Navigating Volatility in the Packaging Landscape

Middle Market Momentum and Strategic Imperatives for 2026 and Beyond

2025 was a challenging year for the packaging sector as market participants navigated a range of pressures influencing both operating performance and deal activity, including

• Persistent inflation affected labor, raw material and energy costs
• Supply chain uncertainty driven by trade policy, tariffs and broader geopolitical dynamics
• Shifting customer demand as sustainability expectations increased and macroeconomic concerns influenced consumer behavior
• Deal volume remained subdued due to limited quality assets coming to market – particularly in the lower-middle market

Despite these challenges, the packaging sector demonstrated meaningful resilience throughout 2025. Operators adapted to changing market conditions through product-mix optimization, pricing discipline and continued investment in automation and efficiency. Diversified end market exposure and long-term recurring customer relationships further supported financial performance.

Packaging market investor sentiment also remained constructive despite the muted deal environment. Predictable cash flow, defensive positioning and ongoing consolidation opportunities kept the sector well positioned for both strategic and financial buyers. Corporate acquirers selectively pursued divestitures and strategic acquisitions that strengthened core capabilities. PE sponsors remained active, though many described an environment characterized by competition for a limited set of high-quality opportunities. Executives noted that process quality, thorough preparation and the ability to clearly present a differentiated value proposition were decisive factors in transaction outcomes.

Macroeconomic conditions indicate a more constructive 2026 outlook. Structural demand drivers including population growth, urbanization and continued expansion in e-commerce will support long-term volume trends. Operators expect better end market stability as pricing pressures ease. Accelerated mergers and acquisitions (M&A) activity is expected as interest rates decline, macro pressures ease and operators and investors reshape portfolios.

Tariff and trade dynamics, automation and workforce transformation, supply chain resilience and sustainability and materials innovation will be key 2026 focus areas. Operators and investors that proactively assess exposure and align commercial, operational and capital strategies accordingly will be positioned to outperform as conditions improve.

TARIFF AND TRADE DYNAMICS

Tariff and trade policy uncertainty remain a priority for packaging executives. Operators have consistently highlighted the operational challenge of managing production and sourcing amid shifting tariff parameters. The impact has been most pronounced in raw materials and other packaging inputs as aluminum, resins and corrugated components experience periodic cost volatility tied to tariff adjustments. In 2025, average costs increased by 10% to 15% on key imported materials,¹ driving defensive purchasing and higher working capital.

While executives expect further trade discussions in 2026 to offer additional clarity and support more effective planning, companies should continue implementing disciplined and localized sourcing strategies to expand domestic procurement and diversify supply chains to mitigate exposure.

AUTOMATION AND WORKFORCE TRANSFORMATION

Automation is no longer an optional efficiency initiative but a requirement for sustaining throughput and quality. An aging technical workforce and persistent labor shortages have forced companies to accelerate automation, robotics and advanced controls investment.

Technology adoption continues to reshape plant operations from palletizing and material handling to filling, printing and inspection. North American companies ordered more than 17,600 industrial robots valued at $1.094 billion in the first half of 2025, a nearly 4.3% increase in orders and 7.5% growth in revenue from the prior year.² Independent market estimates place the global packaging-robot market at approximately $6.8 billion in 2024 with North America representing about one-third of that figure.³

Packaging leaders note that automation is also changing workforce requirements. The emphasis is shifting from manual labor to technical capability, driving new training and cross-skilling efforts. For middle market companies, these investments create measurable gains in scalability and margin performance, reinforcing technology enablement as a central driver of enterprise value.

SUPPLY CHAIN RESILIENCY 

Supply chain reliability has become a strategic focus across the sector. The disruption of global networks during the pandemic revealed the risk of over-reliance on single-source or offshore suppliers. 68% of manufacturers implemented dual- or near-sourcing strategies in 2025, nearly double the pre-2020 figure.⁴

Executives increasingly view building redundancy and flexibility into supply as a best-practice rather than an emergency response tactic, citing advantages like improved transparency, lower freight exposure and greater agility. While near-sourcing can increase unit cost, it also reduces risk and enhances responsiveness – an advantage that many operators increasingly view as a worthwhile investment.

In 2026, middle market packaging companies will focus on building tech-enabled processes into their supply chain strategies. Implementing predictive analytics and AI-based monitoring tools can identify potential bottlenecks before production is disrupted.

SUSTAINABILITY AND MATERIALS INNOVATION

Sustainability remains a strategic priority for packaging executives. Customers expect environmentally responsible solutions and investors increasingly reward companies that deliver sustainable solutions profitably.

The global sustainable packaging market is projected to expand from $126 billion in 2025 to nearly $240 billion by 2034, an annual growth rate of approximately 7%.⁵ Over 55% of packaging manufacturers increased sustainability-related R&D budgets in 2025.⁶ as progress accelerates in material science and production methods. Higher recycled content, biodegradable substrates and closed loop systems are becoming core elements of product development rather than differentiated features.

Executives also highlight a growing convergence between sustainability and efficiency. Investments reducing environmental impact – lightweighting, material recovery and waste minimization often also improve operating cost and margin profile. This convergence is shaping capital planning as companies prioritize initiatives that support both environmental objectives and economic outcomes.

STRATEGIC OUTLOOK

The packaging sector investment case remains intact – resilient fundamentals, steady demand and multiple operational levers for value creation. The challenges that companies faced over the last few years are easing and the opportunity to benefit in the near term is compelling. Companies accelerating automation, strengthening supply chain flexibility and embedding sustainability into core operations will see meaningful gains. Investors that act decisively – aligning strategy and operational performance from day one – stand to capture meaningful returns.

Footnotes

1. U.S. Trade Representative, Federal Register Notice: Section 301 Tariff Revisions, 2025
2. Association for Advancing Automation, Midyear 2025 Robotics Order Report
3. Packaging Robots Market Size and Share, 2024 (global market approximately $6.8 billion –North America represents approximately one-third)
4. Institute for Supply Management, Manufacturing Resilience Survey, 2025
5. Statista, Sustainable Packaging Market Forecast, 2025–2034
6. PMMI, Quarterly Packaging Industry Pulse Report, Q3 2025