While the industry looks to the bigger groups – sometimes respectfully, sometimes critically – most printers in Australia are small operations. Two-man bands, family-run firms and micro businesses abound.
IBISWorld estimates that the four largest firms in the industry will account for 14.9% of industry revenue in 2013-14, with the eight largest companies estimated to account for almost one-fifth, or 18.4% of industry revenue for the year. As a result, Australia’s biggest printers will have a massive slice of the $7.9 billion revenue the industry is expected to generate in 2013-14.
Based on data from the Australian Bureau of Statistics, IBISWorld estimates that 22.9% of industry establishments will have revenue of less than $50,000 in 2013-14. The ABS defines a small business as one that employs between one and 19 people. The data shows that just 7.5% of firms in the industry are expected to have 20 or more employees during the year. In other words, more than 92% of printers are small businesses.
The Printing Industries Association of Australia says small businesses comprise 85% of the industry, with the vast majority turning over less than $2 million.
“I would suspect the average printer would have between five and 10 employees,” says PIAA chief executive Bill Healey. “There are not many out there with more than 20 people.”
Throwing caution to the wind
ProPrint spoke to many small printers who said they plan to grow but not to a massive size. They prefer to stay small and nimble. The Geon collapse earlier this year is a reminder of the problems that go along with getting too big. How often were “deckchairs on the Titanic” mentioned in reference to the now-closed print giant? Big companies, locked into enormous leases for equipment and property or encumbered by complex lending arrangements, can struggle to avoid the icebergs in this rapidly changing market.
Significantly, the manufacturing taskforce set up by the Gillard government found that 65% of small manufacturers did not want to grow. They were comfortable in their space.
Healey says defining the best size for a printer is not the right question. Size is irrelevant, he says; it’s what you do with it. There are many small, niche printers with unique offerings, strong relationships with customers and good profit margins.
“The right question is: does size matter?” says Healey.
“There are a lot of examples where size doesn’t matter, it’s what you do with what you’ve got. It’s where you see your market and it’s how you understand your customer. The key issue is to be the right size for your customer base, your capital investment, your management skills and your staffing capacity,” he says.
“The business size is not the issue. The issue is how to get a better return on the large amount of capital invested in the equipment on the ground. The return on investment has to drive what you’re doing. Whether you’re big or small, it’s whether the return on invested capital justifies your continued involvement in the business.
“It’s better to be a focused printer who understands their business and delivers to customers. It depends on what space you’re in and what you’re endeavouring to achieve. Clearly, in some areas there are economies of scale but also with economies of scale these days comes the risk of overcapitalisation in a market that’s changing dramatically and is shrinking in relation to traditional printed product.”
Healey says some parts of the industry are made for big companies. “Quite clearly there are areas such as packaging that require large scale capital investment and long-run print production.”
There are pros and cons to both sides of the equation. “It’s like any business. If you are big and your revenue base is adequate then you can spread your fixed costs over a broader range of revenue, so your margins are better because you’re not absorbing fixed costs on a lower revenue base. A large printer may have the capacity to broaden their sales force and reach out to a more distributed customer base. Likewise, they can spread their variable costs more broadly and drive down the price.”
On the other hand, large businesses can be slower to respond. Geon’s collapse reflected this problem. “That’s the other thing if you’re big. If sales drop in the industry with your relative position, you’re going to lose that proportion. The only way you can address that is by increasing market share. There is a view that bigger businesses are older businesses and because they become older, they are less entrepreneurial and more fixed in their ways and less innovative and it’s hard for them to generate a culture required to meet the fast-changing world.”
The case for big printers
The big printers say they are in a good space, compared with the small operators. They say their diverse product offerings create a competitive advantage in a difficult market. It spreads the risk.
Few printers get bigger than Blue Star these days. Following the demise of Geon, Blue Star stands alone as a multi-site, multi-state, multi-faceted commercial print giant. Blue Star has 950 employees and a turnover of around $300 million. Only the web printers – PMP, IPMG and perhaps Franklin Web – are larger.
It’s not immediately clear which is the second-largest sheetfed printer in the country. Some suggest it is Finsbury Green, whose turnover is thought to be about 20% of the size of Blue Star’s.
Blue Star Australia managing director Geoff Selig says diversity of offering protects larger businesses. “I think diversity of offer is a strength if it’s aligned to what the customers require. If you have fewer but stronger players in the market, then companies with more scale and diversity of offer are in a good position to provide longer-term, deeper relationships with customers. A small firm that maybe is not as secure and has only one site is a more limited value proposition.”
Indeed, he believes market conditions now favour larger companies. The amount of consolidation and shutdowns will drive a trend towards bigger companies. Selig predicts a move to larger printers over the next three to five years.
“I think there will be further consolidation,” he says. “Access to capital and the need to disseminate information has had quite a profound impact. Overcapacity, access to capital, decline of the average ROI are all creating margin pressure on smaller companies. I think we are likely to see at all levels further consolidation and that consolidation may come through businesses closing down or mergers.”
But Selig does not believe larger companies have better profit margins. They might be able to get supplies cheaper but they have bigger overheads. “There are a range of businesses of all different sizes that have degrees of underlying strength or weakness. There are successful smaller companies that are highly profitable, and they are more profitable than some of the larger groups.”
When a large company gets too big and has to manage its decline by laying off staff and reducing offerings, it has to be done carefully, he says. “It’s not easy to grow and it’s not easy to downsize. It’s an acquired skill and it’s hard work.”
Michael Schulz, director at SOS Print & Media, says a broad range of products have stood the Sydney-based company in good stead. SOS employs 119 people and offers litho and digital printing and finishing from a machine fleet that includes Heidelberg and Akiyama offset presses, Ricoh, Kodak, Xeikon and Océ toner machines and two inkjet lines: a Fuji Xerox 2800 and the country’s only Kodak Prosper.
Likewise, SOS serves a broad spread of markets, including book and magazine production, as well as annual reports, general commercial and the more offbeat stuff, such as its contract with Avant Card.
“That spread has helped us over 2007 to 2008 where if you were just a magazine printer, you had this massive downturn in advertising, and suddenly 50% of your revenue was gone. That didn’t hit us [so much] because we were very widespread and did a lot of different kinds of products. You can’t just rely on one or two customers or one or two products,” says Schulz.
“At the moment, because we have made some fairly big investments, it’s better to have a bit of variety and size. The last machine that we bought cost us over $2 million; so obviously you can’t deal with that as a small shop.”
On the other hand, Schulz says there are negatives in running a big printing operation. “Of course, there are lots of advantages but also you have lots of little headaches. If we were one small company specialising in just one item, life would be so much easier. As a large company, we have a massive payroll and wages are a big part of the costs of the business and our overheads are fairly sizeable.”
SOS has enjoyed solid growth. The company started in 1976 as a small print shop in Sydney’s CBD run by three people. There was good growth in the 1980s and ‘90s and there were periods in the 2000s when it was growing at 15% a year.
Schulz says smaller printers looking to grow have to control their costs tightly and not speculate on growth. The market now is just too risky.
“Growth comes with investment and that needs to be planned well, and you need to have the demand for that investment. You can’t just buy anything and hope you will fill it. You can’t build a stadium and say, ‘They will come’. It’s not happening in print anymore. It used to be the case where you could invest in a big press and people would get into different areas of buyer interest, but now you need to build your volume first and be very careful with new investment.
“Everything is much more risky now because the market has changed so much. Demand for certain products can go up and down influenced by technology and legislation. It’s very hard to do long-term planning,” says Schulz.
David Fuller, founder of 200-staff NSW company Focus Press, says scale allowing the company to spread its costs is well and good, but the big strength for a company of this size is the diversity of offering.
“What we decided in our plan was that scale was one thing, but scope is equally important,” Fuller says. “With the number of players in the industry reducing, the number of value-added players has also reduced. What goes for us at the moment is we’re prepared to do a lot of stuff that other people aren’t.”
The case for small printers
The small print operators who spoke to ProPrint are happy in their space and insist they have advantages over the big end of town. They say they are more responsive to customers and closer to the market.
Phil Roden, whose company Roden Print has been going for 40 years and employs around 12 people, says smaller companies have more wiggle room. “If you’re a big company and you don’t get your costing right and you don’t get your quotes right, you would go broke a lot quicker than a small company.
“It’s about being nimble, it’s about being able to jump quickly for the customer. The bigger companies become top heavy and it takes a long time to act,” adds Roden.
He says the key to his company’s success has been the close contact with customers. “Everybody in the factory from me down is accessible by telephone or email more or less 24/7. I speak to a lot of the customers and I am also a printer by trade, so I have a reasonable idea of how things work.
“It’s not a bureaucracy. That means we can be very nimble, because these days you can’t always compete on price. We have never said we are the cheapest printer in the market, so you have to give your customers value for money. You make sure your quality and service is second to none. That’s what you try to do.”
Scott Telfer, managing director at Oxygen, says the industry is probably better suited for smaller companies. “The average value of a print job is not that high anyway so there are lots of small jobs, and as jobs get smaller the need for smaller printers is there.”
Telfer is speaking from the heart. His company split from the much larger Southern Colour Victoria in 2012, which employed 70 people. Oxygen employs 29. Telfer also has insight into larger companies as the former general manager, northern region, of Heidelberg.
Telfer says smaller printers are less bureaucratic, which means they are closer to their customers. “The bigger companies have bigger clients who demand time and press time. My clients feel they are just a number [when dealing with bigger printers]. But when they deal with a smaller company like us, they know who the owner is, they can pick up the phone and get better advice.”
Brian Heydon, who runs Kwik Kopy’s 2013 franchise of the year in Castle Hill, agrees nimbleness is the big advantage. “I guess decision-making is facilitated much more easily. Flexibility is easier. I can also probably react better when things go bad. My customers know more about me, and I am able to have a solid relationship with my customers.
“And I would know if the market is going to shit before somebody who reads about it on a report.”
He concedes the big disadvantage for smaller companies is around buying power. Heydon reckons that larger printers can get their paper for half the price. But there’s an upside to this. “I have tighter controls on my costs, just because I care more about it than anybody else does,” he says.
Tom Dickson, who runs five-staff Same Day Printing, has ambitions for growth. But he says small companies have to do it carefully in this market. “We have a plan for growth. The economic climate has put a little bit of a spanner in the works but we have been growing ahead of schedule.”
Phil Tarrant from Canberra-based Prinstant, which employs three full-time and three part-time workers, says his company, too, is focused on market conditions as it embarks on its expansion plans in digital printing. “We are very conscious that the industry is shrinking but we have our niche and we are growing according to what we can afford.”
But he says the market is built for smaller companies because the printing business is all about relationships.
“They want a good price but they want the right product as well, so you have to be flexible and communicate with them. We tend to take on stuff that is too fiddly for other people.”
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