Proper Perspective

The economic boom may be over, but the label industry is still charted for healthy growth.

by Jessica Millward, Associate Editor

"DON'T BELIEVE THE hype," in so many words, was the message Federal Reserve Chairman Alan Greenspan had for Congress last month in his semi-annual report on the economy. Though he wasn't disputing the slow-down trend of mid- to late-2000, he maintained the country is not headed for a full-scale recession. He even pointed to positive signs for the first few months of 2001.

Greenspan did warn Congress, however, that economic forecasters could never really predict recessions, because they are largely caused by the unreasonable fear that overcomes business and consumers alike. He lamented, "Our economic models have never been particularly successful in capturing a process driven in large part by non-rational behavior."

Curbing that non-rational behavior is an imperative for the label industry if it is to continue the steady growth sustained over the last several years. Printers' tendency may be to watch the Dow and hit the panic button, simply because they have become accustomed to record growth rates.

Part of the let-down aspect of the end of 2000 seems almost inevitable now. As the soon-to-be released 2001 Tag and Label Manufacturers Institute (TLMI) North American Pressure-Sensitive Label Study (NALS) suggests, significant label market growth was expected in 2000 because of the economic exuberance evidenced in 1999. New product launches and consumer product promotional campaigns were at an all-time high in 1999, NALS learned, and pressure-sensitive labeling technology was the beneficiary of multiple product migration shifts lending themselves to pressure-sensitive application methods.

That pace slowed, however, leaving the NALS to conclude North American pressure-sensitive label growth for 2000 came in at below-forecasted expectations. Further growth is still anticipated; profit margin predictions are just slightly more conservative than those of the "roaring" 1990s.

Still movin' on up

Predictions of modest gains have been echoed for the label industry as a whole by the Freedonia Group's recent look at the industry, "Labels to 2004." Those findings point to a continued annual growth rate of nearly 7 percent, with the industry's current worth (in the United States) pegged at approximately $9.9 billion.

Dr. Joseph Webb of TrendWatch also cited future market growth for labels in his "Packaging Trends" presentation at Graph Expo/Converting Expo 2000. While it acknowledged the inroads flexible packaging will make on the label market in years to come, the report foresees labels growth as keeping pace with the GDP. TrendWatch found labels' best performance to be in the beverage market, especially in high-end applications such as wine and alcohol labeling.

Considered with the entirety of the printing industry, label printers actually have a good deal to be thankful for. According to the 2000 Printing Industries of America's (PIA) Ratios study, while the average profit rate for printers, as a percentage of sales, was 3.23 percent, label printers last year reported profits of 4.85 percent.

In its 2001 Technology Forecast, the Graphic Arts Technical Foundation, too, sees fairly sunny skies in label converters' future. The report insists packaging and label printing will remain one of the stronger market segments because of its virtual immunity to digital substitution. Consequently, commercial printers may find increasing opportunities for entry into the label sector, especially in short-run applications.

pP also discovered a fair amount of optimism in the results of its annual Top Tag & Label Converters survey. Just under 56 percent of respondents expected 2001 profit margins to out-perform those of 2000. Only 10 percent believed their company's profits would decrease, while 34 percent anticipated levels to remain the same.

Bumps along the way

There are key issues to be faced as the general economy assumes a more languorous pace. The NALS found one of the chief price challenges presenting itself to the label industry in the continuing trend of vendor consolidation. The study explains in an ongoing effort to implement cost-saving measures throughout the supply chain, more end users are working with fewer converters.

Increases in certain operating costs for printers are expected to negatively influence profit rates. The PIA noted in its first quarter market survey of 2000 that printers would discern price hikes in both the paper market, and in the cost of medical coverage. The PIA's survey panel experienced an average 7.7 percent surge in medical benefits expense, and a 6 percent growth in the cost of paper.

Business buzz

End users' requests for product differentiation via distinctive graphics has made the specialty substrate arena the place to be for converters, according to TrendWatch's findings. The use of value-added materials intended to boost a product's shelf recognition factor has become increasingly common, with metallized and embossed materials, hot and cold foils, and holographics now appearing on labels in various applications.

TrendWatch also expects other specialty materials to come into their own within the next several years. The report specifically mentions high heat-resistance plastics, used for labels that need to withstand 1,500°F heat of a car engine. Smart labels, incorporating RFID technology to carry large amounts of easily readable product data within them, will also continue to gain market presence.

The start of the millennium has also seen the slight slow-down of pressure-sensitive labeling's quest for dominance. While undoubtedly still gaining in market share, the NALS witnessed a significant percentage of end users more likely to examine the total applied-cost benefits of non p-s methods, particularly in-mold, heat-shrink, sleeve, and wrap-around labels.