Demand will no longer bolster underperformance in packaging and paper, McKinsey analysis shows

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New analysis released by McKinsey & Company reveals that high demand alone is no longer enough to bolster performance for packaging and paper organisations in the years to come. McKinsey’s ‘No ordinary disruption: State of the packaging and paper industry’ details how a mix of market dynamics has amped up pressure on the packaging and paper industry.

These dynamics include:

• External shocks that are challenging the operating environment: Covid-19 related disruptions to supply chains and the workforce, growing preferences for online purchases, and geopolitical uncertainty have all challenged the packaging and paper industry and affected bottom lines.

• Consumers are remaining cautious amid macro uncertainties: price and quality are now the most important product characteristics that influence consumers’ purchasing decisions.

• CPGs and retailers are facing greater pressure: slower demand growth, persistent cost pressures, and heightened investor scrutiny are pushing CPGs to reconfigure their operating models.

• Shifting sustainability attitudes: sustainability remains a priority for consumers and CPGs, but only selectively. Instead, sustainability led growth is concentrated in specific applications, rather than broadly distributed across portfolios.

Furthermore, McKinsey’s research indicates that industry growth is at or below GDP, with tepid growth expected over the next one to two years before stabilising at GDP levels in the context of shifting global economic and geopolitical stability. Across both categories and regions, selective sub-pockets remain that are growing faster and others that are declining. Growth and margins have decelerated overall across major substrates, owing to weak demand and inflationary cost pressures. Growth in EBITDA margins also remain nearly flat or slightly negative across the industry.

These financial headwinds are also being compounded by a general environment of consolidation and talent turnover within the industry as well. Several mega deals have been completed across substrates in recent years. While over the past several years, CEO and senior leadership turnover in particular has increased sharply across major packaging and paper companies.

To succeed in this new era of lower demand growth and emerging challenges, the analysis highlights how packaging and paper companies will need to embrace new timelines and levers to address underperformance. Specifically, the analysis details four elements that could make the difference in creating value moving forward: execution in commercial excellence, a relentless focus on cost, rejuvenated talent and leadership, and the value-oriented application of advanced analytics and gen AI.  

David Feber, senior partner at McKinsey, said: ‘Looking at both structure and performance, it is apparent that the global packaging industry has entered a reset. After more than a decade of structural tailwinds, customers are under pressure, balance sheets are tightening, and investors are demanding sharper capital discipline. In this environment, value creation depends less on overall exposure to growth and more on execution and conscious growth focused on sub-segments that are growing faster than the overall market. It will also be important to develop new capabilities and pursue innovation, particularly in data and gen AI.’

Daniel Nordigården, partner at McKinsey, added: ‘Balance sheets, leadership capability, and operating rigor will increasingly determine winners and losers in the packaging and paper industry. For CEOs and boards, the imperative is clear: act decisively to reshape portfolios, strengthen fundamentals, and build the capabilities required to compete in a lower growth, higher volatility world.’

Overall, the findings highlight a packaging market defined by trade offs rather than linear trends. Companies across the value chain will need to navigate evolving consumer expectations, regulatory pressure and material substitution dynamics to remain competitive in a lower growth and increasingly complex environment.

To read McKinsey’s analysis in detail, click here.