In line with its focus on the luxury labels market, Italian paper and labels group Fedrigoni, owned by private-equity player Bain, has purchased independent French label paper manufacturer Zuber Rieder. Fedrigoni CEO Marco Nespolo tells Luxe Packaging Insight that this acquisition may be its last for 2022, but more deals could be in the works for the coming year.
What is behind your acquisition of Zuber Rieder?
Zuber Rieder is specialized in paper for label applications mostly if not entirely dedicated to the wine and spirits segment. This is a perfect strategic fit for us. Zuber Rieder is a relatively small company: a staff of 130, a production capacity of 15,000 tons and real know-how when it comes to IP and patents. This acquisition reinforces our position as a global leader in the wine and spirits label market.
What are your development plans for the company?
In the immediate future we are leveraging Zuber Rieder’s presence downstream in our ecosystem to gain strength on the wine and spirits market. Bringing a baby into a larger family naturally means synergies, so there will be commercial synergies that allow us to gain market share and in terms of procurement, naturally we’ll buy better together than alone. We are offering the company room for growth; today Zuber Rieder is capped at capacity, and they outsource some production. We’ll also be stronger together when it comes to R&D and innovation.
Is Zuber Rieder your last acquisition of 2022?
Yes, we’re going to take a break as these last 12 months have been quite rich on the acquisition front. In November 2021 we bought Tecnoform, an Italian specialist in thermoformed cellulose solutions followed by the purchase in February 2022 of self-adhesive materials company Divipa in Spain. In March we invested in the RFID smart labels supplier Tageos and then Turkish company Unifol (PVC coating films for vehicles) in September. We also bought Guarro Casas from Arjowiggins, a company specialized in book covers and other luxury applications, which includes packaging. We are currently integrating these acquisitions.
Will these companies be rebranded under the Fedrigoni name?
Our approach to M&A is not to touch more than needed. Our aim is help the companies grow, and not to take away their names or identities. In the case of Zuber Rieder, we are keeping them fully protected in terms of heritage, name, brand values and of course their patents and IP.
Fedrigoni’s business model is about having an asset footprint that it at scale, but still agile. We now have an extensive network of smaller players that all combined gives us a significant presence on the market
What is Fedrigoni’s strategic focus in the coming months?
We are consolidating our presence in the segments that are the most relevant and profitable for us. Our self-adhesives segment has progressed from being 25-30% of the business, or €400m to 65% and €1.3bn today. This more than three-fold growth has been through acquisitions, but also organically. Fedrigoni’s offer is wide-ranging, but the luxury and premium niche markets, including labels for the wine, fine foods and beauty segments, are our ‘sweet spot’.
As regards ESG performance, we are being very aggressive when it comes to CO2 reduction, waste reduction, water consumption reduction, health and safety, diversity and inclusion. We have a holistic and ambitious plan in place. For 2030 we are aiming to reduce our CO2 emissions by 30%, for example. We track our progress on a monthly and yearly basis. From a product perspective, we are innovating in the areas of plastic substitution and full recyclability and circularity, which is especially relevant on the self-adhesive side.
What is the growth strategy for your Papers division?
Paper, our historical business, represents around €800m of the total group turnover of €2.2bn this year. Within that, luxury packaging currently is a bit more than 40%: papers that cover rigid boxes, folding boxes and shopping bags.
We’ve taken a strategic turn to heavily invest in moving towards bespoke paper for luxury packaging and other creative applications, which is now the bulk of our business today. With this in mind, we recently spun off our two security papers entities (one in Latin America and the other in Italy).
Earlier this year we signed a partnership with Mohawk, the number two player in the US, which will very likely give Fedrigoni a significant footprint in the US. We are working to localize production of luxury and premium packaging grades to serve the growing market there.
Will your business ratio of labels versus paper remain stable?
We have an interesting pipeline on both fronts, but I’d say that future operations will be more skewed towards the labels market, where there is ample room for consolidation as well as geographic expansion potential.
How are you dealing with the current challenges facing the industry?
There were multiple shocks to the market this year: the supply chain crisis was the earliest and the strongest, as well as the inflationary environment and scarcity and bottlenecks on some supply chains that are relevant for us. In light of that we’ve been quite proactive at diversifying our supplier base and finding alternatives and even reformulating certain products that are facing shortages. We were able to honor all of our customers, despite all of this turbulence.
You say that 2022 was a record year in volume sales at Fedrigoni.
Yes, due to very strong demand and our ability to cope with the various supply chain issues. But of course, inflation has had a big impact. The luxury product experience is heavily impacted by its packaging, and yet packaging is a tiny portion of a product’s total cost, so this means that we are able to pass on cost inflation to our customers and the final user. We’ve increased our pricing significantly across the board to protect our margins.
There is also the issue of the spike in gas and energy prices and potential shortages that we must anticipate as paper making is an energy-intensive manufacturing process (less so in the labels segment). Our geographical expansion is also an advantage here as it gives us more agility. Fortunately, we don’t foresee any shortages in the near future.
This being said, we have seen a sharp slowdown in orders in the second half of this year.
To what do you attribute this slowdown?
Everyone in the market was panicking in the early months of 2022 due to the shortages so there was a lot of panic-buying. It wasn’t just a question of a buoyant market, our customers (box-makers, printers, and other service providers) seriously stocked up to be sure they had enough materials to meet demand. So now that they have stock and there are fewer shortage problems, we’re seeing a decline in order. Customers are also expecting prices to stabilize and even decrease early next year as we’re seeing pulp prices are down and energy is stabilizing. The market is softening a bit, and next year might be a little less of a ‘booming’ environment compared to this year.