INDEX & TRENDS REPORT VOLUME EIGHTEEN JUNE 2016
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A LETTER FROM THE CHAIRMAN OF THE BOARD
Colleagues and Friends,
VOLUME EIGHTEEN - June 2016
One of the benefits of TLMI membership is relevant, tailored market research specific to the label industry. The TLMI Biannual Index & Trend Report is designed to give our members insight into the current state of the economy and industry as well as a thoughtful vision of what to anticipate in the months and years to come.
SECTION ONE:
The Index & Trend report is a key resource for TLMI’s converter and supplier members because it provides economic forecasts and industry benchmarks to assist our members with internal strategic planning and goal setting objectives. Included in this year’s report are the results of the 2016 Brand Owner and Packaging Buyer Survey which provides market intelligence from the brand and packaging procurement level. Surveying brand owners and packaging buyers annually allows TLMI to track and report on key market trends such as label procurement volume projections, perceptions of environmental policy trends, and changing expectations and requirements of label vendors. For the first time in the Index & Trends Report we asked brand owners and packaging buyers about the value of shifting artwork development and design from agencies to label converting companies. Brand owners’ service level expectations are rising and converters are constantly seeking ways to add value to their business relationships and TLMI is committed to providing our converter members with valuable information to make the best business decisions going forward. This issue also dives into brand owners’ perceptions of different sustainability protocols including converter environmental certification, waste recycling, and Life Cycle Analysis (LCA) utilization. Finally, the Brand Owner and Packaging Buyer Survey asked companies was about the importance of vendor expertise in areas such as extended text/content labels, removable and all temperature adhesives, shrink, and RFID. TLMI’s proprietary research helps all of us run more profitable and efficient businesses. I trust you will find value and insight in the following pages. Hopefully, you will be able to join us at the 2016 Annual Meeting in October to discuss the industry further. Best regards,
Dan Muenzer
Overview and Economic Outlook ..........................................................1 U.S. Industrial Production to TLMI Member Sales ......................... 5® Retail Sales ....................................................... 6 Food Production ........................................... 7 Beverage Production Index ................. 8 Plastics Material & Resin Production ..................................................... 9 Pharmaceutical & Medicine Production ...................................................10 Cosmetics Consumption .......................11
SECTION TWO: The Voice of the Brand Owner/ Packaging Buyer .............................. 12 Annual Label Procurement Volume Growth 2016-2018 ............. 14 Label Converters as Artwork Development/Design Source....... 15 Label Converter Environmental Certification Demands.........................16 Recycling Waste Materials...................18 Utilizing LCA (Life Cycle Analysis).....19 Label Vendor Geographic Proximity Demands............................... 20 Perceptions of Label Vendors’ ValueAdd Services/Products...................... 21 Drivers in Seeking New Label Vendors. .........................................................23
SECTION THREE: TLMI Converter Quarterly Trends Report Synopsis Q1 2016.........................................................24
SECTION ONE
Overview and Economic Outlook Macroeconomic Review
SNAPSHOT INDICATORS
US total industrial production for the twelve months through April declined 0.9% compared to last year. Tentative signs of 3/12 rise, along with a recovery in the business to business economy, support expectations for 12/12 rise in production in late 2016. The US consumer is the driving force of the economy; retail sales are up 2.1%, after accounting for inflation, as wages rise and unemployment falls. Retail sales of automobiles are up 5.1% year over year and US food production is up 1.2%. Industries closely tied to consumer activity are expected to outperform their industrial counterparts in 2016 and support ongoing growth in the manufacturing segment of total industrial production. The US total industrial production forecast was extended through 2019 (along with the rest of the regional indicators), and predicts a consumer led recession in 2019.
RETAIL SALES
MANUFACTURING
MEDICAL
AUTO PRODUCTION
WHOLESALE TRADE
INTEREST RATES
Higher commodity prices and a weaker dollar are helping business to business activity take steps toward recovery. US machinery new orders, which accounts for approximately half of all business to business activity, is recovering. We are also seeing rate of change improvements in new orders sectors with strong ties to commodity prices and industrial activity, such as US iron and steel mills new orders (two consecutive months of rise in the annual growth rate) and US fabricated metal products new orders (most recent three months up 2.5% from one year ago).
CAPITAL GOODS
ELECTRONICS ITR LEADING INDICATOR HOUSING STARTS
Areas with closer ties to consumers are generally expanding. US computer and electronics products new orders is up 9.2% year over year while US furniture and related product new orders is growing at an annual rate of 6.6%. Wage growth (currently 3.2%) is out pacing inflation (currently 1.1%). Unemployment, gasoline prices, and interest rates remain low. This is putting consumers in a position to spend and save at the same time. US retail sales excluding gas stations (deflated) is rising at an annual rate of 4.2%, nearly a full percentage point above the five-year average of 3.3% that spans a period of uninterrupted US real gross domestic product growth. Meanwhile, US personal savings as a percentage of disposable income rose to 5.4 % in March. This is up one percentage point from the most recent low of 4.3% in December 2013. Consumers are in position to drive US real gross domestic product into 2018. Despite struggles in 2016, we are confident that consumer strength will support the manufacturing sector and keep both US and Europe economies afloat. The return of balance in supply and demand in oil next year will stabilize oil prices and improve global economic conditions.
CONSUMER EXPECTATIONS CHICAGO FED NATIONAL ACTIVITY US LEADING INDICATOR PURCHASING MANAGERS INDEX S&P 500 STOCK PRICES
Steep Rise
Steep Decline
Mid Rise
Flat
Mid Decline
Terminology Definitions: 3/12 = the most recent three months compared to the same three months one year ago (for example February, March and April 2016 vs. February, March and April 2015). If this number gets larger, ITR sees that as a “3/12 cyclical rise” and is an indication of positive momentum for the data series. As it gets smaller, or goes negative, this is a signal of cyclical decline. 12/12 = a rolling twelve month total/average (12MMT/12MMA) compared to the same twelve months one year ago (for example: April 2015-March 2016 vs. April 2014-March 2015).
INDEX & TRENDS REPORT
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The Retail Sales Trend Is Pulling the Economy Higher A message from Brian Beaulieu, CEO of ITR Economics We like what we see with this April 2016 retail sales data. US retail sales are ascending to record highs and the year over year rate of growth indicates a fundamentally healthy economy. Even the soft to negative parts of the economy should take heart from this trend, particularly the US oil industry. Rising retail sales will support rising gross domestic product, which in turn means oil consumption will continue to rise. Rising oil consumption combined with declining oil production in North America will lead to pressure for higher oil prices domestically, which will help the industry. We do not expect that the supply and demand trends will lead to oil prices going so high in 2016 and 2017 that they will end up hurting the consumer trend and the broader economy.
Adding to our projection of retail sales growth supporting ongoing gross domestic product ascent is the rising trend in disposable personal income (adjusted for inflation). Disposable income is after tax income. It is up 3.1% (1/12 rate-of-change). This is well above the average annual growth rate of 1.8% for the last ten years. A 2.3% increase rate in job growth, and wages rising in excess of the consumer price index measure of inflation, are helping the disposable personal income trend. It is true that US consumers are saving more money, but it is also true that we still like to spend it. Retail sales projections are set for further growth. Plan on good things happening to your business the more closely associated with retail sales you are. The consumer is the powerful economic engine pulling this economic train out of the commodity induced valley.
The latest twelve month moving total for total retail sales is 2.1% higher than a year ago, after adjusting for inflation. This is unchanged from the prior two months. Total retail sales for the last three months is up 3.3% from the year prior. This is a favorable signal for where the trend in total retail sales is heading and where the overall economy is heading.
Brian Beaulieu is one of the country’s most informed economists and has served as the CEO of ITR EconomicsTM since 1987 where he researches the use of the business cycle analysis and economic forecasts to increase profitability. Brian has been providing workshops and economic analysis seminars for the last three decades. During that time he has also been consulting with companies to provide a global perspective on forecasting, planning and increasing profits. Brian is on the Board of Directors of the Ariens Company, a global leading manufacturer of outdoor power equipment and a member of the Investment Committee for NorthStar Financial Services, CLS Investments in Omaha, Nebraska. Brian is also Chief Economist for Vistage International, a global organization of CEOs comprised of over 16,000 members. Brian’s views have appeared in and on the Wall Street Journal, The New York Times, Barron’s, USA Today, CNBC TV, FOX Business TV, Reuters, CBS Radio, The Washington Times, Forbes, Atlanta Journal Constitution, and numerous other outlets. He is a regular columnist and contributing economist to national trade associations and publications.
Lately, we backed out gas station retail sales when looking at retail sales in general because of the volatility in gasoline and diesel prices. Because gas station retail sales are running below year earlier levels due to pricing issues, the retail number excluding gas and diesel are even better than the total. Excluding gas stations, retail sales for the last twelve months are up 4.2% from the prior year and up 4.0% for the latest three months. These are very good numbers and indicative of a consumer that is out there spending money and keeping our economy moving upward. Consumers have the wherewithal to keep the retail sales trend moving in the right direction at a pace that is indicative of general economic growth. The money supply (M2 measure, deflated) is rising at a faster than normal pace. Money supply growth is presently up 5.3% (1/12 rate of change). This is an aggressive growth rate given the ten year average is 4.2% and the twenty year average is 3.9%. Ongoing money supply growth will equate to further retail sales growth in 2017. INDEX & TRENDS REPORT
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Retail Sales
Wholesale Trade
US retail sales (deflated) totaled $2.266 trillion in April, 2.1% ahead of the previous year. Retail sales growth is driven by consumers enjoying rising wages (up 2.4%), high employment (up 1.7%), and rising disposable personal income (up 3.2%). Expect total retail sales to generally expand over the next three years.
Wholesale trade of durable goods in the twelve months through March is down 1.0% compared to the previous year. Segments related to consumer activity are outperforming total durable goods, while wholesale trade of nondurable goods is down 6.6% in the face of low oil prices. Wholesale trade of petroleum products is down 33.0%.
Manufacturing
Interest Rates
US total manufacturing production in the twelve months through April is up 0.6%. Production in the past three months is up 0.7% and accelerating. Upward movement in the purchasing managers index supports expectations for accelerating growth in the second half of 2016.
US corporate AAA bond yields fell nine (9) basis points in April to 3.63%. US Government longterm bond yields rose twenty three (23) basis points to 0.93%. Longterm interest rates are rising as inflationary pressures build and the US moves toward broad economic expansion in late 2016.
Medical
Capital Goods New Orders
US medical equipment and supplies production is up 1.3% in the twelve months through April compared to the previous year. Retail sales at pharmacies and drug stores is up 5.1%, and wholesale trade of drugs and druggists’ sundries is up 11.9%. Expect production for 2016 as a whole to be 5.0% above the 2015 level.
Annual US non-defense capital goods new orders totaled $778.8 billion in March, 3.3% ahead of the previous year. A weaker US dollar is bolstering capital goods exports and recovery in machinery new orders is helping to drive recovery. Expect new orders to expand in late 2016, finishing the year up 2.1% over the 2015 level.
Mining Production
Consumer Expectations
US mining (excluding oil and gas) production in the twelve months through April is down 9.5% on a year over year basis. Tentative signs of improvement in the Chinese economy, a major consumer of ferrous metals, suggest pricing pressures may diminish in late 2016 which will support increasing production.
The US average dollar trade weighted index fell to $89.38 in April, signaling that the US dollar is softening versus our major trade partners. The euro rose to 0.87 euro per US dollar, and the CAD rose to 1.26 CAD per US dollar. Expect the dollar to weaken further In 2016, making US exports more competitive in the global market.
State by State: Employment Employment is above the level that it was just a year ago in the majority of the United States. Strong employment growth is noticeably clustered in the West and Southeast regions, which are not as reliant on total job growth stemming from mining and agricultural industries. Employment declined below its level a year ago in North Dakota, West Virginia, and Wyoming due to weak mining and oil & gas industry trends. Low energy prices have weighed on employment growth in Louisiana. Although growing, employment growth is noticeably weaker in the southern part of the Central region.
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INDEX & TRENDS REPORT
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Leading Indicator Table INDICATOR
DIRECTION
WHAT IT MEANS FOR THE US ECONOMY
ITR LEADING INDICATORTM
RISE
Three months of rise from the January 2016 cyclical low signals tht US industrial production will recover in the second half of 2016.
HOUSING STARTS (most recent twelve months compared to same twelve months one year ago)
RISE
Double digit growth in starts shows a stronger consumer which will support the economy in 2016.
CONSUMER EXPECTATIONS INDEX (most recent twelve months compared to same twelve months one year ago)
DECLINE
Contraction indicates the index will decline further and points to weaker economic conditions in the second half of the year.
CHICAGO FED NATIONAL ACTIVITY INDEX (six month average)
FLAT
The tick up in February shows tentative growth which would point to a stronger second half of 2016.
US LEADING INDICATOR (most recent month compared to the same month one year ago)
DECLINE
Generally decline in the indicator suggests that the cyclical downturn in the US industrial production could persist into late 2016.
PURCHASING MANAGERS INDEX (most recent month compared to the same month one year ago)
RISE
General rise points to a stronger US economy in the second halfof 2016.
S&P 500 STOCK PRICES (raw data)
MILD DECLINE
April growth shows a potential trend reversal for the economy in the coming months.
LONG TERM VIEW: 2016: slower growth
2017: robust economic activity
2018: ongoing strength
Reader’s Question I’ve heard in past presentations that we should be looking into Mexico. Can you elaborate on the logic behind investing in the Mexican economy, especially given security risks? Answer: There certainly are security risks in Mexico, but with any risk comes the potential for reward. From an economic standpoint, Mexico has a lot going for it: a growing (and fairly young) population, an expanding middle class, an abundance of natural resources, and near-sourcing. Near-sourcing is particularly important as companies reconsider their facilities in China. Firms are expanding into Mexico to take advantage of labor costs that are lower than the other North American countries, but still have the ability to take advantage of NAFTA tariff-free trade. We expect this trend will persist over the long run as the regional economies continue to improve. INDEX & TRENDS REPORT
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US Industrial Production
US Industrial Production
US
US Industrial Production
Industrial
US Industrial Production to TLMI Sales
Production TLMI Sales US to Industrial Production to TLMI Sales
INDEX & TRENDS REPORT
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Retail Sales Indicator
Data Trend [2000 - present]
Total Retail Sales (Deflated)
Direction
Estimate % Change
2016
Estimate % Change
2017
Estimate % Change
2018
Outlook
Mild Rise
1.3%
3.6%
1.0%
Retail Sales will generally rise through the end of 2018.
(12MMT)
Retail Sales As measured by gross domestic product (GDP), the consumer is supporting the US economy amid weaker industrial output and exports. US retail sales in the twelve months through March totaled $2.266 trillion, an increase of 2.1% compared to the previous year. However, retail sales growth is and will continue to grow at a slower pace throughout 2016. Improving employment trends and rising disposable personal Income suggest retail sales activity will be stronger in 2017 than in 2016.
Consumers are turning away from Sa Retail traditional shopping outlets. Retail sales non-store retailers are Gross Dat omestic Product (GDP), the consumer is supporting the US economy amid up 46.2%, and e-commerce sales l output and exports. US Retail Sales in the 12 months through March totaled $2.266 doubled in the past five years 11.0% growth over the same se oversus f 2 .1% compared to the previous year. However, Retail Sales growth is and will period at general merchandise Look p toace Online markets as 2016. Improving employment trends and rising w at stores. a slower throughout traditional outlets face weakness.
onal Income suggest Retail Sales activity will be stronger in 2017 than in 2016.
urning away from traditional shopping outlets. Retail Sales at Non-‐store Retailers are Commerce Sales doubled in the past five years versus 11.0% growth over the same al Merchandise Stores. Look to online markets as traditional outlets face weakness. US Food Production
INDEX & TRENDS REPORT
As measured by Gross Domestic Product (GDP), the cons weaker industrial output and exports. US Retail Sales in t trillion, an 6 increase of 2.1% compared to the previous ye ®
ease of 2.1% compared to the previous year. However, Retail Sales growth is and will ow aUS t a sFood lower pProduction ace throughout 2016. Improving employment trends and rising will be stronger in 2017 than in 2016. sonal Income suggest Retail Sales activity Indicator
Data Trend [2000 - present]
Direction
2016
Estimate % Change
2017
Estimate % Change
2018
Estimate % Change
Outlook
outlets. Retail Sales at Non-‐store Retailers are turning away from traditional shopping Production will expand through at s least the end of Food Production Rise 1.7% 1.0% 0.4% E-‐Commerce Sales doubled in the past five years versus 11.0% growth over the ame 2018. ral Merchandise Stores. Look to online markets as traditional outlets face weakness.
US Food Production Average food production reached As measured by Gross Domestic Product (GDP), the con a record high in the twelve months through April, up 1.2% from the year ago level. Food production is expanding at an accelerating pace, which will persist into 2017. US food production will grow through 2018, but at a slower pace in 2017 and 2018.
weaker industrial output and exports. US Retail Sales in trillion, an increase of 2.1% compared to the previous y continue to grow at a slower pace throughout 2016. Im Disposable Personal Income suggest Retail Sales activity US beef production and US grain production are both in recovery, Consumers are turning away from traditional shopping and internal trends signal that market improvement will persist up 46.2%, and E-‐Commerce Sales doubled in the past fi through at least mid 2016. US period at General Merchandise Stores. Look to online m bakery production and US cheese production are rising at an accelerating rate. Growth in these US Food Prod segments will support the rising trend in US food production growth Production reached a record high in the 12 months through April, up 1.2% from the year-‐ into 2017. The food industry will present growth while pace, w hich will persist into 2017. US Food Production will s expanding at aopportunities n accelerating industries tied to raw materials struggle Lookpfor 2018, but ainto t a 2017. slower ace in 2017 and 2018. expansion opportunities into this market through 2018. ction and US Grain Production are both in recovery, and internal trends signal that ement will persist through at least mid-‐2016. US Bakery Production and US Cheese rising at an accelerating rate. Growth in these segments will support the rising trend in ction growth into 2017. The food industry will present growth opportunities while for expansion opportunities into this market to raw materials struggle into 2017. Look
INDEX & TRENDS REPORT
Average Food Production reached a record high in the ago level, and is expanding at an accelerating pace, wh 7 grow through 2018, but at a slower pace in 2017 and 2 ®
Beverage Production Index Indicator
Data Trend [2000 - present]
Beverage Production
Direction
Estimate % Change
2016
Estimate % Change
2017
Estimate % Change
2018
Outlook
Mild Rise
2.0%
1.3%
-0.5%
Production will rise through mid 2017 and will then flatten in 2018.
(12MMT)
Beverage Production Index
Beverage production declined 0.4% in the twelve months through April from the year ago level. However, US beverage production is showing nascent signs of expansion and internal trends are rising. This positive movement suggests beverage production will grow above year ago levels imminently. Beverage production will generally expand into mid 2018, before ending the year 0.5% below the 2017 level.
Expansion is not uniform through this market. Distillery production is growing the fastest, followed by wine production, coffee & tea, anddfluid milk production. Soda Beverage Productio ction eclined 0.4% in the 12 months through April from the year-‐ago level. However, and breweries production are oduction is showing nascent contracting. Look for near term signs of expansion and internal trends are rising. This opportunities with the liquor and ent wine suggests B everage P roduction w ill grow above year-‐ago levels imminently. industry as these markets tend to be counter cyclicaleto the overall ction will generally xpand into mid-‐2 018, before ending the year 0.5% below the 2017 economy.
uniform through this market. Distillery Production is growing the fastest, followed by n, Coffee & Tea, and Fluid Milk Production. Soda and Breweries Production are k for near-‐term opportunities with the liquor and wine industry as these markets tend clical to the overall economy.
Production declined 0.4% in the 12 months thro Plastics Material and RBeverage esin Production US Beverage Production is showing nascent signs of expa positive m8ovement suggests Beverage Production will gro INDEX & TRENDS REPORT Beverage Production will generally expand into mid-‐2018 ®
Plastics Material and Resin Production t uniform through this market. Distillery Production is growing the fastest, followed by Data Trend 2016 2017 2018 Indicator Direction Outlook n, Coffee & Tea, and Fluid Milk Production. Soda and Breweries Production are Production will expand through 2016 before ok for Plastics near-‐&term opportunities with the liquor and wine industry as these declining markets tend mildly through most of Resin Rise 2.9% -0.6% 5.3% 2017. Production will then Production clical to the overall economy. rise through at least the end of 2018. [2000 - present]
Estimate % Change
Estimate % Change
Estimate % Change
Production declined 0.4% in the 12 months th Plastics Material and R Beverage esin Production US plastics material and resin US Beverage Production is showing nascent signs of exp production in the twelve months through March is up 2.7% from the positive movement suggests Beverage Production will gr year ago level. Production will peak at the end of 2016 and will decline Beverage Production will generally expand into mid-‐201 for most of 2017. Avoid major level. workforce or capacity reductions as the contraction will be mild and brief before growth takes hold through 2018.
Expansion is not uniform through this market. Distillery
Wine Production, Coffee & Tea, and Fluid Milk Productio
US plastics material and resin production is benefiting from strong contracting. Look for near-‐term opportunities with the l downstream demand. US food production over the past twelve to be countercyclical to the overall economy. months is up 1.2% from the year ago level, and US general purpose machinery is in a rising trend. Plastics Material growth in these markets rial Slower and Resin Production in the 12 months through March is up 2.7% from the year-‐ ago and Res expected by 2017 signals that plastic n will peak at will the face end headwinds of 2016 and will decline for most of 2017. Avoid major workforce or production into 2017. Current cyclical ons going arise s tinhe contraction will be mild and brief before growth takes hold through 2018. natural gas futures prices suggests there will be growing demand by late 2017, rial industry and Resin Production is benefiting from strong downstream demand. US Food indicating a rise in plastic material the production past 12 minto onths is u2018. p 1.2% from the year-‐ago level, and US General Purpose Machinery is at least
Slower growth in these markets expected by 2017 signals that Plastic Production will face g into 2017. Current cyclical rise in Natural Gas Futures Prices suggests there will be growing d by late 2017, indicating a rise in Plastic Material Production into at least 2018.
INDEX & TRENDS REPORT
US Plastics Material and Resin Production in the 12 months level. Production will peak at the end of 2016 and will decli capacity reductions as the contraction will be mild and brie 9
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US Pharmaceutical and Medicine Production Data Trend
Indicator
[2000 - present]
Pharmaceutical Production
Direction
Mild Decline
2016
Estimate % Change
-0.3%
2017
Estimate % Change
3.5%
2018
Outlook
0.6%
Production will mildly decline into the late 2016. Production will rise into late 2018.
Estimate % Change
(12MMT)
US Pharmaceutical and Medicine Production
US pharmaceutical and medicine production rose 0.5% over the past year, but will fall below the year ago level imminently. The decline in production will be mild and short in duration, ending the year 0.3% below the 2015 level. Production will then expand into late 2018, with 2018 ending slightly above the 2017 level.
Hospital construction growth is decelerating. However, US State and local tax revenue will drive a near term recovery in public health care construction and year over year growth by the end of the year. This expected rise in construction US Pharmaceutical and Me activity suggests upcoming cal demand and Medicine P roduction r ose 0 .5% o ver t he p ast y ear, b ut w ill fall below the year-‐ which will support production by late 2016. Divert sales ently. The decline in Production will be mild and short in duration, ending the year and marketing efforts to the public sector of the healthcare market 2015 level. Production will tto hen expand into late 2018, with 2018 ending slightly above capitalize on growth as government spending will increase over the next three years.
uction growth is decelerating. However, US State and Local Tax Revenue will drive a ery in Public Health Care Construction and year-‐over-‐year growth by the end of the ted rise in construction activity suggests upcoming demand which will support te 2016. Divert sales and marketing efforts to the Public sector of the healthcare alize on growth as government spending will increase over the next three years.
US Personal Consumption for Cosmetics US Pharmaceutical and Medicine Production rose 0.5% ov ago level imminently. The decline in Production will be mil 10the 2015 level. Production will then expand in 0.3% below INDEX & TRENDS REPORT ®
Consumption of Cosmetics uction growth is decelerating. However, US State and Local Tax Revenue will drive a Data Trend 2016 2017 2018 Indicator Direction Outlook very in Public Health Care Construction and year-‐over-‐year growth by the end of the ted Cosmetics rise in cPersonal onstruction activity suggests upcoming demand which will support Consumption will rise Consumption Rise 3.6% 4.4% 2.9% through the end of 2018. Expenditures ate 2016. Divert sales and marketing efforts to the Public sector of the healthcare alize on growth as government spending will increase over the next three years. US Personal Consumption for Cosmetics US personal consumption for US Pharmaceutical and Medicine Production rose 0.5% o cosmetics is expanding at an accelerating pace. Growth over the ago level imminently. The decline in Production will be m past year was 2.6%, but the rate will increase to 4.4% by the end of 0.3% below the 2015 level. Production will then expand 2017. Growth will subside slightly in the 2017 level. 2018, but consumption will expand [2000 - present]
to record levels through at least the end of 2018.
Estimate % Change
Estimate % Change
Estimate % Change
Hospital Construction growth is decelerating. However, U near-‐term recovery in Public Health Care Construction an year. This expected rise in construction activity suggests Production by late 2016. Divert sales and marketing effo market to capitalize on growth as government spending
US soap and toiletries production is signaling growth within this market. Production rose 1.1% over the past year to its highest level in nearly three years and will generally rise through 2018. This is indicative of rising demand during this time. Consumption is performing in US Personal Consumptio line with total retail sales but will outperform retail sales by late 2016. nsumption for Cosmetics is expanding at an accelerating pace. Growth over the past Look to pass on price increases to consumer through 2017 but atstrong he rate will increase to 4to.4% by the . end of 2017. Growth will subside slightly in offset rising input costs.
umption will expand to record levels through at least the end of 2018.
iletries Production is signaling growth within this market. Production rose 1.1% over its highest level in nearly three years and will generally rise through 2018. This is ng demand during this time. Consumption is performing in line with Total Retail Sales orm Retail Sales by late 2016. Look to pass on price increases to a strong consumer o offset rising input costs.
INDEX & TRENDS REPORT
US Personal Consumption for Cosmetics is expanding at year was 2.6%, but the rate will increase to 4.4% by the e 11 2018, but Consumption will expand to record levels thro ®
SECTION TWO
COMPILED BY LPC, INC.
LABEL PROCUREMENT VOLUME INCREASES, ARTWORK & DESIGN PROTOCOLS, CONVERTER
The Voice PRACTICES of the Brand Owner/Packaging Buyer ENVIRONMENTAL , REGIONAL SOURCING TRENDS, AND THE PRIMARY INFLUENCERS IN SEEKING NEW LABEL VENDOR(S) Includes: label procurement volume increases, artwork & design protocols, converter environmental practices, regional Each year the Index & Trend Repor surveys industry brand owners and packaging buyers in an effort to sourcing trends, and the primary influences in seeking new obtain feedback from the customers and prospects of the association’s converter members. These label vendors.
surveys us to&offer all Report TLMI members the opportunity to hear the collectivebuyers voice of companies Each yearallow the Index Trend surveys industry brand owners and packaging to the obtain feedback that the source printedand labels across formats (PS, glue-applied, in-mold and sleeves). For theallow 2016 us Brand from customers prospects of the association’s converter members. These surveys to offer all TLMI members opportunity toasked hear the collective voice of the companies that source printedcontinue labels across Owner Survey,the companies were some new questions. North American label converters formats: pressure sensitive, glue applied, in mold and sleeves. Companies were asked some new questions for to seek position themselves as value-add providers. effort totogauge the themselves as the 2016 ways brandto owner survey. North American label solutions converters continue In to an seek ways position value add solution providers. In companies an effort to gauge the perceptions brand owners, were asked to perceptions of brand owners, were asked to rank theof importance theycompanies place on their rank the importance they place on their converters obtaining certification, recycling waste, and converters obtaining environmental certification, recycling environmental waste, and utilizing LCA (Life Cycle Analysis). utilizing LCA (Life Cycle Analysis). The largest consumer packaged goods companies participate in the brand owner surveys in addition to
The largest consumer packaged goods companies participate in the brand owner surveys in addition to smaller, smaller,brand regional brandMore owners. companies procure tags and labels across all inprimary end- and regional owners. than Participating seventy brand owners and packaging buyers participated the surveys qualitative interviews. Participating companies procure tags and labels across all primary end use categories. The use categories. The chart below indicates participation by category. chart below indicates participation by category.
End-Use Verticals Served by Participating Companies 28%
Food
15%
Beverage
10%
Health & Beauty/Personal Care
13%
Pharma
10%
Household/Industrial Chemicals Pet Food/Pet Care
8%
Consumer Durables/Electronics
8% 5%
Automotive Other
3% 0%
INDEX & TRENDS REPORT
5%
12
10%
15%
20%
25%
30%
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make up more than 50% of North America's total annual label consumption.
functions participants InJob addition to the end-use of categories their companies serve, survey participants are asked to indicate More than 40% of participating brand owner companies the and foodpackaging and/or beverage Food and their job function. One of the goals with surveying brandserve owners buyers issectors. to ensure beverage make up more than 50% of North America’s total annual label consumption. questionnaires are being completed beyond just the sourcing/procurement level. The management of In addition to the procurement end use categories their companies serve, survey participants are asked to indicate their printed packaging is increasingly becoming a cross-functional dynamic. As the printed label job function. One of the goals with surveying brand owners and packaging buyers is to ensure questionnaires continues to move from a decorative and/or single-function feature to an optimally functional piece of are being completed beyond just the sourcing/procurement level. The management of printed packaging the end-product; R&D, package engineering anddynamic. marketing personnel play a part intothe vendor procurement is increasingly a cross-functional As the printed all label continues move from a decorative and/or single-function feature to an optimally functional piece of the end-product; R&D, package selection and overall procurement process. The chart below breaks down all participants by job engineering and marketing personnel all play a part in the vendor selection and overall procurement process. The chart below function. breaks down all participants by job function.
Job Functions of Surveyed Participants 25%
Sourcing/Procurement Brand Management
4%
The Brand Owner Survey:
8%
Marketing Management
Reaching beyond sourcing/ procurement personnel
17%
R&D
46%
Package Engineering 0%
5%
10% 15% 20% 25% 30% 35% 40% 45% 50%
As this graph indicates, packaging engineers played a central role in the most recent brand owner quantitative and qualitative outreach. As these surveys become more technical, asking questions such as Assignificance this graph indicates, package engineers played a central role in the most recent brand the companies place on different adhesive types, printing platform types andowner label quantitative and qualitative outreach. The survey has become more technical by asking questions such as the significance converter sustainability practices; it becomes more and more important to obtain participation beyond companies place on different adhesive types, printing platform types and label converter sustainability practices. these sourcing/procurement Overcompanies' time, it has become more and moreteams. important to obtain participation beyond these companies’ sourcing/ procurement teams.
In the near future, the Index & Trend Report will explore areas like food safety and migration In the near future, the Index & Trend Report will explore areas like food safety and migration compliance. At that compliance. At that time the job functions of surveyed participants will expand even further to time the job functions of surveyed participants will expand even further to additionally include safety and quality additionally include safety and quality personnel at the brand owner/packaging buyer level. personnel at the brand owner/packaging buyer level.
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Projected Label Procurement Volume Growth 2016-2018
Projected volume growth 2016-2018 Every two yearslabel the Brandprocurement Owner Survey asks brand owners and packaging buyers to project their Every two years the procurement Brand Ownervolume Survey asks brand owners and packaging buyers to project their companies’ companies' label growth (or decline). In the most recent survey, participants were label procurement volume growth (or decline). In the most recent survey, participants were asked to indicate asked to indicate label procurement growth rates for the specific end-use verticals their companies' label procurement growth rates for the specific end-use verticals their companies serve. The graph below serve. The graph below shows projected annual procurement volume growth per end-use category shows projected annual label procurement volumelabel growth per end-use category to 2018.
to 2018.
Annual Label Procurement Volume Growth to 2018 6.88% 4.45%
4.67%
5.10%
4.75% 3.75%
3.67%
3.50%
Note: "Cons Durables/Elec" = Consumer Durables/Electronics More than half of TLMI's converter members sell products into the food packaging sector. Average More thangrowth half of for TLMI’s members sell products thethe food packaging sector. Averagelabel annual annual foodconverter packaging is projected to be 4.5%into over next two years. Historically, growth for food packaging is projected to be 4.5% over the next two years. Historically, label volume growth volume growth in the food sector has averaged 1.5-2% above growth for the greater food packaging in the food sector has averaged 1.5-2% above growth for the greater food packaging market. PMMI recently market. PMMI recently announced that the U.S. food packaging marketatisaforecasted at ato announced that the U.S. food packaging market is forecasted to increase steady ratetoofincrease 2.9% CAGR 1 1 2022. PMMI the snack andhighest pet food categories. steady rateprojects of 2.9%highest CAGR togrowth 2022. inPMMI projects growth in the snack and pet food categories. Projected label procurement volume growth is highest in the pharmaceutical sector averaging nearly 7%7% per Projected label procurement volume growth is highest in the pharmaceutical sector averaging nearly annum to 2018. Like the U.S. food packaging sector, pharmaceutical label volume growth rates have historically per annum to 2018. the rates U.S. food sector, pharmaceutical label volume rates have averaged 1.5-2% aboveLike growth in thepackaging greater pharmaceutical packaging sector. The growth pharmaceutical packaging sector is estimated growgrowth at 4.5-5% CAGR over the next five years. Market driverssector. include the aging historically averaged 1.5-2%to above rates in the greater pharmaceutical packaging LPC US population, ePedigree/serialization demands, single-unit dosage demand, and the increased sophistication estimates that the pharmaceutical packaging sector will grow at 4.5-5% CAGR over the next five years. of drug delivery platforms.
Market drivers include the aging U.S. population, ePedigree/serialization demands, single-unit dosage demand, and the increased sophistication of drug delivery platforms.
2016 Food Packaging Trends and Advances, PMMI
1
1
2016 Food Packaging Trends and Advances, PMMI
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Value add: Shifting design to converters and brand owner Value Add: Shifting label Label Design to Converters and Brand Owner-Enforced Sustainability Requirements enforced sustainability requirements Brand owners’ service level expectations are rising. In today’s industry the label converter has become an Brand owner's service level expectations are rising. In today's industry the label converter has become integrated partner in helping brand owners and packaging buyers optimize the functionality and performance an integrated partner in brandlabel owners and packaging optimize the functionality and brands to of their packaging applications. Inhelping the prime market the labelbuyers converter is central to enabling their applications. In the prime label market the label converter is central to differentiate performance themselvesofon thepackaging retail shelf. enabling brands to differentiate themselves on the retail shelf. Value add services like VMI (vendor managed inventory), label stock specification analysis, and prototyping Value-add services have like VMI (vendor managed inventory), andHowever, one aren’t new. Label converters been offering practices like labelstock these forspecification more than analysis, a decade. prototyping aren't new. Label converters have been offering practices like these for more than a decade. service that is gaining traction is the ability for label converters to replace design agencies in the creation of artwork. TheHowever, Brand Owner survey participants about their current labeldesign design protocols. one service thatasked is gaining traction is the ability forcompany’s label converters to replace agencies The survey also if packaging buyers open to sourcing theabout development and creation in theasked creation of artwork. The Brandwould Ownerbe survey asked participants their company's current of their artwork to their label vendors given the sophisticated in-house design departments many TLMI member label design protocols. The survey also asked if packaging buyers would be open to sourcing the converters have in place. development and creation of their artwork to their label vendors given the sophisticated in-house designindicates departments TLMI member converters have in packaging place. The graph below themany willingness of brand owners and buyers to shift artwork development and creation onto their label vendors. The graph below indicates the willingness of brand owners and packaging buyers to shift artwork development and creation onto their label vendors.
Would Brand Owners & Packaging Buyers Consider Using Label Vendors as Artwork Development and Design Source? Uncertain 43%
Yes, we would be
willing to shift design requirements to our label vendor (s)
19%
No, we would not be willing to shift design requirements to our label vendor (s)
38%
Nearly one in five surveyed companies cited they would be open to sourcing the development and creation of their artwork to their label vendors rather than an agency. While 38% of respondents indicated they would not consider it, there was a high level of uncertainty among participants when asked this question. This indicates a potential value-add opportunity for label converters and one that Nearly one inthe five surveyed cited they would be open to sourcing the development and creation of Index & Trendcompanies Report will continue to track moving forward. their artwork to their label vendors rather than an agency. While 38% of respondents indicated they would not consider it, there was a high level of uncertainty among participants when asked this question. This indicates a potential value add opportunity for label converters and one that the Index & Trend Report will continue to track moving forward.
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How important is it to brand owners that their label vendors How Important is it to Brand Owners that their Label Vendors Employ employ environmental protocols and are environmentally Environmental Protocols and are Environmentally Certified? certified?
past five years the Index & Trend Report has beenasking asking brand about thethe importance of of For the For pastthe five years the Index & Trend Report has been brandowners owners about importance their label vendors environmental practices.InInthe the2016 2016 Brand Brand Owner brand owners their label vendors usingusing best best environmental practices. OwnerSurvey Survey brand owners and packaging buyers asked to rank theimportance importance they they place their label vendors achieving and packaging buyers werewere asked to rank the placeupon upon their label vendors achieving environmental certifications, recycling their material waste (LifeCycle Cycle Analysis). environmental certifications, recycling their material wasteand andusing using LCA LCA (Life Analysis). The The chartchart below indicates the importance these companies place upon their label vendors having some type of environmental below indicates the importance these companies place upon their label vendors having some type of certification in today’s marketplace. environmental certification in today's marketplace.
Brand Owner Viewpoint: How important is environmental certification for label converters? 20%
12%
Somewhat important
Not important
8% It is critical
60% Increasingly important
Eight owners percent of brand owners and packaging buyers surveyedthat indicated that environmental certification 8% of brand and packaging buyers surveyed indicated environmental certification was ‘critical’ 'critical' for their labeltheir vendors and that their only purchase labels from that companies that type of for theirwas label vendors and that companies only companies purchase labels from companies have some have some type of environmental certification. Sixty percent of participants indicatedimportant it is becoming environmental certification. 60% of participants indicated it is becoming increasingly that their label vendorsincreasingly are environmentally certified, however it isare not presently a vendor criteria. important that their label vendors environmentally certified, however it is not presently a vendor criteria. The group of companies that stated that environmental certification is critical are the largest brand owners surveyed and the among them are companies like Unilever, P&G and Nestlé. According tolargest the most recent survey Within group of companies that state environmental certification is critical are the brand and data analysis, the majority of smaller and regional brand owners and packaging buyers don’t place as much owners - companies like Unilever, P&G and Nestlé. According to the most recent survey and data importance on their printed packaging vendors having environmental certification. analysis, the majority of smaller and regional brand owners and packaging buyers don't place as much importance on their printed packaging vendors having environmental certification.
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Is Label Vendor Environmental Certification becoming More Important in the Eyes of Brand Owners?
Is label vendor environmental certification becoming more Since 2011in the the Index &eyes Trend Report asked brand owners and packaging buyers how important it is important of has the brand owners?
that their label vendors have some type of environmental certification. In surveys, companies are given Since 2011 the Index & Trend Report has asked brand owners and packaging buyers how important it is that series of answers to choose that include thecertification. following: In surveys, companies are given a series of their labela vendors have some type from of environmental answers to choose from that include the following: It is critical. We only purchase labels from companies that are environmentally certified. ■ It is critical. We only purchase labels from companies that are environmentally certified. It is becoming increasingly important and I predict that in the near future we will likely only ■ It is becoming increasingly important and I predict that in the near future we will likely only purchase purchase labels from companies that are environmentally certified. labels from companies that are environmentally certified. It is important, however does not dictate who we do or do not purchase labels from. ■ It is important, however does not dictate who we do or do not purchase labels from. It is not important and does not influence our vendor selection. ■ It is not important and does not influence our vendor selection. The chart below shows the percentages of brand owners and packaging buyers that have historically The chart below shows the percentages of brand owners and packaging buyers that have historically cited cited that environmental certification is a 'critical' criteria for their label vendors compared to the results that environmental certification is a ‘critical’ criteria for their label vendors compared to the results of the most of the most recent survey. recent survey.
% of Brand Owners Demanding their Label Vendors have Environmental Certification
12.3%
12.9%
12.0% 8.0%
2011
2013
2015
2016
As this graph shows, the percentage of brand owners and packaging buyers demanding that their label As this graph shows, the percentage of brand owners and packaging buyers demanding that their label vendors have environmental certification has changed minimally overthe thecourse course of years vendors have environmental certification has changed minimally over ofthe thepast pastfive five years with with the exception the most recent Up until the percentage hovered around the exception of the most of recent survey. Upsurvey. until this year,this theyear, percentage hovered rightright around 12% however dropped 12% to 8% in the most recent survey carried out in the first two quarters however dropped to 8%brand in the owner most recent brand owner survey carried out in the first of two2016. quarters of 2016.
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How Important is it to Brand Owners that their Label Vendors Recycle Waste How Materials? important is it to brand owners that their label vendors
recycle waste materials? In addition to environmental certification, brand owners and packaging buyers were asked to indicate howtoimportant it is thatcertification, their label vendors recycle some or packaging all of their waste materials. In 2015,tothe In addition environmental brand owners and buyers were asked indicate how important it isIlluminator that theirfeatured label vendors recycle some orfrom all ofTLMI theirconverter waste materials. In 2015, the TLMI Illuminator TLMI interviews and comments members whose companies featuredare interviews and comments from TLMI converter members whose companies are in process of in the process of achieving 0%-to-landfill status. These companies have implemented matrix the and/or achieving 0% to landfill status. These companies have implemented matrix and/or liner recycling programs. liner recycling programs. Given the increased importance the association's converter members are Given the increased importance the association’s converter members are placing on recycling, one of the goals placing on recycling, one of the goals of the recent Brand Owner Survey is to gauge how important this of the recent Brand Owner Survey is to gauge how important this issue is among packaging buyers. issue is among packaging buyers.
Brand Owner Viewpoint: How important is it that label converters are recycling some or all of their waste materials?
12% It is critical
38% Somewhat important
50% Increasingly important
Interestingly, a higher number of brand owners indicated vendors recycling some Interestingly, a higher number of brand owners indicatedthat thattheir their label label vendors recycling some or allor all of their waste materials is ‘critical’ than indicated same for certification. It’s important to note that no of their waste materials is 'critical' thanthe indicated the environmental same for environmental certification. It's participants selected ‘not important’ as an answer to this question. important to note that no participants selected 'not important' as an answer to this question.
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How Important is it to Brand Owners that their Label Vendors Use (LCA) Life important Cycle Analysis? is it to brand owners that their label vendors
How use LCA (Life Cycle Analysis)?
Over the course of the past year TLMI has established a Task Force of Environmental Committee Over the course of the past year TLMI has established a task force of Environmental Committee members to members to help in the creation of a harmonized LCA Guidance Document that will become available to help in the creation of a harmonized LCA Guidance Document that will become available to all TLMI members all TLMI members in the coming months. LCA an assessment that evaluates a products' impact on in the coming months. LCA is an assessment toolisthat evaluates tool a products’ impact on the environment from the environment from the creation raw materialsfinal through to the product's final disposal. the creation of raw materials through to of the product’s disposal. is potentially toolItfor converters. It offers insightsthe intoenvironmental where the environmental LCA is anLCA important tool an forimportant converters. offers insights into where hot spots are for their are for theirmight products and where therefor might be opportunities for improvement. products hotspots and where there be opportunities improvement. Increasing numbers Increasing of brand owners are requesting information about sustainability from their label vendors. In order totheir gauge how brandInowners numbers of brand owners are requesting information about sustainability from label vendors. regard the utilization of LCA as a viable sustainability tool, the survey asked participants how it was order to gauge how brand owners regard the utilization of LCA as a viable sustainability tool, theimportant survey that their label vendors use LCA. asked participants how important it was that their label vendors use LCA.
Brand Owner Viewpoint: How important is it that label converters are using LCA (Life Cycle Analysis) as a sustainability tool? 18% Not important
52% Increasingly important
30% Somewhat important
Brand owners and packaging buyers are placing more value on LCA as a tool they want their printed packaging Brand owners and packaging buyers are placing more value on LCA as a tool they want their printed vendors to use. More than half of all participants indicated they view the usage of LCA by their label vendors as packaging vendors to use. More than half of all participants theywas view‘critical’ the usage LCA by increasingly important. However, no companies indicated thatindicated using LCA foroflabel converters. This label vendors as increasingly important. no companies indicated that using was converter and is anothertheir sustainability metric the Index & TrendHowever, Report will track in order to report backLCA to TLMI supplier members brand ownerssustainability and packaging are&placing uponwill LCA utilization. 'critical' for the labelimportance converters. This is another metricbuyers the Index Trend Report track in order to report back to TLMI converter and supplier members the importance brand owners and packaging buyers are placing upon LCA utilization.
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packaging buyers have wanted their label vendors within a specific proximity of where labels were applied. Over the past year TLMI converters have requested that the Brand Owner Survey contain a How regionalized is the North American label printing question about the regional preferences of brand owners and exactly how close to the pointindustry? of label The North American label printing industry has historically application these companies want their label vendors tobeen be. highly regionalized. Brand owners and packaging buyers have wanted their label vendors within a specific proximity of where labels were applied. Over the past year TLMI converters have requested that the Brand Owner Survey contain a question about the The chart below indicates label vendor proximity requirements and preferences for the total participant regional preferences of brand owners and exactly how close to the point of label application these companies group. want their label vendors to be. The chart below indicates label vendor proximity requirements and preferences for the total participant group.
How Geographically Close do Brand Owners want their Label Vendors to be? 9%
Demand label vendors are within 50 miles Demand label vendors are within 250 miles
18%
Demand label vendors are in the same region
50%
It makes no difference where our label vendors are located
23% 0%
10%
20%
30%
40%
50%
60%
The results of survey participants' responses show that geographic location is still important to brand owners. of respondents require their label be withinlocation the same geographic as point The resultsHalf of survey participants’ responses showvendors that geographic is still importantregion to brand owners. Half of respondents require their label vendors be within the same geographic region as point of application of application while more than one in four companies require their label vendors to be within 250 miles while moreofthan one in four companies require their label vendors to be within 250 miles of point of application. of point application. The label printing industry is estimated to be the most highly regionalized of all printed packaging sectors LPC estimates that the label printing industry the corrugated. most highlyThe regionalized of allindustry printed ispackaging among labels, flexible packaging, folding cartonsisand label printing also the most fragmented of all flexible printed packaging the and highest volume ofThe printing located throughout sectors (labels, packaging, sectors folding with cartons corrugated). label plants printing industry is also the the North American marketplace. As consolidation continues in the U.S. label printing marketplace, it will be most fragmented of all printed packaging sectors with the highest volume of printing plants located interesting to track and to gauge brand owners’ continued requirements and preferences when it comes to the throughout the North American marketplace. As consolidation continues in the U.S. label printing geographic proximity of their label vendors.
marketplace, it will be interesting to track and to gauge brand owners' continued requirements and preferences when it comes to the geographic proximity of their label vendors.
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How do brand owners and packaging buyers rank different label construction options and technologies? Brand owners and packaging buyers constantly talk about innovation. Since its inception, the Index & Trend Report Brand Owner Survey has been asking brand owners what label converters can be doing to make their jobs easier. More often than not their answers contain the word innovation. During interviews brand owners and packaging buyers talk about wanting their label vendors to have a broader and more innovative portfolio. Companies frequently comment that they want their label suppliers to be more innovative in delivering ways to remove costs from the supply chain. Innovation continues to be a buzzword in discussions and during a recent interview for the compilation of this report, a packaging engineer at a multinational food conglomerate stated:
“We want our label suppliers to show us innovations that are projected three or more years out. We have a 3+3+3 mentality. Projects that are worked on today will typically materialize within the next three years, however we need to also be thinking beyond that three year mark. We need to know what is going to be happening in the label printing industry in six and nine years’ time. We need to know what types of innovations we can be starting to look at today and how we can incorporate those innovations into our future plans. Even if we aren’t sent up for the processes or have the equipment today, we need to know what these innovations are and how we can better prepare ourselves for the directions in which label printing will be moving.”
-Packaging Engineer, Food Company
In an effort to gauge the importance companies place on different types of label application options and technologies, participants were asked to indicate how important it is that their label vendors offer each item in a list of criteria. The criteria companies were given included: ■ Ability to offer digitally printed labels ■ Ability to offer and convert extended text/expanded content labels (more than two layers) ■ Ability to offer and convert ‘hinge’ labels (two layers) ■ Ability to offer removable adhesives ■ Ability to offer all temperature adhesives ■ Ability to offer shrink sleeves ■ Ability to offer RFID/s
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How important is it that label vendors offer certain technologies? This graph shows the percentage of brand owners and packaging buyers that consider it critical that their label vendors offers each technology.
% Brand Owners Claiming It is 'Critical' that Label Vendors Offer Technology Type % Brand Owners
30% 25% 20% 15% 10%
21%
25% 17%
16% 8%
5%
12% 4%
0%
Brand owners and packaging place the greatest importance on converters' to digitally offer Brand owners and packaging buyersbuyers place the greatest importance on converters’ abilityability to offer printed digitally labels (21% of respondents) and all temperature adhesives (25% adhesives of respondents). is important toIt note printed labels (21% of respondents) and all temperature (25% ofItrespondents). is that while one in five survey participants claim it is critical that converters have the ability to print digital labels, important to note that while one in five survey participants claim it is critical that converters have the a number of these companies are not yet purchasing digitally printed label products. Some brand owners to print digital a number these are not printed yet purchasing digitally label actuallyability cited that while theylabels, don’t yet have a of need to companies purchase digitally labels, they still printed only source labels from companies that have digital printing presses on their floors. products. Some brand owners actually cited that while theyproduction don't yet have a need to purchase digitally printed labels, they still only source labels from companies that have digital printing presses on their production floors.
21% 4%
How important is it that label vendors compared to offer certain technologies?
21%
of brand owners and packaging buyers say ability to offer digital labels is critical.
of brand owners and packaging buyers 22 say ability to offer digital labels is critical,
INDEX & TRENDS REPORT
of brand owners and packaging buyers saying ability to offer RFID/smart labels is critical.
ÂŽ
The Forces that Cause Brand Owners to Seek New Label Vendors
What are the issues that cause brand owners to seek new label The Index & Trend report periodically asks brand owners and packaging buyers what the primary forces vendors? are that cause them to seek and obtain new label vendors. In answering this question, survey
The Index & Trend report periodically asks brand owners and packaging buyers what the primary forces are respondents givenand a list of criteria and are askedIntoanswering rank each this onequestion, from most to least influential.are It is that cause themare to seek obtain new label vendors. survey respondents important note and that are pricing is purposely leftone outfrom of this list to of least criteria in order Ittoisbe able to effectively given a list of to criteria asked to rank each most influential. important to note that pricing is purposely left out of this list of criteria in order to be able to effectively hone in on what the primary hone in on what the primary influencers are outside of product pricing. influencers are outside of product pricing. The table below shows how brand owners andand packaging buyers ranked these criteria from most to least The table below shows how brand owners packaging buyers ranked these criteria from most to least influential.
influential.
The Primary Forces that Influence Brand Owners & Packaging Buyers to Seek New Label Vendors Influencer
Ranking (Most to Least Significant)
Quality with current vendor (color drift, inconsistent quality from run to run) Delivery (labels are not always delivered within the time frame companies require them) Responsiveness (occasional issues with label vendor's customer service) Capabilities (label vendor does not have digital printing capabilities)
#1 #2 #3 #4
When this question was discussed with brand owners in interviews, companies stressed that print When this question was discussed brand owners interviews, stressedbuyer that print inconsistencies were the number one with production related in influence that companies cause a packaging to seek and obtain alternate label vendors. participants stressed that efficiencies andadelivery times were inconsistencies were the numberWhile one production-related influence that causes packaging buyer to still a critical factor, the inability to maintain print consistency from job to job was a more significant driver looking seek and obtain alternate label vendors. While participants stressed that efficiencies and delivery times for and obtaining a new vendor.
were still a critical factor, the inability to maintain print consistency from job to job was a more
Three years ago TLMI asked a group of almost two hundred brand owners and packaging buyers this same significant looking for and obtaining a new vendor. question and driver the way companies rank these influencers today remains unchanged compared to our research results in 2013. As we described on the previous page, one in five brand owners want their label vendors to Three years ago LPC asked a large collective brand and packaging buyers (more than 150this table have digital printing capabilities - whether or notofthey areowners sourcing digitally - printed labels. However, indicates that quality, delivery and responsiveness are more influential in driving a packaging buyer to replace companies) this same question and the way companies rank these influencers today remains unchanged an existing label vendor with a new supplier.
compared to our research results in 2013. As we discussed on the previous page, one in five brand owners want their label vendors to have digital printing capabilities - whether or not they are sourcing digitally-printed labels. However, this table indicates that quality, delivery and responsiveness are more influential in driving a packaging buyer to replace an existing label vendor with a new supplier.
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SECTION THREE
TLMI Converter Quarterly Trends Report Synopsis of Q1 2016 Each quarter TLMI polls its converter member companies for the compilation of the association’s converter Quarterly Trends Report that is distributed to all converter members on a quarterly basis. The report features sales and profits trending data in addition to backlog, lead time and number of employee metrics. It also tracks labor costs, press labor rates and material costs. This section of the Index & Trend Report summarizes all of the data from the most recent Quarterly Trends Report, offering converters a snapshot of market performance, in addition to offering TLMI supplier members insight into the performance and trending realities of their tag and label converting customers and prospects. The chart below shows sales and profit data for the first quarter of 2016 compared to sales and profit data for the fourth quarter of 2015 in addition to year over year outcomes that compare the first quarter of 2016 with the first quarter of 2015. 80%
Q1 ‘16 vs Q4 ’15
Trailing Twelve Months
80%
Q1 ‘16 vs Q1 ’15
60%
40%
Q1 ‘16 vs Q1 ’15
55%
55%
14%
9%
7%
-34%
-36%
60%
59% 59%
66%
40%
53%
52%
20%
0%
Trailing Twelve Months
Q1 ‘16 vs Q4 ’15
20%
9%
9%
14%
0%
-25% -32%
-33%
-20%
-20%
-40%
-40%
SALES DATA Increase
INDEX & TRENDS REPORT
Steady
PROFIT DATA Increase
Decrease
24
-38%
Steady
Decrease
®
Data shows that quarter-over-quarter sales declines were felt most acutely by medium-sized companies
This year ushered in positive momentum for the majority of participating label converters. Quarter over quarter (annual sales revenues $15 -and $35decreased Million). Forty-five of medium-sized sales increased for 54% ofbetween respondents for 32% ofpercent respondents. Profitability companies increased for 52% of respondents with only 14% of participating converters reporting relatively flat profits. Year over yearof sales and reported a quarter-over-quarter decrease in sales. The scale category with the fewest number profits also increased for more than half of respondents.
companies reporting a decline in sales was in the large company category (more than $35 million in annual sales) 20%over of large companies reporting quarter-over-quarter Data shows thatwith quarter quarter sales declines were felt most acutely by declines. medium sized companies with annual sales revenues between $15 - $35 million. Forty five percent of medium sized companies reported a quarter over quarter decrease in sales. The scale category the million) fewest number companies reporting The mid-range company group (companies with sales ofwith $6-$15 had theof highest number of a decline in sales was the large company category (more than $35 million in annual sales) with 20% of large companies reporting year-over-year sales declines with 39% of mid-range companies reporting that companies reporting quarter over quarter declines.
sales for the first quarter of 2016 were down compared to the first quarter of 2015. Once again, the
The mid with rangethe company group (companies withreporting sales of $6-$15 million) had theperformance highest number of companies group lowest number of companies year-over-year sales declines was reporting year over year sales declines with 39% of mid range companies reporting that sales for the first the large company category with 20% companies reporting first 2016the sales were quarter of 2016 were down compared to of thelarge first quarter of 2015. Once that again, thequarter group with lowest number ofdown companies reporting year over year sales performance compared to results for the first quarter of 2015.declines was the large company category with 20% of large companies reporting that first quarter 2016 sales were down compared to results for the first quarter of 2015. BACKLOG DATA
Backlog In addition toData sales and profits, the trends data collected on a quarterly basis from TLMI converter In member addition to sales andalso profits, the trendscurrent data collected a quarterly basis from backlog TLMI converter member companies benchmarks backlog on data and year-over-year data. The charts companies also benchmarks current backlog data and year over year backlog data. The charts that follow that follow indicate current backlog reports as well as year-over-year results. indicate current backlog reports as well as year over year results.
Current Backlog 60%
56%
% of Converters
50% 40% 30% 20%
23%
10%
9%
12%
0%
1 week/less
INDEX & TRENDS REPORT
2 weeks
3 weeks
25
>3 weeks
ÂŽ
% of Converters
participants reported a current backlog of 3 weeks or 40% The majority of respondents (79%) are running at a one 42% more for the first quarter of 2016 while 42% of or two 35% week backlog while 21% percent of participants Q1backlog '16 vs for Q4the '15first respondents reportedBacklog: increasing 37% reported a current backlog of three weeks or more 45% the fourth quarter of 2015. for 30% the first quarter of 2016. Forty two percent of quarter of 2016 versus respondents reported increasing backlog for the first 40% 25% of 2016 versus the fourth quarter of 2015. quarter 42% No small companies (companies with annual sales of 35%
The ma one or partici more f respon quarte
% of Converters
20%companies with annual sales of less than $6less 37% than $6 million) reported backlogs of more than Small million 22% 30% two weeks while no large companies reported did15% not report any backlogs of more than two weeks while large companies did not report backlogs ofbacklogs less 25%two weeks. More mid-range of less than No sm than two weeks. More mid range converters reported 10% 20%year-over-year backlog declines converters reported less th year over year backlog declines than any other scale 22% two we than any other scale group 5%with 22% of these companies reporting decreased 15%group with 22% of these backlo backlogs compared to the fourth quarter of 2015. companies reporting decreased backlogs compared to 10% 0% conver the fourth quarter of 2015. Decrease Quarterly data collectedSteady from TLMIIncrease member converters than a 5% additionally tracks number of employees and number of compa 0% Quarterly data collected TLMI member converters number of employees and shifts quarter over quarterfrom to provide members with an additionally tracks the fou Decrease Steady Increase effective tool to compare gauge their with an effective benchmarking tool to numberbenchmarking of shifts quarter-over-quarter to and provide members own company’s performance against those of their peers. Note: Graph doesdata not add up to from 100% TLMI due tomember roundingconverters a Quarterly collected
compare and gauge their own company’s performance against those of their peers.
number of shifts quarter-over-quarter to provide membe compare and gaugeistheir own company’s performance a with otheranalyses analysesprovided provided in in the the Quarterly TrendsReport, Report,the the information broken down AsAs with allallother Index & Trends information is broken downinto into four four company scale categories (small, mid-range, medium large). this report willshow show company scale categories (small, mid-range, medium andand large). However, this report will data for all Tren As However, with all other analyses provided in the Quarterly participating members asmembers a grouped only.value only. data for all participating as value a grouped four company scale categories (small, mid-range, medium data for all participating members as a grouped value on
Number of Employees: Q1 '16 vs. Q4 '15 70%
70%
60%
60%
50%
20%
27%
20%
INDEX & TRENDS REPORT
60%
50%
30%
30%
0%
60%
40%
40%
10%
Number of Employees:
10%
13% Down
0%
About the Same
26
13% Down
About the
Up
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MATERIAL COSTS AND LABOR RATES
Material Costs and Labor Rates
Once costs have Onceagain againfor forthe themajority majorityof ofconverter converterrespondents, respondents, labor labor costs, costs, press press labor labor rates rates and and material material costs remained about the same for the of 2016 the fourth quarter of 2015. Percent of have remained about the same forfirst the quarter first quarter of versus 2016 versus the fourth quarter ofTwenty 2015. Twenty converters reported an increase in material costs compared to the previous quarter while 64% reported percent of converters reported an increase in material costs compared to the previous quarter while material costs remained the same. Labor costs remained the same for 63% of respondents and press labor 64% reported material costs the same. Labor costs remained the same for 63% of respondents rates remained the same forremained 83%. and press labor rates remained the same for 83%.
Material Costs Q1 '16 vs. Q4 '15 % of Converters
80% 60%
64%
40% 20%
20%
16% 0%
Material costs decreased
INDEX & TRENDS REPORT
Material costs stayed the same
27
Material costs increased
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