US label market tighten as others feel weakness continue

Positive business feedback from narrow web converter segment rose through 2006 and early 2007. “Best April on record” and “best first quarter we ever had” were among comments registered by narrow web label printers. But the economic picture in one influential part of the globe, the United States, is shifting. It is a general tightening whose main contributors are rising interest rates, lower consumer spending, declining real estate prices, and difficulty in generating future organic growth.

The label industry, according to observers, will undergo considerable contraction in North America and to a lesser degree in Europe starting later this year. This has been long predicted and is now expected near term.

Overall GDP growth and near-record low unemployment notwithstanding, the American manufacturing sector is under attack. Consumerism, in the form of demanding shoppers and even more demanding shareholders, continues to pressure retailers to pursue lower costs, better products, and additional services from their vendors, who, in turn insist on similar contributions from their own supply chains. As a result, a great deal of high volume manufacturing, along with its packaging requirements, has departed for lower cost shores, never to return. The effect on the narrow web industry has been a continued reduction in the overall market of products requiring domestically printed labels.

Today’s label printing industry is characterized by price wars, rising print standards and a tightening labor market for skilled press operators. Industry-wide, organic growth has become more and more difficult to achieve, stalling top line growth, making consolidation inevitable. This is precisely what we have been witnessing over the past several years, particularly at the large company level, where acquisitions have spearheaded the growth initiative of industry notables Multi-Color, WS Packaging, Fort Dearborn, York Label, among others. Even at the smaller and midsize company levels, the industry has seen a flurry of ownership turnover, including acquisitions by companies in related industries such as packaging equipment, folding cartons, cans, and bottles.