Why Commercial Printers Are Getting into Packaging

Guest Interview

Kevin Karstedt, CEO, Karstedt Partners, LLC

Over the past 10 years, commercial printing firms diversified into fields such as omni-channel marketing services and wide-format printing. A growing number of commercial printing companies have already expanded into package printing and many more are considering it.

In this interview with our blog team, packaging industry consultant Kevin Karstedt, CEO of Karstedt Partners LLC explains why commercial printers are expanding into packaging and why traditional packaging companies should pay attention.

Q. Are commercial printers getting into packaging? If so, why?

KK: The short answer is yes and here are some indications why from two recent studies, first from a Print United study in the fall of 2020 that stated that North American commercial print volume was down 13.4% in 2020 and revenue was down 7.5%. Second, in a Smithers PIRA study “Future of Print to 2030” forecasted overall growth in global printing growing at only 1.3% GAGR to 2030. Later in the study they state that packaging accounts in 2020 for 40% of the total but will grow to 60% of by 2030. So with commercial print declining or flat and packaging growing significantly where will the smart money be going?

When Printing Impressions released their 2021 list of Top 350 commercial printing firms, we picked 12 companies off the list who said that a portion of their revenues came from packaging. These 12 companies had total revenues ranging from $20 million to $125 million a year, and reported that 1.5% to 11.5% of revenues came from some form of packaging or labels.

When we added up the packaging revenues from these 12 companies, the total was $59 million a year. (This is roughly equal to the total revenues generated by a good-sized company that specializes in printing folding cartons).

None of these 12 commercial printing companies are working with the major buyers of packaging for consumer goods, such as P&G, Unilever, Kraft, and General Foods.

Instead, these commercial printing companies are producing packaging for smaller, local and regional product marketers, such as Tom’s Bake Shop or Marcie’s Pizza.

There are literally tens of thousands of local and regional small manufacturing businesses in the U.S., These are the companies that commercial printers are going after.

Because these small to mid-sized companies also buy business cards, brochures, and display graphics, their commercial print suppliers are already trusted suppliers. The print sales people already know who buys print in these small companies and has a relationship with them.

Unlike large brand owners that have marketing teams and purchasing departments that buy printing and packaging, these small businesses have from 10 to 100 employees. In some cases, the person who buys the printing is the entrepreneur who started the business. These business owners are likely to call themselves microbrewers, wine makers, or nutraceutical guys.

By offering packaging, commercial print companies can become a “one-stop shop” for small businesses. Instead of wondering who to call when they need different types of printing, they already know who to call when they need something printed. Commercial printers who are successfully getting into packaging are leveraging their relationships with their existing customers to bring them more value and greater levels of service.

Another advantage of working with smaller manufacturers is that they won’t expect you to match specialized brand colors. Instead of asking you to consistently hit Coca Cola red, your customer may give you a Pantone color they like and ask you to see how close you can get.

Q. What types of packaging are commercial printers getting into?

KK: A commercial printing company that serves small local manufacturers can quickly and easily supply pressure-sensitive labels. There are dozens of digital benchtop, desktop, or counter top CMYK printers that can print rolls of labels. These small label printers could add hundreds of thousands of dollars in revenues to the print shop with a modest investment in equipment, inventory and training.

Companies with a B1 or B2 sheetfed offset press can produce folding cartons. Most offset presses can run paper and paperboard. It may require some modifications to the machine, because running paper and paperboard isn’t exactly the same, likewise it will take some added training and learning to run carton materials but it can be done.

To produce folding cartons, you used to have to be able to print on 24-pt. board, which is a fairly thick substrate. Today, many products are produced on 18 to 20 pt. board with many products packaged in cartons made with 14 or 15 pt. board. These boards are easier to print and closer to what a commercial sheetfed offset printer is already accustomed to when printing.

Many commercial printers already have HP Indigo 10000 or 12000 or Xerox iGen digital presses. In addition to printing on paper, these machines can print on these medium gauge substrates.

These lighter weight boards are ideal for new applications, such as promotional keepsake boxes that some small businesses buy instead of presentation folders. For example, a realtor can put his or her photo and phone number on a gift box filled with candy and even have an image of the property on the box.

The issue with folding cartons is that the printed boards must be die-cut, folded, and glued. Many commercial printers already have die-cutters. Some commercial printers that get into folding cartons outsource the folding, gluing, and embellishments until they are doing enough folding carton work to justify buying specialized equipment.

Q. Is it too late for commercial printers to get into packaging?

KK: No. A lot of the packaging work that commercial printing companies are capturing is new business. This new work isn’t yet being tracked in traditional forecasts for packaging print volumes.

Getting into packaging can be a good way to diversify. You can get 30 to 40% margins for producing folding cartons, which is significantly higher than traditional commercial printing work. Small businesses that buy folding cartons aren’t as price conscious as the big buyers who are trying to bang you down by fractions of a percent and are buying billions of cartons. If you deliver quality products and great service, the small businesses are less inclined to nickel and dime you.

Commercial printers that are smart about how to price folding cartons can make more money per product than printing commodity products such as brochures and business cards.

Q. Will diversification into packaging make a commercial printer more attractive to private-equity groups that are looking to acquire growth-focused print businesses?

KK: Anything that a company can do to improve their bottom line and make them look better on a balance sheet will be looked at more positively by private equity.

But getting into packaging isn’t something you can do if you want to sell your business in the next two years.. That’s not going to work, because you’re going to lose money in those first two years while you build up your packaging revenues.

The time to get into packaging is 5, 8, or 10 years before you want to exit your business. It takes time to ramp up and build a steady base of customers for packaging.

Q. What other advice would you give to commercial printers?

KK: The COVID shutdowns proved that many small manufacturing companies are resilient and innovative. They have embraced e-commerce and many small companies sell products directly to consumers through Amazon or their own websites.

Commercial printers who have a good web-to-print environment for their business customers could offer B2B e-commerce storefronts for small manufacturing companies.

A significant number of digital packaging printers already offer e-commerce solutions to their customers. Thanks to automated workflows, boxes, cartons, and labels can be ordered, proofed, and produced with very little intervention from skilled prepress or press operators.

The business buyer goes to the website, selects the layout, adds the text and images, and then proofs the content. The approved job goes directly into the print production workflow.

It’s similar to the way photo books are produced today. Very few people at the print shop actually touch the job until it’s ready to load on a shipping truck.

Q. Should incumbent package printers be concerned about the growing number of commercial printers who are interested in getting into packaging?

KK: Not right now. But over the long run, some of the small companies that buy packaging from commercial printers today will turn into big companies. In some cases, commercial printers will benefit from the growth of the small manufacturers. But some major consumer brand companies acquire fast-growing small businesses so they can capitalize on their agility and innovations.

There is opportunity for both conventional packaging printers and commercial printers in the packaging space.

Commercial printers should look at packaging as a major opportunity and start to make it happen for them. Conventional package printers should look at this transition period as a wake-up call to add new digital capabilities for their customers.