Cover Story: Top 30 Book Manufacturers

UPDATE: Click here to see the latest ranking of Top Book Manufacturers.

In the current economy, the book manufacturing industry appears to be caught square between the proverbial rock and a hard place: on the one side, a publishing business suffering from decreased consumer demand and on the other, suppliers destabilized by the credit crunch. The industry, however, is showing surprising resiliency, having been thrust into difficult times with eyes wide open. Printers are determined to meet the challenge of a new marketplace defined by multiplatform delivery systems, environmental awareness and niche distribution models in the hopes that the post-“great recession” economy will find a book manufacturing industry emerging leaner, “greener” and more focused on the place of books in a digital age.

In light of these challenging times, this year’s list of North America’s Top 30 Book Manufacturers reveals a mixed bag of results. Of the 23 companies appearing on both last year’s and this year’s list, 10 reported declines in book manufacturing revenue while 13 grew this segment of their business. A year ago, just seven of the 30 companies on the list reported lower figures than their 2007 revenues.

Book Business’ annual list of the Top 30 Book Manufacturers is the industry’s most comprehensive ranking of the leading public and private book printers in the United States and Canada. In addition to financial information from public companies, the ranking includes figures voluntarily provided by privately held firms. Despite Book Business’ repeated attempts, some companies declined to divulge their annual printing sales figures—or would not break down these sales by revenue from book printing—and, therefore, were not included on the list. RR Donnelley does not separate its revenue from book printing from its other businesses, but based on the company’s acquisitions of Perry Judd’s, Von Hoffman and Banta Corp. more than a year ago, Donnelley took the No. 1 spot.

To accompany its annual list of Top 30 Book Manufacturers, Book Business asked several manufacturing executives to share their thoughts on the state of the book printing industry in 2009:

• John Edwards, president and CEO, Edwards Brothers Inc.
• Mike Collinge, president and CEO, Webcom Inc.
• Jim Pentecost, president and CEO, Dickinson Press
• Doug Symington, general sales manager, Friesens

John Edwards, president and CEO, Edwards Brothers Inc.

BB: What are the most important changes you’ve seen in the book printing market over the past year?
Edwards: … The economy. …The trade market has probably been the hardest hit since it depends on disposable income. When people are worried about paying bills and keeping their jobs, they cut back spending on discretionary items like books. In the K-12 [education] market, things are … less clear. There is a lot of talk that the stimulus plan will trickle down to spending on textbooks and supplementary materials, but … we’ll see if the orders roll in as usual this spring and summer. The college market is more stable—when the economy goes south, people go back to school, and they’re going to need textbooks and related materials. However, in that market, publishers are battling a growing used-book market [online] as well as technology developments like Amazon’s recent announcement of an academic market version of the Kindle. (See Market Focus sidebar for more on this.)

The key question is whether the market rebounds when the economy turns around. There are some fundamental shifts in how publishers are looking at inventory. They’re printing shorter runs more often versus stocking up in hopes that the inventory sells through.

BB: What strategic moves are being encouraged by current market conditions?
Edwards: Capital budgets are being significantly reduced as printers look to control cash, strengthen balance sheets and survive this economic downturn. Like everyone else, we’re looking at all costs to try to stay competitive. However, … if we see equipment that can get a quick return on investment, we’ll do everything we can to buy it. … You have to continue to focus on the future and try not to get into too much of a bunker mentality. …

Right now, automation is key—we’re doing anything we can to lower transaction costs because the cost pressures we feel today aren’t going away under any economic conditions. And we’re focusing our investments on our short-run orientation, because helping publishers run their inventory more tightly and control cash will be important for us forever.

On the “green” front, pioneers like Scholastic have driven a huge increase in the amount of recycled paper used in the book industry.

BB: What’s the next step for ‘greener’ manufacturing?
Edwards: Everybody wants to follow environmentally sound practices and use certified and recycled paper. … But availability isn’t what it needs to be right now, so it costs more. … But supply will improve, and I expect pretty widespread use of these kinds of papers in the long run.

… One of the problems … is that the demand for recycled goods is way down, a reflection of overall economic conditions. But we continue to work on … ways to improve and expand our recycling efforts, including things like recycling waste ink and testing non-heat-set inks on our heat-set presses to lower natural gas- consumption rates. We’re uncertain whether this will work for the kinds of products we produce, but we continue to try. An example of a project that did work out is our recycling of paper dust for use as bedding material at local horse farms. …

BB: Are new investment and infrastructure improvements on hold right now given the economy?
Edwards: We have reduced our capital expenditures in other areas for the next year or two, but that’s because we already invested heavily in 2007 and 2008—the biggest investment years in the company’s history—and have the equipment we need to handle any economic swing.

[However], now is exactly the right time to take a close look at operations to see how you can drive costs out, so we’re continuing to invest in infrastructure and business system improvements. We embarked two years ago on a project to redesign all company systems—it will be complete in 2010. We’ve also accelerated the pace of our lean manufacturing efforts in all plants as part of our infrastructure overhaul, focusing on work in process, throughput and overall improvements in operations. No matter how long it takes for the recovery to happen, anything we do on these fronts will pay off in the long run. …

Mike Collinge, president and CEO, Webcom Inc.

BB: What are the most important changes you’ve seen in the book printing market over the past year?
Collinge: One of the two key things is … reduced demand from many of the core publishing market segments in North America, driven either by the credit crunch or declining consumer demand. I think adjustments to those changing volumes … [has led to] decreases in margins and pricing throughout the industry to keep book manufacturing plants operating. So from a printer’s perspective, the challenge is to find new ways to improve productivity, [and] reduce spoilage and waste so that you can adjust to lower margins and increased competition.

BB: Do these new efficiencies involve technological or workflow changes?
Collinge: We have not been investing in new technologies to get that done. … We invested over $1 million in a 30-week productivity improvement program in 2008, which involved no investments in capital. It was a rework of process, best practices and measurements to make sure our employees … were increasing their productivity. We reduced waste and downtime, things along those lines. We looked at everything from our customer service right through our shipping and logistics. …

BB: Have you been able to avoid significant layoffs?
Collinge: Actually, we’ve been hiring throughout 2009, so we’ve been growing. Through the first six months, it’s been a decent year.

BB: Do you have any ‘green’ initiatives?
Collinge: In becoming a responsible and sustainable manufacturer, … we are trying to … make sure that our processes become “greener” … so we have a lineup of over 20 paper grades, the vast majority of which are FSC or high PCW [postconsumer-waste] recycled content. We’re trying to do as much of that at price parity as we can (versus traditional virgin paper). We’re working aggressively with our suppliers to bring that to bear.

We have a stated, measurable environmental policy. … It is available for all of our customers to review. From looking at our operations right through to establishing employee “green” teams, we are trying to progressively improve.

BB: Are these initiatives necessary now in terms of competitiveness?
Collinge: Not quite yet. I think for most publishers, quality and turnaround are expected, as well as [competitive] pricing. The ability to deliver sustainable “green” products is about No. 4 [on their priorities list]. … Certainly some of our best customers have a strong environmental commitment that matches the vision we are trying to work toward.

BB: Where do you see the industry going in the immediate future?
Collinge: The overall outlook is uncertain in the short term. Educational work was down in the first quarter … about 15 percent year over year, but there’s an expectation that some of the stimulus package aimed at state educational programs could have a spin-off effect that would be positive for books and textbook publishers. So there is some hope and expectation over the next six months, but overall [the market] is pretty depressed because of consumer spending.

BB: What other important factors are affecting the industry?
Collinge: There’s a lot of challenge in the paper markets. Costs are changing rapidly depending on demand, and there are some challenged suppliers that are core to the industry that seem to be navigating some of their credit challenges. … Managing those relationships is getting to be a key part in supporting a publisher and printer’s success, because those things are volatile—with environmental issues, cost changes in paper, and in some cases, credit and financial challenges within those suppliers, it’s a lot more dynamic than it was a few years ago.

BB: So the price fluctuations of paper as a commodity and the health of these companies factor in?
Collinge: And the third thing is the complexity and changes in paper options, some driven by environmental concerns, some by technology advances. … These developments are adding new opportunities to really address the functionality of books and the economics of the paper equation, and it’s making for a more complex planning and selling process, which is a good thing to have because it means we are looking at doing things differently rather than just supporting the status quo.

Jim Pentecost, president and CEO, Dickinson Press

BB: What are the most important trends you’ve seen in the book printing market over the past year?
Pentecost: … The economy. We are adjusting to that … with efficiencies as well as some [decreases] in staff, [and] cost-management initiatives—all the way from our estimating system through the maintenance system. We are also negotiating better rates and terms with all of our vendors, whether in the insurance on the business [or] materials we use.

A significant trend is in environmental sensitivity. … So, we have made some changes there …, for instance, we have become chain-of-custody certified with SFI [Sustainable Forestry Initiative] and PEFC [Programme for the Endorsement of Forest Certification], and we’re waiting for our FSC [Forest Stewardship Council] certification. And … we are doing a lot more in the area of recycling.

Another significant trend is in shorter runs, and we are trying to accommodate that with some of our smaller web presses, … as customers [try] to keep their inventory levels down.

BB: Is digital figuring into that for you?
Pentecost: It is not for us. … I think digital is still 1,000 copies and under, so generally if it gets down that low we are probably not a player. We will do 2,500 copies and above, but where we start to become efficient is at about 7,000 copies. …

BB: Have you made any recent improvements in technology or workflow?
Pentecost: We’ve made changes in our software and prepress area, as well as adding some items to our web process, such as closed-loop color systems, which reduces makereadies and reduces the amount of time it takes us to get on the count. We’ve also made investments in efficiencies in the binderies, with some in-line production capabilities in labeling, shrink-wrapping [and] cartoning.

Rather than lay people off, we decided to find other jobs for them, so we brought back in-house some of the work we had traditionally outsourced. … [Also], more of us are wearing more hats. … We’ve also done some cross-training with people in the line where they can work on several different pieces of equipment.

Doug Symington, general sales manager, Friesens

BB: What are the most important trends you’ve seen in the book printing market over the past year?
Symington: … Shorter runs. Where before [publishers] would have printed 50,000 [copies], now it’s 25,000. Publishers are also doing a lot more short runs of under 10,000, in cases where they perceive they don’t know the market for the book. …

BB: What is driving the use of shorter print runs?
Symington: There was too much inventory out there before, and inventory has a cost. Even if it made more sense to print a lot of books to make the P&L of the book work, there is a cost to grinding them up, … to storing them …, so … publishers have gotten smarter about inventory levels.

BB: Have newer technologies made it possible to provide these options?
Symington: Absolutely. Digital, for example. Last year we bought [an inline] digital press; … it did not work exactly the way we wanted, so we’ve switched to Nuvera, by Xerox, and we’re having great luck.

The digital quality now is very, very comparable to our web press. So … technology is allowing publishers, if they’re doing a trade paperback book with insert, to do 7,500 in the first run, and if it sells well, they can do a shorter run, 1,000 downwards for digital, and keep older books alive that way.

[If] you can move from sheetfed to one-color web to digital, you’ve got a lot more avenues for what you can … produce. You have to be very flexible.

BB: What are important trends going forward?
Symington: You hear so much about things like the Kindle, but the most important trend is [that] … books aren’t going to disappear; but when you publish a book or print a book, you have to recognize that, over its life span, it will be delivered in different formats. That might mean it starts as a sheetfed product, moves to the web and then goes digital.

The other trend is differentiating clearly in the marketplace what digital printing and print-on-demand [POD] mean, because people use those terms interchangeably and to me they are not interchangeable. POD is one copy through an Espresso [book machine] or through a warehouse; digital could be anywhere from 200 to 1,500 copies. They are two very different beasts.

BB: What about strategic moves in this economic climate?
Symington: We are … 103 years old, … 100-percent employee-owned, we don’t carry any debt. … We just finished our largest-ever expansion last year, spending $13 million building a new plant, buying a new web press, so for us, it’s business as usual.

We’ve ridden through various economic downturns. … We want to come out at the other end well-prepared. … Are we watching costs … more closely? For sure. … But on the other hand, we’re bullish. We don’t see books going away anytime soon. Maybe the shape and form changes a little bit, and we have to offer some other options, but we’re bullish.