Paper merchants have had a tough time. Their stock in trade has been shrinking and it has led to the demise of many in the sector, not least Paperlinx which collapsed in 2015, with widespread implications for the print and paper industry as a whole.
Volumes of paper that pass through paper merchants are in decline as the number of machines making paper in Europe is falling. Paper consumption per head in the developed countries is dropping sharply as digital alternatives take over, hitting newspaper circulations in particular and newspapers have been responsible for most consumption per head in the mature economies. Not any longer. That position has been taken by container board or corrugated, particularly thanks to the growth of ecommerce during the Covid period. This is not bad news for paper producers that can switch from newsprint to packaging grades, as has happened to the former newsprint mill in Warrington, but for those in print and paper merchanting the reality is a steady decline in volumes.
As well as a challenge from digital communications, email, the internet et al, the rise of digital printing has made it easier for customers to specify smaller volumes, and greater efficiency in terms of litho press technology has also meant a reduction in waste either at start up and the traditional habit of producing overs which were unwanted. As was said of Colman’s Mustard that a fortune was made from what was left on the plate, paper merchants enjoyed good times because printers erred on the side of caution when ordering rather than risk running short of paper on a job.
Those days are over. Tonnage has come down and merchants have been looking for other ways to use warehouse and distribution capacity. Every so often there will be suggestions of how trucks can be shared between merchants, by creating a haulage company that is jointly owned by the suppliers to reduce the number of deliveries a printer can receive, much as drinks suppliers have teamed up to service pubs and the hospitality industry. Likewise suggestions that trucks might act as distributors for print, picking up finished work and managing its onward journey also come to nothing. Merchants like to think that they are competing on service so do not collaborate in this way.
Instead most have chosen to diversify in some way and packaging or display graphics are the preferred options. Antalis, easily the UK’s largest remaining paper merchant, has been investing in the supply of packaging materials for many years and has also built a strong business is the conversion and supply of display materials from reels of window cling and vinyl to Diboard. Premier Paper has followed with substantial investment in display graphics and was the only conventional merchant to exhibit at this year’s Sign UK exhibition. Both have toyed with supply of equipment as companies in this sector are more wont to do, but have so far not taken the plunge in the way that Soyyang, Ultraflex, Papergraphics and CMYUK have.
Now the trend is towards supply of carton boards, arguing rightly that commercial printers are moving towards printing cartons and that they will look to merchants to supply these materials. EBB and more recently Denmaur have made acquisitions to bring in expertise in the sector. The larger packaging producers will work in collaboration with brands and mills to supply direct or perhaps through agents. Stock in depth, the mantra for paper merchanting, does not hold for packaging print.
These movements were underway even before Covid came along and created the waves that the industry is still reeling from. Antalis reported a turnover of £446.1 million for the 2019 financial year, the last pre-lockdown year. In 2020 sales fell to £331.2 million and stayed at £329.2 million for the following year, noting that there was recovery in the second half of the year when sales climbed 6% against the worst Covid months. The 25.7% fall was due to a plunge in demand for commodity papers while action taken in 2021 the report states includes “continuing development of our product mix towards visual communications and packaging products”.
The business continues to hold 14,000 line items for same day or next day delivery, something that all paper merchants do, having taught printers that this speed of service is what is needed during the more buoyant decades before the financial crash. There is no indication that this will change, perhaps to an Amazon style model of a subscription for same day delivery and a sliding scale of charges for a longer view. There is simply too much downside for this to work and where merchants have tried imposing minimum order values, it has not worked.
Antalis UK is part of a wider UK network, the only merchant in this country with a strong European connection, and is in turn part of Kokusai Pulp & Paper, a Japanese giant which bought Antalis in 2020. This deal provided much needed finance with €100 million of debt refinanced and with €80 million available as an intracompany loan.
It has been able to acquire the quality paper brands that had belonged to ArjoWiggins when mills producing the likes of Conqueror, Curiosity and Keay Colour were closed last year. These form the core of its Creative Papers collection which competes with the likes of GF Smith, Fedrigoni and Fenner at the prestige end of the commercial print sector and away from the commodity grades. They also appeal to luxury brands which are better protected against price competition than more standard products and where packaging in recent years has become more intricate to match the statements that the brand wishes to made.
“Packaging continues to present significant growth opportunities,” the company says.
At the same time cost saving or efficiency measures have been taken. Two warehouses have been combined into one, offices refurbished and an SAP system deployed. Now Antalis is planning to roll out a new online portal for customers to replace the E-Shop which is showing its age in ecommerce terms.
It is clear that online transactions have a long way to go for the paper industry. Part of the sales process has been about guiding the customer, whether a printer, designer or procurement manager, to the best paper for the job – which can be very different depending on the point of view of the different customer types. It has been about suggesting alternatives if a paper is not in stock or comes with an excessive price tag, it has been in short about managing expectations. This is not easy to do online, though may become a function of AI chat systems in the not too distant future. In the meantime there is Zaikio as a tool which enables communication between printer and merchant. In Germany Antalis is part of this, in the UK the SAP system needs to be fully bedded in.
Premier Papers, the UK’s next largest merchant with £187.0 million of sales in 2021, up from £160.0 million in 2020, but still lower than turnover of £226.4million achieved in 2019, is also now part of a Japanese conglomerate, in this case Japan Pulp & Paper with the deal announced in July 2019.
Like Antalis the challenge is managing the decline in commodity products while managing growth in visual communications and packaging. The warehouse in Wellingborough has been transformed into the home for its visual communications arm with conversion equipment as well as stockholding on hand. Thus when turnover increased from 2020 to 2021, 11% was due to the commodity grades and 29% to visual communications and packaging.
Like Antalis and EBB, Premier has been active in making acquisitions. At the start of this year it acquired GPMI in Dublin, a €28 million a year merchant with interests in commercial printing and display graphics. GPMI also handles sales of some capital equipment and printing plates.
Others have in the past mused on the potential of shipping plates, inks and other consumable products with the paper delivery, but in the UK it has never happened.
The acquisition at the end of last year of WBC, a box maker that has expertise in packaging wine for online sales and direct to hime delivery with corrugated a major material. Before that Premier had a company supplying laminating films.
EBB like Premier has expended into Ireland through the purchase of packaging specialist Uniboard in Dublin. As well as a toehold for its merchanting capability, the deal brings expertise in cartons. The 2021 annual report says that the move into cartons has been good for the business.
On the whole the company bounced back well from Covid. Its revenue in 2020 fell 27.7% compared to the previous year and tonnage dropped 24.3%. This amounted to sales of $142.4 million in 2019 becoming £103.0 million in 2020 before climbing in 2021 to £142.0 million in 2021.Volumes it says also increased by 32%.
During Covid the merchant had cut its headcount from 278 to 243 and closed a branch to lower costs, resulting in a pretax profit of £4.4 million compared to £357,000 for 202 and £2.6 million for 2019. On paper EBB has emerged from Covid in a better place.
The lifting of restrictions at various points in the latter months of 2022 led to supply issues for the entire industry, principally that of limited and short supplies of paper. In turn this provoked a land grab of whatever paper was available so that printers would always be able to get the job out.
Printers and merchants loaded whatever space they had with pallets and reels of paper, a matter of ‘just in case’ ordering rather than ‘just in time’.
Supply is no longer the problem it has been and stock levels are subsiding as they return to normal. Working through the excess in the early part of this year has caused the mills some problems as there have been fewer new orders resulting in some down time.
This will surely pass, but it has delayed the arrival of the new normal for paper merchants. At this point it looks like more of the same: continuing to offer low margin commodity products which generate vast amounts of cash while developing stakes in carton board and display graphics to fill the empty aisles that once held coated and uncoated papers of all kinds.
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