There is no question about it: The North American label market is in excellent health. And like all dynamic industries, it finds itself — as the calendar page turns to 2000 — in an era of dramatic change. Narrow web converters are a creative and dauntless group of people, and they seem to welcome the changes with a wholesome business spirit.
Competitive pricing is pushing converters to invest in new markets. Aggressive customers are causing shifts to new technologies. Converters flush with investment dollars are shopping for other companies like never before. The tight labor market is exerting a throttling impact on expansion and growth. What more could a $5 billion industry wish for in the way of excitement and adventure?
Some converters say business is booming, and expect growth to continue into the future, while others say growth in the industry will remain fairly flat. Yet still other entrepreneurs say they are concerned about the future of their companies from the rising threat of in-house printing.
All agree, however, that the key to success is entering new markets and developing niches. Flexible packaging, shrink labels and RFID and EAS technology are receiving a particular amount of attention, leading the way toward a new era in labeling and product design. Investing in the latest technology is another success factor. The challenge, however, is recruiting and maintaining the clientele to support the equipment — and the competition is fierce.
Consolidation is on the rise as businesses continue to merge and become stronger entities. The tight labor market is creating additional stress, forcing many companies to think twice about expanding their businesses.
At the same time, the educated customer is becoming more demanding and price conscious. The long-time requests for quality and service are no longer an issue — they are expected. The debate over price leads the way, in addition to shorter runs and just-in-time delivery.
The state of the industry
According to the Tag & Label Manufacturers Institute's North American Label Study, conducted by Frost & Sullivan, the pressure sensitive label market alone was estimated at $3.93 billion in 1988. This figure is expected to grow to $5.35 billion by 2003, at an annual rate of 6.4 percent. How is this growth viewed by members of the industry? Do they agree with the projection?
"My assessment is that the industry is healthy. The consolidation that is going on is within a reasonable amount, not unhealthy," says Richard Gasper, president of NorthStar Print Group, Milwaukee. "I don't think we'll have growth in the primary label arena that we've seen — the double digit growth days are probably gone, but the growth opportunities are still greater than the inflation growth."
Gasper says developing opportunities in international business may bode well for the North American label market. "Some developing countries are where the United States was eight to 10 years ago, as to how they take their products to the marketplace. As those companies have become more economically stable, and as Western influence continues to develop, the demands for packaging have increased in some of those countries," he says. "That bodes well for us. While they have converters, a lot are not up to the level of supply that we are in here in the United States. That's part of the global business impact."
Serge DePaoli, president of the CCL Label Canadian facility, says that opportunities for the pressure sensitive market are growing. "The growth rate of the pressure sensitive market in the past is quite dynamic as opposed to glue-applied. Substitution uses are driving these growth rates," he says. "There's a lot more room for innovation with pressure sensitive," he adds. "The non-pressure sensitive market is experiencing a growth rate of 2 to 3 percent, and is still experiencing erosion from pressure sensitive labels." CCL Label is headquartered in Rosemont, Ill.
The growing economy pushing the market for products that require labels is another positive sign for the state of the North American label market. "The overall economy has a bright future. The market for products that need labels and tags is good and it will grow over a period of years," says Burr Sullivan, president, Dorsett Printing, Thomasville, N.C. "We are a country doing well and spending money on products, and most of these products have to be labeled. We are on the verge of some exciting growth."
Although Dave McDowell, president of McDowell Label, Dallas, also observes growth in the label market, he says that smaller companies must develop their own niches to survive. "The market as a whole is growing, but the companies that don't have a niche or a focus will probably have to re-evaluate their positions," he says.
Mark Davenport, vice president of Mid South Graphics, Nashville, Tenn., describes the prime label market as fairly flat. "There is some growth left, but not as much compared with the growth experienced five years ago. The economy is not as good as the media puts it out to be," he says.
Mike Dowling, president of CL&D Graphics, Oconomowoc, Wis., says he's satisfied with the performance of the industry today.
"The industry's health is good, though not as strong as it has been in the past. We all complain, but it's still better than it is for other businesses," he says. "Growth has slowed, the industry is maturing a bit. He adds that the industry needs more innovation. "The next generation has to be as innovative as the early generations were." Later this year, Dowling will be named to a two-year term as president of the Tag and Label Manufacturers Institute.
The low-end UPC label business has begun to fade away from converters, because many customers do their own printing in-house, says Bob Strach, production manager at Gintzler Graphics, Buffalo, N.Y. Technology, he adds, is also eroding a portion of the pressure sensitive business from converters. One example is computer disk labels. "Everyone can now download this information from the Internet," he says. "People like us will have to broaden what we do."
From a supplier point of view, Andrew Colletta, president of Roto Press International, Cincinnati, says general business conditions are very good.
"The ability to forecast and track trends has gone by the wayside. The peaks and valleys in the industry today go against trends," Colletta says. "There is a lot of activity, as though people are waiting for an event. There is a level of aggression — those with internal marketing ability and vision will make a difference in a company's growth."
As competition escalates, an increasing number of converters are finding strength in numbers. "Printers have to finally realize that they have to merge to stay in business. With mergers you can grow stronger by combining the best assets of each company — the best machinery, the best workers and the best accounts," says Bob Mazzella, president of Label Master, Lodi, N.J.
An active player in the consolidation game, CCL Label sheds some light on this prevalent topic. "We have been at the forefront of consolidation since 1995 with Avery and Engraph as two major examples," says DePaoli. "Consolidation within the industry will continue, but it is still a fragmented industry," he adds. "This trend can be helpful for smaller converters. It's a good opportunity for them — but this does vary tremendously."
Dowling sees a strong pace of consolidation. "Mail-Well has been buying up the little people, and CCL is buying up the big people. There are probably a lot of midsize converters out there looking. Money is cheap and equity is not that expensive, and it makes more sense than to grow your business yourself."
Terry Fulwiler doesn't see the consolidation trend as having a full head of steam. Fulwiler, the CEO of Wisconsin Label Group, Algoma, Wis., says he has heard a lot of talk, but has not seen a lot of consolidation. "We've seen a purchase here and there. I suspect that that's going to start to happen more," he says. "As the industry matures a bit more, a lot of pressure sensitive label companies that started 10, 20 and 30 years ago are going to either pass the business on to another generation, or look to sell," he adds.
Jim Valestrino, special projects manager, LA Label, Commerce, Calif., provides his opinion on consolidation. "I think it opens the door of opportunity to midsize companies into markets that will now not be serviced as well. Some companies are getting larger and larger. A few are doing it well, but others are doing it just for size. They've lost customer service and focus," says Valestrino.
"The industry is still growing and expanding, and there are new opportunities every day," he adds, "but at the same time people are getting themselves into trouble — getting themselves into markets they can't control," he adds.
Sullivan of Dorsett Printing says that with consolidation, companies are able to invest in more technology to position themselves on the cutting edge. The disadvantage, he adds, are a loss of individuality, less personal contact with customers and a lower ability to provide good customer service. "It all comes down to what feels right for the company," says Sullivan, who is content with his independent, privately-owned company status. "There will always be a market for the smaller family-owned businesses that have their own niches."
The Labor market
Good help is hard to find, and keeping it is half the battle. Extremely low unemployment rates, along with a lack of skilled workers educated in flexographic printing, are making life difficult for narrow web converters. Some of them are finding it impossible to hire new employees, and to keep those they have from jumping ship.
Mazzella of Label Master says that in Northern New Jersey the competition for workers is fierce, as employees switch from one company to another. "There is a lot of recycling of workers, and we have created it. They change from one company to another for better pay," he says.
Aside from the pay issue is employee benefits. "Some companies choose to pay health care only for the employee and not the employee's family," notes Mazzella. "For a lot of workers, this area is very important. Vacation days and holidays are no longer an issue."
Bob Biava, president of Driscoll Label, Fairfield, N.J., says he is extremely frustrated with the the current labor market. "You can't find anybody to do anything. There are no qualified people looking for jobs," he says.
Craig Dahlgren, president of Craftsman Label Inc., Clackamas, Ore., considers his company fortunate to have maintained a solid and cooperative team. "It's not easy trying to find new bodies. We've been lucky finding the right people," he says. "Today I look for one thing: Will they fit in with this group? I can always train, but do they have the right chemistry? I've been working toward that, and it has been more enjoyable."
Not only can the labor market affect the current day to day operation, but it can also affect potential growth. "We have to ask ourselves if we should undertake an expansion of the plant, because can we staff that expansion? Now we have to plan for it, and it adds another level of complexity," says Fulwiler of Wisconsin Label Group.
The labor market is also tight near Charlotte. "The unemployment rate has been 2.5 percent for the past eight years," says Sullivan of Thomasville, N.C.-based Dorsett Printing. "It's like wearing a tight pair of shoes all the time." Although Dorsett Printing has little turnover, Sullivan says that the reality of the competitive labor market is always in the back of his mind.
Northeast Texas is another labor-competitive sector. "There are a lot of us in the Dallas/Fort Worth area. We have a limited talent pool and this becomes a serious problem," says Randy Wise of Century Tape & Label, Lancaster, Texas. He adds that finding a flexo operator is even more difficult. "There is a fair amount of offset operators out there. Flexo is hard to come by."
John Schamante, president of Total Concept Packaging, Royal Oak, Mich., agrees. "One of the challenges we face is finding press operators who have a background in flexo. We don't have any schools in the area that teach flexo. They all teach offset," he says.
Aside from press operators, finding and keeping valuable sales and production employees is also difficult. "We are having great difficulty in finding good sales people. Even beyond that are the hourly production people. We're training our own and hoping to provide enough in terms of benefits and reasons for them to stay," says Gasper of NorthStar Print Group.
McDowell Label also depends on in-house training. "We rely heavily on in-house training and promotions from within. The problem is that it takes at least six months to train someone."
At Salem Label, in Salem, Ohio, hiring employees with no prior experience is the strategy. "We choose to train our own people. Virtually all of our best press people are home grown. It is difficult because we have to work for it, especially with the employment rate up and the unemployment rate down," says Kevin Hynes, Salem's president. "What we look for in a potential employee is attention, willingness to learn, reliability and a genuine interest in the position."
Gintzler Graphics sends its employees to the nearby Rochester Institute of Technology, where they undertake color and flexo training, as well as graphic arts seminars.
To survive today in the narrow web industry, many converters say, the converting company must establish itself in a distinct market niche. Many are beginning to eye the flexible packaging market with its unsupported films, as well as shrink material. "Because the prime label market is maturing, most prime label manufacturers are seeking other alternatives. The short-run packaging market is a big area," says Davenport of Mid South Graphics. "For the packaging market, what long runs are to narrow web label converters are short to the wide web guys. There's some profit to be made there. We are diving into this area."
Dan Doherty, president of the Fort Dearborn Flexible Packaging Division, Elk Grove, Mich., also observes the potential in this market. "Packaging sells. There is a great push to make your package more unique. Customers want the package to do more, to have more visual appeal, and this is pushing the market for unsupported film," he says.
Strach of Gintzler Graphics says he sees shrink labels as a major emerging market within the packaging industry. "Customers want the label to cover the entire product. With this type of material you can use the entire web and get almost 100 percent ink coverage." The challenge, however, is the learning curve. "You have to learn about new ink technology — the ink acts differently on this type of material. Adhesion to the substrate is different, and everything has to be corona treated," he adds.
In the same realm is the single-serve beverage market, which is experiencing tremendous growth in unsupported films (See "Beverage Labeling," page 48.).
"The single serve beverage industry is huge," says Doherty. "Four to five years ago if you walked down the beverage aisle, you would see Gatorade and Pepsi… Now the aisles are huge, and you have everything from juices to health drinks. The milk and dairy products are right up there with the competition."
With the explosion of RFID and EAS tags and labels, the security market has also opened new avenues of opportunity for converters (RFID stands for radio frequency identification; EAS stands for electronic article surveillance). "There have been major innovation projects here," says DePaoli. "At some point there will be a breakthrough in making RFID available for lower priced items."
LA Label is also dabbling in new markets. "Everyone I talk to is getting into something else besides labels, such as chip boards and film processing," says Valestrino. "We're doing a small amount of tags, chips, specialty films and adhesives. That's why you're seeing new types of presses.
"I see a trend toward more converters going to special adhesives, laying down pattern adhesives," Valestrino adds. "All of the press manufacturers are working on equipment that has stations with exocoating. With the advent of new UV adhesives on the market, we will see a lot more of that."
Total Concept Packaging has set its sights on blister card printing. One of the greatest challenges for a converter in this niche, says John Schamante, is overcoming the commonplace belief that flexo cannot achieve offset quality work.
"People have become more aware of flexo as a printing medium. The negative is still there, but we are dealing with marketing groups that are offset trained, who have been told that flexo is a lesser form of printing."
Before taking the plunge into a new market, however, converters warn not to count the chickens before they hatch. Dahlgren proposes a few key questions that every converter should consider. "Is it profitable for us? Is it something that we need to get into?" he says.
When Craftsman Label noted the growth of variable information printing, the company made its move. "Last year we bought a company that sells thermal printers and ribbons. We added a person, and the business is doing well. Now we have new customers who also have label orders. It has broadened our horizons," says Dahlgren.
Investing in the latest machinery and equipment is another major ingredient in the recipe for success. The problem, however, is having enough clientele to support it. One U.S. press manufacturer reports that a potential customer offered to buy an expensive new press if the maker could throw in an operator.
"Buying new machinery is like playing a game of Russian roulette," says Mazzella of Label Master. "After a while you wind up going out for more work just to pay for the machine. A word of advice: Don't take on too much. Do what you do best and stick with that."
In the narrow web market, flexo dominates. "With flexo you have quick changeover to accommodate shorter runs," says Strach, adding that all of the products associated with flexo have improved dramatically. "Inks have improved, anilox roll technology has improved, and the tension control for unsupported films has improved," he says.
Although Total Concept Packaging relies solely on flexo for its blister card and folding carton converting operation, one of the company's greatest obstacles is finding a press that can handle high caliper paperboard material. An ideal press, he says, would be "one that is a true flexible piece of equipment that can run all caliper ranges, hold registration and die cut." Schamante says finding a rotary die that will handle the high caliper material is another issue. "We are not getting the die life that we would like," he says.
But flexo is not the only printing process making waves. Many converters say combination printing, pushed by pressure from end users to make their product stand out from the competition, is a must. "Customers are looking for ways to differentiate their brands. This is pushing innovation for new and better concepts. These new ideas are driving the market for combination printing, particularly UV flexo, screen and offset," says DePaoli of CCL Label.
So where does digital printing stand in this technological uproar? Many converters say this sleeping giant will awaken within the next five to 10 years. DePaoli of CCL Label says he has been hearing a lot of positive feedback about digital printing, such as its excellent printability and its niche for small runs and samples. "Digital has invaded the print industry more and more, and we expect this to continue. Customers are asking more questions about it, as to the applicability," he says.
Many converters say digital is still in its infancy, and a determination of its success is too early to distinguish. "Digital may have an impact in the future on shorter runs, but it is too soon to tell. The reliability of the equipment is improving, and the dpi is improving, but the speed needs to improve. Even for smaller runs," says Strach.
"Digital is still in its infancy stages. There are people using it, but it hasn't taken off. They are incubating it now," says Mark Davenport. "Unless a converter is specializing in short runs or proofing work, the speed and cost factors are a problem. I do see this changing within the next 12 to 24 months."
As a founding member of the Digital Label Alliance, LA Label is looking forward to the new technology being developed by Chromas Technologies and 16 other converters. "The new press will be out next year. We will see trends toward more just-in-time — the on-demand labels being printed. Over the next couple of years there will be a drastic change, especially in the one-, two-, three-color and line work. It's going to have a huge impact on that," says Jim Valestrino.
Fort Dearborn Company also looks forward to the digital potential with the introduction of its own digital printing division dedicated to the market for on-demand sheet-fed, roll-to-roll and roll-to-sheet digital printing. "We invested in this division because we see the growth. Digital will take off in the next five years, but will not become a player until five years after that," says Doherty. "Digital has decent speeds and low dpi. It is definitely part of the future, and will become a viable technology in the next couple of years, but it's still too early."
The changing customer
What was once a common request for quality and service has now become the expected norm. Today the educated customer has shifted focus to the more demanding issue of price; yet at the same time the cultivated customer requires a higher level of complexity in the finished product.
Richard Gasper believes that quality and service, while expected by the customer, is no longer a bargaining chip. "Part of the problem is that the relative gap between, say, a truly superior value provider and the next level down provider has diminished," says Gasper. "If my lead time was two weeks and yours is a month, I have a value situation I can offer to customers who are looking for shorter turnaround. But if I have two weeks and you have 16 days, how much is the customer willing to pay for that small incremental improvement?"
"We are asked to make more complex labels — many more colors, overlaminations, foil stamping, foldouts, a myriad of other ideas with more bells and whistles on them, and the customer wants to pay less for them," says Fulwiler of Wisconsin Label. "It's not that quality and service are not valued anymore — they expect those. It comes down to making a decision on price. More purchasing people are potentially not concerned about knowing printing. Purchasing is becoming a generic skill, requiring that you know how to negotiate price."
Language is another obstacle. With the growth of entrepreneurs from various ethnic backgrounds, miscommunication can often occur due to a language barrier. "Sometimes you have to go over different issues many times because the customer did not understand the explanation correctly the first time," says Mazzella. And with the launch of many bi-lingual web sites, and the need for sales and marketing personnel who can speak more than one language, this trend is becoming even more evident.
A new breed of print buyer?
Biava, of Driscoll Label, says print buyers have changed significantly over the years. "They work with very few specifications, using e-mail instead of direct contact," he says. "They don't want to educate themselves. They have been given no training to understand the printing process, no education to properly buy printed products. It slows production, and things can get made wrong."
Hynes of Salem Label says that consolidation is another trend in the changing customer, where three or four customers can turn into one. "Some of our customers are acquiring other customers. There are some negatives and positives to this. You have to be alert and adapt to it. You have to be able to accept change," he says.
Customers are still in search of a one-stop shop with more system solutions, says Sonya Lemmerbrock, senior product manager for label and bar code solutions, Reynolds & Reynolds, Dayton, Ohio. "Instead of calling upon many suppliers, customers can just call on us for all of their solutions," she says. "Customers want to add labels to complement the business forms. In the past, they used to see labels as a different entity. Now this is changing."
The Internet is changing the way converters and customers do business. Some rely on this form of communication for transferring graphic information, order tracking and placement, while others are dabbling in its use for sales purposes. But will this new found form of communication take away from the personal side of the business?
"The Internet is good for getting information back and forth to customers. But in relying on it for sales, you lose the personal aspect of the business," says Mazzella.
Many converters agree, but some feel that the Internet is the way to go from a sales perspective. One example is the growing popularity of a commercial web site where customers can go for the best bid from a variety of participating converters — www.printbid.com. Buyers can access a complete database of more than 62,000 U.S. printing companies, and search by locality, equipment, capabilities and name. According to the site information, this service is available free of charge to anyone who buys or sells commercial printing.
Looking forward to change
The health of the North American narrow web industry is not in question. But it seems certain that the complexion of the industry in the future will be different than it is today. Technology will change, markets will shift, the number of players might decrease.
"There is a general uncertainty about where the economy will be 18 months from now," observes Andy Colletta of Roto Press. "But today, with the impact of the stock market, there is a lot of investment income, and it is having its effect on this industry through equipment purchases and business acquisitions."
"I believe that we're operating, directly or not, in a global economy" says Richard Gasper. "We've never seen it like this for as long as we've seen it like this. I'm still pretty bullish on the future. Certainly for next year." l
This article was researched by Associate Editor Lisa Nieves Mateo and Editor Jack Kenny, and was written by Ms. Nieves Mateo.