19. How consolidation will appear in this market

How consolidation will appear in this market 19.

When a market consolidates, it’s like the market holds its breath. Everything except the regular day-to-day work is postponed while the market enters a “don’t move” mode. This can happen when we, like now, are in-between two phases of economy circles, after a long time of high economy and on the verge of going down – or vice versa when it starts going up again after a low economy. A market consolidation can also appear when something big is about to happen like an election, a war, a new economic situation, etc. I call them external factors and it’s out of our control and will affect both timing and the level of a transformation, affecting how and when the market will turn into a new direction. In a market consolidation, companies within the market often merge or acquire each other. The reasons may vary; it can be market growth, new markets and new products, increasing market shares, scaling a business, technology and know-how through acquisitions, etc.

The commercial print market consolidates mainly because of a decreasing market size (today around –10% per year and expected to continue down with another –19% until 2020). We’re approaching a stage where the consolidation in the commercial print market will not make any more sense, where filling the big analog presses with more print volume adds no more value. Instead the way forward will be by adding more value to the commercial print product itself, going digital! The IRM (Institutet för Reklam och Mediestatistik – Institute for Advertising and Media Statistic) just made a study involving 200 CMOs (Chief Marketing Officers) in Sweden. They see a decline in commercial print –19% in the next 3 years. The reason for them is not the price of the product but the value the product gives back compared to other media. Very little development

has occurred in commercial print products over time, and yes some things regarding quality, time to market, and price – when the market instead asks for more value. Market consolidation will also happen in the packaging market, again in a different way and for a different reason. This market is experiencing good growth in general. A larger share of marketing money today goes to packaging while a lesser amount goes to the today low value commercial print communication, digital print still grows its market share inside of this, plus electronic displays and the social media have an effect. Today, CMOs spend in total roughly the same amount of marketing money per product as in the past. But they have changed their way of spending that money. More money nowadays goes towards media that reaches a higher return of investment (ROI). Among the CMOs, we see a clear trend going for packages and packaging as part of the marketing, that’s their focus and today it represents a higher return than any other marketing money spent – and we can give them even more value by adding digital tools. This move toward packaging as new marketing also generates another level of needs to cover new, upcoming demands.

Most converters in the Nordic packaging business of today have a good to strong economy. The best growth figures still come from the flexible side and they are the ones having the biggest change to go through in this transformation. Not only analog to digital, but also a big challenge on the media side where they must convert from today’s fossil based plastic media, a strong sustainability trend powered by all junk cluttering our oceans and shores. Consolidation here is not only within the technology and know-how, it’s the whole infrastructure of their services. Many packaging converters today don’t even have their own workflow and Pre-Press capability, still buying it from outside of the company, which has been OK in the past if you only run a few jobs per day. That won’t work when you add digital to your production line with many more and shorter runs, maybe 10 or 100 times more jobs per day will go through the system. We will see acquisitions regarding digital label converters that know the technology, workflow, and prepress. We will also see the opposite consolidation, going the other way around to add know-how about media, finishing, etc. On the board side, folding cartons and corrugated, there is today a small market growth with generally thin margins. Consolidation will happen here as well, but more coming from the commercial print side that already has transformed to digital – or the opposite when a commercial printer with digital wants to add new types of products, like folding cartons, to their own customer base. The consolidation when converters merge with digital offset printer’s know-how of the technology will save a lot of time and speed up the transformation. It can be a good investment to make, if possible.

As we go through a transformation it is still important to include the whole company and organization in one new business plan. Converters that acquire, for instance, a digital label printer and add new digital tools (machines) only, and then place that investment as a separate business, will do and sell two separate products. Such as when producing for customers who demand digital, short, and fast turnaround jobs, for example, without embedding the existing analog with digital as one new business platform. They will end up selling two different products, priced differently, no extra market value, same cost pricing, and a big risk of an internal competition instead of complementing each other – which will add extra value and margins. One profit center provides less marginal-pricing. By setting the production more as one combined item, adding values with the old ones for long runs and using the new ones on top of the market price, it all makes sense. Do less for more.