A public backlash over plastic waste is forcing makers of top household brands to rethink their packaging. The extra costs will need to be explained to investors.
Consumer giants like Procter & Gamble and Unilever are heavy users of plastic. Of the millions of tons of packaging Nestlé puts out each year, around one-third is plastic. The material helps prolong the shelf life of food and transport goods more cheaply than glass.
But 2019 will be a tipping point. China, importer of 45% of the world’s plastic trash for decades, this year banned imports of the low-grade and single-use plastic that consumer companies love. Now that rich nations have to deal with their own waste, they are tightening regulations. The European Union voted in October to ban single-use plastic in food and drinks containers by 2021.
The trend will hit consumer-goods manufacturers in two ways. First, the 5% to 10% of revenues they currently spend on packaging will rise as they keep up with regulators and shoppers, who increasingly want recyclable alternatives to plastic. Nestlé, Unilever and Coca-Cola are all committed to making their packaging 100% recyclable by 2025.
Even more important, companies will pay more to clean up the plastic they put into the market as more countries adopt so-called Extended Producer Responsibility. In the U.K., producers could end up bearing the full cost of disposing of packaging, up from the 10% share they pay today, under a new waste strategy published by the government in December.
Some companies are moving early: Costa, the U.K. cafe chain bought by Coca-Cola in August, has offered to pay a 150% supplement to the $ 63 market rate for recycling a tonne of discarded coffee cups.
All these extra costs could create winners, too. Among them are packaging groups like International Paper or DS Smith , currently fielding calls from companies looking to switch from plastic to paper, and recycling groups. Shares in Norway’s Tomra Systems have increased 55% this year.
Brands that don’t play ball risk their reputations. Consumer activism is growing: “Plastic attacks,” where shoppers pay for groceries but leave packaging for supermarkets to deal with, have spread across the world. Companies also face mounting environmental pressure from shareholders such as Aviva Investors and Hermes Investment Management.
Other investors, such as Daniel Loeb’s Third Point at Nestlé, are pushing European consumer companies to cut costs at a time of limited sales growth, which is one reason their stocks often change hands at punchy earnings multiples. Simultaneously appeasing activists of both financial and environmental kinds could become one of big food’s biggest challenges in 2019.