Shorter Runs in a Growing Market

Imagine a world without labels. Pharmaceutical bottles would not have reliable information, wines and craft-brewed beers would be local offerings in plain bottles like the local "garage wines" of France and Italy. Without labels it would be nearly impossible to market low-cost cosmetics or for high value cosmetics to economically communicate their quality level through print.

Or consider a tagless world. Clothing would hang on store racks devoid of descriptive information. Garden centers would be unable to clearly mark plants. It would be all but impossible to identify at least half the products in a home center. Countless items would ship without the seemingly insignificant cards that advise on usage and care, provide cautions and warnings, invite interaction with a company, suggest related items, or provide additional brand identity.

Tags and labels are small items that take up a disproportionate amount of space with respect to the ways they inform, help companies promote brand identity, encourage consumer interaction, and help users get the most out of a product. Tags and labels are often compelling examples of packaging creativity that engages shoppers. And they reside in a volatile part of the packaging market.

Less sticky

One element of this volatility is a shift in customer stickiness. "Customer loyalty [to the converter] was always extremely high," says Jennifer Dochstader, Managing Director of LPC, Inc., a research firm specializing in labels and packaging. "But over the past couple of years we've seen an erosion in stickiness, even among high-end labels, and complicating that is a market that's become increasingly commoditized."

Lower loyalty and greater commoditization are just two factors that have made the landscape more challenging for label converters in terms of profitability. Prices of raw materials have fluctuated significantly and there is increased price pressure from packaging buyers—brand owners—which further puts the squeeze on label converters.

Chasing shorter runs

Another major force is run lengths. "Runs sizes are continuing their march downward," says Dochstader. "TLMI finds that run lengths are decreasing seven to nine percent a year on average. Overall volume—throughput—is growing but the run sizes are decreasing."

"Volume, in terms of the number jobs is growing 3–4 percent annually and order frequency is increasing," agrees Jeff Wettersten, President of Karstedt Partners, an analyst firm focused on the packaging market. "But that frequency translates to shorter run lengths. This poses challenges for converters with conventional presses when scheduling multiple jobs requiring different substrates and many plate changes."

These shorter runs are entry points that digital press makers such as EFI-Jetrion, HP and Xeikon are taking advantage of, but conventional press vendors such as Gallus, Mark Andy and Nilpeter are also answering the call. Each has brought out machines featuring shorter changeover and makeready times to address the challenge of declining run lengths. At the same time, purveyors of digital presses are increasing print speeds, web widths and substrate capabilities to handle varying run lengths and job types.

Digital it is not going to take over the label market but it is certainly here to stay. While it has a place in short to moderate runs, there are simply too many products requiring long runs for which digital simply doesn't make sense. Still, the advantages of digital are too great to ignore. Five years ago a converter might have looked at his business and said, 'I'm going to buy a flexo press this year.' Now that converter could be saying, 'I need to be thinking about digital, do a real comparative ROI, and make an informed decision.' And he's not alone.

Shifting intentions

Every six months TLMI tracks purchase intent among its 150 converter members, which represent 60 to 70 percent of the market, in terms of volume. They are asked about the number and type of presses, finishing equipment and prepress system they are planning to purchase.

"Last year (2013) the same number of companies said they were going to purchase a digital press as were going to purchase a conventional press," reports Dochstader, whose company conducts the research. "That was the first time this ever happened—conventional was always higher. And it's still holding the same this year."

This shows there is plenty of room for conventional and digital presses alike. "The conventional players are getting better at short runs and digital players are getting better at some of what used to be conventional run lengths," says Dochstader. "All vendors are going to keep raising the bar."

The beneficiaries of this technological escalation are converters and ultimately their customers. The machines all chase the same real issues: How to print shortest run lengths, deliver the highest quality, provide the greatest consistency, and help ensure that a converter can be profitable in a less sticky, increasingly commoditized market.

But commoditization may only go so far. TLMI and Dochstader also talk to brand owners to see what they want out of converters. And the answer is "…innovation, innovation, innovation," affirms Dochstader. They want converters to solve problems, provide extended text labels, print complex graphics, handle all run lengths, and be an educational resource for the brand owners. Whether being that resource will ultimately improve stickiness is uncertain, but it's possible that the ability to provide labeling solutions that help brand owners differentiate their products on the shelf could help improve the stickiness that converters need.

Digital: Supplemental and Transformative

Tags ands labels are among the low hanging fruit of packaging and seem ripe for picking by owners of digital presses, including commercial printers seeking to expand their offerings. Vendors such as EFI, Epson, HP, Xeikon, and several others have successfully placed equipment in a full range of tag and label printing operations. Today, most of those machines are busy and profitable.

While some conventional tag and label printers initially saw this as a way to pull work from conventional presses, digital has actually carved out its own place in the market. Short runs, from a handful of individual labels to runs several thousand feet in length were loss leaders on conventional presses because of the labor involved, the cost of plates, and wasted material during makeready. Yet many converters would still take the jobs on to service key customers and keep the shop busy.

Asset utilization

As it turns out, shifting those short runs to digital presses often makes conventional presses more productive, letting them run the longer jobs they are designed for while the digital machines handle the short runs. "With shorter runs on the rise it's simply harder to optimize operations on older analog machines," notes Wettersten. "It's one thing to gang 10 jobs needing the same substrate on a flexo press and do the plate changes. But doing that profitably with 40 jobs is much harder to do."

To be fair, similar optimization also takes place on digital presses. "Gangs of short runs, such as 10 versions of one label, are a fairly common assignment for a digital press," says Bob Leahy, Associate Director at InfoTrends. "Such ganged jobs can add up to greater effective run length, so that a bunch of short runs is effectively one fairly long run" (see sidebar, Digital Optimization).

Finishing steps

One caveat with digitally printed labels though, is finishing. Although digital label presses are roll-to-roll devices, most lack significant inline capabilities for trimming, diecutting, embossing, coating, and other steps needed to produce ready-to-apply labels. Up to now, third-party suppliers have filled the void, but integrating these into a busy operation can slow throughput and increases the cost of a complete system. While the extra steps involved are not necessarily an issue at some of the the lower run lengths common with digitally printed labels, this final step is still a factor in how well digital label production fits a given application.

Still, most converters using both digital and analog systems say they are profitable with both technologies, and have grown business on each type of press. And, it's not uncommon for some tag and label customers to ask only for short runs and use digital printing exclusively. For many, this shortens turnaround times while reducing waste and inventory requirements.

"This is the intersection of the art and science," adds Wettersten. "A lot of craftsmanship and art goes into getting great results off of a flexographic press. There's a tremendous amount of skill involved. That's not the case with a digital press where the process is more of a closed loop."

This intersection is likely to become a lot more interesting as conventional vendors roll out hybrid presses such as Mark Andy's Digital Series, as conventional press suppliers introduce their own digital systems, and as the digital companies increase speed, print width, and add integrated inline finishing options.

The label market continues to be amazingly dynamic and presents an immense range of opportunities for converters no matter which technologies they use. And best of all, it's only going to grow and expand. No one, after all, wants to live in a world without labels. pP