The evolution of the label provider

Channeling change, differentiation, and uniqueness to become King of the Jungle.  By Bob Cronin, The Open Approach

It’s a jungle out there. And the label industry, and business in general, is like the animal kingdom. Your species must constantly be adapting to its environment – finding ways not simply to survive, but to fight, overcome, and thrive. Despite hearing the call, so few companies embrace the idea of change and skillfully handle it, and even more of them avoid it altogether. Consider how many 'dinosaurs' you see still meandering about the label space. Or how many high-performing enterprises in any venue you have seen brought to their knees by their inability to adapt or change – think Blockbuster, Borders, etc.

Change is tough. It often requires a drastically new mindset and thought process. It is not fun, easy, and cheap. And it is not something that can be accomplished through a 'tweet,' website revision, or email campaign. It requires an unwavering focus on the things that truly drive your company’s results – and an understanding that these factors fluctuate daily.

Recognition of the need for adjustment doesn’t necessarily translate into equitable results. I can’t tell you how many companies we consult with that admit they need to change, but then get blinded by current business to the point of neglecting their future.

It is only through dedicated action and commitment that we can make any headway. The ironic part is that every successful label company changed drastically and unabashedly as it developed. While it may be easier to change when you have yet to make your mark, it is no less important a task to help your business stay vibrant.

Mergers & acquisitions (M&A) are about change. Change in size, scope, capabilities, customer channels… you name it. An effective M&A play is one that helps both the acquirer and acquired become something different from what they were before the transaction. But change for change’s sake does not produce any equitable benefit. The idea is to become something better that will not only be embraced by the marketplace, but also command a far better profit than before.

To choose the right changes, you must be in touch with the three greatest drivers of change (and thus M&A) in our industry – customer demands, governmental influences, and competitive dynamics. And you must make sure your changes put you in a better position to answer what these drivers will throw at you.

The Customer Effect

Let’s face it. In today’s market, customers are conditioned to squeezing every last penny out of your profit margins – saying you are just another commodity purchase. In reality, however, they are buying from providers with the best understanding of their issues and a value proposition that helps grow their business.

The best road to success in the label space is not the product but the resources and value you bring to the customer based on the suite of capabilities you can deploy that fits their needs. Customers want to find ways to continue to differentiate products and services to gain advantage. While cost may be one consideration in their purchases, it is completely dwarfed by the ability to enhance the customers’ business.

Current trends toward lower cost, instant gratification, and convenience aside, customers will pay higher for the bit of uniqueness that differentiates them. This is evidenced across our industry by the success of private brands that have been able to capture a loyal following and get them to pay premium prices for a product with a benefit they see as attractive. Branding, indeed, can be huge, and your ability to harness brand power is vital.

While you can build your brand organically, it may take years to carve out solutions that are prime for your customer base. And often, by the time you get there, customers may be onto an entirely new thing. The question is about how fast you can change to become the adept provider to answer these demands.

Your best bet may be through acquisition. Current trends toward accountability – protective caps, temperature-controlled labels, RFID/tamper-evident packaging, and the like – are pervasive in today’s purchasing efforts. Customers want more integrity and security in their labels. Moreover, they want their labels to include the large scope of information they are being pushed for. This is making the Extended Content Label (ECL) one of the business’s fastest growing segments. The need to disclose information about each production batch will also become the norm. It will lead to shorter production runs and the use of variable technology on the label where it will match the need.

As you consider your growth trajectory and M&A options, you must change to ensure you are aligned with these trends for the future. Are you drastically out of synch? Can you merge with another entity to get back on track? Would you be better positioned as part of a larger enterprise? Customers should be a major consideration when choosing between these options.

The Governmental Effect

At the same time, the government is raising taxes and requiring more reporting than ever before. As a group, we are like the desert hyenas, with no clout and no option except to stand in packs howling. And our pack leaders – associations – have been ineffective at protecting us from this.

We are continually being required to spend more money to heighten product security, service new populations, and provide more trackability. We are also being pushed on environmental issues such as increasing compostability of packaging and reducing pressure-sensitive waste and base coatings. If it cannot be recycled or has excess caused by need for the liner and waste, our government is upping the tax on it.

As mandates from predators that can devour us, these requirements are fast-coming factors to which we must simply respond – absorbing development costs and licking our wounds. Those that are not complying are simply dying off. To survive, we must be in a position to change. Governmental mandates too are changing quickly. If an M&A move can make us more nimble and responsive to this ongoing onslaught, we must consider its role in our attacks.

The Competitive Effect

Our competitors continue to be a heavy burden. The label industry will see further consolidation with bigger players emerging and a move toward single-source suppliers for both the container and the label. Some of the largest suppliers will move into packaging, while some of the largest in packaging will move into labels. The territorial battle will ensue, as customers demand more from fewer, and expect their choice vendors to emerge with top-notch, end-to-end solutions. In other words – they want you to change.

There is also a profound movement toward adding geographic and production capabilities with an emphasis on gaining strength within certain verticals viewed as favorable. Increased competition means we will need to grow our capabilities quickly.

Alliances will go from one of those areas of little success to an area of increased focus. The lion will be expected to look after the elephant, and vice versa. The intent will be to form seamless alliances that can provide for the products and services required of the bundled offering and ensure the demand of the customer is met with success – easily and cost-effectively.

The label industry will continue to see the need for strong geographic suppliers that understand and support the key vertical markets of the area. However, true national vendors will begin eroding the local preferred base with broader product and service offerings. This will expedite additional mergers, acquisitions, and exits. How equipped are you to fare in the increasingly competitive environment? Will you need alliances or something more? How fast will you be able to change?

When you consider these issues – and the pace at which they need to be addressed – you will understand the need to consider M&A as the logical move in the contest of the survival of the fittest.

Navigating the dangers of the jungle should not seem scary to the modern business owner. You’ve undoubtedly slayed your share of wildebeests and swung from many a treacherous vine. But most of your actions have been taken to quell the immediate need.

One of the most difficult parts of steering your business is to enact change with a mindset for the future. However, as you evolve, keep in mind the above three most pressing dynamics – change factors – on your business and profitability. The changes you make now will have an even greater effect down the road. Make sure they help you to capitalize on customer, governmental, and competitive effects to become King of the Jungle and not push you to the brink of extinction.

This article was published in L&L issue 4, 2011