Pan-European Presence, Price Pressures Remain Issues in Packaging Ink Market
By Sean Milmo, European Editor
Packaging in Europe has proved recently to be a more buoyant market for ink makers than other customer sectors. Last year, total packaging sales went up by an estimated 1 percent to 2 percent in the region, similar to the average rise in GDP.
But this increase was not enough to ease persistent pressures on costs, which continue to be a driving force behind a trend toward consolidation and a streamlining of supply chains.
End-users want to depend on fewer packaging companies, which in turn try to rely on fewer printers, ink makers and other suppliers.
“A much larger proportion of packaging is now being done by big packaging companies which are probably being supplied only by around six to eight ink producers in Europe,” said a product manager at one ink producer. “Fortunately there is still room for other ink makers, particularly since there are so many relatively small high growth segments.”
The total value of packaging has been rising. In some sectors it now accounts for more than 20 percent of the retail price of a product.
Ink volumes have been going up in some segments because of the greater priority given to graphics and need for more printed information, mainly as a result of new labeling rules.
In pharmaceuticals, EU regulations require basic product information to be provided on the outside of packs and the provision of patient leaflets inside. An increase in sales of over-the-counter drugs has also led to the use of more eye-catching graphics in medicine packaging.
In the upper end of some markets, like drinks, confectionery and cosmetics, the development of new types of cartonboard enables both the outside and inside surfaces of packaging to be printed.
At the same time, packaging has become far more technically sophisticated in some segments, posing formulation challenges to ink makers. Food manufacturers are, for example, trying to respond to consumers’ needs for even more convenience by introducing self-heating and chilling products.
Stricter food safety laws are also forcing ink makers to raise the quality of their products to prevent contamination. Some retail chains have combined to draw up their own standards for food packaging materials.
This rising of technical levels and of safety standards is being accompanied by ceaseless efforts to reduce costs, not only in the area of packaging manufacturing but also logistics. The attack on costs stems partly from the intense competition between the brands of consumer product companies and own-label brands of retail chains.
Many packaging companies have been suffering from a relentless squeeze on margins. In the U.K., average returns on capital employed in the packaging sector has dropped to well below 10 percent in the last few years.
The result has been increased concentration in the European industry as packaging companies seek to improve their profitability through economies of scale.
There has also been a need to internationalize activities in order to provide a pan-European service to customers. Hence ink makers and raw material producers are having to establish supply networks across the region as well.
The pace setters in mergers and acquisitions in packaging across Europe have been the major packaging companies.
The European Commission, the EU’s anti-trust authority, has been so worried about the extent of consolidation among the leading players that it recently vetoed the acquisition of Sidel of France by Swiss-based Tetra Laval on the grounds that it would give Tetra a dominant position in liquid food packaging.
However, the trend toward the establishment of pan-European operations has extended beyond the big packaging players to medium-sized companies as well as small niche specialists.
“A lot of our customers are going pan-European so it makes sense for us to do the same to match their strategy,” said Chris Elliott, marketing manager at Parkside Flexibles, a U.K.-based packaging company which has just started to expand through acquisition on mainland Europe.
Mr. Parkside expects that as it broadens its European scope it will continue to work closely with its ink suppliers. At present it has a cooperation agreement with an unnamed ink company for the development of water-based inks for plastic packaging substrates.
“We are finding that a lot of our suppliers, including ink producers, have a pan-European capability already,” said Mr. Elliott. “We like to do development work with our ink suppliers because it gives us an opportunity to differentiate our products in a market where there are a lot of similarities in what packaging companies have to offer.”
Growing with Customers
As their own packaging customers seek to internationalize, some of the larger ink makers are finding that they cannot achieve sufficient growth in their packaging sales by staying localized.
“It is no longer adequate just to provide a nationwide service in Europe in packaging,” explained Bertil Ahlberg, marketing coordinator at Akzo Nobel Inks. “You have to be where the big packaging printers are so that you can be close to your customers. If you do not have a presence in the right countries you will not get the business.”
Flint Ink believes that it will gain more packaging ink business in Europe following its decision to merge its European operations with those of Gebr. Schmidt, Frankfurt, Germany. Its new partner has a 20 percent share of the ink market in Germany, Europe’s largest ink market and where previously Flint had only a limited presence.
“When looking for deals with large packaging companies, one of our weaknesses has been our lack of a presence in Germany,” said Doug Aldred, vice president, general manager, sheetfed inks at Flint Ink in Europe. “It will make a big difference having the ability to produce locally and to have a distribution network throughout the country with mixing centers and the provision of technical services.
“Furthermore this merger will give us a stronger position in countries like Austria, Czech Republic and Poland in Central and Eastern Europe where Schmidt does a lot of business,” he added.
Pan-European consolidation in packaging has led to more key technical and design decisions being taken not so much by the packaging companies but by end-user customers, such as consumer-product manufacturers and retail chains.
Significantly, some packaging companies have been drawing up their own lists of preferred ink makers and other suppliers.
“One of the leading cigarette companies has reduced its list of ink producers in Europe to two,” complained a commercial manager at a medium-sized flexo ink producer. “Once all the other tobacco companies do the same, the cigarette packaging market will be extremely difficult to get into.”
In addition to cigarette makers, many manufacturers of pharmaceuticals, cosmetics and toiletries have also been adopting accreditation systems. Some companies in the food sector in Europe are beginning to do the same.
Companies with global brands are starting to lay down technical specifications which smaller ink producers may have difficulties meeting. In sectors like food, tobacco products, cosmetics and toiletries, companies are, for example, demanding that their packaging customers use low-odor inks.
“We anticipated that some of the international consumer-product manufacturers would begin to make tough requirements on odor levels in packaging inks,” said Bernhard Fritz, Sun Chemical’s product manager for sheetfed inks in Europe.
“So we have developed a low-odor ink by eliminating aldehydes which can cause odors to be created during storage,” he said. “Not many of our competitors have been able to introduce similar low-odor products.”
With the centralization of the planning process in packaging, much more influence is being wielded by designers in corporate headquarters or by design agencies. This is an indication of how much well-designed packaging is now considered by some consumer-product manufacturers to be an effective means of promoting awareness of their brands.
“It is important to make contact with the design departments of these companies so that they know about your inks,” said an executive director in one European ink company. “That means knocking on doors and having face-to-face discussions with designers. It is best to go along with the packaging company and the printer so you are seen to be part of a team effort.”
Despite the trend towards greater concentration in packaging, medium-sized and small ink producers are still finding a lot of openings in the packaging sector in Europe. In particular they believe they can use the continued need for close relationships with local printers who still do a large proportion of packaging work in the region.
“There is a lot more central direction in packaging but the amount of business determined by central decision-making is exaggerated,” said Mike Hunter, national sales manager at Van Son Ink U.K.. “There are plenty of opportunities for gaining new business locally. You need the contacts at the senior level but, like with all ink sales, you still have to convince the people running the presses that yours is the best ink for the job.”
Van Son combines its focus on the need for a local presence with a centralized production system under which all its packaging and other inks are made at its main plant at Hilversum, Netherlands. As a result, the packaging inks it sells across Europe as well as Asia and the Americas are exactly the same.
“This helps us to guarantee consistent quality wherever we supply inks and when there is a problem it enables us to check back through the distribution and manufacturing process to find the cause of it,” said Rob Hoving, Van Son’s group manager, technical sales.
Product quality and performance still remain vital to success in packaging inks. Many ink producers may be able to avoid the growing demands of customers for a broad geographical presence by relying on technical excellence instead.