2010 Hot Markets: Accepting the ‘New Normal’

Printing as we know it is declining, but hot new applications and markets should maintain our $200 billion revenue base in real terms. The overall economy, however, is sinking both into a double-dip recession and certain inflation in the New Year. Permanent diminishment of living standards and demand will become the "new normal."

Our industry's metamorphosis is evident in the magnitude of market shifts. Only three sectors within the top 25 will expand buys robustly at greater than 8 percent. Five other categories will demand between 4 percent and 8 percent more printing, while (ouch!) the remaining 17 sectors will be level or in decline.

By demand, the largest sector grouping will be foods/beverages, biting up 14.4 percent of total printing. Packaged foods ($968B, +8 percent; with more then $13.8B to print, +5 percent) is now the No. 2 buyer of print, feasting on labels, point-of-sale (POS) jobs and free-standing inserts (FSIs).

Bottled and canned foods leaders like Kraft (-6 percent) and Heinz (-5 percent) will fight lost share with increased advertising and brand acquisitions, while those like Goya (+20 percent) will cook up more ethnic varieties.

Agri-giants like Archer-Daniels-Midland (-5 percent) and Conagra (-3 percent), likewise, continue to move from the farm to the fork with downstream brand buys.

Feeding print will also be in-store aisle-end displays, shelf-talkers, coupons (including non-print telecom-delivered versions), FSIs, floor art and direct mail.

Most appetizing will be "very-smart" packaging for which large-format sheetfed providers must license the recipes. Boxes that sense consumer handling and content integrity, and respond with sounds and changes of color copy and backgrounds, will soon be on supermarket shelves—and should be produced on our presses, and not offshore or in in-plants.

Completing this grouping are No. 7 ranked beverages ($402B, +2 percent; with $10.0B to print, +2 percent) and No. 18 ranked food service ($712B, +2 percent; with $5.0B to print, +2 percent). Thermal-chromatic inks on cans and containers, and articulation and full-motion print in POS, will fizz and heat up these categories.

Fast-growth foreign brands like Foster's (+16 percent) will soon brew stateside, and increased consolidations at PepsiCo (-2 percent), Coca Cola (-4 percent), Diageo (-13 percent) and other parched players will pour out brand extensions to bloat shelf space.

Metal decoration, flexo labels and, especially, aseptic packaging in wines and juices will pop. New convenience food chains may be anticipated along with signage, FSIs, sanitary print and promotional items.

Full-service restaurants like Darden (+17 percent) are dishing up "dining experiences" with new cuisine concepts that are heavy in FSI and onsite digital decor print. Independent "day-part" kitchens, such as between breakfast destinations and pizza parlors, will combine with interesting couponing, menu and signage entrées. The established fast foods and take-away giants could be starved out as new franchises with ethnocentric offerings are built out.

McDonald's (-3 percent) is launching its "real life choices" program to provide dietary information that will be heavy in printed handouts and posters. Others will follow as the segment worries about obesity lawsuits. Gluten-free dishes will also be on the backlit panels and on printed inserts and handouts.

The second-place grouped buyer will be durables at 11.8 percent of all print. Government incentives will be reintroduced for first-time home buyers and those trading in vehicles and appliances for more resource-efficient models.

Real estate ($2.03T, -4 percent; with $11.3B to print, +automotive ($1.726T, -2 percent; with $7.9B to print, -3 percent). The majors, like Ford (+0 percent), the "new" General Motors (-15 percent) and Chrysler (-25 percent) are manufacturing one-half the number of vehicles that they did five years ago, and trimming brands, models and outlets.

This has stalled high-end sheetfed production of brochures and showroom graphics. In idle or crawling are event-related, large-format digital, functional multi-part forms, tags, utility print and open-web pasted books and FSIs, most to be driven at the intersection of dealer groups or local publishers. New global alignments, as with Volkswagen (-5 percent) and Suzuki (-31 percent), which will become the largest manufacturers, will drive print in the emerging markets, and with exports of new models to the United States.

Last in the durables sector, at No. 20, is home improvements ($666B, -8 percent; with $4.5B to print, -6 percent). Leaders Home Depot (-8 percent) and Lowe's (-3 percent) are stuck in the basement.

Lagging unrecovered real estate, these segments are not good prospects in the New Year except for those full-web, sheetfed and screen printers already supplying the largest participants. Contractions, as evidenced by the Stanley Works' (-16 percent) acquisition of larger Black & Decker (-23 percent), will consolidate brands and further reduce demand for packaging and promotional print.

A close third-place grouping (telecommunications ($1,168T, +5 percent; with $10.2B to print, +3 percent) is in a subscriber-acquisition frenzy, along with the biggest print gainer, electronics ($660B, +7 percent; with $3.5B to print, +13 percent) at No. 23.

Smart, intuitive devices with thousands of "apps" and inter-device transportability are 4G-ing with outdoor, transit, direct mail, POS and blister packaging.

An unmet ink-on-paper "opp" is promoting not-on-paper "apps" such as that by startup Textosterone, which directs consumers to mobile media via publications and postcards. New ventures like Clear (+145 percent) will dominate the wi-max space, which signals more event and out-of-home print media.

New prepaid providers will require in-store graphics at places like Walmart, where TracFone is setting up shop. Oppositely, more than 700,000 subscribers cut lines from the cable/wire services segment last year.

With heavy investments in "pipes" to the home, Verizon (+4 percent), AT&T (-2 percent) and other saturated connection providers will step up transit, outdoor, retail and direct response print to promote enhanced services. Comcast (+3 percent) will expand dramatically in content and into entertainment by acquiring NBC Universal. The largest-to-print segment of telecom, telephone directories, is in collapse as the largest provider, Idearc (-30 percent), is reduced to bankruptcy.

Computerware ($551B, +6 percent; with $9.9B to print, -10 percent) will crash now that Microsoft (+2 percent) and Apple (+25 percent) have completed their print-
intensive launches of Windows 7 and iPhone, respectively. Log on three years from now when 10,000-times-more-powerful quantum computing transforms this sector completely into the cloud.

PC makers Dell (-15 percent), Hewlett-Packard (-9 percent) and others have little time to invent and market 4G devices like remote printers and recorders to replace personal computers. Powered by soon-to-come online paid search revenues, Google (+25 percent) will become a major player in all forward media and, yes, in print publishing when titles and companies get cheap enough ("thanks" to Google's compromise of publishers' content and circulation data!).

Healthcare will be 10.3 percent of total print, but in critical condition for our medium. Medical/pharmaceuticals ($418B, +3 percent; with $13.3B to print, +health providers ($2.755T, +7 percent; with $7.4B to print, -5 percent) are bi-polar in the first-year disruption of so-called "universal" healthcare.

Containment of prescription drug prices will force takeovers by large, anemic pharmaceutical firms of smaller, growing ones. The Pfizer acquisition of Wyeth is the first of many to be completed in 2010.

Packaging and label printing, however, will benefit from increased unit demand. Most robust will be in the fast-growing generic/private brand segment led by Teva (+44 percent)! Big pharma is reacting with extended defensive marketing; very healthy for large-format sheetfed and display providers, direct mail shops and insert printers.

As hospital and physician fees are also capped, hospitals will cut marketing and utility print by one-fifth. The opposite diagnosis could occur among medical practices if we prescribe tangible alternatives to declining phone book advertising. If Congress repeals the anti-trust exemption in health insurance, interstate competition by providers and third-party administration will require more promotional materials.

With 9.5 percent of total print on account, is the financial sector. It consists mostly of No. 1 ranked banking/insurance ($3.5T, +0 percent; with $14.1B to print, -2 percent) and No. 17 investment/brokerage ($1.055T, +4 percent; with $5.1B to print, +4 percent).

Hot will be carrier-direct mail, plastic card, FSI and POS sheetfed and large-format digital products as banks phase out credit cards with debit cards and co-branded, region-specific prepaid debit and gift cards.

Consumer borrowing and refinancing, along with print to promote these practices, will be curtailed by commercial banks "too big to fail." They will, however, demand screen signage, sheetfed and digital advertising and mini-web document printing as these institutions use U.S. Treasury bailout money to acquire hundreds of small institutions "forced to fail" by the same regulators lending the funds.

The shortage of business credit will prompt new liquidity offerings from investment banks/syndicators and securities brokerages. Small cap could be big print for page-size digital and signature half-web operators. Recent and to-be-enacted federal acts will curb most traditional financial products and prompt the issuance of new derivatives in commercial paper, insurance settlements and commodities.

A market rally from the close-down and rebranding of hundreds of brokerages will result in short-term gains in outdoor screen signage, indoor large-format digital and sheetfed decor and display, and even business forms.

Property/casualty and life insurance are negative until late '10 when the next merger—and new names—cycle builds print buys. MetLife (-23 percent), Prudential (-9 percent), State Farm (-2 percent) and others will combine or be acquired by foreign insurers and banks.

In fourth place will be publishing/non-newspaper ($87B, -10 percent; with $13.0B to print, -8 percent). This agonizing shred-down of bound book and magazine demand will empty out most of the remaining so-called full-web heatset plants.

Book publishing in professional and academic segments, such as Wiley (-4 percent), are faring better than the adult/juvenile trades, as with Scholastic (-16 percent). American Greetings (-12 percent) is indicative of the licking of print and envelope converting by e-card erosion.

Worst off, after the newspaper giants Gannett (-18 percent) and the NY Times (-17 percent), are periodicals such as Hearst (-15 percent) and Time Inc. (-10 percent).

A new joint venture by these and other magazine publishers will set up an e-newsstand for teaser content, copy sales and subscriptions—all to bypass the toll booths of smart phone and e-reader makers. Hearst's Skiff is in the running among the publishers that, increasingly, recognize the value of their content and reader database.

Cross-platform media providers with robustly personalized content on-demand, maintained by our experienced industry, will supplant and gradually gain parity with traditional print. E-distribution, now at a 1:33 ratio to print, will surpass our medium within 10 years. We must therefore become content formatters and disseminators for print, as well as tablets, mobile devices and other access methods still to come.

Our revenue model will evolve from discreet unit pricing to variable subscription sharing. Fire the estimators!

The societal sector collectively accounts for less than 6 percent of total print demand, and is dropping. Security/protection ($205B, +3 percent; with $4.5B to print, -6 percent) ranks No. 21. Data/document integrity security ($1.6B to print, +14 percent) is the top security product as hackers and cyber-thieves take over tainted Websites and VML code-flawed e-mail programs and browsers with large-scale spamming. VeriSign (+5 percent) and Semantec (-3 percent) are on the defensive.

Radio frequency identification (RFID) chip embedment and reading haven't penetrated, so-to-speak, but nanotech and biometric recognition will have greater value in tags, labels, passports, licenses, decals, legal documents, folding cartons, POP, books and most every other form of print and converting.

Smart labels and packaging will change appearance and visual information, and provide instructions for appliances and other consumer devices for $3.9B in print, +4 percent.

Higher education ($175B, +7 percent; with $3.1B to print, +1 percent) remains No. 24 as a buyer. Alternative proprietary higher education is the only growing segment, expending one-third of tuition income on recruitment and retention.

Print gets top grades in outdoor, transit and FSIs. Apollo (+15 percent), Devry (+17 percent) and 100+ additional for-profit schools are gaining share from private, state and community institutions. The latter continue to cut back on promotion.

The only curriculum for print are digitally versioned and produced course materials, still mostly controlled by textbook publishers, but migrating to in-plants and outsourced reproduction facilities. Athletics and cultural events print growth will pass 5 percent.

Government/federal and state ($6.185T, +13 percent; with $2.9B to print, -3 percent) will continue to print a record amount of currency at the Fed, and ink a long run of debt at all levels. The biggest outsource will be 2010 Census forms, badges, shirts, signs, billboards, doorknob hangers and mailers.

Beyond the usual GPO procurements, there will be less on paper as the Internet takes in most content and dissemination. Worse, cash-strapped states will opt for sole-source procurement through unaccountable NGOs (non-government organizations).

At last place in average print demand change (-7 percent) are seven disparate categories of consumer discretionaries. Three are positive.

Travel/hospitality ($739B, -7 percent; with $7.3B to print, +4 percent) is No. 12 overall. Hotels, resorts ($3.4B to print, +17 percent) are opening new destination properties, and rebuilding and branding existing ones, at record rates. But business travel is erratic.

Airline posters, inflight magazines and frequent flyer direct mail are in a holding pattern, while tickets, printed napkins and (uh) menus will be jettisoned. When mergers and cross-ownerships take off, there will eventually be new names on the planes and everything else printed.

Discount retail ($1.16T, +7 percent; with $5.3B, +4 percent to print) is No. 15. Walmart (+0 percent), Target (+1 percent) and Costco (-3 percent) have leveled for the first time, and will have to reinvent in 2010 and beyond with catalogs, loyalty programs, FSIs, outdoor and other advertising that hasn't been necessary previously.

The mini-box, off-price stores like Dollar Tree (+12 percent) and Dollar General (+11 percent) are ringing up new customers in the big cities, as well as in one-store, small towns. They, and consignment stores, should be sold on our medium for store graphics, store coupons and other below-line media.

The fastest growing discretionary for print will be No. 16 ranked entertainment ($780B, +7 percent; with $5.3B to print, +10 percent). Motion pictures will project double-digit growth as Walt Disney (+6 percent) and other studios roll out a record number of films and spinoffs, such as interactive DVDs, games and mobile applications.

Spectator sports are home runs with record attendance and merchandise sales scoring big for large-format screen signage, sheetfed programs and posters, sublimation and embroidery apparel, and other branded items.

Live events will book more venues and demand one-tenth more tickets, souvenir print and promotional items. Live interactive entertainment will grow at the expense of games into such apps as CNN's neighborhood news, Jelli (+125 percent) radio's listener-controlled music programming and Boxee (+200 percent) remote access television. Outdoor, wall-
scapes and transit print will direct consumers to these new offerings.

Now, the negative demanders in descending order: Fashion ($511B, -11 percent; with $8.3B to print, -3 percent). The luxury/department stores segment is indicative. Tiffany (-27 percent), Neiman-Marcus (-24 percent), Saks (-15 percent) and most others have stripped down.

Catalogs, however, will remain at 2009 levels, as all the cuts in size and circulation have been made.

At No. 14 will be personal care ($352B, -7 percent; with $5.8B to print, -5 percent). Marketing makeovers to overcome aging in skin care, color cosmetics and toiletries at Estée Lauder (-7 percent), Revlon (-3 percent), Avon (-3 percent), Mary Kay (-13 percent) and others will apply ultra-slick packaging, labels, POP and spectacular-type magazine inserts.

Drug superstores will cut back FSIs because revenue growth is high. CVS Caremark (+18 percent) and Walgreens (+8 percent) are trying mobile media, and many will never resume weekly print distributions. Screen and large-format print for in-store decor and seasonal promotions are the print prescriptions.

There's little time for leisure activity ($429B, -11 percent; with $3.6B to print, -5 percent) at No. 22. Recreation vehicles and fitness, pools, gyms and clubs will continue to be parked and empty. As locations close, the demand for FSIs, membership cards, mailings and signage will be down.

Sporting goods players Dick's (+7 percent), Hibbett (+4 percent) and Sports Authority (+0 percent) will maintain print buys, while horticulture hobbies will sprout with the aging population. Scotts (+7 percent) is very green in this brown economy.

Packaging, outdoor, POP and magazine inserts will be choice media for manufacturers and retailers.

Gaming/wagering ($628B; +3 percent; with $6.7B to print; +>8 percent) will up the ante to entice and maintain players as disposable personal income lands at "00" on the roulette wheel.

Harrah's (-7 percent), Boyd Gaming (-7 percent) and other casino/wagering parlors will astutely use their databases to become the fastest-growth personalized direct mail buyers and information resellers. Co-venturing for cross-market cross-media management is a winning "hand" that our industry should play with co-branded and sponsored gaming vouchers and comps.

State/provincial lotteries are also flooding game cards, POP, outdoor and other print collateral to obtain deficit-mitigating "scratch."

In the business-to-business space will be No. 19 ranked logistics/freight ($592B, -4 percent; with $4.9B to print, +0 percent). With the USPS (-4 percent), UPS (-17 percent) and FedEx (-10 percent) declining in mail and package volumes, printed carriers, envelopes, multi-part forms and vehicle decals will be stalled.

The only graphic opportunity is in digital signage and wraps on trucks. This segment is desperate for revenue from printers that can triangulate and match advertisers to freight routes, and then produce the graphics. No ad agencies necessary.

These 25 hottest markets should account for 67 percent of U.S. GDP, and 93 percent of all printing sales.

Off the list, but worthy of sales attention, are No. 26 energy ($4.05T, +16 percent; with $2.3B to print; -15 percent), No. 27 business/professional services ($481B, +8 percent; with $2.0B to print, -13 percent), and aerospace/
defense ($148B, +2 percent; with $2.0B to print, +0 percent).

Rank the relative presence of each category in the geographics of your plants and sales offices using the U.S. Department of Commerce data in its County Business Patterns, available online at commerce.gov or in print at any reference library. PI

About the Author
Now in its 31st year, Vincent Mallardi's "Hot Markets" is the longest, continuous forecast of the printing industry by sector, region and product. The complete, "Hot Markets 2010-2011" 196-page edition is available for purchase by contacting the author at vince@pbba.org.