Consumer demand to fuel label technology investment in India

India is now the world’s largest free-market economy and facing a boom in demand for consumer products and luxury goods – and a revolution in retailing. Mike Fairley, a leading authority on the global label industry, looks at the implications and investment opportunities of this boom for the Indian label converter and industry supplier.

If all the recent economic, investment and business trends forecasts for India prove to be anywhere near accurate over the next few years, then Indian label converters will soon be needing to make major investments in label printing, application and overprinting technology so as to meet an unprecedented level of demand for higher quality labels and newer distribution and promotional solutions.

During 2006, market studies have put India at the forefront of the most attractive global retail investment destinations (considerably ahead of China) in an Indian retail market currently valued at US$350 billion and expected to grow by up to 13-15 per cent per annum. Currently fragmented and dominated by around 11 million ‘unorganized’ small family-owned outlets, large-scale ‘organized’ retailers presently make up no more than 3 per cent of this market. Yet this three per cent is growing at up to 30 per cent annually. Little wonder then that companies such as Wal-Mart, Carrefour, Metro and Tesco have been lobbying the Indian Government to open up the retail sector. At the moment however, retail groups selling multiple brand products are still excluded from direct competition in India. This may well change in the future.

Nevertheless, Wal-Mart has already announced the opening of an Indian office for market research in India and has just pipped Tesco at the post to secure a deal to enter the Indian market through a partnership with Bharti Enterprises, a venture which is expected to see the pair open several hundred stores across India under the Wal-Mart banner within five years.

European ventures into the country already include Marks & Spencer, who work with a franchise partner in India and supplies clothes to eight Planet Sports stores. These look like M&S on the inside but are owned by local retailers. The German retail group, Metro, has also taken tentative steps into India - via a chain of wholesale cash and carry centers – in cities like Bangalore.

At the same time, the Indian Government has recently decided to allow foreign direct investment of up to 51 per cent by single brand retailers, such as shops selling Nike sportswear, Levi jeans or Nokia handsets, or - if they want to - chains like McDonalds, Body Shop and Ikea, to open and control their own operations in India – which in turn is expected to stimulate further global brand and retailer investment in the country.

Not to be outdone, domestic Indian investment groups are racing to set up retail chains ahead of the eventual opening up to global retail groups. Indian corporate giant Reliance Industries (India’s second most valuable listed company) is setting out to become a ‘Wal-Mart in India’ by announcing that it intends to open 4,000 retail stores in 1,500 towns and cities by 2011, and so revolutionize the way Indians shop.

Not only that, Reliance is setting out to revolutionize the whole nature of retailing and farming in India with state-of-the-art distribution centers, proper cold storage and cold distribution facilities, modern food processing units, contract farming, and the consequent ability to offer fresh food to consumers at cheaper prices – but yet at the same time to raise farmers’ incomes. And it is not just Reliance moving in this direction: Indian domestic giants such as Enterprises, Tata, and Adif, are also becoming retail players while existing chains such as Pantaloon Retail India and Shopper’s Stop and Trent Ltd, will continue to expand.

However, it is not just the retail sector that is expected to boom over the next few years. It is a whole consumer spending boom coming from rapidly rising disposable incomes, in turn bringing millions of new consumers each year into the more affluent middle class and fuelling a multi-decade investment and spending boom which is not just based on buying for necessity. Car ownership in India for example, is forecast to grow dramatically over the next few years, attracting intense interest by global car manufacturers. Consumer goods sales are expected to rise by as much as 15 per cent a year, while more and more luxury goods are being sold.

Put all this together and it now makes India the world’s fastest growing free-market economy. This in turn is stimulating, and will continue to stimulate rapid growth in the Indian label converting sector, where major investment programs for new label presses, pre-press, finishing, application and overprinting technology are expected to be put forward over the next few years.

The establishment of major retailing groups with multiple outlets will undoubtedly see volumes of labels increase, create a need for better label design, demand quality improvements, see new market initiatives using labels, a requirement for improved branding, more house or brand colors, higher performance requirements, more information on labels, developments in chill cabinet, deep-freeze and fresh produce labeling, growth in variable printing and pricing labels, advances in distribution labels with multiple bar codes – and probably more rapid movement to RFID track and trace solutions.

With rapid expansion also coming in the automotive, consumer and luxury goods sectors in India, will come demand for more performance labels with higher and longer life durability, a requirement for over-laminating, more hot or cold foiling solutions, laser and thermal print technology and speciality labelstocks and inks.

For the Indian label converter, these developments are likely to lead increased investment in flexo and UV flexo technology, more screen process, more hot foil investment, improved label design and plate making technology, rapid expansion in demand for table-top printers, a fast rise in demand for print-and-apply equipment, label application and labeling systems. And many of them need to be planning this investment now.

For the label materials and technology supplier, there is a growing need to establish improved sales, service and support operations in India, to set up the necessary ancillary equipment and supply market – inks, dies, anilox rolls, UV equipment, etc – and to help build the necessary education, training, information and knowledge-based market place that can support the high growth label industry that is now rapidly emerging in India.

Labelexpo Global Series have taken steps over the past two years to aid development of the Indian label industry, staging high level conferences stimulating growth and investment. Each summit attracts leading label experts from India and beyond and provides the ideal educational forum for India label converters to learn about the potential ahead in this increasingly global industry. In March 2007, Label Summit India will take place in New Delhi.

Although still in its relatively early days, the consumer and retail boom in India now seems unstoppable. This will undoubtedly continue to fuel rapid growth in all types of labels in India, particularly for self-adhesive labels and shrink labels in the shorter term and, longer term, for wrap-around and in-mold labels as well.

What seems certain is that the next five to ten years are set to become a major opportunity for both label producers and industry suppliers in India. Those that have the foresight, ability and knowledge to invest now will undoubtedly reap the benefits in the years ahead. The Indian label market is increasingly opening up and looks set to become one of the major global beneficiaries in the future.