The independent label converter now and beyond: opportunities and challenges.

January 18, 2022

The independent label converter now and beyond: opportunities and challenges.

“If you don’t know where you are going, you will wind up somewhere else.” Yogi Berra

Over ten years ago, when I established FLAG (Flexo Label Advantage Group), I was concerned that what had occurred in the past in the commercial print industry would start to impact the label industry, and in particular the independent converter. Consolidation had already begun to dramatically affect print segments like newspapers, book printers and offset commercial printers. Primarily, that was due to a change in the way people viewed the information they needed from conventional hard copy printing methods to new digital platforms like books, news, maps, financial data, brochures and a whole slew of other things. The changes in how people interacted with media caused the severe overcapacity of conventional printing, reducing the need for so many printing companies causing the inevitable consolidation. Many of the large printing companies survived, but it has been devastating for the smaller independents, having to compete against the resources of those larger companies.

The good news for us in the label industry is that labels are still needed – probably more now than ever. While there have been pockets of reduced labeling needs, most label converters have seen a significant increase in sales over the last 24 months. Even with that sales growth in labels the consolidation concerns I had for the label printing industry are now becoming reality, but for very different reasons. There is money in labels and the consolidation is due to growth opportunities not overcapacity. Those financial opportunities have raised the eyebrows of investors and larger converters who see that there is an opportunity right now and they want in.

The weekly tally of independent label converters being purchased by larger companies is astounding. Many independents are receiving multiple calls inquiring if they are interested in talking about a buyout. Even several of the large label consolidators have been purchased by even larger financial groups as new outside interests look for ways to enter the packaging space.

How do large companies benefit every time they expand? They increase leverage for better pricing, add additional resources and knowledge base, gain new capacities and potential capabilities, grow sales instantly and more. There are always hurdles and challenges in any business and bigger companies have more influence with suppliers to help them with those challenges, because they have the leverage to do it. Especially in times like these when the supply chain is challenged.

What happens when an independent label converter sells to a larger company? In some cases the facility is kept open and allowed to operate as usual, but many acquisitions come with increased corporate accountability and pressure for bottom line results. In other cases, the facility ends up being closed with only the book of sales going to the larger company. That option can result in a lot of employees, (sometimes family) out of work, many of whom have been with that same independent converter for years helping them to grow and be successful. If it is the right fit and time, selling to a larger company can be a great option for some and frankly there has been no better time to consider that option than now. Either way, these are serious decisions with lasting effects.

Does the future of the label industry look like only a small number of independents serving small local customers with several large companies serving everyone else? Or can the independent label converter, as a stand-alone operation, stay viable for the future? Clearly, the independent converters must somehow get bigger themselves for their own increased leverage to help reduce costs, increased resources / knowledge base, added capacity/capabilities, sales growth, and everything else to stay competitive.

One of the options independents have is to become a smaller consolidator themselves by buying other smaller converters to increase the benefits of a larger size company. Another option, even for some of those smaller consolidators is to increase the benefits of size by becoming part of something bigger than themselves. That’s where an organization like FLAG becomes a solution for access to the benefits and advantages of a larger company. There are groups like FLAG in almost every industry helping companies remain viable against larger companies, without sacrificing their independence. It’s one of the reasons I created FLAG and why it’s more relevant than ever today. Independent label converters will have to reflect on what the future looks like for them and act on it quickly. Things are moving fast and for many, it’s time to work on their business, not just in their business to plan a successful path into the future.