Pricing, employment and workforce challenges, consolidation, sustainability, technology investments--these are just some economic topics that are top-of-mind for those running label companies, as well as other industry professionals. The industry is doing well, and it's due in part to the aforementioned leaders staying on top the latest trends--and tackling challenges before they become problems. L&NW caught up with several company and industry leaders and asked them about some of the issues they are faced with at the mid-point of the year. Here's what they had to say:
By Brian Gale, president, I.D. Images
Recently a leading pressure sensitive materials supplier announced a substantial price increase. Depending on the product, increases range from 4% to 7%. Additionally, all freight charges are being increased by 5%. Increases in raw material and transportation costs are cited as the reasons for the increases. This is the second announced price increase we have received in the last six months. In the label world, the rest of the market typically follows once one supplier announces an increase.
I would love to be a fly on the wall in strategy sessions at Avery and their competitors. As I've written in the recent past, component costs for pressure sensitive materials have increased. There is a possibility of shortages, particularly among direct thermal products. Freight costs have gone through the roof. An objective observer would conclude a price increase is warranted.
However, competitive markets are not always rational. Spreadsheets and pretty graphs that show upward trends in costs and downward trends in margins are really nice to look at and tell a compelling, factual story justifying price increases. Customers moving business and idle capacity hit the hearts of sales people and executives. I can hear a salesperson screaming, "You can have revenue with a lower margin or zero revenue with zero margin!" Minds and hearts do not always agree.
It's tough to "make it up in volume" when margins are declining. Losing volume is never fun and generally causes executives heartburn and/or job loss. Reality needs to set in. We are in an inflationary environment. Ignore it and eventually you will have to deal with the consequences.
As expected, the pressure sensitive label industry followed the aforementioned supplier's price increase announcement. The cynic in me says a few of them just cut and pasted the exact same announcement. I wonder if Paul Manafort was involved!
It is certainly an interesting time. For whatever reason, the label industry is reluctant to raise prices. Prices only go up when raw material prices go up. Check out all of the commodities associated with labels. Every one of them--pulp, oil, resin, chemicals--is increasing. Freight has increased significantly. Since the last industry wide increase six and one half years ago, operating costs have gone up. No one is getting paid less. Benefits haven't gone down. Is anyone paying less in rent? Despite these facts, many people in our industry were surprised by the increase announcement.
In most industries, price follows volume. In other words, when volume goes up, prices increase. That does not happen in the label industry. Volume has grown over the last six years, but prices trended down. Over the last few years, it seems like the only competitive tool the label industry has used is price. Competing solely on price does not create a healthy industry, especially when costs are rising. It does not require a PhD to understand that costs going up and prices going down leads to lower margins. If you cannot provide value, expect your margins to go down.
By Mark Glendenning, president and CEO, Inland
As a label and flexible packaging manufacturer, change is nothing new for Inland Packaging. Not only is the packaging industry in constant flux, each of the individual end-use markets that we supply continue to face change daily.
With dynamic markets come challenges and opportunities. The challenges that our customers and end-use markets face directly correlate to challenges Inland sees. As consumers change their preferences to single serve, or as they more frequently choose products with a matte finish label or package, all of these choices impact us--our supply chain, our manufacturing processes, and ultimately the type of talent and skill sets required of our staff.
As with most manufacturers today, recruiting talent and keeping the right team in place is one of the biggest challenges we face. The trade or skilled workforce continues to decline as most grads opt for a four-year+ degree or choose to work in other industries. Thus, it makes it difficult to find candidates to fill skilled-labor jobs.
Additionally, there is heavy competition for professional candidates as employees have more options than ever before and added benefits --incentive programs, growth and advancement opportunities, health and wellness programs, company culture and office environments--become a key factor in their decision-making.
Inland is doing our part to combat these challenges in a variety of ways. As an employer, we...