Germany’s printing industry, the largest in Europe, has been suffering more than most of its counterparts in the region this year because of the poor state of the country’s economy.
GDP growth has slowed to less than 1 percent while consumer spending has been almost static. Unemployment has risen to close to 10 percent of the German workforce after increasing continuously since the beginning of 2001.
Furthermore, economists are predicting that growth rates will at best improve only marginally next year. As a result of staff cuts across most industries, the numbers of jobless will thus become even larger.
The slump has hit commercial printers particularly hard. The publishing sector has been hammered by a disproportionate drop in advertising expenditure of 25 to 30 percent.
Ink Companies Struggle
In the face of weak or even declining demand, Germany’s ink producers are under considerable financial pressure. In particular, the privately owned companies, which have for so long been such a powerful force in the country’s printing ink sector, are struggling.
The German printing ink market has traditionally been difficult for outsiders to enter. However, in recent years, a growing number of foreign ink makers have begun to do good business in the country. The present economic downturn has accelerated this trend, and now Germany has one of the most competitive printing inks markets in Europe.
“The size of the German market is now a major attraction to all kinds of foreign ink producers, particularly since its central geographical position in Europe makes it so easy to reach logistically,” said an executive of one German ink company. “In most ink markets in the country, the majority of operators are German. But the big difference is that they are no longer all German.”
There is also competition in the ink market from German companies for whom ink production is not a core business. Heidelberg, the giant manufacturer of printing equipment, now makes its own inks. Schlenk Metallpulver, the metallic pigments maker, has expanded downstream into ink production.
Even the leading multinational ink players have been feeling the intensity of the competition in a country which accounts for more than 40 percent of European ink sales.
“It has become a tough market with everyone competing for a share of a shrinking cake,” said Rainer Buss, market communications manager at Sun Chemical’s Hartmann. “We are trying to increase our prices, but it is difficult at a time when printers are not finding it easy to put up their own selling prices.
“The best option is to focus on cutting costs by increasing production efficiencies and getting lower prices for raw materials,” he added.
There are fears that the predicted revival in markets like publishing in the second half of next year will be a slow one.
“Advertising expenditure will not suddenly take off in July but will instead gradually move upward,” said an executive at one German ink company. “It may be a long time before advertising spending in Germany returns to the same levels as last year – if at all. Though it is still a small medium, the Internet is still taking a growing share away from the print media, and there is also continued growth in one-to-one marketing at the expense of newspaper and magazine advertising.”
Responding to Challenges
BASF has decided that the best response to the current market conditions is to combine its ink, pigment and plate component activities into an integrated operation.
“We have now combined all our products relevant to the printing industry, including pigments, in the business unit performance chemicals for the printing industry,” said Juergen Strube, BASF’s chairman. “As a result, we offer our customers systems solutions from a single source.”
The reorganization of BASF’s inks and printing plate activity is part of the company’s wide streamlining of operations to make them more customer focused, while at the same time strengthening market presence and fostering entrepreneurship. “This will help us to reach decisions more quickly and above all (to be) closer to the market,” said Mr. Strube.
BASF also sees closer links between ink production and raw materials as not only having cost advantages but also benefits in the market place as well.
“Like other important suppliers to the printing industry, BASF considers backward integration of printing inks into pigments as a significant competition factor,” said a company official. “This integration makes a complete process chain from raw materials to finished product possible.”
Small- and medium-sized ink makers are having to seriously consider major changes in their operations as well. These include big job reductions, withdrawal from certain German sectors and an increasing emphasis on the need for international expansion.
Shrinking domestic sales have forced the privately-owned producers to be more adventurous abroad. Some of them are focusing on fewer sectors in order to build up the sort of expertise necessary for global competitiveness.
Among German family-owned ink producers, Siegwerk Druckfarben has been making some of the biggest changes. It has sold its sheetfed inks business to Epple Druckfarben, a German competitor in the sector.
Instead, Siegwerk is concentrating its resources on the flexographic and gravure markets, with a priority being given to expansion in packaging inks, which make up 40 percent of its sales.
“We are expecting a good profit from packaging inks, which is growing continuously at around 5 percent per annum,” said Ingrid Buss, Siegwerk’s communications manager. “We are a technology leader in the sector, and in some regions of the world we are definitely among the top three in packaging inks. Globalization with global customers offers opportunities for international growth in this market.”
The company is at the same time improving productivity through the elimination of 200 jobs out of the total workforce of 1,200. It is reducing purchasing costs by optimizing formulations, forming long-term partnerships with suppliers and by standardizing materials.
At the beginning of next year, Siegwerk will become a public limited company, although 100 percent of shares will continue to be family owned. The company expects that the new structure will help it raise funds for capital expenditure in areas like packaging ink production and international growth.
Gebr. Schmidt has also been pinpointing certain segments of the packaging sector as important growth areas at a time of economic downturn.
The company has introduced a new range of flexo inks for the packaging sector, including UV products. It has also launched new gravure inks in the packaging sector.
“Packaging is one bright spot in the inks market at the moment,” said Juergen Gartner, Schmidt’s manager for flexo and gravure packaging inks. “Inks for foil and flexible packaging are doing particularly well, not only in Germany but elsewhere in northern Europe, especially in Denmark and Sweden.”
The demand for packaging inks is being driven by the continuous stream of new packaging equipment which is increasing printing speeds and making the use of UV applications more efficient.
“New technologies and designs are resulting in customers wanting new specifications, while there is the greater use of UV inks,” explained Mr. Gartner. “At the same time, there are new safety requirements with food packaging and a move to very light packaging, using polypropylene and other polyolefins.”
Zeller+Gmelin, which has approximately DM 45 million ($20 million) of annual ink sales in Germany, has decided to focus almost exclusively on UV inks because of higher prices and margins.
It is following the example of its U.K. subsidiary Intercolor, which has successfully switched to being a specialist producer of UV inks with a greater emphasis on service.
In Germany, Zeller+Gmelin is expecting growth in ink sales this year of nearly 5 percent with a rise in gross profit of about 14 percent. It is anticipating a slightly slower increase in sales next year, but is hoping to push gross margins up to 8 to 10 percent.
“Only a few years ago, conventional inks accounted for around 40 percent of our sales in Germany,” said Alex Stevenson, head of Zeller+Gmelin’s inks division. “Although we are still selling conventional inks, we are continually losing market share because of the amount of aggressive pricing. Instead, in tonnage terms we are selling less inks in the country, but because they are mostly UV inks with a unit price four times higher than conventional inks, we are making more profit.”
Like other UV ink makers in Germany, Zeller+Gmelin is having to tackle continued skepticism about UV products among German printers, mainly due to the initial safety scares.
“German printers are still cautious about them,” said Mr. Stevenson. “You have to move gradually, but on the other hand because of our size we have greater flexibility than some of our competitors.”
Zeller+Gmelin aims to be a technological leader in certain key segments of the UV inks market, not only in Germany but internationally. It already regards itself as being out in front technologically in narrow web labels and in dry offset UV inks for decoration of plastic containers. In Germany, it is strong in the market for continuous stationery direct mail.
“There are now more outsiders trying to get into the UV market in Germany,” said Mr. Stevenson. “We are not giving priority to volume growth or market share. Instead we are concentrating on making our UV inks better products. Anyone can offer a competitive price but it is more difficulty to provide quality. In that way we expect to continuously improve profitability.”
Ultimately the current economic slowdown, which has brought Germany to the brink of recession, could result in a leaner ink producing sector in the country but one that is fitter and above all more internationally competitive.