Market environment offering opportunities and challenges

The glass industry is based on a traditional craft whose manufacturing processes have been refined over decades. The value chain is also geared towards the long term, characterised as it is by long-standing relationships with suppliers and customers. Moreover, glass container manufacturers are reliant above all on external partners in the fields of energy, transport and raw materials. That is why this is an industry where change always requires a lengthy lead time. Now, however, the framework conditions in the glass industry are evolving faster than ever. The main driving forces behind this include digitalisation, automation and growing expectations on the part of various stakeholder groups. To ensure that it can meet customers’ needs both now and going forward, Vetropack constantly tracks new trends and monitors the market environment with the aim of identifying opportunities and challenges early on and finding proactive ways to deal with them.

Buoyant market environment helps make the fiscal year a success

The market environment for the glass packaging industry continued on an extremely positive note in 2019. In addition to good economic framework conditions, the enduring favourable attitude towards glass as a packaging material had a beneficial impact on Vetropack Group’s business development. 2019 saw the company invest in two planned furnace overhauls, while another two furnaces were partially renovated. As part of these modernisation schemes, production capacities were also expanded with a view to keeping up with demand in the market. This meant that Vetropack was able to maintain its market share at a constant level across all markets.

While the mood in most European markets is very much “pro glass” and overall market volumes are therefore rising, there are also some markets where demand has tailed off slightly. In Switzerland, where Vetropack added to its market shares in 2019, demand for glass dropped a little, with cans proving a more popular choice for packaging products such as beer. On top of this, more packaged products are being imported and therefore fewer drinks and food items are being packaged in bottles or jars in Switzerland.

In Ukraine, several factors led to a decline in demand for glass containers. For one thing, depopulation caused by the political situation there is reducing demand, while a trend favouring products such as beer over spirits is also pushing it downwards.

Customers expect plenty of flexibility and individuality

Across Europe, the industry is increasingly moving towards more sustainable packaging materials. As part of this shift, the trend is veering towards smaller and lighter glass containers as well as returnable bottles. Customers are taking a more differentiated approach towards packaging, so glass container production needs to be more and more flexible and geared towards individual solutions. One example of this is packaging for microbreweries, which require smaller batches and custom designed glass bottles. Vetropack is also on the lookout for micro trends in local markets, like Austria, where glass has recently enjoyed a resurgence as a packaging material for certain food products such as milk. Local trends like these have the potential to impact on the industry in the medium to long term.

New regulations and technological developments leaving their mark on the industry

Political and social macro trends are also making an impression on the glass industry. One such example is climate change. Changes in the climate have both a direct and an indirect bearing on the industry. They have an indirect effect because demand for glass containers is dependent on agricultural harvests, while their direct impact comes from political and regulatory developments in the EU. The EU’s push for climate neutrality by 2050 requires energy-intensive sectors such as the glass industry to increase their energy efficiency. The European Commission reported on the complete implementation of the Circular Economy Action Plan in 2019 and this, along with the EU upping its recycling rates, is prompting changes both in the packaging industry and in consumer behaviour. Increasing glass collection rates has a positive effect on recycling quotas and therefore sustainability in the glass industry. Vetropack has also noticed a greater awareness of health and the environment amongst consumers, which is why demand for glass as a packaging material has – thanks to glass being fully recyclable – been rising steadily in recent years.

Another factor influencing the glass manufacturing process, and indeed all other business processes, is technological innovation and the advances in digitalisation and automation it brings. With its digitalisation strategy, Vetropack is paving the way for the “fourth industrial revolution” and has already made many processes more efficient as part of this move. These changes are crucial to ensuring long-term competitiveness.

New Group strategy tackles opportunities and challenges

During the past fiscal year, Vetropack updated its corporate strategy with a view to exploiting the opportunities and dealing proactively with the challenges that come with the dynamic industry environment. Strategy 2030 lays the foundations for successful business development over the next ten years. The new strategy, which was approved by the Board of Directors in January 2020 and applies with immediate effect, will be reviewed annually.

In 2019, alongside its general strategy development, Vetropack focused particularly on issues that are deemed key to the Group’s success. These include boosting production capacity, product innovation, energy efficiency, increasing the proportion of used glass, and leading and guiding employees along the path towards the fourth industrial revolution.

Production capacity

Given the long investment and operating time frames for glass-making furnaces, which are in constant use for around twelve years once they have been fired up, glass production is not something that can be increased or reduced easily. That is why demand outstripped the production capacity of Vetropack during the year under review. To remedy this, Vetropack is investing in capacity expansion measures such as furnace overhauls and the construction of a new plant in Italy. Multi-gob machines can also be used to counteract the lack of flexibility in production, as they can process smaller batch sizes and a range of product segments. Vetropack uses these machines in almost all the countries in which it operates so that it can respond flexibly to customers’ requirements for smaller production quantities. However, this flexibility also increases the degree of complexity at the end of the production process – the quality control stage – for example because separate checking and packaging processes have to be set up for each individual segment.

Product innovation

Following a lengthy development and testing phase, Vetropack launched its first VIP Glass product in 2019. For the first time, the company is offering a returnable bottle with a distinctive low-weight design that reduces the consumption of raw materials and energy. The trend towards returnable bottles is giving Vetropack the opportunity to consolidate its successful position in the glass container market by further developing its VIP Glass technology as part of its innovation strategy.

Energy efficiency

With glass production being so energy-intensive, increasing energy efficiency is very much a top priority at Vetropack. The top-level management is making sure that company-wide measures for reducing energy consumption, and therefore also CO2 emissions, are being put into practice. For instance, the energy management system developed specifically for Vetropack is to be rolled out across all plants in 2020 following a successful three years of testing in Croatia. In addition, Vetropack is joining forces with other glass packaging producers from International Partners in Glass Research (IPGR) and getting actively involved in further developing the glass manufacturing process in a sustainable way. Innovations with regard to lighting the furnaces and optimising glass production machinery offer the opportunity to make production both more energy efficient and more cost-effective in future.

Ensuring a high proportion of used glass

Although recycling rates in Switzerland and Austria are very high, providing a sufficient quantity of used glass to many locations is still proving a problem. It is not just supply that is an issue – the quality of the used glass needs to be improved too in future in order to produce glass containers to a satisfactory final standard. The EU's targeted glass collection rates are aimed at feeding more used glass into the recycling process. Increasing the supply of high-quality used glass would make it possible to use a higher proportion of them in production, thus making the end products even more sustainable. However, it remains to be seen whether, and how quickly, the EU member states achieve the higher collection targets. Progress in this respect depends largely on these standards being enshrined in national legislation, something over which Vetropack has virtually no influence.

The fourth industrial revolution

Vetropack is continuously working on digitalising and automating production processes and operational sequences. In 2019, it managed to implement five projects from its digitalisation roadmap, including implementing systems for automated invoicing, document management, energy management and regulating product development workflows. A new ERP-SAP system was also introduced, providing a basis for all further steps towards digitalisation.

As well as laying the technical foundations for putting the digitalisation roadmap into practice, Vetropack is very keen to ensure that all staff keep up with the pace of change. It is therefore coordinating closely with its employees and systematically preparing the workforce as a whole for the fourth industrial revolution. For example, training sessions are being run at the training centre in Pöchlarn, and these were fully booked for the first time in 2019. Vetropack also carried out an employee survey during the year under review in order to gauge the needs and requirements of its staff. Based on the results from this survey, all business units are developing proposals for improvement and thereby getting all employees involved in shaping the company’s future. The establishment of the Corporate Human Resources department will also further reinforce the focus on staff development in future.