There are few professionals who have looked at and shaped so many different segments of the packaging industry from the executive position of large companies (e.g. Constantia, Aptar, Mayr Melnhof) and associations (e.g. ECMA, EAFA, FPE) as Alexander Baumgartner. We were able to gain an exclusive insight into more than 30 years of leadership and industry experience in an hour and a half with him in conversation about growth topics around sustainability, innovations and trends.
Over the past decades, Alexander Baumgartner has looked at and helped shape the most important markets, industries and materials from leading positions like no other. If anyone has seen the packaging world, it is him. Among others, he was CEO of Constantia Flexibles, President Europe of Aptar Beauty + Home as well as Seaquist Closures, COO of STI Gustav Stabernack and Marketing & Sales Manager of Mayr Melnhof Karton. Baumgartner was also Chairman of the European Carton Makers Association (ECMA), the European Aluminium Foil Association (EAFA) and Flexible Packaging Europe (FPE).
We had the pleasure of talking to Alexander Baumgartner for an hour and a half – about sustainability, innovations, young talent, trends, dos and don’ts, and the consequences of Corona for the industry. Always in mind: the topic of growth. We say thank you very much! for the insights and recommendations. And we hope you find joy and new insights while reading this issue.
Mr. Baumgartner, what do you think are currently the most important topics for the packaging industry in general and the plastic packaging industry in particular?
The most important topic is certainly sustainability. It’s something that concerns us all, regardless of the material we use. There is a dynamic in the area of sustainability that I very much welcome. I say that as a professional, but also as a father of three children and as someone who enjoys being outdoors. We only have this one planet. As a company and as a leader, therefore, we each have a responsibility to do our small part. We should at least leave the earth exactly as we found it.
Plastic industry needs to rethink
Even if the topic of sustainability applies to all materials and is the same for everyone, the plastics industry certainly faces a much greater challenge. In recent years, it has celebrated great successes with barrier solutions that are extremely lightweight, very easy to transport and print. Now it has to take the next step. This is not about moving backwards, going backwards never works. The move must be directed forward. The industry must make its raw material recyclable without losing its superior barrier properties to water vapor, oxygen, UV, etc. What we have covered so far via fantastic but non-recyclable multilayers, we now need to implement with recyclable monomaterial. This requires a change in thinking that should not be underestimated. The solutions are not simply obvious. Even though there are already some solutions on the market, overall this is still not enough. For the most part, the journey still lies ahead of us.
Do you have to be able to afford sustainability as a company, or can you not afford to do without it?
The second. But overall, it’s a combination, a total work of art. Anyone who only excels in the area of sustainability, but fails in price, service and quality, will hardly be among the winners. Whoever has these factors under control and also excels in sustainability, has the best cards.
First movers and fare evaders
Of course, there is the option of saying I’ll save the cost for now and jump on the bandwagon later. But that is not without risk. Because the sooner you deal with the issue, the further you get, even compared to the competition. Another important point in this context is credibility in reporting to customers, investors and the public. When clients request audits, for example, they look closely to see whether they are being presented with greenwashing or substance. After all, it is precisely the large, international companies and brands that have to ensure a well-rounded sustainability story themselves in order to be credible to consumers. But this is only possible if the values presented are also lived by the suppliers and in the supply chain.
Those who can show, present and prove their sustainability work over long periods of time in this environment are simply more credible, also in the goals that are defined and communicated to the outside world. Anyone who jumps on the bandwagon without any baggage at all and just proclaims is more likely to come across as a fare evader.
Lead by example as a person
As with other topics, goal setting should not end with the end of the workday. For me, it has always been important that I recognize and believe in the importance of an issue not only as a CEO or association president, but also as a (private) person. I have a responsibility not only to my employees, but also to my family and to future generations. This is where you need the necessary sensitivity and tackling mentality. You have to be a role model and live your beliefs. If I preach sustainability in my job, but at the same time sit behind the wheel of the biggest combustion engine, it doesn’t fit. If, on the other hand, my professional and personal commitment are congruent, then that is not only more convincing, but also more successful.
At Constantia, sustainability management was introduced as early as 2007, at a time when the pure term was still unknown to most people. How do you assess this today?
Positive throughout. Sustainability management brings great added value in terms of awareness and perception by employees. And that is fundamental.
To illustrate this with an example from another area: Back then, we also attached great importance to the issue of safety and, for example, provided handrails wherever there were stairs. It may be hard to believe today, but back then there were stairs without handrails that had to be negotiated freely, even when loaded, as an older person or with a sprained foot. In the beginning, this sometimes caused incomprehensible smiles or comments. Then, after a few years, people told me that they took the safety issue home with them. They had simply become more safety-conscious and lived out their responsibility to themselves and their families in their private lives as well.
The fact is that we spend so much of our lives at work and invest so much energy there that it simply leaves its mark – beyond the office and the factory floor. If sustainability is practiced in the company, we no longer simply throw our trash between the trees when we go for a walk, we keep an eye on energy efficiency when we build a house, and so on. And that’s exactly what it’s all about. Sustainability management aims to raise awareness and make a conscious impact. These are messages that we take home with us and send out into the world, for example when we have visitors from abroad or when we are traveling ourselves.
The book of sustainability has many heroes – from climate protection to resource conservation to biodiversity. Are they all equally important? What do you do when there are conflicting goals?
I am an advocate of the circular economy. A product that has already cost us and our planet resources must not disappear or become a burden. It must be preserved and reused as often as possible so that the resources it contains have a long and frequently repeated value. That’s why, for me, circular economy comes first. I prioritize everything that pays into this. This starts with the manufacture of recyclable products, continues with collection systems and concludes with the use of recyclates. We still have some work to do on this path. There is still far too much incineration or landfill.
Especially when it comes to recyclates, the gap is still far too big. It’s great when industry makes everything recyclable and municipalities collect everything – but what becomes of it in the end? Park benches made of recycled plastic cannot be our ultimate goal. A huge issue in this context is food contact materials made from waste plastic. This is where we could really make a difference. But the problems are as big in that area as the results so far are small. We have to solve that. It simply has to be achievable. Man has been to the moon and 10,000 meters below sea level, but he is making little progress in using recyclates for food packaging. That is very unfortunate.
The problems lie at both the technological and the regulatory level. The motivation of the regulators is rather limited. For a regulator, prohibiting, or not allowing, is the easiest way. Then there are no problems. If, on the other hand, he allows a material and then an institute or an NGO comes along with a danger report, the trouble is great. We urgently need high-quality sales markets for recyclates. Only then will the cycle be closed and be able to start. And only then will the pressure build up to keep this cycle going. At the moment, we do have functioning cycles in some areas, but overall they are still too few.
Life Cycle Assessments
Life cycle assessment is like KPIs in companies. We need KPIs to make decisions. But I can’t limit myself to one figure alone; I have to keep an eye on a wide range, from gross margin and sales development to capacity utilization and the number of employees. And just as there is a whole range of indicators that form the basis for decisions on good corporate governance, there are a number of factors for sustainability. Life cycle assessments are one of them. They help to bring about a good, better, more environmentally sound solution, but they are not the only truth. That would lead to wrong decisions.
YOUNG TALENT AND THE PUBLIC
Are we moving in a monothematic environment? Is there only sustainability and then nothing for a long time? What are other important topics?
I think we have some other important topics in the VP industry. One of them is the topic of “people”. The packaging industry increasingly has a problem with younger staff. Particularly because of the sustainability issue just discussed, it is very difficult to motivate young people to enter this industry. I have children myself who are at university, but no one from their circle has yet come up or approached me to ask for guidance or help in entering the packaging industry. People would rather go into electro mobility and the startups with the cool topics.
We have to manage to motivate people. We have to make them understand that they can make a real contribution to the future with us. We are not the bad guys. We take our responsibility seriously. Our message must be: You can make a difference here. Because without packaging, neither you nor your family can live. If you look back in ten years and see that you have made a difference here, that you have ensured a good future, then you are a hero.
The industry is tripping itself up.
Unfortunately, we as an industry are standing in our own way, especially when it comes to recruiting young talent. That is a great pity. Yet we have a common task in the packaging world. We transport goods from the manufacturer or central warehouse via the intermediate stations of retail or bulk storage to the consumer, protected and in the best possible quality. This is completely independent of the material. Believe me, I have worked responsibly for many material fractions and I can say with conviction: there is no one material that slays all the others. There is the perfect solution for this material and there is the perfect solution for that material. Some have to be seen more technically, others more from a logistics perspective, and still others more from a marketing perspective. Sometimes it’s about impulse buying and the joy of giving, then the box of chocolates may not be weight-optimized, but it’s beautifully printed and I like to touch it. That’s what counts. With other goods, the focus may be on optimizing the weight.
Everyone should do their part in their own area. We are all in one, common boat. It is really a pity that we stick together so little to achieve our common goals. Discord is neither efficient nor attractive. Especially when it comes to young talent, this falls tremendously on our feet.
The delta of public opinion
In general, this inability of the industry to make the general public understand the importance of packaging and the packaging industry is something I could despair of. So far, I have also failed at this myself in the leading positions I have held in companies or associations such as the folding carton association ECMA or the flexible association EAFA. Yet everyone has our products in their hands every day and uses them completely without a guilty conscience. On the contrary, he enjoys the benefits, the indispensable services and also the pleasure we give with packaging. But when he looks at it from the more abstract perspective, packaging is immediately evil again. Closing this delta, this knowledge vacuum would be immensely important for us. We have to get out of the defensive.
We are probably still too technical in our reasoning. LCA or CO2 emissions interest people for 10 seconds and then they back out again. We put the facts on the table, but facts are not necessarily always the winner these days. Maybe we need more emotion to get a more factual attitude from people. That’s fundamental for politics to follow suit and do something. After all, politics follow the votes of the electorate. If they are irrational, politics are also irrational. And that is tragic if they are to decide issues that shape our future.
Another dominant topic for the packaging industry is consolidation. A great deal is happening here. If you look at the landscape 20 years ago and compare it with today, you can see a development towards very large players that act and shape globally. At the same time, our industry is still very small-scale. There are very many medium-sized, entrepreneur-led companies that emerged in the 1950s to 1970s and have celebrated great successes through intelligent solutions and innovations. These “old” founders and entrepreneurs often face an unresolved succession issue. On this basis, it is not surprising that there is a lot of M&A activity.
By the way, the issue is not purely financial or technical. It is also changing things beyond that. For example, it brings major changes to the culture. There is a difference between being an employee in a mature structure and perhaps even working in direct contact with the owner, and working for a listed company worth billions after the takeover. There, different tact rates apply, different priorities and there is a different “warmth”. That’s a big issue, not just for the VP industry, but it’s very pronounced here.
It is said that the Corona pandemic advanced digitization by six years. Where do you see the most formative effects of digitization in recent years?
Digitization is a very broad topic with implications for very many areas. Some may stand out and are more relevant than others.
The ability to print without a press proof and to be able to send the sample with the number 1 already in the desired quality to the sales department is certainly a quantum leap. Gone are the days when it took seven to 20 minutes to get a print sheet out of the press with the seven, eight or twelve colors sitting perfectly. Digital printing has revolutionized that. It’s a major movement. I think we can expect a lot more great developments here in the future. Digital printing has already totally changed the industry and will revolutionize it even further.
The possibilities in the area of control are another high-impact topic for the industry. Today, I can monitor and control my machine data from any location using my cell phone. These are dimensions that were completely unimaginable 10 years ago. The effects are enormous. As a keyword, for example, the topic of anticipation. We can now recognize things at an early stage that would previously only have presented themselves in days or weeks – but then as an unwelcome surprise.
Digitalization is also a revolution for the supply chain. Flow of goods, warehouse capacities, availability: We can now record and optimize all of this in real time. These are all things that were unthinkable 10 years ago. The availability and transparency of data and information is completely different.
People and leadership
Home office is the first thing that comes to mind when many people think of digitization. And it is certainly a factor. To put it more bluntly: In the past, there were fathers who no longer knew their children because they were only at work. Digitalization gives us the opportunity to combine work and private life more harmoniously. Keyword work-life balance. If we as managers ensure that our employees can take advantage of these opportunities offered by digitalization, it will also make us more attractive again as an industry and employer.
The exhibition companies are also feeling the digitalization. Of course, Corona has made a very specific contribution here. However, I find it difficult to make a final judgment. Originally, we were happy about every employee who wanted to go to an exhibition. We encouraged that to the best of our ability. In the last five to six years, however, the costs for this have exploded. This was due not so much to the exhibition companies, but to the escalating prices for hotels, catering and so on. So we kept lists and checked exactly which employees really had to go to which trade shows.
In my opinion, a lot is still work in progress in this area. The discovery phase is still ongoing. It’s possible that new digital standards are being defined at the moment that will make face-to-face events largely superfluous. At least as a visitor and exhibitor, I tend to regard the traditional exhibition concept as outdated. However, it also depends on the industry. For machine manufacturers, exhibitions are eminently important. As a buyer, you want to see these products in real life and not just digitally. What’s more, I can look at 20 machines at one exhibition and don’t have to travel to 20 in-house exhibitions. As a raw material manufacturer, I don’t have this problem. I can also present my advantages as a digital message to men and women.
Overall, I would say that the time of general packaging exhibitions is rather over. Size and focus will change. There will be more special exhibitions than Interpacks.
COMMUNICATION AND MARKETING
Digitalization is also having an impact on communications and marketing. We can use it to act in an increasingly specific and target-group-oriented way. If Google knows what I’m interested in and what keeps me engaged, then that could also be an opportunity for us as an industry. Why shouldn’t we target people who have a proven interest in packaging, be it positive or negative? We can now at least identify this group.
Just as B2C platforms enjoy success because they meet our needs from online shopping to dating, B2B platforms can also be successful. Digitalization makes it possible. It brings supply and demand together, and can make processes efficient and transparent. If I’m looking for expertise or new business opportunities today, I can go on Xing or LinkedIn and get a number of contacts within seconds. How did we do that just 10 years ago? Today I have a pool of people I would never have come across back then – and certainly not with a direct contact option.
Marketing is one of the great strengths of packaging and the industry. We can make things more colorful, change shapes, turn boring into interesting. Packaging is still the first moment of truth. It is the packaging that speaks to people. Today, people in marketing manage to send targeted messages with choice of materials, shape design, print design, and so on. With colors or individual words, the packaging can clarify what is vegan, what is eco, what is for leisure and what is for the snack in between. Only the packaging can do that. And of course there are also products that do without packaging. I don’t have to package a car so that it communicates, the packaging “only” has to transport it protected to the dealer. But most products need packaging for their communication.
It seems that the plastics industry has been losing sales for some time. How can companies grow in this environment?
The key point is the circular economy. We have already talked about this in detail. Then there is the whole issue of digitalization with all its facets from printing to supply chain. We have already addressed this as well. Here, companies in the plastics industry can generate a lot of value and differentiation.
The plastics industry can also do a better job when it comes to small batches. Paper and folding boxes have advantages there.
With rigid plastics, we face the challenge that we always need an injection mold, and that costs serious money. That can quickly become 20,000 but also 700,000 Euros. Just for the mold. No product has been sold yet. Here, too, the folding box industry, for example, has it easier with its die cutting tools.
I would also like to mention rapid prototyping. Here, too, the industry can still develop a lot. The time from the customer’s idea to the first sample or prototype must be shortened. In this area, the plastics industry is simply too slow by comparison.
Consumer preference and natural movements
I am skeptical about the question of whether the shift to paper and cardboard will permanently take market share away from plastics and flexibles. After all, there have always been such movements. Think of the toothpaste box. What an outcry there was in the cardboard industry when the box disappeared because the tubes were no longer made of pure aluminum, but of laminate, which looked good even when consumers had already given the tube a test squeeze on the shelf. That paved the way for “We don’t really need folding cartons anymore.” And there is also a development in the other direction.
Consumers just have a preference for fiber materials at the moment and the industry is trying to cater to that. Does that make me see a huge shift and a massive migration? No, I don’t. Because the barrier properties of paper and corrugated board are far behind the barrier properties of plastic. But there will always be movement and change, today pouch and tomorrow folding carton, today rigid bottle, tomorrow pouch. But that’s not where 20 percent of the market breaks away, so that some are the ultimate winners and others the ultimate losers. I don’t see that.
We observe that a large part of the packaging industry lives very much through existing business relationships. At the same time, price pressure continues to increase. What is your impression?
I think this has to do with the commoditization of business. The more interchangeable you are with your product, the higher the probability that even a relatively small price advantage of the competition will take away business.
Price pressure and trust as the basis for growth
You just have to make a difference. Because customers are not only interested in price. It’s also about service, sustainability, reliability and so on.
A very decisive and fundamental factor is the issue of trust. Every customer is confronted with crises and emergencies that simply happen. Because the IT goes haywire or a person wasn’t focused. Shit happens. For the customer, it then depends on how I as a supplier deal with it. Am I there and do I help him to overcome the emergency? If you can show your customer that you take problems seriously and find solutions, you are in the best position to expand your business relationship, even if you already have a high market share. I think the experience of the Corona pandemic has done the rest to further strengthen the importance of the trust factor.
Conversely, the moment when a customer is dissatisfied with his supplier would be the right moment for new growth. For example, because the supplier has not responded to problems. But it’s not that simple. When exactly is this moment? Ultimately, this remains trial-and-error.
An important factor for new growth is without question industry knowledge. If you have never supplied the coffee industry and want to score points in customer acquisition with your own chocolate expertise, because the difference can’t be that big – then you won’t score any hits. If, on the other hand, I am good in one segment, then I have the entire industry as a growth candidate in that segment. Because I know what makes the industry tick. Because here I have the technical equipment, the ability to plan, and an experienced organization that knows what seasonality there is, where the consumer demands are, what is important to the brands, and so on. These factors are much more important for a growth strategy than tackling the big segments just because they are big.
Innovation is another important factor for growth. Especially when I want to win new customers, this is a door opener. Because here I can offer something that others cannot.
Going abroad and into new markets can be a path for new growth. But it should not be underestimated. Because there is no patent remedy for this. Most of those who have taken the path to Asia or the USA have underestimated it. They go there believing they know the business, only to soon discover that they have to learn many things all over again. This also applies to quite trivial things, such as the way business is done in this country.
Another point is the complexity of the organization. If I, as a previously purely European company, am suddenly also active in Asia or South America, then the smartest people in the company suddenly spend 10, 20, 30 percent of their time on planes. They are then no longer available for the core business because they have to take care of another business.
All of this should be taken into account in your considerations. Internationalization is a cool story but it is also a very complex and tough story. Costs go up and margins are usually lower in the new place than you are used to. If you make a healthy, focused decision to go abroad nevertheless, you should go through with it. If you have an additional affinity for the market, the country or the language, then that’s an advantage.
My recommendation: Ideally, don’t go into the new market alone, but together with a major customer. That will cushion the initial hardships.
Another way for new growth is M&A. If I find a company that is good in another segment, if I can buy it and integrate it, then I can use its position and know-how to enter the new market.
Has Corona changed anything when looking at packaging? What is their impression?
In terms of industry, I believe that the regionalization of markets will increase again with Covid, while globalization will be reversed somewhat. As an Italian company, you like buying in Italy again, and as a German company, you like buying in Germany. We have just learned that border traffic with goods can be problematic.
I also see a change in the way the public views and deals with packaging. Whether this movement is sustainable, however, remains to be seen. It’s true that the same people with whom I previously spent ages discussing why cucumbers had to be packed in a film now only buy cucumbers in a film. But of course they don’t tell me that, whereas before they were very vocal in their criticism. Therefore, I doubt the lasting effect of the movement. Won’t everything soon be fine again, we’ll all be vaccinated, and life will go on as before? At least that’s what people believe, because that’s just the way we tick as humans, because we need a close horizon of hope. And then maybe it’s back to packaging and plastic bashing. That is my personal, perhaps somewhat too negative and in any case speculative answer.
But I’m allowing myself a second answer. And I think there’s something to this one, too. My professional answer is: I do believe that the experience of the pandemic will leave its mark. What is happening right now has power and is shaping us all, globally. For example, the protection against viruses, bacteria and health hazards, that will remain. And this will also give the protective function of packaging a new dimension in people’s minds. I am convinced of that. Whether this is enough to shake of the bad guy image – that remains to be seen.