Top 30 Book Manufacturers — The Plot Thickens

IF 2007 goes down as "The Year of RR Donnelley," it will do so as a result of a 65-day span at the turn of the year, during which the conglomerate announced it would acquire three industry stalwarts: Perry Judd's, Von Hoffmann and Banta Corp. But the past year has been about more than consolidation and leveraged buyouts.

North American printers continue to grapple with the mounting menace that is offshore manufacturing, fluctuating paper prices amid a series of mill shutdowns, and the ever-evolving technological demands of their customers. And yet, despite these challenges, there are also a number of opportunities facing the market.

In this special report, top executives from five of the companies on Book Business' (PRINTING IMPRESSIONS' sister publication) 2007 listing of the Top 30 Book Manufacturers offer their insights into the influences shaping today's book manufacturing market.

This year's listing remains largely in line with last year's Top 30. Still, consolidations and takeovers opened the door for a few newcomers to the list, including Commercial Communications Inc., Data Reproductions and Integrated Book Technology. Visant Corp. again claimed the No. 1 spot, as RR Donnelley's refusal to report revenue garnered from books precluded their inclusion on the list.

Book Business' annual list of North America's Top 30 Book Manufacturers serves as the industry's most comprehensive ranking of the leading public and private book printers in the United States and Canada. Revenues for Canadian companies were converted to U.S. dollar equivalents, where applicable. The rankings include financial information voluntarily provided by privately held firms.

Despite Book Business' repeated attempts, some privately held companies refused to divulge their annual printing sales figures--or would not break down these sales by book revenue--and, therefore, were not included on the list.

BOOK BUSINESS: Have you seen any specific changes within the book manufacturing market over the past year?

KEVIN CLARKE: One of the things we're seeing is...the continued modernization and recapitalization of production assets, really based on several things. One, looking at where the market is headed, you have to have the horsepower to drive the huge book [the bestseller]...the opportunity book that comes about and has a potentially short lifespan. Second, [there is] a trend toward aggressive supply chain management, so you have a lot of smaller reprints. Much of the asset base is non-competitive in the U.S. market for that type of trend, and that's the reason we made our investments [in the company's production assets].

The other thing we're seeing is an impact on the U.S. market...with continued offshore manufacturing growth.

JACQUES GREGOIRE: We're seeing faster turnaround times and cycle times. We're also seeing more automation in prepress, and the use of a lot more digital and electronic communication on that side to shorten the cycle time. We have also seen a lot more use of the wider webs and more output per man per hour. When publishers have time, they...save money by going offshore. Those who remain here typically are looking for much faster turnaround and cycle times.

JULIE MCFARLAND: The interdependency of the firms involved in delivering books from concept to consumer was reinforced last year. We worked closely on financial terms with a number of customers who were severely impacted by the bankruptcy [at Advanced Marketing Services].

TUCK KREHBIEL: The major changes within the book manufacturing market that we have identified the past year or so include some growth in volume and a guarded confidence within the market since conditions are stable overall.

BRENT HEGWOOD: Rising paper costs and the need to reduce costs associated with excess inventory and scrap have driven the market to dramatically reduce run lengths. Short-run, on-demand printing is increasingly becoming the trend among book manufacturers.

BB: What challenges is your company facing these days, and how are you responding?

CLARKE: If we look at a consistent trend, it's supply chain management--on the publisher's side--to...make sure that if they get a hot [book], they can have books at the right spot at the right time to maximize every sale. [Supply chain management] also helps to minimize overprinting, which leads to returns. That philosophy has been embraced universally. So the challenge for us is that there's a fixed amount of manufacturing time.

You can improve that with new equipment, and the investment that we've made in our platform as a company has really been geared for that. We've invested more than a billion dollars [company-wide] over the last three years.

With the wide-format presses and the very efficient makeready presses, you have the ability to do both. When you have a high-page-count, high-quantity book, you're able to get the presses and crank out a lot of books. And, at the same time, when there's a valley in between those huge best-sellers, there's an opportunity to use these very efficient makeready presses to do the short runs. And I think that's been the collective challenge for both the publishing and the print communities.

GREGOIRE: Mergers and acquisitions. Everyone is buying everybody out, so it seems as though there are less and less customers out there.

MCFARLAND: The rapid changes in technology challenge us to explore all options before investing in new equipment to ensure we can meet our customers' demands, as well as future needs. Discussions with our customers regarding their business strategies and issues are the basis for assessing the capabilities of new equipment and processes. In addition, when financing purchases, we explore various options because of the rapid pace of obsolescence.

KREHBIEL: We are finding that there is a shortage of skilled workers in the industry, so we train in-house whenever possible. Also, we're faced with price pressures from both domestic and foreign sources and, as a result, we are creating a lean budget and automating some of our equipment and our IT system.

BB: How has the price and demand for paper affected the market?

CLARKE: Paper always has an impact, but I didn't see anything unusual last year that would have radically changed our position. I think that--as is what's going on in the printing, publishing and paper [industries]--there's a consolidation going on, and options diminish. We've been aggressive in creating very unique supply chain solutions for our publishers with some paper manufacturers, where we try to standardize paper and allow for several mills or different papers that everyone can choose from.

That accomplishes several things. It improves the asset base in the publishing community because they don't have paper on their balance sheets until they use it. The standardization of the papers means that we have paper and can go to press. And, the consistency of paper is good for manufacturing. The paper [companies] also now aren't breaking in and out of their production. So it's been a very successful program, and it's accelerating again because it serves all of those parties well. Other than that, I haven't seen huge price differences or huge volatility that would have affected our business.

MCFARLAND: Paper is a large portion of the cost of our product; increasing prices provide additional incentive to continually refine our processes and reduce waste. Our customers respond by carefully evaluating their print runs to hold down the amount they invest in inventory. McNaughton & Gunn has built strong partnerships with our suppliers. As demand increases and supply tightens, we work closely with our partners to meet our customers' delivery requirements.

KREHBIEL: During 2006, paper costs remained fairly flat. In my opinion, paper prices would have dropped during the year except that several mills removed unprofitable capacity from the marketplace. So the book market missed some of the cost benefits of reduced demand (and lower prices), because the mills systematically reduced total paper availability.

HEGWOOD: Rising paper costs have definitely had an effect on larger print companies that focus on long print runs. For companies like [us], which focus on print-on-demand (POD) and inventory reduction, paper is a smaller percentage of our operating cost, so rising paper costs have had less of an effect and, in fact, are fueling the move from long-run web applications to short-run POD applications.

BB: What kind of effect has the continued consolidation of printers--namely RR Donnelley's moves over the past several months--had on the market?

CLARKE: Demand is significantly different than it has been in the past, so consolidation is necessary. Out of the consolidation, we've seen great opportunity to grow our share with a variety of publishers and to do business with new publishers as alternatives are sought. So, for us, it has been a good thing. I think it is necessary for the market, and that there will be continued consolidation. There's more to come, and we'll see the same if not more aggressive consolidation on the publishing side, so hold on.

GREGOIRE: There is a lot of capacity in the market. I don't think the fact that Donnelley acquired [Perry Judd's, Banta and Von Hoffmann] will remove that much capacity from the market. Some of the large publishers will probably be wary of having too many of their eggs in one basket, so I believe there will be some movement, which is good for some of the printers. But, no, I don't think the publishers will suffer [from consolidation] too much, because there was already quite a bit of capacity available out there.

MCFARLAND: The consolidation of printers will help relieve some of the excess capacity that exists in the market. This should help price stability, which will strengthen the financial position of the remaining printers and allow them to continue to invest in the technology needed to service their clients.

KREHBIEL: Consolidation has created more juggling for market share retention and growth. Many vendors have been left out after these mergers. Some customers are feeling too heavily committed to the conglomerates. And price pressures continue with leveraged buyouts.

HEGWOOD: Based on our observation that short-run, on-demand printing is increasingly becoming the trend among book manufacturers, the market for large web houses is shrinking, leading to excess capacity and consolidation. This consolidation has actually provided additional opportunities for [us] because we specialize in short-run, on-demand printing.

BB: What kind of effect has global sourcing had on North American markets over the past year?

CLARKE: The numbers tell us that the U.S. print market [as a whole] is losing about $100 million per year to global competition. That's pretty dramatic. Our strategy has been to deploy new assets and to focus on our Latin American assets as an alternative for U.S. publishers.

We've been able to grow that business more than 300 percent in the last three years, as [publishers] look for...certain attributes that make it more effective to produce offshore and can sustain the additional time.

GREGOIRE: We are seeing in the coffee table and kids' books markets that most of those markets have disappeared to China, because those books are not as time-sensitive as the other markets. If you look at school textbooks, some [publishers] have tried [going offshore]. We know that some of the larger school textbook publishers are under a lot of pressure to produce their books in China, when they have enough time. But, oddly enough, some have come back. They've attempted the experience, didn't like it and are coming back.

We also have publishers who are willing to pay a little more to remain in North America. That threshold seems to be 15 percent to 20 percent; beyond that, they will decide to go to China. The market is very volatile right now. People are testing the overseas suppliers.

MCFARLAND: Global competition continues to place pressure on pricing for domestic firms. In response, McNaughton & Gunn focuses on our customers' needs, ensuring that we are providing value to them. In addition, we continually evaluate and improve the effectiveness and efficiency of our operations.

KREHBIEL: Global sourcing now includes India for printing and IT services. However, the weak [U.S.] dollar and high fuel costs are helping to keep some work in North America.

HEGWOOD: Global sourcing has had a tremendous impact on the North American markets, especially on large web printers. However, based on our experience, POD applications are non-existent in Asia, and the move to shorter runs continues to provide us with opportunities for growth. PI

About the Author
Matt Steinmetz is special projects/conference program editor for Book Business magazine and the Publishing Business Conference and Expo.