The Indian label industry after 2 years of the pandemic

2022 is a dangerous year!

label industry
The Indian label industry was resilient in the first year of the pandemic. It plugged into the essential goods supply chain of food and pharma – and got into action in a couple of weeks after the first lockdown in end-March 2020.

There are limits to resilience. It works for a year, and it can work for 22 months for many of us. But the indications are, that we are now in for a difficult year. The emergence of the Omicron variant has put off the economic recovery (the normal movement or dynamic of the market) by another four months – one cannot expect even the newest normal till May 2022.

The Indian label industry was resilient in the first year of the pandemic. It plugged into the essential goods supply chain of food and pharma – and got into action in a couple of weeks after the first lockdown in end-March 2020. Then came the good days for short-run label printing and the realization that digital label printing makes sense in the pandemic era. However, there are limits to resilience.

As we wrote in our last issue, digital label presses did well in the past two years, with a 33% expansion of the accumulated installed base of the previous years. However, the import of narrow web flexo label presses stalled in the main. At the same time there is considerable overcapacity as well as caution in the industry. In the current financial year to end-March 2022, the imported press installs are likely to be less than a dozen.

Not good news for Brussels

It will be amazing if more than 50 Indian label converters (out of the usual 250 to 350) manage to visit the Labelexpo in Brussels in end-April (26 to 29 April). This, despite Brussels being a favorite outing for the industry. One that is desperate to go somewhere nice, and to do something halfway constructive at company expense. The pandemic situation is such that the label press manufacturer Nilpeter has already announced its withdrawal from all shows this year. And we have unconfirmed reports that Gallus has also pulled out the Brussels event. 

Amongst the 15 or 20 Indian manufacturers of presses and consumables that normally take part in Labelexpo Brussels, we already know of two who are not going – and at this point, it seems likely that most will drop out. Among the label printers, there are mixed views on visiting Brussels. Some are keen to go, and others who have already invested strongly in the pandemic feel that it’s a time to keep their heads down. “This is not the time to burn money,” one of them says.

The dangerous year

The raw material prices and logistical dislocations (also prices) have meant that label stock prices in India have risen by 20 to 25% in the past two years of the pandemic. This has put pressure on the cash flow of the label converters and also on the label stock suppliers. With the inordinate rise in the price of water-based adhesives (in comparison to hot-melt adhesives), many of the smaller local labelstock producers have closed shop. An additional increase comes on the face stock papers imported from Europe that now carry a prohibitive fuel surcharge of as much as US$ 400 (approximately Rs 29,910) on a ton of paper that costs US$ 1,000 or 1,100 (approximately Rs 74,775 or 82,252). 

The bigger suppliers of pressure sensitive labelstocks have no choice but to supply with increased credit. The vertically integrated and more systematic label converters who make their label stock are in a relatively happy position. However, the increased prices of inputs and materials together with hyper-competition amongst label converters is going to aggravate the cash-flow situation. This will ultimately hurt the suppliers also. 

The entry cost to the label industry has come down with several Indian suppliers of quality narrow web flexo presses and slitting and rewinding equipment. Established converters fear that the lower cost of entry in an industry already burdened with overcapacity will increase hyper-competition. They fear new players fighting for market share and cutting corners on inputs, including the import of label material stock lots.

Degradation of product quality

The middle-level label players with turnovers in the Rs 15 to 25 crore range (US$ 2 to 3 million) are likely to feel the heat says one converter. In a major industrial cluster in the country, two or three new label converters come to light each month. This increases pressure on the more organized and regulation-compliant players not only from price competition but also on the cost of retaining talent. On top of the recent years’ 25% increase in raw material prices, the cost of human resources in the industry is expected to go up by 10-12% this year.

Finally, the brand owners are also suffering from increases in the prices of their raw materials. They are looking to hold down costs by moving to cheaper materials for both packaging and labels. This can mean going to smaller converters who may be more amenable to mix and match stock lots. Or alternately, putting pressure on their long-time reliable suppliers to use inferior face stocks and inks. Brand owners are also looking at migration to shrink sleeves. 

The past two years have brought out the resilience among the label converters and strengthened local manufacture of equipment and materials. The supply chains of consumer products have been bolstered by the reliable supply of packaging and labels. 

Nevertheless, the global supply chain is in danger of faltering in the new normal. While any kind of normal implies a decrease in discomfort, all the signs indicate another year of difficulty ahead. The looming third year of the pandemic is taking a toll. 

The Covid-19 pandemic led to the country-wide lockdown on 25 March 2020. It will be two years tomorrow as I write this. What have we learned in this time? Maybe the meaning of resilience since small companies like us have had to rely on our resources and the forbearance of our employees as we have struggled to produce our trade platforms.

The print and packaging industries have been fortunate, although the commercial printing industry is still to recover. We have learned more about the digital transformation that affects commercial printing and packaging. Ultimately digital will help print grow in a country where we are still far behind in our paper and print consumption and where digital is a leapfrog technology that will only increase the demand for print in the foreseeable future.

Web analytics show that we now have readership in North America and Europe amongst the 90 countries where our five platforms reach. Our traffic which more than doubled in 2020, has at times gone up by another 50% in 2021. And advertising which had fallen to pieces in 2020 and 2021, has started its return since January 2022.

As the economy approaches real growth with unevenness and shortages a given, we are looking forward to the PrintPack India exhibition in Greater Noida. We are again appointed to produce the Show Daily on all five days of the show from 26 to 30 May 2022.

It is the right time to support our high-impact reporting and authoritative and technical information with some of the best correspondents in the industry. Readers can power Packaging South Asia’s balanced industry journalism and help sustain us by subscribing.

– Naresh Khanna

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