“Avery Dennison’s investment in South Asia is close to $100 million”

Ramu Ramanathan (RR): 5%, 10%, 15%, 20%? What is the growth that the Indian label industry should expect?
Anil Sharma (AS): If you refer to my keynote on day one of the LMAI conference, I spoke about an important point which is the foundation of where the opportunities lies. The first thing is, we are positive and bullish on key factors like per capita consumption of most products which use pressure sensitive labels or labelling in any form. Currently, these factors haven't gained traction in India and have a scope for growth. As the consumption will rise there will be more demand. If you see the label production in 2011, it was 4 trillion while the label production in Asia was 1.8 to 1.9 trillion. This shows that the volume is shifting because the consumption is increasing in Asia at a faster pace. India’s own consumption rate will increase due to increase in spending power among the middle class. Aspirational growth among the youth and their willingness to earn and spend is getting developed in the country vis-a-vis against the traditional Indian culture of saving. I see a clear sign of growth.

RR: In the last two years, Avery Dennison India has invested US$100 million across business units including LPM, Graphics and RBIS in South Asia.
AS: This is a clear indication that even though the broad sentiment at times may swing up and down, we are very focused on our purpose of creating values for our convertors. We have invested in a R&D centre, Knowledge Centre and new assets. Point is, we will continue to invest in this region. We are focussing on end-user engagement. This is a connect with the brand owners in the packaging departments and product development departments in the company to drive for the adoption of pressure sensitive technologies. That’s how we looking at the things.

RR: In terms of pressure sensitive, what is the volume growth?  
AS: I think everybody will have a perspective on it. We have an internal perspective on the numbers which we don’t share in public. But I can tell you that per capita consumption would range anywhere between the numbers which were being discussed at the LMAI conference. Plus or minus 10% to 15% is everybody’s guess. I feel at this stage of growth, the numbers are immaterial. What it can become is what we should be focusing. I can tell you as we speak, China is close to 1300-1400 million sq/mtr market. So the sky is the limit for India. In China, there is an evolution cycle in the pressure sensitive industry. They are 4-5 years ahead of us. Avery started in China almost at the same time as it started its operation in India, and they are three years ahead of us. You should just keep eyes and mind open and seek the potential. The numbers may not look big at this point of time, but we should look at the big picture.
 

RR: How can one define Avery’s operations in India? I know phase one was in 1997. Then the team building, the market outreach and the production units and factories came into play. What now? 
AS: We had a critical turning point in 2010, where we did new initiatives for the first time. Till 2009, we were in the phase of building, learning, understanding and putting capabilities on the ground. In 2010, we were not only waiting for market to grow but also to help it. So we invested in late 2009 and early 2010 in the marketing initiative which did not exist in the organisation before. So that was one. If you see, most of the large scale assets came in. The first asset was inaugurated in 2009 and the second was inaugurated in 2012. Right now, we are talking of another one in 2014. I think post 2010, the scale has been upped. This has helped us penetrate the technology into our industry. Most of the growth that you would see in the industry has been to create an end-user engagement. I feel, Avery is a pioneer in doing this. No one else does this. We are the only company working with convertors in order to drive the penetration of pressure sensitive labels.

RR: Will this drive growth?
AS: The growth in India will come in two parts. One, an increase in the consumption and second, the  acceleration of technology penetration. The improvement of consumption will come. And as it comes, Avery is in sync with the convertors and end-users to leverage it. This needs time and investment. We are the only company in the world, who are investing in this space. Nobody talks about driving brand-users engagement.

RR: In terms of technology, where are we heading in the pressure sensitive print-space?  
AS: Two points again. First, the presses are unique with each of the converting partners. Each one is trying to build a differentiation based on the capability of his technologies. So these differentiations allows convertors to choose the technology. Every one has a specialisation. They choose sweet spots and start to focus on them. Earlier, the discussion or decision was based on building capacity for printing and building on asset which allowed them to do more. Now, the focus will shift to identifying the sweet spots and introducing asset which will allow them to do more. The convertors should ask a question - where is my sweet spot? And what asset will allow me to play in that sweet spot? That’s where the technology decision should be made. For the long term, the expectations are different from the short term. One has to keep their eyes and ears open for the new technologies which are being introduced. I stay away from the debate of which product is better or which brand is better. We have to start thinking about the label business from the point of view of assets. The convertors should start thinking about their markets and what assets are required to serve these markets.

RR: You spoke of end-user engagement, what sort of match-making does Avery facilitate between brands owners and the convertors?
AS: Good question. There are three points to that. First is, the whole end-user engagement initiative means connecting with the customer’s customer’s and helping them to adopt the technology. Indirectly, this means helping them move into the customer’s base of our customers. This is complemented by our marketing and communication and brand building team, who ensure that connect. Second is creation of the Knowledge Centre in Bengaluru. This is another interface where we are trying to create a brand neutral eco-system for our convertors to come and learn about the converting and for the end-users to come and learn about the technology. This ensures our customer’s customers can make an informed choice about pressure sensitive labels. Third, we are looking at working with key players like HP and Esko. There are events in the graphic art business where we co-operate. At Avery, we are focusing on all three fronts. Where Avery Dennison stands out is, in end-user engagement. For us, this is a direct company based initiative. Instead of having a one-off event, we are addressing this in the long-term. So that the industry can learn, adopt and collaborate.

RR: There were three presentations about lean production and best practices. Is it possible to quantify these parameters for Indian convertors?
AS: Should we be doing this? Then the answer is a resounding, yes. This is collective ownership of all the players in the industry to get together and do that. Because, in this industry there is strong relation in performance of convertor and a printing equipment. This decides lot of factors. Many vendors or suppliers contribute lot of factors. So it is a collective responsibility. Even globally, are we doing this? No. India is not the only country who is facing these challenges. Lot of effort and attempt has been made by associations like Finat or LMAI to implement standardisations. This will help the converting companies to be efficient. Lot has been done - and much more needs to be done.

RR: Such as?
AS: Again I come back to the point on Avery Dennison Knowledge Centre which is platform to share the ideas and best practices within the community. The idea was to create a model site, so that convertors can see the workflow, how to design a facility, what should be the basic precautions and measures to be taken. The training component has programs for best practices. 10 partners are involved in this project who are brand neutral. We are not selling brand. If you see the content, our aim is to help the convertors get familiar with the technology. There is advance developed content which brings out the efficiency of the system. Will it become a standard? I don’t think so because it is not very easy to do so.

RR: Is it tougher? I feel, today’s customers have beocme more demanding?
AS: Systems have evolved, the supplier base has become more sophisticated. The customer base has become sophisticated. In this context, yes. For example, what may have seen ten years ago as cutting-edge technology, has become a given. Today, it is the standard.

RR: How?
AS: For example, Avery Dennison introduced the concept of Exact. We discovered that lot of our converting partners were losing money by the whole width and then cutting it to inefficient width sizes and then using them and thereby scraping a lot. The Exact program allows us to take the width diversity of our customer-base and match it in the best possible way. This helped in reducing the wastage at the convertors end. This resulted in increase in profitability. Ten years ago it was an innovation, today it is a given standard. We have distribution centre at Gurgaon, Bengaluru and Pune. The attempt is to reach our customer in the shortest possible time. Three years ago, the customers in South, would get the stock from Pune and Gurgaon but today they get the stock from Bengaluru. Now the customers need not keep an inventory of 15 days. These programs are pushing us to become more efficient.              

RR: What is happening with Avery’s signage and the outdoors business?
AS: The signage business is a core vertical and we are investing in this business significantly. The asset which we are putting up in the country, next year, will also produce graphic products. We are investing lot of equipment in market. We are building graphic local capability. Today, we have a team who will drive end-user brand owner connect and generate sales with a project and distribution channel. We have planned for a channel partner program which will get our partners to become more efficient. This will also increase our penetration. It is an important business. The evolution of this business is at the similar stage. We are expanding our portfolio with sophisticated products. We are trying to address both the bottom of the pyramid and as well as the top of the pyramid.

RR: How do you compete in this space against low-cost rebranded products which constitutes to 70% of the market share?
AS: We choose our area. Flex, which is non pressure sensitive substrate is something which we are not looking at. It is highly commoditised space. We are looking at products beyond this. We are looking at performance of the product and this is our focus. The performance is linked to two factors. One increase in consumption and therefore the requirement of brands to be promoted and second is investment in the infrastructure. The investment in the infrastructure will create an opportunity in the space of graphic art business which will link to architecture, building, roads etc. On the brand side, customer’s customer need options. We are bullish. India is on the right path.

RR: Are you content with what is happening in the OOH space?
AS: If you look at the OOH space, from the flex point of view then it is completely fragmented. We are more focused on selling value. This means targeting segments like real estate, automobiles, banking and financial services. These are the segments with a lot of action.

RR: Avery Dennison’s plans for next twelve months? Factory enhancement? Will it be one more site?
AS: The Innovation Centre is happening. This will be in Pune. Besides this, we are increasing the capacity in our Pune facility. The asset is yet to be finalised in terms of value.

RR: What kind of numbers are you looking to investment?
AS: The investment for Avery Dennison in South Asia is close to $ 100 million. The South Asian market includes India, Bangladesh, Sri Lanka and Pakistan. This is between the label and retail branding business. Today, we have more than 3,000 employees on ground, in the South Asia region. The label and packaging business has 600 people. We will be launching new products which we can’t disclose right now.

RR: What will you highlight at Labelexpo Europe 2013?
AS: We have the philosophy of introducing new products and solutions for the label converting fraternity and brand owners at every edition of Labelexpo. This allows us to differentiate and bring functionality for the market. Internally we have set targets to introduce four to five new innovations for Labelexpo every year. If you look at the previous Labelexpo Brussels, we introduced ThinStream. This was new to the world. We are focusing on developing and introducing the products based on our insights from end-user engagement. This allows us to bring delight to our customers.

RR: Mr Sharma, any final thoughts?
AS: As far as India is concerned, we should not be distracted by the macro-economic indicators. We should stay focused on our business and how fast we can grow. I believe the label industry in India has the ability and capability to show the world that we have a huge potential for growth. It is India’s time now.