The Indian label industry has been quite resilient to market oscillations over the years. It has constantly been registering a positive CAGR (Compounded Annual Growth Rate) and attracting investment over the last two decades. Even in the time of economic slowdown or the great global recession of 2007-2009 the Indian label industry was still growing, though at a lesser rate.
The investment in new label presses and equipment that were technically more advanced offering automatic registration control, faster job change overs, short web path and reduced wastages was never stopped, it may have paused for a couple of months but would bounce back. This has been primarily due to the growing demand of consumer products sale emanating from an increasing number of literate young people with gainful employment and higher disposable incomes in their hands. A large population, predominantly rural and which is second in numbers only to China has a middle class that is getting urbanized being exposed to changing lifestyles courtesy the TV channels or networks and mobile telephony is adopting the modern day global living and shopping standards. From buying essential needs from neighborhood stores in lose condition they have been shifting buying packaged commodities and consumer goods from organized retail outlets and fancy malls offering an amount of safety mentioning manufacture and expiry dates with price and product safety information. This culture has continuously provided fillip to the growing demand of consumer goods and subsequently to demand of good labels and packaging. Unfortunately, the present situation created by the spreading Covid19 virus has put everyone in a state of worry, high alert and caution.
The virus has caused colossal loss of lives around the world besides infecting millions who are fighting to recover from the effects of this life-threatening pandemic. Originating in Wuhan China the first lesson learnt to contain this virus also came from there, to curtail the spread one must resort to complete lockdown of the city.
Once the fatal consequence of this fast spreading virus was witnessed in countries like Italy, Spain, Iran and many others, the Modi government in India took a timely decision to put the entire country in a state of lockdown initially for three weeks. This may have slowed down the spread to a great extent but since the danger loomed over the large population, the lock down was extended for another 3 weeks. The initial days of lockdown was like a vacation but when the reality of its impact on life at all levels of humanity became evident it has surfaced as a nightmare. On the 3rd of May 2020 when the extension of lockdown ends, we are left wondering if the lockdown will be lifted completely or partially and when life will return to normal. With Malls, airlines, transport, bus services, restaurants, markets, industry and business at large all closed, life has come to a standstill. The imagining of job losses, no revenues coming in, salaries and expenses payable for businesses and receivables for the salaried, not coming makes one sit up and wonder how will life move ahead like this?
The impact: Most label companies are family owned and run on the rotation of funds model with extraordinarily little funds parked anywhere for such contingencies. Now with no payments coming in due to lockdown and customers having a valid reason that they are closed in a similar situation the result is evident. It has a cascading effect on the industry.
The workforce consists of temporary, casual, permanent helpers, skilled and management staff. Most of lower and middle level workforce are migrants who have travelled long distances from their villages and live in rented accommodation on what they get each month getting their rations on credit from neighborhood stores. In the current scenario and no permanent solution in sight they are left with no option but to return to the safety of their homes in villages where they have roof on their heads and meagre agricultural incomes to feed them but without the fear of getting infected. Since Government directive says salaries and wages must be paid in full during lockdown label printers are in a dilemma, how to pay when no revenues are coming in. Production is stopped, receivables are not coming in, both fixed and recurring expenses are accumulating, bank instalment and interest adding on, maintenance is needed to restart, security personnel have to be in place, minimum electricity charges have to be paid, imports are attracting customs duty and incurring demurrages, all together the situation seems to be grim.
Consumer spending for the present is going to change completely and buying will be restricted to bare essentials. Visits to malls and markets or such public places will be restricted to avoid getting infected.
Travel by air, rail or state roadways is virtually stopped and will be immensely hit, this will also similarly impact restaurants, cinemas, shows and events. Biggest sales of garments originate from shops in malls and dedicated markets, these are likely to be impacted adversely. Label is one item that finds usage in all business segments, may it be product labels, Garment labels, Barcode labels, Baggage tags, Automotive labels, Lubricant labels, Computer labels, etc. The garment labels that account for almost one third of the total usage of labels is likely to see a big decrease in demand. Baggage tags is another area that will hugely impacted until air travels picks up to pre-Covid 19 levels or more. With all these indicators pointing towards a shrinking demand, printers are a worried lot and for this reason they have put on hold expansion plans for the time being and at least for the current financial year we do not expect any major expansion decisions coming in. Those deals made earlier may have to be honoured and installations may happen. However still the printers would like to put on hold these deals so as to wait and watch. Since the entire supply chain is affected the resources also become limited, supplier credit may reduce on the other hand customers demand for more flexible terms will arise. The industry will be looking at government support to keep afloat.
With most travel plans shelved print shows postponed or cancelled; it is evident that this downturn will have its full impact during the current financial year which for Indian companies is up to the 31st of March 2021. Hopefully by then a vaccine has been developed and life may start returning to pre-covid state.
Until then investment will remain extremely low or on hold and customer visits will also be limited, alternate business strategies will have to evolve and ways of doing business will change for good. One thing is sure that eCommerce will emerge a winner in this fight against the pandemic. People will try and order things online and receive at their doorsteps, sanitize them and use. The system may become a habit for all time and a large part of the buying will happen that way. Labels and packaging for ecommerce may also undergo change as the imperative need to tempt the buyer to pick up the product off the shelf at point of sale is not there, so embellishment that increase the price of labels and packaging can be cut for ecommerce.
The brighter side: The Pandemic is not going to last forever. The one that came over a hundred years ago was at a time when science was not that advanced, to day when the technical capabilities and research is extremely advanced it will not be long before a vaccine is invented and the world is freed of this menace.
All the earlier epidemics also came and went away so we must look at things positively and wait for better days to return soon. This pandemic has brought the global opinion against China as it is believed that this was created by them, one must wait and see if there is any proof of such a thought process. Meanwhile global multinational companies have started to consider moving their international manufacturing hubs. India does look to be a preferred destination being a democratic, English speaking country with one of the largest educated and technical workforces. The Indian government needs to create conditions to make the full use of this opportunity by simplifying the entry procedures and ease of operations without unreasonable red tapism. This will attract foreign direct investment and also expand the economy and facilitate return to continued growth.
The way forward: Our label printers need to positively use this lockdown time to make strategies to revive their business, list their strength and plan to put them to effective use to grow their businesses and make it future ready. Create an entity that is resistant to external contingencies. The business must be reinvented to be system driven rather than human driven, integrated workflow automation and distant operation possibilities need to be evolved.
All segments of customer service from development, planning prepress, production planning, printing, logistics, servicing and up to point of sales support need to be brought to a unified electronic platform to make it an extremely satisfying experience for the customer reducing the human involvement to minimum once an order has been initiated. In coming time dependence on online business is going to be the future. Selling via ecommerce model, creating labels from computer to either digital print or initiating the other processes will have to become the operational way in future. Printers need to keep reviewing their planning, updating themselves with latest techniques and processes. They need to create free time to make human contact with important customers when the situation warrants that also through online meetings until things are back to normal
So that we realise and feel that we are human beings and not machines or computers; Once we are back to normal do go over to your customer for a natural desire of meeting personally and giving a warm handshake plus a big hug!!!
Written by Harveer Sahni Chairman Weldon Celloplast Limited New Delhi India April 2020