- August 29, 2003, Edward Boyle, Contributing Editor
North American Label Study
It's not uncommon to hear today's label converters speak almost longingly of the “good old days,” when they enjoyed year after year of double-digit growth, invested heavily in new equipment, and even struggled to find qualified employees.
But that was way back in the 1990s.
For many, the “good old days” ended with the 2000/2001 recession, the effects of which still linger throughout the overall economy. As a result, the last few years have seen less demand for consumer products — and fewer labels needed to accompany them.
When the Tag & Label Manufacturers Institute Inc. published its 2000 North American Label Study, overall label sales in North America were expected to grow from an estimated $5 billion in 2000 to nearly $6.5 billion in 2005. That reflected growth rates of nearly twice the expected increases in Gross Domestic Product (GDP) for the US, Canada, and Western Europe.
Growth was predicted to be even greater in “non-maturing” markets, such as the Pacific Rim and Latin America, which were expected to belatedly reap the benefits of p-s (pressure-sensitive) technologies that Western economies have enjoyed since the early 1990s.
Yet, while the recession may have stunted those growth numbers, most of the trends that began even five years ago still are ongoing. Ultraviolet (UV) flexo retains a growing dominance in new press installations in the label converting process (with 15% growth rates expected to continue through at least the next several years), and end-user demand for quality remains strong.
For their part, digital presses also are expected to achieve growth rates of 15%-20% through 2005, yet they remain just a small percentage (no more than 2%) of overall presses in use.
Meeting Quality Demands
The increased popularity of presses that can deliver a combination of print quality and product performance is merely a continuation of a decades-old trend for versatile point-of-purchase (POP) labels that offer both graphic appeal and protection. The market segments that would benefit most from these advances also are enjoying the highest growth rates.
In North America, the food industry reportedly offers the greatest increased demand for labels (21%) in the next several years, followed by health and beauty (19%), industrial (12%), beverage (11%), security (9%), and pharmaceuticals (9%). On a global scale, security applications are expected to enjoy the greatest growth potential at rates of 14%-15% through 2005, followed by beverages (10%-11%), food (9%-10%), and pharmaceuticals (8%-9%).
Not surprisingly, those are some of the very same market segments that are continuing another trend: the switch from cans and glass to PET containers, which benefit from the adhesion properties of p-s labels. However, glass remains ideal for use with increasingly popular clear film labels, particularly in areas such as wines and individual-sized juice containers, where high graphic appeal is key to product sales.
Getting It on Film
One of the most significant ongoing trends, yet another reflection of the demand for superior POP appeal and product protection, is the growth of film as a primary label substrate.
In North America and Europe, film pressure-sensitive (p-s) substrate growth continues to outpace that of paper significantly, and it is projected to continue to do so for years to come. Today, film serves as a substrate for more than one-third of the p-s labels produced, and that percentage is expected to increase.
Evolution in press technology has played a critical role in the advancement of film label production. Improvements in tension controls and drying methods are among the many improvements that have made film a more press-friendly substrate. The film/paper price differential also has become negligible, further enhancing its appeal to converters and end-users alike.
Other factors that have contributed to this trend:
Cold UV technology has advanced significantly, facilitating the production of thinner-gauged p-s film substrates on narrow to mid-web press systems.
The successful and wide-ranging implementation of chill rollers on-press has increased press speeds when printing on p-s film substrates.
Improvements in web tension and corona treating systems have facilitated film production on narrow to mid-web in-line press systems, improving register control and ink adhesion with thinner-gauged films.
Advances in water-based and UV ink adhesion properties have improved all synthetic PS constructions.
As a result of the substantial increase in the use of film as a label substrate, four out of the five primary p-s film types are projected to grow three to five times anticipated GDP rates in the US and Canada through at least 2005.
Polyvinyl chloride (PVC) is the only film construction projected to continue to lose market share as environmental issues limit material usability. Others, including polyethylene (PE) (9%-10%), polypropylene (PP)(7%-8%), polyester (5%-6%), and polyolefin (5%-6%), are expected to exceed GDP growth rates in the next several years.
Forces driving this growth include the following:
An increase in exported PE films entering the US;
The high-growth sectors of food and beverage, which will be the primary market driver in the PP sector;
Expansion in the durable goods and electronic sectors that will continue to drive polyester consumption volumes;
Continued growth in the HABA (health aid/beauty aid)/cosmetics sector that will keep polyolefin growth steady.
One of the biggest losers in the growth of p-s usage will continue to be glue-applied labels. This will be particularly apparent in end-use markets making that switch from glass to plastic containers. However, p-s converters will not be the sole beneficiary of the move away from glue-applied, since wraparound, sleeves, and shrink decorating methods continue to make inroads into such major markets as beverages and health/beauty.
P-s material trends within the prime label product sector include the following:
Material suppliers are working closely with end-users as application demands evolve and change.
Material suppliers are pursuing new markets in end-use subsectors such as the wine market, where p-s has played a negligible role, at least in North America.
Thinner-gauge films are closing the paper/film price gap while delivering superior performance characteristics, as well as becoming a contender against developing non-p-s roll labeling decoration methods in key end-use sectors. These films are achieving faster application speeds with new liner and adhesive technology.
Material suppliers are pushing the envelope with paper/film hybrid constructions for new applications, most notably in the expanded content labeling niche. These constructions are typically film/paper laminates with the film often being the carrier that attaches to and protects the form, which is frequently perforated with a peelable area. This application is eliminating the need for folding cartons as a means of product protection and decoration, providing further economic advantages to the end-user.
While larger corporations effectively have implemented inventory control systems requiring tracking labels, smaller to mid-size organizations are just beginning to do so, continuing to drive demand in this sector.
Marketing the Market
In spite of a retreat from “typical” double-digit growth rates, the label market continues its tradition of outperforming GDP by 3%-4% annually. As a result, the industry has expanded even when the economy hasn't, though certainly not at the rates of just a few years ago. That makes label converting operations appealing as commodities themselves. That trend, which began in the late 1990s, will accelerate in the coming years.
Why? Because as the entrepreneurs who helped expand the use and popularity of p-s labels as an information and decoration medium in the early to late 1970s reach retirement age, a growing number are selling their now-prosperous enterprises to fellow label converters, folding carton manufacturers, flexible packaging operations, and sheet-fed houses that appreciate both the synergy and profit potential of p-s technology.
Traditional color process p-s label converters are continuing to acquire companies with expertise in other p-s end-use sectors, such as thermal transfer. This expands their overall application knowledge and market base while better serving existing customers.
Others in packaging-related industries are acquiring label converters to become definitive “one-stop” resources for Fortune 500 and other multinational customers that require a cross-section of converted materials and prefer to deal with a single source of cartons, cut-and-stack, and p-s roll labels.
At the same time, American and Canadian converters are looking to acquire Mexican printing operations as their own customers invest in Mexican bottling operations to lower labor costs. While many end-users themselves have expressed concern that this ongoing consolidation might hamper the innovation inherent in the entrepreneurial spirit, they also accept this as the inevitable consequence of their label suppliers' desire to meet the needs of their customers' flourishing operations.
Yet, small-to-medium-sized converters still are expected to play a major if not dominant role in the p-s market. Of the more than 400 converters surveyed for the 2000 TLMI North American Label Study, a full two-thirds reported no plans to sell their companies before 2005 — if they sell at all. At the same time, less than 15% plan on selling their company by 2005.
“Net” Gains Expected
Before the dot-com bubble burst in the late 1990s, the Internet was seen as the next great American marketplace. Forget mail-order catalogs! Think e-buying instead!
Well, while consumers have still found it preferable to visit stores rather than sites to make their purchases, the Internet is expected to play an increasingly (though hardly dominant) role in business-to-business transactions, including those in the label market.
The benefits of on-line ordering and account management in the label industry are many, including immediate order placement of stock items and access (in many cases) to inventory controls and personal account management through their own suppliers' Web portals. There's also the elimination of that all-too-cumbersome paper trail. The major downside, however, is the limited ability to order custom jobs easily. There's also the elimination of that all-too-comfortable paper trail.
The Internet also has given rise to the “reverse auction,” where converters are invited to “bid” on a given job, with each price quote being lower than the last. When the 2000 NALS was conducted, a full 72% of those surveyed said they had never been invited to participate in a reverse auction, and a similar majority were opposed to the concept since it seemingly turns labels into a commodity product.
While the number of companies participating no doubt has increased since the survey was conducted, the number of “quality-conscious” converters that refuse to take part likely will remain high.
Back to the Future
Anyone who has attended an industry conference or two is likely to be familiar with the following tired but true phrase: “If you always do what you always did, you'll always get what you always got.”
For both the label converters and their suppliers, that hardly would be a bad thing. Who wouldn't want another decade or two of double-digit growth?
And, we may see it again. Innovation, ingenuity, and the entrepreneurial spirit helped turn the manufacture of p-s labels from a virtual cottage industry in the 1960s to the multi-billion-dollar marketplace it is today. That drive for continued improvement is one trend that won't end anytime soon.
For more information on the TLMI North American Label Study, contact TLMI at 630/357-9222 or visit tlmi.com.