North American Label Markets
The North American label market has weathered economic storms while embracing technological changes.
By Catherine Diamond, Associate Editor
The North American label market is big, but it was never too big to fail. When the recession hit, it hit hard and gave converters and suppliers a walloping. But the people in this industry are too smart, too tough and too determined to allow themselves to fail. And so, they haven’t.
The label industry is full of people who roll with the punches – changes in technology, mergers, acquisitions, customer requirements, regulations and so on. So it comes as no surprise that the industry has weathered the economic storm and is in the process of making a full recovery. Several reports by industry organizations, as well as informal surveys done by individual companies, indicate that the North American market is slowly but surely bouncing back.
TLMI Chairman Art Yerecic cites his organization’s recent survey as a strong indication of recovery. He says the most recent issue of the TLMI Biannual Index & Trend Report shows that the majority of surveyed converters are reporting quarter-over-quarter and year-over-year growth for both sales and profits. “These results echo what is occurring in the greater economy. Economic indicators are signaling sustained growth through 2012, though this growth is expected to slow in the last two quarters of the year compared to the first two quarters.”
AWA Alexander Watson Associates, a global business-to-business market research company based in Amsterdam, reports that the North American label market saw a 1.2% growth in 2011 over 2012. While a 1.2% growth may not seem worth celebrating, it’s important to remember that the sheer size of the North American market will not allow it to see double-digit growth, like other developing countries. In a more indicative statistic, AWA also reports that 2011 volumes now approximate those of pre-2008.
“The North American label market is the third largest in the world, behind Asia and Europe, with 22% of the world’s label share,” says Corey Reardon, president of AWA. “North America, like Europe, is a highly-developed and mature market, and is expected to grow at a slower rate than Asia, South America and other emerging markets.
“Overall, North American growth in labels has been driven primarily by sleeve labels, with sleeve label demand showing strong growth at 5.3%. Heat-shrink sleeve labels showed a 5.5% volume increase, competing strongly with PS labels,” Reardon says.
James Kissner, senior national sales manager of anilox supplier Harper Corporation America has seen the market’s growth firsthand. “We continue to see a small but steady growth in the narrow web market. With a lot of customers, they are standardizing their processes, including anilox rolls, to maximize sustainability within their own shops,” he says. “Based on our discussions with customers, OEMs and suppliers, we expect to see positive growth continued throughout 2012 into the first quarter of 2013.”
Brian Bishop, president of press maker Gallus, Inc., Philadelphia, PA, USA, says that his company has seen significant market recovery over the last six months, specifically. “There are several reasons that are driving the market increase,” he says. “With consolidation in the industry, buyers understand that new machine technology can make a significant influence in the success of a business. We also see that companies have been waiting for better news in the economy. Even though they might not have seen exactly what they were looking for, they felt they could not wait any longer to invest.”
Follow the leader
The North American label market is not only set apart from others in terms of size, but it is also a dynamic, global leader. Many of the technological advancements that have moved the global industry forward have been born in North America, and it hasn’t gone unnoticed.
“When it comes to innovation or labeling technologies, markets outside the US tend to follow the leader,” says Kyle Baldwin, marketing analyst at Spear in Cincinnati, OH, USA. “The South American region, for instance, is playing catch-up as pressure sensitive technology holds only a 30% market share, but is growing at double-digit rates. The same can be seen in Asian Pacific markets where pressure sensitive technology is roughly 40% of the market but again growing at 9-10%.”
Massimo Bellingardi, marketing coordinator at Italian press maker Omet, says that the design of the North American economy has driven its need for innovation. Quite simply, he says, it’s about competition. “The North American market has historically been more sensible to innovations about materials and finishing on labels. Consumers are used to finding more and more different proposals on the shelves and must be continuously stimulated,” he says.
Geography plays a major role in the needs and strategies of regional label industries. Much like the languages found in Europe, there are sharp demarcations between where a product is available and where it is not. In North America, however, there are very few boundaries – and lots of consumers. “European converters tend to be country or region-specific, whereas the US naturally sees less of those boundaries, and works across the entire country,” adds Sean Skelly, vice president and general manager of EFI Jetrion in Foster City, CA, USA. “For converters that do work in more than one country, short-run opportunities that need localization are driving new business opportunities.”
Yerecic, of TLMI, also points out that the North American per capita label consumption helped preserve the industry through economic strife. “The North American narrow web sector is one of the most dynamic packaging markets in the world. One of the factors that separate us from most other developed markets globally is the sheer size of this market. Our label consumption per capita volumes are the highest globally and our average run sizes is also amongst the highest.
“This is a mature market that was developed by pioneering entrepreneurs pushing the boundaries of the flexographic printing process to make it what it is today – a print process that successfully competes against letterpress, gravure and offset,” Yerecic adds. “These attributes present both opportunities and challenges to North American label converters. Due to consumption-per-capita volumes being high, the North American narrow web market has the ability to persevere through economic uncertainty and global downturns. However this is also a mature manufacturing sector with high capacity levels. North American label converters are required to be more lean, efficient and innovative than ever before if we are going to be successful at growing our companies and advancing the greater industry.”
Green is here to stay
One of the ways in which the North American label industry is moving forward is by making advancements in sustainable practices. The shift towards greener production methods is one that is not simply dictated by regulatory requirements or consumer preferences; it is necessary in order to keep converters, manufacturers and suppliers at the top of their game.
According to AWA’s Reardon, waste management is one of the biggest issues in the North American label market. “The industry is continually working on reduction in caliper of materials, development and commercialization of recyclable materials, and avoidance of landfill.
“Many alternatives to landfill have been developed for label materials, especially for waste generated by matrix and spent release liner in the pressure sensitive label industry. Although many programs are succeeding, the difficulty of setting up efficient and affordable collection of spent materials and cooperation within the industry are slowing progress,” he says.
Bishop, of Gallus, says that in order for sustainable initiatives to work, companies need to see the bottom line. “We are convinced that sustainability is driven by sound financial goals,” he says. “You cannot promote sustainable ideas without the proper return on investment. Customers continue to challenge the converters and machinery manufactures, and we are responding with new, innovative labels with thinner liners and thinner substrates. We are also eliminating a lot of setup time and changeover waste with short web path technology and/or servo technology, such as the ‘flying imprint’ we offer on some models.”
The competitiveness of the North American market, in particular, is a driving force behind eco-friendly initiatives, says Steve Schulte, vice president of sales and marketing at Mark Andy, Chesterfield, MO, USA. “Sustainability has an increasing role in today’s market,” he says. “Not just as an environmental initiative, but green philosophies are pushing our industry to better itself.
“Becoming more efficient is becoming more sustainable,” Schulte says. “The US economy is driven primarily by profitability, and that is where sustainability will reap its success. Sustainable initiatives must be viable to a company’s bottom line, when technology is developed to meet both productivity and sustainability requirements. Those who adapt in this way will succeed.”
Brent Fischman, director of marketing and corporate development for RotoMetrics, Eureka, MO, USA, says that his company is constantly asking itself, “How can we make this more green? How can we move this forward?
“Our converters are looking to have more sustainable production methods,” he says. “It plays a role in everything. We’re proud to report that we’ve achieved ISO 14001 certification, which is the highest benchmark for global, environmental management. That’s the commitment we’ve made as a company.”
TLMI offers its members another way to ensure that they are embracing sustainable practices: Label Initiative for the Environment (LIFE) certification. Yerecic says, “A recent survey of TLMI converter members indicated that more than one in four companies currently have one or more environmental certifications, and nearly 40% indicated that they already are, or plan to become environmentally certified within the next 12 months. Sustainability is no longer a back burner issue and TLMI continues to dedicate significant resources to providing educational and reference tools to our members to assist them in positioning their companies as progressive stewards of the environment.”
A united, digital front
The North American label market is not unique in its quest for green-ness. It is a global movement, spawned by international regulations and consumer demand alike. One way that those involved in the North American label market have established international ties is through the inevitable mergers and acquisitions that are so common in this industry.
“When discussing M&A activity, the labeling industry must be looked at in a global perspective,” says Reardon of AWA. “A good amount of the activity includes globalization. M&A activity remains strong in the global label industry, with continued consolidation at many areas of the value chain. Activity at the label converter level in North America has, and will continue to drive highly-competitive situations as a small number of larger converters are developing a full offering of all labeling and packaging technologies. This broad product offering may give these converters a competitive edge, especially when serving large FMCG (Fast-Moving Consumer Goods) companies” he says.
Bishop, of Gallus, says that M&As have initiated significant changes in the industry, and that’s not necessarily a bad thing. He says, “M&As have taken a large share of the smaller converters out of the market and increased the size and strength of the remaining converters in an ever-changing, global market. If done properly, it takes the best of both worlds and makes the company stronger. It has also changed how businesses run, typically driving up p-ant utilization significantly.”
According to Skelly of EFI Jetrion, the reasons behind many M&As may not always be financial, but technological. “There has been an increase in acquisitions of converters in order to get into digital printing, and acquisitions of technology companies by various firms,” he says.
Indeed, the proliferation of digital technology in the North American market has been significant. Some say it has leveled the playing field for smaller and start-up label converters. Skelly adds, “Digital technology is changing the market in profound ways. It is driving expectations of short and shorter turnaround time. In some cases, digital quality is better than flexo; in other cases, flexo maintains the upper hand because of some of its capabilities. It’s created new marketing opportunities, such as QR codes, and offers support for the proliferation of SKUs and product variety.”
Baldwin, of Spear, emphasizes the importance of digital technology with regard to smaller companies: “Digital printing has greatly reduced barriers for the start-up converter. Due to simplicity of use, digital doesn’t need the experienced press operator that conventional presses require.
“The digital platform has really taken the market by storm,” Baldwin says. “Digital has influenced the industry by reducing time to market, allowing for more targeted marketing such as seasonal and personalization (at lower costs). It also has allowed customers to better manage inventories and obsolescence by being more cost effective to run smaller quantities more frequently,” he says. “It has also improved quality both from resolution and registration. When customers see this improved quality, they obviously expect it. It’s not uncommon for a digital press to be ‘dummied down’ to match flexo/gravure quality.”
Gallus’ Bishop points out that the popularity of digital technology has caused people to re-evaluate their entire business model. He states, “Digital has drastically changed a weak spot in the market by dynamically changing how converters look at short run jobs. Digital quality is exceptional and continues to influence innovative flexo plate technology and machine setup and waste. It has also influenced how customers run their business. It has to be a different mindset with sales channels and how to get the product on and off press with as few touches as possible. New workflow software will also significantly influence the converter in the future, helping them direct the product to the appropriate machine mix within the facility.”
Corey Reardon acknowledges that digital printing in North America is seeing growth in shorter-run, on-demand print jobs. He says, however, that the definition of small volumes is growing, and the break-even point between digital and traditional presses is a moving target. “Many label converters are adding digital label presses as a supplement to their current print operation, opening doors for new business they previously couldn’t service. The quality of digital print continues to improve as the technology is refined, and many labels printed digitally today match the quality of labels printed on ‘traditional’ label presses.”
“The bottom line is, digital is the way of the future,” says Baldwin. “Once speeds become comparable to conventional presses there is going to be a huge paradigm shift. Its definitely an exciting time for printing technology.”
Just as digital technology has allowed North American converters of different sizes to compete, so, too, has shrink sleeve technology. Flexible packaging – including shrink sleeve and MIP labels – still has wide areas of growth, says Bellingardi of Omet.
Yerecic says many in North America see the value of shrink sleeve technology, and they’re making the investments to prove it. “We are seeing continued growth in the shrink and non-PS filmic sectors. TLMI recently polled brand owners asking what types of label application technologies they are investing in. More than 40% responded that they are investing in new shrink sleeve label application systems while just over 30% responded that they are investing in new pressure sensitive label application systems. This is still a sector to watch and one of the double-digit growth areas in our industry.”
Again, the scope of the North American market has driven the need for technology that produces eye-catching, competitive labels. “As brand owners compete for shelf space, shrink sleeves offers more space on the package to grab the consumer’s attention,” says Schulte of Mark Andy. “I feel that the shrink sleeve market will continue to grow and in order to be profitable in this market, converters need to focus on best practices and leverage new technology to gain a competitive advantage,” he adds.
According to Spear’s Baldwin, shrink sleeves are definitely not a fad, as indicated by the relatively high growth rates in the US. “Globally in 2011, shrink held a 15% share of all labeling formats,” he says. “In South America, China and India, shrink is growing at nearly double digit rates and in the US it’s growing nearly 6% annually. Shrink will never replace traditional labeling formats, but it will certainly have its place,” Baldwin says.
Bishop, of Gallus, adds, “It’s all about shelf appeal. It’s an innovative way to increase the look and feel of the products consumers buy, allowing us to see the contents inside with more and more brand reconnection from the outside.”
Moving forward, those in the North American label industry should – by all accounts – expect good things. The competitive spirit of the region (and the fickleness of consumers) will necessitate innovation and continue to push the market forward.
The primary challenge? Concludes Schulte, “The competition never lets us rest.”