How sustainable packaging regulations are impacting the quick service restaurant industry

On April 1^st, 2024, the San Diego-wide ban on styrofoam containers went into full effect, now extending to small businesses bringing in less than $500,000 a year which had previously been exempted. Businesses in the neighboring city of Oceanside became subject to equivalent prohibitions three months later.

Despite being in the same county, these 2 cities’ separate decisions – and disjointed timelines – are an example of the complex and fragmented regulatory environment that QSRs face in the US when it comes to sustainable packaging. The country has a patchwork of laws and regulations that vary by state and even by city or county. This creates significant challenges for QSRs that operate across multiple jurisdictions and have to comply with different and sometimes conflicting rules.

The state of sustainable packaging regulations in the US

To understand the scope and scale of the regulatory landscape, we conducted analysis on recent and imminent packaging regulations in the US, focusing on those that affect the QSR industry. We searched for laws relating to packaging, bag reduction, bag bans, container bans, foam containers, single-use plastic, plastic bags, and straws, to identify which states have packaging regulations at the state and sub-state level, and what types of packaging are covered by these regulations.

We found that, as of March 2024, 20 states have some form of packaging regulation at the state or sub-state level, while 31 states have either no such regulations and/or pre-emption laws forbidding local regulations on food packaging (at times referred to as ‘auxiliary containers’). Of the 20 states that do have sustainable packaging regulations, 15 have regulations that exist at the local level with no statewide standard. Even in states that do have a statewide pre-emption in place, sub-jurisdictions are finding creative ways to differ or go beyond state-level regulations. For example, in 2018, Brownsville, Texas adopted an ordinance to skirt the state pre-emption and assert validity through the “Solid Waste Disposal Act”.

Meanwhile, attempts to repeal pre-emptions have been issued in states including Arizona, Florida, Illinois, Montana, Texas, and Michigan – the last of which is moving through the legislature at present. Similarly, the ‘Farewell to Foam’ act to prohibit the sale and distribution of polystyrene food service ware was introduced at the national level in December 2023.

The impact of packaging regulations on the QSR industry

To assess the impact of packaging regulations on the QSR industry, we analyzed data sets containing the location of over 33,000 QSR establishments in the US, including 72 major brands with more than 500 locations. We mapped these locations to the states and sub-state jurisdictions that have packaging regulations, and calculated the percentage of their establishments affected by these regulations.

Our findings showed that, out of the QSRs with more than 500 locations in the US, all of them have a footprint that spans both states that do and don't have sustainable packaging laws. Moreover, 97% of these QSRs have locations in states where sub-state jurisdictions have their own packaging regulations, adding another layer of complexity and compliance. Finally, we found that for these large brands, an average of 41% of their restaurants are subject to some sort of packaging regulation.

For instance, one international quick service restaurant brand with over 6,000 locations in the US has 35% of its restaurants in states that have packaging regulations and, of these, 30% are in states with sub-state packaging regulations. This means that they have to deal with a variety of packaging rules across their network, which may affect operational efficiency, supply chain management, and customer experience.

Our conversations with QSR executives reveal that packaging regulations are taking a toll on their businesses, as they have to adapt to the changing regulatory environment and meet the expectations of their customers and stakeholders. Some of the challenges they face include:

• Monitoring and tracking the regulatory developments and changes across multiple jurisdictions, and ensuring compliance and reporting.
• Increasing the number and diversity of packaging vendors to comply with different regulations and avoid supply disruptions.
• Losing economies of scale and leverage with vendors, as their packaging portfolio becomes more fragmented and customized.
• Managing the costs and risks associated with packaging transitions, such as inventory, waste, quality, and safety.
• Communicating and educating their customers and employees about the packaging changes and their benefits.

At KPMG, we work closely with QSRs to address the challenges and opportunities posed by the packaging regulations. Our approach is focused on helping QSR clients identify and work through the tradeoffs of cost, compliance, and complexity to optimize the package mix. We partner with our clients to: