The label and package printing industry, to an increasing degree, is only able to react to such changes, rather than driving them. So let’s look in a little more detail at these forces of change.
THE FORCES OF CHANGE
Global consumer brands and international super retail groups.
It is currently estimated that there are probably less than 200 or so global brand and retail super groups that between them will buy, specify or influence close to 70 percent of world label and printed package products.
This includes some 15 to 20 global retailers such as Walmart/Asda, Tesco, Sainsbury, Aldi, Lidl, Royal Ahold, Metro; around a dozen global pharmaceutical groups; less than 10 global alcoholic beverage companies; soft drinks giants such as PepsiCo and Coca Cola; the main consumer groups P&G, Unilever, Nestlé, Johnson & Johnson, and others. Between them, these corporations will set the requirements, specifications, standards and levels of service that will influence and drive investment in label materials, technology, products and service worldwide.
Key forces of change that these bodies are influencing include:
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Demand for consumer (packed and labeled) goods to meet global population growth
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The need for ever increasing multi-language versions and variations
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The need to reduce costs and improve efficiency in the global supply chain
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A requirement to minimize stock holding and move to on-demand printing of labels and packs
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Changing trends in packaging, package and label printing, and pack usage – instant foods, microwaveable, re-usable, re-closable, healthy eating, ethnic – and the implications for converters
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Rapid rise in e-commerce shopping
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The need to minimize wastage in fresh and packaged foods – extending food life
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Escalating growth of counterfeit and pirated products – now over 15 percent per annum. 40 percent of goods sold Online are fakes. How do we stop it?
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Major growth in ‘Own Brand’ packaging
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A requirement to personalize label and packs
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The Internet of Things and how it will increasingly relate to the managing of global label and package printing businesses
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A growing requirement for consumer engagement and social networking through interactive brand labels and packaging
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Ongoing environmental and sustainability challenges and pressures impacting printed labels and packaging
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The role of mobile smartphones to communicate with labels and packs
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Consumers in the future to be at the forefront of product authentication and anti-counterfeiting through their mobile phones. Labels and packs will need to have multi-layer authenticity
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Changing international food and product safety regulations and standards – materials, inks, waste, food contact, etc.
Quite simply, there are many forces driving change in the worlds of label and package printing, most of these coming from the major global and national specifiers and influencers, as well as some from national, global and individual country legislation.
The label and package printing industry is continually reacting to these forces of change and introducing new technology, materials, production, services and solutions – but largely always playing catch-up. An indication of how change and new label solutions are continually being developed to meet new market demands can be seen in Figure 9.1.
Put the forces of change together in a slightly different way and it can quite easily be seen that the role and function of labels (particularly in the developed world markets) has been – and still is - undergoing a quite fundamental change (see Figure 9.2) – a change that the label printer and converter must continually adapt to.
It should also be noted that digital printing is able to play an increasing role in the changes required by brand owners.
Quite simply, there are many different forces driving change in the worlds of label and package printing, most of these coming from the major global and national specifiers and influencers. The label and package printing industry is continually reacting to these forces of change and introducing new technology, materials, production, services and solutions – but largely always playing catch-up.
Having summarized the key forces of change driving the label industry, it now becomes possible to look in more detail at some of the main areas of products and technology that have come, and are still coming, to the market.
GLOBALIZATION
With global and multi-national brand and retail groups now manufacturing and selling virtually worldwide, it has become necessary for the label industry also to look at new ways of producing and distributing labels to their customers operating in many countries.
Do they follow the brands into new markets and set up new factories? Do they establish partnerships in other countries?
Do they undertake mergers and acquisitions? If so, should this be by end-use market sectors, (for example beverage labels, pharma labels, food and supermarket), or by providing new types of services or label solutions?
Some of the world’s biggest label converters, like Canadian-based CCL, aim to cover all end-user sectors, worldwide. The CCL Label division has annual sales of 2.4B USD, its main strength being in self-adhesive labels, for which it is almost certainly number one worldwide.
Recent acquisitions and investments have also made it the leading label converter in China.
Constantia Flexibles (now part of Multi-Color), which is in the same league, has worldwide sales approaching 2B euros. Constantia’s label division accounts for 28 percent of the group’s sales, and its product range covers self-adhesives, wet-glue, shrink sleeve, in-mold and wraparound. Other label converters, like Barat in France cover just one country and one label type (wines).
Despite some active acquisition activity, the label converting sector remains highly fragmented. There is evidence however, that particularly in the branded goods sector, brand owners are seeking to deal with as few label suppliers as possible to source their requirements worldwide.
This trend, if it continues, could hurt the sales of many medium-sized label converters, particularly if they do not have global reach. Small, family-run label converters however need not despair.
Despite the power of the big multi-national brands, most of the world’s thousands of label buyers are small companies too, and many of them prefer to buy locally from converters whom they know and trust.
It is nonetheless probable that the coming years will see further concentration of the global label sector as the big players seek further acquisitions to extend their global reach.
The risk associated with this aspect of globalization is that major brand owners will look to local producers in low-cost Asian countries to source their label and packaging requirements.
This does not seem to be happening much today, but it is a permanent risk, echoing the shift to Eastern European label suppliers that occurred over the years 1990-2000.
GLOBAL LABEL GROWTH
We have seen that, very broadly, world label markets can be split one third Europe, one third North America, one third rest of the world. We also know that historically, label and packaging markets move roughly in line with Gross Domestic Product (GDP). When economies are expanding, label markets tend to grow at one or two percentage points above GDP. Declining GDP has the opposite effect. Forecast changes in GDP can therefore serve as an indicator of which label markets are likely to be the most vibrant in the near future.
Estimates for selected countries (Figure 9.3) predict modest annual growth in the 0.5 – 2.5 percent range for most of the world’s major economies (except China).
Within the Euro zone, only Spain stands out with above three percent projected growth. For Britain and to a lesser extent the rest of Europe, economic growth over the coming years will hang on the final outcome of the Brexit negotiations.
The Chinese economy, though down from the 8-9 percent growth of recent years, is still slated to continue growing by over 6 percent, and India and Indonesia are also expanding fast. South American markets are characterized by declining GDP in Brazil, Argentina and Venezuela.
The volume of world merchandise trade (possibly a better indicator for label markets) has been stuck at around three percent annual growth for the past three years, and here too economists predict that the outlook is not bright.
With these weak estimates for growth in the world economy it is encouraging to note that since 2012, label markets have achieved volume growth well above GDP. A recent Freedonia report estimates future average growth of US label demand at 3.8 percent per year, rising to a value of 19.7 billion USD by 2019. Latest figures from Finat show a buoyant average of over six percent annual growth by volume for European label markets.
Per capita self-adhesive label consumption in Europe stands at an average of 8.3 square meters per year.
Northern Europeans are the biggest users, with Denmark, Ireland, the Netherlands and Britain all-consuming above 14 square meters.
DIGITALLY PRINTED LABELS
That digital printing is revolutionizing the label industry should come as a surprise to no one. For both packaging and labels electrophotographic, dry toner and inkjet printing methods are all suitable. Among the advantages of digital printing are the elimination of traditional printing plates, the cost-effective production of short runs and short delivery times. However, the cost of the print heads and the toner or ink can be high.
For end users two factors are important. Firstly, digital presses are available across the whole price range from less than 10,000 USD to over 1M USD.
Secondly, improving digital technology is shifting the breakeven point between digital and flexo (see Figure 9.4) such that in the future, it will be economic to switch longer runs to digital printing. This trend is already happening: the latest Finat study (for 2015) on run lengths shows conventional run lengths down by a staggering 22 percent (to under 5,000 running meters) compared with 2014. More surprisingly digital print runs are also getting shorter, falling by 12 percent to an average of under 800 running meters.
At a recent meeting which included buyers from Mondelez and Nestlé, the theme was the need to bring products to market even faster. Thanks to digital printing, Nestlé was able to get personalized bottles of Perrier on to supermarket shelves within a month of starting the pilot project.
For both these leading brand owners, digital printing will be used more and more both to reduce time-to-market and to boost sales. Consumers, according to Patrick Poitevin of Menendez are willing to pay up to four times as much for a personalized product, and the buzz created on social media gives valuable free advertising to the product.
THE ENVIRONMENT AND SUSTAINABILITY
The subject of so many heated debates, the ecology and environmental concerns will increasingly affect decision-making in the label industry.
These effects will go beyond energy saving and waste-reduction (both of which should increase the converter’s bottom line).
We are seeing more real concern from brand owners and retailers wishing to enhance their ecological credentials to an environmentally responsive public. This may lead to more awareness of recycling, and in particular of release liner recycling; if it does not, the alternative may be legislation – an outcome which label associations such as TLMI and Finat are working to avoid, advocating voluntary incentives.
‘Carbon neutral’ and ‘lowering greenhouse gas emissions’ are becoming common terms whenever a new building or factory is planned.
Brand owners and retail chains are increasingly looking beyond the sustainability of the labels and packaging they buy, and asking their suppliers to complete detailed questionnaires.
Sustainability goes further than recycling papers and films. New generations of inks, for example, water-based or without VOCs, are environmentally friendly both for the press operator and for the consumer. Some low migration inks and adhesives are suitable for labeling directly onto foods or medical products.
Herma’s labelstocks with double-layer adhesive are a significant innovation, combining high tack with low migration. Even washout equipment for presses, anilox rolls and doctor blades are now designed such that only filtered water goes down the drain.
E-COMMERCE - THE ‘AMAZON’ FACTOR
First it was books and CDs. Now you can buy almost everything on the Internet, and the younger you are, the more likely to use your computer or smartphone to order everything from groceries to ready meals. The future impact of this growing phenomenon on labels and packaging is not yet clear.
Brand owners quite rightly want their products to stand out on the supermarket shelf. They want to catch the consumers’ eye so that they touch, feel and finally buy the product in question. But what if the consumer has only a digital image of the product? The sequence see – touch – buy is broken, and the goods are delivered in a carton which is either neutral, or bears the name of the retailer. It is possible (but unlikely) that in some distant future internet-ordered products will come with distinct, and cheaper, less attractive packaging and labels.
This could happen to products that are ordered, delivered and consumed rapidly, like pizzas, but is unlikely ever to be the case for more long-lasting products. Who wants to get up every morning and see a line of dull and unattractive products on the bathroom shelf? Not to mention, consumers want to know that the products they purchased online from the brands they trust are not fakes or cheap knock offs.
CONSUMER ENGAGEMENT - THE CONNECTIVITY OF THINGS
Everyone talks about connectivity and it is fast becoming a reality. Homes, cars, refrigerators, even medicines are all becoming part of a joined up world – and labels have an important part to play. The successful Coca-Cola campaign was only the start of a shift in the label industry toward personalized products and interactive promotional marketing. The next step is an app to let consumers scan the lyric on Coke bottle, then record a digital lip-sync video to share on social media.
For many retail products the label will increasingly be the link between the consumer (who wants extra information from the product) and the brand owner (who wants extra information about the consumer). We can even imagine a near future when supermarket labels will flash individual messages (‘Hey Mrs. Brown, you visited our website, now try our special offer’) to each customer who walks past.
THREATS AND OPPORTUNITIES IN A CHANGING WORLD
Only a crystal ball gazer would dare to predict which end-user sectors will grow disproportionately, worldwide. We can however draw some tentative predictions, looking at technical/scientific, regulatory and political/macro-economic factors.
TECHNICAL/SCIENTIFIC
Some changes will no doubt be technological. Many people for example believe that linerless self-adhesive labels are about to revolutionize the label business. Others point out that this breakthrough has been imminent for the past 20 years. Recent Labelexpo shows have seen linerless innovations by Ritrama, ETI Converting, Sato, Ravenwood and others.
The problem lies, now as in the past, with the applicator. Equipment for applying primary linerless labels is complex (and often expensive), such that end-users are reluctant to make the change, despite the attraction of a cheaper and more ecological label.
Other future changes could be the development of new materials – nano-particles, for example, or new filmic substrates. Technical developments in digital direct printing are already happening, and this could reduce the demand for labels in certain end-user markets. Another potential threat, paradoxically, is the increasing ease of operation of digital label presses: this has encourages some end-users, including a major French cosmetics group, to bring part of their label requirements in-house.
REGULATORY
In Europe, REACH legislation has been extended (Commisision Regulation (EU) 2017/999 of 13 June 2017) to categorize a wider range of substances as toxic. Certain surface treatment directives may also soon be applied to labels. Health and Safety rules governing inks, volatile organic compounds (VOCs) and UV curing are likely to be tightened.
In China too, increasing awareness of environmental risks will probably lead to a tightening of regulations, particularly concerning recyclability of packaging materials. However the main risk for the self-adhesive sector is that liner might in the future be reclassified as part of packaging (this is already the case in several European countries including Germany, Austria and the UK). This could put a financial incentive behind liner recycling, and encourage such recent developments as turning used liner into planking, or insulation material for buildings.
POLITICAL/MACRO-ECONOMIC
The lifting of legal barriers (for example the ban on foreign-owned supermarkets in India) will have a dramatic effect on packaging demand in the markets concerned. Events in China, which is now the world’s second biggest economy, will affect every aspect of world trade. The lifting of trade barriers and boycotts such as those restricting trade with Russia will help raise demand in many countries.
The same benefits will accrue if Iran, a largely closed market of 80 million people, really opens up to international trade over the coming years. Last but by no means least, greater stability and growth in Africa would dramatically increase demand for packaging of all kinds.
All these are potential opportunities for label converters who can identify changing demand and can position themselves at the right place at the right time. However no one should close their eyes to the threats. Another global financial crisis could see label markets go into rapid decline, as they did in 2008/09. Label converters who invested in Ukraine (or Libya, Syria, Iraq…) got their fingers burned, and no-one can say which countries might go the same way in coming years.
DEMOGRAPHIC CHANGE
As some label markets become more technical, others will simply respond to demographics. As middle classes in emerging countries grow in numbers, so will the demand for consumer products, initially with cheaper, more functional labels. In countries like the United States, China and India the richest 5 percent of the population is getting richer, thus boosting the demand for luxury products of all kinds.
We also know that two out of every three labels are sold in the developed world, where populations are getting older and living longer. Pharmaceutical and medical labels will benefit. So will the markets for packaged foods, especially those in smaller pack sizes. And a final thought – vanity of vanities – so will all the health and beauty products we need to make us look younger again.
POINTS TO REMEMBER
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Some brand owners want to source their labels globally from just a few converter companies. This will encourage big label converters to expand their global reach
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Per capita GDP growth is a rough guide to know which label markets are expanding
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Supply chain economics and efficiency becoming ever more important
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The breakeven run length between digital and conventional label converting is narrowing
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Tracking and tracing goods and products as they move around the world becoming essential
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Connectivity, and online shopping, will both change the ways in which labels can be used
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More efficient and economic ways of protecting against counterfeiting, piracy and grey markets will be required
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Environment and sustainability concerns, and in particular the recycling of waste label materials, will be more and more important
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Ageing populations in developed countries will boost demand for certain label categories.
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Need to keep abreast of changing and new legislation relating to labels.
