The label and narrow web market has enjoyed considerable growth in recent years. However, a litany of challenges have furrowed some brows and caused some consternation amongst the industry’s biggest players.

The label industry continues to see fallout from the Covid-19 pandemic. Plus, raw material prices and availability, along with inconsistent shipping and freight charges, have been problematic. While the supply chain seems to be settling, converters and suppliers alike are still watchful with a cautious eye. The economy – both in manufacturing and the country as a whole – has battled inflationary pressures and uncertainty that could extend into the next decade. However, the label market has historically performed quite well during economic downturns, and that is the expectation moving forward.

“In an attempt to mitigate risk from supply chain disruptions, converters overstocked raw materials inside their own warehouse spaces,” notes Jennifer Dochstader, founding partner, LPC, Inc. “This has created a slump in demand throughout the supply chain – label buyers and brands purchasing lower volumes of labels and printed packaging, and converters purchasing lower volumes of paper and film labelstocks. Converters are confident, however, that they will see an uptick in demand from their customers in the second half of the year as inventories of printed labels and other types of printed packaging begin to stabilize.” 

Corey Reardon, president and CEO, AWA Alexander Watson Associates, has pegged the global label market at 72.6 billion square meters, with an 18% share in North America. Pressure sensitive labeling makes up 40% of the global label market, with glue applied registered 35% and shrink sleeves 18%. Of the 13 billion square meters printed in North America, pressure sensitive accounts for 54% volume (and 47% of total units labeled) and 27% for glue-applied.

While the end-use segments vary, food and beverage are still key drivers for North America, with 25% and 33%, respectively. “Regardless of market conditions, people still need to buy food and beverages,” says Reardon. “Maybe it shifts by brand, but in this area it may not be recession proof but it’s certainly recession resistant.”

From a growth standpoint, the North American label market has seen 1.6% growth year over year with a forecast of 2.0% through 2025. Shrink sleeve growth is seeing a slightly higher growth rate than the average label market at 3.0%, with an expected growth rate of 3.6% by 2025.

Paul Teachout, technical marketing and content specialist, Harper Corporation of America, still calls the label industry “an exciting place to be.” This comes on the heels of converters continuing to experience significant successes – even with the challenges of the past few years readily apparent.

“Coming off a very strong 2022 performance many converters are still in growth mode for 2023,” states Teachout. “This is coming in both organic ways and through acquisitions. Our industry continues to show its resiliency and continues to grow at over 2% year-over-year regardless of the challenges brought upon us. Our industry is strong and getting stronger.”

While the boom associated with the early days of the pandemic has no doubt flattened, there are still growth opportunities emanating from that time period. E-commerce, for example, ramped up in 2020-21 – and there’s seemingly no sign of slowing down. Plus, converters are also getting more creative to answer evolving demand.

“The extensive e-commerce habits acquired through the pandemic are here to stay and people found the convenience of e-commerce, even parts of the population that did not utilize it before,” notes Amir Dekel, vice president of sales, GEW. “That means more labeling required, albeit less sophisticated than prime labels. In addition, many label printers are diversifying their capabilities to include sleeves, yogurt cups and the like, and utilizing the same machines, with minor modification, to get more business.”

Despite the success many converters have enjoyed over the years, growth has been flattening. For example, Blue Label Packaging Co., a digital provider of labels based in Columbus, OH, USA, has seen strong growth for years. Andrew Boyd, president, sees the industry “returning to earth.”

“The North American label market has been extremely steady for years, even decades on end,” says Boyd. “For many of us, Covid-19 brought unprecedented volume increases as consumers stocked up on packaged goods of all kinds. The hard lesson we all learned is that what goes up must come down. Many of us felt the pain of all that overstocking with a prolonged period of slower orders and demand as customers reduced safety stocks and inventories returned to normal levels across the supply chain.”

Due to this overstocking, overcapacity is one of the biggest challenges facing converters in the short term. “Many label converters accelerated their capital expenditures several years as they saw demand grow in 2020 and 2021,” continues Boyd. “That pulled forward investment in label converting equipment several years. As demand for labels returns to normal levels, it will take a few years for that single digit demand growth to catch up with the double-digit rapid growth in installations of label printing and converting assets that took place during and immediately after the pandemic. Periods of overcapacity result in intense price competition as firms must drop prices to sell more work and increase equipment utilization.”

Alan Beaulieu, CEO and president of ITR Economics, has illustrated much of the uncertainty affecting label and package printing companies. Despite a record-high GDP in Q4 of 2022, the economy is expected to“start coasting by the end of the year,” with a flat 2024 on the horizon.

“Business will still be there, just probably not at the pace you prefer,” states Beaulieu. “The leading indicators are all saying the economy is going to slow down and go down in 2024. The forecast for 2024 is a mild recession that lasts until the end of 2024. Your job is to adjust your company to that news.”

Beaulieu cautions, “Inflation has not gone away, just gone asleep – it will be with us for this decade.”

He notes that inflation pressures will begin mounting in 2025-2029 before a depression nears next decade.

“Inflation remains a challenge for converters as their suppliers continue to increase pricing and converters aren’t always able to pass those increases on to their customers,” adds Dochstader. “Especially for small to mid-sized converters, if costs rise faster than their ability to pass these costs on to their customers, it can have a serious impact on margins.”

According to Beaulieu, converters are advised to be aggressive with buying and financing over the next 12-18 months. He says, “Invest in new technology and new people. Automation, CRM, and ERP systems will all be helpful for businesses.

“Identify where the weak spots are in your company,” he adds. “Keep costs down and margins up, and spend money now. Plus, find people to tell us what we don’t know and find out where you’re currently inefficient.”

A time to invest?

For years, many of the most successful converters have cited a willingness to invest during uncertain times. Throughout the pandemic, many label printers were quite aggressive in adding new technology to meet surging demand.

Ultimately, the level of uncertainty facing a company will dictate the strategy moving forward. “During the pandemic, we got very early signs that customer orders were going to increase, which made the decision to invest in additional capacity straightforward,” says Blue Label’s Boyd. “In 2023, we know customer demand will eventually return to normal, but it is happening at a very slow pace. A lot of converters are wisely trying to squeeze the maximum amount of productivity out of their assets and avoid having to make a risky call on what the next few quarters will look like. Right now, I think the prevailing feeling is ‘wait and watch.’ The only sure investments are in automation, quality improvement, and productivity.”

Automation, quality improvement, and productivity will be front and center, especially as the industry tackles continued workforce challenges. Investment extends beyond technology and into the workforce. Automated capabilities and connectivity will help plants struggling to attract new workers. Plus, the manufacturing industry is seeing more knowledgeable and experienced workers reach retirement age. New capabilities will help mitigate the loss of these workers.

“We have had to, and continue to, overcome many challenges from workforce retention, wage compression, supply chain and inflation, just to name a few,” says Harper’s Teachout. “Labor has been at the forefront of these challenges and has increasingly become a diminishing resource. This is not going to get any better. My advice would be to take care of your A players or someone else will. The cost of recruiting, onboarding and loss of production could easily double the salary of your key players.

“Automation will result in a safer work environment, reduced lead times, eliminate human inconsistencies and increase your production throughput. Suppliers in manufacturing equipment are stepping up to the plate with innovative solutions to meet these needs,” Teachout says.

“We see press sales stabilizing for the next 12-18 months and companies focusing more on other areas of CAPEX like automation and press auxiliary equipment,” notes LPC’s Dochstader. “Something else converters will seriously be investing in is training. Given the ongoing challenges with the workforce, companies need to onboard new hires as quickly as possible and are actively seeking solutions that they can incorporate into their onboarding process, as well as with existing employees.”

Digital printing will continue to fall under this heading. “We invested in a single HP Indigo press and A B Graphic finishing line in 2003 to add custom water bottle labels as a new product line,” recalls Boyd. “Over the next few years, we found that demand for short-run digital labels was a lot higher than we expected. That realization led us to continue our investments in digital printing technology and build infrastructure around it. We never seriously considered moving to analog converting technology – we saw the scalability and versatility of digital and never looked back.”

“Digital offers a reduction of variables versus conventional, so it eases the supply chain and operator training,” comments Teachout. “It provides a reduced learning curve for a younger workforce to easily adapt to the clean-hand operation of the digital press. These reduced variables and ease of use will ultimately allow you to run a more sustainable operation. So, if managed properly, it’s the perfect trifecta of supporting workforce, supply chain, and sustainability goals.”

According to GEW’s Dekel, most converters are taking calculated risks with clear objectives. Not many are taking wild swings in the dark, hoping to land upon an up-and-coming technology. “You do not see that many new technology adopters these days,” he says. “It is mostly investments with very short ROIs (18-24 months) and clear visions of the advantages. In addition, as I previously mentioned, many are investing in energy saving technology to gain the obvious benefits of lower operating costs, but also to protect the plant from energy issues. If we take the example of All4Labels, which invested in LED technology on most of their machines, you can see a printer mitigating their energy and operational challenges with one solution.”

Employees are facing challenges as well, Teachout continues. “The top 12 concerns of employees revolve around flexibility, appreciation and ESG, and it’s not always about compensation, although important. A healthy culture and creating an opportunity for growth are key components for a stable workforce. Linking people, profit, and planet will create an all-around sustainable business model.”

Worth the energy

Sustainability and the environment will be pivotal for our industry for years to come. No longer a fad or talking point, the entire supply chain has emphasized the need to leave a softer carbon footprint.

“I think many of us understand the importance of sustainability in our industry and the expanded responsibility we will all be shouldering as consumers and legislators become more educated and aware of some of the problems with packaging,” notes Blue Label’s Boyd. “For us, there are a few different dimensions of sustainability. The first is our carbon footprint. We are constantly evaluating ways to reduce our energy consumption and the amount of carbon it takes to create every square foot of label material. The second is improving our product offerings and reducing the amount of material that ends up in landfills.”

There are legitimate cost benefits to going green, as well. Energy cannot be a forgotten variable in a converter’s costs.

“One of the most concerning challenges that printers are facing is energy availability,” states GEW’s Dekel. “It is not necessarily about the cost price issue, as we in North America are quite shielded from the world energy price hikes, but rather the availability of consistent power through the workday. The importance of sustainability created a double-edged sword that affects the electrical grid capacity to a large extent. Places like California and Texas are looking for ways to reduce their energy demands.”

The challenges for suppliers, such as GEW, stem from converters’ fast adoption of the LED technology. “This fast adoption led us to increase production capabilities in a record time,” remarks Dekel. “However, the market is not quite ready for a full LED conversion for a few reasons – varnish availability to mention one – so the challenge is to provide hybrid systems that can easily deploy conventional and LED on the same system.”

Some converters are often aware of just how much energy they generate at their label printing facilities. Others, however, are sometimes surprised to see how much energy is utilized with conventional systems and how much money can be saved.

“Some would not even know the local price of a KWh and how it affects their total energy cost,” says Dekel. “At GEW, we see market education as one of our primary goals, as we continue investing time and money to do it. The variations in customers’ understanding of the energy issue creates some interesting situations where two neighboring print houses can have a totally different view on the same matter while one is consuming 50% less energy than the other.” These energy concerns will not disappear with the wind, either. This challenge will be facing us for years to come.

“A lot of our problems are manmade – that is, we decided to ‘go green’ but did not pay attention to the details,” explains Dekel. “We did not calculate ahead of time how we would fulfill society’s growing energy demand with renewable resources. It is easy to shut down a nuclear or a coal energy producing plant, but how quickly can things like windmill farms take their place?

“In order to provide enough power to New York City for one full week, you need a corn field the size of Costa Rica, or solar panels covering a size similar to the state of Rhode Island. Do we have all that?

“So, I have a significant concern over that aspect of going green and we start to see some cracks in this forward movement as countries start to delay energy producing plant closures. Did humanity jump too high to land safely? Time will tell,” Dekel concludes.

Back to the future?

Even with economic concerns lingering, both suppliers and converters are cautiously optimistic for the future of our industry. There are a number of trends to watch for in this market, especially in the immediate future.

M&A activity is expected to remain a key driver for the label and package printing space. According to Blue Label’s Boyd, consolidation at the vendor, converter and customer level will continue to be the largest driver of change in the industry.

“We have seen a large decrease in the number of small to mid-size independent converters over the last few years,” says Boyd. “In the short term, this is probably good as it increases efficiency and drives a higher level of competition, resulting in better pricing and products for customers. In the long term, it could be damaging to the rich ecosystem of label printing that has developed over the last 50-plus years. Larger converters mean fewer decision makers, making it harder for small to mid-size vendors to get in the door and find new opportunities. Numerous vendors in our industry have already been forced to sell or close their doors. Larger converters are well suited to serve large brands and customers but sometimes overlook smaller and regional brands.”

Over time, consolidation could lead to higher prices and worse service for small and medium customers of labels as the larger converters continue to specialize in large, high-volume customers.

There are other unintended consequences, as well. “The converters themselves will suffer as many of the managers and subject matter experts that reside in hundreds of independent label printers are laid off as the result of mergers or retirements after sales,” says Boyd. “It is important as a community that we continue to support our small and mid-size converters as they’ve traditionally been behind a lot of the innovation and community that makes label converting such a vibrant and profitable industry.”

“The events of the past few years have changed the way many companies do business,” adds Dochstader. “Both converters and their suppliers are facing seismic pressures as the greater manufacturing industry continues to shift and evolve. Forces like sustainability, workforce, and continued consolidation both at the converter and the supplier level are reshaping our business strategies and the way that we communicate with and take care of our customers, as well as our employees.”

All in all, labels and packaging have proven to be a vital part of the economy. Therefore, many industry experts are still bullish on our prospects. “The opportunities in the label and narrow web market space are endless,” states Harper’s Teachout. “The industry is thriving and continues to provide a very positive CAGR. Supply chain issues concerning the massive growth in demand of labelstock have eased, and we have realized that JIT methodology may no longer apply.

“Mergers and acquisitions will continue as converter groups expand their portfolios with growing young companies who have invested in their people and process,” Teachout says, adding, “The external pressures of the geoeconomic and political environments will show their heads in the upcoming election year, but we have shown multiple times that we will overcome whatever challenge is presented. Internal pressures of regulatory, brand owner, and social governance will continue to be areas of focus. So, there are still many opportunities for us to take advantage of, to thrive and make our presence known.”


Factors that affect selling price in a changing economy
By Rock LaManna
Sellers imagine a sharp demarcation in the market. “Are we in a buyer’s or seller’s market right now?” they ask. What they really want to know is: “Can I command the highest price possible if I sell my business in this economy?”

Let’s look at the factors that affect selling price in a changing economy.

Economic uncertainty

Money is an excellent place to start this analysis. The cost of borrowing has changed. It’s not because interest rates are higher. It’s because they’re moving. Movement signals risk to all kinds of buyers. Whether the economy is at risk is debatable, but many on the buy side will wait for the economy to settle.

In times of economic change, many buyers leverage risk to make dramatic gains. Buyers such as contrarian investors, family offices, strategic buyers, and angel investors can view times of change as an opportunity – which works to the seller’s advantage.

For example, at LaManna Consulting Group, we closed deals during the first wave of the pandemic. We introduced clients to motivated buyers who wanted to capitalize on unpredictable times. Our clients came out ahead because of it.

Managing risk

When buyers get nervous about the economy, their caution affects the timing of the deal and the structure of the buyer’s offer. They may limit their offers to only the strongest candidates. As a seller, you need to prepare for this.

A financial buyer will have a finite amount of money for the total package, whether for your business or a group of deals. They may time the economy to get more bang for their buck. Having a sell-side advisor who is a trusted player, understands deal flow, and knows which deals are happening – and when – will improve your odds of getting top dollar in today’s market.

Realities of borrowing

It costs more to borrow a dollar today than a year ago. Your buyer is gambling whether they can achieve a target profit – including payouts to their investors – by choosing your business over another. Interest rates may be crucial to the cost of the total package. Conversely, the costs to fund the deal may be irrelevant if the math for the big picture is right for them. It’s all part of their profit equation.

Sellers often ask: “What about cash buyers – will they pay more for my business because they don’t have to borrow at today’s interest rates?” I hate to break it to you, but cash has a cost.

A cash buyer weighs costs like any buyer. Obtaining or moving cash has a price tag. There’s the cost of liquidating assets to finance an acquisition. There are fees to exit investments to free up cash. Finally, don’t forget the actual cost of time. A sale in limbo devalues cash and ties it up.

Time is money, money is time – and time kills all deals. Buyers may pay more to close sooner.

Valuations are holding

Valuations give us insight into the strengths and weaknesses of the business – and it provides the seller with a benchmark range, whether you plan to sell soon or years from now. Are valuations rising
or falling?

We are in a nice stretch where valuations are strong but settling, and multiples are holding for our sector. Demand is still vigorous for labels, specialty converting, certain types of packaging, and specific wide-format applications.

Trends in asking prices

The valuation is a piece of the pricing puzzle. We monitor the market. We track trends and transactions. We follow existing and adjacent sectors. Today’s deals influence tomorrow’s asking prices.
For individual deals, we look at the following:

• Who else is for sale right now?
• How are they positioned?
• Are buyers looking for tuck-ins or platforms?
• What sectors are in favor?
• What are the growth areas?

Today’s buyers want to know how to implement right-sizing, automation, and technology to improve the bottom line. Experienced buyers may need to see our research and predictions. Strong evidence of growth potential is a selling point.

Financial picture

Many buyers are active when prices are low and interest rates are high. Why? They can always refinance, but they can’t change the price. Competitive buyers will pay more for credit to have buying power when credit is tight so they can outbid. Strategic buyers who intend to buy and hold – your competitor, for example, or a complementary business to tuck you in – may pay a higher price because they know they’ll convert their investment to profits over the long term.

We do the math with sellers to see if they should provide the financing for all or part of the transaction. Real estate is a factor, as well.

Are all these options possible or optimal for you? Consult your tax advisor, CPA, real estate expert, and the individuals on your sell-side team. Choose providers who know what it takes to get top dollar in any market.

Outlook and timing

When you look at the big picture, factor in exit planning. First-time sellers often focus on today’s reality instead of looking at what conditions will be when they sell. A three-year exit horizon is ideal for assembling solid financials, a demonstrated uptrend in sales, improvements to bottom-line profit, training for managers, documented customer commitments, and a strategic marketing program.

What will the market look like in three years? The market always “remembers” good years. Past transactions influence future sales.

Hedging your bets

We like to position sellers to attract more than one type of buyer to balance risk. We suggest you build your marketing to attract buyers who value your strengths, which carry through regardless of the economy. This approach will bring in buy-and-hold or buy-and-improve interest.

Talk with your advisor about the pros and cons of working with financial and strategic buyers, private equity, family offices, ESOPs, and management buyouts.

The next five years

In times of recovery – and make no mistake, we are still recovering from the pandemic – the best approach is to plan strategically and take well-informed action. If selling your business is crucial to your personal and family wealth-building strategy, map out the next three to five years.

History will look back on the next few years as a time of game-changing opportunity for both buyers and sellers in the graphic arts industry. Can you command the highest prices when you sell your business? It’s a great time to find out.


Hot stuff? Think again
By Rock LaManna

The business owner thought he was hot stuff. He thought he could get a multiple of 10, 12 or 14, and that buyers would be knocking down the door to get a crack at buying his label company. He bragged about his intellectual property, his equipment, his customers, and his wealth.

He called me every day to find out when his valuation would be ready. I knew he wouldn’t be happy.

When we sat down to go over his valuation and our team’s recommendations, he was shocked. “This is nowhere close to what I need from the sale,” he said.

In my mind, he had two choices: sell at a lower price or try to grow the company.

“I’m going to refer you to a broker who can help you sell your business,” I told him. “Unless you invest to grow and commit to the process, you’re going to have a hard time ever getting the price you want for the business. Furthermore, your spending is out of control. I know we talked about it, but we don’t think you’re in a position to buy another company.”

I shared the good news: “Label and specialty converting businesses are still in favor with all kinds of buyers. Private equity and large buyers will appreciate your customer base, location, and loyal employees. Strategic buyers will be able to find efficiencies to improve the bottom line.”

I laid it on the line: “That being the case, now is the time to sell if you’re going to do it. The window is closing, economic confidence is faltering, and investors are postponing M&A activity. If you decide not to sell now and try again in a few years, you need to show an upward trend. If you want a multiple higher than four, we have a lot of work to do. As it sits, your business will be viewed as a risky investment to the types of buyers who pay top dollar. Without managerial discipline, you will be in serious financial trouble or even bankrupt in five years.”

He was silent for a long time. Then he thanked us for the valuation and said it was a worthwhile process. He was going to think about his options. After that, we checked in with him regularly to see how his growth plan was proceeding and if we could help.

He knew he had to hire key managers to put the plan in motion, and we offered to introduce him to a trusted professional recruiter who specializes in our industry. Time passed. We checked with the broker to see if the client had followed up on the referral. He had not.

Three years passed, then four. This morning we saw the news. The business was shutting its doors. If you think this story is about you, it is. We see it all the time. If the owner is lucky, there will be a modest sale to a competitor. Sometimes, as in this case, the owner closes the business quietly. If you follow the auctions and liquidation sales, you know those are endpoints as well. Sometimes the owner dies at his desk, running things the way he always did and hoping a miracle would happen.

Rarely does the story end with the owner changing behavior, building up sales, improving operations, containing costs, hiring strategically, reaching new heights, and hitting the fantasy sale number.

The truth is, successful business owners are already doing what needs to be done. They’re buying other companies, attracting the best people, managing costs, and spending to grow. It sounds cliche, but if you’re not a top performer, it’s next to impossible to get to the winner’s circle.

If you think you’re hot stuff, think again. But if you’re ready to do the work to grow, you’re getting warmer.