Label wars: The rise of in-mold labels

It’s obvious from the M&A activity that a lot of people really love packaging. Thilo Henkes, Managing Director & Industrial Products Strategic Advisor for L.E.K. Consulting (London), told attendees at last month’s IMLCON/IMDCON conference what most already know: “There’s enormous interest in the packaging environment.”

The number one reason for this, said Henkes, is that “the financial investor knows packaging doesn’t have the peaks and troughs that other sectors have. The wind behind our sails is brand fragmentation,” he added. “Brand owners are sub-segmenting their consumer base, which leads to fragmentation in brands and results in increased demand for packaging.”

Henkes also pointed out that there is a “mix shift” from glass to plastic in the rigid container sector and from pressure sensitive to in-mold labeling (IML) in the label sector. “Brand owners are interested in differentiating their packaging and improving performance, and injection IML labels are one way to do that,” he stated. “The increased demand for IML is also catching the eye of investors, which is contributing to the optimistic outlook for growth in the IML market.”

Henkes noted that one issue with growth in the IML label market is that a lot of businesses in IML are “sub-scale—too small—but as you become bigger the interest increases,” he said. “In North America we’ll see very strong growth in volume in the injection IML segment.”

But size is only important if it comes with share. As Henkes explained: “It’s better to be a regional player in the label market and have a relatively higher market share position than to be a national player in the label market with a relatively lower share position.”

In North America, the largest share of the IML market is in blowmolding (74%), with IML injection at 25%.

The “vast majority” of the injection IML market is in food, but some new applications have come on board, such as IML for paint cans. The personal care segment is of “specific interest to investors,” as this is an end market where brand owners are typically willing to spend more on packaging as a percentage of the value of the end product than in other sectors. "We see brand owners in personal care willing to spend up to 8 to 10% of the end product value on packaging, whereas it’s more like 3 to 5% in other end markets," he said.

Volume growth in IML will be greatest in the United States—about 7 to 9% per annum over the next five years, Henkes noted. “The United States will start to see more and more interest in this space, which will offer some good opportunities for converters to grow,” Henkes said.

While the opportunities are greatest for the United States, Henkes noted that the slow adoption rates over the past decade are a function of a lack of awareness and a misperception that IML is not price competitive. “A lot of packaging engineers simply do not know about IML, so there’s this lack of general awareness of the benefits of the technology,” he added.

IML can be less expensive than other label technologies, and there are aesthetic as well as functional advantages, such as the durability and better shelf stability for food and beverage products through barrier properties, which will be huge for this trend, Henkes explained. Also, weight reduction is a substantial benefit.

Currently, private label brands are incorporating IML to stay competitive on store shelves. “Private label (store brands) are willing to spend more than the Tier 1s,” Henkes said. “Many private label brands have increased their spending on packaging in an effort to compete more directly with Tier 1 and Tier 2 brands. As a result, private label brands are taking share in many product categories in food and beverage, for example."