Label Market Remains Strong

Through 2013, U.S. label shipments are expected to advance to $19.2 billion.

From a more global perspective, Reardon states that AWA research projects growth in developed geographic regions like North America and Western Europe for mature labeling technologies, such as pressure sensitive and glue-applied, to not exceed GDP growth overall. There will be higher growth application areas, but overall growth will be dictated by GDP growth. In developing or emerging geographic markets, AWA expects continued growth at higher GDP levels or greater.

Digital printing is impossible to ignore these days, and experts expect adoption to increase. "The utilization of digital printing will continue to expand in tags/labels," states Gerace. "It is great technology, produces excellent quality, but needs to overcome some of its volume limitations, color constraints, and finishing integration issues."

Reardon adds, "Digital printing has gained significant ground in all facets of the package-printing sector and, today, is a competitive and strong alternative to other print technologies."

Freedonia's data seems to back up Gerace and Reardon. The study states that shipments of digitally printed labels are forecast to expand at the most rapid rate, nearly doubling by 2013. Growth will be fueled by trends favoring shorter label runs and mass customization, a popular marketing tool which capitalizes on the advantages offered by digital printing technologies.

Primary packaging will remain the largest application for labels in the U.S., according to Freedonia. However, faster growth will be in mailing and shipping and secondary labels. Growth in these markets will be driven by Internet shopping, which boosts demand for mailing and shipping labels. Secondary label growth will be based on demand for bar coding labels and increased use of RFID and electronic article surveillance anti-shoplifting systems.

Post recession

We're coming out of the recession, and many are considering the recovery sustainable. But, what was the impact on the tag/label market.

"The recent economic environment drove a fundamental, and hopefully permanent, change in inventory levels and how they are managed across the value chain and supply chain dynamics in the industry," claims Reardon. "Definitely, in more difficult times, 'survival of the fittest' takes over and ultimately creates a stronger industry. This will also further drive consolidation and M&A activities, which we are already seeing."

Gerace adds, "The recent recession has definitely impacted growth rates and will continue to do so for the next several years. Reduced growth rates will intensify the competitive landscape and put pressure on pricing and margins, which will, in turn, drive the need for deeper manufacturing cost reduction initiatives. We all will have to do more with less."

For Reardon, the recession saw clients approaching AWA for help identifying new market opportunities and ways to meet customers' unmet needs to grow and strengthen their businesses.

It's over ... Now what?

So, you've weathered the recession, and you're still in business. But, what do you do now to put your own business on the fast track to recovery? "Status quo is never the answer," says Reardon. "You stand still and the whole world around you moves forward and you are left behind." Gerace concurs, "Never accept the status quo!" So how do you get your business to trend upward?

"Looking at new markets, new opportunities, is critical to remain healthy," claims Reardon. "If not new markets and new opportunities, then looking at new ways of doing what you do is important." He adds that mergers and acquisitions are picking up across the country. According to AWA data, the buying and selling of companies across the value chain, for strategic reasons, or by private-equity and investment groups, for financial reasons, is increasing. "The sector is overdue for further consolidation, driven by attractive growth and profitability, providing opportunities for both strategic and financial buyers," states Reardon.

He continues, "During the next 12 to 18 months, it is expected that there will be numerous M&A opportunities for both strategic and financial buyers across the sector, particularly as consolidation will be necessary and heavily leveraged firms face financial uncertainty." He states that senior managers and financial buyers with an understanding of the sector, as well as an understanding of current M&A tools, will be positioned to take advantage of acquisition opportunities and grow their companies and financial performance.

Gerace explains that label printers should, "Get and be better at what you already do well. Protect and defend your current business and customers." To achieve these ends, he offers the following four suggestions:

1) Be relentless around internal cost reduction in order to be a low-cost producer and stay competitive. Use innovation to create new products and services that fill the unmet needs of your existing customers.

2) Expand your customer base within the markets you currently serve.

3) Explore new markets that will leverage your current technology and knowledge base.

4) Explore acquisitions that make both strategic and financial common sense.

An important year

2010 is going to be an important year for just about all industries and all markets. The economy continues to recover and the news thus far has been at the very least encouraging, though not door-busting in terms of a turnaround. For the label industry, this year will be a challenging time, for a variety of reasons, but, according to Reardon, the top issues will be raw material inflation and profitability.

Gerace adds, "As the economy and capital markets continue to stabilize and improve, I think we will see an increased interest in the label industry from private-equity firms, which will improve valuations and increase acquisition activity."

Ultimately it comes down to what made a company successful from the beginning—knowing its customers and the markets it serves.

"Understanding customers and markets in a broader sense will allow opportunities to be more easily identified and, equally important, allow threats to be quickly assessed," says Reardon. "As stated often over the past years, the threat today is not from your direct competitor, but from an alternative technology that will substitute your product overnight." pP

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