Over 10 years ago, when I started FLAG (Flexo Label Advantage Group), I feared that what had happened in the past in the commercial printing industry was starting to have an impact on the label industry – and in particular on the independent converter. Consolidation had already begun to significantly affect printing segments such as newspapers, book printers and commercial offset printers. This was mainly due to a change in the way people perceived the information they needed, from conventional paper-based print methods to new digital platforms like books, news, maps, financial data, brochures and all. a series of other things.
Changes in the way people interact with the media have caused severe overcapacity in conventional printing, reducing the need for so many print shops. This caused an inevitable consolidation. Many of the large print shops have survived, but this has been devastating for the smaller independents who have to compete with the resources of these larger companies.
The good news for us in the label industry is that labels are still needed – probably more than ever. Although there have been pockets of reduced labeling needs, most label converters have seen a significant increase in sales over the past 24 months. Even with this growth in label sales and consolidation, the concerns I had for the label printing industry are now coming true, but for very different reasons. There’s money in the labels, and the consolidation is due to growth opportunities, not overcapacity. These financial opportunities have raised the eyebrows of investors and large processors who see there is an opportunity right now that they want to seize.
The weekly tally of independent label converters being purchased by larger companies is staggering. Many freelancers receive multiple calls asking if they are interested in talking about a buyout. Even many of the big label consolidators have been bought up by even bigger financial groups as new outside interests look for ways to enter the packaging space.
How do big companies profit from each expansion? They increase leverage for better pricing, add additional resources and knowledge base, gain new abilities and potential abilities, increase sales instantly and more. There are always obstacles and challenges in any business, and larger companies have more influence with suppliers to help them overcome these challenges because they have the power to do so. Especially in times like these when the supply chain is put to the test.
What happens when an independent label converter sells to a large company? In some cases, the facility is kept open and allowed to operate as usual, but with many acquisitions comes increased corporate responsibility and pressure for the bottom line.
“In other cases, the facility ends up being shut down and only the sales book goes to the larger company.” This option can result in the unemployment of many employees (sometimes family), many of whom have worked with that same freelance converter for years, helping them grow and succeed. If it’s the right choice and the right time, selling to a big company can be a great option for some, and frankly, there’s been no better time to consider this option than now. Either way, these are serious decisions with lasting effects.
Does the future of the label industry look like a few independents serving small local customers with several large companies serving everyone else? Or can the independent label converter, as a stand-alone operation, remain viable for the future? Obviously independent converters need to somehow expand themselves for their own increased leverage to reduce costs, increased resources/knowledge base, additional capacity/capabilities, growth of sales and everything else to stay competitive.
One option independents have is to become a small consolidator themselves by buying other smaller processors to increase the benefits of a larger business. Another option, even for some of these smaller consolidators, is to increase the benefits of size by being part of something larger than themselves. This is where an organization like FLAG becomes a solution to access the benefits and advantages of a large company.
There are groups like FLAG in almost every industry that help businesses stay viable against big business, without sacrificing their independence. This is one of the reasons why I created FLAG and why it is more relevant than ever today. Independent label converters will need to think about what the future holds and act quickly. Things are changing fast and for many it’s time to work on their business, and not just their business, to plan a successful path forward.