Behind Legend Tetra Pak: A Classic Business Model Carefully Built Over 70 Years

Question to AI: How does Tetra Pak’s business model ensure long-term stable profits?

Introduction: With the technological barriers built in its early days, Tetra Pak has long become the invisible “profit harvester” behind China’s dairy industry. This is no coincidence, but rather a business structure carefully built over seventy years.

Wang Jian/Author Lishi Business Review/Produced

If you happen to have a carton of paper-packaged milk nearby, why not pick it up and take a look at the side?

In the lower left corner, is there a small blue mark that says “Tetra Pak”?

This small blue lettering is quite inconspicuous, and many people may have never noticed it.

However, it is this Swedish company behind the logo that takes a cut from almost every carton of milk we purchase.

For decades, this company named “Tetra Pak” has not raised cows, produced milk, or engaged in dairy R&D; it has focused solely on one thing for decades: producing the cartons that hold the milk.

Yet this seemingly unremarkable business is one of the most successful business models in the history of global food packaging.

Today, Tetra Pak’s business covers over a hundred countries, producing more than 190 billion cartons annually, equivalent to 24 cartons per person on Earth each year, with annual revenues exceeding ten billion euros.

In China, almost all major dairy companies such as Yili, Mengniu, and Bright are its clients. At its peak, Tetra Pak captured 95% of the dairy packaging market in China.

Since any liquid milk production cannot bypass its patents, using its equipment requires corresponding packaging materials.

With the technological barriers built in its early days, Tetra Pak has long become the invisible “profit harvester” behind China’s dairy industry.

This is no coincidence, but rather a business structure carefully built over seventy years.

1

A “box” that changed the dairy industry

To understand why Tetra Pak was born, one must first know its founder, Dr. Ruben Rausing.

Born in 1895 in a small town near Helsingborg, Sweden, Rausing graduated from the Stockholm School of Economics in 1918. Two years later, he went to Columbia University in the United States to pursue a master’s degree in science, followed by a doctorate.

It was during his studies in New York that he first walked into a self-service store and was deeply attracted by the model where products were neatly arranged on shelves and customers picked items themselves and paid at checkout.

This business model was still novel in Europe at the time, and Rausing not only keenly foresaw the enormous potential of this new commercial form but also noted the strong market demand for conveniently packaged food.

In his view, these packages should not just be simple containers; they must also be attractive on the shelf, lightweight, disposable, and suitable for mass production.

He kept this judgment in mind for twenty years.

In 1929, the Wall Street crash plunged the world into the Great Depression. While everyone was cutting back on expenses, Rausing chose to start a business and, with partners, established Sweden’s first specialized packaging factory—Akerlund & Rausing.

Initially, the company produced flour bags, addressing the issue of flour waste in bulk transportation. In 1933, after his partner left, Rausing became the sole owner and began focusing on liquid food packaging, primarily milk sales.

At that time, with the onset of World War II, a large population flowed into cities, and the distance between consumers and food production sites widened, making food distribution key.

Milk was typically packaged in glass bottles that needed to be returned for recycling, but the traditional glass bottle delivery model was becoming unsustainable—glass bottles were heavy, fragile, required return, and consumers had to return them to manufacturers after use, resulting in low efficiency and a short shelf life.

On the other hand, urbanization was driving up demand for milk consumption.

Rausing keenly captured this market pain point and was determined to develop a practical, disposable milk packaging box.

This was the huge business opportunity he had foreseen twenty years earlier, but he had not found a suitable breakthrough.

It wasn’t until one day in 1943 that Rausing was inspired by a paper box design and began to design an airtight paper box made with a plastic film laminated onto thick paper, which became the technical prototype for Tetra Pak packaging.

After years of improvement, Rausing patented his packaging design in 1944, naming it “Tetrahedron,” which became the prototype for Tetra Pak packaging; in 1946, the first tetrahedron packaging sample was born—the term “Tetra” (Greek for “four-sided”) also became the origin of the company name.

In 1951, AB Tetra Pak was officially established in Lund, Sweden, and with the launch of the classic tetrahedron carton, Tetra Pak was born.

In September of the following year, the first tetrahedron carton filling machine was delivered to the Lund dairy factory, used for filling 100 milliliters of cream. In November of the same year, cream packaged in this new container was officially launched for sale, marking the successful commercial application of Tetra Pak technology.

From the first prototype in 1946 to the delivery of the first filling machine to Lund dairy factory in 1952, this R&D process took nearly ten years. The core breakthrough was the unique composite material structure—adding a layer of aluminum foil between the paper and plastic. This innovation effectively isolates oxygen and light, greatly extending the shelf life of liquid foods such as milk.

However, it was a technological breakthrough in 1961 that truly elevated Tetra Pak to greatness.

That year, Tetra Pak held a press conference in Thun, Switzerland, officially introducing its “aseptic packaging” technology—milk and packaging were sterilized separately using ultra-high temperature (UHT) methods, and then filled and sealed in a strictly sterile environment.

This meant that milk could be preserved for up to 12 months without any preservatives and without relying on a cold chain. The American Institute of Food Technology later rated this technology as “the most important innovation in food technology in the past 50 years.”

In 1963, Tetra Pak launched the iconic “Tetra Brik” packaging, a key upgrade from the early tetrahedron packaging. After eight years of R&D, this rectangular design gradually addressed a series of issues related to shelf placement, standardized box transportation, and leakage, quickly becoming the company’s signature and being promoted globally.

It is clear that the birth of Tetra Pak is not just a story of “making a good box,” but an innovative business model that “redefines milk through packaging.”

Before the advent of aseptic technology, milk was still a short-lived product that was difficult to transport and preserve; with the maturation of Tetra Pak’s aseptic technology, milk became a global commodity that could be transported long distances and sold in any environment without a cold chain.

This transformation gave wings to the global dairy industry.

Tetra Pak is the one who built those wings.

2

Free equipment is the most expensive trap

If Tetra Pak were merely technologically advanced, it might just be one of many industrial equipment suppliers.

What truly enabled it to achieve a “trillion-dollar empire” is its meticulously designed business model, often referred to as a “Hidden Profit Pool.”

This model also has a nickname in the industry—the “razor-and-blade model.”

The idea is that you can buy a razor very cheaply or even get it for free, but you must continuously pay for the blades.

The razor giant Gillette has ruled the shaving market for decades with this model, and Japanese printer companies have done the same to yield substantial profits.

After launching its innovative packaging, Tetra Pak applied this logic to industrial-grade filling lines, doing so even more thoroughly.

Tetra Pak’s approach is to initially sell filling equipment to dairy companies at a quite reasonable or even preferential price. Although these machines are not expensive, the problem arises when companies select Tetra Pak’s filling machines; they must use Tetra Pak’s proprietary packaging materials, cannot switch, and cannot mix them, or they will be in breach of contract.

The blue mark “Tetra Pak” on the corner of the Tetra Pak cartons is not just a brand identifier; it is also an identification code for Tetra Pak filling machines.

Every time a dairy company fills a carton, Tetra Pak’s equipment automatically reads the mark; if it identifies that the packaging material is not from Tetra Pak, it will alarm and stop production. What awaits the production company is a hefty penalty for breach of contract.

It can be said that this is a “business conspiracy” written into the contract: the equipment is the ticket to entry, and the packaging material is the money printer. Each carton that runs through the production line represents a fixed income flowing into Tetra Pak’s account.

Financial data shows that in 2019, Tetra Pak’s annual revenue was 11.5 billion euros, producing 190 billion cartons, and by 2024, this number is expected to grow to around 16 billion euros, with the main profits coming from each carton rolling off the production line.

The brilliance of this entire model lies in its creation of an extremely stable long-term revenue structure.

Under normal circumstances, the depreciation of dairy equipment is calculated over ten years, and a production line often requires investments in the tens of millions, which means no factory will recklessly replace the entire set of equipment simply because of slightly higher packaging costs.

Moreover, the alternatives available on the market are not mature—beyond Tetra Pak, even the products of SIG, the second largest aseptic packaging supplier globally, are not cheaper than Tetra Pak and many technologies are not as mature either.

More critically, Tetra Pak is also a vital “companion” for many dairy companies.

In many countries and regions, especially behind the rise of nascent dairy industries, there is often Tetra Pak’s shadow, helping them navigate brand battles, channel wars, and price wars, and much of the infrastructure supporting this rapid expansion has been provided by Tetra Pak.

It is precisely this deep entanglement of emotion, finance, and technology that makes Tetra Pak’s position in the dairy market unshakeable and ensures it always sits in the most profitable position.

It is worth mentioning that Tetra Pak has not limited this logic to milk.

Today, for any liquid product that can be sold in a carton, this model can be replicated.

From herbal tea companies, juice companies, to soy milk brands, the logic is entirely the same: equipment enters, packaging material binds, and long-term payments follow.

Tetra Pak does not need to persuade every industry; it merely waits for each industry to mature… and then knocks on the door with its filling machines.

For partners, the real reason Tetra Pak is difficult to replace lies in those unassailable patents.

3

Unique patents construct a moat

According to statistics, Tetra Pak has applied for over 5,500 related patents, covering almost every corner of the industry.

However, among so many patents, the most important for the company is the filling technology.

Take speed as an example.

Tetra Pak’s latest E3 ultra-high-speed filling machine has a maximum filling speed of 40,000 packages per hour, which means it can fill at least 11 milk cartons every second.

In comparison, the domestic competitors, Funmei Packaging and Bihai Packaging, have maximum speeds of 9,000 cartons per hour and 12,000 cartons per hour respectively.

The gap between them is not just a generational difference, but several generations.

So, why can’t domestic filling machines achieve higher speeds? One core bottleneck is the positioning technology.

Since domestic manufacturers generally use cursor positioning, once the speed exceeds 25,000 cartons per hour, the cursor starts to deviate, causing quality to collapse.

In contrast, Tetra Pak employs magnetic ink technology—nano-level magnetic particles are printed on the packaging paper, combined with its self-developed WPAC (Packaging Material Position and Motion Control System) and MATS (Magnetic Automatic Tracking System) sets of control systems, achieving millimeter-level precise positioning during high-speed operations.

Such nano-magnetic materials are not only extremely scarce in China, but their patents are also locked.

Even if the material issue is overcome, the entire control system represents another significant challenge—how to enhance the signal-to-noise ratio of magnetic marking reading in a noisy industrial environment, how to ensure the magnetic markers do not fail during high-temperature sterilization processes, and how to use continuous signals for precise paper control…

Each problem is an independent engineering issue, and collectively they form an almost unsolvable equation.

Moreover, this technology has no utility in other industries.

This implies that without cross-industry commercial value, there is no cross-industry R&D investment, and this field can only rely on packaging companies to fight alone, while Tetra Pak has been racing in this lane for decades.

Looking at sterilization technology.

To this day, some domestic manufacturers still use hydrogen peroxide for sterilization, which inevitably leaves chemical residues.

Tetra Pak, on the other hand, has switched to electron beam sterilization—cleaner, more thorough, and with lower residue, representing the future direction of the industry.

Domestic companies have attempted it, but the real obstacle is that the lamps generating electron beams require a vacuum environment; the domestic technological implementation path involves adding an external vacuum rod, which would cause the equipment size to swell to the point of impracticality, making maintenance impossible.

Then there’s sealing.

The sealing of milk cartons may seem like a simple action, but it is actually one of the most technically demanding aspects of the entire production line.

Tetra Pak’s sealing technology uses principles similar to a microwave oven, generating eddy currents on the aluminum foil to heat it above 100 degrees Celsius in 20 to 45 milliseconds to complete the thermal sealing, while requiring precise coordination of clamping force, current intensity, and cut position.

The accompanying rubber sealing strips need to maintain sufficient elasticity during each compression—domestic manufacturers’ rubber strips need replacement after a maximum of 500 hours, while Tetra Pak’s can guarantee 2,000 hours without leaks.

This sealing performance allows Tetra Pak packaging to have a shelf life that can be 3 to 5 months longer than ordinary competing products, as it has better sealing and can ensure sterility during filling.

This is a result of the accumulation of high polymer material research, which also has no shortcuts.

If these technical details seem a bit dry, consider this perspective: have you ever tried to replace a cheap keyboard membrane and found that it always has slightly raised edges and sticky keys?

That’s not due to your lack of skill; rather, it is a sensory issue caused by the cumulative differences in material precision.

The rubber sealing strip of a milk carton operates on the same principle—it may look like a gasket, but it is the crystallization of hundreds of hours of high-intensity compression tests and high polymer formula adjustments.

Switching to a lower-grade material would increase the leakage rate, reducing the overall quality of the production line; the dairy company is not just losing a few cents on packaging but potentially an entire batch of goods.

Additionally, Tetra Pak’s cartons are thicker than other packaging, as they are five-layer structures: an outer layer of film, a layer of printed paper, a layer of isolation, an aluminum layer, and then another isolation layer. Especially the middle aluminum layer not only increases thickness but also provides great performance in light transmission and oxidation resistance.

Thus, some industry insiders evaluate, “Tetra Pak is currently at the top of the industry, equivalent to a Mercedes S-Class, while domestic filling manufacturers do not even compare to a Volkswagen Magotan.”

This statement may sound harsh, but it is not an exaggeration.

Currently, Tetra Pak has over 2,000 R&D engineers in Sweden alone, while Funmei Packaging, which is considered a larger domestic company, has less than 2,000 total employees.

The width of the moat is sometimes calculated this way.

4

Chinese dairy companies have won the market, Tetra Pak has won over Chinese dairy companies

If Tetra Pak were merely a profit-generating equipment supplier, its business story might not be as thought-provoking and astonishing.

What truly enables it to establish a solid foothold in the domestic dairy market and earn a fortune is its unique and powerful profit model—not merely relying on selling filling equipment but taking a cut from every carton of Tetra Pak-packaged milk, effectively occupying a central profit link in the dairy industry supply chain.

Taking the Chinese dairy market as an example, over its forty years of development, Tetra Pak had a market share as high as 95% at its peak.

This means that Tetra Pak monopolized nearly every dairy production line in the country.

Some industry analyses have clearly stated that Tetra Pak packaging costs could account for as much as one-third of the total cost of milk at its highest, with even more extreme claims suggesting this ratio reached 40%.

This figure, although not officially documented, has never been directly denied by Tetra Pak or domestic dairy companies—after all, it does no good for dairy companies to publicly acknowledge that packaging costs devour a large portion of their profits.

Even with more conservative estimates, the packaging cost’s share of total milk costs far exceeds that of most consumer goods industries, becoming a heavy burden that dairy companies cannot avoid.

For a more intuitive comparison: by 2025, China’s dairy giant Yili is projected to have a net profit margin of about 6% to 7%, while Mengniu’s net profit margin is also roughly on par.

This means that for an 8 yuan carton of Tetra Pak-packaged milk, after all costs such as sourcing, processing, logistics, and marketing are accounted for, the dairy company may only retain a net profit of around 50 to 60 cents.

And Tetra Pak, merely by virtue of a carton of packaging, can take a significant chunk of this 8 yuan, with a profit margin far exceeding that of the struggling dairy companies.

Today, as competition in the domestic milk market becomes increasingly fierce, dairy companies find themselves in the quagmire of price wars, selling milk becomes more challenging, and profit margins continue to be compressed, but Tetra Pak’s carton money remains unscathed.

For Tetra Pak, it always sits in the “safe zone” of the industry chain; regardless of how dairy companies perform, it does not bear the upstream risks of fluctuating milk prices, disease control, nor does it participate in the intense brand competitions among dairy companies, nor does it need to spend huge amounts on discounts and promotions to drive sales.

As long as there is a carton of milk sold, regardless of how much discount the milk has or how much the dairy company loses, the payment for that carton of packaging must be made on time and in full.

This “binding” profit model has enabled Tetra Pak to form a nearly “guaranteed income” business structure; even if the domestic dairy industry falls into a downturn, it can still profit steadily, making it the “invisible winner” behind the dairy industry, even humorously referred to as the “arms dealer” of the dairy battlefield.

Of course, domestic dairy companies are not unaware of this passivity, nor have they not attempted to break free.

Over the past twenty years, local challengers such as Funmei Packaging, Bihai Packaging, and Pulisheng have emerged, targeting Tetra Pak’s monopoly in the aseptic paper carton packaging field, trying to carve out a piece of the pie.

These local companies share a highly consistent competitive strategy: attracting small and medium dairy company clients with lower prices.

It must be said that the price advantage is indeed effective; some financially strained small and medium dairy companies, facing cost pressures, have chosen cheaper domestic packaging materials to save costs.

However, behind the price advantage lies the long-term profit depletion and insurmountable technological gap of local enterprises.

Data shows that the payback period for a domestic filling machine is about twice that of Tetra Pak’s equipment; while the gross profit margin is only half that of Tetra Pak.

More critically, domestic equipment faces huge gaps in speed, stability, and quality yield compared to Tetra Pak, resulting in tangible production loss and product wastage for dairy companies—once a machine malfunctions, all pre-scheduled raw materials are wasted, and a factory operating one hour less incurs losses, making these hidden costs far more expensive than the few cents saved on packaging.

Thanks to Tetra Pak’s deep technological accumulation, its filling machine’s defective package rate can be controlled to less than one in ten thousand, while the average level for domestic companies can only reach between two to three in ten thousand, and this gap directly determines the production efficiency and cost control of dairy companies.

This forms a moat expressed in mathematical terms: for every piece of equipment sold, Tetra Pak gains a long-term “money printer,” with the printing speed multiplying; while for competitors, each piece of equipment sold, due to thin profits and huge losses, multiplies the losses.

Thus, this competition between local companies and Tetra Pak has already determined the outcome in terms of business models and technological strength.

5

Has China won this competition?

In the face of Tetra Pak’s dominant position, some may wonder if China can break its monopoly.

The answer is: not yet, but there is hope.

As children, we often heard that “China cannot produce ballpoint pen refills”—that small rolling ball required hardness, wear resistance, and precision that long exceeded the capabilities of domestic manufacturing.

Later, we overcame this challenge. In 2017, Taiyuan Iron and Steel Group successfully developed qualified ballpoint pen steel, and China no longer needed to import pen refill steel from Japan, breaking the technological monopoly of foreign companies.

Today, the story of milk packaging is highly similar to that of ballpoint pen refills from back then.

They both seem like insignificant little things but are, in fact, the “product of a series of complex engineering problems.”

From the magnetic ink used in packaging, the sealing rubber, to the electron beam sterilization technology in the filling process, each stage individually may not seem insurmountable, but each requires enough time to settle and meticulous focus to refine.

More critically, breakthroughs in each stage must be perfectly integrated into a stable operating overall system—if there are any shortcomings or bottlenecks, the entire production system cannot operate efficiently, or may even fail to meet standards.

There has never been a shortcut to breakthroughs in core technologies; only steady accumulation and deep cultivation can lead to success.

It is certain that China has not made no progress in the field of aseptic paper carton packaging; on the contrary, it has been steadily advancing.

Domestic companies such as Funmei and Bihai have significantly increased their maximum equipment speed compared to ten years ago; simultaneously, the capabilities in foundational industrial fields such as materials science, microbiology, and precision control in China are also continuously solidifying and breaking through.

The extreme performance that Tetra Pak can achieve is not a miracle that only Tetra Pak can accomplish, nor is it a ceiling that Chinese enterprises cannot reach.

What is truly worth our reflection and learning is the long-termism that runs through Tetra Pak’s business model: a company can spend seventy years diligently focusing on “making a box for milk,” turning it into a great business that crosses borders, disregards industry cycles, and is almost irreplaceable.

Any seemingly indestructible moat is essentially not an insurmountable technological barrier, but rather an accumulation of time and effort, the focus and perseverance under long-termism.

For Chinese enterprises, the ballpoint pen refills have been conquered; photolithography machines are still being pursued with great effort; and milk cartons should not be an exception, nor should they be forever monopolized by foreign enterprises.

Given time, as long as we adhere to long-termism and deeply engage with core technologies, one day Chinese enterprises will also be able to break Tetra Pak’s monopoly in the field of aseptic paper carton packaging and carve out their own path.

References:

Chinese References:

1. Tetra Pak. (2009). The Story of Tetra Pak: The Revolution in Packaging. Shanghai: Shanghai Far East Publishing House.

2. Hermann Simon. (2012). Hidden Champions: The Pioneers of Globalization (Zhang Fan, Wu Jun, Liu Huiyu, Trans.). Beijing: Machinery Industry Press.

3. Zhang Zhiguo. (2008). Inside Mengniu (3rd ed.). Beijing: Peking University Press.

4. Wang Xiaoye. (2017). Rethinking Tetra Pak’s Abuse of Market Dominance. Legal Research, (2), 3-14.

5. Li Dong, Zhang Yuhua. (2018). Analysis of the Technical Gap Between Domestic Aseptic Packaging Equipment and Tetra Pak Filling Machines. Light Industry Machinery, 36(2), 108-112.

6. Xinjufeng Packaging Technology Co., Ltd. (2022). Prospectus for Initial Public Offering and Listing on the Growth Enterprise Market. Shenzhen Stock Exchange.

English References:

1. Tetra Pak. (2023). Tetra Pak Index 2023: The road to climate neutrality.

2. Simon, H. (2009). Hidden champions of the twenty-first century: The success strategies of unknown world market leaders. Springer Science & Business Media.

3. Robertson, G. L. (2016). Food packaging: Principles and practice (3rd ed.). CRC Press.

4. Wang, X. Y. (2017). The Tetra Pak case in China: A milestone in the enforcement of the Anti-Monopoly Law. World Competition, 40(4), 591-610.

5. Larsson, M. (2018). The creation of the Tetra Pak: The story of Ruben Rausing and his revolutionary package. Informationsförlaget.