Label Market Remains Strong

The label market is in good shape. Although the recent recession has affected every segment of package printing, the label industry is still well positioned for the medium to the long term, according to Corey Reardon, president and CEO of AWA. "Unfortunately in the short term, the impact has been negative with plenty of casualties in job losses and business performance, even company and plant closures," he says. "In the medium to longer term, the recent recession has certainly caused companies across the value chain to focus on customers and creating more efficient, profitable, and sustainable business models.

"The tag/label industry is generally in a very strong position strategically and financially," says Frank Gerace, president and CEO of Sharonville, Ohio's Multi-Color Corporation and chairman of the TLMI board of directors. "Strategically, tags/labels remain important and relevant as a dominant component in consumer packaging, as a means of both product identification and consumer marketing. Financially, although growth and profitability have declined, [the segment] remains healthy and sustainable."

The outlook

Still immensely popular, pressure-sensitive labels are not the only game in town. Other label types include heat-shrink, stretch sleeve, in-mold, and thermal transfer.

This is illustrated in "Labels to 2013" by the Freedonia Group. According to the study, U.S. label shipments are projected to advance at a 4.5 percent annual rate to $19.2 billion in 2013. More than three quarters of the total gains will be in the pressure-sensitive segment. However, more rapid growth will be achieved by heat-shrink, glue-applied, stretch sleeve, and in-mold labels, the study states, because these application methods provide intense competition for pressure sensitives. "Heat-shrink labels are forecast to outperform all other major label types, benefitting from their attractive 360 degree aesthetics, broad promotional area, and capability to provide tamper evidence, as well as their increasing cost effectiveness and ability to form-fit contoured containers," states the report.

Plastic is going to be very important to labels, according to the study, even though paper will continue to be the most widely used stock material in the label industry. Plastic will account for more than one quarter of label shipments by 2013. "Increased use of plastic stock materials will be supported by the shift toward plastic packaging, as well as the material's aesthetic and performance advantages over paper," cites the study.

According to the report, labels that are printed in some manner before sale to the final user most commonly employ flexography for printing labels, owing to its widespread use in the pressure-sensitive segment. Be that as it may, additional printing technologies are still used, often in combination to achieve superior label graphics.

From a more global perspective, Reardon states that AWA research projects growth in developed geographic regions like North America and Western Europe for mature labeling technologies, such as pressure sensitive and glue-applied, to not exceed GDP growth overall. There will be higher growth application areas, but overall growth will be dictated by GDP growth. In developing or emerging geographic markets, AWA expects continued growth at higher GDP levels or greater.

Digital printing is impossible to ignore these days, and experts expect adoption to increase. "The utilization of digital printing will continue to expand in tags/labels," states Gerace. "It is great technology, produces excellent quality, but needs to overcome some of its volume limitations, color constraints, and finishing integration issues."

Reardon adds, "Digital printing has gained significant ground in all facets of the package-printing sector and, today, is a competitive and strong alternative to other print technologies."

Freedonia's data seems to back up Gerace and Reardon. The study states that shipments of digitally printed labels are forecast to expand at the most rapid rate, nearly doubling by 2013. Growth will be fueled by trends favoring shorter label runs and mass customization, a popular marketing tool which capitalizes on the advantages offered by digital printing technologies.

Primary packaging will remain the largest application for labels in the U.S., according to Freedonia. However, faster growth will be in mailing and shipping and secondary labels. Growth in these markets will be driven by Internet shopping, which boosts demand for mailing and shipping labels. Secondary label growth will be based on demand for bar coding labels and increased use of RFID and electronic article surveillance anti-shoplifting systems.

Post recession

We're coming out of the recession, and many are considering the recovery sustainable. But, what was the impact on the tag/label market.

"The recent economic environment drove a fundamental, and hopefully permanent, change in inventory levels and how they are managed across the value chain and supply chain dynamics in the industry," claims Reardon. "Definitely, in more difficult times, 'survival of the fittest' takes over and ultimately creates a stronger industry. This will also further drive consolidation and M&A activities, which we are already seeing."

Gerace adds, "The recent recession has definitely impacted growth rates and will continue to do so for the next several years. Reduced growth rates will intensify the competitive landscape and put pressure on pricing and margins, which will, in turn, drive the need for deeper manufacturing cost reduction initiatives. We all will have to do more with less."

For Reardon, the recession saw clients approaching AWA for help identifying new market opportunities and ways to meet customers' unmet needs to grow and strengthen their businesses.

It's over ... Now what?

So, you've weathered the recession, and you're still in business. But, what do you do now to put your own business on the fast track to recovery? "Status quo is never the answer," says Reardon. "You stand still and the whole world around you moves forward and you are left behind." Gerace concurs, "Never accept the status quo!" So how do you get your business to trend upward?

"Looking at new markets, new opportunities, is critical to remain healthy," claims Reardon. "If not new markets and new opportunities, then looking at new ways of doing what you do is important." He adds that mergers and acquisitions are picking up across the country. According to AWA data, the buying and selling of companies across the value chain, for strategic reasons, or by private-equity and investment groups, for financial reasons, is increasing. "The sector is overdue for further consolidation, driven by attractive growth and profitability, providing opportunities for both strategic and financial buyers," states Reardon.

He continues, "During the next 12 to 18 months, it is expected that there will be numerous M&A opportunities for both strategic and financial buyers across the sector, particularly as consolidation will be necessary and heavily leveraged firms face financial uncertainty." He states that senior managers and financial buyers with an understanding of the sector, as well as an understanding of current M&A tools, will be positioned to take advantage of acquisition opportunities and grow their companies and financial performance.

Gerace explains that label printers should, "Get and be better at what you already do well. Protect and defend your current business and customers." To achieve these ends, he offers the following four suggestions:

1) Be relentless around internal cost reduction in order to be a low-cost producer and stay competitive. Use innovation to create new products and services that fill the unmet needs of your existing customers.

2) Expand your customer base within the markets you currently serve.

3) Explore new markets that will leverage your current technology and knowledge base.

4) Explore acquisitions that make both strategic and financial common sense.

An important year

2010 is going to be an important year for just about all industries and all markets. The economy continues to recover and the news thus far has been at the very least encouraging, though not door-busting in terms of a turnaround. For the label industry, this year will be a challenging time, for a variety of reasons, but, according to Reardon, the top issues will be raw material inflation and profitability.

Gerace adds, "As the economy and capital markets continue to stabilize and improve, I think we will see an increased interest in the label industry from private-equity firms, which will improve valuations and increase acquisition activity."

Ultimately it comes down to what made a company successful from the beginning—knowing its customers and the markets it serves.

"Understanding customers and markets in a broader sense will allow opportunities to be more easily identified and, equally important, allow threats to be quickly assessed," says Reardon. "As stated often over the past years, the threat today is not from your direct competitor, but from an alternative technology that will substitute your product overnight." pP