Each stage of the formation of the Ukrainian labeling glues market had some bright characteristic features, distinguishing it from the previous and posterior stages of its development. Rapid dynamism of volume growth and formation of original assortment lines, consolidation of scientific research potentials and comprehension of the true importance of marketing strategies, and finally the optimization of the whole complex of business projects. Each one of these directions during a certain moment of time for some national enterprises was a priority and determined the specific character of the next stage of the market genesis. The actual stage has also its bright features. It isn’t so rich in events and doesn’t have the irrepressible dynamics, nevertheless, it possesses the entanglements of many a topics whose culmination may be achieved already in the near future.

Betrayed expectations
Before we go to the sources of Glue River and examine the state of the corps of labeling glue manufacturers, we shall stay for some time at its mouth just in place where it flows so to speak into the consumer sea.

The first thing attracting the glance, the slight but substantial change of the image leading to the thought that the mouth is narrowing. But at the same time the sea doesn’t grow shallow according to the experts mind and to the contrary becomes deeper, that is to say the market volume continues growing and the volume of industrial glues both “hot” and “cold” continues to raise as well (each year at 16% and 10% respectively). And according to market operators the clients data bases grow as well.
Nevertheless at more fixed examination the first impression about the changes in the market image turns out to be not unfounded.

As correctly pointed one of the experts the development of glue market is determined by the development of technologies of consumer markets. Both manufacturing (bottling, packing and labeling) and marketing. And here the tendencies are obvious.
Each one of the most capacious consumer segments has tendencies that may be estimated by glue manufacturers as alarming ones. In this meaning indicative enough is the situation on the beer market.

Yes, the production of the beer from 2002 till 2006 increased in 117,6 millions of dollars.

However at the same time substantial changes took place in the structure of beer sales depending of the packing kind. According to the data of ACNielsen Ukraine if in 2003 from 100% of the beer sold in consumer package 70% was in glass package, in 2005 the part of glass bottles reduced till 59,6%. At the same time the beer in aluminium can increased its part in the general volume of sales from 1,9% in 2003 till 2,6% in 2005.
Although this figure is not very high yet – but it’s the tendency that has the importance, that became stronger in 2006: the powerful advertising campaign promoting this package indirectly confirms that the data that the production of the beer that “loves the can” increased in 60-70%. The PET package is also increasing steadily its part that constitutes one quarter part of sales of the bottles beer. But there is also the segment of non bottled beer and quickly developing fast food networks that swiftly take away clients from stalls and “bathyscaphes”. For exemple according to the data provided by the company BBH Ukraine the volume of the beer production in barrels during 10 months of 2007 in comparison with the same period of the previous year increased in 43,06%.
And finally one more feature: actually the beer bottle turns back till 8 times but many manufacturers already expressed the idea of passing to the not circulating package.
So, there are enough grounds for pondering over the “beer future” of labeling glue. And if the hot melt has the chance to hold out on the PET package, the destiny of liquid glues completely depends on “glass” segment.

If the beer market made a disagreeable surprise to glue manufacturers by the expansion of alternative package, the vodka market made the same by the expansion of the alternative label.

However it’s difficult to call alternative some its kinds. Moreover the same state may achieve the classic paper label. Its more serious rival is so called “self-adhesive label”.
Practically all restalling cases that took places during two last years meant the passage from the paper to self-adhesive label. The most bright examples are SV, “Medoff”, “Olimp”, “Miagkov”, “Khlebnyi dar”.
It is to note that new brands from the beginning are drawn towards “self-adhesive label”, for instance “Celsium”, “Bayka” or “Vozhak”.

It’s necessary to note the displacement of the traditional composition “glass + paper” downwards above the medium stripe of the medium price segment. The ancient positions it maintains only in the lower price segment: in the medium and higher segment is is seriously forced out by the “self-adhesive label”. And finally in the premium segment this composition is practically absent. Here strong position is gained by the decoration (“Mendeleiev”, “Bila”, “Koroleva”) and non traditional mixtures with the use, for example, of the metal, sealing wax or plastic. (Lex, “Khortitsa VIP”, “Khlibna slioza”). The most steady follower of classic labels remains “Nemiroff”. When speaking about the most mass TM represented in lower price segments, their manufacturers don’t exclude the possibility of passage to the hot melt or to the self-adhesive label. In this way the only article produced by the glue manufacturers for which one the demand from vodka industry is not reduced is the glue for documentary stamps.

Not so simple is also the situation on the market of non alcoholic drinks and canned vegetables and fruits. All them for some years successively demonstrate the stable growth. But more than three quarters of sale of juices are represented by the cardboard package and more than one third of canned vegetables and fruits market is controlled by importers. The growing market of non alcoholic drinks promises the increase of the benefit only for “hot” glue manufacturers because the part of glass package here is also reduced: for instance in the segment of bottled water only from 2002 till 2005 it reduced from 4,9% till 0,9%.

But in all above mentioned segments to the glass package belongs the role of premium package that is to say it firmly reserved the place in the most perspective segments.
It is obvious that the majority of above mentioned tendencies unfavorable for glue market in the whole had the most negative influence on the “cold” glue manufacturers.
In this way the state of the most stable (but still not the most large) consumers of this product become manufacturers of the wine, cognac and canned goods (both vegetables and meat) – that is to say segments where the paper label being always classic serves as a sign of maturity of the final product in the spirit of historical traditions.

The most perspective consumers of cold glue can be called canned goods manufacturers and maybe (but in the long term perspective) non alcoholic drinks and bottled water manufacturers. And the most large one (but already the least perspective) consumer segment is always the veer and vodka segments. When speaking about “hot” label glue the increase of its use will be assured mainly by the beer and non alcoholic industry and maybe also by the vodka productions in case of the passage to the hot melt.

In this situation the enlargement of client data bases by the glue companies seems more to be a necessity. The loss of one large key client can be hardly compensated by the acquisition of ten small clients especially because they are subject to the season factor influence.

By the way one more complication for glue manufacturers is the aspiration of some large manufacturers to make tougher the collaboration terms. As was mentioned by one of market operators “… the participation of the glue in the final product prime cost formation is the minimum. That’s why with the label are occupied employees of the enterprise-client at the level not lower as the deputy director and with rare exception / head of sale department. And the problem of the glue is entrusted as a rule the employees not higher than the head of bottling shop.

It’s clear: the gradation of powers corresponds to the amount of the controlled money flow. But exactly because the glue is delivered mainly by the national suppliers very often we can see not justified by nothing the price pressure on the national suppliers.
Some consumer companies present requirements to the glue consumption based on the internal consumption norms. If the consumption is higher, for example for 1 thousand bottles the price for the glue is proportionally reduced. Although nobody can check the correctness of these norms.

The second moment is the payment postponement. If in 2004-2005 the they required the postponement for 45-60 days, now this term goes up to 120 days.

Some words about the profitability.
And this is another alarming tendency. During the last year to the mind of the director “Vulcascot Ukraine” Ltd Ivan Dovgan in 8-10% in average on the market. Of course this general market tendency each manufacturer changed for specific amount in hard cash the amount of which depends on the reserve of the stability of the enterprise.

During the last year and the first six months of the current year rose in price practically all components of the “cold” glue prime cost: prices went up for main raw material, electric power, logistic and also the water. Only the price for the casein went up for more than the quarter what was related with the raise of the price for the milk on the global market (in Germany, for example, prices for milk products rose in30-35%).

At the same time the glue price whose rise was kept back by the rigid policy of clients went up only in 20% in average on the market. This served as the main reason to the profitability decrease. In its turn it influenced the competitiveness of some enterprises: as it is known the last year the “Yuvikur” and “Khimproject” left the market. Let’s underline: from the “white” market; on the “black” market that also felt the price blow to the mind of experts much more manufacturers left the market.

In the present situation the supreme importance for the competitiveness of the enterprises acquire the level of resource saving technologies used by this one. Let’s suppose that only some companies use in the production heat vapor generator, which ones are, by the way, very different. Nevertheless all of them look more preferable in the meaning of energy consumption than boilers with electric heating elements. The process of production of the glue lot continues some hours, in this way the question of energy saving in the glue production is not futile at all. All above said can be related to the consumption of all resources.

The fact that the situation with “hot” glues is not cloudless at all one can judge by the words of commercial director of the society “Promvestcom” Ltd official distributor of the company National Starch & Chemical, Vladimir Sapronov:
“The typical hot melt consists of polymers, wax and the substance increasing the adhesiveness. All these elements are obtained by the processing of mineral oils except for some resins. The lack of the delivery on the market of any component of the hot melt is sharply felt after the increase of the demand for chemical industry products. And the prices go up depending on the rise of the prices for mineral oils. By the way, the world economic growth, mainly in the Asia influences on the reduction of mineral oils deliveries and on the changes of prices.

EVA is the main polymer in packing glues. Prices for it during 2006-2007 rose three times and in general went up in 16,8% And 7% of this increase fall into the period from December, 2006 and March, 2007. The manufacturers of this polymer make all their possible to satisfy the world demand, but nevertheless they constantly rise prices.
One of the three most large manufacturers of EVA declared about the introduction of restrictions for the purchase of this polymer in 2008. And the most large consumers will have the right to preserve the necessary amount of EVA pro rata to the volumes of each specific production.

Also went up prices for hydrogen carbonate resins: in 15% from which 6-7% fell on July 2007 and about 9% on the beginning of September.
The prices for ether resins raised as raised the demand for them. Two large manufacturers of hydrogen carbonate resins fixed the rule of purchase of this material in 2008 at the level of purchase of previous years.

Prices for wax in average during the year rose in 5% and the same situation is forecasted in 2008. Although certain kinds of wax rose in price in 50% the possibilities of its purchase reduced three times.

As for the development of the hot melts market the prospects aren’t very optimistic. The passage of the company “SAN InBev Ukraine” from paper to the polypropylene label led to significant reduction of hot melt consumption. The increase of hot melt consumption can be seen at local manufacturers of non alcoholic drinks and beer, but the part of the consumption isn’t very significant.

Structure stability.
Against a background of described tendencies the appearance of new operators seems to be very unlikely. But, nevertheless they appear. During the year three new companies appeared on the Ukrainian label glue market: “Capital Invest”, (production base in Simferopol); “Shower Product” (Kherson), ACCK (Severodonietsk). Besides, some companies declared about the enlargement of label glue programs: in particular “Modificator Agro” from Kiev and “Kiilto Klei”, delivering glues from Finland. To what is due this new wave? First of all the volume of Ukrainian market of label glues (about 440 tons) seems always very attractive. As for competitive arguments the situation of recently created enterprises near centers of consumption (South and East of Ukraine) means the aspiration of new operators to use the advantages of geographic closeness to the client.

Besides, practically all recently appeared companies declare such advantage as low consumption of their products in comparison with competitive analogues of old residents on the market. This advantage is increase (for some time) by sufficiently democratic prices, not reflecting the foreign origin of raw material components or the final product.

Finally, the sale of glues this is not only the technological innovations, but also the marketing and in this field new operators certainly have some “prepared surprises”. Let’s examine these arguments on the example of the consistency.
The closeness to the consumer in the light of future increase of logistic costs is a stake practically without risk of losses. Of course if the main raw material isn’t delivered from abroad and doesn’t have transport costs. But it is necessary to underline that the majority of national leading companies have commercial representations in various regions.

Especially it is necessary to underline the importance of business reputation: the glue market of Ukraine knew many changes in the corps of manufacturers and the state of old resident on the market is already a kind of recommendation and capital. Besides the closeness to the consumer may be used by experienced national manufacturers more completely, because the have as a rule not only the local production but also the local scientific base. That is to say that the accumulated scientific and research potential permits them in more mobile way to react to clients demands either completing the assortment with new marks or modifying the existing ones.

By the way rather interesting to our mind is the answer of one of the market operators to the question why the Ukrainian manufacturers don’t produce the label glues of patent bank. We were satisfied, at least, by its openness:
“Far from each global manufacturer is in contrast to us the generator of innovations. Many bought patents in patent base of Europe and USA. Why there? Because in these countries is functioning the efficacious mechanism of intellectual property protection. And if know-how of Ukrainian manufacturers will be fixed in these patents the will simply stolen”

As for lower consumption of glues appearing on the market the old resident of the market perceive this information skeptically, referring to the history of the national market. Really in this history one can find examples of non conformity of promised characteristics to the reality leading to the fact that the groundless promises forced them to leave the market. However in the history there no less examples of successful introduction of companies on the market and quality products.

Thus, it’s to early, of course, estimate the effectiveness of technological and marketing innovations proposed by new operators. To our mind, here it is necessary to make use of professional advice and wait at least one year.

The situation with the price policy is more predicted, as it shows the practice of national market.

Really all companies appearing on the market aspire to propose the most competitive price. But when the action or planned damping period is finished prices become adequate and all companies arrived from abroad are displaced to the niche where are located Henkel, National Starch and Jovat.

Meanwhile in Ukraine appear small new production European and world leaders of the label glues production don’t show obvious interest in the organization of local production units.

The fact that this interest exists is unambiguous and nearer become prospects of the entry of the Ukraine into the WTO more grounds there are for this interest. However the organization of a small production with a narrow assortment, as a rule doesn’t present any interest for transnational corporations. On the other side the realization of large multi field projects requiring large investments is prevented by the political instability, the insufficient structurization of the demand and the presence of powerful competitive force in the form of national manufacturers.

Besides, some transnational companies are tied with contracts with Ukrainian companies, and details of these contracts, are not disclosed, of course. For example, not only the construction of the Ukrainian plant by the company CPH, but also the independent sale of the products on the territory of Ukraine is practically blocked by the contract in force of this manufacturer with “Vulkaskot Ukraine” Ltd.

In this way we can characterize the market structure as a stable one that doesn’t exclude its susceptibility towards powerful external influences. How powerful they will be – the time will show. The one thing is sure – the raise of glue market on the new altitude will be slippery.

Vladimir Sinitsyn, director of SRE “Lux-X”
The interest of label glues manufacturers towards Ukraine is quite comprehensible, in spite of reducing profitability of the work on the Ukrainian market. It attracts as always by the volume exceeds the volume of the markets of some European countries taken together.

The appearance of new operators doesn’t cause joy to us, of course, but neither gives serious concern. We don’t occupy the aggressive position in respect to our competitors and we are completely aware that if some part of the market is lost by some objective reasons, we have to look for new ways and possibilities of development.

.And the main thing, that as the warranty of our assurance serves the experience of the successful competition with leaders of world label glue productions, accumulated on previous stages of development of Ukrainian market as well as the business reputation of the company “Lux-X” and the successful practice of the generation and introduction of scientific and production innovations.

Besides, it should be underlined that potentials of competitors are very different and some of them already have the experience not only of the organization but also of cutting down of production processes in Ukraine.

Yuriy Poymanov