A conversation with Tetra Pak’s Michael Zacka
In an exclusive interview with Greener Package, Michael Zacka, President & CEO, for Tetra Pak U.S. and Canada discusses the company’s U.S. strategies for liquid carton packaging, the importance of sustainability as a business tool, and consumer trends poised to drive food and beverage packaging.
Greener Package: How has the economy over the past several years affected Tetra Pak’s business in the U.S.?
Michael Zacka: We have recently announced global net sales of €10.36 billion in 2011, up 5% from 2010 in comparable terms. That’s certainly an indicator that our long-term strategy is paying off. The strategy focuses on developing and deploying products and services that anticipate future customer and consumer demands and provide value across the supply chain. We saw continued growth in 2011, despite widespread economic uncertainty and an increasingly competitive environment.
In the U.S., last year we saw a strong double-digit growth in our processing business. Globally, sales from Processing Solutions climbed almost 23% in 2011 (comparable terms) to €1.2 billion.
On the packaging side of our business, we saw last year and continue to see growing opportunities for our carton solutions in U.S. and Canada, especially in the food, dairy, and nutritionals categories. Strong brands and retail brands have adopted cartons for their products, and there is great potential for expansion. Cartons provide value throughout the supply chain—an important factor and driver for brands nowadays, in light of these tough economic times.
To give one example, the broth category was stagnant and lacked excitement until carton packages brought innovation to the segment by enabling new consumption occasions, convenience, and a change in the way the product was used. The result? Since 2008, with the introduction of Tetra Pak aseptic cartons into the packaging mix, the broth category has seen growth in ready-to-serve broth, with aseptic now representing 58.01% of the volume sold and 62.9% of the dollar sales (SymphonyIRI Group Market Advantage).
Another good example is our Tetra Recart package. An unprecedent innovation 10 years in the making, Tetra Recart is the first retortable carton in the world, and it is already present in the U.S. with over 100 SKUs of products packaged. Brands like Pacific Natural Foods, Dr. McDougall’s, and FIG Foods, known for leading the path in innovative, healthy, and environmentally sound products, were the first to adopt the solution, while retail brands such as Target’s Archer’s Farms, Safeway’s O Organics, and Giant Eagle have followed suit, leveraging the equity established by aseptic soup and broth in addition to capitalizing on a better environmental profile.
A recent Freedonia study indicates that in 2010, the U.S. represented only 15% of the world’s aseptic packaging market. How—if at all—does Tetra Pak’s strategy for gaining business in the U.S. differ from its strategy in places such as Europe and even South America? How do the applications for aseptic packaging differ in these different markets?
Consumers look for convenience in products and packaging that fit their lifestyles and deliver value to them. If you deliver on that, you will grow your presence in the market.
Aseptic technology was the obvious response to some markets that faced challenges with a poor chilled distribution chain—like most of the emerging markets in South America—and they realized quickly the benefits associated with shelf-stable distribution for products like milk. In addition, shelf stable milk was the solution to deliver milk in a safe and hygienic way in developing countries with less than optimal conditions.
For developed markets like North America, the technology has been used in a very different way, basically delivering added convenience, protection to sensitive ingredients/nutrients, and efficiency throughout the supply chain. That’s what attracted brands to use aseptic packaging for juices (juice boxes), nutritional products (protein shakes, weight management shakes), broth, infant formulas and coconut water.
It is important to note that market dynamics change, and what didn’t work before may fit the needs of a new generation. Today, factors like environmental concerns, supply chain efficiency, low system cost, and changes in demographics play a role bigger than ever in driving decisions. Aseptic cartons are in a privileged position to meet these increasing demands. So, we can expect to see these statistics change in the near future.
What do you see as some of the largest trends in the U.S. in packaging, and in the food and beverage markets, over the next several years? What is Tetra Pak doing to capitalize on these trends?
Through our expertise in marketing and market intelligence, we place great deal of focus in understanding the way we live today and how we can translate these key learnings to inform the way we will live 20 years from now.
We have identified nine key change drivers within the three main areas of demographics, economy, and sustainability. These nine key change drivers are: growing population, urbanization, aging population, economic development, emerging middle class, globalization, resources, environment, and technology.
For the food industry, we believe that these change drivers will translate into six mega trends:
• Increased demand for packed food, driven largely by developing markets
• Increased diversification and polarization of consumer needs
• Changing in the food manufacturing industry dynamics
• Competitive pressure increases with the emergence of new business models
• Environmental solutions a must-have for competitiveness
• Product safety: consumer awareness and concern driving stricter legislation and control
For Tetra Pak, it is not enough to have identified these trends. These trends are incorporated into our R&D process to ensure we deliver against future consumer demands. The products we are putting in the market today are a reflection of that thinking. During Anuga FoodTec this past March in Germany, we launched several different packages, and processing and packaging equipment and automation solutions that are the result of this approach to innovation. Our Tetra Evero Aseptic with separable top for easier recycling is a good example.
What are some of the specific drivers of Tetra Pak’s new traceability innovations? What advantage do you think this will provide Tetra Pak in the U.S.?
Consumer awareness of food safety issues is driving demand for more information on the food products and beverages they buy. Also, stricter food safety laws are becoming more common, and those demand the provision of data on the source of raw food materials from manufacturers.
Traceability helps with providing that data and, in the event of a food safety issue, it helps producers to identify exactly where the problem lies—and to solve it quickly. Quick solutions and timely response from brand owners is key when issues arise: it helps them protect their brands and businesses. And that is any not different in the U.S. then it is in any other country in the world.
Also, in globalized and increasingly standardized markets, retailers and consumers expect consistent product quality independent of where they purchase it. That’s why brand owners (our customers), in turn, strive to deliver on those demands.
Knowing these facts, Tetra Pak identified the need to address traceability and to bring an innovative solution to manufacturing plants: the ability to trace the source of foods through every step of the production chain.
Tetra Pak’s plant automation system—Tetra PlantMaster™—is the first system of its kind to enable traceability throughout the processing and packaging production chain, from the initial intake of raw materials through to the final packaged product. It collects information in real time, allowing quality control personnel to see who, when, and how the contents of a particular pack were processed in less than a minute. In addition, Tetra PlantMaster enables the secure identification of every primary package, tray and pallet.
With the emphasis over the last five to 10 years in the U.S. on sustainable packaging, has this helped business for Tetra Pak?
At Tetra Pak, innovation and social responsibility, including environmental activities, are mission driven and the foundation for the successful long-term sustainability of our company, our product portfolio and our industry.
While cartons already have an image of being environmentally friendly, there is no clear indication that sustainability alone has brought additional business to us. That is because sustainability is not the only benefit delivered by carton packages. The combination of several benefits such as protection, functionality, efficiency, and the superior environmental profile of our packages is what has been driving purchasing decision toward cartons, for both customers and consumers.
However, it is very important to note that we believe that being good for the environment is also good for business. Developing value-driven solutions with minimal environmental impact boosts our company’s competitiveness in a world of rising population, cost pressures, and growing strain on natural resources.
We are committed to sustainable business practices. At Tetra Pak, environmental sustainability is top-down and bottom-up and integrated throughout the company. We have tough sustainability global goals in place which are: relative reduction in CO2 footprint by 40% in equivalent emissions by 2020, double global recycling rate from 20% to 40 % by 2020, develop renewable content in our packaging to 100%, and increase responsible sourcing of certified paperboard from 50% to 100% via the Forest Stewardship Council (FSC).
We are well positioned to support our customers in their sustainability efforts, and we are seeing more and more interest in carton packaging and aseptic technology also because of its environmental profile.
I understand that Tetra Pak, with the Carton Council, has greatly increased the opportunities in the U.S. for recycling cartons. What have been the greatest challenges in this effort?
Recycling is a very important part of our environmental strategy, but not the only one. We, at Tetra Pak, pledge ourselves to the responsible use of renewable resources. We take a long-term and life-cycle view to continually improve environmental performance to support our customers and uphold our responsibilities to society. But we also envision a world where all cartons get recycled. We are doing our part every day to make this vision a reality. Our passion for doing what’s good drives our environmental leadership and helps Tetra Pak and our customers to grow sustainably, together.
In the U.S. and Canada, after leading carton recycling efforts on its own since the 90s, Tetra Pak spearheaded the creation of the Carton Council of North America (U.S. and Canada chapters), bringing together all carton packaging manufacturers with the main objective of increasing recycling access.
I believe that the biggest challenge was to find the right strategy, which we have now. The Carton Council’s strategy hinges on developing long-term partnerships with the materials recovery facilities (MRFs) to create end markets for cartons. Other key points are also to educate, assist, invest, and ensure carton recycling in all markets.
The implementation of carton recycling in Los Angeles, Dallas, Philadelphia, and Denver is the latest example of a national trend. In 2008, only 18% of U.S. households had access to carton recycling programs. Today, 36% of the U.S. households across 40 states have access to carton recycling. That number changes every week with new communities coming on board.
Do you see interest in sustainability waning at the packaging supplier and CPG level, as more companies understand what is involved with implementing an optimized supply chain?
What we are seeing is a higher pressure across the whole value chain for sustainable solutions, as awareness around the topic increases and companies understand that sustainability makes business sense, and not the other way around.
I don’t think we at the food industry can afford not to include sustainability in the way we do business and push products to the market. Environmental solutions are a must-have for competitiveness.
Our global strategy puts the company’s environmental ambitions at the heart of the business. It is a strategy focused on continuity—doing what we do well and building on our achievements. But it’s also about transformation. We recognize the need to accelerate innovation, enhance our operational performance, achieve environmental excellence, and develop our people.
We realize there is a lot to do, and we don’t shy away from setting high goals and working to make those goals happen.
How, if at all, can Tetra Pak play a part in alleviating the growing global hunger issue?
Our company’s vision is that “We commit to making food safe and available, everywhere.” Part of the commitment involves giving back to society, leveraging our technology to people’s benefit. Aseptic technology allows food and beverages to reach areas in the world where they couldn’t before, which definitely contributes to improving the access to nutrition.
Through our Food for Development Office (FfDO), which works with a variety of partners to initiate, promote, and support school milk and school feeding programs across the globe, Tetra Pak is participating in initiatives in over 50 countries like Guatemala, Nigeria, Pakistan, and Russia.
One very interesting initiative is what we call Tetra Pak Dairy Hubs. Our FfDO has identified that in several countries in the world, small dairy farms were having a lot of difficulty selling their production into the processed milk market. Dairy Hubs create a more effective collection network, with more milk collected faster, delivering high volume of supplies of fresh milk. They connect local small holder farmers, government agencies, and industry partners to maintain their existence while reaping the many benefits of volume production. A Dairy Hub typically brings together 15 to 20 villages with 800 to 1,000 small holder farmers and up to 10,000 cows. The dairy farmers work in close cooperation with dedicated dairy processors, who set up a number of milk collection points with milk cooling tanks, where the farmers can deliver their milk every day.
We also participate in the United Nations Global Compact in support to the 10 principles in the areas of human rights, labour, the environment, and anti-corruption. We are committed to supporting and promoting the Compact’s principles in our everyday business. This is in line with our traditional way of working and follows Tetra Pak’s vision, Code of Business Conduct and Mission Statement, which refers to our belief in “responsible industry leadership, creating profitable growth in harmony with environmental sustainability, and good corporate citizenship.”