Beauty packaging industry: unity is strength!

In these troubled times, it seems more useful than ever to give a voice to the leaders who have shaped today’s beauty packaging industry over the last thirty years. They offer their insights on these “glorious thirty” years in a sector that is now often more attacked than defended, as well as their observations on the current situation and, of course, a little perspective and common sense, which are welcome at a time when everything seems to be changing. One conclusion: “More than ever, unity is strength.”
Ludovic Anceau is one of those people. He started out in the beauty packaging sector in 1989 as Sales Manager at Socoplan. In 1996, he joined the Techpack Group as Sales Director of Lir France, which was then taken over by the Pechiney Group, then Alcan, where he became Sales Director of the Makeup Division. In 2004, he rejoined Socoplan, which had become a subsidiary of the Ileos Group, as CEO, with a mission to grow externally and establish an international presence, transforming it into Bioplan Beauty. In 2015, Bioplan merged with Arcade. The group became Arcade Beauty. He left the group in 2017 after overseeing the merger and embarked on a career in interim management. He joined the PSB group at the end of 2017 as Interim Managing Director for Texen. He left PSB at the beginning of 2021.

You are one of the figures who have been heavily involved in the development of the beauty packaging industry for over thirty years! Today, this industry is facing multiple challenges. What has fundamentally changed today compared to the challenges you faced in your day?

Ludovic Anceau: It is clear that, from the late 1980s onwards, we benefited from a fantastic period of growth in demand in a context of globalization in which investment financing remained accessible without the need for sensational business plans. In addition, the internationalization of our customers allowed us to find new sources of growth abroad or through external growth when one of our markets disappeared and a new opportunity arose.
In the specific case of France, industrial players in the packaging sector also benefited from the coverage of major French brands, whose decision-making and beauty production centers remained located in France and for which local production remained an asset.
At the time, the environmental and climate threat, although perceptible, was not considered existential, with the exception of the danger of severe damage to the ozone layer in the upper atmosphere due to CFCs, which the Montreal Protocol in 1987 made it possible to eliminate after an exemplary international campaign.

At that time, most global manufacturers were still SMEs and mid-cap companies led by charismatic founders whom we admired. Everyone knew each other. Problems were solved with a handshake, without email, which didn’t exist, without videoconferencing, which was science fiction, and without PowerPoint presentations, which no reductive mind had yet imposed. We would jump in our cars or on a plane (there were still few high-speed trains) to solve a problem. We had long periods of calm to reflect, because smartphones didn’t exist either. That’s how radically everything has changed since then.
While most of our companies did well, there were also many upheavals. Relocations led to site closures. Corporate cultures were transformed, some even destroyed. We had to deal with the pain of mergers and acquisitions, but the context of growth made them bearable for the collective. Ultimately, the industrial fabric of customers and suppliers remained relatively intact in France, even strengthened by the profits of internationalization, and many of the names and cultures of the companies that founded the market still exist today, including within certain groups. It is a real satisfaction to have contributed to this.

Between 2005 and 2007, the climate changed!

Ludovic Anceau: Indeed, the first strategic and external interferences, i.e., those unrelated to our economic performance, appeared in early 2005/2007 in correlation with the growing awareness of the dangers of climate change and pollution linked to human activities. These were the result of political and societal choices, mainly regulatory (Reach, for example, in 2007), which were then reinforced by global ESG-type initiatives. This was an additional financial constraint, but it was acceptable and accepted because all countries and players in the beauty market were committed to the issue and subscribed to its financing.
At the same time, new systemic markers have undermined our confidence in security, such as the attack on the World Trade Center on September 11, 2001, the outbreak of direct war in the Western sphere, the SARS crisis in Asia in 2002, which foreshadowed Covid before being confined to Asia, and the financial and economic crisis of 2008, a cycle that came to a majestic conclusion in 2020 with the Covid crisis. All of this has undoubtedly penalized our companies, particularly their ability to anticipate and invest.

Yet, as we emerge from Covid, there is euphoria!

Ludovic Anceau: It is a fact that this “post-Covid” period has generated two years of what has been called a growth “bubble” linked to the rebuilding of stocks. In the wake of this, leaders in the highly internationalized beauty packaging industry found themselves simultaneously confronted with all the schizophrenic challenges of today’s society (geopolitical risks, political upheaval in the United States, the return of customs barriers, the decline in the standard of living of the middle classes that had driven growth in recent years, uncontrollable increases in expenses and costs, the approaching deadlines of the “3R” decree, not to mention the progression of tangible but denied geo-risks, suspected of being linked to global warming, capable of transforming your most beautiful factory into a scene from “The Last of Us.”
In addition, the decoupling (since that is the term used) of the US and China from the global economy is calling into question the trade and industrial rules governing 60% of the beauty market.

There is a lot of talk about the reindustrialization of the Western world’s beauty sector suppliers, particularly in the US, England, and France. Based on your experience and the current evolution of the industry in this sector, is this realistic and, if so, how do you think this challenge can be met (or not!)?

Ludovic Anceau: An important point to note first is that, throughout this period, the sector of suppliers working for the beauty industry has not been completely deindustrialized in France and Western Europe when compared to other consumer goods.
Admittedly, certain product segments, where it made sense, were relocated to so-called “low-cost” areas, to be re-exported to Europe. But this also responded to the emerging needs of rapidly growing local markets. European production has lost market share and has had to reduce its capacity, but it has managed to maintain and even renovate centers of industrial excellence and strong expertise in all areas of the value chain (formulation, packaging, plastic, glass, metal, and cardboard packaging) in France, Germany, Italy, Spain, Poland, Benelux, and Malta, to name the main countries. In fact, there is no need for reindustrialization, as existing factories and skills could easily accommodate these return transfers if customers so decided or if global logistics were to break down. However, the so-called “low-cost” players have since automated and reinforced their “low-cost” advantages. It is a fact that, for the time being, without stricter trade rules, price differences remain significant.
On the other hand, it is true that in the United States, deindustrialization in the packaging sector has been more radical, except in the areas of large series and large volumes, which are more consumer-oriented, such as bottles, pumps, glass, metal, and packaging, which have held up well.

The United States is more than ever at the center of this debate on reindustrialization. Trump “forces” it! What do you think?

Ludovic Anceau: When I joined this market, several manufacturers had attempted to set up operations in the United States in the selective and mass rod market in the 1990s, but the volumes were insufficient and the series too random to reach a critical size. They had to be gradually closed down.
At the same time, maquiladoras in Mexico developed on a larger scale than in Europe, as did subcontracting in Asia, mainly in China but also in Korea, Indonesia, and Thailand, and the importation of finished products manufactured in-house by international selective brands and/or imported as a full service from Asia.

Today, these new customs duties, not to mention the exchange rate effect, certainly represent an opportunity to reindustrialize the United States in the field of packaging, taking advantage of the IRA program and the country’s new attractiveness in terms of labor and energy costs. However, this transfer will be slow because, unlike in Europe, expertise must be rebuilt and reinvested in complete production systems, particularly for the selective market. Finally, the fragmentation of production will lead to a reduction in local series, affecting their productivity.

This is a real opportunity for packaging manufacturers who have retained industrial capacity in the United States, particularly for contract packagers. Others should be able to establish partnerships with American players or create industrial hubs in joint ventures to support their customers on site from wall to wall.
Brand customers will lead the project because it is the formula and filling production site that determines the choice of packaging production site, based on the marketing impact of “made in” and logistics costs.

But this is a mammoth task, as it will require analyzing all the products concerned throughout the value chain. Calculating the impact of customs duties on the cost prices of highly interlinked productions between components manufactured in different customs zones, modeling the element of the value chain on which it will be most appropriate to charge customs duties, and finally selecting the transferable items before being able to assess the economic opportunity of a transfer compared to absorbing or transferring customs duties to the consumer!

Ludovic Anceau: That’s right, but it will have to be done, and to answer your initial question, from my point of view, it’s not a gamble but a calculation and a challenge in terms of industrial strategy, financing, and execution. It will have consequences for European volumes but will open up opportunities in the United States.
With 30% customs duties on China and 15% on Europe, it makes sense.
What remains a gamble is predicting how customs duties will evolve in the wake of the next negotiations or the next geopolitical standoff.

Environmental protection has become one of the top issues, if not the top issue, for suppliers in this sector. What direct consequences do you think this will have on the sector’s development and innovation capabilities?

Ludovic Anceau: It’s important to note that twenty years ago, environmental protection and public health were already major concerns for packaging professionals, to the point that they became part of our DNA. The first IPCC report was published in 1990, but awareness of a situation that was more serious than expected dates back to 2007 and has only grown stronger each year. The implementation of REACH in 2007 imposed major changes on the ingredients of formulas and materials, which prepared us to manage complex transformations over the long term. At the same time, the implementation of indicators was consolidated by ESG initiatives, which gave it global momentum until the Covid crisis.

But the problem was not just marketing and development in terms of innovation capacity. It is also a problem of competitive industrialization and therefore of financing investments without yet knowing exactly what their scope will be.

Ludovic Anceau: We went all the way with “soft” actions (common KPIs established and monitored by neutral organizations, CO2 emission reduction or compensation actions, partnerships with NGOs, gradual and tentative deployment of recycled materials) to reach the dawn of the decisive stage of transformation in 2019, i.e., to switch concretely to the most advanced projects and begin the profound transformation of our industries, to concretely assess the investments needed to achieve this, and to anticipate the risks to our sectors if we were to take the wrong direction or if major segments of our expertise were compromised.
However, you can’t transform an industry so profoundly with a snap of your fingers!
This can only work within a global framework where all global players, including governments, brands, and consumers of finished products, are subject to the same rules, accept the additional costs and risks involved, and where the social risks associated with the impact of volume declines on certain sectors are accompanied by public policies to support retraining.
ESG approaches make it possible to envisage this virtuous framework.
As a result, the need to preserve the environment is certainly still the primary issue, but it has now become the primary source of disagreement.
Beyond divisive rhetoric, where some shamelessly demonstrate everything and its opposite, including the opposite of what they themselves previously claimed, the decisions to be made by a packaging industry executive will be cruelly basic, regardless of their personal opinion on environmental issues. They will defer to the demands of client brands, between the virtuous brands that will continue the approach and support it, and the less demanding brands that will be less strict on environmental criteria in their purchasing criteria, particularly in the United States.
If the eco-designed alternative costs less because it is simpler, everyone will be a winner. Otherwise, there is a risk of unfair competition from the less virtuous on price, to the detriment of the “best in class.”

The key to success, perhaps even more so today than in the past, remains financial capacity for investment. In this context, have the balance of power changed compared to the last thirty years that you have experienced, and to what extent?

Ludovic Anceau: In keeping with the times, I don’t have the figures, but I do have an opinion! My feeling is that we have supported our clients’ growth. Broadly speaking, the market was created globally around SMEs and entrepreneurial mid-sized companies set up locally in the 1975-1980s around a few key clients that were already international. The balance of power was in favor of technology, the commercial presence of managers, and absolute trust between client and supplier teams. Then, in the late 1980s and 1990s, conglomerates were formed by industrial investors, consolidating these historic mid-sized companies into industrial groups of critical size. The balance of power shifted in favor of industrial architects, the famous “cost killers,” productivity specialists capable of consolidating these diversified groups and equipped with solid financial resources. Starting in the 2000s, these captains of industry then sold their masterpieces to financial investors and investment funds. The latter complemented the industrial logic with a financial logic, facilitating substantial investments but also debt combined with higher cash generation requirements. So the new balance of power was clearly financial.
Then Covid put everyone on vacation for a few months, and the crux of the matter became a war of nerves: power now lies with divisive influencers whose actions are reshuffling the cards of the global economy and destabilizing it, and with tech companies that have a monopoly on their specialties, which extract colossal rents from the industrial economy that they are impoverishing and refuse to finance through taxation the states and regulatory authorities whose help would be invaluable in supporting the transformation of old industry.
At the same time, other players have made their mark, such as family-owned mid-sized companies that have retained their independence in France, but also in Germany and Italy, as well as startups that have been created in innovative packaging segments, particularly in the environmental field, whose flexibility complements the large structures. They certainly represent growth potential, provided that the reorganization of the markets does not break their momentum and that they secure their financial resources.
Finally, oligopolies, or even monopolies, of suppliers of raw materials, particularly recycled materials, and energy have been formed, strengthening their pricing power over packaging manufacturers, which reduces their room for maneuver in times of crisis.
The challenge now for packaging players of all origins (French, European, Asian, American) who have collaborated so much in the past and often become friends is to maintain their coordination platforms, because unity is strength, and to create new forms of alliance to adapt to the new fragmentation of markets, in a context of discord over environmental priorities.