In this article from the end of the 20th Century*, Jennifer Dochstader reported on a discussion between three of North America’s leading pressure-sensitive material manufacturers as they examined challenges facing both the substrate supplier, as well as the label converter, in an increasingly competitive marketplace.
Material manufacturers have long been the front-seat voyeurs of those trends driving, and maturing, the pressure-sensitive label sector. As these suppliers have increasingly based their research and development efforts upon anticipated end-user point-of-purchase application directives, we continue to witness decoration methods evolving aesthetically, while simultaneously improving in both production efficiency and application flexibility.
However, these industry behemoths now stand at a critical crossroads. Whereas this decade once delivered doubIe-digit annual growth percentages to the pressure-sensitive labeling sector, we will close out the nineties in the single-digits. Clear films still dominate as the decoration method with the highest volume growth, with sectors like household chemical and industrial products increasingly integrating the marketing advantages of these substrates into their differentiation strategies.
Foreign competition and over-supply of resin
The companies we spoke with however, stressed that even though the markets of clear films continue to expand, raw material pricing and increased foreign competition have presented new challenges to material manufacturers. As one of our roundtable participants Silvano Ferrazzo, marketing manager for MACtac states, ‘I think all of the major American material manufacturers had predicted the growth we’re now witnessing in the clear film sector, however I don’t think we could have anticipated the crash in raw material pricing. The economics are abysmal, especially on what we consider high end, complex products. For example, two mil polypropylene with a very high clarity acrylic emulsion adhesive on a polyester liner used to be a premium film. Now this product is fighting in the trenches with what we consider to be economy films.’
The companies we spoke with all agree that currently there’s an over-supply of polyester resin in the marketplace. Although the need for film continues to increase steadily, there remains too much supply for current demand volumes. Enter into the equation the appearance of Asian raw material suppliers fighting for marketshare, who typically haven’t been players in the US market.
The cost-cycle and redefining the ‘trend’ concept: from tangible to intangible
These factors all create an atmosphere that, when it comes to cost, finds the converters going back to the film substrate suppliers with a you're-going-to-have-to-do-better response to material costs. The material manufacturers in turn go back to their suppliers demanding the same, resulting in a cycle of declining profit margins for raw material and pressure-sensitive suppliers. coupled with higher service expectations coming from converters. as well as their own customers, the end-user.
New products are end-user driven. Material manufacturers are sitting down with end-users and asking, ‘What product developments are you working on, and what types of material criteria are we going to have to come up with to meet these developments?’ Converters inviting their material suppliers to make joint sales calls is an increasingly common phenomenon. By bringing the material manufacturer into these meetings, converters are able to demonstrate that they have a more service-driven depth within their organization, as they increasingly lean on their suppliers to bring this expertise into the end-user education process.
Labels & Labeling North America** recently spoke with three of the industry’s leading pressure-sensitive material suppliers.
Our roundtable participants include Neil McDonough, president and CEO of FLEXcon, John Wurzburger, vice president and general manager of the Premium Packaging and Pharmaceutical Division of Fasson Roll North America Avery Denison, and Sylvano Ferrazzo, marketing manager for MACtac. An underlying theme of our discussions with these gentlemen clearly redefines what our industry has come to associate with the word ‘trend'. In this industry, 'trend' has traditionally embraced the tangible elements of packaging a product; new and improved alternatives in facestocks, adhesives, liners, printing processes, and container materials. In speaking to the above mentioned companies, it is apparent that we’ve witnessed an important shift, and that the new directions these companies are having to move in go beyond the technological, and into the intangible realms of partnering and education.
LLNA: Looking back at the pressure-sensitive label industry over the course of the past |2-I8 months, what trends have made the biggest impact?
FLEXcon: Point-of-purchase graphics have made a huge impact; from floor and window graphics, to countermats and vending machines. More relevant to the narrow web pressure-sensitive label sector, we’re witnessing the continued growth of no-label look labeling coupled with the increasing desire for label graphics with the look and appeal achieved with combination printing, for instance a clear label on a glass bottle printed offset, letterpress, as well as some hot stamping. Another growth sector has been variable information printing applications; labels that incorporate variable information plus the addition of security features to authenticate and minimize counterfeiting for a range of industries.
MACTtac: Film growth is still strong, and shelf presence is driving it. We’re seeing a more demanding consumer wanting better graphics. and these consumers are being bombarded with visual effects. it comes down to the label to carry these effects, because this is the vehicle of differentiation. Chlorox decides to take a colored product and puts a clear label on it, and this is where films are really beginning to show their growth. We’re even witnessing clear films outstripping white because there are a lot more things you can do with a clear film than you can do with a white film, or even paper.
Avery: In the last 12-18 months the most dramatic growth drivers in the pressure-sensitive labeling industry have been the personal care and electronic commerce business segments. In the personal care market, there continues to be a plethora of new product line expansions, package redesigns and the entrance of many new niche specialty companies. The majority of these applications utilize pressure-sensitive films with a bias toward the clear-on-clear look. In the electronic commerce area, we are seeing explosive growth in internet retailers that utilize parcel services for home delivery, thereby driving the use of multiple variably imprinted pressure-sensitive labels for product, delivery and return information. These two areas have had tremendous impact on the pressure-sensitive industry.
LLNA: In reference to the previous question, why do you think we have witnessed growth in the particular sectors that you mention?
MACtac: Over the course of the past several years, you had health and beauty care products, like Herbal Essence, differentiating themselves on the shelf with the no-label look. Today, you have a different product sector, like Tilex, where the package actually shows a subtle shower effect on the back of the label. Sectors like household chemical are experimenting with label clarity. These end-users are also experimenting with hazy clear film on color containers because the hazy films will blend in much better than an ultra-clear film would. End-users either want the label to accent the product, or to blend in with the container, and films do that extremely well.
Avery: Pressure-sensitive labeling provides the design and production flexibility, and versatility, required by today's marketing practices. In the personal care arena, intense competition among the personal care companies is placing a heavy emphasis on niche marketing, expanded product lines and brand differentiation. Product launches are increasing the expedition of brand introduction more than ever. In the electronic commerce arena the ease of doing business, and a resulting lowering of costs, will continue to fuel growth of internet usage. The result will be an increasing volume of information carrying pressure-sensitive labels.
FLEXcon: Companies are looking to reinforce corporate and product branding, as graphics continually evolve to become increasingly appealing to the marketplace. No-label look case study successes include sectors like wine bottle decoration, with clear film differentiated products like Sutter Home, as well as with the nutraceutical beverage sector with consumer-driven products like Sobe and Snapple. The clear Film no-label look allows for unique package decoration design, which in turn enables package goods manufacturers to differentiate their product as they vie for shelf space and consumer preference.
In the transit advertising sector, transit media companies have done an exceptional job proliferating the U.S. market and tapping global opportunities, marketing this space and working with transit authorities to prove that this new found advertising space is very effective at increasing consumer awareness and preference. Pressure-sensitive films are a natural fit and are gaining popularity as a printing substrate alternative for both existing and new trans ad opportunities because of their flexibility, durability, and capability of holding brilliant, color graphic images produced by a wide range of printing and imaging processes. Also, pressure-sensitive film is more cost effective and faster to produce and install than hard signage or painting vehicles and these substrates provide excellent resistance to the outdoor environment.
LLNA: In your opinion, what are the biggest challenges facing North American pressure-sensitive label printers today, compared to three or four years ago?
Avery: The most significant issues facing the pressure-sensitive industry today versus three to four years ago is clearly related to new market growth. According to the TLMI, the industry growth is now at about five to six per cent versus double digits throughout the 1990’s. Pressure-sensitive markets are reaching higher saturation points and the industry needs to find new markets and uses for pressure-sensitive technology. Without these opportunities, the manufacturers are all competing for the same business, creating an unhealthy market scenario.
Another challenge that has evolved over the past few years is that more pressure-sensitive manufacturers are entering the marketplace, both from a North American as well as a global perspective. This has added capacity and dramatically increased the competitiveness of the industry. The most significant challenges are clearly a drive for market growth and expansion of pressure-sensitive technology along with the increasing competitiveness of the industry as many new companies enter into the various markets.
FLEXcon: Printing press technology has evolved so much and in many cases has replaced the special skills and expertise of individual pressmen. Today, most printers have access to the same technology and capabilities as their competitors. As a result, the competition is fierce. Printers need to look for niches and to determine a strategic focus, for example service, short rum around, optimizing combination printing scenarios, or a specific end-use segment.
MACtac: End-users are adopting application changes much more quickly, which I think is pressuring converters to better understand the array of material, as well as printing and processing, alternatives. For example. Bath & Body Works is phenomenal at introducing new high-end products to the market, at a rate of one per month. Most converters are accustomed to their customers launching new products at a of one or two a year. However. companies like Bath & Body Works are extremely consumer-focused, coupled with a boutique mentality. They're accustomed to putting out a very fast geographic product analysis, and if the products take off in one region of the country, they're able to bring them to another region immediately. Companies like this are at the forefront of the new resins, soft-touch resins on very sophisticated containers whether they be squeeze tubes or multi-walled botties that actually let the scent come through. These types of sophisticated end-users are pushing converters to maximum levels of research and development support and flexibility.
LLNA: What are the biggest challenges facing pressure-sensitive material manufacturers today, compared to three to four years ago?
FLEXcon: One of the biggest challenges we face is effectively managing expansion, capacity, and capabilities planning in order to prepare for future market growth. it's critical to determine what types of equipment and the types of capabilities that will be required. For example, as adhesive chemistries and curing systems change and evolve, they effect our equipment, processes and product performance.
MACtac: Pressure-sensitive is still a young industry, and companies are still betting that it's going to continue with strong growth, exceeding normal inflationary GNP. To respond to this growth, material manufacturers have got to be investing in new equipment and new technology, which can be disconcerting when the market is driving prices down. We’re seeing more and more consolidations, both on the converting side, and the coating side. The market is increasingly becoming more dominated by the larger, multi-national players. As companies consolidate, they're placing more and more pressure on pricing because they're negotiating with more clout. Material manufacturers have to be at their optimum efficiency to meet the supply requirements of these companies, and participate in this business. It would be great if we were back in the days of high double-digit profit margins, but that isn't today's reality. Therefore, we have to become more efficient to maintain profitability.
Avery: The end-user requirements have changed dramatically over the past few years as there has been a major push toward higher quality printing, therefore driving the need for more robust film and paper pressure-sensitive products. Also. there has been a greater emphasis on inventory management and logistics programs being driven back through the complete value-chain, placing significant demands on the printers and manufacturers to ensure that the end-users have materials when required. Lastly, many of the end-users have pushed the package decoration out to the contract packaging channel versus in-house. The above trends have been the most significant end-user changes which have driven different products. services. marketing systems and logistics approaches to the overall pressure-sensitive manufacturers’ value-chain.
LLNA: How do you see press manufacturers responding to the changing requirements coming from end-users?
MACtac: We're seeing technology change quickly. The whole quick-change idea is a reality for converters now. Multiple press brands now offer the ability to replace an entire print station immediately with a new cartridge of a different color, which enables the converter to have the most minimal changeover time possible. Press manufacturers are even offering this option now with die and rotary hot foil stamping stations, allowing converters to be that much more efficient and wash-up is almost eliminated because it’s done off-press.
Avery: Press manufacturers are responding very well to the changing end-user requirements by incorporating multiple technologies into their equipment, aimed at meeting the variety of more sophisticated printing requirements. They are also focusing on simplified changeovers and clean-ups as run lengths are shortened due to all the customized SKU's, and with increased competition, downtime reduction is a must. The presses are also incorporating many automated quality controls and visual inspection systems to ensure that color and registration specifications are precisely controlled. Overall, the press technology continues to progress well in meeting the changing quality, cost and business optimization requirements of the end-users.
FLEXcon: Press manufactures are responding to these changing requirements by introducing combination presses, and focusing on flexibility; modular stations, quick change, and quick set up to print. This will continue to enable the label printer to respond to the needs of the end-user.
LLNA: How do you see the North American pressure-sensitive label industry changing over the course of the next several years?
Avery: Over the next few years, I would expect that we will continue to experience greater consolidation among the manufacturers, and the printers. This will be driven by continued consolidation in the end-user marketplace and further competitive intensity in the overall pressure-sensitive industry. I also see trends that will continue to drive the majority of long-term industry growth toward pressure-sensitive films. Films will likely grow in excess of ten per cent, with paper pressure-sensitive growth nearly flat. One exception will likely be tied to continued change in print and media, such as ink jet and digital technologies, which could provide strong paper growth to these limited technologies’ adhesives. We still see favorable growth trends for pressure-sensitive in personal care, beverage and retail segments.
Overall, the pressure-sensitive marketplace continues to offer outstanding growth opportunities driven by many changing requirements in our end-use markets. Trends in clear labels, customization, electronic commerce and increased shelf competition are offering man fantastic growth opportunities for the industry. We do have many challenges ahead as print requirements become more demanding, performance specifications tighten and overall competition gets increasingly intense. Strong growth projection lies ahead for film pressure-sensitive products and many growth segments related to their use.
FLEXcon: There will be more specialization. more niches and more niche specialists. Label printers and pressure-sensitive material manufacturers will need to determine their strategic focus and look for ways to differentiate themselves accordingly. We'll also see more consolidation resulting in larger-scale, as well as smaller-scale, specialists. It will become increasingly difficult for the medium-sized generalist converter to compete.
MACtac: The converters and the material manufacturers will do a better job at educating the end-users. For example, our focus over the course of the last several years has been to run customer label seminars in order to educate both converters, and end-users, about our capabilities and just what is available to them in the marketplace. When I sit down with an end-user Packaging Engineer and briefly touch on some of the highlights of our product line, their eyes open wider and they say, ‘We didn't realize there were so many choices available.’ The reason being not because they haven't taken the time to research, but literally because they don’t have the time to research. You literally have to put them in a room for a day and present the array of labeling decoration options available to them.
*This opinion article was first published in Labels & Labeling issue 4, 1999
**This transcription is a direct replication of the article as published
Labelexpo Americas 2018 takes place from September 25-27 at the Donald E. Stephens Convention Center, Rosemont, Illinois
Read a comprehensive preview of Labelexpo Americas 2018 in Labels & Labeling issue 4, 2018, and here
Find out how to join in with Labels & Labeling’s 40th anniversary celebrations here