Liz Cuneo: Hello, everyone, and welcome to another End of the Line video podcast. I am Liz Cuneo, editor in chief of Healthcare Packaging. I am here with Matt Reynolds, editor in chief of Packaging World; Sean Riley of OEM Magazine; and Derrick Teal of ProFood World, coming to you again on another Friday.
Matt, you are outside. It's hard not to call attention to that, but it looks beautiful there in Wisconsin, right?
Matt: Yeah, it's a beautiful day. I will be working, but around 5 o'clock, I will hopefully be plying the waters behind me for whatever fish remain. But yeah, it's a gorgeous day.
You guys are in Michigan. You're not too far away. Are you getting the same weather we are here, or are you getting those storms that Chicago is getting?
Derrick: We didn't really get storms. I was surprised. Everybody was sheltering in place in Chicago. I actually had a meeting with Casey, and I said to him, "OK, well, I guess we can expect that in eight hours or something like that." We had a few thunderstorms, but nothing like Chicago experienced.
Yeah, no, it's been OK here. How about you, Sean?
Sean: We've been fine. It's been pleasant, and then there's always that one hour a day where there's a chance of thunderstorms that roll through. It's almost like Florida. But I'm assuming we're going to get what Chicago had. Usually it takes a couple of days, but we shall see.
Matt: Yeah. Whenever I think of Philadelphia, I think of almost like Florida.
Sean: Yeah, I don't know if it's a weather thing this year or whatever, but it just seems like every day there's a chance of a thunderstorm, which is typical for August. But it seems very Florida-like, where they're not necessarily wiping out the day.
Liz: Yeah, that's interesting. Sean, why don't we start with you since you said Florida and the weather. What's going on in your neck of the woods?
Sean:So, not much. It's the dog days of summer. I think we talked about that last week, but I attended a conference a few weeks ago, OT/SCADA, which they described after I got there as "by nerds, for nerds." So it was way, way over my head to some degree. Some of it landed, thankfully.
It's this three-day conference in Houston, and the thing that came out of it that was interesting to me was that, after years of hearing about digital transformation, there were multiple sessions where the numbers were very surprising.
A 2024 study that more than one person cited found that 94% of digital transformation activity is essentially theoretical. People talk about it, but they're not actually doing digital transformation. Of those that are doing it, something like 3% have completed a partial project, and another 3% have finished a single project inside a large organization.
But I guess the whole idea of digital transformation is that it's supposed to be all-encompassing, where it becomes your whole operation. Almost like a lights-out factory would be digital transformation that completely takes over your whole line or your whole operation. And we're not seeing that.
One guy said that even the people who are doing it aren't really talking about it because it's a strategic advantage. They're not sharing how they've done it.
To me, it seems a lot like—Matt might remember, or Derrick, I don't know—but back when RFID came out, that was going to take over the world and was this big buzzword. And it didn't. It's taken decades.
Sustainability came along, and that was going to be the thing. Everybody kind of did little things and then said, "Look, sustainability." I think what we're finding now is that people put a sensor on a line and they're like, "Look, I did digital transformation," or, "We do OEE now. Look, I did digital transformation."
The thing that came out of this was that people aren't doing the full-scale projects that we were expecting, now that we're two or three years into that being a buzzword. So I think that's something that was interesting to find out, because I haven't been following it as much. I hear people say "digital transformation, digital transformation," but I don't think they're using the full definition that initially came out for it.
Derrick: Do you think that might be because they don't fully understand what digital transformation means, or is it a cost aspect, or both?
Sean: I think both. What you said about not knowing what it means is kind of like sustainability, where everybody in the beginning wasn't sure what exactly sustainability was.
I feel like digital transformation is not completely understood. Like I said, people throw a sensor on and they're like, "Look, we did digital transformation," when it's supposed to be this kind of all-encompassing Industry 4.0 and beyond type thing.
Liz: It is such a broad term, though, right? I don't even think I really understood it, because I kind of think the same thing. If I had to define it, I'd say anything that's digital that's moving you into the future of your manufacturing, processing, or packaging. So I'm probably just as wrong. I feel like everyone's doing a little, but no one's doing a lights-out factory, right?
Matt: Yeah, that's what we're finding. Every year we do our Annual Outlook Report. It's a microcosm of brand owners and CPGs, so that's not pan-industrial, but for that group we ask them specifically about digitalization and digital transformation.
Before we even get into the survey questions, we try to set up a framework for what that means so everybody's level set and speaking the same language. Digitalization is, from a distance, if you squint, what it looks like to go from a completely mechanical type of factory to, like Sean was saying, a lights-out factory. Digital transformation is more of what Liz is saying: some of the incremental steps people take along the way.
That's what we're seeing in the results of the Annual Outlook Report survey. People are taking steps, and they're incrementally knitting together certain digitized operations. But the picture of connecting it all—from the inputs coming in at the loading dock, whether that's raw materials or, for food companies like Derrick covers, grain and syrup and sugar, all the way to the output on the other end being a candy bar that's wrapped and in a case—being fully digitized and lights-out, that's not happening yet.
But the results of the survey also indicate that it's a spectrum. There are different companies that are further along. I think some of the bigger companies have at least test projects that are getting in that direction.
We see roughly a stratification of one-third, one-third, one-third. One-third feel like they're way behind. One-third feel like they've taken up some projects and they're sort of knitting together what they see as digitalization or digital transformation. And a third feel like they're ahead of the game. But like Sean said, nobody's got the full lights-out factory. And if they do have that, they're not telling us.
And I wonder if a lot of that is because of what we saw with sustainability. We got a lot of companies going for that because that's what consumers were interested in, so companies started making that shift toward sustainable operations.
Then we saw in a report—was it two years ago, one year ago?—where sustainability had been at or near the top of the endeavors companies wanted to get to. But then last year it had fallen off to fifth or sixth or something because of cost, especially. I think that was the biggest factor, followed by a lack of consumer interest, because consumers were driving that.
Even then, you had bigger companies with bigger sustainability efforts, while smaller companies would do things within their plants like, "OK, we're going to switch to LED lighting," which is an amazing low-hanging-fruit cost-saving measure. But again, that's not fully implementing something sustainable or having a fully implemented sustainability program.
And then a lot of companies have since backed off it. They still say they've got these 2030 goals, but they're not necessarily following through with them. They'll still say, "Yes, we're going to meet them," but if you look at exactly what they're doing and what they're pulling back on, they're probably not going to hit those goals.
So it's interesting that maybe this is following the same course.
Derrick: I think a lot of us—I know me—I thought that AI was going to be along those same lines, where people were going to talk about it a lot and it was never going to really get fully implemented or fully used. But joke's on us. Here we go. Everybody's doing it now, or at least saying they're doing it, or implementing it in some way, for good or ill.
So I think it'll be interesting to see how digital transformation goes and how long it actually takes for lights-out factories, or products being made in a completely lights-out process, to become a reality.
Liz: Yeah, definitely. It's one of those words that I think is too vague. But we're still in the middle of companies trying to figure it out and move forward. Interesting stuff, Sean. You said that was in Houston?
Sean: Yes, it was soupy.
Liz: Yeah, I'm sure it was. Talking about soupy and hot, that sounds like we can move on to Derrick. Anything going on with soup?
Derrick? Do I smell bad? I mean, you're a couple of towns away, Liz. Jeez.
So what's been on my mind lately is, as Sean said, it's sort of the dog days. There's not a whole lot of news coming out, aside from the fact that—I was talking about jalapeños, and yes, unfortunately Taylor Farms was tagged with that as well.
Liz: Oh, so they were tagged with jalapeños and lettuce?
Derrick: Yes.
Liz: OK, wow. Same farm or region?
Derrick: I don't think it was the same, because I think it was Taylor Farms de Mexico or something. I can't remember the proper name, but I think that was with the lettuce. I'm not sure if it was the same source for the jalapeños.
I know the jalapeños went to different restaurants, so I think it may have been a different source, but it was under the Taylor Farms umbrella, unfortunately. They do produce a lot of produce and other vegetables, so that's not entirely surprising.
But what's been on my mind is something we talked about a little bit a few weeks ago: modularity. It's something I saw years ago, and I think it's becoming more pronounced given how the current federal system is shaking out. That's smaller factories and smaller plants located near where they're better sourced—more regional production.
It offers more flexibility, so this all follows along the modular mindset. It offers more flexibility based on the region because consumers don't all want just Coke products or Pepsi products.
There's not just one brand of Coke anymore. It's Coke Zero, Vanilla Coke—you know, I've got, well, they're all Pepsi products unfortunately, so the Coke example doesn't really work—but a whole bevy of things like Dr Pepper Blackberry, no sugar; A&W with sugar; A&W no sugar; all these different variations on products.
Those are national offerings, but for years, you could not get all-dressed chips in the United States. You could really only get them in Canada. I remember walking through my local Kroger, looking over, and seeing this whole display of Lay's All Dressed chips. I'm like, "No way." And here I am throwing all the bags into my cart and heading out.
But now you find those pretty much anywhere, and that's sort of going off what I was talking about.
I think you're going to see this more and more based on region. With these larger manufacturers, you're not going to see giant factories producing one product. You're going to see more regional types of factories that are able to produce what that particular region's consumers want more of.
I think it's happening because it's costly, consumer trends are constantly changing—seemingly more and more lately—and consumers want that variety.
To deliver that, you can't have a giant plant that produces one product. You might be able to do it if you have a very modular plant, which a larger manufacturer can do. But I think for the smaller and mid-sized manufacturers, which make up the core of our audience, they have to have that flexibility.
If they're going to expand, they're going to have to be strategic about where they make that expansion and strategic within the plant itself as to whether they can adapt to consumer tastes in that region.
It's something that we saw where people have these test plants, where they'll pull up a truck right to the back of a plant to produce a test product to see if it works there.
I think you're going to see more of that, maybe just on a larger scale. It could be an entire plant instead of just a truck backed up to a plant, although that's definitely something that's possible.
And I'm rambling a lot right now. It's too hot and muggy. It's affected the brain.
Matt: Do you see that as an opportunity for contract packagers and contract manufacturers specifically? Because they're kind of already distributed regionally, and they may actually have equipment that's dialed into local flavors or local preferences.
Derrick: Absolutely. I think it's also going to have to do with sourcing ingredients and materials. That's going to play a role in it as well.
I definitely see a role for contract manufacturers, or an opportunity for them. But it's also going to be dependent on ingredients and sourcing, mostly because of cost.
If you're not having to ship materials and ingredients over long distances, it's going to save money. And consumers are getting very picky right now in terms of cost, for obvious reasons.
So if you can do whatever you can to keep that cost low, besides shrinkflation and other strategies, I think you're going to see a lot more contract manufacturing and more smaller, flexible plants.
Liz: Interesting. Yeah, it's an interesting trend to see. And you're right. The variety on shelves these days from big and small companies is pretty crazy.
We're the same way with the sodas in the house—Diet and Zero and this and that. And I'm a sparkling-water person, so LaCroix and Waterloo and all that. It's interesting to see. Matt, anything else on that vein, or any new things come across your desk?
Matt: Not really. I've got a quick preview of a story that I've kind of been sitting on, but we're finally going to be coming out with it in the next issue of Packaging World. It's an expo issue.
I was in Düsseldorf—Derrick was with me—a few months ago for interpack, and I was able to get a hall pass to go off campus for a day and visit Henkel's headquarters in Düsseldorf.
It was a really interesting, huge facility, a full-on campus. They had everything from what we primarily deal with, which would be the consumer brands side of things. They do Snuggle and Persil, which is the big competitor to, say, Tide from Procter & Gamble.
We're always covering that, but they also have quite a few other businesses on the technology and material side. One particular business is Adhesive Technologies.
So there are two separate business units—the Consumer Brands business and the Adhesive Technologies business—that are technically each other's rivals and business partners.
If I'm Henkel Consumer Brands, I'm looking to any and all adhesives companies to find the best match for my product. Usually that'll go through a converter or something for a carton or a case.
But then on the other side, Henkel Adhesive Technologies is willing to sell its technologies, adhesives, new lower-melt temperatures, and all these new things to all sorts of brand owners—the usual suspects.
Most brand owners and their packaging suppliers keep each other kind of at arm's length, and Henkel doesn't really have to. So I wanted to know what they get out of that, and it turns out: quite a lot.
Imagine a familiar drugstore product that I won't name—you'll have to read the issue. It went through a full packaging redesign, and it solves the recyclability problem under PPWR over there faster than most companies could manage on their own because their adhesives company, adhesive supplier, and adhesives beta tester were all in-house.
Usually you have the adhesives and coating supplier, the board or material substrate supplier, maybe a converter that would then print on that substrate, and then you have the brand owner.
Well, this kind of does an end run around that entire middle section, so Henkel Consumer Brands can learn what technologies Adhesive Technologies has coming down the pipe. Meanwhile, Adhesive Technologies is learning how consumers are reacting to these new things, including consumer acceptance and adoption.
They basically have this unique cycle. And to put a bow on it, they built themselves an in-house lab they call the RecyLAB to test whether this board recycling really recycles the way it claims to.
They're using an adhesive on it, and they're using inks and all sorts of other additives or coatings. In this case, the product had a fragrance, and they wanted to make sure the fragrance didn't escape so that it smelled up the aisle.
So anyway, this RecyLAB is entirely in-house, and even other brand owners can submit products to it. It's entirely anonymized. So if one of Henkel Consumer Brands' competitors submitted something for recycling testing, it's not like Henkel is going to be learning that company's secrets.
It's a really interesting format and a really interesting way of working that I don't think is replicated in any of the other major brand owners.
But read all about it in the next issue of Packaging World.
Liz: May I ask, were they ever separate entities that merged, or was this always sort of under the same umbrella?
Matt: Henkel has always kind of been on the technology side. And I could be wrong about this—materials technology, chemical technology.
My understanding, and I could be wrong, is that they started acquiring consumer brands or creating their own consumer brands as an outgrowth of the fact that they could do all of these things on the technology side.
But I'm not certain about that. They're certainly all under one big happy-family umbrella now.
Liz: Yeah, that's interesting and definitely unusual, but in a cool way.
Matt: Yeah, I think so.
Liz: Well, thanks, everybody. That's probably all we have time for today, but we will chat with everyone again next week.
Everyone: Thanks, Liz.
