Across nearly every industry, mergers and acquisitions are booming. Big or small, companies are selling as fast as the proverbial hotcake. While today’s dynamics may make a sale favorable, they won’t be the same factors down the road. Your decision to take advantage of the current frenzy shouldn’t be based simply on the offer; it should figure in what your opportunity may – or may not – be in the future.
It’s important to know which factors will stay the same, versus those that will change. Let’s discuss them as they apply to four key categories: customers, competition, marketplace and employees.
Factors likely to stay the same
Customers – Customers will be loyal to those firms that offer a real value component. This isn’t just having a great product or a good relationship with the sales rep. A value component is a differentiator that translates into growth for the customer’s company. Additionally, customers will look to a vendor for specific services that give them an edge in the market. What advantage are you bringing your customers? More important, what are you doing to maintain – and expand – these services? If you can’t readily answer these questions, it may be time to readjust. Offering an edge doesn’t mean introducing a new press; it means carving out a unique combination of assets and abilities.
Competition – No matter how much the vendor pool shrinks through consolidation, there will be competition. Someone will always be trying to steal your customer, sales representative and market position. If they’ve come about because of M&A, they may have an advantage. Very few deals are done to increase girth. You need to be cognizant of players that are forming and the unique skill sets they’re developing to usurp your business. Add to that, certain competitors will always be trying to win your customers by undercutting pricing. This strategy will succeed if you haven’t established a clear value proposition.
Marketplace – We’ll see more of the trend toward short-run work. As more companies rely on analytics, the ability to segment and test databases is key. Customers will run more small test jobs and make adjustments before committing to full-scale programs. These efforts are far easier when working with local suppliers, so relationships and geographic position are very important.
Manufacturing platform (conventional, digital, large-format, packaging-enabled) will also stay a market focus. But simply having certain assets isn’t enough. Your differentiator is what you do with them.
Factors likely to change
Customers – Activities in prime label markets (eg food and beverage, wine and spirits) will affect your selling base. For example, increasing demand for organic foods as well as farm-to-table products has brought thousands of new providers to the market. Additionally, recognized brands are producing healthy extensions with brand-new identities. This means there is plenty of new spending to win. Every label company – no matter how successful – needs to recognize new entrants and have plans in place to identify them and secure their business.
Another changing customer factor will be expectations. What is considered rush today will become the norm. The importance of scale to meet demands, along with the ability to leverage market position, will continue to shorten lead times. Suppliers will seldom have more than a few days to take orders, process, proof, manufacture, and deliver – to a multitude of global locations.
Competition – It’s tough and costly to enter the label and packaging arena. Your prime competitors will likely be companies that are out there today. Yet, the rapid pace of M&A means that their faces may change. The guy down the street may become part of a Strategic. A neck-and-neck adversary may bring aboard bolt-ons and offer greater depth. A private equity buildout may create a new entrant with formidable capabilities. In the next five years, your local competitors will be larger, with more resources, equipment and know-how than ever.
Marketplace – Considering its rapid advancements, digital will no longer be a nicety; it will be a requirement for every label house. The technologies that answer the quality and versatility needs (near 100 percent PMS matching, thousands of certified substrates) are there now. Forthcoming presses will continue to blur the lines, with few real differentiators between digital and conventional. Full-scale programs will no longer be standard. Rather, runs will be shorter, as customers better target to meet individual customer needs and market demands.
Additionally, digital’s quicker processing will result in even greater pricing pressures. More important, because of ongoing M&A, the label industry will be dominated by the ‘Majors’. Their multiple, geographically disperse plants will give them a real (and perceived) advantage on meeting client needs. Thus, you’ll be competing almost always on scale and scope of capabilities.
Finally, you can expect that new government regulations – on both labels and packaging and client industries – will change how you manufacture and function.
Employees – The labor pool will also change. Rising demand for tech and STEM jobs means fewer new candidates coming out of college to our industry. In the next five to ten years, most label and packaging companies will struggle to identify – and keep – talented staff to run their business. Additionally, the changing attitudes of the Millennials will make it increasingly difficult to find people willing to do production, warehousing, and maintenance jobs effectively.
What do these factors mean to me?
Having an understanding of near-term changes is only helpful if you make plans to accommodate them. If you’re not looking to do an M&A play in the near term, you’ll need to prepare your company to compete in and do a deal in the future.
You may be skeptical in reading the above list and wonder whether these things will really come to fruition. In my four decades working in, advising and observing the print industry, I have seen such changes happen quicker than you can imagine. And when they do, it has propelled some segments substantially forward while sweeping others into oblivion. Indeed, these factors will affect you and your business going forward. You should review them at least every year, and adapt to them, as you plot your future.
Perhaps most important is ensuring you meet the needs of customers’ markets and help them thrive. The most successful operations always focus first on client success. Partners who deliver real value can survive any kind of industry change.
As you witness the ongoing M&A frenzy in our industry, focus less on the ‘who’ and more on the ‘what’. Namely, pay close attention to the impact it has and how it’s driving new expectations and needs. If one thing is certain, it’s that change will always come. How you anticipate it and respond will make all the difference.
Read this opinion in L&L issue 3, 2017 and here