HERNDON, VA. — More than two-thirds of brand owners expect to maintain or increase their use of contract packaging and contract manufacturing (CP/CM) in the next few years, according to a new report from PMMI, The Association for Packaging and Processing Technologies.

As a result, three-quarters of CP/CM companies expect their business to grow.

Of the 157 companies interviewed and surveyed for the report, 23 are involved in the food and beverage industry, said Rebecca Marquez, director of custom research for PMMI.

The report also found 63% of manufacturers contract out between 10% and 49% of their business to CP/CMs. Marquez said she wasn’t surprised by that “enormous spread” given the size of companies that attend PMMI’s Pack Expo trade shows.

“This is the Nestles and the Mars of the world and the small mom-and-pop granola companies,” she said. “Some don’t have their own operations. They have a name and a recipe, and they have to contract out almost everything.”

For larger consumer packaged goods (CPG) manufacturers, it makes sense to outsource production and packaging of limited-time offers so they don’t have to install lines just for that, Marquez said.

“There are so many different kinds of Oreos now, not that every single flavor would require its own line,” she said. “Think about having to do all those changeovers. Would you have that in a plant that’s running regular Oreos all the time, or would you contract it out?”

Food and beverage companies face special challenges, the report said, such as being slow to adopt automation, dealing with persistent inflation and high input costs and having to be more sustainable and transparent with packaging and ingredients.

Marquez said CP/CM companies will have to accommodate those needs to stay competitive. They also will have to meet certain material requirements as extended producer responsibility (EPR ) legislation gains traction across the country.

EPR laws, which hold producers responsible for product management through a product’s lifecycle, have been passed in seven states — California, Colorado, Maine, Minnesota, New Jersey, Oregon and Washington — and are under consideration in 10 more.

“Say you’re a producer of potato chips, and you are producing your product in a bag that’s not recyclable,” Marquez said. “If you distribute them in California, you’re going to pay.”

When the California EPR law goes into effect in 2027, or potentially before that, it will carry noncompliance penalties of $50,000/day maximum per violation, although there are exemptions for some materials that meet certain criteria.

Another challenge for both CPG and CP/CM companies is installing newer equipment using artificial intelligence (AI) and digital processes, and finding workers who can operate it. Marquez said PMMI’s research found labor to be one of the most significant challenges across the board.

“Our members are seeing it, their customers, the CPGs, are seeing it,” she said. “Even keeping machine operators, who don’t necessarily have to understand that level of AI, it’s really difficult for them to keep people on.”

CP/CM companies are investing in more automated equipment as one way to cope with the labor issue, the report said. The machines do palletizing, case/tray handling and labeling. Marquez said the trend is toward multipacks and mixed pallets, which also affects how the pallets are stacked and transported.

“For a long time, when Kroger or Amazon or a big retailer would order a pallet of something, you might have them order a pallet of Rice Krispies, so you’d have an entire pallet of all the same size and it’s uniform and stable and easy to wrap, and you’re pretty good to go,” she said.

“Now they might say they want a pallet of 10% Rice Krispies, 10% something else, maybe lipstick. They’re all different sizes, and you have to have a proper pattern that it gets palletized in.”

Robots can assist in these situations, she noted, but not every production facility has enough of a footprint to accommodate automated machinery.

“Even large, multinational companies that set up shop in older buildings, sometimes in order to automate them, it has to be proper infrastructure inside the building,” she said. “If you have a building 80 or 100 years old, your floors are not level, your walls are not straight, you don’t have the proper infrastructure to get there. So that’s another problem.”

CP/CM companies also face increased costs for enhancing sustainability by using more recyclable materials, reducing utility costs and overall waste, the report found. Marquez said that switching to materials with a higher level of post-consumer recycled content may not work with existing equipment.

“Let’s say you have a machine that is making candy bar wrappers, and you’ve got a film that it’s designed to work with, but there’s a mandate that you have to use 20% more post-recycled content in your film,” she said. “You try to run it on your machine, and the machine won’t accept that film. It could be thickness or tensile strength, it could be what the surface is like, it could be a million things, and it just will not run on that machine.”

Based on recently updated research PMMI did a couple years ago with AMERIPEN, CPG companies are betting on compostable materials, she said, adding that compostables “are somewhat problematic right now because the US doesn’t have an infrastructure to manage compostables on an industrial level.”

PMMI is featuring an interactive dashboard at its Sustainability Central exhibit at Pack Expo being held Nov. 3-7 in Chicago. Marquez said it will show the materials currently being used, along with the ones gaining and losing ground. There also will be a series of talks about the risk of “greenwashing,” or making deceptive environmental claims about CPG products.