Opportunity Knocks
Tag and label printers are facing a double-edged challenge—maintain margins in the short term, while investing in technologies that may determine the future course of their businesses.
TODAY'S TAG AND label printing business is dynamic to say the least. It is experiencing a wide range of challenges and new opportunities that require printers to stay focussed on overall market conditions and, in some cases, to make key decisions as to the future direction of their companies.
On the downside, some of the traditionally strong (and large) label markets are mature and are experiencing stiff competition from alternative printing methods. The Freedonia Group's "Labels" study issued in July 2004 identifies glue-applied, heat-seal, and gummed labels as established labeling methods whose growth prospects are relatively poor. Some of the low growth expectations in these sectors stem from broader packaging trends such as the move away from canned products to newer packaging methods including stand-up pouches.
On the plus side, newer labeling methods—most notably sleeve labeling—are experiencing a bright future, with solid, sustained growth expected. In a study titled "Labeling Markets: North American Sourcebook 2004," Alexander Watson Associates (AWA) calls for sleeve labeling to grow between 12 and 15 percent through 2005. Sleeve labeling includes wraparound labels, shrink sleeves, and stretch sleeves.
Labels are also playing an increasingly important role for brand managers to help differentiate their products on the store shelves. In the AWA study, several trends were identified that are being driven by this growing focus on product decoration:
• Expansion of product decorating capabilities to meet brand challenges at lowest cost;
• Promotion of higher-performance labelstock with the emphasis on film materials;
• Consumer market focus on premium products and differentiation through higher-quality qraphics;
• Developments in the use and quality of digital printing.
2004 in a nutshell
For the label printing industry, 2004 was one of mixed signals and grudgingly positive performance—definitely better than several of the previous years, but at the end of a long day, it was sometimes hard to tell.
Corey Reardon, president and CEO of AWA, saw a business environment that was very challenging. "The North American package printing industry, as everywhere else, is experiencing more aggressive purchasing, coupled with greater demands on service levels from end users—such as smaller order volumes and just-in-time delivery. Growth has been generally moderate throughout the entire sector—about 4 to 8 percent—well above GDP growth."
Tag and label printers that were in the trenches in 2004 verified these challenging business conditions. For Tom Cobery, president/CEO of Aladdin Label, it was "still a tough marketplace; very price competitive. With significant price increases coming from our suppliers, margins were eroding. Our customers' loyalty was being tested. Attempts at price increases forced many customers to go out for bid. You had to find alternative constructions rather than passing on price increases."
Although Frank Gerace, president and CEO of Multi-Color Corporation, saw a very healthy industry in 2004, the challenge to maintain margins was difficult. "What we all experienced was continued intensity of pricing pressure from customers, along with pricing increases from suppliers; we were squeezed from both ends. We experienced price pressure on the supply side from virtually all categories: inks, paper, film, and energy."
For Scott Pillsbury, president of Rose City Label, 2004 was real positive. "This was the best year we've had in the past 3 to 4 years. Some of our big customers increased their orders and upgraded to more complex labels, which kept us very busy through the summer and fall. Also, at TLMI events and Labelexpo, everyone seemed more upbeat and excited about the future."
What's next?
The forecast for the label industry over the next few years, might not qualify as robust, but would settle in at "healthy." The Freedonia Group's "Labels" study forecasts U.S. label shipments to increase 5.7 percent per year to $15.2 billion in 2008. It identifies radio frequency smart labels, two-dimensional barcoding, and plateless digital printing as technologies that will open up opportunities for new label applications. Because of the labels' importance in brand identity, there is also expected to be a greater use of 360-degree labeling; increased use of higher cost plastic labels (especially for the no-label look); and increased use of labels to enhance security and provide expanded product information.
In the shorter run, 2005 should look a lot like 2004. Business will be generally on the upswing, but it will be tarnished by supply-side price pressure. "Supplier increases are continuing, which will put more pressure on converters and consequently, on the converters' customers," says Cobery.
Torpedoes (a.k.a. challenges)
The primary challenge facing tag and label printers in the near future will be to maintain margins while meeting increasing customer expectations. "Longer term, we are facing greater competitive pressure and fighting the 'commoditizing' of labels and the 'race to the bottom' on pricing and margins," says Pillsbury. "As customers get more and more sophisticated, and better equipment helps level the quality playing field, service, special attention, and being close to the customer will be more important than ever. We have to provide much more than just labels for a low price."
Providing value-added services might be more important than ever as many emerging markets ramp up their manufacturing capabilities. These countries provide a new avenue of supply, both abroad and in the North American market.
"Continents such as Asia—where technological know-how is strong—and the new consumer markets in central and east Europe, particularly Russia, are now looking at exporting their narrow-web print offerings—and are likely to compete on price in international markets," says Reardon. "This is a serious threat for western producers, where margins are already under pressure and raw material prices are rising."
Beyond competitive threats, Gerace believes there is another concern that is growing in significance—a shortage of human resource talent in the industry. "This problem stems from both ongoing personnel retirements and the continuing need to step up overall performance to meet more demanding requirements," he states. "This [problem] is at all levels in the organization: operation, management, engineering, and sales. There is a significant talent shortage in the industry."
Damn the torpedoes! Full speed ahead!
Although tag and label printers face a challenging competitive environment, a diverse range of opportunities can be found throughout the product decoration market. At the core of many of these opportunities is the growing importance of labeling and packaging. Gerace believes this is, in part, the result of continued product line segmentation by consumer product companies (CPCs) and the proliferation of advertising media outlets.
"Because marketers are faced with a significant increase in media outlets, including cable and Internet media, they can no longer reach all the people they used to get with just a few ads," he observes. "Because of this, there is more emphasis on point of purchase and companies are spending more on a product's shelf impact."
As a result of this, there is an "emergence of a broader base of product decoration and identification technologies," says Reardon. "In the labeling sector, the self-adhesive and wet-glue labeling markets are now experiencing competition from a number of new technologies, such as flexible packaging, in-mold, and, of course, sleeving. End users [CPCs] are choosing to use a variety of containers for their products—and therefore, also choosing the most appropriate decorating technique for that particular package. A brand identity today is required to perform across a wide range of different packages."
Reardon believes this can play well into the hands of label printers because of the flexibility offered by the narrow-web printing process, especially over short to medium run lengths. "Press manufacturers and consumable suppliers are delivering solutions that can enable the narrow-web printer to significantly expand his offering to his customers—beyond self-adhesive labels or wet glue labels. Today's combination presses can also print web-fed flexible packaging, shrink sleeves and other non-adhesive sleeves, cartonboard, non-adhesive tags and tickets, and even toothpaste tube laminate."
A discussion concerning opportunities in the tag and label market wouldn't be complete without including digital printing and RFID. Digital printing seems to be getting a slowly growing foothold in package printing and is generating a lot of interest.
A panel discussion sponsored by HP Indigo at Labelexpo last fall drew a standing-room-only crowd of more than 300 people. The five printers that relayed their experiences with digital printing made a strong case for the benefits that this technology has to offer. These benefits include efficiencies on short-run print jobs, ease of prepress workflow, ability to match colors, and the ability to use other processes such as flexo more economically.
With all of the hype around RFID, one could begin to think that it is simply the latest "craze du jour." Anyone falling into this trap could be on the outside looking in when this gold-laden Spanish galleon pulls into port. It is not far-fetched to believe that RFID could replace a healthy chunk of the ubiquitous bar code functionality in the somewhat distant future, but the time to get on board with this technology is fast approaching.
According to Reardon, the commercialization of RFID tags represents a major new niche that will impact every area of the packaging market. "Self-adhesive laminates will be the first to gain from this new technology and, therefore, printers who can gear up to deliver part or all of the RFID tag will also be winners. Conductive inks may well be the way forward for printing the RFID circuitry—delivered by another major innovation, digital inkjet print stations in modular presses."
Pillsbury offers converters some advice concerning digital printing and RFID. "Obviously, the digital revolution and RFID are not going away, so converters of all sizes must have a source for this, be able to speak the language, and educate their customers to keep other suppliers from getting in the door with this information."
Value-added product decoration
There are various ways that tag and label printers can improve their competitive position, but most strategies boil down to the effective use of relationships and technologies. Gerace believes there is more than ample opportunity for suppliers to offer additional services to their customers that can create more value. "As these customers continue to outsource various functions, they are very receptive to the service offerings coming from their suppliers," he says. "These additional services can also help defend against low-priced foreign competition."
Pillsbury suggests that technology can be a valuable tool for building sustained relationships. "Using technology to stay close to the customer and respond quickly will be the key to success. Prepress and press quality will continue to improve, but for the average converter, it will be very important to build a strong, multilevel relationship with key customers, and technology can be a part of that."
By Tom Polischuk
Editor-in-Chief
- Companies:
- AWA
- Multi-Color Corporation





