4th drupa Global Trends Report 2017 Executive Summary
Two years ago we were able to report an almost universally positive picture from both printers and suppliers reporting on their own companies economic health, described as the drupa barometers of economic confidence. Last year the picture was more variable between the regions, with some doing well and others struggling. It was a similar picture in 2016, however the variances were even larger.
Nevertheless in global terms, 42 percent of printers1 described their business as in a good economic state, whilst 1 percent described it as poor. So a positive net balance of 31 percent and it is that net balance that we show in the chart below and is used in many of the subsequent charts. As always, the forecast for next year is somewhat more optimistic than the reality the following year, while in some cases the difference is striking, eg Africa, which reported a net decline in confidence, the first time for any region since this report series started in 2013.
Drilling down into end market sectors, functional and packaging printers globally are more confident than commercial printers, who are in turn more confident than publishing printers, a pattern that has been present since 2013. However, that global summary masks significant variations at regional levels. Publishing printers in Africa and Asia were more confident than those in commercial print, and it was the reverse of that in Australia/Oceania and the Middle East.
In general, it is a similar positive story for suppliers, with 56 percent reporting their company in a good economic condition and just 6 percent stating it was in a poor state, a positive net balance of 50 percent the same as last year. Curiously, the regional variations are less than last year.
Perhaps amongst both printers and suppliers in general a more cautious (and perhaps more realistic) outlook is emerging. The economic summary in the main report indicates there is good cause for that caution.
The printers and suppliers own more detailed financial performance figures support this more conservative view. Printers globally report continuing falls in prices, which are compensated for by increasing utilization and hence raising overall revenues at a cost of falling margins.
Drilling down into the data both by region and by market sector, the picture is more complicated, eg South/Central America and Africa reported net positive price increases while the Middle East reported severe price and margin falls. Similarly, publishing printers in North America show falls in revenues, prices and utilizations; in South/Central America and Africa, rises were reported in all three measures.
Despite the general squeeze on margins, employee numbers continue to rise globally with a +9 percent net balance, ranging between 21 percent North America and 0 percent South/Central America and Australia/Oceania. While production employee numbers increase globally by 9 percent, there is a small decline in administration employees of 2 percent. In the more developed regions, numbers employed in publishing printers are falling sharply, eg down 21 percent in North America.
Globally for suppliers the pattern is similar, with revenues up 17 percent but prices down 24 percent and margins down 27 percent (nevertheless the best, i.e. least negative, net balance in three years). Again, the picture is patchy regionally, with the Middle East and South/Central America struggling.
You might expect that global and regional financial market conditions would affect printers and suppliers alike. Not so. Globally, printers report better financial conditions this year on all topics (except average debtor days where they, like suppliers, reported a worsening picture). Globally, suppliers report a worsening on all topics, with terms getting worse particularly in South/Central America, Africa and the Middle East. Printers agree in these regions.
Printing is a very diverse industry when it comes to the print technologies used. Fourteen out of 16 technologies listed scored a 10 percent or above penetration in at least one of the market sectors. Overall, digital toner cutsheet color presses led by a wide margin in terms of the positive net balance of print volumes in 2016, up 25 percent, followed by digital inkjet rollfed color, up 11 percent. The picture is more complex when you drill down into the market sectors. For example, there is 8 percent growth overall in sheetfed offset, thanks largely to packaging and publishing markets and an 8 percent growth overall in flexo, due to packaging and functional markets.
Past trends in the production mix of conventional print continued this year with ever-shorter run lengths, ever-shorter lead times and an ever-increasing number of jobs. However, there was a major surprise in the apparent irreversible transition to digital print; as for the first year, there was a small but distinct reduction in the proportion of turnover that was digitally printed. Drilling down into market sectors, digital print is clearly having the greatest impact in functional markets, followed by commercial, then publishing and then only modestly to date in packaging.
Disappointingly, the proportion by value of digital print that is variable stubbornly refuses to rise. In 2013, 19 percent of the printers then using digital print reported more than 25 percent of their digital print was variable, while the figure for 2016 is 18 percent. As variable data is the major added value component of digital printing, this is an alarming trend.
Another striking figure this year was the clear fall in the proportion of printers that reported a web-to-print/storefront installation. After several years of steady increases, this year there was a significant fall down 3 percent globally. Not all regions fell, but some were decisive, eg North America, down 25 percent.
The drupa expert panel was recruited afresh from attendees after the very successful drupa in spring 2016. There they saw an incomparable technical demonstration of the future of the print industry, so it is natural that they hold ambitious plans to invest in that future. Printers in all regions, except the Middle East, reported growing levels of capital investment. Functional and packaging printers were more confident of rising investment levels than those in publishing and commercial sectors. For the first time, investment in Finishing is the top priority, closely followed by print technology. However there is greater investment in prepress/workflow/MIS as printers begin to realize the need for greater automation.
As for plans for investment in print technology, sheet-fed offset has knocked digital toner cutsheet color off overall top place, with digital inkjet cutsheet color growing rapidly to take equal third place alongside flexo. Drilling down into market sectors there is for the first time in this reports history, i.e. since 2013, a different market leader in each market sector, with digital toner cutsheet colour in commercial, sheet-fed offset in publishing, flexo in packaging and digital inkjet rollfed color in functional.
Suppliers capital investment plans remain strong globally, with most regions forecasting a net increase. The exceptions are those regions struggling in performance terms, eg South/Central America and the Middle East. By far the most popular investment type is the development of fresh sales channels (46 percent) but even Research and Development, the least popular type of investment, is up to its best level yet at 20 percent. Suppliers will spend more next year on marketing, and while trade shows and product training remain the most popular uses of that budget, online content and education is almost the fastest growing customer support tool.
Strategically, both printers and suppliers agreed the biggest constraints to growth were a lack of demand, creating strong competition. But drilling down into the causes of the lack of sales, printers agreed that finding new customers was the most difficult, while for suppliers it was competitive pricing. As to how best to drive improved profitability, printers put their faith in a combination of reduced staffing/improved productivity and new print technology, while suppliers will rely on new products and new sales channels.
Market specific trends
Commercial printers facing the impact of digital communications have been encouraged to find new revenue streams with fresh added-value services. With four years of data now available, it must be reported there is no evidence of any such growth, with the notable exception of wide-format print, up from 37 percent in 2013 to 50 percent in 2016. North America leads the way in adding new services, but even in that region there is some evidence of a fall in the range of services offered. Multichannel or cross-media services are still a minority application (18 percent globally), although again North America is well ahead (38 percent).
Publishing printers are having the hardest time in adjusting to digital media, as evidenced throughout the report. An increasing number of titles have online editions, with the consequent reduction in circulation although the number of titles lost to online-only editions remains very low. Other means of creating added value such as personalization, versioning and variable content are growing, but slowly. Once again North America is showing the way. Yet relatively few publishing printers are infusing fresh added value services beyond the historic prepress, design and storage/fulfilment options.
Packaging printers have seen a relatively small impact of digital media to date and remain generally confident across all regions. On the other hand, the level of adoption of added value SKUs remains modest in most cases, with interactive features the most common to be adopted. It is clear that digital print is starting to have a real impact (32 percent offer it globally), most commonly for labels but with flexibles and folding cartons following and some signs for corrugated.
For functional printers the story remains very positive, with those in this market sector putting ever more resources behind it as they enjoy good growth rates in most applications. Inkjet is the dominant print technology for most applications up from 61 percent in 2014 to 74 percent in 2016.
Following the successful drupa in spring 2016, this survey has provided the statistical support that shows print is recovering from the double hit of the global recession and the impact of digital communications. Printers report sustained improvements in revenues to offset reductions in pricing and margins and strong capital investment plans. For suppliers, improving revenues and margins, couple with strong investment plans, show a positive future.
The good news is not universal; while functional and packaging print are in expansive mode, publishing print is in a more defensive mode, with commercial print somewhere in between. In regional terms, the Middle East has chronic problems undermining performance and Africa and South/Central America remain fragile.
All print companies must continue to adapt and meet the market challenges head on. This will mean a ruthless approach to efficiency and automation while at the same time learning new skills and developing new added value services. Nevertheless, it is pleasing to report that overall, print has got its mojo back.
1. Numbers of printer participants by market sector and region are given in the Appendix. Supplier participants reporting for a region may or may not be based in that region. As most suppliers serve multiple markets in most cases, there is no attempt to analyze by market.