A few years ago, L&NW focused on Western Shield Label as one of its Companies to Watch, an annual feature of label converters who are leaving their mark on the industry. And watch it we did, as the company engaged its well planned strategy of growth through acquisition. In the recent past, Western Shield Label has made four acquisitions of regional label companies, adding a strong boost to the bottom line along with organic growth.
Western Shield Label Company is located in Rancho Dominguez, CA, USA, part of the vast metropolis known as Los Angeles. The business was launched in 1970 by two men, one who wanted the word Western in the name, the other who insisted on Shield. They compromised. In February 2001, the remaining partner sold the company to Alpine Holdings, an investment group headed by Graham Weaver.
"The company had always done well, and had a great group of customers," says Frank Connelly, CEO. "The owner was grooming it for sale, controlling costs and maximizing profits. Graham liked the numbers, along with the fact that it's light manufacturing, not a high risk, and not an unknown quantity."
"There was a lot of repeat business, custom in nature, regional, all the things that make this such a nice business," adds Thomas Moyer, Western Shield's president.
Weaver sought out Connelly, who at the time was in sales for Mark Andy, and hired him to run the company, improve it, and make plans to buy some more businesses. In the past decade, Western Shield Label has tripled its sales. When Connelly arrived in 2001, annual revenue was $3.2 million. This year the company expects to top $10 million.
"The idea was to grow by acquisition," says Connelly. "That was the philosophy 10 years ago, and it's still in place today. We have made four acquisitions. The largest of those,almost two years ago, was California Pacific Label in Anaheim. The former owner's main account is now our largest customer."
The smaller acquisitions involved purchases of equipment and accounts. "Two of those were companies that couldn't make money any more, and they asked if we wanted to buy their equipment, or their customers, or both," Moyer recalls. "In one instance we said yes, we will buy your equipment and will give you a commission on your customers. To the other, we said we will buy their equipment and customers, and they both went out of business."
Western Shield is working on a few more acquisitions today. "These are companies that prefer to sell," says Connelly, "to get something out of their investment. They are at a point now where they are saying, 'Let me build it back up to a point where it was in 2007, or 2006, and then we'll talk'."
Thomas Moyer had worked in Chicago for GPA, which sold sheetfed materials to the offset printing market. The company had a division called Laser Label Technologies which was bought by Bemis. Moyer went with it and worked for MACtac, also owned by Bemis, as a regional account manager. In 1997 he moved to California to call on converters, then took a job with Sekisui STA Industries, rising to director of sales, for five years. He and Connelly knew each other through the Southern California Label Manufacturers Association, and Moyer joined Western Shield in 2006.
Marketing and specialization
Western Shield Label's largest market is food labels – which is probably one good reason the company weathered the recession with relative ease. About six years ago, the company got into making expanded content labels (ECL). "We haven't had a ton of penetration, but we make a nice product in that area, and have had some pretty good success," says Moyer.
Connelly and Moyer devoted time over the past couple of years to crafting a detailed marketing plan, which makes use of the capabilities of the internet. They hired a marketing manager to develop the website and provide the company with better search engine optimization. "We put into play pay-per-click through Google, and we went from 30 clicks a month to about 100 a day," Moyer notes. "We built a marketing system that included direct mail, website, search engine optimization, pay-per-click. Frank and I responded to the internet leads, then we started to add inside sales people whom we could train to close those leads. We went from 10 to 15 new customers a year to 100 customers a year.
"About 70 percent of them were relatively small, 15 percent were huge, and the rest were kind of in the sweet spot that we were looking at," Moyer recalls. "It represented growth and getting our name out there, but it also tested the systems: Was direct mail going to work, was telemarketing going to work, was driving business through our website going to work best? We've tried all of them and have been successful, and now we are trying to fine tune it a little more. But I'd say that that's the big reason for our success in the past five years – bringing on lots of new customers using our websites."
Connelly says that the company has gotten many good customers from referrals, some from friendly competitors who are aware of their capabilities. "And we get leads from across the country. We ship outside our borders. One large customer is in Central America. A lot of people, of course, prefer to be nearby their printer, to save on freight, to come by and see us, to see if we're legit, to check up on jobs."
"We've been shocked," says Moyer. "We have customers in Florida, New York, New Jersey, Central America. Why are they calling us? There are 10 printers within a 30-mile radius of where they are. But the internet has created this. If they called us and found us, all we have to do is handle them well."
"One customer came to us through an ad agency in Cincinnati," Connelly says. "Of all places, Cincinnati has some very good printers. Their ad agency found us online. They flew out here and did a press check."
At work on the Roto Press.
Both Connelly and Moyer are active in sales, and the company also has two outside sales people, two inside sales people, and two customer service agents. About 25 to 30 percent of the business is through resellers. "Some sell through the trade only, some through end users only. We have been able to manage both. We have maybe 30 reseller customers who may have hundreds of reseller salespeople in total. Other label printers are among that 30 percent, friendly customers who maybe can't do 10-color work or screen printing or ECLs," says Moyer.
Fighting costs from within
Western Shield is pursuing Lean Manufacturing in a serious way. "In November we hired Kirk Miltimore as our director of operations, and he's already put in place a couple of Lean projects to help us with our costs," Connelly says. "In the last 18 months we have had about six price increases from materials suppliers, another one goes into effect tomorrow, and we've been advised to prepare for two more before the end of the year. One says liners are responsible, another says it's adhesives, and there are fuel and energy surcharges attached. So we are feeling that, and in response, or in preparation, we are trying to be as cost effective as possible.
And I was surprised to learn how much low hanging fruit there is to carve out some costs in time, labor and materials.
"Kirk is a black belt in Six Sigma, and has a Lean background," adds Moyer. "And now, our manufacturing manager, Tamar Santana, who has been with us for 21 years, is certified as a Six Sigma green belt." The company received a grant from the state of California and brought in state-sponsored Lean training personnel for the producation team. "We also held a training program in ESL (English as a second language) because we have a large Spanish-speaking base.
"We feel like a small company with a larger company's systems, infrastructure, professionalism, and strategies," Moyer says. "We're hoping that pays off in profitability. With hyper-inflation of raw materials you have to cut costs without hopefully cutting people and destroying the morale. We have opted not to cut people and opted for looking for ways to cut costs. And we've hired more expensive people."
"Through the acquisitions we made, which were very timely for us, we actually went up on the top line," says Connelly. "Percentage-wise, the margins are squeezed a little bit. With the first round of price increases in 2008, we lagged in passing those along to customers, and it impacted the bottom line. But we have been keeping up with what's going on in the marketplace, and we haven't laid anyone off for lack of business."
"2008 and 2009 were pretty solid years for us. We had made good investments in 2006 through 2008," Moyer says. "Food labels are essentially recession proof. One of our big customers is in dessert foods – cakes and cheesecakes. These are discretionary purchases, but sales actually go up in recessionary times, like with booze, because people want to escape from their problems, so let's have a cheesecake."
"Customer loyalty is still alive," he adds. "They get freedom from pain, they don't run out of labels, they don't have problems with labels not sticking, they don't have copy errors, they don't leave messages not knowing if they are going to get a return call, they get a live body who knows their business and who is going to respond to them if they need turnaround in a day. They get security – security that their production lines are not going to go down."
The digital question
Just recently, Western Shield added 10,000 square feet of space, turning a crowded operation into a spacious plant of 27,000 square feet. It's possible, says Frank Connelly, that a new servo-driven flexo press might be added to the printing arsenal. It's also possible that a new digital label press might show up.
"HP Indigo is the industry leader. Xeikon, Jetrion and a couple of other companies have earned a place at the table," says Connelly. "We were thinking that we were about 90 days away from something happening with digital, and we've been doing that for the past year and a half, and it's still not happening. We are still sizing it up. HP will tell you that inkjet is the way to go, though they are still three to five years away from bringing that to a format that would work for our industry. So why buy the Betamax when it turns out that we have to go VHS in a couple of years? This stuff is changing so quickly. Impressive equipment is coming out. So we really haven't come to any conclusions. We're still going to school on it."
"We are struggling with how to make a profit with it," Moyer notes. "The Indigo is a beautiful machine, reduces waste, reduces setup time. It's a million dollar investment, and you have to get a finishing machine. Then you have to pay off that million bucks. We ran the numbers, and the monthly cost was high� You have to do a lot more than just take business off of your flexo presses and run it on your digital press. Is it a beautiful technology? Yes. Is it the future? Probably. Is it a way for us to make money today? More money than we make now, incremental margin dollars? We haven't seen it yet. That's the reason we haven't jumped in with both feet. We want to jump in because we don't want to be that far behind the curve. But from a standpoint of profitability, we are not entirely sold that it's going to make us more money."
Running a Mark Andy 3000 press.
Western Shield Label employs 43 people and produces flexo labels on three Mark Andy presses and one Roto Press. The company has rotary screen printing capability as well.
"We have press operators who have been here 14 years. That's not necessarily unusual, but we definitely take care of our press operators," says Moyer. "We print to what our eye says is good printing, not to what the customer says is good printing. Because the customer's definition of good printing is usually two or three levels of quality below what we would say is good printing. We look at something and ask, 'Would I accept this?' We know that the customer would accept it – the customer would love it.
"Our work force takes so much pride in the fact that they can walk into stores and see the labels that they printed, and they don't want it to go out of here looking anything but perfect. We lucked out with so much pride in what goes out of our doors. I really give a lot of credit to our press operators, our production manager� We care about them, we treat them well, we pay them well, we care about their work environment, we care about their families. They care about the customer in turn."