Looking At Labels: Quality And Stickiness Are Key Factors In 2014

By Noel Ward

Made to Stick—Pressure-Sensitive, Still the Top Choice

Brand recognition and eye-appeal are critical to retail sales of branded products, and pressure-sensitive labels continue to be the leading choice for many brand owners. PS labels are renowned for their high levels of flexibility in terms of label shape, multi-process imaging, and fast, accurate automatic dispensing in automated labeling systems. Those traits, according to international packaging researcher Alexander Watson Associates (AWA), have helped PS labels account for some 49 percent of the total print label market in North America. PS is also the go-to technology for variable information labels such as track-and-trace/bar coding, and in-store price-weigh applications, using thermal or uncoated paper stocks.

Glue-applied: Still a Workhorse

Pressure sensitive labels may get the glory, but nearly a third (32 percent) of labels in North America are still glue-applied. (This is influenced by Mexico, where they command the largest share of the market.) Three traits make these “old school” labels appealing: They have less complex pressroom requirements than PS labels, are well-suited to long print runs, and may be printed sheet-fed or roll-fed on conventional offset presses. These factors also make glue-applied labels an attractive choice for commercial printers looking to expand into the label market without having to invest in flexographic or digital presses.

Sleeves: Shrink and Stretch

A visit to any U.S. grocery store will quickly show that shrink-, stretch-, RFS (reel-fed shrink), and ROSO (Roll On Shrink On) sleeve labeling is growing fast. It accounted for 13 percent of the label market in 2013 and AWA research predicts it will continue to grow faster than the overall market. Offering complete decoration of complex container shapes, sleeves are used heavily for beverages, providing excellent eye-appeal or “shelf stand out.” Brand owners and consumers alike appreciate sleeves’ tamper-evident properties and in some cases the ability to limit container damage or breakage.

Regular readers are no doubt well aware of the ongoing shifts in the label market. Run lengths are trending down, yet overall volumes are increasing (see "Shorter Runs in a Growing Market, packagePRINTING, July 2014). Meanwhile, increasingly complex designs, demand for more colors, and an abundance of substrates are providing converters and brand owners alike with an astonishing array of choices and challenges. For proof of labels' place in the packaging market you need look no further than the winners of the 28th Annual packagePRINTING Excellence Awards to see how labels dominate the winning entries.

A look at the broader market shows that labels are standing up well in relation to other economic measures. According to the Institute for Trend Research, production among the Tag and Label Manufacturers Institute's 150 members in the United States is growing at more than twice that of overall industrial production (6.8 percent vs. 3.1 percent). While some of this growth is due to SKU proliferation, label production continues to be a strong spot in the economy. Every product needs labeling and that need is not going to go away. In fact, the labels market is projected to expand at an average of 8.2 percent annually through 2019, according to industry researcher LPC, Inc. Labels are clearly a sweet spot in the US economy, especially in the beverage, pharmaceutical and household chemical sectors. The food segment is somewhat softer, but still showing good potential at 5.7 percent through 2019.

Voice of the Brand Owner

Yet with this growth comes the need to compete. Brand owners and packaging buyers know labels are key to branding and shelf appeal, but what factors drive their choice of converter? LPC took this question and others to more than 100 brand owners who collectively spent more than $1.5 billion on labels in 2013. Four drivers rose to the top: quality with current vendor (62 percent), delivery (16 percent), responsiveness (14 percent), and capabilities (8 percent).

Respondents overwhelmingly described quality with respect to color accuracy and consistency from run to run as the leading factor in converter selection. Some of this concern may stem from the steady growth of shorter runs, which can make it more difficult to reliably reproduce some critical colors and match colors from one run to another. Flexographic presses, the primary engines of label production, can require substantial set-up time and operator expertise to deliver optimal quality and are often not cost-effective for shorter runs. Digital presses can offer advantages in these key areas, and some converters are migrating shorter runs to digital presses where accurate and consistent color can sometimes be easier to achieve. (See "Bottom Line Coexistence")

Quality. And stickiness.

Whatever type of press is used, though, LPC says eliminating print quality issues such as color drift and inconsistency is mission-critical for converters. According to LPC, "more than one third of all U.S. brand owner and packaging buyer respondents indicated that their single biggest pain point in sourcing labels was the gap between the quality their label vendors supply and the complexity of the graphics their products demand." And that pain point can raise challenges for converters.

It used to be that brand owners and packaging buyers tended to be fairly "sticky:" they would stay with a converter over time. Now, perhaps influenced by color and quality concerns, this loyalty is slipping compared to just two years ago. In 2012, over half of brand owners said they would stay with their current vendors, compared to about 44 percent in 2014. Moreover, almost 42 percent of brand owners now say they are putting some business out to bid, compared to 37 percent just two years ago. So far, this decline is not strong enough to indicate a significant shift in vendor loyalty, but is still worth consideration. It is an indication that any given customer may be shopping around, and that quality and color consistency might well be influencing their choice of converter.

Moreover, the concern for quality underscores LPC's point that "the number one reason for packaging buyers in North America to seek out new tag and label vendors is due to quality issues with existing vendor(s)." This points to a direct correlation between brand owners' perceptions of quality and consistency and their allegiance to narrow web printers.

Although some brand owners may be looking for alternatives to their present converter, one reflection of the demand for quality is where most brand owners are not shopping. That place is the auction market, where jobs can be put out to bid by a brand owner. Such auctions have been taking place on both the commercial and converter sides of the printing business for some time but have never seemed very effective for any of those involved. Printers and converters invariably wind up in a race to the lowest possible price, driving work to a commodity level. While some types of commercial printing are certainly commodities, that's not the case for packaging and label printing, where, as noted above, the bar for quality, consistency, substrate selection, and in-use performance is set far higher. Two-thirds of brand owners (66 percent) say they never participate in auctions and another 28 percent may participate but remain unconvinced of the value.

New Opportunities

The label market today and in the next few years is one of promise and tremendous potential. Growth looks to be steady and demand strong. High quality will continue to be a requirement and can be a clear differentiator for converters, even as it increases the demands for color management, printing expertise, process controls, operator training, and two-way communication with brand owners. The ongoing shift to digital technology is an important factor in managing and producing shorter runs, balancing jobs between analog and digital presses, and developing new business based on digital technology. This is also a time to look for new opportunities. The Institute for Trend Research suggests that now is when converters should "begin missionary efforts into new markets. Look in new and different areas, whether it be geographic markets or new services or products that you can offer to both existing and new customers." pP

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Looking at Labels: Quality and Stickiness are Key Factors in 2014