Targeting Opportunities

By exploiting niche markets, non-core competencies and more efficient manufacturing methods and technologies label printers can sustain, and even grow, profits.

By David Luttenberger

Tag and label printers have arguably enjoyed success and profits unequaled by converters in any other segment during the past 10 years. But the days of expected and sustained double-digit growth are waning as the millennium approaches. There are, however, as many, if not more, opportunities in this highly versatile segment for tag and label printers to capitalize on developing technologies, manufacturing processes and end-use market trends in order to sustain or even grow profits.

"The impetus has to be to improve overall manufacturing efficiencies," says Bill Klein of the narrow-web and pressure-sensitive label consultancy Business Factors, Inc, Springfield, OH. He says given the capabilities and efficiencies of today's converting presses, throughput is as much as 20 percent greater than just five years ago. But throughput is nothing if it is not accomplished efficiently—which is where tag and label printers can really "make money" by reducing makeready and waste, says Klein. The technologies to achieve enhanced print quality, while improving throughput and realizing manufacturing efficiencies are available, and have been aptly demonstrated at recent label-specific and general converting exhibitions.

While label printers quote, compete for and land jobs on just fractions of cents, price will obviously not be what drives profits. "Label printers must control costs on many levels and use newly available technologies to improve manufacturing efficiency" says Klein. "Once that is achieved, only then will profitability be realized."

Number crunching

On the whole, label printers were more profitable in 1998 than in '97. A survey of 100 leading label printers by packagePRINTING revealed an average pre-tax profit margin of 8.3 percent. When surveyed a year ago that same group reported margins of 7.9 percent.

Broken down by size according to sales of printed tags and labels, those in the $10-25 million range (medium-size companies) posted margins of 9 percent—the highest of any group surveyed. Label printers categorized as "small," in the $5-10 million range reported 1998 margins at 7.5 percent. That same group, however, also appear to be the most optimistic. They reported anticipated growth for 1999 at 13.3 percent. That's compared to 12.2 percent and 7.8 percent by medium and large companies, respectively. "Large" companies are those with sales greater than $25 million.

Neither the small- or medium-size converters, however, could compete with the average lead time of 9.7 working days of their larger counterparts. It's here, say those closest to the business, where smaller companies may have to give up a bit of their entrepreneurial operating philosophies and welcome opportunities and capital offered by conglomerate "converting groups."

Such an organization, comprised of perhaps a half-dozen or more smaller, formerly privately owned label printing companies, would be brought under one corporate umbrella organization or holding company. Leveraging the power of the group, they would be able to offer end-users a geographically desirable single source for packaging. If joined, for example, by a folding carton or flexible packaging converter, the group could become a nationwide or even global single-source packaging provider, offering perhaps the combination of prime labels, TE shrink labels and primary product packaging—a nearly unbeatable package, so to speak, particularly from a logistics and cost perspective.

Looking elsewhere

One strategy some in this segment may have to consider in coming years, is the idea of going outside current niches and core competencies. Typically referred to as "cross-niche converting," this strategy can exploit new technologies, emerging end-use markets, or even changing demographics to the benefit of label printers once complacent or "at ease" offering a more traditional service to a familiar customer or market. The growing natural healthcare, or "nutraceuticals" market, security printing or even "smart" labels might be areas to target. On the other hand, label printers might want to look at digital technologies or new materials or printing processes as an alternative or supplemental niche.

Regardless of whether label printers choose to stand pat or explore and exploit new markets and technologies, they will still have several obstacles to overcome. Those include a tight labor pool from which to select, hire and retain qualified line and front office employees; the integration of more efficient manufacturing technologies and processes; and, the necessity to establish closer relationships both upstream and down—with equipment and materials suppliers, as well as end-users.