Middle East Label Markets

By Steve Katz | November 11, 2010

The region's sustained growth is fueled by a growing urban population and an increased demand for consumer goods.

There is no place on earth like the Middle East. Populated by diverse and sometimes polarizing cultures, the atmosphere is intense. Religion, politics and economics are always hot topics, and the region perpetually makes headlines. And when it comes to the label industry, the Middle East is emerging, like Latin America and Asia, yet also is somewhat insulated from the Western world. That is a differentiating factor, and perhaps one that fuels growth and protects the region from some of the economic problems that have confounded Europe and North America in recent years.

According to Pira International, a strategic consulting firm for the global paper, packaging, printing and publishing industries, the label business in the Middle East has increased from about $150 million in 2000 to $225 million in 2009, and generally remained stable in the face of the global recession between 2008 and 2009. Regarding the label industry, Pira reports: "Continued growth is anticipated in the sector over the next five years with total expenditure expected to reach almost $340 million in 2015, measured at constant 2009 prices. Saudi Arabia will account for about half of this market."

In general, the firm says that demand for labels in the region is seeing sustained growth, fueled by a number of factors, including an increasingly urbanized population, and growing demand for processed foods. Also, "the ongoing modernization of traditional retailing and a number of government incentives to promote non-oil industries are in turn encouraging growth in the food and FMCG industries," states Pira International.

With the growing label market, there is also an increasing demand for higher quality graphics, the firm reports, which is not only to satisfy more discerning local consumers, but also in export markets where products compete for global shelf space in the world's supermarkets. "In this respect," Pira reports, "traditional print processes such as offset, gravure and flexography currently dominate the higher graphics end of the market, although advances in electrophotographic and inkjet technology will see this dominance eroded over the medium to long term."

Equipment and processes
Some suppliers, and even some of the region's converters, attest that specific areas of growth in the Middle East can be difficult to quantify. However, professionals within the region, as well as abroad, concur that the growth is real, and hard evidence can be found in equipment purchasing.

"The label market has been experiencing year over year growth and equipment sales have soared almost 100 percent," says Diana El Kara, press officer for Dynagraph, a printing equipment supplier headquartered in Dubai, United Arab Emirates. She also notes that growth has taken place in countries where it was least expected, namely Jordan and Lebanon. "Dominant players in the Middle East are Mark Andy, Gallus and Nilpeter. Others are present, however, and their impact on the industry happens to be regional – for example, Gidue leads the Jordanian market with its Combat press."

Shyam Babu, managing director of Nilpeter Middle East, discusses the region's overall growth, and also emphasizes the range of machinery present. "By all means, there is positive growth," he says, "and a lot of it has to do with the requirements of the packaging industry. Many customers are having further expansion plans which shows that the market has the confidence and capacity to feed the growth," he says. When it comes to the types of equipment being used, Babu points to diversity. "There's all kinds of machinery – from Chinese to European, printers here have got every kind of machine. Specs-wise, they are going for relatively smaller sized machines. Flexo dominates the packaging industry, but we also see gravure and offset – but for special applications," he says.

Elmar Zanforlin, international sales manager for Mark Andy, talks about his observations regarding the regions machinery and predominant processes. "For small runs, intermittent letterpress is still the dominant printing technology and there is a minor rotary letterpress presence for high-end prime labels. Most inquiries over recent years have been for inline flexo presses, leading us to believe that it is now the dominant printing technology for the label printers in the Middle East," he says.

Sami M. Al-Fayez, general manager for Sticker Products Company, a converter in Riyadh, Saudi Arabia, says that despite the Middle East's status as an emerging market, there's a long way to go.

"Consumption of labels per head remains quite low compared with other developed countries, although there is no official figure by any association. I would suspect that consumption per head in Saudi Arabia is 1 square meter per head (10.7 square feet), which translates to almost 30 million square meters (323 million square feet). And this is considerably low when consumption per head in other developed countries is 8-10 square meters per head," he says.

Al-Fayez also notes flexo's emergence in his country. "Letterpress printing used to be the dominant printing process in Saudi Arabia. However, during the last five years, there has been a shift towards flexo printing due to the significant improvements in flexo plates and ink quality."

Anthony Murphy, commercial director and general manager, Flint Group Packaging and Narrow Web, Middle East, points out that UV flexo presses are the most dominant, followed by UV letterpress and water-based flexo. "Gallus is definitely a clear leader in the region both in UV flexo and UV letterpress, as well as Mark Andy, MPS, Nilpeter and Omet. Many smaller narrow web converters remain with water based flexo as this is the most cost effective method of printing for their needs. The Middle East label market has grown relatively well over the past six years with more than 35 presses entering the region. The United Arab Emirates, Israel and Saudi Arabia are the most advanced areas with the latest technology, Israel being the leader in this field," says Murphy, adding that Israel is also leading the way when it comes to the adoption of digital print technology.

Israel is a Middle East nation that stands apart from the others, and this is based on its cultural and political differences. Gideon Fishman, managing director for Pitkit Enterprises, a 40-year old Israeli label converter, says the most common press equipment in Israel is Gallus and Nilpeter rotary letterpress machines. "There are also a large number of second-hand presses from various manufacturers, and recently, there has been a significant increase in digital HP Indigo machines," says Fishman. (A spokesperson for HP says that HP Indigo, headquartered in Israel, does not have a presence in countries that do not have direct trade agreements with the state of Israel.)

"I would say that digital printing in the Middle East has a long way to go," notes Al-Fayez. "I do not know of any label printing company in Saudi Arabia that uses digital print technology, and I believe one of the reasons is lack of reliable after-sales service and support. Cost of labor is still relatively low, so the cost of printing using conventional machinery is also low. Other factors include lack of well-trained operators and the high cost of consumables," he adds.

In the Middle East, when it comes to demand, food, beverage, cosmetics and personal care labeling seem to stand out as areas of focus.

"Saudi Arabia and the Middle East region – in general – experience one of the highest birth rates in the world. Therefore, food and toiletries are the two major sectors that are growing significantly," Al-Fayez says.

Nilpeter's Babu describes the types of labels converted as being of "medium quality," and points out the significant growth of the cosmetics and toiletries markets. He says, "The Middle East cosmetics market is worth more than AED 7.70 billion (USD 2.1 billion) and is growing at 12 percent, according to Euromonitor International. Consumption of cosmetics is said to be strongest in the gulf states, where average per capita expenditure is currently estimated to be $334 per person – one the highest rates in the world."

Mark Andy's Zanforlin points out that, in recent years, products previously imported are now being produced in the region, resulting in a growth in pressure sensitive demand. "Because these locally manufactured products are still competing with imported products, the quality standards are quite high. Label converters recognize the power and capability of inline flexo to meet these high standards. Growth can be seen in food and beverage and consumer goods markets with a variety of applications ranging from standard tag and label to film wraps and shrink sleeves," he says.

"Flexible packaging printed in both UV flexo and UV offset are the two fastest areas of growth. We see customers printing shrink sleeves, wrap-around labels, stand-up pouches and IML," says Flint Group's Anthony Murphy.

Shrink sleeves is an area that's gaining ground in the Middle East, as is the case in other regions. AWA Alexander Watson Associates estimates the total market for heat shrink sleeve labels in 2009 as 90 million square meters (970 million square feet), representing approximately 6 percent of the total global market, and the firm reports that several converters are active in the Middle East. "There has been investment in other countries such as Israel in additional narrow web flexo presses to better serve growing demand. Juices and dairy products as well as flavored alcoholic drinks are leading areas of demand in these emerging regions of use," reports AWA in its Global Sleeve Label Market and Technology Review 2010.

In AWA's report, titled Global Beer Label Study Product Decoration Market & Technology Assessment 2009, data revealed that beer labeling is on the rise, despite cultural restrictions on alcohol. "Excepting Israel, the increasingly assertive Islamic identity throughout the region has made drinking alcohol unthinkable to large sections of the population. However, there are opportunities for growth in sales of beers, especially in the development of markets for non-alcoholic beers," AWA reports.

Challenges abound in the Middle East. Whether because of the recent real estate crash in the UAE, the effects of the global recession, war or political upheaval, the business environment can be tricky. And for a Westerner attempting to enter the market, transitioning to the Middle East business environment is not seemless.

Dynagraph's Diana El Kara observes that the region's printing industry in general has been very sluggish in the past couple of years. "We believe this trend will linger for the next one or two years. However, countries have witnessed the downturn in different ways, and some even have been unaffected, while countries like the United Arab Emirates and Kuwait were most affected. Others such as Qatar and Saudi Arabia felt the wrath of the global economical crisis to a lesser extent," she says.

Elmar Zanforlin of Mark Andy notices economic improvements in Lebanon over recent years, resulting in some in-line flexo machine installations. "Before the real estate crash in UAE, this market was also showing some growth, but we expect it will take some time for this market to recover," he says.

Iran, Saudi Arabia and Syria were not affected by the recession, mainly because of domestic demand, notes Nilpeter's Babu. He says, "Other countries were affected due to lack of confidence and anticipation regarding the future. But now it seems that we have got positive waves and its been great to see how the printers are making expansion plans and are currently busy with their setup."

Flint Group, which has had a presence in the Middle East for over 15 years, and in 2004 set up a branch office in Dubai to support the region, has a differing viewpoint. "The recession has not really impacted the Middle East. In fact, we have seen steady growth since 2008 when the recession started, and we continue to grow in new areas," says Murphy, adding, "With the acquisition of Torda Middle East in 2010, Flint group now can even improve its service further by its increased ability to serve the region both technically and with locally held stock."

And finding the right mix of materials can be difficult, notes Zanforlin. "Middle East converters, whether purchasing new, or running existing presses, are challenged with sourcing consumables like inks, doctor blades, material, etc. Often these are not offered locally and the converter is required to source them overseas, resulting in higher import costs and longer lead times," he says. "Another challenge is to find quality press operators in the region, with converters often looking for operators from other regions such as the Philippines or India. And finally there is the challenge of exporting. Some Middle East countries are quite small, and should those converters decide to export their product, significant setup and logistical planning needs to be done," he adds.

Al-Fayez points to a competition and pricing hurdle. "The problem we face as a label printer is that the number of major companies who consume large volumes of labels are relatively small, and all local label printers are keen to supply these companies which leads to cutthroat competition as every printer tries to undercut other competitors, which results in very small margins and unhealthy competition," he says.

Pitkin's Fishman echoes this sentiment, and says it's rampant in Israel. "Our main problem is low prices and 'impossible' competition. We try to give good quality and service at reasonable prices. But we do lose some customers due to these competitive forces. So a goal is to find new niches where there is less competition," he says.

"There are many challenges that we face," Al-Fayez continues. "However, the main challenge has always been 'how to ensure the high utilization of machine capacity'. In other words, how to ensure that sufficient orders are in our order book that will keep our machines running."

It seems that the challenges facing Middle East converters are not unlike those in Europe and North America. Cost of raw materials has been on the rise since 2009, Al-Fayez says; area converters are not able to pass on such increases, and everyone risks losing their own customers. "As a result, each company tries to find ways and means to increase efficiency and productivity in order to minimize costs."
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