Yet, even with all these advances, sufficient growth can still be painfully elusive. Often, they must look beyond just labels in order to expand their operations and meet their growth targets.
This article explores growth strategies for digital equipment manufacturers into non-label markets, and also outlines what label converters can learn from these expansion efforts.
Market Attractiveness and Technology Considerations
Expanding into non-label printing markets sounds great on paper but cannot be done casually. Press manufacturers must proceed cautiously and consider two major factors when exploring market expansion options: The financial and strategic attractiveness of the market based on its size and accessibility, and the ability of a firm to cost effectively bring innovation and winning products to the space.
In other words, is the market “good”? And, can the company deliver competitive products to win in the market?
Is the Market “Good”?
In its simplest form, “good” markets can be thought of as sizeable, relatively untapped sales opportunities, often adjacent to a firm’s current target market. In order to maximize the potential size (one aspect of “goodness”) of a market, companies almost always emphasize the total accessible or addressable market, even if it means including business areas in which they don’t participate in today.
For example, General Motors might say they are in the much larger transportation sector rather than just autos/trucks, even though they don’t produce aircrafts or yachts. This bigger market size number enhances the perceived future value of the company, and, at least temporarily, makes them more attractive to investors, customers, employees and suppliers.
Digital equipment manufacturers use the same approach. Rather than portraying themselves as digital press suppliers to the $3B digital label segment, they might embellish that by claiming to be part of the $20B packaging sector, or the even larger industrial inkjet printing space that includes textiles and ceramics. This allows them to break through the confines of the label market and include very large, less penetrated segments such as corrugated, folding carton, flexible packaging and direct-to-container.
Macro and Micro Market Analysis
The first step in assessing the financial and strategic attractiveness of “non-label” packaging markets is for digital label press manufacturers to understand how labels and packaging relate to one another. Clearly, these two markets are at different levels, with labels being a subset of packaging. As a “child” of packaging, labels inherit, and thus share, some of the macro market characteristics of its parent.
At the same time, a more detailed pairwise comparison of subsegments (e.g., labels versus corrugated) can uncover important distinctions and further refine one’s knowledge of key market dynamics. This combination of macro and micro analysis aids equipment manufacturers in the overall assessment of the packaging market’s “goodness.”
Labels and Packaging: A Quick Macro View
Digital label and package printing are benefiting from a variety of global trends that are acting as catalysts for the transformation from analog to digital. Here are just some of the macro trends that are affecting digital printing for both packaging and labels.
Global Economy/Local Products: Over the past several decades, the world has become a global marketplace with products being made, sold and distributed across borders. Various levels of democratization and free market reforms, combined with the emergence of the middle class in heavily populated nations (e.g., China, India, and Brazil), have accelerated this trend.
In parallel, people in developed countries have demanded and received more and more product choices and versions. Walk down any supermarket aisle and you will be bombarded with a huge variety of product options, from locally produced microbrews and wines to gluten-free cereals and pastas, to name just a couple.
In response to these new sales opportunities, consumer product goods companies (CPGs) have leveraged their global presence and brands (e.g., Coca Cola), while at the same time targeting new markets with localized products (e.g. Maaza in India). This combination of supply and demand has resulted in a massive increase in consumer product options, leading to a huge growth in SKUs.
More than a Box: The role of packaging, even secondary packaging, has evolved tremendously from its inglorious status as a cardboard box whose only job was as a lowly shipping container. Today, both packaging and labels are important communication vehicles for brands and retailers who want to inform, persuade and engage customers. Whether through flashy, colorful graphics, detailed nutritional data or unique QR codes, printed packaging and labels are critically important in advertising, 1 to 1 marketing and regulatory compliance.
Another role that packaging plays is in enabling supply chain efficiency and ensuring supply chain integrity. The rise in e-commerce (e.g., Amazon, Wayfair) has dramatically altered how products are ordered and shipped. Getting all these products from point A to point B is a massively complicated logistics puzzle, solvable only through the combination of information technology and “smarter” packaging.
In addition, according to the OECD (Organization for Economic Cooperation and Development), counterfeit products are almost a $500 billion-dollar problem, leading to consumer danger (e.g., fake pharmaceuticals) while enriching nefarious drug cartels and terrorist organizations. Through the use of overt, covert and DNA markers, digitally printed packaging can uniquely identify and track products at the individual item level. This improves product safety and plays a key role in combating counterfeit products.
Digital Printing as Beneficiary: Ultimately, these macro factors drive an increase in product and packaging variety, leading to shorter production runs, a trend that is perfectly suited for the strengths of digital printing.
To further assess the attractiveness of packaging, it’s necessary to take a more micro level view of labels as compared with other packaging subsegments.
Labels and Packaging: A Quick Micro View
At the micro level, digital adoption is a valuable indicator in which to compare packaging subsegments. In labels, digital equipment has definitely “crossed the chasm” as evidenced by the fact that more than 50% of all new label presses now sold are digital and likely to grow to 75% in the next few years. Unit growth is still available, however, as only about 10% of labels are printed digitally due to the large installed base of flexo presses.
One side effect of this mass market adoption has been the proliferation of digital label press offerings resulting in a very crowded and highly competitive landscape. At Labelexpo in recent years, it was not unusual to find dozens of vendors, with printers ranging from $50,000 to $1.5M, trying hard to differentiate their products with everything from specialty inks to integrated diecutting.
By stark comparison, there is less than 3-4% penetration in virtually all other packaging areas, with some segments closer to 1%. Corrugated, flexible packaging and folding carton are all in the very early stages of implementing digital production, with customers ranging from beta sites to early adopters. Correspondingly, these markets are relatively uncrowded with only a handful of equipment vendors having the know-how and resources to lead the charge in bringing digital to this new frontier.
Can Winning Products be Delivered?
Great! So, the digital opportunity in non-label package printing is large and mostly unexploited, making it very attractive. But, this positive assessment of market “goodness” only tells half the story. To decide whether to venture into these markets, it must be ascertained if digital package printing systems are within the reach of a company’s product development capabilities. And that requires knowledge of the market’s requirements.
A good starting point to understand digital package printing product requirements is to look to the label world. Starting with blank 5,000-foot long 13"-diameter rolls of film or paper, digital presses must meet many end-user requirements, including image quality, color fidelity, adhesion, text sharpness, and finishing processes, all at acceptable production speeds. How does this compare to non-label package printing?
With just a cursory scan of the printing requirements for non-label packaging markets, it becomes readily apparent that these are significantly more difficult than for labels. Consider digital corrugated printing equipment where 100+ foot long machines print high resolution images on 6+ feet wide boards at more than 200 fpm.
Likewise, flexible packaging brings its own challenges for digital printing. Besides using thin materials with low dimensional stability that require a highly precise mechanical transport, developers must also formulate inks to adhere to non-rigid structures. Further, these inks must not migrate through the packaging (no one wants ink components in their Capri Sun!).
Or think about direct-to-container where the challenge is to print on objects that are curved with surfaces that are often textured (e.g., a detergent bottle). This is typically much harder than printing on flat boards or rolls of material, especially because it’s challenging to get printheads close enough to ensure high image quality.
All of these are daunting development efforts that demand tremendous technical and financial resources and highlight the product development challenge for equipment manufacturers.
The Product Development Challenge
Turning these requirements into fully functional package printing systems is a multi-year, cross-disciplinary effort that will cost many millions of dollars, with no guarantee of commercial success. So, it should come as no surprise that companies are very motivated to take their existing digital press R&D investments and re-purpose them for use in other markets.
Leveraging high value technology investments is not a plug-and-play exercise. Instead, it is best done via a subsystem-by-subsystem gap analysis. Examine current subsystems and analyze them to see what it would take to scale or modify them for a digital package printer. Examples might include going from 13" print widths to two meters, switching from UV inks to water-based or adding inline spectrophotometers.
Aggregating all the technology gaps is a great aid in determining whether winning products can be delivered to the packaging markets. Some other important factors include availability of skilled personnel and financial resources, quality of vendors and the ability to integrate the overall system seamlessly.
With both a market view and a technology gap assessment completed, digital label press manufacturers can intelligently decide which, if any, packaging markets are best to pursue, and what level of pain they will endure on this path to growth.
Many readers may be thinking, “I’m a label converter; why should I care about the non-label growth strategies of my equipment vendors?”
Converters, like digital label press manufacturers, are also going through great pains to grow their businesses. By carefully monitoring their vendors’ market expansion strategies and equipment roadmaps, converters can gain critical business intelligence that can assist them in their own growth initiatives, as well as alert them to potential red flags.
Benefits to Converters
Deep system knowledge: Equipment vendors that serve multiple printing markets have often invested in deep process know-how that will benefit all its users. For example, drop accuracy and dot spread are two fundamental characteristics of an inkjet system that have enormous impact on image quality. Printheads, transports, substrates and inks all contribute to the precision with which optimal drop accuracy and dot spread are accomplished.
A vendor that has mastered this on inkjet systems for different markets often demonstrates a greater and more nuanced understanding, and ultimately control, of these levers. This can lead to better printing presses by aggregating their collective learnings across all product lines. And if printing press issues do arise, these vendors often have powerful system-level diagnostic tools to get you back up and running.
Higher volumes/lower costs: Subsystems (e.g., ink delivery systems) and components (UV lamps) that are needed for multiple printing markets may allow equipment vendors to purchase higher unit volumes from their suppliers. This could result in lower overall digital printing system pricing for converters.
Take collaboration to the next level: Multi-market suppliers can make great partners in helping expose converters to new ideas and expand their own market participation beyond just labels. If a converter is eyeing flexible packaging or corrugated as part of its own business growth strategy, a digital label press vendor could be a great candidate with whom to collaborate with and develop a go-to-market strategy.
Cautions for Converters
Nothing is free: Occasionally, in their rush to expand into new packaging markets, some digital label press manufacturers may overhype new capabilities before they are proven. Be very skeptical about anything that is mentioned in an off-hand way as a “bonus feature.”
Suppose during the process of buying a digital label press, a vendor under consideration claims, “This press can also do flexible packaging.” Take that statement with a very large grain of salt. Digital label presses have been designed specifically for self-adhesive labels, not unsupported film materials. Make sure to conduct sufficient testing to be convinced of the true flexible packaging capabilities.
Loss of focus or interest: As described earlier, it can be to a converter’s benefit if their equipment manufacturers are successful in pursuing markets outside of digital label equipment. Where this can become problematic is when a vendor loses focus on the label market in pursuit of more attractive markets. There are a number of red flags indicating that a digital equipment vendor may have lost interest in the label market:
- Digital presses are getting stale with no new major launches
- Thought leadership and participation in key trade groups is diminished
- Trade show presence is declining
- Technical resources are being redeployed to more exciting packaging opportunities
Digital label press manufacturers are some of the world’s most technically innovative companies. One of the biggest business challenges they face is maximizing company growth beyond labels by expanding into non-label packaging markets. To do this, they must evaluate the “goodness” of prospective markets, both at the macro and micro levels, as well as determine if they have the commercialization capabilities to deliver competitive digital package printing presses. If done properly, and with their current converting customers in mind, they can minimize their pain while maximizing their gain.
About the author: Sean Skelly provides thought leadership to the label and packaging industries on market dynamics, acquisitions, technology adoption and implementation best practices. Sean can be reached at email@example.com.