Labels: The State of the Industry

Labels in every format continue to perform an essential function for product identification and various value-added functions: decoration, brand promotion, and security. As such, they represent a key element of the packaging, logistics, and brand promotional market in every segment, from food and beverages to electronics components, and pharmaceuticals, and are a key indicator of economic health around the globe.

Global economy

Despite the ongoing impacts of the global economic crisis, world GDP is set to grow this year at 2.4 percent, with much of that growth centered in the world's emerging economies, particularly China (7.5 percent), India (6.9 percent), and Brazil (3.3 percent). These are healthy growth rates—but they have slowed significantly over recent years, reflecting the slowdown in exports to the struggling developed markets of North America and Europe, as well as the implications of the lack of financial controls governing inflation in many 'young' economies.

North America and Europe—the world's most mature markets—cannot hope to match these growth rates; and in the U.S., GDP is forecast to reach 2.3 percent in 2012—slightly lower than the global average. This is still a better projection than that for Europe, where the IMF considers economic health to be weak, with concerns on a return to recession, sovereign debt, and high unemployment. The Euro zone is forecast at -0.6 percent growth, and countries outside the Euro, while not exhibiting negative growth, show limited possibilities.

Label market today

Label market growth is certain to reflect these economic growth patterns across all the technologies currently employed to decorate and identify products, including the 'non-labeling' technologies: flexible packaging; cartons; and direct-printed bottles and cans. 2011 evidenced an overall slowing of demand in the second half of the year because companies de-stocked, driving down costly inventory in the hope that 2012 would see reductions in some raw material prices—particularly paper pulp and PET film—and reductions in high energy costs which were impacting manufacturing, distribution, and converting.

While investment in additional capacity by raw material producers has result in some falling prices, concerns remain over the high price of oil, which impacts the prices for polymers for film manufacture, resins used in adhesives, inks, paper coatings, and varnishes. Additional pressures on raw materials usage are presented by health and safety legislation—particularly the European hazardous chemicals platform, REACH, which has global implications.

Today, the Asia Pacific region represents the world's leading consumer base for labels, with 34 percent of global demand in 2011. Its growth is driven by the Chinese and Indian markets. Europe comes second, with 29 percent, and North America third, with 22 percent. South America is now the fastest-growing region, growing at an estimated 12 percent per annum—more than double the rate of the overall global market.

Market trends: North America

In 2011, the overall North American label market grew at an estimated 1.2 percent over prior year—in line with GDP growth—and overall growth was primarily driven by the sleeve label formats. Pressure-sensitive label volume growth—at 1.5 percent in 2011, taking the overall market share to 48 percent—was highest in applications centered round variable information print. Glue-applied label demand continued to decline in 2011 by a further 1 percent in volumes to a 32 percent market share, with wraparound labels also declining by 1 percent.

Sleeve label formats showed the strongest 2011 growth, at 5.3 percent overall, with heat shrink formats showing a 5.5 percent volume increase over prior year. Growth in sleeving—which in 2011 commanded 13 percent of the overall North American label market—was strongest in the relatively-new RFS (reel-fed shrink) arena, which grew by 8.1 percent—albeit from a low base. North America is the most active region for this technology, evidencing good growth in the installed base of labeling equipment.

In-mold label (IML) volume growth continues to disappoint, at around 1-1.5 percent in 2011 over prior year, with IML-EB (extrusion blow molded) holding stable and IML-IM (injection molded) yet to realize its potential and experiencing ongoing delays in realizing large-volume domestic production—despite the highly-successful example of Kraft's 'Philadelphia' cheese range.

Food and beverage labeling remain the key market sectors for label volumes.

Trends in other regions

Now the world's largest regional label market, Asia Pacific continues to grow—at around 7 percent in 2011, primarily in China and India. Japan shows declines in all label formats, however, as a result of market maturity and the ongoing effects of the 2011 tsunami disaster. Glue-applied labels have the leading volume share of the market, at 38 percent, driven by strong demand in India and China for beers, and—for wraparound labels—soft drinks and mineral waters. Pressure-sensitive label growth continued in 2011, but at a slower rate than previously, 7-7.5 percent. As elsewhere, sleeve labels show the greatest growth—at 7.5 percent in 2011; and film label substrate usage is growing much faster than papers.

A major component of the European label market is the growth in eastern Europe, which grew overall by 1.5 percent in 2011 over prior year; and while pressure-sensitive labels grew at around 1.3 percent, they face strong competition from sleeving—particularly heat shrink. In-mold labels grew—primarily in IML-IM formats—by 3 percent. All label formats grew strongly in film label substrates, and key markets were food, beverages, and pharmaceuticals.

A 12 percent growth rate over prior year reflects South America's growing demand for packaged consumer goods. Glue-applied labels take the largest share—68 percent of the market in 2011—sustained by increased beverage demand. Pressure-sensitive labels grew at 8 percent, notably in the key Brazilian market; and heat shrink sleeves grew strongly by 11 percent in 2011. The newest technology, in-mold labeling, grew 22 percent to take a one percent market share. Key end-use markets were in food, beverage, and personal care products.

Africa and the Middle East make up a complex region, combining advanced label markets and markets at the very earliest stages of their development, and regional growth in 2011 is estimated at 4 percent. Glue-applied labels dominate, with 48 percent of the current market, but strongest growth is seen in sleeve label formats (around 5.5 percent in 2011) and pressure-sensitive labeling (around 5 percent). In-mold labels, with a 1 percent share of the market that grew by 4.5 percent in 2011, show strong potential from their current low base. Food, beverage, personal care products, and household and industrial chemicals are the key end-use segments.

Labeling technologies

Around the globe, the established glue-applied and pressure-sensitive label technologies are facing increasing competition from alternatives. In the developed North American and European markets, sleeve labels have taken considerable market share (though demand growth may be leveling off now); and in the developing economies, pressure-sensitive labels are showing positive growth compared to glue-applied and other older formats.

Pressure-sensitive and glue-applied labels together still take the lion's share of the global label market, each with 39 percent. Sleeving has grown to a 15 percent share of the global market, while in-mold labels—suitable only for long runs—now represent 2 percent.

While pressure-sensitive labels are estimated to have grown 1.5 percent in North America and 1.3 percent in Europe in 2011, glue-applied labels now show significant signs of maturity in all formats (wet glue and wraparound) in all markets except South America, where—driven by demand in the soft drinks and beer sectors—they recorded growth of approximately 13 percent in 2011.

Sleeving technologies—heat shrink, stretch, RFS/ROSO™/MD—are dominated by heat shrink volumes, which continued to grow globally by 7 percent in 2011.

With in-mold labels, growth was realized in all regions (3-3.5 percent overall in 2011), but the IML-EB format appears to be under pressure from competing technologies.

Trends in product decoration

In every labeling arena, the use of film label substrates is growing at dramatically-higher rates than paper substrates; and, for pressure-sensitive labels, film is also a growing choice for release liner base. There is sustained growth in film-centered label formats such as wraparound labels, heat shrink sleeves, and in-mold labels. BOPP films are the leading choice, driven by the requirements of hot melt wraparound glue-applied labels; pressure-sensitive labels; and IML-IM and IML-TF (thermoform) formats. Other films extensively used include PE, PET, and PVC for different label formats and applications.

In papers—which still retain the majority market share overall—one-side coated qualities are the leading choice, particularly where alkali-resistant grades are required for glue-applied labels.

Increasing concerns around sustainability, coupled with the desire to improve yields and reduce cost/price pressures are driving demand across all formats for lighter-weight label materials.

Label production today is characterized by changing demands from the brand manufacturers and retailers. With private-label products today declared to be the world's largest brand, leading retailers are now the leading purchasers of prime labels—with attendant pricing/profitability implications for label printers.

Product multi-versioning using a single container format but a variety of 'flavors' has meant shorter print runs, delivered faster. Digital prepress and workflow management have assisted label producers in meeting this requirement, as have servo-driven presses and makeready and roll handling enhancements.

The digital label printing technologies are making strong inroads into this marketplace, with the installed base of presses growing exponentially, and at a much faster rate than for any other printing technology. Their versatility and flexibility, combined with the high graphic standards achievable today, are key features. It is worth noting that what may turn out to be the second revolution in digital print, nanographic printing, was unveiled at this year's drupa exhibition in Düsseldorf by one of the originators of digital label print, Benny Landa.

Flexo and UV flexo remain the largest installed machinery base for pressure-sensitive label print.

Sustainability

The sustainability agenda for the packaging industry is growing exponentially, and label industry waste recycling/re-use is currently a major focus. There is a proliferation of environmental initiatives in the broad print/packaging context, at many levels, such as the environmental management systems ISO 14001 and Lean Six Sigma. Certification to environmental sourcing standards—like FSC and PEFC for papers—are other options. Brand owners' and retailers' own environmental standards for their suppliers, like the Wal-Mart Supplier Sustainability Assessment, add further complexity.

The Consumer Goods Forum's Global Packaging Project has done much to bring together participants at all levels of the complex packaging value chain, from end users to raw material suppliers, and has already established a strong, forward-looking platform. For the narrow-web printing industry specifically, TLMI's L.I.F.E. initiative (Label Initiative for the Environment) has developed a standard for minimizing the industry's environmental footprint through, for example, clean/lean production, minimized waste, recycling compatibility of label adhesives, and total energy utilization.

In a world where the opportunities to counterfeit goods are huge, and enhanced by the global online shopping market, it is important to mention the role that labels—particularly in the pressure-sensitive arena—can now play in product authentication, with the addition of overt and covert security devices on and in the label; and leading-edge track-and-trace devices such as QR codes and 3D bar codes.

As a final observation, the need for a label of some kind, intrinsic to the product packaging or applied to it, will not go away. However, there are certainly tectonic shifts in packaging buyers' preferences. Such change, however, is the sign of a dynamic, healthy industry that is not only accepting, but welcoming evolution. pP

Corey M. Reardon is president and CEO of AWA Alexander Watson Associates (www.awa-bv.com). AWA is currently researching a new, in-depth AWA North American Labeling and Product Decoration Study for publication in the first quarter of 2013.