Tetra Pak is synonymous with packaging in India. The €11.1-billion Swedish conglomerate also has a robust food-processing and a processing equipment business in 161 countries. Company president and CEO Adolfo Orive talks to Fortune India about dealing with evolving food habits of consumers, switching to sustainable packaging and managing costs in an inflationary environment. Interview by Ajita Shashidhar.
This edited Q&A has been condensed for space and clarity.
The pandemic brought about a massive change in the way businesses are run. What has changed the most?
The world drove globalisation to the maximum. In 2018, when we were developing our 2030 strategy, we started seeing a move towards more balance between 'global' and 'local'. The pandemic accelerated the trend. We, too, are trying to balance the benefits of being global with speed and adaptability of being local.
There has also been a change in consumer behaviour. Today's consumers are more conscious about health. Also, they are not happy with generic products. Earlier, it was okay to make the same hamburger for everybody but now you have to tailor-make it for every country and consumer. The third important trend is food safety, and that is all about sustainability. Sustainability is not just about recycling. (1) It is also about how sustainably you source your products. It's about food safety.
Of course, there is inflation, a consequence of realignment of the industry. We run the most efficient supply chain in the world, but as we move towards more regional focus, we can't get the same supply chain efficiency. That is why you are seeing inflation in the system.
How do you manage costs in an inflationary environment?
That's been a challenge. If you look globally, we are still using the same approach of tapping global suppliers with long-term agreements, so that we are secure (with respect to raw material supply). We don't have a short-term view of costs. Of course, there are commodities such as polyethylene over which we have no control. We are moving production to places where we can drive more cost efficiencies. India has the right balance between capabilities and costs. Moving more production to India helps us manage costs better.
For us, it's not just about driving costs out of the system. It's also about how we can help customers reduce their costs and deliver more value. Having a factory here helps customers reduce working capital and use the money saved for better things. We also have field service engineers who can quickly respond to a problem at a customer's factory. This also reduces cost. We help customers manage inflation. Everything we do in automation also helps them run factories more efficiently.
We are now putting more focus on parts of our business that give value to customers. One of the focus areas is reducing lead time. Lead time in factories is five-six days versus four-six weeks if we depend on other parts of the world. (2)
How have food habits evolved in past few years?
Food is a path to good health. Earlier, I was not concerned about what I was eating or drinking. Today, that has become important. A brand gives you a feeling of security and quality.
Consumers are also increasingly looking for products that are tailor-made for them. Categories such as lactose-free or plant-based are growing. In U.S., there is a huge market for protein-enriched meal replacements. These products are not growing at the expense of food products or other liquids but competing with snacks. People are consuming meal replacements during transit. We are seeing growth in premium milk. The other category, which is currently very small and, hence, expensive, is proteins from insects. This has led to emergence of genetic ways of producing food.
A unique category in India is ORS (oral rehydration solution). Earlier, one used to dissolve the powder in water, but the water itself was polluted. Today, you have pre-mixed ORS drinks. The category has grown by 33% in last couple of years. Plant-based milk extracted out of cashew, almond and soya is growing at 20%-plus. It's a big percentage on a very small base while milk is growing 2.5-3% on a very big base. Plant-based products are growing but will never replace dairy.
Uncertainty and volatility in business are a given in today's times. What should businesses do to withstand the test of time?
Most companies grew by maximising their global footprint, maximising globalisation and creating strong processes and standardisations. Now, companies need balance between global and local. We need a structure that is more flexible for faster decisions. We need to work towards local adaptation of our services. Deploying a global model will no longer give success. We need a local model supported by global benefits. This requires people who think differently. We need good local managements that can make decisions. At Tetra Pak, we are doing massive re-organisation of our operating model. The objective is to amplify customer wants. Being a global company, we have a lot of steps to take decisions, and a lot of people are involved in the decision-making process. We are simplifying that.
INDIA FOCUS & INNOVATIONS
How are you localising your business?
When I came to India in 2019, we were just doing some food-processing products. Today, we are using India to supply to the region. We are moving from doing everything in Europe for the world to doing things in India for adjoining regions, and also for the world.
In India, we will continue to invest in packaging business, not only for India but also the region. The factory here works with not just global suppliers but also local suppliers. I think it is important to regionalise. We earlier had a capacity to produce five (food processing) machines a year, while today, we can produce 60. We can produce six-seven processing equipment models.
Packaging is important for brand differentiation. What are the recent innovations in the area?
The most important aspect of packaging today is reducing food wastage. Around 30% of food is wasted globally. In India, it's 40%. Food wastage is one of the largest reasons for greenhouse gas emissions. We are contributing to mitigate the impact in an important way by supporting customers with aseptic systems that help them reduce food wastage and improve food safety and quality. (3)
We are also working on introducing right-sized packages to avoid food wastage. We know that small sizes work better in India and that's what we are pushing. We have done three pack sizes exclusively for India (160 ml, 150 ml, 90 ml).
In other countries such as U.S., we are moving a lot into digital printing technology, which allows you to create one specific design per package. (4) It ensures better quality as well as individual printing.
We are also doing individual QR codes in India. This helps brands do promotions and ensure traceability. For example, if a consumer scans the code on a milk pack, she will be able to know details such as type of cow the milk has come from.
Packaged food is associated with 'premium' in India. How can you democratise packaging?
One part of our portfolio is carton economy, which is at the bottom of the pyramid, where you get the most cost optimised packaging solutions. We call it Tetra Fino and Tetra Classic. We ensure basic food safety but don’t necessarily put a cap or give these packs a shape.
To offer affordable packaging, we started with a machine which churns out 7,500 packets per hour. Now, we have one which churns out 40,000 per hour. From the same footprint, you get four times as much, so cost reduces, and our customer is able to pass on that to his consumer. We also have solutions for middle and premium consumers. We address the entire consumer pyramid.
How expensive is sustainable packaging?
As we move on the sustainability journey, all of us, consumers, governments, producers and suppliers, need to understand that it comes at a cost. We have to accept that costs will be higher until we reach a certain volume. If we don't share costs with the entire value chain, it will not be sustainable. Who's going to pay?
Sustainable packaging materials could increase costs by 5-15%. For instance, we have moved from plastic straws to paper straws, and the latter is five times more expensive. We need to move together and do things with the right speed and balance and give the right benefit to both environment and consumer. It is important that everybody in the value chain participates. That means legislation has to be there. Support from local authorities needs to exist. If we want to increase recycling, we need participation from local governments. We need to understand that sustainability is a balance between doing good and doing well. It is not easy to walk that line.