers across the country are positioning
themselves in urban areas.
Retailers understand and control Private Label packaging there is no doubt that almost
20% of the retail grocery and consumables sold in the U.S. are directly controlled by
retailers. Retailers and their agencies manage package development and innovation here,
as the CPGs are in direct competition for sales and shelf space.
45
46
MEGATRENDS: DRIVERS OF CHANGE AND THE IMPORTANCE OF PACKAGING

The retail landscape has dramatically changed, driven by growth and consolidation, and it
continues to reinvent itself to meet changing consumer needs and expectations. These trends
impact and help shape products for new demographic directions in age, gender, lifestage, and
income. Trends influence buying patterns in many significant ways.
Convenience: Busy parents/professionals welcome features that simplify living. Time

saving products and 'quick fixes' are important to 82% of consumers. Prepared meal
consumption is forecast to double in ten years, exceeding $40 billion by 2009, up from
$29 billion in 1999, according to Datamonitor. Trend is to more fresh, increasing quality,
and greater range of offering, including more ethnic products. Packaging must reflect
new value equation and provide shelf impact as categories become crowded.
Health and Wellness: An overwhelming majority (90%) of U.S. consumers feel that
improving health is important, and most important to the 40+ segment of the population.
Confirming growing sales for food firms operating in the functional food domain,
researchers claim that 64% of consumers actually took "steps" to improve their health in
2003-04. The health megatrend' also continues to be a major driver towards preferences
for all things natural and organic. Many U.S. retailers are developing new channels to
feature these products from Food Lion (Bloom) to Giant Foods, following the impressive
results achieved by Whole Foods, Inc. Quality appropriate packaging is key to draw
these consumers.
Nutrition and Health Crossover: Strong opportunities for companies will also lie in the
crossover trend between health and convenience (health on-the-go), an area that clearly
bears high growth potential. Packaging is key to billboard and showcase key features.
Value: The value equation determines the purchase decision. Value is the fundamental
that drives many repeat purchases. Consumers are smarter, having developed an
expertise in considering the array of product choices available. Computer savvy
consumers can easily comparison shop for almost any item through a range of internet
sites like pricegrabber.com. Consumers search for quality features and benefits as well as
the best deal where they shop.
Safety and Nutrition: Consumers demand assurance that foods are safe and healthful.
Brand marketing of packaged produce by major companies like Dole and Birdseye is
dominating in many areas. A decade ago, consumers believed only unwrapped products
were fresh and demanded the right to touch and smell. Safety concerns and a new
generation of shoppers depend on name brands for quality and reassurance. Its all about
the packaging here.
Taste and Sensory Experience: Consumers are looking for fresher, more flavorful foods
as well as more intense experiences from products and are more willing to experiment.
Datamonitor reported that in 2003-04, over 60% of consumers indulged in food and
drinks that they had never tried before. Tapping into fascination with foreign cultures
Megatrends: Drivers of Change and the Importance of Packaging
47
and flavors cuts across age and income; expectations are high. Functional packaging is
essential to guarantee the true taste experience, particularly oxygen barrier and absorber
systems. Creating shelf impact with great shapes, features, and graphics is key to
marketing these new products at retail.
Trading Up, Upscaling and Affordable Luxury: Reflecting opportunities in premium

food products, lower income and mid-market consumers are increasingly seeking luxury
on a budget, and are increasingly influenced by the availability of luxury items, thanks to
mass customization in many cases. In recent years, the trend for 'accessible premium'
brands has emerged, reducing the high entry barrier that the industry once maintained.
This premium trend has been strongly adopted by retail Private Label brands. Leaders
such as Costco and Target carry lower end and higher end store brand offerings.
Packaging is essential to show the differentiating quality and lifestyle features.
Age and Consumerism: Younger consumers are constantly acquiring greater

autonomous spending power and developing brand awareness and loyalty at a younger
age. Young women are a big part of the group purchasing natural and organics, adopting
healthier lifestyle regimens. Boomers and Matures respond to products that are aligned
with the aspirational age of consumers, like a desire for younger appearance (age
defying cosmetics are doing well). These consumers are healthier, more active, more
vigorous, and influential than other group. They want Health + Convenience +
Pleasure and will experiment with new products to achieve better results.
PTIS Retail Research: PTIS has conducted a series of retail audits across North America.
These audits showed that a growing number of store managers understand Shelf Impact and are
trying to provide a good assortment of what their customers want.
Megatrends drive retailers to react or change. Lifestyle demands, individual preferences,
demographics, and the desire for new products are all major drivers that influence what goods
consumers purchase. In turn, retailers use various promotional and merchandising strategies to
meet these needs and to draw consumers into their stores, as described below.
In order to maintain profitability and meet the consumer expectations, retailers influence
purchasing decisions through unique product offerings and promotional displays. The strongest
example included private label and organic products discussed earlier, but consumer purchase
decisions are influenced by multipacks and bundling, shoppable pallets, floor displays, and shelf
popping advertising.
Package display formats at retail will continue to drive consumer purchase.
48
Exhibit 25. Consumer Impact on Retailer Packaging
To improve the overall profitability of the company, retailers also look at operational issues to
promote efficiencies. Operational issues that impact a retailers bottom line include efficiencies
in point-to-point handling, RFID and other tools to assist in tracking and inventory management,
and global sourcing practices.
49
50
INDUSTRY PARTICIPANTS ROLES

This report section describes the relationship/dynamics between consumers, retailers, consumer
goods companies, and packaging manufacturers.
Consumer is the ultimate decision maker and main driver of consumption based on needs,
wants, and preferences.
Retailers desire innovation and new news to stay in the forefront of consumers minds.
Through the power of purchasing, retailers have the final approval on packaging for graphics,
image, and consistency of retailer message, and are exerting more influence on packaging size.
Retailers may work directly with independent or contract manufacturers, but also through
package design/ development houses at the retailers direction for private label brands.
Another key area of retailer influence is packaging related to operations and shipping. Retailers
are very motivated to be efficient and effective when it comes to this logistical issue, while still
supporting their store image.
Retailers realize that private label products are an extension of their image and are increasingly
taking an interest in the actual packaging technology selection. Like other packaging decisions,
private label packaging decisions are based on the retailers desired product position and pricing
strategy.
Exhibit 26. Industry Participant Influence
Industry Participants' Roles
51
We expect innovations from our suppliers in the way of both products and packaging. We
have the last call on what we will accept; however, we leave the actual packaging development
to them.
-Structural Packaging Manager, major club store
Consumer Product Goods Company (CPG)
In order to remain fresh in the eyes of both consumers and retailers, CPGs work with packaging
manufacturers for the development of innovative packaging. However, retailers exert a growing
influence on packaging that is increasing the complexity of CPGs typical operations. Retailers
request and require changes in package offerings, and CPGs are approached regularly for new
ideas. The CPGs marketing/procurement group and consumer packaging team typically get
involved in developing new initiatives, supported by design agencies. These teams generally
understand what packaging options are available to them but work collaboratively with
packaging manufacturers for innovations in packaging technology. A retailer may want
something specific and may work in collaboration with consumer goods companies to find
solutions. Various retail segments also look for product size/weight (size) to be a differentiator
for its offerings from single serve or portion packs to large formats and club sizes.
Product vendors may not have the needed flexibility in their packaging lines. CPGs usually
prefer to run products and packaging at their own facility, but this is not always feasible. For
example, promotions may require the CPGs to hand pack items or use contract packagers.
Contract packagers are increasingly being used by CPGs to meet demands for product
customization.
Customized retailer packaging is and will continue to make CPG operations more complex
in the future.
Packaging Manufacturers
Packaging manufacturers provide the R&D and investment for packaging innovation and
influence end-user consumption and retailers operational efficiency through packaging designs.
With long term investments in new materials, resins, manufacturing technology as well as
packaging systems for the end-user, many suppliers have strong marketing groups that work
interactively within the industry. Long term relationships have fostered innovations through
cooperative effort leading to packaging innovations that improve shelf life, functionality,
convenience, shelf appearance - a whole range of possible features and benefits.
52
Industry Participants' Roles
RETAILER DIRECT INFLUENCE IN PACKAGING

Exhibit 27. Retailer Direct Influence
In some instances, retailers have a direct involvement in
packaging technologies and with suppliers. Three such
examples of special requests are Wal-Marts insistence that its
major suppliers participate in its RFID program, Wal-Marts request
for more foil blister packaging for pharmaceutical packaging, and
Wal-Marts request for sustainable packaging.
Retailers have their greatest level of involvement/influence when it

comes to their own private label brands. Retailers may ask for their
private labels to be similar to the national brand, but this is
changing. Some companies going for a premium package will
Source: Strategic Analysis Inc.
develop the concept and select packaging technology. This practice
will continue to grow. Packaging technology and capital constraints can become an issue at
some point. In the past, mass merchandisers asked CPGs to change product net weights at
different times to meet certain targeted price points. Now, specific packaging designs/formats
are selected and can become unique to the retailer. Custom case counts, display cartons to
support flexible packaging, and a host of other options are increasingly part of the mix.
Operational issues such as product handling and overall appearance on the retailers shelves
(multipacks versus stocking trays): Overall, very few instances of problem packaging have been
identified by the retailers interviewed for this study. However, retailers suggest a few key areas
for improvement:
More effective easy open and reclosable features, particularly for fresh items
Reinforced seals and hole punches for peggable products
Stronger stretch film to decrease amount of waste for wrapping pallets
Stronger and more durable bag products for mulch and soil
Products with improved tear resistance and less leaking
Retailer Point-To-Point Handling -- Supply Chain and Display Efficiencies
The retail buying agent is responsible for purchasing products that sell, and to do so in a way that
optimizes how the retailer handles products. Retailers set shipping and operating standards to
which CPGs must strictly adhere. The shipping standards have an impact on primary,
secondary, and tertiary packaging. However, the ultimate decision on the material to be used is
dependent upon the product being packaged and the role the package is to fulfill within the retail
store.
Retailer Direct Influence in Packaging
53
An example is club stores that request the minimization of waste. Based on this request, CPGs
look to combine secondary and/or tertiary packaging to meet requirements for structural
integrity, while creating a design where the consumer takes all packaging and shipping material
out of the store with the purchase of the product. This type of design minimizes waste, clean-up
time, and ultimately, cost.
There are over 2,000 SKUs on our shelves. High impact graphics and packaging impact are
hands down the most important thing for selling drug store products in general.
-Purchasing Manager, pharmacy chain
Wal-Mart doesnt demand anything unusual from us in the way of structural packaging such as
a radically shaped or designed cereal box. What they do ask us to do, however, is to do things
that make their life easier and/or reduce their costs. Functional things such as use less
corrugated or make the cases smaller.
-Director of Packaging Innovations, major snack food producer
Retailers, especially mass merchandisers, also look at packaging from a handling efficiency point
of view. This includes all points from the CPG production facilities and distribution network, to
the retailers warehouses, stores, and ultimately to the shelf. Minimizing touch at any point
along the chain translates back into operating efficiencies and higher margins. Traceability is
also important.
A few efficient distribution practices include:
Just-in-time (JIT) delivery scheduling
o JIT scheduling is a standard procedure for all companies, but only Wal-Mart is
currently implementating RFID technology for operating cost saving purposes
Shoppable pallets
o Key to club store strategy and sales, but also found at some mass merchandisers
for high-volume promotional offerings
PDQ floor displays
o Free standing displays usually associated with corrugated box applications and
used for small volume special promotions
Shelving trays
o Shelf readiness is an efficient form of shelf stocking, but not practiced by all
retailers
Aisle hangers
o Display of promotional items hanging from shelf columns in the aisles
54
For example, Target has a conveyable case rule. Every product has to be in a case that is easily
transferred and moved via conveyors within Targets distribution network. Conveyable cases
allow the retailer to efficiently and cost effectively break up cases as needed.
Target has also moved away from shelving trays, stating that these displays portray a disheveled
shelf appearance. This trend will cause an increase in standup pouches or other technologies that
provide a similar billboard effect. Similarly, Target is moving toward smaller volume
multipacks because they make the shelves look cleaner and increase the overall dollar ring for a
single purchase.
Historically, product sales to consumers have only been through the retail store itself. However,
with the continued growth of internet sales, retailers have to take into account handling of
products going through the mail and other third-party couriers. The packaging issues that
actually developed are more associated with product protection and flexibility of packaging to
handle the many variations of ordered items. Key developments have mainly focused on tertiary
packaging that can be shipped via mail or third-party courier.
Consumers Influence on Retailers
Since only the consumer makes the purchase decision, retailers make an effort to understand
consumer preferences, needs, and dynamics to refine their image, product mix, and subsequent
packaging requirements. A retailers merchandising strategy has a direct impact on the products
that are sold and the look of the store. Retailers also optimize their operations to minimize cost,
but in a way that is being used to support their merchandising strategy and to maintain revenue.
For example, retailers have typically made a conscious decision between:
Bulk vs. non-bulk product sales which impacts their attitudes toward:
o Club-pack, multi-pack, bonus pack and/or bulk packaging versus single unit
packaging
Clean floor vs. non-clean floor policy which impacts their attitudes toward:
o End-caps and aisle hangers versus shoppable pallets and other floor displays
Target has a clean floor policy and does not allow shoppable pallets or PDQ floor
displays in its stores.
Wal-Mart continues to promote: Shoppable pallets, PDQ floor displays, aisle hangers,
and aisle end caps. The choice of flexible packaging and possible display cartons has to
work with these practices. Similarly, Wal-Mart is always looking for ways to reduce
shelf stocking time, so shipping cartons that can be used to display smaller items is
important.
55
Exhibit 28. Retailer Positioning and Consumer Preferences
56
RETAIL GROWTH - FOREIGN SOURCES
Imports of finished goods by retailers have increased and are expected to continue to grow,
particularly from China and India.
Exhibit 29. Global Sourcing by Retailers
Retailers explain their motivations to source from lower-cost overseas markets as vehicles to
achieve long-term financial success and to offer their customers a broader selection of quality
products.
57
Global sourcing of the many products we sell is an important factor in our financial
performance.
-Wal-Mart 10K 2005
We source from the global market to offer our customers who live paycheck to paycheck the
greatest value for their money on many essential products. To do this, we buy, in addition to the
United States, from many regions such as Africa, Asia, Europe and Latin America.
-Wal-Mart web site
We maintain a global sourcing merchandise program to source high-quality products directly
from manufacturers. This gives our customers a broader selection of innovative products and
better products, while enhancing our gross margin.
-Home Depot 10K 2005
In the future, we expect purchases from our global sourcing offices to increase as a percentage
of total purchases. We also believe that the expected increase in our global sourcing volumes
will help drive gross profit rate improvements by lowering our overall product cost.
-Best Buy 10K 2005
Best Buy considers global sourcing to be a fundamental contributor to the sustained, long term
success of the company.
-Executive VP-Supply Chain and CIO, Best Buy
Wal-Marts largest foreign sources in 2004 were:

Rank
58
Country
Comment
China
$18 billion ($9 billion direct, $9 billion indirect) in 2004
India
Its sourcing from India increased 30% CAGR between 20012004 and is expected to reach $300 million in 2005. Besides
importing textiles (apparel, home furnishings), leather, and
jewelry, it is exploring the food sector too.
Malaysia
It plans to increase purchases of Malaysian goods by 20% in

2005 from $200 million in 2004.
Other
Brazil, Pakistan, Thailand, Italy, and Costa Rica
Wal-Mart reportedly plans to cut 20% from its procurement costs over the next five years.
Only 10% of Wal-Marts purchases are currently sourced directly from factories. By buying
direct and using its own distribution network, Wal-Mart bypasses purchases from traditional
CPGs and passes some savings on to the customer.
Quite frankly, were late to the party. But we could easily double the 10%
penetration rate (of purchase direct from the factory).
-Senior Vice President for Global Procurement, Wal-Mart
Home Depots largest foreign sources in 2002 were:
Rank
Country
Comment
China
10 years of experience in China
Other
~40 other countries
Home Depot intends to grow its imports to 10% of the sales in its stores.
Targets key foreign source is also China.
After achieving a 100% increase last year over the previous year, our procurement from the
mainland (of China) is expected to double again this year (despite a larger base) by value. A
50% to 75% year-on-year growth can be expected in 2004.
-Director-Sourcing Services, Target
JC Penneys sourcing of apparel, including home textiles, from India is expected to increase
three times to about $600 million in the next 2-3 years compared to the current (2004) level.
Retailers with global sourcing offices in China, specifically, include:
Wal-Mart
Best Buy
Home Depot
Other
Target
59
Impact on domestic packaging manufacturers include:

1. Many historically domestic packaging opportunities have moved overseas. If the
packaging supplier has not moved operations to exporting regions, it has lost the
business.
2. Due to increased transportation distances, there is an increased requirement for protective
packaging.
3. Flexible packaging which extends product life properties will have increased
opportunities as imported food products continue to grow.
4. All imported products need Country Of Origin Labeling (COOL).
5. Imports are not just limited to textiles and durable goods. For example, U.S. imports of
pharmaceutical products and select food products have all increased at double digit rates
between 2002 and 2004. This is important to realize, because pharmaceuticals and food
represent significant markets for flexible packaging. For example, food alone accounts
for more than half of the consumption of flexible packaging consumed in retail
applications in the United States.
As imported products increase in sales, so too does the need for flexible packaging. If packaging
manufacturers have not moved with CPGs that have gone overseas then these companies see
decreasing revenues. Packaging manufacturers may also be losing out on potential packaging
opportunities if they do not have established operations in major countries exporting to the
United States.
Issues Facing Packaging Suppliers
One of the major issues facing packaging suppliers is sourcing of plastic materials that meet U.S.
standards. Plasticizer and monomer levels, as well as print process, must be monitored to ensure
compliance. Responsibility for packaging to meet regional and federal regulations remains with
the packaging manufacturer.
60
IMPACT ON FLEXIBLE PACKAGING

This section considers the impact of key trends on flexible packaging use and growth. Outlined
below are specific trends within general categories that promote the increased use of flexible
packaging technology. Each of these specific trends is discussed on the following pages.
Exhibit 30. Trend Analysis in Flexible Packaging Applications
Trend Drivers outline key drivers that have an influence on the market and invoke an
action by retailers or consumer good companies (CGCs).
Trends highlight actual trends being implemented in response to trend drivers, which
help meet retailer and CGC needs. These actions are specific applications that directly
influence packaging technology.
Impact on Flexible Packaging provides the packaging technologies that will be

impacted by the identified trends.
The segment overview box identifies the retail segment affected by the trend, and the
relative impact the trend will have on the noted retail segment (high, moderate, low).
Impact on Flexible Packaging
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PACKAGING FORMAT
BLISTER PACKAGING
Exhibit 31. Blister Packaging
Wal-Mart made a direct decision over the packaging technology used. It asked for more blister
packaging to be used for prescription drugs because it provides:
Dosage compliance so the consumer is not confused about how much medication to take,
and when to take it
Additional space for advertising the drug, and more room for product information on the
package
A labor cost savings -- pharmacist does not have to count out pills, and therefore can fill
more prescriptions in a shorter amount of time.
Blister packaging is for foil backing only, NOT with paperboard backing.
The U.S. prescription and generic drug market is $225 billion and growing at 6% annually. With
new drugs coming on the market and a change-over of some existing packaging to blister
packaging, blister packaging applications are forecast to grow 10% to 15% per year.
Since Wal-Mart has been successful in obtaining blister packaging, it is likely that use will
spread more rapidly in other areas.
62
MULTIPACKS
Exhibit 32. Multipacks
There are many aspects to multipacks that will help fuel the increased use of shrink film and
overwrap. Multipacks have traditionally been utilized in club stores but continue to move into
mass merchandisers and grocery stores.
Key attributes of multipacks include:
Decrease stocking cost:
o More products are placed on the shelves quicker than through individual product
stocking, saving time and thus, labor cost
Increase dollar ring:
o Packaging provides a sense of perceived value and increases the individual dollar
ring, as a consumer may walk out of the store with 6 individual units instead of
only 2 or 3
63
Clean self-appearance
o Target has moved toward multipacks as a means to provide a neat shelf
appearance, compared to the disheveled look of stocking trays. Target no longer
allows stocking trays in its stores.
Billboard effect:
o Multipack overwrap and shrink film provide a large advertising area with shelfpopping graphics
Club stores continue to push larger unit multipacks but also provide smaller unit single serving
multipacks. Mass merchandisers and grocery stores are now using smaller unit multipacks as a
way to achieve the aforementioned packaging attributes.
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BUNDLING- PREPARED FOOD

Exhibit 33. Bundling -- Prepared Food
Bundling of products has traditionally been common at club stores but is becoming more
commonplace in grocery stores and mass merchandisers. Product combinations include
prepacked deli platters, vegetable platters, and assorted cheese and chip platters, to name a few
items. Key reasons for bundling include:
Convenience for the on-the-go consumer who does not have time to shop
o Pre-packaged fruits and vegetables (e.g. apples, oranges, broccoli, tomatoes, etc.)
Positive perception among consumers who are looking for value-added product offerings
o Unique combination of product offerings fits with the consumers demand for
convenience
In order to maintain product freshness and convenience, the following flexible packaging
technologies will benefit from this trend of bundling prepared food:
Breathable films
Resealable bags
Film lidding
Mesh netting
Lay flat bags
65
BUNDLING- CLUB PACK

Exhibit 34. Bundling -- Club Pack
Bundling in clubpacks are specific to club stores. Clubpacks are complimentary products
bundled to provide the consumer with a sense of perceived value. Clubpacks include such
complimentary products as a basting brush with the purchase of two jars of BBQ sauce. This
format has been successful and will continue to grow. Bundling of clubpack products will
mainly utilize shrink film and overwrap as the key secondary package form.
66
FOOD PACKAGING
PRE-PACKAGED MEAT
Exhibit 35. Pre-Packaged Meat
Food is a major application for flexible packaging, and meat and poultry packaging is a strong
growth area within the overall food market. Meat/poultry is the number one consumer spending
grocery segment and is considered a key consumer destination point by many retailers.
Growth in pre-packaged meat is driven by:
Consumer convenience where many households find value in the pre-marinated and precut products. Pre-packaged meat and poultry decrease both shopping time and
preparation time for cooking meals.
Retailers realize cost savings and increasing product quality since they do not have to
employ as many butchers at individual retail locations. Decreasing the need for butchers
is also advantageous because the grocery industry is experiencing a decreased level of
skilled labor.
Offering case-ready meat also increases the number of SKUs being offered to the
consumer, which adds value.
Case ready meat will continue to grow based on convenience but will also grow as leading mass
merchandisers without in-house butchers continue to sell meat products to consumers. For
example, Wal-Mart, now the #1 grocer, only offers meat in case-ready format.
Pre-packaged meat requires advanced multi-layered films with seal-through properties and
barriers, combined with the need for superior toughness and puncture resistance.
67
PRODUCE
Exhibit 36. Produce
Produce is one of the largest areas of consumer spending for food, and grocery stores still
account for 81% of total retail produce sales. Over 90% of baby boomers claim that high-quality
produce is the priority feature in an ideal grocery store. Furthermore, baby boomers control
roughly 50% of total spending power in the United States.
Retailers are investing heavily in the display merchandising of fresh and organic produce ,
a major growth area for flexible packaging and FPA members.
These statistics, coupled with trends in portion control, dieting, organic produce offerings, and
convenience, support growth in many differing packaging areas within the produce section of the
store. Even the store benefits from cost savings resulting from increased shelf life and less
spoilage and waste. Key flexible packaging technologies that will experience increased
consumption include:
68
Breathable films
Resealable bags
Film and foil lidding
Lay flat bags
DAIRY
Exhibit 37. Dairy
Dairy consumption actually decreased in volume in 2004, but grew in annual revenues due to
increased pricing of products. Value-added product offerings, dietary trends, and on-the-go
lifestyle demands have led to advancements in flexible packaging.
Examples of growth applications for packaging include various forms of:
Milk-based smoothie products

Dairy-based creamers
Yogurt
Cheese
Prepackaged dairy products (e.g. shredded, cubed, sliced cheeses)
These trends will continue to push demand in the following packaging areas:
Resealable bags
Shrink sleeves
Foil lidding
Quality barrier films
Resealable, lay flat, peggable bags
69
FREEZER
Exhibit 38. Freezer Section
The need for convenience is fueled by dual income families, longer working days, and longer
commuting time to and from work, which causes less time for shopping and/or preparing meals.
Need for consumer convenience in shopping and meal preparation is pushing growth in home
meal replacements and on-the-go meal products from the freezer section of traditional food and
convenience stores.
Packaged freezer products are in the early stages of a surge back to flexible packaging. New
products like meal kits in gourmet, value, ethnic, and lower calorie formats are increasing.
Flexible packaging provides sharp graphics and protects against product loss during the normal
cooling and thawing products go through before reaching the retailer.
Key flexible packaging technologies benefiting from growth in this area include:
70
Metallized film bags

Dual ovenable bags
Resealable freezer bags
Form-fill-seal pouches
Microwaveable films
COFFEE, CHOCOLATE, CIGARETTES

Exhibit 39. Essential Luxuries
Some products are too important to consumers for price to become a hurdle in their purchase
decision. Coffee is one example of a product that is price inelastic. Consumers will pay the
additional price, and therefore, pay for the value-added packaging for such products as coffee
and other indulgent items like chocolate and cigarettes.
Key flexible packaging materials associated with price inelastic products like coffee include:
Foil brick packs
Metallized films
Resealable packaging such as:

o Press-to-close
o Zipping solutions
o Dead fold products
71
SHELF STABLE FOODS

Exhibit 40. Shelf Stable Foods
In order to satisfy consumer convenience and on-the-go lifestyle needs, some non-traditional
products are utilizing shelf stable packaging. Ready-to-eat bacon, microwaveable sandwiches,
some dairy products, and beverages are being packaged in various shelf stable formats.
Growth in these flexible packaging technologies is expected:
Aseptic packaging
High quality barrier films
Microwaveable films
Retort packaging
Stand- Up Pouches
Retailers look forward to more growth in retort pouches the success of this packaging
continues to impress. When the retort pouch for tuna was introduced, many shoppers and
marketers questioned the much higher price point, almost double the price of the can. Once
purchasers tried the new package, the pouch quickly became the preferred product. Consumers
saw the value of eliminating problems with opening small cans and sharp edges. The retort
pouch was far more portable for work or school, easy to open, and far less messy. The retort
pouch easily became the category standard for tuna with only basic generics remaining in the
can format.
Consumers noticed better taste and texture, due to shorter processing times. Many canned
products benefit from the shorter processing times, particularly vegetables. In Europe most
vegetables, soups, and sauces are available in a retort pouch or carton. Look to this growth area
as one in heavy demand and high regard by retailers.
72
NON-FOOD PACKAGING
HEALTH AND BEAUTY
Exhibit 41. Health and Beauty/Pharmaceutical Packaging
Health and beauty aids and pharmaceuticals are major revenue generators for drug stores, as well
as mass, grocery, and convenience channels. All retailers are faced with the issues requiring
strong shelf pop and the need for more clear product directions and other general product
information.
Some retail formats have more shelf space available than others, but shelf space is always an
issue. Based on limited shelf space and the need to promote smaller size products, shrink sleeves
and expandable labels are seen as strong packaging technologies moving forward. Film lidding
is also an evolving technology. For example, one leading disposable razor is now packaged in
PET trays with film lidding. Film lidding provides eight color graphics and product information.
Film lidding also offers a clear view of the product inside.
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HEALTH AND BEAUTY

Exhibit 42. Health and Beauty/ Convenience Pharmaceutical Packaging
Consumption of single use (disposable) and travel size products is increasing due to consumers
on-the-go lifestyle and traveling requirements and easy-to-use product options.
Examples include:
Individually packaged whitening strips and night-time gel packets
Front of store displays carrying dollar bin sample/travel size hair products
Flexible packaging technologies utilized by single use and travel size products include:
74
Single use metalicized film packages
Film lidding
Lay flat, resealable bags
PETFOOD
Exhibit 43. Pet Food
Pet food is a growing area for many retailers, and various dynamics taking place impact the
packaging that is used.
Mass merchandisers have limited space for pet food, and some have decreased the retail space
for pet food to allow for other more value-added pet products. Space constraints have led CGC
to create more shelf impact with packaging, such as the billboard effect created though shrink
film in smaller unit multipacks and standup pouches.
Petco, PetSmart and other category killers that specialize in pet supply products carry higher-end
pet food lines that are not available in other retail segments. Because consumers make a special
trip to these stores to obtain specialty pet food, they will pay more for the product, including the
higher-quality packaging. Category killer retail segments are a good area for the packaging
manufacturer to obtain higher margins and to promote packaging materials.
Flexible packaging materials experiencing growth in this segment include:
High quality barrier film bags
Resealable pouches
Shrink film
More heavy duty material options
Handles and carrier options for larger formats
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LAWN AND GARDEN

Exhibit 44. Lawn and Garden
As lawn and garden retailers continue to move more merchandise outside, their requirements for
waterproofing films will increase. In addition, prevention of leaks and spills is a major issue in
the lawn and garden center. However, most retail buyers are hesitant to increase the price of
their product for value-added packaging, because they dont know if the consumer is willing to
pay extra when buying soil, mulch, etc. (This is a good example of where consumer research
could play a role in pushing packaging technology.) Specialty lawn and garden centers are more
likely to carry higher-quality packaging for basic products than larger chains or mass
merchandising stores.
Packaging materials experiencing growth in this segment include:
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Stronger ply bags
Resealable pouches
Waterproof films
Promotion and Display

Exhibit 45. Dollar Bins
Dollar stores became popular during the economic down-turn in the 2001 time period but have
continued to show strength as the U.S. economy recovers economically. The dollar store
concept has now become a popular way for other retail segments to:
Introduce new products or samples and to create brand awareness with the consumer
Bring foot traffic into the store, in hopes that other purchases will be made
Because of the low cost nature of dollar products, packaging must be low cost. However, as use
of the dollar format grows, so will the consumption of:
Lay flat bags
Light gauge shrink film
Wrappers
Blister packs
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SHELF IMPACT
Exhibit 46. Shelf Impact
Strong visual graphics is one key aspect that is required for successful product merchandising
and sales. Shelf popping effects bring recognition to the product and are successful when
targeting point-of-purchase sales to the impulse buyer. Successful graphics provide a visual
impact with the consumer. The more product area that is visible to the consumer, the more the
advertising can affect them. Therefore, packaging that helps promote a strong visible image is
ideal. Almost all forms of flexible packaging have the potential to provide shelf-popping, vivid
graphics, but good examples of flexible packaging with the good visual impact include:
Shrink films
Shrink sleeves
Standup pouches
These products help create the billboard effect and are typically used with freestanding
products to create a large single area for promotional messages.
78
PROMOTIONAL DISPLAYS
Exhibit 47. Promotional Displays
Promotional displays include:

Shoppable pallets
End caps
Aisle hangers
Floor displays (PDQs)
Promotional displays are used in all retail segments but most notably at mass merchandisers and
grocery stores. They can also be found in club stores and category killer stores but to a lesser
extent. Only a few displays appear in drug and convenience stores.
Store chains typically set their floor policy to mirror the companys merchandising strategy.
For example:
Wal-Marts everyday low price merchandising strategy is enhanced by promotional

offerings throughout the store which are displayed in all forms including shoppable
pallets and PDQs.
Target on the other hand promotes a clean floor policy, which fits its merchandising
strategy of a more upscale image when compared to Wal-Mart. Target will not place
pallets or PDQs on its floors. It will, however, promote products via aisle hangers and
end cap displays.
79
Common promotion/packaging
Mass
Merchandiser
U.S. Retail
Sales 2004,
$ Billion
Merchandising
Strategy/ Image
Wal-Mart
$192
Everyday low
price
Target
$47
Quality over price

Create brand image
Kmart
$20
Meijer
$12
High/Low
(higher everyday
prices, but deeper
cuts on
promotional
items)
High/Low
Clean Shoppable PDQ Floor Aisle

End RFID
Floor
Pallets
Displays Hangers Caps
Policy
No
Yes-a
No-b
No
a- In keeping with its clean image, Target banned the use of shelf ready trays citing unnecessary additional
clean-up and an overall disheveled look to shelves.
b- Company is currently changing its policy and moving toward a clean floor policy.
Use of these flexible packaging products will benefit from the increasing use of promotional
displays overall:
80
Stretch film
Peggable lay-flat bags
Shrink Film
Stand Up Pouches
SUPPLY CHAIN EFFICIENCIES

Exhibit 48. Supply Chain Efficiencies (RFID, etc.)
Radio Frequency Identification (RFID) is a new product tracking and inventory management
tool. RFID is slated to revolutionize supply chain management in the retail sector. RFID will be
used to better capture customer insights and to increase convenience at home and during
shopping trips at the store.
One of the expressed goals of RFID is to obtain better knowledge of consumer purchasing habits
and to incorporate smart technology in home appliances and shopping devices that will interact
with the product purchased by the consumer. However, front-of-store consumer analysis is
currently being scrutinized in strong public privacy debates, as the technology would allow
retailers to track products all the way back into the consumers home.
Wal-Mart currently requires that its top 100 vendors provide cases and pallets tagged with RFID
labels. In approximately 7 years, Wal-Mart believes its use of RFID will save the company $8
billion in annual cost. RFID is expected to provide more efficient production planning, reduce
inventory, provide faster demand response, improve counterfeiting protection, and be able to
more efficiently target recalls. RFID improves the traceability of the product throughout the
entire distribution network.
Source tagging is a form of anti-theft tag, similar to RFID, which can be remotely monitored
and improves traceability. These tags are placed on furniture before being sent to the retail
location, which saves time and money, as store personnel do not need to place individual tags on
each piece of furniture when it is shipped to the store.
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SHIPPING AND DISPLAY EFFICIENCIES

Exhibit 49. Shipping and Display Efficiencies
As supply chain dynamics and major operational cost savings come to the forefront of retailers
attention, so too will the forms of packaging required to meet these demands.
Efficiencies in point-to-point handing include:
82
Decreased handling cost as the number of times a product is handled decreases.
Speed of shipping and handling between the distribution centers (DCs), retailer stores,
and shelf stocking. Examples include PDQs and shoppable pallets that are shipped in the
same material and form as displayed for sale.
Some retailers demand conveyable cases to make sure pallets are quickly and efficiently
broken down at the retailers DCs before being shipped to the individual stores; thus
saving time and money.
Stretch film, shrink film, pouches and peggable lay flat bags are all examples of flexible
packaging that will benefit from increased emphasis on point-to-point handling.
SUMMARY: RETAILER IMPACT ON PACKAGING DECISIONS
Flexible packaging is currently a strong and positive aid to retailers. Based on key
growth markets across the retail channels, retailers will utilize more and more flexible
packaging to provide better shelf impact, product differentiation, as well as improved
consumer and product performance.
The retailer has become the ultimate product marketer at the expense of the CPGs
position. The reason is that 80% of consumer purchase decisions are made in-store and
retailers have a strong new base in consumer understanding UPC scanner data.
Package display formats at retail will continue to drive consumer purchase.
Packaging is a key enabler and driver for the retailer.
Consumer lifestyle demands, preferences, demographics, and the desire for new products
influence what goods consumers expect and will ultimately purchase.
Successful retailers are looking for value added packaging solutions that do not
compromise performance.
Packaging with Shelf Impact is valued by retailers and drives sales.
Health and wellness have driven impressive growth to fresh and organic retail channels
and big changes in retailer thinking about packaging.
Convenience is driving retail packaging: portability, single portion, convenient to use,

ready to eat or reheat, better opening and reclosability features.
More affluent consumers are heading to Costco and Target. Both retailers use a strong,
differentiated packaging approach for target consumers.
Retailers have continued to increase their level of influence on packaging decisions. Its
not just about cost its about finding value-added solutions.
Wal-Mart is asking suppliers to step outside current thinking and consider change in
materials, formats, technology, or supply chain that can lead to better packaging
solutions.
A growing number of retailers understand and control Private Label Packaging nearly
one out of every four products purchased from a U.S. retail channel mass
merchandiser, drug chain, or supermarket is a Private Label product.
Private Label places CPGs in direct competition with retailers for sales and shelf space.
Summary: Retailer Impact on Packaging Decisions
83
84
Retailers exert a growing influence on packaging that is increasing the complexity of

CPGs supply chain and packaging operations.
Wal-Mart currently requires that its top 100 vendors provide cases and pallets tagged
with RFID labels. In approximately 7 years, Wal-Mart believes its use of RFID will save
the company $8 billion in annual cost.
Wal-Marts largest foreign sources in 2004 were China for $18 billion dollars, and India
for $300 million directly impacting flexible packaging sales.
Summary: Retailer Impact on Packaging Decisions
APPENDIX A: VERBATIM QUOTES

We dictate packaging needs to consumer goods companies all the time. We will select the size
we want and how many are in the pack, but we do not generally dictate packaging technology.
-Merchandise Manager, national pharmacy chain
There are over 2,000 SKUs on our shelves. High impact graphics and packaging impact are
hands down the most important thing for selling drug store products in general.
-Purchasing Manager, pharmacy chain
We maintain a global sourcing merchandise program to source high-quality products directly
from manufacturers. This gives our customers a broader selection of innovative products and
better products, while enhancing our gross margin.
-Home Depot 10K 2005
In the future, we expect purchases from our global sourcing offices to increase as a percentage
of total purchases. We also believe that the expected increase in our global sourcing volumes
will help drive gross profit rate improvements by lowering our overall product cost.
-Best Buy 10K 2005
Best Buy considers global sourcing to be a fundamental contributor to the sustained, long term
success of the company.
-Executive VP-Supply Chain and CIO, Best Buy
We expect innovations from our suppliers in the way of both products and packaging. We have
the last call on what we will accept, however, we leave the actual packaging development to
them.
-Structural Packaging Manager, major club store
As far as packaging goes, I largely defer to what P&G, J&J, etc. decide. They are very smart at
making the right decisions regarding packaging.
-HBA and Personal Care Buyer, major club store
The consumer goods companies dictate the packaging technologies used. Only in rare
occasions do we ask for special packaging to be designed.
-Senior Buyer -- Dry Groceries, major mass merchandiser
Appendix A: Verbatim Quotes
85
We dont dictate a packages design or material. The only time we dictate packaging (to the
CGC) is to point out packaging defects or informational deficiencies on packaging.
-Category Manager, major grocery chain
Global sourcing of the many products we sell is an important factor in our financial
performance.
-Wal-Mart 10K 2005
We source from the global market to offer our customers who live paycheck to paycheck the
greatest value for their money on many essential products. To do this, we buy, in addition to the
United States, from many regions such as Africa, Asia, Europe and Latin America.
-Wal-Mart web site
Quite frankly, were late to the party. But we could easily double the 10% penetration rate (of
purchase direct from the factory).
-Senior Vice President for Global Procurement, Wal-Mart
After achieving a 100% increase last year over the previous year, our procurement from the
mainland (of China) is expected to double again this year (despite a larger base) by value. A
50% to 75% year-on-year growth can be expected in 2004.
-Director-Sourcing Services, Target
With this change to (sustainable) packaging made from corn, we will save the equivalent of
800,000 gallons of gasoline and reduce more than 11 million pounds of greenhouse gas
emissions."
-Vice President for Product Development and Private Brands, Wal-Mart
The club stores and mass merchandisers tell us what they want in packaging (overall), but they
dont really know what they want (specifically). They expect us to come up with the
innovations.
-Packaging Purchasing Manager, major consumer goods (food) company
Wal-Mart doesnt demand anything unusual from us in the way of structural packaging such as
a radically shaped or designed cereal box. What they do ask us to do, however, is to do things
that make their life easier and/or reduce their costs. Functional things such as use less
corrugated or make the cases smaller.
-Director of Packaging Innovations, major snack food producer
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Appendix A: Verbatim Quotes
APPENDIX B: REPORT PREPARATION

This market research report on The Impact Retailers Have on Packaging Decisions prepared by
Strategic Analysis Inc. in October 2005 was expanded for the Flexible Packaging Association
(FPA) by Packaging & Technology Integrated Solutions, LLC (PTIS). At the request of FPA,
this report was amended in April 2006, to focus on the new role of retailers and their significant
impact in driving packaging decisions that meet consumer needs and expectations.
The packaging and technology issues facing retailers, CPGs, and packaging manufacturers have
been studied comprehensively by PTIS, who provide a range of consulting expertise across the
industry. PTIS is recognized globally for its understanding of the retail transformation at hand
and its direct influencing on packaging and technology. PTIS prepared the first sections of the
report, including discussion of the consumer purchase decision and moments of truth, as well as
retail channel analysis, private label and natural/organic sections, trends influencing retailers, and
trend packaging implications. The second sections of this report including packaging
discussions of industry participants, retailer influence, global sourcing is based on information
and research presented at the FPA 2005 Fall Executive Conference prepared by SAI, obtained
using the methodology described below. The research information presented by SAI was edited
by PTIS in preparation of this final report.
METHODOLOGY USED BY SAI
The project objective was to examine and evaluate dynamics involving influences and demands
of retailers and their impact on packaging decisions. Specifically, an objective is to determine
the wants of the high-volume retailer categories and how they impact consumer products
(packaging) based on the retailers policies/trends outlined on the following page:
Appendix B: Report Preparation
87
Scope
Description
Product
Flexible packaging as defined by FPA

Trash and storage bags are excluded from the study
High-volume
retailer (HVR)
industry
categories
1.
2.
3.
4.
5.
Policy/Trend
category
examples
1. Sourcing strategies (both regional and

global)
2. Global innovation and packaging
trends
3. Imported consumer products
4. Private labels
Geographic
U.S. retailer industry

However, influence of foreign markets on applicable trends will be addressed
as necessary
Time period
Historical: 2002 to 2004

Future: 2005 to 2010
Mass merchandisers/superstores
Grocery chains/stores
Club stores
Convenience stores
Drug stores
6. Specialty stores/Category
killers" (e.g. Big Box)
7. Department stores (overview
only)
8. Internet (overview only)
5. Importance and functionality

of packaging
6. Consumer shopping habits
7. Shelf organizers
8. Industry changes and trends
Unless stated otherwise, all figures in this document are U.S.$ in 2004
All retail figures are for U.S. retail sales only in 2004
88
SAIs Approach
The Flexible Packaging Association (FPA) commissioned SAI to investigate the eight retail
segments listed below. Note that FPA chartered SAI to only use secondary (published) data for
two segments -- department stores and internet:
SAIs information sources-a
Retail
category
Traditional
Non-traditional
Secondary
(published) data
Primary (field)
research
Grocery (or supermarket)
Mass merchandiser (or superstore)
Category killer (or specialty store)
Drug store (or pharmacy)
Department store
Convenience store (or C-Store)
Club store (or warehouse club)
Internet
High-volume retail segment
a- As commissioned by FPA
As designed and agreed upon by FPA, SAI conducted no consumer interviews. Insights into
consumer trends are drawn from secondary (published) data and interviews with individuals
within organizations that conduct their own consumer research.
To complete this assignment, SAI used a combination of:
Secondary (published) data
Ninety-nine interviews with key industry participants
Guidance from the FPA Task Force
89
Organizations Interviewed
SAI interviewed an appropriate mix of business organizations throughout the value chain,
including mostly retailers and consumer good companies (CPGs) and a few government sources
and packaging manufacturers, as detailed below.
90
SAI interviewed 75 individuals within 37 major retailers and 16 individuals within 11 leading
consumer goods companies.
Representative Functions Interviewed
SAI reached an appropriate mix of functions within the organizations interviewed; as described
below, individuals are key decision makers or influencers within their organizations when it
comes to packaging and related issues.
91
92

Retailer Report Packaging

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Retailer Report Packaging

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Retail Driven Change: How and Why

Retailers Influence Packaging Decisions

Prepared for FPA by:

971 Corporate Blvd., Suite 403

2006 Flexible Packaging Association

Research and Resources............................................................................................. 3

First Moment of Truth ............................................................................................... 9

Retailer Overview .................................................................................... 15

CHANNEL TRENDS IMPACT RETAIL PACKAGING DECISIONS ................................... 23

Channel Trends Impacting Retail Packaging Decisions ........................ 23

PACKAGING FOR THE RETAIL CHANNEL...................................................................... 29

Packaging Implications / News Grocery............................................. 29

NATURAL AND ORGANIC FOODS GROWTH DRIVING RETAIL................................. 37

Exhibit 22. Packaging Implications / News Natural / Organic.............................. 38

PRIVATE LABEL RETAILER-CONTROLLED PACKAGING ......................................... 41

Exhibit 23. Private Label Share by Category............................................................ 43

Exhibit 25. Consumer Impact on Retailer Packaging............................................... 49

Exhibit 26. Industry Participant Influence ................................................................ 51

Exhibit 27. Retailer Direct Influence ........................................................................ 53

Trend Analysis in Flexible Packaging Applications.............................. 61

SUMMARY: RETAILER IMPACT ON PACKAGING DECISIONS .....................................83

Retailers exert a growing influence on packaging that is increasing the complexity of

2005 Private Label Share by Channel, IRI CPG Year in Review.

Research and Resources

Flexible Packaging Overview

Flexible packaging has been an integral part of the retail

Source: International FreshCut Produce Assn.

Exhibit 1. Flexible Packaging Market

Fresh produce is packaged under familiar brand names

It is estimated that there are 1,000,000 SKUs (Standard Stocking

massmarketretailers.com, April 14, 2006

contributing to value-added solutions. These working relationships support innovation initiatives

2005 Private Label Share by Channel, IRI CPG Year in Review.

Exhibit 4. Changing Advertising Effectiveness, 1995-2000

Changes in TV Advertising Effectiveness:

In 1995, with major network advertising, it took only 3 TV commercials to

In 2000, as hundreds of cable channels became available, it took 97 TV

THE CONSUMER PURCHASE DECISION

The Consumer Purchase Decision

The Consumer Purchase Decision

P&G insight into the six second FMOT is helping to

Second Moment of Truth is Consumer Use Experience

The Consumer Purchase Decision

Package structures that provide functional benefits lead to an improved

The Consumer Purchase Decision

Third Moment of Truth is the Decision to Repurchase

Winning these moments of truth requires that the package be the

Exhibit 5. Packaging Drives Consumer Moments of Truth

First Moment of Truth is Consumer Decision to Purchase

Second Moment of Truth is Consumer Use Experience

Third Moment of Truth is the Repurchase Decision

The Consumer Purchase Decision

Shelf Impact and Package Design

Packaging and point-of-sale decisions can't be made in isolation, such

Changing traditional advertising Wal-Mart TV network is seen by 130 million shoppers a

The Consumer Purchase Decision

Exhibit 6. Retailer Overview

Food retailers today now include conventional supermarkets, superstores, supercenters,

Exhibit 7. 2004 Food Retailer Market Share by Channel

Supercenters continue to dominate the non-traditional channel with approximately $104

Convenience - The importance of convenience stores in grocery and consumables is

Exhibit 8. The Changing Face of Supermarkets

The Changing Face of Supermarkets