The terrorist attacks that occurred in the United States on September 11, 2001, came just at the onset of a recession. The combination of those events — one violent and political, the other economic and insidious — had a severe impact on North American label markets as well as the continent's economy as a whole. The recovery has been fitful rather than steady, yet many in the narrow web industry report growth and improved conditions through 2005. Not everything is perfect, and doing business in the 21st Century will never resemble life in the 20th, but the general attitude is optimistic for the industry in North America.
Julie Chavez, vice president and CFO of Stixon Labels, Albuquerque, NM, USA, explains the state of the industry in this way: "The label industry has definitely been revived in 2005. After 9/11, the label industry, along with many other industries in the United States, showed declining sales. Thankfully the industry has shown a steady incline in the past couple of years."
Many believe 2005 was a competitive year. Nick Van Alstine, president of Macaran Printed Products, Cohoes, NY, USA, says, "The industry continues to remain extremely competitive, with ever increasing pressure on margins and limited growth." Because of the high competition, label printers have had to change some of their tactics. Van Alstine says, "Converters need to make investments in more efficient press and prepress technology as well as practice Lean Manufacturing principles to maintain margins and stay competitive."
In addition to looking within, says Jim Volkman of Xpanded Label Technology, printers also need to look outside their own walls. Volkman, whose company is in Appleton, WI, USA, says, "The narrow web converter has to continue to look for new growth opportunities outside primary pressure sensitive labels." He says RFID is one example of how converters can branch out into newer technology.
Andrew Beck, president of API Graphics, High Point, NC, USA, believes converters have begun serving more specific areas of the industry. He says, "I've seen more specialization or niche marketing," which he explains as "label companies moving towards doing one type of label exclusively, rather than serving a variety of markets."
According to Dan Taylor, vice president of Taylor Made Labels, Lake Oswego, OR, USA, more label application equipment was purchased in 2005 than in the previous two years, when those in the narrow web industry held back with respect to obtaining equipment.
But 2005 also presented some challenges to the narrow web industry. Joel Carmany, president of Consolidated Label, Longwood, FL, USA, says, "There are several problems that have confronted the industry this year. One is general inflation in paper and other commodities that we have to purchase to manufacture labels. Second, hurricanes have been disruptive, at least somewhat for us because we service Florida." (Hurricanes Katrina, Rita and Wilma affected portions of Florida in the second half of 2005.)
Art Bowers, manager of sales and marketing at Graphic Solutions International, Burr Ridge, IL, USA, agrees that 2005 still posed difficulties for the industry. "We feel that our industry continues to face serious challenges: efforts by our industry's customer base to 'commoditize' our custom products; cost/price issues in our ever more competitive market; continuing consolidation in our industry and the resulting shift of business from small and medium sized companies; and heavily leveraged buyouts of printers causing more pressure to chase volume at the expense of profitability," Bowers says.
Competition makes it more difficult to turn a profit, so companies might try to consolidate. Trevor Maunder, VP/GM at Adams Labels, Surrey, BC, Canada, says, "We noticed a rash of consolidation both in terms of our customer base as well as our competitors." Maunder also oversees operations at Apex Label & Systems in Portland, OR.
High competition hinders profits when materials are more expensive. Van Alstine says, "Rising costs in raw materials, energy and hospitalization are difficult to recover in such a competitive environment."
Some believe that the industry is currently doing better than it had in the previous two years. Maunder says the economies are better now, and Taylor says 2005 was a growth year for pressure sensitive labels compared with the past two years. Volkman agrees. "I think the activity level was a little bit stronger in 2005. The prior two years were reasonably flat," he says.
"I would say that business is on par with the last few years," says Joel Carmany, "but inflation is up significantly due to petroleum prices over the past two years and the impact it has on chemicals used in the business." Van Alstine agrees that prices have increased and greater merger and acquisition activity has occurred.
Varying opinions exist about the main issues facing the narrow web industry in North America today. Maunder says consolidation of customers and competitors is a major issue. Taylor says, "The wide web offset market seems to be entering the narrow web market over the last three years, and has increased our competition." He also believes that paper price increases and overseas competition are important issues facing the narrow web industry. Volkman says, "I think taking price increases to the end users is a very large challenge."
Technology is another area of concern for the narrow web industry. Chavez says, "There are constant changes with new technology, and it can sometimes be difficult to know what technology to adopt and when is the right time to make the investment in order to stay competitive."
Van Alstine thinks label converters are currently facing several issues. One is eroding profits. "With declining bottom lines and rising costs, converters will have to work hard to reduce operating costs, improve throughput and maintain margins," he says. Another issue he recognizes is RFID and when and how converters should become involved in the new technology. He believes other parts of the world are becoming more attractive to manufacturers. "China and other developing markets are causing manufacturers to move operations out of our service territories," he says. According to Van Alstine, "Converters need to find ways to differentiate themselves through new technologies and services." Finally, he believes environmentally friendly products are becoming increasingly popular. He says, "Materials and technologies that can reduce waste and improve efficiencies will be in great demand."
Terry Fulwiler, chairman of WS Packaging, Algoma, WI, USA, says, "We still have some overcapacity in our industry, which causes margin pressures. We still have to deal with some mentality that says labels are a commodity and should be done on internet auctions."
According to Bowers, "The most critical issue is pretty basic: how to be profitable and grow in an industry where the market is expanding at a rate no better than GDP growth, where there are so many suppliers chasing a piece of the pie, and where many of the customers demand a custom product for a commodity price." He believes the companies that can do this successfully will prosper while those who cannot will be forced to shut their doors.
Carmany believes the main issue has to do with converters' products. He points out, "Customers have a lot of choices as far as what type of packaging they can choose from. Labels are one of those options." He says that the label industry has not had any major innovations in products in the past five to 10 years. He says, "There are a lot of resources in the industry going into RFID and I think the industry is looking for a boost from that technology to add to the current growth rate."
Those in the narrow web industry have three options when suppliers raise their rates: pass the price increases on to their customers, absorb the costs internally or a combination of both.
Maunder says, "Generally we tend to pass price increases along to our customers." Adams Labels has clauses in its contracts stating that when prices go up, the company can in turn pass those increases along to customers. At Stixon Labels, Chavez says, "We don't feel that there is a lot we can do about price increases because they are happening across the board. It starts with our suppliers' suppliers and ultimately trickles down to the end users."
According to Fulwiler, "Price increases are a fact of life with all the problems with hurricanes and oil prices. You have to pass them on. There's nothing you can do about that." He says the one positive aspect of the price increases is that everybody knows about them, so customers will not be surprised.
API Graphics is not currently passing rising prices on to its customers. Beck says, "We're having to absorb these for now, but are constantly looking for alternative suppliers who will offer products at a fair price."
Volkman says, "You need to be aware of price increases and you have to pass those increases forward whenever possible. Internally, you should reduce costs to sustain your company." Taylor Made Labels has a similar approach. Taylor says, "We try to avoid price increases and pass them through when we can. We find efficiencies when we can't."
Macaran Printed Products uses a combination of techniques to deal with rising costs. Van Alstine says, "We are working with our customers to try to offset the increases through the use of alternative materials or through volume buy opportunities that might reduce the impact of the increases. We are also becoming leaner in an effort to continually wring costs out of our process. As a last resort, we are passing some of the increases along if none of the other efforts can offset the increases."
Some companies have seen little change in the past few years while others have made more significant adjustments to their businesses. Maunder says of Adams Labels, "We're plugging along, doing our thing, maintaining our level of quality and service. Nothing's changed much." He admits, however, that the company is feeling a lot of competitive pressures. Maunder says, "We've made some staffing and personnel changes to get a more competitive environment."
Macaran Printed Products has updated its technology recently. Van Alstine says, "This past year we added another Gallus/Arsoma combination press with nine colors, rotary screen and foil stamping to better meet the design needs of our markets. In our prepress department, we installed a complete digital workflow utilizing an Esko-Graphics front end, Cyrel Fast computer-to-plate system and Latran digital proofing system." According to Van Alstine, the company also "upgraded IT systems to handle customer orders quickly and efficiently and give clients the ability to interface electronically to check order status, ship dates and finished goods inventory to simplify their jobs."
Taylor says Taylor Made Labels is growing steadily. He says, "2003 was more flat. 2004 was a growth year. 2005 seems to be continuing that trend." The company has made a few changes recently. According to Taylor, "We've added press equipment and put an emphasis on selling label application equipment and diversifying who we sell to. We've added a new press and added label application divisions and increased our marketing area. We're selling to California and other markets now. We're no longer a little Portland, Oregon, printer."
Consolidated Label saw about a 20 percent increase in sales in 2005, which Carmany says is on par with the previous year as far as growth is concerned. "We continue to be aggressive and go after new markets and new opportunities," he says. The company also continues to expand. Carmany says, "We've continued to buy new equipment and to increase our capacity. We're in the middle of a new expansion to add 20,000 square feet to our building and we're adding sales people in other geographic areas to increase our sales coverage around the country."
According to Ron Brown, president of Labelgraphics, Edmonton, AB, Canada, "All I can say is that we are swamped. Business has never been better." He says Labelgraphics saw a 15 percent increase in 2005 over the previous year. He adds, "November was our biggest on record and December hasn't let up like it usually does."
Bowers says Graphic Solutions International had a record year for 2005. He explains, "Using our core competencies in screen printing technology, we are growing new niche businesses based on printing non-traditional inks. Niche marketing, R&D and listening to our customers and prospects continues to be central to our culture."
Chavez says Stixon Labels also had increasing sales in 2005. She says, "The main changes that we have made in the past few years have been to minimize our expenses and aim for more efficient production." She cites increasing competition for lower prices and the decline in the industry after the September 11 terrorist attacks as reasons for the changes.
Because Xpanded Label Technology is a new company, Volkman says, "The goal is to survive the first two years." He says that during 2005, the company mainly cultivated new relationships with customers. He believes it is on a firm foundation and is growing substantially.
Label printers are optimistic about the coming years for their companies, anticipating increased growth and technology use. Van Alstine says Macaran Printed Products is "involved in some cutting edge technologies." He believes the company will also experience growth. "Along with our current offerings, we really think we will continue to increase our share of the market as we deliver the products our customers need," he says.
Maunder says Adams Labels will be employing the same techniques in the next few years, but will focus on becoming more efficient. He also says, "We're looking seriously at a variety of new technology for 2006. Part of that is driven to meet competitive pressures and offer more in terms of choices and options to our customers." Maunder believes offering more choices is important to cater to high-end markets, such as wine, high-end food, pharmaceuticals, and nutraceuticals.
Stixon Labels has specific goals for the coming years. Chavez says, "Our goal is to have an increase of at least 10 percent annually. We plan on reinvesting in the company with new equipment and new technologies."
Taylor Made Labels will be staying its course. Taylor says the company will be "on a continued, steady, conservative growth path of profit, stability and quality." He says this approach worked during the stagnant years of 2001 and 2002, when he says, "We just held firm to our goals of maintaining our customers and not being overextended and chasing growth curves that are unattainable." According to Taylor, the company will continue to eye trends such as digital printing, RFID and silk screening.
Graphic Solutions International will continue to grow its core business. Bowers says, "We are committed to substantial growth in both sales and profits." The company expects strong growth from its new tech products. Bowers says, "A year from now, these products will represent a much higher percentage of our total sales and profits than today. Three years from now, people might not recognize us, as we will have changed and grown our business in major ways. Our core values will remain the same, however."
Consolidated Label plans to investigate new marketing and manufacturing techniques in the coming years. Carmany says, "We want to continue our thrust for growth in sales and geographic coverage and we'll also be looking towards the internet and new printing processes."
Labelgraphics will be doing more physical expansion. Brown says it is building a new 160,000 square foot factory warehouse for its group of companies that it plans to move into in August 2006.
Beck says API Graphics will try to appeal to more companies in the industry. He says, "I see my company in 2006 being much more diverse, serving a broader range of customers."
Volkman says the focus for Xpanded Label Technology in the next few years will be growing the company and expanding its client base. He says, "We're going to be adding key people in our organization and basically continuing to build strong alliances with suppliers and customers." In three years' time, Volkman says, "We hope as a startup company to be well-established in the industry."
It is difficult to predict how the next few years will play out, especially in an industry where change is the norm. Bowers says, "We feel that the narrow web printing market is changing very rapidly and that not all of the changes are positive for printers. We feel that you cannot continue to run your business the same old way and expect to succeed in this changing market."
Beck agrees that change is inevitable. "I see a continued shaking out of the industry — excess capacity, the larger companies getting larger and others going away or being absorbed," he says.
As of now, however, the outlook for the narrow web industry in North America is mainly positive. The economy has taken a turn for the better and the attitude of label converters is upbeat with regard to their companies.
Fulwiler says, "There's always the continuing reliance on using packaging to sell products," which will help keep label printers busy in the coming years. He also points out the new potential with RFID and new government regulations that require more labeling of products as factors that will help sustain the narrow web industry.