Dr William Llewellyn, vice president and senior consultant, AWA Alexander Watson Associates, reveals exclusively to Labels & Labeling the trends found in the company’s latest analysis of the South American label market
‘Labeling Markets: South American Market Study & Sourcebook 2012’ is our third assessment of one of the world’s fastest-growing label markets. It records current trends in the South American market by different label formats and materials, and technologies used, within the context of changing demographics and evolving infrastructure in the region’s business arena.
Setting the context
In 2010, label markets around the globe demonstrated a marked recovery from the lows of the prior two years and, in general, managed to transition to strong, positive growth. However, in 2011 – the period covered by the statistics in this report – signs of developing uncertainty in the label market were becoming globally apparent. While all-round growth in the label market had returned to lower, more reasonable and sustainable levels, it was tempered by the economic ambivalence in Europe, North America and elsewhere, which seems set to continue.
The mature label markets are showing limited growth, at or below GDP; and global 2011 growth rates, at 4.5 percent, are unquestionably buoyed by activity in the emerging label markets in China, India, and South America. While Asia continues to drive growth in label volumes, South America is unique in exhibiting high growth rates across all label formats – wet glue, pressure sensitive, sleeving, and in-mold – albeit from a lower starting point than other regions.
The South American markets
Driven by the leading regional economy, Brazil, and to a lesser extent by Argentina, Chile, and Colombia, the South American label market evinces differences across its countries’ varying preferences and levels of sophistication. It is not homogeneous. Estimated regional volume growth for 2011 at 11.5-12 percent conceals significant variations by country, from a high of 12.5-13 percent in Brazil to a low of around 7.5-8 percent for Chile. These growth rates compare to those of China and India, at 12 percent and 9 percent respectively, and are strong evidence of lively market growth in South America, both in label manufacturing and consumer demand.
The labeling technologies
In terms of preferred label format, it is the glue-applied technologies – cold glue and wrap-around hotmelt glue-applied – that currently take the largest market share, 65 percent, across the region; and the technology is forecast to continue to deliver healthy growth in the medium term.
With less than half the overall volumes of glue-applied labels, pressure sensitive labels enjoy only a 26 percent overall market share in South America. However, the market continues to invest in narrow web flexo and, particularly, UV flexo, supported by the global press manufacturers – such as Mark Andy, Nilpeter, MPS, Omet and Gallus – who are today often able to provide local support. There is also growing interest in digital printing. Opportunities in pressure sensitive labels exist in particular in the area of added functionalities – especially security labels using anti-counterfeiting devices, and clear-on-clear film labels for beverages.
Sleeving technologies have so far achieved only 3 percent market penetration, but are growing rapidly – driven by their container barrier protection and tamper-evident properties, the wide range of special effects offered – thermochromic, pearlescent, etc – and the innovative and complex container geometries which they can accommodate.
In-mold labeling – with its greater demands on machinery infrastructure – is still in its relative infancy but, following strong investment in 2011, is forecast to grow considerably in the medium term.
The many label technologies competing for volumes, particularly in the primary product application segment, are, of course, further challenged by the alternatives offered by direct-printed containers, cartons, and flexible packaging and pouches as decorated primary packages.
The majority of South American labels are manufactured using paper facestock. However, there are wide variations in the use of paper and film/other materials by label format. Sleeve labels are entirely dedicated to film materials; pressure sensitive labels are dominated by paper; and glue-applied labels (because of the influence of film wrap-around labels) use a combination of film and paper.
Overall, the use of film in label formats is increasing at a faster rate than paper materials, not only in pressure sensitive primary product labeling, but also in hotmelt wrap-around glue-applied labels; sleeve labels; and in in-mold labels, where the real potential is for film-based orientated IML-IM and IML-EB formats.
The end user markets
Brazil’s vibrant economy makes it the dominant label consumer in the region, with an estimated 50 percent of the market, followed by Argentina with 18 percent, and Colombia and Chile with 10 percent and 9 percent respectively. Label usage is very much focused on prime label applications – particularly and unsurprisingly in the beverage and food sectors. Shelf ‘stand-out’ is a major consideration in label design and print in a growing consumer-focused environment with increased spending power, and with the world’s major retail chains – such as Walmart, Carrefour, Tesco and Metro – developing a presence.
Promotional labels take a larger role in South America than in many other regional markets, representing 5 percent of total label usage. They are heavily used to make special offers or present discounts by direct attachment to the product, and are often targeted at specific age groups or followers of events, such as the upcoming FIFA World Cup (2014) and Olympic Games (2016), both scheduled to take place in Brazil and representing major opportunities for promotional labeling across the region. Functional/security applications represent around 2 percent of the total South American label market, but this segment represents much of the higher-value-added and innovative labeling. It employs all the extant label technologies to a greater or lesser extent.
VIP and logistics applications – major market shareholders in the mature markets – have yet to fully develop in the region, and are another future opportunity area.
Already in this fast-developing marketplace there has been quite extensive M&A activity – much of which has involved foreign companies. Examples are CCL Label’s acquisition of Prodesmaq in 2006 and ITW in 2007; UPM Raflatac’s acquisition of Gumtac Auto-adesivos in early 2011; and Multi-Color’s acquisition in May 2011 of Collotype Labels in Chile and Argentina. As this aptly demonstrates, globalization continues apace; and multi-national companies across the spectrum can benefit from investing in South America – in terms of economies of scale, easy access to raw materials, and a huge domestic market.
In South America, against a background of developing economies and markets, the introduction of legislation relating to the environment has been ongoing since the turn of the century. Several countries have introduced legislation which shifts the responsibility for the management of end-of-life consumer products from governments to manufacturers, importers and retailers. Through the offices of the regional free trade association Mercosur, the member countries have worked towards creating harmonized environmental management programs for post-consumer waste, including ‘take-back’ programs and consumer awareness campaigns.
There can be no doubt that South America represents a truly dynamic economic region, offering potential in terms of an enormous domestic market – around 6 percent of the world’s population – and a huge opportunity for exporting manufactured goods. And it is a fact of life that manufactured goods require labels, so the dynamism of this growing economy certainly extends to the product identification and decoration technologies, across the entire value chain.
‘Labeling Markets: South American Market Study & Sourcebook 2012’ is available to order online via AWA Alexander Watson Associates’ website.
Pictured: Dr William Llewellyn, vice president and senior consultant, AWA Alexander Watson Associates