- September 01, 2003, Dr. William Llewellyn, AWA Alexander Watson Assoc.
Despite slowing growth rates, the outlook is positive for the world's largest label market.
Labels are a part of the wider product decoration and identification market and compete with other technologies such as direct-printed bottles and cans, aseptic cartons, and flexible packaging in the form of pouches and sachets. These “virtual” labeling technologies are used for the impact they offer for brand and product decoration and the presentation of information — whether it is legislative, environmental, or promotional.
However, it is extremely difficult to quantify the volumes these technologies represent in overall label market terms. Excluding direct-printed products and flexible packaging, it is estimated global consumption of paper and film materials for “traditional” labels totals approximately 28,300 million sq m.
Europe is the leading regional consumer of labels, with an estimated 36% share of all label demand. North America is in second place, consuming an estimated 28% of global labels (see Figure 1).
As the world's largest label market, Europe remains relatively strong, with demand at 10,170 million sq m in 2002, driven by increased use in Eastern Europe for all forms of labeling technologies. Western European growth rates are at best equivalent to gross domestic product (GDP) and in many regions are static.
European Labeling Technologies
Pressure-sensitive (p-s) labeling has grown rapidly since the late 1980s and is now the dominant labeling format in all market regions. In Europe, p-s labels account for 43.6% of the market, with an estimated volume of 4,450 million sq m. Glue-applied labels account for 41.5% of the European consumption of labels, and growth continues — albeit at a slower rate than other labeling technologies such as p-s and sleeving technologies — and remain the dominant choice for prime labels, with p-s label use exceeding only glue-applied because of its dominance in variable information print (VIP) such as mailing labels, checkweigh labels, transport, and logistics, etc.
Growth rates in the various label technologies are shown in Figure 2.
Wraparound labels are characterized by high growth rates — in excess of 18%-20% — and an increasing use of film substrates, especially opaque oriented polypropylene (OPP) films — both metallized and white. Used extensively in carbonated drink and mineral water labels, the wraparound label — typically with hot melt adhesive applied at the leading and trailing edges of a tightly wrapped body label — has become the accepted format for the decoration of medium to large polyester (PET) bottles.
Shrink-sleeve labels continue to enjoy annualized growth rates in excess of 15%, but materials are changing from the hitherto dominant polyvinyl chloride (PVC) films to increasing levels of oriented polystyrene (OPS) and PET films, and even PP grades, in response to environmental concerns and the growing issue of recyclability and recovery of container materials or containers. Heat-shrink sleeves offer highly graphic decoration, with the ability to present large volumes of information because of their 360-deg, head-to-toe container coverage. It is noted that a high proportion of product launches or re-branding is directed to this label style now, thus taking advantage of the maximized product presentation properties.
In-mold label (IML) technologies consumed approximately 305 million sq m of materials in 2002 and continue to grow at an annualized rate of approximately 15%. IML technologies in Europe differ from North American standards: The majority, approximately 80%, of in-mold-labeled containers produced in Europe are manufactured by injection molding (IM-IML) compared to only 15% in North America. This places very different demands on substrates: Higher injection molding temperatures do not require the degree of adhesive coating on labels dictated by the cooler blow molding process.
Growth in p-s label technologies has slowed from the double digits of the early to mid-1990s, but at 4%-5% for the dominant labeling technology, still represents a significant annual volume increase.
P-s labels, widely used for prime labeling, also enjoy large-volume use of coated and uncoated paper grades in VIP applications.
Paper volumes increase at or above GDP levels, but film volumes continue to grow at substantially higher levels of around 11%, reflecting the interest in the “no-label” look — especially for wine labels — and for labels on plastic containers in the healthcare and household chemicals sectors. P-s labels for automotive and consumer durables have shown a slowdown, reflecting the economic downturn.
Glue-applied labels are the dominant technology for prime labeling because of their large share of the beer and beverage market sectors.
With a volume of more than 4,200 million sq m in 2002 — representing a market share of more than 40% — glue-applied labeling technologies retain an annualized growth rate of 2%-3%. This suggests they will remain a significant label format for many years to come in the European market.
Essentially one-side-coated-paper based, the European wet glue market for beer places high specifications on label materials and on labeling-line and label-product efficiencies.
As the European beer market is largely a returnable container market, labels must perform not only on a wide range of labeling-line conditions — from cold and wet bottles to warm and dry — but also must allow for ease of label removal and bottle washing on the return to breweries.
This is different from the majority of beer label applications in the US and also differs from the returnable market in Canada by reference to bottle washing conditions and demands.
Developments are well advanced in the production of PP labels for wet glue applications: Future trends in materials for glue-applied labels and the competition between glue-applied and p-s technologies will be monitored closely against the background of growing use of returnable and non-returnable barrier-coated PET beer bottles.
European Trends in Label Printing
P-s label production is increasingly narrow web ultraviolet (UV) flexo oriented in Europe. The glue-applied label market in Europe remains sheet-fed litho oriented, with significant volumes also printed roll-fed gravure, and now with initial investments in roll-fed narrow web flexo in evidence. The shrink-sleeve market is heavily oriented toward gravure, with some lesser volumes in flexo. Label proofing and short runs are achieved with digital printing technologies.
The major driver for change is cost and flexibility. As average order size falls and order frequency increases, printers are demanding more flexibility in press management.
Traditional narrow web UV flexo presses need to address the time and costs of press setup.
At a recent AWA Conference on Label & Labeling Technologies, press manufacturer Gallus (gallus.org) covered the level of costs associated with press setup as a function of order size and indicated how these costs could be addressed by considering servo presses. In the same conference, Mark Andy (markandy.com) outlined the flexibility and improved cost base offered by its digital DT series coupled with in-line laser die-cutting.
As Figure 3 shows, plates and repro costs are factored already, and the chart reflects the increased proportion of costs dedicated to press setup.
The changes in roll-fed label-printing technologies within Europe over recent years are shown in Figure 4, together with the forecast technologies to 2005.
Market Trends and Drivers
The current, major changes taking place in the European label and product decoration market are the result of increasing domination of the marketplace by fewer, more powerful, world-leading brand owners and retailers.
This consolidation at the end-user sector of the value chain has driven the rapid growth in Europe of private label branding, as well as concentrated purchasing on a continental or international basis, and has led to a requirement for reductions in inventories and costs.
Such changes in structure force changes in the supply of labels:
Innovative packaging and labeling have become key criteria for brands.
Reductions in brand numbers through pan-European and global branding and in brand inventories will direct activity into supply chain management and logistics — to the continued detriment of print-run length.
Pan-continental and intercontinental buying will reduce the ability of label producers to increase prices on a regional or local level. This is further emphasized by the greater transparency brought to label costing by the common currency within the euro zone.
International buying will better quantify the cost differences associated with the available labeling technologies and improve the factual understanding of relative benefits.
Greater transparency in the value chain and more knowledgeable purchasing will be reflected in continued price pressure and the drive for cost reduction or elimination.
A relatively low number of raw material suppliers are represented in the label industry value chain now, due in part to the high level of consolidation and in part to the specialized nature of the products supplied. Raw material suppliers suffer the greatest compression and have the weakest leverage within the value chain.
The highly fragmented print sector has given rise to high levels of restructuring in recent years, but the number of players remains large and they lack the scale to compete with the pressures from end-user groups for cost reductions or from base material suppliers for increased prices.
The maturity of the European label market is evident in slowing growth rates and increasing pressure on margins. However, the general picture remains positive, with particularly exciting prospects in niche sectors and scope for developments and innovation in materials, converting technologies, and applications.
Dr. William Llewellyn is a senior consultant with leading international market research consultancy AWA Alexander Watson Assoc., Amsterdam, Netherlands; awa-bv.com. He has a doctorate in chemical engineering and more than ten years in senior management positions with Van Leer Metallized Products, U.K.
North American Market Studied
“Labeling Markets: North American Sourcebook 2003,” to be published by AWA Alexander Watson Assoc. later this year, looks at the North American labeling market from an industry perspective and reassesses the changing competitive and trading environment. This study complements the “Labeling Markets: European Sourcebook 2002,” published by AWA in June 2002.