American giant Multi Packaging Solutions (MPS) swooped to acquire nimble UK label printing business AJS Labels, in a move that is just the latest in a long line of label-related M&A activity.
There’s a particularly interesting angle to the MPS/AJS deal, in that the AJS business was formed seven years ago when Andrew Scrimgeour and his wife Jayne acquired a loss-making and non-core corner of a large US-owned packaging group... and now, in one of those neat little corporate twists that come along every now and again, the business has been bought by an even larger US-owned group, which had previously swallowed up the US and Asia operations of AJS’s former parent.
And Americk Packaging, which acquired Adare Advantage a year ago, is now itself in the process of being taken over by Spanish paper group Saica.
There are expectations that more moves will follow, and while it appears likely that activity from global giants such as MPS, CCL and Coveris will continue apace, we also have some home-grown acquisitive forces in labels.
Mansfield-headquartered Reflex Labels Group has acquired a number of businesses, and acquired three companies last year alone.
Managing director Ian Kendall believes that M&A activity in the labels space has a way to go yet. “I think we’re going to see that M&A speed up. There will be more of that and the big groups are going to get bigger,” he states. “No doubt the big groups will be acquiring more, and we will not be shy from acquiring as well,” he says.
Trevor Smith, managing director at Amberley Labels, PrintWeek’s freshly crowned Label Printer of the Year, agrees. “There’s a bit of a buzz around big groups being acquisitive. The packaging groups are also looking at labelling,” he observes. “There’s more consolidation at the moment than there has been for a while.”
And while there has been plenty of action at the top end, with big groups becoming even bigger, label printing has also proved attractive to new entrants.
Trade printing specialist Integrity Print, which has its origins in the business forms and base stationery business, moved into label printing seven years ago with the acquisition of Topflite Labels.
Earlier this month it acquired Cardiff’s Alliance Labels as a further addition to its labels armoury.
“We are building our knowledge and expertise in labelling,” explains the group’s sales and marketing director Andrew Law. “The labels business is quite fragmented, there are literally dozens of competitors. There’s lots of market share to go after.”
The Alliance buy takes Integrity’s labels offering to the circa £6m turnover mark, and the £46m group fully intends to grow that business further. “We have an aggressive growth strategy and are looking to go from £6m to £10m turnover. We are expecting good organic growth,” Law adds.
Broad product range
As Law points out, one of the appealing things about the labels market is the fact that it involves such a diverse range of products, and print runs. Anyone who watched the recent BBC series Inside the Factory will no doubt have been awe-struck by the footage of the giant Heinz factory near Wigan, which produces three million tins of baked beans every day. And every one of those tins requires a label.
By contrast, we are also in the age of the artisan producer, be it beer, foodstuffs, soap, or other products all likely to require some sort of label.
It’s this variety that makes the label opportunity available an enticing proposition. “We could be producing hundreds of thousands of labels, or just 4,000 for a small batch of craft beer,” says Law.
A glance at the vast range of label types offered by CCL Industries, which lays claim to being the largest label printer in the world, makes it abundantly clear that the world of labels is a diverse and complex business.
The latest market research from Smithers Pira states that, in volume terms, overall label consumption in the UK rose to 1.09bn square metres last year, is forecast to rise to 1.11bn square metres this year, and to 1.2bn square metres by 2021.
And while some label printers are busy producing huge volumes of labels for fast-moving consumer goods, others are finding that success lies in niche markets.
In some cases, such as Reflex, they are effectively doing both.
“We realised that you can’t have a one-size fits all approach, although a lot of people make that mistake,” says Kendall. “You can’t run high-quality wine labels, efficiently, in the same factory as you’re producing, say, lettuce labels. It just doesn’t work. You can’t have a jazz-punk western band. They are different beats,” he quips.
Sector specifics
Specific product requirements and compliance are just two elements that go into this mix, Kendall explains. A pharmaceutical customer will want to see a factory full of similar pharma-type work.
And it’s often necessary to keep production lines separate because the use of a substance that is suitable on, say, a bottle label might not be appropriate in a food label factory because of issues such as migration.
“There are advantages in keeping certain things separately,” notes Kendall, who reports that Reflex employs “an army of people” tasked with compliance. “We have an audit somewhere in the group every day, I don’t know how the small businesses cope with it.”
Nevertheless, there is no shortage of smaller players. Some are focused on taking advantage of their ability to act quickly and be nimbler than the huge groups.
“Things are changing and that creates opportunities,” says Amberley’s Smith. “Labels is a niche market and Amberley is in a niche within a niche.”
Smith says the Dorset firm has made a specialty of focusing on new product development and innovation. The company was an early adopter of digital printing technology for label printing some 14 years ago. And it was the UK production partner for Coca-Cola’s benchmark-setting Share a Coke campaign in 2011.
“Big brand owners are really keen to continue to leverage digital’s advantages and add value to their brands,” he says. “We focus on brand owners and market leaders in specific sectors. The brands we work with are looking to add value.”
The Share a Coke campaign has inspired a number of other brand owners to look at the promotional opportunities around personalisation or special editions.
Personalised jars of Marmite have proved popular, and Heinz also got in on the act with its ‘Get well soon’ personalised soup labels promotion, despite the obvious complexities of such campaigns in terms of logistics and fulfilment.
Another important area for producing value-added products is in special finishes, and both Smith and Kendall report that demand is on the up.
“It depends on the sector but we are seeing a lot more use of embellishments, such as foiling, by brands that are differentiating their products,” says Kendall.
With extra finishes come extra costs, and as such the mindset of the brand owner is crucial. While some customers are focused solely on price, others are more open to the potential sales uplift that a slightly higher spend on a fancier label can deliver.
Smith cites the firm’s work with craft breweries that have embraced higher-value labels as an example. “If you can sell more of a product, or the same product for more money, then a fraction of a pence more on the label disappears. The really clever guys see that.”
Kendall agrees. “I have seen people increase sales by 100% just by changing the label,” he asserts.
Advances in print technology are playing an important part, and developments in digital printing have opened up new areas for label printers in terms of short-run or on-demand production. Despite the array of inkjet label presses that have come to market, Smithers Pira predicts that by 2020 toner presses will still be important, and there will be more developments in digital finishing systems. The company also predicts that some label converters will be running label presses in packer/filler sites.
As Integrity’s Law points out, another appealing factor for label printers is the likely longevity of the end-product.
“It’s one of the few things in print that is not vulnerable to substitution. Labels are here to stay.”
Tech developments
Nascent technologies such as direct-to-shape printing appear unlikely to result in great swathes of products becoming label-less.
“The sheer range of labels make that unlikely – from tamper evident to security labels and peel-and-read,” he adds.
Amberley’s Smith, though, has actually experienced an example where DTS printing has removed the requirement for a label. “We used to print contact lens labels, and they are now printed lids, so it has already happened in some areas.
“But in that case it’s the same product all the time. We keep an eye on DTS and can’t be complacent, but it seems a long way off.
“Currently, the costs are extremely high, and the flexibility and quality are extremely limited.”
It does seem unlikely that DTS will be able to replicate the sort of highly complex, multi-colour and multi-finish work that so wowed the PrintWeek Awards judges any time soon.
Complexity of product is also a key differentiator at £1bn turnover packaging PLC Essentra, which has two label production sites in the UK.
Its high-tech range includes products such as the ‘functional, active’ AquaSense label, which provides controlled evaporation from a moist pad. “Sometimes you need to keep a product moist, for example fresh rolling tobacco,” explains Tiffany Overstreet, global category director for the group’s Health & Personal Care business. “We’re very good at listening to what our customers require and then developing specific solutions.”
Overstreet also reports growing demand for special finishes, enhancements and embellishments, as well as special products such as expanded content booklet labels. “Where we really shine is our ability to supply more specialist labels,” she says.
Earlier this year the firm launched its global Design Hub offering from its Newport site, where it has an expert team of designers who are also armed with detailed production knowhow.
“We’ve found that large companies working with external agencies sometimes come up with ideas that are very expensive to implement, and it’s a shock when they find out how much the label will cost. By leveraging what we know about printing we can push the boundaries of the creative in a cost-effective way – while making sure we have solutions that can go-to-market quickly.
“We’re very pleased with the progress we’ve made with both consumer and pharma clients,” Overstreet adds.
Putting to one side the understandable fixation on NPD and innovation, at the present time there’s one far bigger issue confronting many label printers, and that is the raw materials price increases caused by the fall in the value of sterling since the EU referendum.
“Self-adhesive material is completely set to the euro, so the whole UK industry is buying in euros but selling in sterling. That has absolutely hammered everyone’s margins,” says Reflex’s Kendall.
And as every printer knows, passing on price increases is not easy.
“It’s such a big change and it happened in one go. People are passing it on, but by how much and how quickly is the question, so you can either tough that out or you can’t.”
Kendall believes the knock-on effects could result in further major changes to the label printing landscape come next year.
“Anyone who’s just scraping by will be in a bad way. I’ve been in the industry for 31 years and I’m predicting the biggest shake-out the industry has ever seen in 2017.”
When it comes to the diverse, complex and challenging world of label printing it’s certainly a case of watch this space.
RECENT M&A ACTIVITY
Purchaser and target
Multi Packaging –> Solutions AJS Labels
Integrity Print –> Alliance Labels
Saica Group (Spain) –> Americk Packaging (subject to approvals)
Reflex Labels Group –> SA Labels, Progressive-ID and Century Art
CCL Industries –> Worldmark International
Americk Packaging –> Adare Advantage
Multi-Color Corporation –> Collotype Labels
