Salvation in a box: Print 21 magazine article
Packaging print in Australia has long been dominated by just a handful of major players, aided by the high cost of entry and the specialised skills involved. Increasingly though, commercial printers have been casting envious eyes at the relative buoyancy of the packaging market and looking at ways to get a piece of the action. Simon Enticknap examines the pros and cons of getting into boxes.
The notion that packaging market might be the saviour of beleaguered commercial offset printers is as persistent as blowflies at a Boxing Day barbie. The theory goes something like this: while traditional commercial markets continue to shrink as information migrates online or becomes targeted by digital print, offset packaging continues to grow and offers niche market potential. After all, as the saying goes, you can’t wrap cornflakes in a CD, and people always have to eat, so the market remains immune to the transformations wreaking havoc elsewhere in the industry. Even in an economic downturn, a lot of packaging is for non-discretionary spend items so that while consumers are cutting back on magazines and luxury items, they are still going to the supermarket and buying stuff in packets.
This belief was nowhere more apparent than at drupa this year where the largest sheetfed press manufacturer, Heidelberg, dedicated an entire hall to packaging solutions, including the launch of a new large format press, the XL162, specifically aimed at this market. Depending on where you stand, such a move can be seen as either playing to offset’s strengths, emphasising what it can do most effectively and efficiently in face of digital print eating away at most other markets, or as a last desperate attempt to shore up a customer base by cannibalising a market already well-served by equipment suppliers with established track records.
Back home, Heidelberg underlined its seriousness about the packaging market by installing converting equipment in its Melbourne showroom and holding an open house in October last year to demonstrate the possibilities to local printers.
“A lot of the companies that we were talking to at drupa saw an opportunity to alleviate some of the pressure that they’re under in the industrial print market. They see this huge packaging industry and not too many people involved in it and reckon there has to be some money made out of it – and that can be the driver,” explains Glenn Plummer, general manger for product management and marketing at HAN.
John Harrison, product manager for packaging at HAN, says the companies looking to get into the market are not necessarily focusing on the long run mass market for packaging but rather the short run specialty type market where there are good margins to be found. Typically, they may have clients for whom they have already done some packaging as part of the commercial work they do and, as a result, they realise they have a press which is capable of handling that type of work and that there is money to be made in it.
“The margins are better because not many people are competing in it,” says Harrison, adding that some companies are also able to feed off the crumbs that the big players let slip, operating almost as a trade house for the packaging market without attracting too much attention.
Increasingly, as commercial presses have become more automated, printers have discovered that they are suitable for packaging print on board and that it can be done. Inline coating is now standard on presses and features such as automatic stock adjustment, inline quality control and automated make-readies give smaller presses some of the capability of their larger cousins.
“The printing part of it is actually not that hard,” says Lindsay Barnes, sheetfed product manager at HAN, “not until you get into specialty work like double coaters or UV work, but for just the general packaging work, the print is not that hard to do.”
The hard part, of course, comes further down the line and that’s where Heidelberg is hoping to lend a helping hand with a range of equipment to handle the converting process.
Old tech rules
It’s ironic that, to some extent, a major barrier to Heidelberg’s entry into the packaging market is one of the most enduring pieces of its own equipment. All around the country there are printshops where the faithful old Heidelberg cylinder in the corner is called upon time and time again to perform some simple die-cutting or creasing. Indeed, it is one of the more intriguing anomalies of the industry that as it has grown increasingly hi-tech in recent years, and many times more productive, the old manual cutters and creasers have refused to give ground.
At the open house last October, Heidelberg demonstrated the Varimatrix die cutter and the Easygluer 100 folder-gluer to highlight the basic level of equipment that printers should be looking at today if they want to get into packaging. Harrison says he doesn’t like to call the Varimatrix an “entry-level” model because that implies it is not a serious production machine - which it is - but it is certainly the type of die cutter that a printer might look at as a step up from the old cylinder.
Harrison acknowledges that printers may be reluctant to invest in a process that is used only incidentally, to begin with at least, but points out that the true cost of having stacks of printed sheets sitting on the floor waiting for the cylinder needs to be accountable. The Varimatrix die cutter, a product of Heidelberg’s partnership with SBL in Taiwan, has sold more than 200 machines since its launch in 2006 and has the ability to lift productivity five-fold compared to a cylinder for a range of creasing, perforating and cutting jobs. It can handle sheet sizes down to 300 x 350 mm and even take the old cutting formes from the cylinder to avoid the necessity for any expensive re-tooling.
Training is another issue that can act as a barrier. Skill shortages in post-press are acute and while Harrison says that anybody who operates a cylinder should be able to step up to a new die-cutter, the fact is that not everybody will make the shift from a manual to an automated process. As a result, Heidelberg is investing in training for operators and intends to include packaging as part of the curriculum offered through its Print Academy in conjunction with RMIT in Melbourne.
This is the sort of stuff that Heidelberg does so well, working to support and grow the market, so the fact that it is committing these resources to the packaging sector suggests that it is serious about making a difference.
Short runs, high margins
The old stereotype of a packaging press was of a big machine that would be set up to run one type of job and away it would go, running non-stop for days as it churned through the pallets of board. Job changeovers could take hours but that didn’t really matter because the run lengths were so long that, as a proportion of the total job time, the make-ready was relatively insignificant. Today, that long run work is still being done but increasingly packaging presses are being called upon to do a lot more shorter runs and be more flexible in the types of jobs they handle.
Dave Lewis, KBA sheetfed sales director, cites the example of Visy Glama which operates large format presses (two Rapida 162 presses and a Rapida 142 in Melbourne plus a new Rapida 205 currently going into Sydney) and which does runs as low as 200-300 sheets – and makes money out them. In fact, the shorter the run, the higher the margin. Average run lengths are about 5,000 sheets specialising in litho-lamination for packaging and point-of-sale.
This is a good example, says Lewis, of the way in which large format presses have advanced so strikingly in recent years, being able to run different stock sizes (the Rapida 205 handles down to 100 gsm) and change over jobs in minutes rather than hours. Worldwide, KBA is renowned for its large format presses, rivalled perhaps only by manroland, and the packaging market has certainly been a good one for the company in Australia. About half the sheetfed presses it has installed since entering the market five years ago have been for the packaging sector.
“It’s been a really good area for us,” agrees Lewis. “The difference is that commercial printers – not all of them, but many – buy on price, but packaging printers will always buy on quality.”
So as packaging presses have become more like commercial presses and commercial presses have gained the ability to print packaging, has there been move by commercial printers into the market?
“No,” says Lewis bluntly. “There may be some smaller players who dabble in it but to really get into it, you need specialised equipment downstream and few are set up to do it. And if you’re going to do it, you must do it well.”
Besides, says Lewis, while smaller players may be able to fly under the radar to some extent, if any of the ‘big boys’ noticed a commercial printer becoming too aggressive in the market, they would be sure to react very swiftly to protect their own positions.
Top of the pile
Current market leader in the post-press sector is Bobst, the Swiss-based manufacturer with a long pedigree in die-cutting and folder-gluing. These are the Rolls Royce (or maybe Ferrari) machines of the market, offering the highest levels of automation and speed, built to last and to work non-stop for years to come.
Since taking over the agency in Australia, MAN Ferrostaal has had a great deal of success in this sector, putting in numerous machines across the country and ramping up the service and support for customers. Carsten Wendler, packaging manager at MAN Ferrostaal, is coy about revealing how many machines have been installed over the past couple of years but says most of the big packaging players use Bobst because it’s the only one that delivers the productivity and quality results that they need.
The fact that Bobst is so prevalent at the serious end of the market points to a dilemma for the company – when you are so dominant in one sector, where do you go next? Bobst answered this question a couple of years ago when it launched the Commercial 106 die-cutter (now joined by a 76cm model) that was targeted specifically at commercial printers looking to increase their capability in die-cutting, embossing, creasing and perforating. Although still recognisably a Bobst machine, it has a smaller footprint (10 m2) and is aimed primarily at commercial printers who are looking to increase their productivity or increase the range of services they offer to their customers.
Bobst also offers a number of ancillary services with the Commercial range to ease printers into the market such as in-house training and service contracts, as well as a guide to possible commercial applications that can be manufactured on a die-cutter. If you thought it was all about making boxes, this guide which includes 90 different products is quite a eye-opener with its range of POS displays, bags, envelopes, hangers and tickets all aimed at specific niche markets.
While the Commercial range has been successful in Europe, Wendler says the size of the Australian market makes it harder to justify investment in such a productive machine.
“You need to be able to run it for a shift,” he comments. “It is easier in Europe where the markets are bigger and they can justify the investment. For the purely commercial printer though, it is tough.”
Instead, Wendler highlights the Novacut, formerly known as the Speria, which comes out of Brazil and offers the same technology but at a more affordable level. He believes too that packaging does offer the prospect of a good return for printers who take it on.
“Packaging is a lot more stable, people always have to eat and drink, even in a recession,” he says, pointing out that the market has been growing at about 2-3 per cent per annum. “It’s not growing as fast as digital but then that market will reach a saturation point as it did with labels. A few years ago labels was a growth market but then too many people came in and now it’s a commodities market. The same will happen with digital.”
In contrast, printers who take on packaging and do it well can make a success of it, says Wendler who points to the example of Labelcraft, an established label printer who put in a folder-gluer machine to target the carton market and has been doing well.
Grass looks greener
Someone who knows all about offset packaging from the inside is Alex Commins, managing director of Colorpak, one of the leading exponents in the folding carton market. He says there’s nothing new in commercial printers eyeing opportunities in the packaging sector.
“It’s the first thing that people do when the market slows down, it’s not a new phenomenon,” he comments, adding that this is being driven partly by equipment manufacturers looking to sell more machines and also by the fact the commercial print is always the first sector to take a hit in any downturn.
“They see the margins in packaging that compare favourably with commercial print … and the grass always looks greener on the other side.”
Such a perception seems fair enough given that Colorpak reported sales revenue of over $40 million for the first half of 2008/09 and a profit of $3.3 million over the same period, but Commins disputes whether in fact the packaging market is growing at all, pointing to the latest BIS Shrapnel report into packaging which predicted “virtually no volume growth” in the market and margins that continue to be squeezed.
“The packaging pie is shrinking because manufacturers are moving off-shore,” he points out, adding that when a manufacturing company relocates to Asia to lower their costs, as has been happening in recent years, then usually the packaging work goes with it.
At the same time, there has been consolidation in the market and whereas in the past there might have been half a dozen different jobs from different suppliers, today they are likely to be rolled up into a single account – and one in which the emphasis is on lowering prices, not pushing them up.
Commins says that packaging specialists such as Colorpak have the critical mass to survive the loss of a customer moving overseas but that a commercial printer who is more reliant on a major account might find it harder to survive. And while there will always be niche applications for printers looking at the short run and boutique market, Commins questions whether such markets are sustainable.
“The question is whether those customers will be there tomorrow and, if not, can the printer survive the hit of losing them.”
For printers looking to explore the packaging market, Commins says there are two essential requirements – knowledge and investment. Colorpak has been operating since the 1920s and, in that time, has accumulated a vast knowledge of the market and the processes in involved. It’s not easy to gain such expertise quickly, he says, especially when there is a widespread skills shortage.
Likewise, packaging production requires a lot of capital expenditure, not just on presses but also prepress, CAD design and finishing. Colorpak itself has invested heavily in new plant and equipment in recent years, opening up a new facility in Sydney and expanding into the flexible packaging market in order to diversify its product offering. Commins says that such investments are now starting to deliver benefits but it has been a long haul and one that requires a long term strategic plan; Rome wasn’t built in a day, he comments, and likewise packaging companies don’t materialise overnight.
Maybe, but that doesn’t mean there won’t be a shift long term. Glenn Plummer makes the comparison with binding and bookwork which used to be almost exclusively a trade business until printers started putting in their own folders and saddle stitchers – many of which came from Heidelberg. By showing their commercial print customers the potential of systems like the Varimatrix and Easygluer, Heidelberg are hoping they can achieve the same sort of result again in a market with much more stable long term prospects.