Stockholm (NordSIP) – According to a report by S&P Global Ratings, the cost of more eco-friendly packaging – a demand of the anti-plastic movement – will fall on large global consumer brand owners rather than consumers.
According to the report, competition in the retail goods market and consumers’ focus on prices will keep companies from passing the cost of new eco-friendly packaging onto consumers. “We believe it is unlikely that the costs of developing and manufacturing more ecologically friendly options can be fully passed onto consumers, who remain predominantly price-conscious,” states the report.
One of the main reasons why this shift is unlikely to be felt is that packaging represents a relatively small share of the final price of branded consumer goods.
“The largest consumer brands will lead the way to set themselves apart from the competition and comply with tougher rules across multiple jurisdictions. We think this will test their strategic and financial policy choices, though have no immediate rating impact,” said S&P Global Ratings credit analyst Rachel Gerrish in the study published today.
“Profitability and growth for producers of branded consumer goods is driven by optimising product volumes and mix because like-for-like price increases are no longer feasible in most markets,” explains the report. “New product development is, therefore, critical for brand equity and growth.”
“In particular, leveraged plastic players that don’t embrace more eco-friendly materials could see higher refinancing risks,” said Ms Gerrish. This expectation hedges on the fact that such players are exposing themselves to sudden shifts towards more stringent regulation and increased costs of recycling that would negatively impact their cash flow balances and their credit quality.
Other packaging producers (paper, metal, and glass) will find viable opportunities to benefit from plastic substitution if they invest in product design.