Packing 'em in

In difficult times, it's very easy to slip into austerity by battening down the hatches and pretending that you're out when a salesman comes to call. But it could be an ideal time to make some of those vital packaging machinery investments, because many suppliers - whose purpose in life is to sell their products - are willing to offer attractive deals. While they stop short of talking about discounts, many are offering flexible credit, leasing arrangements, refurbishment packages and other schemes to help food manufacturers maintain their packaging investments.

And it seems these kinds of incentives are necessary, as sales of packaging machinery are slowing down in the UK.

"Packaging machinery demand will rise in developed parts of the world, though growth will be sluggish in a number of nations, including the UK, Germany, Italy and Japan," says Ken Long, industry analyst at Freedonia Group. Freedonia recently published a study on the world packaging machinery market - and its UK figures make for slightly depressing reading. By Freedonia's estimation, the market for packaging machinery in the UK will grow by just 5% over the next five years. Current sales of $800M will crawl up to just $840M by 2012. (By 2017, sales are expected to reach $880M.)

Within this, food packaging machinery is the major component: it will continue to account for just under 50% of all sales. But over time, the UK's share of Western Europe's packaging machinery will decline from 11.5% to just under 10% in 2017. "Nevertheless, the intensity of packaging equipment used in the UK is comparable to that of other West European countries," says Long.

The increasing reliance on single-serve and convenience foods will help to fuel sales of wrapping machinery, says the report. There is also good news for suppliers of labelling and coding equipment. Sales of these machines will grow fastest, driven by rising consumption of label-intensive non-durable goods, a rising need for accurate tracking of items for safety and security reasons and an expanding number of regulations. Adrian Shepherd, md of Allen Coding Systems - says: "In many cases, our equipment is a necessary evil for food producers - it's required for legislative reasons."

== Affordable automation ==

Despite this, he says his company has still had to instigate a number of measures to convince his customers that they can afford to invest. "In normal circumstances, we'd talk about how we can help customers improve the quality of their products," he says. "Instead, we're talking about how we can save them money. There's been a shift away from expansion, and into consolidation and cost-saving."

He says that this more consultative approach has been welcomed. Often, he says a simple conversation can lead to a radical - though not necessarily expensive - solution."It might be a very simple suggestion," he says. "Just switching from a hot stamp printer to a thermal transfer printer will give you better output."

As well as hiring and leasing machines, the firm is now taking credit card payments. This will come from an expense budget - rather than being a capital investment, which is hard to justify. Some larger customers have begun to use a 'cost per code' approach to labelling, which puts the cost into consumables.

"We calculate the price of the equipment and consumables and roll them into a single package," says Shepherd. "Not many people do it, but a few high volume people like it because there is no capital outlay."

Fortress Technology, which supplies metal detectors to the food industry, appears to be living on a different planet that is untouched by the downturn. Md Sarah Ketchin reports an 18% growth in sales this year - which led to the need to employ an extra sales person."It's hard to know why we've had such growth, but I think companies are now shopping around more," she says. "Once, they would simply have gone to their usual supplier. Now they want more value for money, which has given us an opportunity."

Fortress is quite young (it was set up in 1996 in Canada). But companies that would once have only considered "household names" are now searching more widely for a good deal. "Our prices are a bit lower," she says. "We've found that premium brands usually ask a premium price - and people are asking what they are getting for that." But despite the fact that a metal detector will set you back no more than £10,000, Fortress still needs to reel customers in with attractive deals. "One thing we've been offering is extended payment terms," she says. "People are often desperate for new machinery, but their hands are tied."

Under normal circumstances, Fortress would expect a 25-30% deposit at the time of order and the bulk of payment on delivery. Now, around 10% of customers are opting for easier payment terms. Instead of paying the balance on delivery, this final payment is spread out over six months. In certain cases, Fortress waives the deposit, offering payment over 12 months. "With the right customer, you are buying your future," she says.

For Brendan Hayes, co-founder and director of IHS Europe - which designs, manufactures and installs entire packaging lines - the food industry has been more resilient than others in resisting the downturn. "Projects are still moving ahead, and some people have held orders back," he says. "In other industries, there has been a total stop on some projects."

== Piece by piece ==

He says that people are still convinced of the need to invest in automation - even if finding the money is not always easy. One of his customers - a bakery - realises that it must update its packaging line. So it is doing it piece by piece. "If you break automation into stages, you can update one at a time," he says. "This is getting more common as people can't afford to do it all at once."

He says that a typical overhaul will address the conveying system, ways to create a package - such as boxing - labelling and ID, and palletisation. "Conveyors are the first area to look at and replace," he says. "Once that's up and running, you would move to the next stage." There are disadvantages: the first is the increased installation time. Instead of 16-20 weeks for an entire turnkey project, each module would take 12-14 weeks to install. "It will also work out much more expensive in the long run - but people still do it because it's difficult to fund full turnkey projects."

Other than updating packaging lines in a modular fashion, the company has also developed a new pallet-wrapping machine that can save costs for customers. It uses an edge protector made from foam rather than cardboard. The foam can be recycled along with the stretch film on the pallet - and costs 60p, rather than the £3.50 of the cardboard protector. "We developed this with a company that wanted to reduce its transport and packaging costs," he says.

The palletising machine is so new that it doesn't yet have a name, but it will be seen at the PPMA show at the end of this month.

PPMA company secretary Ian Jardine says that the show is likely to reveal the true state of the food packaging machinery market - through factors such as exhibitor and visitor numbers. Taking the industry's pulse based on last year's show would not work. "We had a very successful show last year," he says. "Things looked good for one or two months, then the machinery sector fell off a cliff as banks withdrew funding and everything stopped."

He says that while many people have experienced downturn and recession in the past, this one has been very different. "The sudden turning off of the tap was unprecedented - something nobody had experienced before," he says. This lack of credit has led to companies hanging on to older machines for longer."We know end users will 'make do and mend', but their production will suffer," he says. "They don't really like temporary fixes, especially in the food sector."

But with some positive economic signs emerging, his organisation recently met the British Bankers' Association with a very forward-looking problem: how will the upturn be funded?

"When the recovery arrives, food manufacturers will need capital to buy machines - and our members will need working capital to fund the orders," he says. "But if banks won't lend when there's a demand, then it can't be fulfilled. Nobody has addressed that issue."

l See p83 for the PPMA preview. FM

''Key contacts ? Allen Coding Systems 01707 379527 ? Fortress Technology 01295 256266 ? Freedonia 001 440 684 9600 ? IHS Europe 01606 598111 ? PPMA 0208 773 8111''