In this month’s issue we look again at some of the highlights of “Innovation in marketing through packaging technology,” the survey conducted jointly by Packaging World and the Graphic Communication Institute (GrCI) at Cal Poly. Last month the focus was primarily on levels of awareness and use where print-related digital technologies are concerned. This time we look at SKU proliferation and some of the competitive issues that might shape the package printing supply chain of tomorrow.
As with last month’s Part One coverage of this survey, we asked a small group of print-related technology experts for commentary on some of the data. Our experts include:
• Jay Dollries, President of Innovative Labeling Solutions, a Cincinnati-based converter of packaging materials that was among the earliest to embrace digital printing
• Malcolm G. Keif, Professor and Graduate Coordinator Printed Electronics & Functional Imaging, Graphic Communication Department, Cal Poly State University
• Colleen Larkin Twomey, Assistant Professor at Cal Poly State University
• Carl Joachim, a well-respected printing industry veteran who has been following print-related digital technologies and their impact on packaging as closely as anyone on the planet.
A good place to begin is with (Figure 1), where CPG company respondents picked the top reasons for packaging SKU proliferation at their company. The top vote getter at 45% was introducing more product variations. Not far behind at 36% was retailer demand for more package sizes and configurations, and third at 28% was a desire to better tailor marketing messages to specific demographic groups.
A look at (Figure 2) shows that converter respondents favored the same reasons in the same order when asked what is causing SKU proliferation among their customer base. The other thing that Figures 1 and 2 confirm is how widespread SKU proliferation is, as only 13% of Converter respondents and 10% of CPG company respondents said they are not seeing an increase in SKUs.
With SKU proliferation so widely recognized as a fact of business life today, the results shown in (Figure 3) should come as no great surprise. When the number of SKUs increases, print runs of packaging materials grow shorter, so naturally a CPG company would see a plateless, quick-change technology like digital printing as being a uniquely suitable solution for coping with short runs.
Where to go for short runs
If SKU proliferation is such a concern and if being able to get packaging materials supplied to them in short runs is perceived as a priority, where might CPG companies get the short runs they need? (Figure 4) sheds light on this question. Essentially intended to gain some insight into how CPG companies view the supply chain in general, this survey question also asks if contract packagers might become an alternative to converters if they offer digital printing as a capability. 75% of CPGs either agreed (30%) or somewhat agreed (45%) that contract packagers can meet short-run packaging needs and become an alternative to traditional converters if they offer digital printing as a capability. Only 24% disagreed.
So how many contract packagers are looking at digital printing as a tool they can use to build package printing business? (Figure 5) tells us that 20% are doing it and plan to increase it, 22% are actively considering it, and 14% are doing it but have no plan to increase. That means 55% lean favorably toward it while 45% have never considered it or have considered it and decided not to pursue it.
Who else in the supply chain might pose a threat to converters? How about commercial printers, the traditional producers of brochures, product literature, catalogs, direct mail, and newspapers. These firms have seen their markets shrink precipitously ever since Al Gore invented a little ol’ thing called the Internet, which reduced the need for so many of the printed products traditionally made by commercial printers. (Figure 6) provides some insight into where commercial printers stand on this. In fact, 34% of them say they are already doing some package printing and plan to do more. What’s stopping them, it would seem, is the cost of equipment. Substrate testing and certification and basic unfamiliarity with packaging are also cited as barriers to entry or expansion. But it’s a good bet that if cost of equipment weren’t as problematic as it is, commercial printers would be bigger players in package printing.
“This is particularly true for paperboard printers,” says Malcolm Keif. “In many cases, the commercial printer has the necessary equipment for folding cartons. Some even have in-line folder gluers so it is not too difficult a transition.”
Colleen Twomey makes this observation about the prospect of commercial printers getting into package printing. “It makes sense for commercial printers to expand their business model, to gain some familiarity with packaging prepress, structures, design, substrates, and in-line finishing. But they should also keep in mind that package converters don’t just print. They convert. That is, they create packaging on, for example, a flexo/folder/gluer. It would be unwise for a commercial printer to ignore the complexities of the package printing and converting business. These need to be taken into account before you just jump in.”
Comments from commercial printers
Commercial printers who took the survey were also given an opportunity to describe in their own words what pressing issues need to be addressed for their companies to adopt digital printing. “We have digital technology in our HP Indigo press,” wrote one. “The biggest issue we have is with finishing packaging products. It seems that with packaging materials it’s more difficult to complete the finishing processes required to get product out the door.”
Another commercial printer elected to comment on opportunities as opposed to issues that need to be addressed: “We have digital technology in our HP Indigo press. The bonus is that we can print on several new and different substrates that we might not have considered before. Now when we have an inquiry about packaging, we can supply it in prototype and small to medium quantities.”
To learn what converters themselves are saying about the competitive landscape, see (Figure 7), which tells us that only 34% of converter respondents are worried about commercial printers becoming competitors. Even fewer are worried about contract packagers getting into the package printing business.
“I’m not worried about either commercial printers or contract packagers getting into converting of packaging materials,” says Jay Dollries. “They’d have so much catching up to do. If I’m concerned about anybody it’s the ones who are already in the business. I want to make sure I’m innovating at a more rapid pace than they are.”
“At the end of the day, there is a lot of know-how that comes with package printing and converting,” says Keif. “The converter plays a critical role in not only decorating the package, but also converting the rolls and sheets into finished goods that make the co-packer’s job easy, withstanding the challenges of the supply-chain, and speaking to the customer at the point-of-sale. It isn’t for the faint of heart.”
Reflecting on the survey in its entirety, Carl Joachim makes this observation about converters.
“Certainly the survey points to the pressure that SKU proliferation is having on converters, pressure they’ve been feeling for some time. While the presence of digital printing will no doubt increase among converters, their business model and their relationships with both CPG procurement and CPG marketing will need to evolve from where it is today. These relationships will be essential for the full value of digital to be explored and realized.
“Overall I don’t think converters today see digital print as a key priority for investment, so they likely will put their toe in the water rather carefully. I think that spells opportunity for the early adoptors. They’ll need new skills and an ability to sell a higher-value product. But they should succeed as long as they remember that the value in digitally produced packaging isn’t just in the print process, it’s in what you are able to do with digital files from a marketing perspective.”