With its colourful fruit and veg display and shelves filled with groceries it could be your local supermarket, but this is a play shop for adults and there is only one thing missing: plastic.

Well, problem plastic. The mock store is the secret innovation lab of DS Smith, the FTSE 100 paper and packaging firm where major retailers and brands trek to see its big ideas to replace the plastic ready meal containers, fruit punnets and shrink-wrap consumers use every day.

The centre, on a sprawling campus near Newmarket, in Suffolk, is a world away from the City. But making cardboard boxes is suddenly a sexy business after Mondi, DS Smith’s UK rival, this week revealed it is looking at buying it to create a £10bn packaging supergroup.

The potential consolidation comes at a critical time for the packaging industry. After enjoying a boom during the pandemic, when lockdowns led to a surge of parcel deliveries, it has faced falling demand as well as rising costs. At the same time, ahead of new recycling rules in England, companies need help to overhaul their packaging.

While investment bankers work on a potential deal – takeover talk has pushed DS Smith’s shares up 12% to value the company at £4.3bn – Wim Wouters, its innovation director, has loftier ambitions. He is focused on the long-term challenge of replacing plastic packaging with fibre. It might sound wacky but it is testing whether seaweed, daisies, hemp or even cocoa shells could be used instead of wood as the raw material.

Wouters thinks one day the company will be able to create a transparent fibre-based film to rival the see-through plastic found everywhere today. “Not yet, but one day we will,” he says.

The company set a five-year target to eliminate 1bn pieces of problem plastic from supermarket shelves by 2025 (it is at 762m and counting) and trumpets inventions such as the “lift up”, a cardboard handle used instead of plastic to bundle multipacks of beer of soft drinks.

Wouters describes the Lift Up as a “gamechanger”, capable of withstanding high speed factory production lines. “We’re talking to major brands around the planet and as you can imagine, there’s a lot of interest.”

The company, whose biggest customers include Tesco and Amazon, started with “easy” plastics to replace or simply remove before tackling the more difficult ones: fashioning containers capable of holding foods and liquids such as paint without going soggy. Its swaps include card punnets for fruit and veg and “easy bowl” (a cardboard tray coated with a thin layer of plastic) for ready meals or takeaways which cut plastic use by up to 85%.

Another innovation is a box suitable for DIY materials such as paint and adhesives usually sold in sturdy plastic tubs. While cardboard paint pots might sound as useful as chocolate teapots, its paint-in-a-box is already on sale abroad.

“Often plastic is very, very strong and that’s when it becomes an issue, because it lasts for ever,” says Wouters. “When we convert the plastic into a fibre it has to have the same properties.” The quandary he says is: “We want them to be liquid-proof when we use them but when we recycle them, we want to be able to repulp them.”

Lydia Butler, regional customer engagement manager at DS Smith, says using a mix of cardboard and plastic is still better than all plastic. “For the moment the liner is plastic but in the future that could be a seaweed coating.”

“People think if it is made of cardboard it is going to get wet and soggy and actually that isn’t the case any more,” she says. “We can put plastic inside. We ship frozen fish all the way from Norway to the UK in boxes like this. They are wet on the outside and on the inside but they are fine.”

The innovation lab also houses a mocked-up packing station, such as the ones Amazon workers use. That is because another focus is making the 167m online shopping parcels delivered to British homes each month greener, eliminating unnecessary plastic bags and bubble wrap, as well as half-empty boxes, a pet peeve for many Britons.

Its solutions include Toblerone-shaped boxes, which are ideal for cylindrical items big and small, from deodorants to yoga mats and mops, and envelopes that pop open at the bottom to hold small items. Another is paper “bubble wrap” cut with hexagonal cells that opens out to create a honeycomb-like protective layer.

To pass muster, new packaging is put through tough tests including one that mimics being dropped down a flight of stairs. There are 50 different points when an online order can be damaged compared with seven when the same product is bought in a store, explains Butler.

“If you add too much paper you risk adding lots of packaging weight and when you add weight you add carbon in the supply chain,” says Butler of one of the factors it has to balance when substituting plastic. “You need to make sure you are using as little material as possible, as well as making it recyclable, and those things go together.”

At the moment, supermarkets and manufacturers, with the help of companies like DS Smith, are overhauling their packaging in preparation for the arrival of a much delayed new recycling regime in England designed to cut waste and move towards a circular economy.

This is set against a recycling rate for England that has stalled over the last decade, with the most recent data showing it actually declined by 0.8 percentage points to 43.3% in the 12 months to the end of March 2023 (v the previous 12-months). This is below the 2020 Department for Environment, Food and Rural Affairs (Defra) target to recycle 50% of waste from households. The agency’s 2025 and 2030 targets of 55% and 65% also look in doubt.

Indeed, at the end of last year MPs on the cross-party public accounts committee (PAC) warned that despite all this brainstorming on packaging more plastic, not less, was at risk of being sent to landfill because of delays and uncertainty around the new rules.

“This means there is a real risk of insufficient facilities to deal with the increased volumes of recycling arising from the reforms, meaning packaging will be incinerated, sent to landfill, or exported for other countries to deal with,” the MPs said.

By the time the government plan, billed as “simpler recycling”, was unveiled in October it had been somewhat overshadowed by events. The previous month Rishi Sunak bragged of having scrapped a proposal to “force you to have seven different bins in your home” even though such a move was not really on the cards.

The key measures include a standardised list of items that councils must recycle and most households getting a weekly food waste collection by early 2026.

A standardised recycling service (with other home nations expected to align with the legislation) is part of a three-pronged action plan. The other legs are the UK-wide extended producer responsibility (EPR) and deposit return schemes.

When it finally starts (it has been postponed by a year to 2025) the EPR will transfer the costs involved in collecting and managing packaging waste from households from councils back to the producers. Firms will pay about £1.2bn in annual fees to an administrator, who will ensure local authorities get payments to fund their services.

Scotland devised its own deposit return scheme, but after a row over the inclusion of glass it has been delayed until the same year when a new service, covering England, Wales and Northern Ireland, is supposed to start.

Lee Marshall, head of policy & external affairs at the Chartered Institution of Wastes Management said the recycling reforms were “moving in the right direction … It’s just unfortunate they’ve come in two if not three years later than originally intended.”

“There does need to be capex investment and a lot of companies and councils have been waiting on the government to set out the rules,” he says. “There’s going to need to be an expansion of anaerobic digestion capacity to deal with all the extra food waste that’s going to be collected. We’re going to need more recycling sorting plants, but also refurbishments and upgrades of existing ones.”

The investment required could be as much as £10bn. This is the figure that needs to be ploughed into recycling infrastructure over the next decade to meet the 65% target, according to a 2023 report by the Environmental Services Association, the trade body for the resource and waste management industry.

One company keen to be involved is the waste management firm Suez, which already has planning consent for two of the four anaerobic digestion plants it wants to build.

John Scanlon, its chief executive, said it now knew what materials were to be collected from homes and businesses, but there were “some pretty big gaps”. “We’re very keen to invest,” he says. “The million dollar question is how much money local authorities will get to support the new services they need to put into place. We see 2024 as a really critical year.”

Defra said that “significant progress had been made on the delivery of its reforms to reduce waste and improve our use of resources”.

“Last October we set out a new, simpler, common-sense approach to recycling, meaning that people across England will be able to recycle the same materials, alongside plans for consistent weekly food waste collections. We are working with the supply chain to strengthen relationships and ensure they are kept informed and involved.”