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The pound takes a pounding – collateral damage to Marmite

By John Pennhallow | November 14, 2016

With all eyes on the outcome of the US presidential election, few Americans will have noticed the dramatic slide in the value of the UK pound. A 15% drop since June 2016 is starting to make consumers sit up and take notice in a country that imports most of its food. Surprisingly, UK media attention has focused on Marmite, a food product that is produced locally. For any readers who do not know, Marmite is a spread that has the color and texture of axle grease, but smeared thickly on a slice of bread it is an iconic symbol central to the British Way of Life. Unilever, which makes Marmite, tea bags and thousands of other food products, increased its prices to UK stores to compensate for the falling value of the pound. Tesco, a major retailer in the UK, hit back by delisting a whole slew of Unilever’s products from its stores. The popular press got hold of the story and had a field day, and now it looks as if a compromise is on its way.

And what has that got to do with the label business? For labels themselves, not much. Britain is a net importer of labelstock (and other consumables), so prices are already on the rise. However, with a bit of luck and good judgment,  British label converters, unlike Unilever, will be able to pass on the increases to their customers. This may not be so easy for equipment manufacturers, many of whom see Britain as a lucrative export market. Mark Andy’s UK business is likely to be hit hard unless the present $/£ exchange rate goes into reverse, but much the same is true for OEMs manufacturing in the remaining 27 countries of the European Union. If you mentally tick off all the label equipment suppliers you know, you’ll find a lot of big names in those countries, and particularly in Germany, Benelux and Italy (think of Omet, Bobst/Gidue, Durst, MPS, Xeikon and many others… and those are just the press manufacturers). Denmark has its own currency, but its exchange rate scarcely varies against the Euro so you can throw in Nilpeter and GM (Grafisk Maskinfabrik).

Ditto for the Swiss Franc, which will not help Gallus’ business in the UK either. Currency hedges may protect in some cases, but for many trading companies (and governments) the result of the Brexit referendum came as a bolt from the blue. Of course, all these companies will say they sell on technological excellence and not on price. True to an extent, but a 15% hike is pushing it.

Shot in the arm – or in the foot?
When we look at things from the British point of view, of course the picture looks rosier, at least in the short term. The Euro Zone and the United States are Britain’s main trading partners, and the effective devaluation of the pound has been a regular shot in the arm for British label equipment manufacturers like Edale, Focus and Domino. AB Graphic, a manufacturer of label finishing lines and other equipment, already has a plant in Germany, although most of the production is in the North of England. Asked about the devaluation, AB Graphic’s sales manager Tony Bell replied,“There has never been a better time to buy British, it’s the best value on the planet. Longer term, the Brexit effect will soften as we see the effect on bought-in components from the Euro Zone, but no sign of that yet.”

This brings us to the longer-term consequences of last June’s Brexit referendum. In the event of a “hard” Brexit (i.e. an acrimonious divorce) the EU and the British government will each be at liberty to impose tariffs on goods imported from each other. More insidiously, the door will be open to all kinds of “technical protectionism.” For example, “Your widgets don’t meet our standards.” This will restrict trade and increase costs on both sides of the Channel.

News from a forgotten corner of Europe
It is easy to overlook Belarus. This country of nine million inhabitants can be found sandwiched between Poland and Russia. Its president, Alexander Lukashenko, has been in power since 1994 and regularly wins elections with over 90% of the vote. This gives you an idea of how popular he must be, since even his ally Mr. Putin can’t match those scores. But Belarus needs labels and printed packaging, and Uniflex in Minsk is one of a small number of companies using modern equipment to meet that demand. Investments in up-to-date technologies, such as water-washable and solvent flexo plates from Asahi and Equinox prepress from Esko, as well as 10-color HD flexo printing and finishing technologies from Comexi, now mean that Uniflex can produce top quality packaging and labels. It is also the proud owner of what is probably the country’s only HP Indigo press – a WS6600 installed two years ago. Uniflex is also Belarus’ only FINAT member.

The Domino effect
Everyone knows how Silicon Valley introduced the world to the term “cluster effect,” by which high tech companies can bounce ideas off each other. In France, both Paris and Montpellier aspire to the title of Silicon Valley à la française. It is Cambridge, England, however, which might just possibly be called the Silicon Valley of digital printing. The university launched scientific and engineering faculties back in the 19th century when such pursuits were not considered quite suitable for the sons of gentlemen. Today, the sons and daughters of all classes fill the labs and amphitheaters of the university and spill out over the adjoining science park in the hope of making discoveries, or money, or both. Start-ups in this science park are two-a-penny in many fields, but one of the things that Cambridge seems to do better than most is digital print technology. The university’s engineering faculty even has its own Inkjet Research Center. Global Inkjet Systems (GIS) is a Cambridge company developing software, electronics, user interfaces and ink supply components for industrial inkjet systems, including the recently launched Ricoh MH5220 printhead. Better known in the label business is another Cambridge company, Xaar. Founded in 1990, Xaar is considered by many to be the father of piezo inkjet printheads and has in the span of 25 years gone from zero to over $100 million in annual sales. It seems also, interestingly, to be the only non-Japanese company making printheads for narrow web inkjet. Just down the road from Xaar is Domino, a world leader in coding and printing technologies with sales of $400 million. Domino is now well established in the label sector with its N610i inkjet press, and guess who supplies the printheads? Well, it’s Kyocera, which only goes to show that not everyone in Britain prefers to buy British. A few miles out of town are the offices and plant of Industrial Inkjet, or IIJ. Started by former Xaar managers 10 years ago, IIJ is the exclusive distributor for Konica Minolta inkjet presses worldwide (except in Asia). This involves the company in much more than just selling. “We like challenging problems,” CEO John Corrall explained to your correspondent when he visited the plant. “We know how to integrate all the bits – printheads, inks, substrates, software – that go to make up an efficient inkjet print system. To give you an example, a South African company asked us to retrofit Konica Minolta inkjet print units into an AB Graphic line converting swing labels. The customer was so happy that he plans two more of the same, for the company’s site in Suzhou. So a South African printer is using Japanese printheads, plus technology from two British companies in order to print in China. If that’s not globalization tell me what is!”

To hear these Brits talk, you get to thinking that international trade and cooperation might after all be the best thing since sliced bread – spread with Marmite, of course.