The TLMI North American Digital Label Study 2015

Transcription

1 The TLMI North American Digital Label Study 2015 An analysis of the North American narrow web digital printing industry. Prepared exclusively for TLMI by: LPC, Inc Kinney Rd. Austin, TX

2 The TLMI North American Digital Label Study 2015 First Edition February 2015 TLMI All rights reserved. No part of this market study may be reproduced in any form or by any means without written permission from TLMI headquarters located at 1 Blackburn Center, Gloucester, MA 01930, USA, tel: , fax: , office@tlmi.com. This market research study contains information, data, and analyses obtained professionally from the marketplace. While every step has been taken to ensure that the information presented is accurate, neither LPC, Inc. nor TLMI can accept responsibility for any consequences arising from the application of information contained herein. The source of all graphs, tables and charts in the report is LPC, Inc. ( unless otherwise noted. 2

3 Table of Contents I. Study Objectives and Acknowledgments... 7 II. Introduction... 9 III. North American Digital Label Market Sizing and Forecasts IV. The Digital Profit Curve and Migration of Conventional Applications to Digital Presses V. The TLMI Digital Converter Survey VI. The TLMI Digital Brand Owner/Packaging Buyer Survey VII. Digital Trending per End-Use Vertical Market VIII. Implications & Conclusions for TLMI Members A. Why some converters aren t investing B. Does it really matter to brand owners and packaging buyers how a label is printed?

4 Table of Exhibits Exhibit II-1: Total Press Installations in North America by Region Exhibit II-2: North American Quarterly Conventional Press Sales from January 2011 to September Exhibit II-3: Total Press Sales in the North American Marketplace for 2011 and Exhibit II-4: Total Press Sales in the North American Marketplace for 2011 and Projections for Exhibit III-1: Global and North American Digitally Printed Label Revenues as a Percent of each Region s Total Label Revenues Exhibit III-2: North American Label Market Value for Conventionally Printed Labels and Digital Labels by Primary Press Technology Type in Exhibit III-3: North American Label Market Growth and Value to 2020 by Technology (in 000,000s) Exhibit III-4: Conventional and Digital Label Values per End-Use Sector in Exhibit III-5: Key Findings for Market Sizing, Growth Forecasts and New Press Installation Data Exhibit IV-1: Percentage of Conventionally Printed Label Production that Migrated to the First Digital Press One Year after Installation Exhibit IV-2: Average % of Existing Conventional Production Migrating to Digital: All Respondents Exhibit IV-3: The Digital Profit Curve 1, 2 and 3 Years Post Installation: All Respondents Exhibit IV-4: Average % of Overall Revenues First Digital Press Production Represented: All Respondents

5 Exhibit IV-5: Key Findings for Digital Profitability Conventional Migration Rates Exhibit V-1: Breakdown of Participating Converters by Companies Annual Revenues in Exhibit V-2: Converters Aggregated Production in 2014 by End-Use Vertical (Includes Conventional and Digital Production) Exhibit V-3: Digital Press by Type for All Participating Converters Exhibit V-4: Average Number of Digital Jobs per Shift for All Participating Converters Exhibit V-5: Average Number of Colors per Digital Job for All Participating Converters Exhibit V-6: The Percentage of Jobs that Require More than One Pass On- Press All Converters Exhibit V-7: The Most Significant Challenges of Digital Printing Digital Users Viewpoint Exhibit V-8: What Non-Digital Users Perceive as the Most Significant Challenges of Digital Printing Exhibit V-9: Average Run Sizes in Linear Feet for Digital and Conventional Applications per End-Use Category Exhibit V-10: Production Metrics Averages All Surveyed Converters Exhibit VI-1: Job Functions of Surveyed Brand Owners and Packaging Buyers Exhibit VI-2: End-Use Categories Served by Participating Brand Owners and Packaging Buyers Exhibit VI-3: Brand Owners/Packaging Buyers Preferences in Choosing Label Vendors with Digital Presses

6 Exhibit VI-4: How Brand Owners and Packaging Buyers Rank the Advantages Digital Label Printing Offers Exhibit VI-5: How Brand Owners and Packaging Buyers Rank the Challenges Digital Label Printing Presents Exhibit VI-6: Key Findings for Surveyed Brand Owners and Packaging Buyers Exhibit VIII-1: Packaging Buyers Actual Digital Label Volumes in 2014 and Projected Digital Label Procurement Volumes in

7 I. Study Objectives and Acknowledgments The TLMI North American Digital Market Study provides an assessment of the market for digital label printing in North America. The research and content of the study is based upon detailed feedback from four primary groups. These include: TLMI Converter Members Non-TLMI Converters Brand Owners and Packaging Buyers Digital Press Suppliers In the compilation of this research, LPC believes that the voice of the brand owner and packaging buyer was critical in order to effectively gauge how much pressure these companies are placing on their label vendors to obtain digital printing capabilities. In our industry we frequently hear about vertical pullthrough and how digital printing is enforced throughout the supply chain from the top down. By qualitatively and quantitatively interviewing and surveying the companies that procure and source printed labels, we have been able to identify just how real this pull-through is and what the current perceptions of packaging buyers really are. It is the central goal of both LPC and the TLMI Board of Directors that this study offers the association s converters a detailed view of the North American digital label market never before presented. The following are identified and analyzed in this report: Market Sizing: The report provides a breakdown of the North American narrow web sector by conventional, electrophotography and digital inkjet printing, and projected growth rates for each technology over the next five years. The Digital Profit Curve: Detailed data was obtained from converters with digital press technology in order to report on the real value an 7

8 installed digital press delivers over a one, two and three year time period in addition to the percentage of total sales revenues a newly installed digital press generates over the same timeframe. Digital Trending and Run Sizes per End-Use Vertical: Average conventional and digital run sizes are compared side by side in addition to growth projections and the perceptions of brand owners and packaging buyers when it comes to sourcing digitally printed labels. As an industry association, TLMI is in a unique position to provide insight into the current state of the North American digital label printing market. Over the past six years, TLMI has been tracking conventional press sales in the association s Biannual Index & Trend Report. The report is published every year in June and December, and contains a Conventional Press Installation Index that tracks nondigital press sales on a quarterly basis. The index allows us to make educated forecasts to 2020, the result of which is featured in this report alongside installation forecasts for digital production presses. This type of forecasting has never before been presented in industry research, and offers a unique glimpse at the future growth and contraction rates of these two technologies. LPC, Inc. would like to thank the following persons for their assistance and guidance with this endeavor: Doug Bartlett, Director of Graphics, Constantia Flexibles Matt Bennett, Business Segment Manager, Label and Packaging, HP Alex Elezaj, COO, Whitlam Group Greg Jackson, President, Columbine Label Co., Inc. Michael Ring, Past President, Xeikon America, Inc. Nick Van Alstine, President, Macaran Printed Products 8

9 II. Introduction Over the past two decades the North American label printing industry has witnessed the adoption and crescendo of digital full-color press installations onto production floors throughout the United States, Canada and Mexico. As brand owners and packaging buyers view digital label printing technology as a way to order smaller quantities, expedite delivery and their products speed-to-market, and decrease levels of inventoried printed packaging that has become obsolete; digitally printed label volumes are growing across end-use categories in both the prime and non-prime sectors. The 2015 TLMI North American Digital Label Study (hereafter referred to as the Digital Label Study) seeks to offer the association s converter and supplier members a synopsis of the current state of the market for digital labels in North America, in addition to offering converters a series of metrics and analyses for their own research, planning and benchmarking purposes. Digital press users were surveyed at length for the compilation of the study. For companies that have only recently invested in their first digital production press, or companies that have not yet invested, some significant questions remain: On average, what percentage of conventional business can be migrated to digital after the first month post-production: After two months? Three months? One year? After the installation of the first digital press, on average what percentage of a converter s total revenues does digital represent after the first year post installation? The second year? The third year? The Digital Label Study can be used as a primer for both converters and suppliers that are looking for quantifiable analyses regarding the production of digital labels and their current position in the overall North American narrow web marketplace. In North America today there are an estimated 918 digital label production presses installed 1, and in 2014 the region s digitally printed label revenues 1 This report focuses on the North American market for labels printed on digital label production presses. The report does not analyze or include data for labels printed on digital tabletop printers. 9

10 reached $1.037 billion. For many converters that have not yet installed a digital press, the question has changed from if they will invest in their first digital press to when as the technology continues to evolve in both the electrophotography and inkjet space. The chart below indicates total digital press installations by North American region. Exhibit II-1: Total Press Installations in North America by Region Digital Press Installations by NA Region Canada 11% Mexico 5% U.S. 84% Source: LPC, Inc. Research for the compilation of the Digital Label Study was primarily channeled into three areas each with their own objectives: Surveying existing users of digital press technology in order to compile a series of metrics these companies can use for their own benchmarking purposes, in addition to offering converters that have not yet adopted digital press technology key data points to assist them with their own ROI analyses and to provide a digital installation roadmap. Surveying non-users of digital press technology to probe these companies primary concerns regarding digital adoption in addition to projected digital press acquisition timeframes per press technology type. 10

11 Number of Presses Sold Surveying brand owners and packaging buyers to gain a sense of current perceptions regarding digital press technology and its capabilities and how these companies view digital label sourcing within their own business strategies. The North American landscape for conventional and digital press installations is a rapidly shifting one. As digital print engine manufacturers continue to pour resources into research and development, digital presses are printing at increased widths and speeds enabling the technology to increasingly capture conventionally printed marketshare. The graph below indicates conventional press sales in North America from Q to Q Exhibit II-2: North American Quarterly Conventional Press Sales from January 2011 to September Q Source: LPC, Inc. North American Conventional Press Sales: Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Over the four year period shown above, conventional printing press sales decreased 29.7%. Over this same period however, conventional press 2 Data taken from the Conventional Press Index from the TLMI Biannual Index & Trend Report. 11

12 manufacturers have been far from idle. American and European-based press suppliers have continuously raised the bar by introducing next generation machines with minimal setup and changeover times and highest press efficiency rates. The installation of digital machines however has continued to expand at double-digit rates. The chart below shows new conventional and new digital press installations for the year 2011 and the year Exhibit II-3: Total Press Sales in the North American Marketplace for 2011 and 2014 North American New Press Installations in 2011 & % 52% 48% 67% Digital Conventional Source: LPC, Inc. 0% 20% 40% 60% 80% 100% For the first time, in 2014 the number of digital press installations outpaced conventional machine installations in the North American marketplace. In asking TLMI converter members about their capital equipment sales projections for 2015, it is evident that this trend will continue. LPC, Inc. projects that new conventional machine installations will continue to decline at an average annual rate of around 7% per year, while new digital press installations will increase at an average rate of 12.5% over the next five years. Exhibit II-4 on the following page shows new conventional and digital press installations for the year 2011 and projections for what installation marketshare will be for each technology in the year

13 Exhibit II-4: Total Press Sales in the North American Marketplace for 2011 and Projections for 2020 North American Total Press Sales 2011 & 2020 (Projected) % 33% 67% 77% Digital Conventional Source: LPC, Inc. 0% 20% 40% 60% 80% 100% LPC projects that in 2020 one out of every four presses sold into the North American marketplace will be a conventional press while three out of four new presses installed in 2020 will be digital press systems. Even though speed, width and workflow improvements continue with digital presses and overall digital label production, niche areas will remain for the foreseeable future in which run size specifications will continue to dictate these applications are printed on conventional printing presses. These high-run size applications are and will continue to be predominant in the food and beverage labeling sectors. 13

14 Sector Value III. North American Digital Label Market Sizing and Forecasts The market for digitally printed labels in the North American marketplace is estimated at $1.037 billion. The region s digital label volume represents 8.5% of North America s total label market revenues. The graph below indicates the total value of both the global and North American label sector, and the percentage of each represented by digital label sales. 3 Exhibit III-1: Global and North American Digitally Printed Label Revenues as a Percent of each Region s Total Label Revenues Total Digital Label Revenues as a % of Global and North American Label Markets $60,000,000,000 6% $50,000,000,000 $40,000,000,000 $30,000,000,000 $20,000,000, % Digital Conventional $10,000,000,000 $- Global Market North America Source: LPC, Inc. Note: As previously specified, this report does not analyze or include data for labels printed on tabletop printers. This graph refers to the global and North American market for applications printed on digital label production presses. Of all electrophotography and inkjet production presses currently installed in the North American labeling industry, approximately 85% of these presses are electrophotography and 15% are digital inkjet. While electrophotography has long 3 Digital label sales denotes each region s converter revenues of digitally printed labels. 14

15 held a dominant position in the market, inkjet s continuous engine improvements and capability advancements have recently positioned the technology as a viable contender across end-use categories. The graph below shows values for the total North American conventionally printed label market, and the market for each primary digital technology format. Exhibit III-2: North American Label Market Value for Conventionally Printed Labels and Digital Labels by Primary Press Technology Type in 2014 NA Label Market Value by Conventional and Major Digital Technology Type: 2014 $12,000,000,000 $11.1 Billion $10,000,000,000 $8,000,000,000 $6,000,000,000 $4,000,000,000 $2,000,000,000 $881 Million $155 Million $- Conventional EP Inkjet Source: LPC, Inc. The table that follows forecasts growth rates and total value for each label type (conventional, EP and inkjet) to the year Exhibit III-3: North American Label Market Growth and Value to 2020 by Technology (in 000,000s) Technology 2014 Value (000,000s) Projected CAGR To Projected Value (000,000s) Conventional $ 11,100 2% $ 12,500 Electrophotography $ % $1,560 Inkjet $ % $ 420 Totals $ 12,136 $ 14,480 Source: LPC, Inc. 15

16 Over the next five years, the label printing technology with highest projected growth rates is digital inkjet. Inkjet technology s projected high growth rates are further reinforced by the TLMI Converter Survey that was distributed for the compilation of this study. More than 100 converters, both TLMI members and non-members, filled out a detailed survey that asked companies about current production and operational trends. Nearly 40% of participating converters do not currently have a digital press. These companies were asked to project when they anticipated making their first digital press investment in addition to the type of digital technology they anticipated they would purchase. Of those companies indicating that they would be purchasing a digital press within the next two to three years, more than 80% indicated they would be purchasing a digital inkjet press system. As Exhibit III-2 also indicates, electrophotography throughput is forecasted to grow at a 10% CAGR to 2020 while the value of conventionally printed labels is projected to grow at a rate of 2% annually over the next five years. One of the most challenging market sizing data points to calculate is the percentage that digital production printing makes up of each end-use sector s total label value. To do this, LPC has triangulated specific data the firm has been collecting and collating for more than five years. The metrics involved in the triangulation process included the following: Extensively surveying very large samples of North American converters to obtain end-use sector specific data regarding a breakdown of conventional and digitally printed label production per major end-use category. Extensively surveying very large samples of North American brand owners and packaging buyers to obtain end-use sector specific data regarding a breakdown of the labels their companies source and the percentages that are printed both conventionally and digitally. 16

17 Sector Value Working closely with digital press manufacturers in sizing the marketplace and quantifying digital production rates across end-use categories. Working closely with conventional press manufacturers in sizing the market and quantifying conventional production rates across enduse categories. The chart below indicates the values for conventional and digitally printed labels in each end-use sector and the percentage that digital label production makes up of the total value of each category. Exhibit III-4: Conventional and Digital Label Values per End-Use Sector in 2014 Digital Label Production as a % per End-Use Category in North America $4,000,000,000 $3,500,000, % 3.5% $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 $500,000, % 13.4% 8.5% 5.7% 5.7% 13.6% Digital Conventional $- Source: LPC, Inc. Note: The transportation/logistics sector has been omitted due to the high volumes of labels printed on handheld and tabletop digital devices in this category. 17

18 Highest utilization rates of labels printed on digital production press systems are found in the pharmaceutical, health and beauty aid/personal care, and consumable durables sectors. As run sizes continue to decline in these categories, digital will steadily capture conventional marketshare. While the growth of digitally printed labels in these sectors isn t surprising, converters and digital press manufacturers are closely examining other additional end-use vertical markets for growth over the next five years including food, beverage, household chemicals and industrial chemicals. While the food and beverage sectors are dominated by longer run sizes; seasonal promotions, private labeling and the utilization of increased personalization as marketing campaigns will drive the growth of digital labels in select food and beverage subcategories. The table on the following page shows key findings for market sizing and growth forecasts of the North American digital label market. 18

19 Exhibit III-5: Key Findings for Market Sizing, Growth Forecasts and New Press Installation Data KEY FINDINGS Market Sizing & Growth 33% of new press sales in 2011 were digital. 52% of new press sales in 2014 were digital. 77% of new press sales in 2020 are projected to be digital systems. 10% Projected CAGR of electrophotography over the next five years. 18% Projected CAGR of inkjet over the next five years. 81% of converters indicating they ll purchase a press within the next 3 years, indicated they would be purchasing an inkjet press. In 2011, 33% of all new press installations in the North American market were digital presses and 67% of new installations were conventional machines. For the first time, in 2014 the number of digital press installations outpaced conventional machine installations in the North American marketplace. LPC projects that in 2020 one out of every four presses sold into the North American marketplace will be a conventional press while three out of four new presses installed in 2020 will be digital press systems. The value of labels printed on electrophotography presses in North America is projected to increase at a CAGR of 10%. The total North American label value of electrophotography printed labels in 2020 is projected to be $ 1.5 billion. The value of labels printed on digital inkjet production presses in North America is projected to increase at a CAGR of 18%. The total North American label value of inkjet printed labels in 2020 is projected to be $ 420 million. Nearly 40% of participating converters do not currently have a digital press. These companies were asked to project when they anticipated making their first digital press investment in addition to the type of digital technology they anticipated purchasing. Of those companies indicating they would be purchasing a digital press within the next 2-3 years, more than 80% indicated they would be purchasing an inkjet press. Source: LPC, Inc./TLMI North American Digital Label Study 19

20 IV. The Digital Profit Curve and Migration of Conventional Applications to Digital Presses There are two areas that create a significant challenge when attempting to quantify the success, or otherwise, label converters have when purchasing a digital production press for the first time. Those areas include quantifying the portion of conventionally printed applications that are migrated to a company s first digital press purchase within a certain timeframe, and the ability to quantify the profit curve of a first-time digital press installation. The Digital Label Study attempts to address both these areas and it is important to note that this is the first time an association market research endeavor has done so. The TLMI Converter Survey asked label converters to indicate the percentage of conventional label production they were able to migrate to their first installed digital production press. Converters were asked to specify this information following the first month post-installation, the second month, the third month, and one year post-installation. The graph below indicates the percentage of conventionally printed labels that converters were able to migrate to the first digital press they purchased, one year following installation. Exhibit IV-1: Percentage of Conventionally Printed Label Production that Migrated to the First Digital Press One Year after Installation % of Converters' Conventional Production that Migrated to Digital 1 Year Following 1st Digital Press Installation 0% of conventional production 1-10% of conventional production 11-20% of conventional production 20-40% of conventional production 40-60% of conventional production >60% of conventional production 0% 8% 8% 24% 28% 32% 0% 5% 10% 15% 20% 25% 30% 35% % Converters Responding Source: LPC, Inc./TLMI North American Digital Label Study 20

21 Exhibit IV-1 shows a distinctive range of the percentages of conventionally printed label production that first-time digital users are able to migrate to their newly installed digital press. One year following installation, 8% of surveyed converters were not printing any of their conventional labeling applications on their new digital press while 24% of surveyed converters had migrated more than 20% of their conventionally printed production to the digital press system. Eight percent of surveyed companies had migrated more than 40% of their conventionally printed production to their first digital press after one year. These results are wide ranging and assumptions can be drawn about the extremes in calculated data. Looking at the data more closely, the majority of companies that reported none of their conventionally printed throughput had migrated to their first digital press following one year post installation primarily serve the food and beverage sectors. Run sizes are highest in the food and beverage categories and while converters and end-users forecast growth in digital applications in these sectors; it is evident that for converters who primarily serve these categories, conventional migration of these companies existing application range to digital remains low. The table below shows average conventional migration rates to digital after one, two and three months post digital installation, in addition to one year post installation of companies first digital press. Exhibit IV-2: Average % of Existing Conventional Production Migrating to Digital: All Respondents % of conventional production that migrated to first digital press 1 month 4% following completed installation % of conventional production that migrated to first digital press 2 months following completed installation 7% % of conventional production that migrated to first digital press 3 months following completed installation % of conventional production that migrated to first digital press 1 year following completed installation 11% 15% 21

22 % Converters Responding In addition to conventional-to-digital migration rates, the TLMI Converter Survey sought to gauge the profitability levels of digital presses following installation, and what the average curve for companies profitability levels were after specific time periods following the installation of the first digital press. The survey did not ask digital users to indicate specific profit margin data, rather an indication of the percentage of their overall revenues their first digital press production volumes represented after one year, two years and three years. The line graph below indicates the digital profit curve for all converters surveyed for each specific time period. Exhibit IV-3: The Digital Profit Curve 1, 2 and 3 Years Post Installation: All Respondents 50% 45% 40% 35% % of Converters' Total Overall Revenues the 1st Digital Press Represented after 1, 2 & 3 Years Post-Installation 30% 25% 20% 15% 10% 5% 0% 1-5% 6-10% 11-20% 21-30% >30% % Digital Labels Represented of Total Company Revenues Source: LPC, Inc./TLMI Digital Label Study After 1 year After 2 years After 3 years In studying this graph we see that for 45% of the digital users surveyed, after one year post-installation of their first digital press, revenues that were generated from that press accounted for 1-5% of their companies total revenues. After two years post-installation of their first digital press, 30% of companies reported that digital label sales represented 6-10% of total company revenues. 22

23 After three years post-installation of their first digital press, digital label revenues accounted for 11-20% of total company revenues for more than 30% of surveyed converters. Exhibit IV-4: Average % of Overall Revenues First Digital Press Production Represented: All Respondents % of overall revenues the first digital press production represented after 1 year 8% % of overall revenues the first digital press production represented after 2 years 14% % of overall revenues the first digital press production represented after 3 years 19% The table on the following page shows key findings for the digital profit curve and for the migration of conventional applications to converters initial digital press acquisition. 23

24 Exhibit IV-5: Key Findings for Digital Profitability Conventional Migration Rates KEY FINDINGS Profitability & Migration 15% Average conventional production that migrated to digital 1 year following digital press installation. Converters with digital presses were asked to specify the percentage of their conventional production that they were able to migrate to their first digital press after it was installed. Converters were asked what percentages of conventional production migrated 1 month following installation of the digital press, 2 months, 3 months and 1 year. 8% of converters were able to migrate 40% or more of their conventional production to digital. 8% Average percentage digital label revenues represented of converters total revenues 1 year following their first digital press installation. 19% Average percentage digital label revenues represented of converters total revenues 3 years following their first digital press installation. 8% of surveyed converters with digital presses were able to migrate 40% or more of their conventional production to digital after their first digital had been installed for 1 year. Converters with digital press technology were asked to specify the percentage of their total revenues that digital label sales made up after their first digital press had been installed for 1 year, 2 years and 3 years. After 3 years, the average percentage digital label sales made up of converters total revenues was 19%. Source: LPC, Inc./TLMI North American Digital Label Study 24

25 V. The TLMI Digital Converter Survey More than 100 label converters participated in the survey for the compilation of this study. Around 60% of participating converters currently have a digital press installed on their production floor. Revenues of digitally printed labels totaled more than $220 million for participants in 2014, a survey sample that represents more than 20% of the total value of the North American digital label market. Label converters of all sizes participated in the research for the TLMI North American Digital Label Study and the graph below indicates converter participation by 2014 annual revenues. Exhibit V-1: Breakdown of Participating Converters by Companies Annual Revenues in 2014 Annual Revenues of Surveyed Converters <$1 million $1-2 million $2-5 million $5-10 million $10-15 million $15-20 million $20-25 million $25-35 million $35-50 million $50-75 million $ million >$125 million 3% 4% 8% 7% 3% 4% 5% 1% 3% 15% 20% 27% 0% 5% 10% 15% 20% 25% 30% % Participating Converters Source: LPC, Inc./TLMI North American Digital Label Study 25

26 Twenty-three percent of survey participants had total revenues of $20 million or more in 2014 while 77% of surveyed companies had revenues of less than $20 million. Participating converters had an aggregated total of more than $2 billion in annual revenues in Surveyed companies sell labels into every primary end-use vertical and companies were asked to specify the percentage of their total production that is sold into each of the categories they serve. The graph below breaks down converters total aggregated production in 2014 by end-use category. Exhibit V-2: Converters Aggregated Production in 2014 by End-Use Vertical (Includes Conventional and Digital Production) Breakdown of Aggregated Production for All Surveyed Converters Food Beverage Pharmaceutical Health & Beauty/Cosmetics/Personal Care Industrial Chemicals Household Chemicals Automotive Consumer Durables (Includes Electronics) Transportation/Logistics Retail Other 3% 3% 7% 5% 7% 6% 9% 10% 10% 17% 23% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% % Category Represents of Converters' Total Aggregated Production Source: LPC, Inc./TLMI North American Digital Label Study Of the total surveyed universe, just over 60% of participating converters have a digital press on their production floor. Companies that are currently using digital press technologies were asked to indicate the number of presses they 26

27 currently have per technology type. Exhibit V-3 shows a breakdown of digital press technology for all participating converters. Exhibit V-3: Digital Press Format by Type for All Participating Converters Surveyed Converters' Digital Press Formats: 2014 Inkjet 36% Other 3% EP 61% Source: LPC, Inc./TLMI North American Digital Label Study Of the total number of digital production presses used by surveyed converters, 61% of those presses are electrophotography and 36% are digital inkjet. The TLMI Converter Survey asked digital users a series of key production questions in order to calculate industry averages and data ranges for each. These production questions included: Average number of jobs companies run on their digital press(es) per shift Average number of colors per job in the production of digital labels On average, the percentage of companies digital production that requires more than one pass to convert (that is, it requires additional passes through either a conventional or digital press to complete, including diecutting) Average run lengths of jobs produced on digital production presses per end-use category 27

28 % Converters The survey narrowed in on these specific metrics in an effort to accomplish two things: To assist current users of digital production presses by providing industry averages they can use for benchmarking their own company s performance against To assist non-users of digital press technology by providing industry averages that will assist them in doing their own cost benefit analysis regarding digital press technology and if, and when, this technology might be a good fit for their own strategic objectives To calculate average number of digital jobs per shift data, converters were given ranges of numbers to choose from. These ranges were 1-5, 6-10, 11-20, 21-30, 31-40, 41-50, and >50 digital jobs per shift. The line graph below indicates the percentage of companies that fall into each range. Exhibit V-4: Average Number of Digital Jobs per Shift for All Participating Converters Converters' Average Number of Digital Jobs per Shift 40% 35% 30% 25% 20% 15% 10% 5% 0% 1-4 jobs 6-10 jobs jobs jobs jobs jobs jobs Source: LPC, Inc./TLMI North American Digital Label Study As the graph shows, the largest percentage of converters are currently running jobs on their digital press/presses per shift. Two-thirds of converters run between 6 and 20 jobs on their digital press/presses per shift. 28

29 % Converters The next survey question asked converters to specify the average number of colors per job for their digitally printed labels. Exhibit V-5 indicates converters responses. Exhibit V-5: Average Number of Colors per Digital Job for All Participating Converters Converters' Average Number of Colors per Digital Job 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 color 2 colors 3 colors 4 colors 5 colors 6 colors 7 colors >7 colors Source: LPC, Inc./TLMI North American Digital Label Study More than 40% of converters currently average four colors per digital job. Half of all participants print on average more than four colors per digital job while just 8% of respondents print on average fewer than four colors per digital job. For converters that have not yet invested in digital press technology, the next question in the survey was a critical one. Converters with digital presses were asked to indicate on average, what percentage of their total digital production requires more than one pass to convert. That is, the percentage of digital production that requires an additional pass, or additional passes, through either a conventional or digital press to complete, including diecutting and finishing. Exhibit V-6 on the following page indicates converters responses. 29

30 % Converters Exhibit V-6: The Percentage of Jobs that Require More than One Pass On-Press All Converters What % of Converters' Digital Jobs Requires More than 1 Press Pass? 80% 70% 60% 50% 40% 30% 20% 10% 0% 1-10% req. more than 1 pass 11-30% req. more than 1 pass 30-50% req. more than 1 pass 50-70% req. more than 1 pass 70-90% req. more than 1 pass % req. more than 1 pass Source: LPC, Inc./TLMI North American Digital Label Study While advances have been made in online finishing options for digital production printing, this is clearly still an area where technological improvements and system compatibility are essential. For more than 70% of all participating converters, most or all of their digital production requires a second pass for finishing and/or diecutting. This is an important benchmark for converting companies considering buying their first digital production press in the foreseeable future as it establishes a reference point for what single-pass completion rates currently are in the North American labeling sector. The next question in the TLMI Converter Survey asked users of digital production press technology to indicate what their most significant challenges were with their digital presses. The objective in asking this question was to provide a framework both for digital press users and non-users of the types of issues companies that have digital presses installed on their production floors still grapple with and how significant some of these issues are on a day to day basis. 30

31 Converters were given a set of specific criteria to rank from most to least challenging: Finding enough business to fill the digital press capacity I have Printing high opacity whites Color matching Overall print quality Press downtime due to service issues My salesforce doesn t know how to best sell the digital advantage yet Internal process efficiencies (establishing an MIS for quoting, etc.) Ink performance/ink integrity Finishing requirements The table below shows how digital users ranked these issues, from most to least challenging. Exhibit V-7: The Most Significant Challenges of Digital Printing Digital Users Viewpoint Challenge Finding enough business to fill digital press capacity How Digital Users Ranked the Challenge #1 (most significant) Press downtime due to service issues #2 Color matching #3 Finishing requirements #4 Printing high opacity whites #5 Internal process efficiencies #6 Ink performance/ink integrity #7 My salesforce doesn t know how to best sell the digital advantage Overall print quality #8 #9 (least significant) 31

32 According to surveyed converters that have digital press technology, their most significant issue is finding enough business to fill the digital press capacity their companies currently have. It s important to note here that of all the companies surveyed that have digital press technology, 18% of those companies have installed a digital press with the past year. Six percent of companies surveyed have installed a digital press within the past two years. These companies that have had their digital presses for two years or less were more likely to rank finding enough business as their number one concern. The most significant issues for digital users with their first press installed three or more years ago included color matching, press downtime due to service issues, ink performance/integrity and internal process efficiencies. To compare and contrast existing issues for digital press users with perceived issues among non-users, surveyed converters without digital presses were asked what they perceived their most significant issues would be with digital by ranking the same criteria from most to least significant. The table on the following page shows how converters without digital press technology ranked their concerns about purchasing digital presses, from most to least significant. 32

33 Exhibit V-8: What Non-Digital Users Perceive as the Most Significant Challenges of Digital Printing Challenge Finding enough business to fill digital press capacity How Non-Digital Users Ranked the Challenge #1 (most significant) Color matching #2 Overall print quality #3 Internal process efficiencies #4 Finishing requirements Ink performance/ink integrity #5 (Tied) #5 (Tied) Press downtime due to service issues #6 Printing high opacity whites #7 My salesforce won t know how to best sell the digital advantage #8 (least significant) The table above demonstrates that non-users of digital are keenly aware of the potential challenge in finding enough business to fill the capacity of a newly installed digital press. Interestingly, press downtime due to service issues is much lower on the list for non-digital press users versus companies that have digital presses installed that rank it as a more serious concern. Another stark contrast between how the two groups ranked these criteria was around overall print quality. Digital press users ranked overall print quality as the lowest concern while non-users believe it will be a more significant challenge. 33

34 The final question in the TLMI Converter Survey asked both users of digital presses and non-users to indicate their average run sizes in linear feet per enduse sector they serve. The table below shows both digital and conventional average run sizes per major end-use category. Exhibit V-9: Average Run Sizes in Linear Feet for Digital and Conventional Applications per End-Use Category End-Use Sector Average Digital Run Size in Linear Feet Average Conventional Run Size in Linear Feet Food 2,515 l/f 24,071 l/f Beverage 1,721 l/f 53,017 l/f Pharmaceuticals 2,194 l/f 19,295 l/f Health & Beauty/Cosmetics 3,328 l/f 22,250 l/f Industrial Chemicals 3,350 l/f 34,518 l/f Household Chemicals 2,331 l/f 31,600 l/f Automotive 750 l/f 12,188 l/f Consumer Durables/Electronics 1,883 l/f 12,563 l/f Retail 2,321 l/f 34,964 l/f Average Run Size All End-Use Sectors 2,267 27,163 l/f Source: LPC, Inc./TLMI North American Digital Label Study This table shows the wide swings between average digital and conventional run sizes for each end-use category. On average, for all end-use categories digital run sizes are less than one-tenth the size of label applications printed on a conventional press. The greatest differences between digital and conventional run sizes exist in the beverage, automotive, and household chemicals sectors. 34

35 Exhibit V-10: Production Metrics Averages All Surveyed Converters Benchmark Averages All Surveyed Converters 13 jobs 73% of digital throughput requires second pass through press 5 colors 2,267 linear feet 27,163 linear feet < 1/10 size of conventional runs Average number of jobs run on converters digital presses per shift. Converters were asked to indicate the percentage of their total digital jobs that require a second pass through a press for additional printing, finishing and/or diecutting. 73% of the total digital throughput for all converters requires more than one pass to complete. Average number of colors converters run per job on their digital presses. Converters were asked to specify average digital run lengths per end-use sector they serve. Converters were asked to specify average conventional run lengths per end-use sector they serve. On average, for all end-use categories, digital run sizes are less than 1/10 the size of conventional run sizes. Source: LPC, Inc./TLMI North American Digital Label Study 35

36 VI. The TLMI Digital Brand Owner/Packaging Buyer Survey In addition to a converter survey, the research methodology for the Digital Label Study included surveying brand owners and packaging buyers across primary end-use sectors where digital production label printing is being employed. More than 60 brand owners and packaging buyers participated in the TLMI Digital Brand Owner Survey, representing more than 50 companies. The primary objective behind polling this universe was to ascertain the current perceptions of brand owners and packaging buyers toward digitally printed labels, perceived advantages and concerns when it comes to their labels being printed digitally, and how much they project their sourcing of digitally printed labels will increase over the next five years. Respondents were asked to indicate their primary job function and the chart below breaks down the percentage of participants for each function category. Exhibit VI-1: Job Functions of Surveyed Brand Owners and Packaging Buyers Job Functions of Participating Brand Owners and Packaging Buyers Print production Package engineering R&D Marketing Brand management Sourcing/procurement 3% 10% 14% 7% 24% 41% 0% 10% 20% 30% 40% 50% % Brand Owners/Packaging Buyers While survey respondents had a wide range of job functions, every participant either directly influences the sourcing/procurement of labels or directly influences the specifications and production parameters of printed labels. 36

37 In addition to indicating their job functions, survey respondents were asked to indicate the end-use categories their companies serve. The graph below breaks down brand owner/packaging buyer participation per end-use sector. Exhibit VI-2: End-Use Categories Served by Participating Brand Owners and Packaging Buyers End-Use Categories Participating Brand Owners and Packaging Buyers Serve Consumer durables/electronics Industrial chemicals Household chemicals Pharmaceuticals/nutraceuticals Health & beauty/cosmetics Beverage Food 10% 7% 12% 17% 19% 14% 21% 0% 5% 10% 15% 20% 25% % Brand Owners/Packaging Buyers Just over one-third of participating companies serve the food and beverage sectors while 19% of respondents serve the chemicals sectors. Fortytwo percent of polled end-users serve a single sector while 48% serve multiple sectors. Some of the largest brand owners participated in the survey including Kraft, Procter & Gamble, Unilever, Apple, General Electric, L Oreal, Nestle and Stanley Black & Decker. It s important to note that smaller, regional consumer packaged goods companies also participated including companies that manufacture condiments and sauces, processed meats, juices and ready-to-drink teas, cleaning products and cosmetics. 37

38 One of the most important questions in the TLMI Brand Owner Survey asked companies if they actively seek label vendors that have digital label printing capabilities. Respondents were asked to select an answer to this question from the list below: We only source labels from vendors that have digital label printing capabilities We prefer label vendors that have digital label printing capabilities, however it is not a requirement We have no preference, as long as our label vendors can meet our required quality and price points, we don t care what technology they use to print our labels response. Exhibit VI-3 breaks down the percentage of participants that selected each Exhibit VI-3: Brand Owners/Packaging Buyers Preferences in Choosing Label Vendors with Digital Presses Are Brand Owners/Packaging Buyers Demanding Label Vendors have Digital Presses? Have no preference 40% Prefer vendors with digital but it's not a requirement 53% Only source labels from vendors with digital 7% 0% 10% 20% 30% 40% 50% 60% % Brand Owners/Packaging Buyers Source: LPC, Inc./TLMI North American Digital Label Study One of the most critical issues in the North American label industry today is the rate at which digital printing demands are vertically pushed through the supply chain. In asking this question, one of the objectives of the research was to 38

39 give TLMI supplier and converter members a clear perspective of how much pressure label converters who have not yet purchased a digital press system are receiving from their customers and prospects in being able to offer digital labels as a part of their company s overall capabilities. More than half of all respondents stated that while they prefer label vendors with digital capabilities, it is not a requirement. When these companies were then asked if they actively used label suppliers without digital printing capabilities, more than 70% responded that they are currently using label vendors without digital label printing capabilities. For 7% of respondents, having a digital label press on their production floor is a prerequisite for vendors while 40% of participating brand owners/packaging buyers indicated that they have no preference they just want their label vendors to meet required quality and price points. The next section of the questionnaire gauged brand owner and packaging buyers perceptions as to the advantages digital label printing offers, in addition to what the perceived challenges of digital printing might be to this universe. In an effort to create a hierarchy of significance, participating companies were asked to rank from most to least important, a defined set of criteria: The print quality digital label printing offers Digital technologies ability to produce shorter delivery times enabling us to receive our printed labels faster Digital technologies ability to print shortest run lengths and smallest job sizes The ability to do more promotions Fewer dollars lost to packaging obsolescence as just-in-time vendor channels mean we can inventory lower levels of printed packaging The table on the following page indicates how brand owners and packaging buyers rank these criteria. 39

40 Exhibit VI-4: How Brand Owners and Packaging Buyers Rank the Advantages Digital Label Printing Offers Advantages of Digital Printing for End-Users/Packaging Buyers Shorter delivery times How End-Users/Packaging Buyers Rank the Digital Advantages #1 (most significant) Print quality #2 Ability to print shortest run lengths #3 Less packaging obsolescence #4 More promotional packaging #5 (least significant) Source: LPC, Inc./TLMI North American Digital Label Study Shorter delivery times were ranked as the number one value proposition digital label printing offers. In mining the data for patterns within particular enduse sector preferences, it s interesting to note that shorter delivery times was ranked as the number one most significant advantage of digital label printing by end-users across categories. Print quality was consistently ranked highest among brand owners and packaging buyers that serve the health and beauty/cosmetics and household chemicals categories. The ability to print shortest run lengths was ranked highest among brand owners that serve the health and beauty/cosmetics, household chemicals and, interestingly, the longrun dominant beverage sector. When asked why they ranked the ability to print shortest run lengths so high, a number of beverage companies responded that the high level of new product launches created a growing small-run niche in certain beverage categories. 40

41 In addition to gauging how brand owners view the most significant benefits of digital printing, the survey additionally asked companies what they considered to be the most significant challenges of digital label printing. Once again, respondents were asked to rank a given set of criteria from most to least significant: Having to train our people because we are not well versed in digital label printing Having to reapprove each application due to the production differences of digital printing versus conventional printing Having to re-specify label materials Potential increase in label pricing Having to alter our sourcing logistics to accommodate digitally printed products The table below indicates how brand owners and packaging buyers ranked what they perceive are the most significant challenges associated with digital printing. Exhibit VI-5: How Brand Owners and Packaging Buyers Rank the Challenges Digital Label Printing Presents Perceived Challenges Associated with Digital Printing for End-Users/Packaging Buyers Increase in pricing How End-Users/Packaging Buyers Rank the Challenges #1 (most significant) Re-specifying label materials #2 Re-approval of applications #3 Altering sourcing logistics #4 Personnel training #5 (least significant) Source: LPC, Inc./TLMI North American Digital Label Study 41

42 Brand owners and packaging buyers perceive price increases as the number one challenge when migrating from conventionally sourced labels to digital. The categories that consistently ranked price increases as their primary concern were food and beverage; long run categories sensitive to even the slightest fluctuations in price points. The categories in which companies ranked increases in pricing as a lower concern primarily included the health and beauty/cosmetics and pharmaceutical sectors. Out of all the major end-use categories that consume labels printed on digital production presses, digital consumption is highest (as a percentage of total category consumption) in the health and beauty/cosmetics and pharmaceutical sectors. Companies in these markets have a keen awareness of the cost increases sourcing digital labels incur, and continue to fine tune their workflows to capitalize on the advantages digital production printing offers. The table on the following page shows key findings from the brand owner/packaging buyer survey. 42

43 Exhibit VI-6: Key Findings for Surveyed Brand Owners and Packaging Buyers KEY FINDINGS Brand Owners and Packaging Buyers 7% demand vendors have digital presses. 40% have no preference. Seven percent of surveyed brand owners and packaging buyers indicated that they will only source labels from vendors with digital production presses. Forty percent of surveyed brand owners and packaging buyers indicated they have no preference when it comes to the technology used to print their labels as long as their label vendors can meet their required quality and price points. #1 advantage: Shorter delivery times #1 challenge: Higher price points The number one perceived advantage of digital label printing to surveyed brand owners and packaging buyers is the technology s promise of shorter delivery times. The number one challenge of digital label printing to surveyed companies is that price points for digitally printed labels is higher for companies that source digital labels, and perceived to be higher for companies that do not yet source digitally printed labels. Source: LPC, Inc./TLMI North American Digital Label Study 43

44 VII. Digital Trending per End-Use Vertical Market Digital Label Trends per End-Use Vertical Average Conventional Run Size l/f Average Digital Run Size l/f Digital Label Production as a % of Total Category Value Brand Owners Perception of #1 Digital Challenge Brand Owner Growth Projections of Digital Label Sourcing Growth to 2020* Food 24,071 l/f 2,515 l/f 6.0% Increase in pricing High Beverage 53,017 l/f 1,721 l/f 3.5% Increase in pricing High Pharma 19,295 l/f 2,194 l/f 17.0% Re-specifying materials Medium Health & Beauty 22,250 l/f 3,328 l/f 13.4% Re-specifying materials High Industrial Chemicals 34,518 l/f 3,350 l/f 8.5% Increase in pricing Medium Household Chemicals 31,600 l/f 2,331 l/f 5.7% Automotive 12,188 l/f 750 l/f 5.7% Consumer Durables / Electronics 12,563 l/f 1,883 l/f 13.6% Re-specifying materials Having to reapprove each application Increase in pricing High Medium Medium *For projected growth projections low = 1 to 4% average annual growth, medium = 5 to 8% average annual growth and high = more than 8% average growth. Source: LPC, Inc./TLMI North American Digital Label Study 44

45 VIII. Implications & Conclusions for TLMI Members Annual digital label consumption is projected to grow at six to seven times the rate of conventional label growth. Highest digital label growth rates are forecasted for the food, beverage, health and beauty/cosmetics and household chemicals sectors. More than 60 brand owners and packaging buyers participated in the TLMI Digital Label Study and these companies represent an aggregate label spend of more than $1 billion in Participants were asked to indicate the percentage that digital labels made up of their total label procurement volume in 2014, and to then predict what the percentage of digital labels would make up of their total label procurement volume in Exhibit VIII-1 shows the average percentage that digital label procurement makes up of surveyed companies total label volumes in 2014 versus forecasted digital label procurement as a percentage of total label sourcing volumes in Exhibit VIII-1: Packaging Buyers Actual Digital Label Volumes in 2014 and Projected Digital Label Procurement Volumes in 2020 % of Labels Sourced that are Digital: 2014 (Actual) vs (Projected) 25% 22.7% 20% 15% 10% 5% 0% 10.2% Source: LPC, Inc./TLMI North American Digital Label Study 45