Alain Chevassus, Cosfibel founder and packaging industry veteran, discusses the impact of the health crisis on the market and predicts consolidation for both brands and suppliers in the months to come.
How is the market performing in light of the health crisis?
Our clients are announcing decreases of 20 to 40% for the current year with the bigger global groups betting on -25%. Everyone is talking about the “post-covid world”, but this is nonsense; there is no pre- or post-covid world, but simply the world we live in today, which will see certain factors accelerate.
Business will be tough and it won’t take off right away. If companies want to localize production or use more sustainable materials, for example, there will be an inevitable increase in production costs across the entire supply chain. It’s the price we’ll have to pay to have a more sustainable ecosystem. But, if volumes are simultaneously falling drastically and there is mass unemployment, we need to put things into place to put a brake on these rising costs. Making environmental progress will only be possible if we have the financial resources to do so, and we therefore need to strike a balance: to progressively return to investing, to make reasonable cuts and to restart consumers’ appetite for pleasure and desire—in short consumption needs to take off again.
From an industrial point of view, we shouldn’t look at CSR and environmental strategies as an end in itself, but as a means to allow the progress already embarked upon to continue. While the environment may be at the center of the debate, it doesn’t mean that it has to be the only priority. Additionally, if we want ecology to bring us together, there cannot be a universal plan; we need to take into account regional and cultural disparities.
What is your outlook for the luxury landscape?
On the whole, stronger and more diversified groups will come out of this better and faster than the smaller and more specialized ones, with a colossal divide between the two. We’ll begin seeing medium-sized groups or brands (with turnover ranging from €500m to €1bn) merge with others to challenge the bigger players. The emergence of medium-sized brands or groups (€1bn-€5bn) will have their place. Smaller indie brands will be hard hit due to both the crisis and their specialized distribution; many will simply disappear and the others won’t be acquisition targets for the majors as they once were.
Those who in the past have built their offer by demanding exclusivity will have to rethink their approach. Just consider brands that are distributed by a single retailer—even if they survive the crisis, how long will it take them to recover? The smaller brand segment is set to enter into a fallow period.
What impact will this have on the packaging industry?
It will most certainly accelerate consolidation as suppliers remain much smaller than their clients. Primary packaging, in particular, has gone too fast in terms of financialization with a large number of players now belonging to private equity, for example. In the secondary packaging and promotional sectors, however, the playing field is wide open. Bigger suppliers in certain regions will join forces with their counterparts in other markets. Like in the brand landscape, we’ll see some smaller companies shut down and larger players shedding some of their subsidiaries, which is already happening.
Are you positioning Cosfibel to make acquisitions?
Cosfibel will take the path the industry is taking; we’ll enter into new “niches” that will allow us to diversify our clientele. We must become a strong brand so within the next 18 months there will be mergers, acquisitions and divestitures in a bid to create a harmonious portfolio with a competitive size. At the end of 2019 Cosfibel reported zero debt, so we have a number of options.
What about the predicted relocalizing of production?
Everyone is talking about the emergence of more locally made products, and I think we’ll see localization for certain types of consumption or services, but it won’t happen on the scale that some are predicting. And let’s face it, when it comes to industry, the only country that has invested sufficiently to face up to global consumption rates is China. So before we catch up, it’ll be quite some time, and it will demand resources that are slated for other areas, notably sustainability.
We are also set to see an upswing in economic globalization due to the rise of digital, which I see as the ‘winner’ coming out of the crisis. The bottom line is that consumption needs to start back up again—it’s the most central piece of the equation.
