L&L speaks to a cross section of label converters and industry suppliers to gain a variety of perspectives on the challenges and opportunities in Latin America. James Quirk reports
The state of the label industry in Latin America – a vast region of some 20 countries and 600 million people – is not easy to define: the region’s individual markets, of course, each have their own influences and peculiarities.
To gain a variety of perspectives on the challenges and opportunities of Label America’s label markets, L&L posed questions to a number of leading label converters and industry suppliers operating in the region.
The label converter’s perspective is provided by Fernando Gabel of Baumgarten and Jeffrey Arippol of Novelprint, both from Brazil; Fabian Silva of Mexico-based Etiquetas Anro and president of Mexican label association Ametiq; and Luis Maria Garcia of Multilabel in Argentina. Industry suppliers questioned are Ronaldo Mello of Avery Dennison; Jouko Lahepelto of UPM Raflatac; Felipe Soto of Ritrama, Jesper Jorgensen of Nilpeter; John Cavey of Mark Andy; and Ricardo Rodriguez of HP Indigo Mexico.
The label converter perspective
L&L: What are the current defining trends of your local market?
Fernando Gabel, Baumgarten: Runs are getting shorter and each product line has a greater number of SKUs. End users are trying to develop some labels with digital, but the costs are still too high for our local brands.
Fabian Silva, Etiquetas Anro: There has been a lot of cost pressure from end users, while the market has experienced two raw material price rises in the last 12 months, not to mention the rise of the US dollar against the Mexican peso. Excess produce and low demand have created downward pressure on prices. The shrink sleeve and digital printing markets have seen the highest growth in the last year.’
Jeffrey Arippol, Novelprint: The Brazilian market is requiring ever shorter delivery times, while shortages of some raw materials have caused issues. Sustainability is a key topic.
Luis Maria Garcia, Multilabel: The market in Argentina is moving cautiously due to the recent elections. Until the government defines its economic policies for its new term, and because of the potential opening of two or more different dollar markets, it is difficult to forecast how things will develop.
L&L: What kind of growth is your company currently experiencing?
Fernando Gabel, Baumgarten: Our growth in 2011 stands at around 10 percent.
Fabian Silva, Etiquetas Anro: We will grow by 15 percent compared to last year, which is above average in our local market. Growth in our company has principally been driven by the creation of value-added products and by improving market share thanks to better service and quality. The market in general has not seen significant growth; it is at around four percent. Although the market has improved since last year, it has not yet returned to pre-crisis levels.
Jeffrey Arippol, Novelprint: We are experiencing growth of around 15 percent per year.
L&L: Are you (and your competitors) spending money on new machinery, and is this more or less than in previous years?
Fernando Gabel, Baumgarten: We are investing less money than last year, as our investment plan in 2010 was very high. Brazil is experiencing a turbulent period, with some impact from the global crisis and also with a reduction in local industrial production, due to the fact that the importation of manufactured goods is very strong and growing, mainly from Asia.
Fabian Silva, Etiquetas Anro: Machinery investment has been cautious because of global financial instability and the fluctuation between the peso and US dollar. In our case, we have not invested in machinery this year. We are conscious of the global economic situation and that the economic environment can change in Mexico because of North American influence and the presidential elections next year. Elsewhere in the market, I would say that the principle investments have been in digital machinery.
Luis Maria Garcia, Multilabel: Machines get old, and new technology makes faster, better and cheaper runs. That is the only way of growing without increasing costs. I believe (and hope) that when the situation in Argentina becomes clearer, we and many of our competitors will invest in new presses.
L&L: Where do you see the biggest areas of growth in your local market?
Fernando Gabel, Baumgarten: I’m surprised almost every month with the news that we receive from our sales team. I would say that all areas in general will have some growth. Baumgarten is more focused on cosmetics, foods and beverages. Pharma is also a good opportunity for us in the short term. If you consider geographic areas, there’s no doubt that the northeast of Brazil will experience good growth in the next few years and there are many end users starting operations in that region.
Fabian Silva, Etiquetas Anro: In the local manufacturing of labels: Mexico continues to import labels from abroad, so there is a great challenge and opportunity to produce them locally. The local industry has gained some ground through investment in advanced technology and improvement in processes and quality controls. There has also been a shift in technology: traditional dry offset is being replaced by self-adhesive labels in certain applications. There is also significant growth in digital technology, now that there are increasing requirements for shorter runs with higher print quality, as well as in the use of shrink sleeve labels.
Jeffrey Arippol, Novelprint: In Brazil, there is significant potential for growth in the beverage sector as well as the food industry, particularly in labels and packaging for meat products.
Luis Maria Garcia, Multilabel: As far as our experience goes, we see the food and wine areas as the ones with the biggest growth in our local market.
The industry supplier perspective
L&L: What are the current defining trends of your local market?
Ronaldo Mello, Avery Dennison: The Latin American market is concerned with the global crisis and, although our region is doing better than the rest of the world, we are seeing converters and big end users worried about future growth. All companies are looking for the right partnership with suppliers and customers, trying to achieve savings wherever possible, to offer products that are adjusted to the region’s needs and purchasing power.
Jouko Lahepelto, UPM Raflatac: Sustainability and product recyclability are becoming major themes in Brazil. It is imperative that the entire industry be proactive about these issues before mandatory legislation is passed and enforced.
Felipe Soto, Ritrama: At a product level, pressure to cut costs and greater use of thinner frontal films and silicon liners. There is a trend among the big end users in the household goods sector to use silicon PET liners for reasons of greater number of labels per roll, fewer changeovers, less weight and volumes to ship and store, quicker application speeds and because PET liner can be recycled with relative ease compared to glassine liners. There is an increasing trend towards greener products, and also a lowering of inventories and dispatch times.
Jesper Jorgensen, Nilpeter: The Latin American market is extremely diversified – our client base stretches from smaller companies investing in basic flexo presses to large corporations investing in offset combination presses. To define one single trend as a common denominator – Latin American label printers are investing in technology on a similar level to North American and European converters. The level of quality and market demand is first class.
John Cavey, Mark Andy: Converters are receiving a lot of pressure from all directions not to increase prices. One of the ways they are learning to improve margins is to make the product more efficiently. They are looking for presses that do short runs as well as long run work that can produce with low waste and with high productivity running multiple substrates. This is very much related to the success that Mark Andy is seeing this year in Latin America: in our Performance Series, we have the exact product that fits these needs. Shrink sleeves are increasingly in demand. Companies like Carrefour are asking for more of their suppliers to provide their products with shrink applications. Due to much more efficient presses being purchased by the North American converters and some larger Latin American converters, at which time they are taking out their older inefficient presses, I see an influx of used presses hitting the Latin American market. This is good for the parts and retrofit business, but not good for those converters trying to compete against the new efficient press technology used by their competitors. These customers will find it very hard to compete.
Ricardo Rodriguez, HP Indigo Mexico: Efficiency. Everybody related to the supply chain has to be efficient: from the way you and I buy a product, which will be taken from the shelf – or even the virtual shelf – because of the way it looks and those ideas that have been ‘planted’ in our minds from the web, social media and real advertizing and, of course, from the product itself. We want it now: personal and efficient. Since this is the very beginning of the chain, brand owners have been modifying the ways they request raw materials, produce products and sell them. Everything in this step has to be efficient as well. Those brand owners that are being successful in their business plans and, of course, in their results, are those who are using these trends in their favor and translating them into efficiencies in their entire packaging and labeling chain.
L&L: What kind of growth is your company currently experiencing in Latin America?
Ronaldo Mello, Avery Dennison: We are growing at single digits in South America, with all the countries cooling down and fighting inflation. We are also coming from a strong 2010 where elections in Brazil played an important role in volume. So not considering the effect of the elections, we are still above organic growth.
Jouko Lahepelto, UPM Raflatac: After a period of rapid growth in 2010, this year’s market growth in Brazil has been quite modest and demand has been volatile at times. Despite this, UPM Raflatac has been able to continue to grow quite nicely in this area thanks to our acquisition of Gumtac in May, which has provided us with an excellent operational platform to serve our Brazilian customers. In Mexico, the second half of the year has been challenging, as the global debt crisis has caused fluctuations in the value of the Mexican peso. These fluctuations, coupled with modest consumer confidence in the USA, have been major contributors to the uncertainty and volatility in the market and have led to moderate growth in this region.
Felipe Soto, Ritrama: Around 20 percent, but it should be noted that figure is specific to our company rather than quantifying growth in the market. As Ritrama Chile is a new plant, there is much space for us to grow.
Jesper Jorgensen, Nilpeter: We are now also seeing growth in the smaller countries, not only Mexico, Brazil, Argentina, Chile and Colombia. The smaller countries are catching up in terms of investment and technology.
John Cavey, Mark Andy: Mark Andy is experiencing a 20 percent growth this year over 2010 in Central and South America.
Ricardo Rodriguez, HP Indigo Mexico: Double digit growth representing more than 10 times GDP growth, driven by a better understanding and application of those trends explained above.
L&L: What changes are you seeing in the types of products you are selling to Latin American converters?
Ronaldo Mello, Avery Dennison: Converters and end users are looking for products that are more environmental friendly and at the same time more cost efficient. Our new lower gouge filmic liner is starting to play an important role as it brings the best of both, with good cost rational and superb performance for converters and end users. Avery Dennison is pushing towards thinner gauge liners to reduce waste and carbon footprint.
Jesper Jorgensen, Nilpeter: There is a strong trend towards more sophisticated presses with more value-adding features, and servicing a broader end user market. Efficiency in technology also plays a strong role: lean production is a fact in Latin America.
John Cavey, Mark Andy: I see more customers wanting to get into the unsupported film business, so they are asking for the press to be more versatile with an ability to handle multiple substrates well. By that I mean high drying and production speeds with quality printing. At the same time, the large converters are purchasing machines dedicated to narrow applications such as unsupported film only.
Ricardo Rodriguez, HP Indigo Mexico: Efficiency again. Our new products give the market new possibilities for growth and profit by improving certain aspects of the press’ operation, such as the Enhanced Productivity Mode, White+ and In Line Priming options.
L&L: How do you see the potential of the label market throughout Latin America?
Ronaldo Mello, Avery Dennison: As I said, I do think that the global crisis will produce effects in our region, reducing growth over 2012/13. Talking about the PS market, we are always monitoring the penetration of PS and it is still close to two sqm/per capita, showing a huge potential for growth. The increasing purchasing power will boost this penetration and bring more sophisticated label decoration to the market. Even with all the overcapacity in the market, we are very optimistic and well positioned to participate in future growth.
Jouko Lahepelto, UPM Raflatac: In the years to come, we foresee a strong, mid to high single digit volume growth for the Latin American market as the population continues to boost consumer demand for labeled goods in the food, beverage and health and beauty sectors. Additionally, labelstock growth will be fueled as pressure sensitive labels continue to gain market share from competing labeling technologies. And as a complement to this underlying growth, the Brazilian market will obviously experience an increase in demand thanks to the upcoming World Cup in 2014 and Olympic Games in 2016.
Felipe Soto, Ritrama: The growth potential is affected by the current limitations of the global economy, but with some of its own characteristics: Latin America continues to be a net exporter of commodities and food stuffs. Consumption of both these families of products are least affected by recession in the market.
Jesper Jorgensen, Nilpeter: The potential is great. Even though the general standards are equal to North America and Europe, we just need to look at the consumption of PS and other narrow web product decoration methods: the gap compared to North American and European consumption is still quite large.
John Cavey, Mark Andy: I am very encouraged about the label market in Latin America and expect to see a positive growth rate into 2012.
Ricardo Rodriguez, HP Indigo Mexico: Enormous. Mexico has a natural advantage as it neighbors the biggest consumer market in the world. Beyond that, our economy is highly based on small and medium sized enterprises, which perfectly addresses the market requirements of efficiency and flexibility.
UN sees Latin America growth
Economic growth in Latin America and the Caribbean is set to be 4.7 percent in 2011, the UN's regional economic body, ECLAC, said in a report earlier this year.
The growth is reportedly being driven by strong domestic demand with more people working and able to access credit. Overall growth of 4.7 percent for 2011 represents a rise of 3.6 percent in per capita GDP. ECLAC forecasts that the two biggest economies, Brazil and Mexico, will grow by four percent. The fastest-growing economy will be Panama at 8.5 percent. Other countries set to see strong growth include Argentina on 8.3 percent and Peru on 7.1 percent.
Growth is being sustained largely by people being in a position to buy and consume more, while investment is on the rise, says the report. The overall unemployment rate is expected to come down again in 2011, to between 6.7 percent and seven percent.
But ECLAC warns that the region faces the risk of worsening inflation – with interest rate rises to tackle this leading to currency appreciation, which could undermine the competitiveness of exports – and could become more vulnerable to speculative capital movements that may create bubbles in financial and real estate markets.
Pictured: The wine market is seen as one of the biggest areas of growth in Argentina
This article was published in the L&L Yearbook 2012.