Product decoration through changing times

The value added chain in the product decoration industry is in a constant state of flux. The chain comprises six links starting with us – the consumers. In the chain, the consumers are followed by retailers and then their suppliers, i.e. the product manufacturers, also often referred to as brand owners.

Brand owners have to sell their products via retailers, because they have the best access to consumers. Changes in the retail industry usually have a major impact on the subsequent links in the value added chain.

 The value added chain in the product decoration industry

Development of the retail industry

In recent years, the retail industry has experienced rapid growth worldwide. The ongoing consolidation process is also boosting the size of individual companies. By way of comparison, the combined sales of the three biggest retail companies are greater than the sum of the 20 biggest brand owner companies. On the basis of these dimensions alone, the retail companies have a major impact on the subsequent links in the value added chain.

The number of own brands featured in the product ranges of retail companies varies from company to company. Fig. 2 shows that the worldwide proportion of own brands has already reached 18% among retail companies, but with very wide regional variations.

Global own brand development (source: M&M Planet Retail)

Own brands are most widespread in the areas of short-lived consumer goods and over-the-counter healthcare products.

The increase in the number of own brands has also led to a rise in the product variety on offer. This can be illustrated by a simple example:

Brand product, e.g. shampoo

Six brand owners each offer five different kinds of shampoo (for strong, damaged, long, dry or wavy hair), i.e. there are 6 x 5 = 30 different shampoos to choose from on the shelves. In addition, four retail companies offer comparable kinds of shampoo, which leads to an additional 5 x 4 = 20 options for the consumer to choose from. In total the consumer therefore has 50 shampoos to choose from.

However, this increase in variety does not lead to higher shampoo consumption. In other words, the variety increases disproportionately to the level of consumption. Consumers generally make the decision to buy at the point-of-sale (POS), and their choice is informed by both the decoration and the price.

Prices are falling in many product segments, which is to the benefit of consumers but at the expense of the profitability of the downstream links in the value added chain.

How are these developments affecting the product decoration and, above all, the label and packaging printers?

1. The total volume of each product group remains the same, but the order sizes are shrinking as a result of the new variety, which in turn is leading to more frequent job changeovers and shorter job lengths.
2. The price level of own brands is lower on average than brand products. Therefore, differentiation at the POS focuses more strongly on price than product decoration. For this reason, the quality of finishing for the labels of own brands is lower. 

Challenging times for the short-lived consumer goods industry

Even if humans are generally thought to be creatures of habit, the consumer behaviour of our society changes all the time. A few years ago, for example, the only place to get sushi was in Japanese restaurants. Today, supermarkets offer the Japanese speciality as a take-away lunch menu. And you could only get local products from the weekly market or local farmers. As a result of commercialization, we can get almost any local, regional and international products we want in portion-sized packages for fast preparation, which is known as convenience food.

In terms of product decoration, short-lived consumer goods can be divided into three categories or segments:

The commodity segment

The commodity segment includes simpler product decorations that require virtually no finishing. The own brands account for the largest shares in this segment, which is dominated by applications in the food and drink sector. 

In proportion to the overall decoration market – as shown in Fig. 5 – the food and drink applications make up the lion’s share at 70%. Fig. 6 shows the growth rates for individual areas. It shows clearly that the food and drinks sector in particular is enjoying healthy growth, despite the weaker global economy.

Total global market value for packaging (including labels, containers, etc.) - USD 410 billion in 2007

Requirements for the production of product decoration in this segment:

In this segment, product decorations are rarely finished using additional processes. As a result, the structure is as follows: 4 colours + 1-2 special colours + coating. In this case, self-adhesive materials are usually used as substrates. 

Global development of convenience food and drinks compared to the overall food and drink market

The middle segment

The middle segment is smaller than the commodity label segment. Almost all applications can be found in this segment, although the focus is on household items, personal hygiene, hair care, over-the-counter healthcare products and confectionary. Product decorations in the middle segment involve a limited number of finishing processes, such as screen printing, hot and cold foil embossing, embossing and others. In this area, product finishing creates extra differentiation in addition to the price to ensure greater success at the POS.

Requirements for the production of product decoration in this segment:

Flexographic/screen printing combinations are often found in this segment. Further finishing steps include e.g. reverse-side printing on glue and cold foil printing. In addition to paper, plastics are also used as substrates. ‘No-label’ look labels are often used in this segment.

The prestige segment

This is the top segment for product decoration, featuring almost exclusively brand products that aim to set themselves apart from other products through high-quality finishing. Own brands are rarely found here at present, but they are on the up.  

Requirements for the production of product decoration in this segment:

Combination printing is the dominant force here. UV flexographic printing remains the main printing process, followed by offset printing. In this segment, screen printing and solvent rotogravure are used specifically as additional finishing processes. Screen printing can be used to achieve tactile effects very simply, while solvent rotogravure is used to apply a wide range of metallic effects. The product decorations in this segment also feature almost any combination of finishing steps.

Product decorations determined by the product service life

The level of product finishing often depends on the service life of a product. Fig. 7 provides a clear overview of the dependencies in the industry today.

For example, the finishing for a label on a perfume bottle, a face cream or a deodorant will usually be of a very high quality for two key reasons:

1. The product has a long shelf life and is used for a longer period once it has been purchased. Thanks to regular interaction with the consumer, the item requires a different communication platform to that of a disposable product. Therefore, manufacturers try to imprint the brand and the product on the consumer’s mind. 

Product decoration determined by the service life

2. The aim is that the product decoration should look the same when the product is finished as when it was first placed on the shelf. As a result of the long service life of these products, the label must be very resilient. For example, it must be resistant to abrasion, moisture and light.

The prerequisites are different to the previous example for the product decoration of a sandwich. With sandwich labels, the service life of the product is limited to a few hours or days. The label informs the consumer about the content and ingredients. As a rule, the product decoration is not subject to any stresses and is only perceived as a source of information by the consumer. Therefore, the level of finishing is very low.

Summary:

The trend towards smaller order sizes continues. The number of orders is increasing, while the length of each individual order is declining. Setup and changeover times are becoming increasingly important.

Pricing pressure in the value added chain is continuing to grow. Printshops are having to optimize production processes in order to cut manufacturing costs.

The commodity label segment will continue to grow. Due to the low finishing level of these labels, manufacturing productivity is the key.

Increasingly, there is less time between the initial idea for a product and its arrival on the shelf. Companies have to adjust to the fact that the pace of order processing is increasing along the entire value added chain. The concept of “just-in-time” production is now also important in the product decoration industry. Throughput times have to be optimized accordingly.

Ecological and economical aspects of sustainability will play an increasingly important role along the entire value added chain. The three “r”s – reduce, reuse and recycle – have become strategic targets for virtually all companies and suppliers in the value added chain.