Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world, and now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Listeners to this podcast know that I find the science and art of packaging to be a fascinating aspect of the marketing and branding of products. In the times that we've taken on the topic, I noticed that the conversation around it has shifted as packaging has been brought to the front lines in the battle to reduce a company's carbon footprint and aid in sustainability efforts across industries.
For example, back in episode 335, we heard from Kimberly-Clark's Chief R&D Officer Robert Long on the decades of research that he and his team have put into creating the perfect sustainable, light, yet durable wrapper for each of the company's hundreds of unique products. Just a couple episodes ago I talked to Jean Jereissati about Ambev's ambitious goal to become carbon neutral, an endeavor that would be impossible. To quote him, "If we cannot get right the packaging side, we will not be able to have zero emissions on the scope three."
Our guest today, Graphic Packaging CEO, Michael Doss, is quite familiar with Ambev and their packaging needs as the Brazilian beverage giant is one of the customers who depend on Graphic Packaging's products to reduce emissions and increase recycling. The secret weapon to reducing the use of fossil fuel-dependent plastics creating a more recyclable economy and keeping our cold drinks icy is the humble paper fiber.
According to Ohio State, the first cardboard was created in the 1600s in China, but it wasn't until 1817 that the first cardboard boxes were introduced for shipping and transporting goods large and small. To paraphrase, the New York Stock Exchange's Vice Chairman John Tuttle more has changed in the industry of fiber-based packaging in the last 20 years than the preceding 200. Our conversation with Graphic Packaging CEO, Michael Doss, on innovation in fiber-based consumer packaging solutions and the ESG of paper products, it's all coming up right after this.
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Josh King:
Our guest today, Michael Doss, is the president and CEO of Graphic Packaging Holding Company. That's NYSE ticker symbol GPK. Prior to his appointment as CEO in January of 2016, Michael served in a number of senior roles with the company, including COO, Senior Vice President of Consumer Packaging, and VP of Operations. He first joined the company back in 1990. Michael serves on the boards of directors for the American Forest and Paper Association, the Sustainable Forest Initiative, the Paper Recycling Coalition, and the Atlanta Area Council of the Boy Scouts of America. Welcome, Michael, Inside the ICE House and to the New York Stock Exchange.
Michael Doss:
Thanks and thanks for having me today. Nice to spend some time with you, Josh.
Josh King:
What brings you up to New York this trip?
Michael Doss:
We had an investor conference yesterday and got to spend some time with some of our investors and talk a little bit about what's going on in the economy, our business, and great to be here at the Exchange this morning.
Josh King:
What are your key memories of coming back to the exchange and how is it a place that Graphic Packaging puts to use?
Michael Doss:
Well, we've been members since '92, so it's a long history with the Exchange. Ultimately, we've now done a couple of our investor days here and just the connection with the facilities, being in the city, having our investors come and be able to spend some time with us and talk about where we're going to take the company over time. A lot of good memories there.
Josh King:
Talking about your discussions with investors, we livestreamed your session at Goldman yesterday, which to an average listener was a crash course into the Graphic Packaging business. I'm sure your investors know how to model every aspect of what you disclosed, but for Pete and me, it was like, "Hey, this is A to Z on packaging." Can you explain the three principle substrates that your company produces and how the audience might come across them in their daily consumer use?
Michael Doss:
Yeah, maybe even taking a step back for a minute for the audience. Graphic Packaging is a company that most people don't know of. They don't know the name, and yet I almost guarantee in the last 24 hours they've used something that we make. So we've got the ability in our customer set to reach a variety of consumer goods companies. So whether it was the coffee you had this morning and the cup, the paper cup that we make or the lunch you had that came in a tray that we make, the frozen dinner for dinner, your afternoon snack, whether it's a soft drink or after hours of beer, all those things are things that we make and put in fiber-based packaging.
There's really, as you alluded to, three principal substrates that we use to do that. Two of them are virgin, meaning they come from virgin trees and pulp, and I'll talk about that a little bit and how it's very circular, and then one of them is recycled. So we have what we call SBS or solid bleach sulfate. That's the white paper that is primarily used for cups and direct food contact, and then we have a product called CUK, our trade name SUS, and that solid bleach sulfate. So think about the carrier cartons for beers. Anything that has to be really strong, and the handle on a six-pack, you don't want to break or tear and have the bottles fall on the ground. So you need that strength to do that.
Then ultimately, and what we've been investing heavily in is recycling and coded recycled paperboard or CRB as we call it in the industry. That tends to be used for a variety of hatch goods applications and increasingly more found in consumer circles for the types of products that people want to buy.
Josh King:
I mentioned Ohio State research in the introduction, so I hope that a proud Michigander like yourself can forgive me for bringing that up. What did your dad do for Consumers Energy and what was life like growing up in the Wolverine state?
Michael Doss:
Yeah. So my dad worked for the power company his entire career and we moved around to state of Michigan I think 10 times. I ultimately went to high school in the northern suburbs of Detroit, Rochester Hills and went to Rochester Adams High School and then attended college for both my undergraduate and graduate work at Western Michigan University in Kalamazoo.
Josh King:
Talking about Western Michigan, following your graduation, you then joined this company, Graphic Packaging, as a sales rep. How did your career evolve from marketing and sales to overseeing actually operations like your plant in Gordonsville, Tennessee?
Michael Doss:
It's an interesting story in terms of how I wound up there. So I didn't go out of college thinking, "Hey, I'm going to get into packaging." I hadn't thought about it really at all, and that's the beauty of how I wound up where I'm at here. I signed up for 10 interviews halfway through my MBA. I'd done construction work during the summer, never had an internship, and so I knew that this was about to become pretty real when I graduated with my graduate degree there and I'd ultimately need to find a job. So I said, "Let's go practice some of these interviews."
So I did 10 of them, as I said, got called back I think six, and one of them was a company by the name of James River Corporation that had a mill and converting operation in Kalamazoo, Michigan. I remember walking onto the floor of our converting plant and I looked at the printing presses, these large printing presses, and they're running all these brand name items. So Kellogg cereals running on three of the presses, P&G's running on a couple of them, M&M Mars, Kraft Mac & Cheese is running on them. I thought to myself, "You know what? This is a real company making real things. You better get your head in the game. You may just want to work here."
Of course, they invited me back and the rest is history, but I've spent my entire career now with that firm. Well, we now go by Graphic Packaging. There's been a series of acquisitions over the years that have evolved, but 33 years with the same company.
Josh King:
So Graphic Packaging is the old James River?
Michael Doss:
Yeah. We acquired that business over a period of time.
Josh King:
The job that you've done, Mike, has also taken you outside the United States as you made dozens of trips while overseeing the turnaround and growth of the company's European business. When did you first start working internationally and how has Graphic Packaging's non-US business evolved for your time with the company, mentioning the stuff, for instance, that you do with Ambev?
Michael Doss:
Yeah. So we always had a large presence in North America, but in 2012, my boss at the time, David Scheible, who's the CEO of the company, said, "Mike, you need to go over to Europe. We've got a small business there. It's underperforming. We either need to sell it or we need to grow it and you need to come back with a recommendation." So as you alluded to, I made a number of trips, talked to a number of folks. We ultimately found a couple of businesses that we were able to bolt on to our business, and then we did a few more, and then about two years ago, we did a very large acquisition. So now we've got a two and a half billion dollar business in Europe, and those are the two principle markets, Josh, that we compete in in service customers and it's North America and in Europe.
If you think about it, why we like those markets is they're large consumer markets, so people have disposable income even though they're not growing real fast. The types of products that we make, in fact, manufacture, they have the ability to purchase and very defensive end use markets where if you add up what we do, almost 90% of everything we do, somehow touches food or beverage. So very defensive in nature.
Josh King:
I don't know if this is perceptible or describable, but when I compare my experience going into a Hannaford's in the US and looking at the store shelves and going into a Sainsbury's in the UK or a store in France, there's something about packaging in Europe that seems to be tighter, more compact, use less space, a little bit more efficient. Is that something that you have a read on?
Michael Doss:
That's a good read on your behalf. Ultimately, the European consumer is the most sustainably conscious consumer in the world. In the case of the UK, their shopping habits are different than what we have in the US too, meaning they go to the store pretty much every day or every other day to provision for what they need. Their refrigerators are a lot smaller. It's just culturally how they like to feed their families and feed themselves. So yeah, we have different types of packaging in that kind of environment.
Again, that's one of the reasons why it's so important we have a big business in Europe because the trends for packaging tend to start there 18 to 24 months before they migrate to the rest of the world. So because we've got a big business there and a lot of new product development people, we're able to move those trends around the globe faster to our other operations and take advantage of them.
Josh King:
Those trends are guided by academia, government, design, sensibilities. Where does it start that they get an 18-month head start on us?
Michael Doss:
All those things, but I would point to the end use consumer has been driving this for the last five years, for sure, as their push for more sustainable planet really takes hold for these large consumer goods companies. They're advocating to these brands with their purchasing dollars around which brands they're going to support based on how they think they're showing up in the marketplace, much more so than when I started in the industry in 1990. We had the chasing arrows on every package, meaning that it was 100% recyclable.
No one really paid that much of attention to it until about 2017, I think there was a National Geographic article that came out on plastics in the oceans, and from that point forward, there's been a lot of focus on this, and it's been an opportunity for us to really drive our new product development around the replacement of single-use plastics with fiber-based packaging.
Josh King:
You mentioned how during the course of a day we're going to interact with your products from morning to night and certainly when we go to lunch at the cafeteria and grab a cardboard tray as our takeaway. In 2008, Graphic Packaging began to build out its food service packaging division. What was behind the decision and how did you develop that arm of the business through organic and M and A growth in those early years?
Michael Doss:
Yeah. So in 2008-2009 when the great recession really hit, we had a large business as I mentioned in North America in a very focused customer set. Our top 25 accounts were close to 70% of all of our volume, which was good from an SG&A standpoint. We could be really focused on those customers, but if one of them got a cold, we got the flu. So during that period of time, we decided we were going to build out our portfolio differently. So we took a portfolio that was roughly probably 85% focused on just what I'll call center of the store food and beverage.
Today, that number's just barely over 50%. We didn't even really have a food service business in 2008. We had the fortune of being able to acquire international papers consumer packaging business in 2018. Now, our food service business is roughly 20% of our global revenue. So it's quite large. Last year, we made 13 billion paper cups as an example. So it's a key part of how we go to market and it diversifies our product mixes you can appreciate because if one part of the economy is down, meaning unemployment is higher, people tend to eat more at home. If we've got 3.6% unemployment like we do today, ultimately, the consumer's more mobile, they want convenience, they want be able to go through the drive-throughs because they're busy and our food service business is really on fire right now.
Josh King:
Do the biggest chains like McDonald's and Starbucks do their own manufacturing in-house or bespoke or do they come to Graphic Packaging for their needs and you develop them?
Michael Doss:
We work with them. In some cases, they do some stuff on their own, but we just recently announced a new project that we're working on with Chick-fil-A, and that's been a very collaborative effort where they have ideas, we have solutions, and we fine tune those together to really come up with a unique product that really fits their needs for their beverage platform.
Josh King:
Before we go too far into the future, this year marks your seventh as CEO. You replaced David Scheible, who you talked about earlier. He served nine years in the post after spending several years working up the ranks similar to your trajectory. How did you work together on succession planning and what was the mandate from the board as you took the helm from David?
Michael Doss:
I had the fortune to work for David in a variety of roles and the opportunity to watch a very good batter in the batter's box, and he gave me every opportunity to develop my skills. I mentioned he dispatched me to Europe and said, "Go figure this out," and what he said is, "This is how you're going to frame your capabilities to the board ultimately." I've been lucky in my career I've had not one but three really great bosses that had gave me these opportunities. I'll liken it a little bit to tossing me in the pool with those little floaty things on your arms. They weren't going to let me drown, but they were going to let me struggle for a little while. I think that struggle really helps you develop that resolve to work through tough business problems because, ultimately, you have to face those each and every day. Things just don't go according to plan.
You put the best plans together and the only thing you know is that they're wrong. So you have to be able to do countermeasures and find ways to come back, and that resiliency is really what the board was looking for. So we had a great partnership and, ultimately, that's my responsibility too is we've got a few people that we're grooming for potential successor for me when that point comes and I want to give them those same opportunities.
Josh King:
You used an interesting metaphor in that talking about David as a good batter in the batter's box. Everyone has a different swing, everyone has a different hitch, Nomar Garciaparra playing with his batting gloves, and it's a totally different aspect of dealing with subordinates and peers versus walking into a room where there are board members around the table. For a lot of people, getting into that batter's box is a new trick. How did you condition yourself to the way your swing was going to be in that batter's box?
Michael Doss:
Yeah. Well, I'll tell you this, as long as we're using athletic metaphors here, it took me a couple of years for the game to really slow down. So most people talk about it takes a couple years to go from high school to college, college to the pros, unless you're a generational player like LeBron James where you can just make that transition and it's smooth. I'm not that person. So it was no different for me even though I'd watched a great batter and he'd been very successful. Watching the batter and being the batter are two different things. So I worked through that no different than I think most people that go into that role.
One of the biggest changes you have when you become CEO is, in my case, I've got nine independent directors and each one of them is a boss, if you think about it that way. So you go from having one boss that you're responsible to to having nine, all of them with unique perspectives and backgrounds, and we have a chair and the chair is very effective at helping bring that to a point, decision making to a point, but I had to learn how to balance that, how to handle my communication. I went on an outside board here three years ago. That was very helpful for me, an outside public company board.
Josh King:
Which company?
Michael Doss:
It was Sealed Air Corporation, and then ultimately, that gives you perspective to understand what the independent director's going through and what they need. So it made me a more effective CEO because I could go back and talk with my team. It's like, "Listen, this is how we have to frame these discussions because they're looking at it through this lens. We need to make sure they have this information. Here's why they need it because they're representing the independent shareholder in the room." So I think you grow.
I'm one of these people having grown up playing competitive athletics. I view that every year I've got to get better. The board of directors has every right to expect that in year nine I'll be better CEO than I was in year two. So it's a constant learning process and you just really need to embrace that.
Josh King:
Talking about great batters in the box, a lot of them will, after they go for BP, they'll go back into the locker room and watch video of what they were doing and talk with swing coaches, et cetera, and make adjustments. You were at Goldman yesterday. Will you go back to Atlanta and listen to the tape when and think about, "I could've answered that question differently," or do you move on and next one up?
Michael Doss:
Yeah. We have people that listened and then, ultimately, I'll listen to it as well. You talked about those great swing coaches, sometimes they watch for a day and then they make one subtle comment around messaging in my case. So I think, look, you've got to be willing to look at yourself and constantly be looking for ways to improve and make sure your message is landing right, and if it's not, then think about how you may be able to do it differently next time.
Josh King:
You often describe talking about your vision for Graphic Packaging as a company that is running a different race. What does that term mean and how does it shape the company?
Michael Doss:
First off, we were able to roll that out, a little plug for the NYSE here in September of 2019 at our investor day that we did, and we rolled out our Vision 2025, goals and objectives, which had four main pillars. We can get into that a little bit later on, but what we want to do is really run a unique business model that reinforces itself. If you think about strategy, everything you do needs to reinforce that basic strategy that you put in place. In our case, it's around driving innovation for end use customers that create lift in the marketplace for their products, a relentless focus on cost reduction, and then spectacular capital allocation. We think we've been able to do all those things as part of our Vision 2025.
Josh King:
You talked about Kalamazoo earlier and those first visits to the James River Plant. You announced early in your tenure that you're making a 600 million dollar investment back in your old college stomping grounds of Kalamazoo. Can you talk about what K2 is and what it's done for the business?
Speaker 9:
Yeah, it's a great question. Thanks for bringing that up. Kalamazoo's an interesting town. When you think about the fact that in 1950, 50% of all the residents in that town somehow worked for the paper industry. That number today, because it changes in terms of overall product demands and paper grades, is down to about 2%, and most those folks work for our company. So we're proud of that.
It was a nice moment for me to be able to go back for all the right reasons and make that announcement that we were going to spend what ultimately turned out to be 700 million dollars and to build a brand new paper machine, the first of its kind in over 30 years back into the city of Kalamazoo at our mill there. We operate three paper machines in Kalamazoo. We make a million tons of coated recycled paper board a day, which means there's a million tons, a little more than a million tons of what otherwise would be garbage that we're cleaning up and turning back into primary packaging.
So it might have started as a paper cup, the next time you see it it's going to be a cereal box. So primary product, we can recycle the fibers up to six to seven times with the technology that we've got there, clean it all up. It's just a really good ESG story.
Josh King:
Whether it's automobiles, automobile parts, think about any other industry and certainly into paper the way that a mill or a plant would dominate the local workforce, whether it's Kalamazoo or Toledo or Detroit over the course of decades in the 20th century leading into the 21st, what has been the trajectory of human labor needs versus technology to run a good paper plant versus some other industries and people thinking, "Yeah, I can have a long term job at the Kalamazoo plant"?
Michael Doss:
That's one of the things we're really proud of. We've got a machine in Kalamazoo that's a hundred years old. The side frames are a hundred years old. It's been modernized with drives and equipment, but the basic technology hasn't changed that much. What the K2 machine does for us, Kalamazoo number two, we have number one and number three, we have to number them that way or no one knows where to go. We've got scale.
So when you walk out on the floor for a 700 million dollar investment, you don't see any people. It's very automated, and I like to say that we're taking younger people that six years ago were on their parents' couch playing Call of Duty and now they're in our control room operating a very technologically sophisticated paper machine. If we look at those folks and we were to move them over to that machine that's a hundred years old, they'd have no interest in doing that job.
Then if you looked at the demographic of the people running the K3 machine, the older machine that's roughly 70 years old, they have no interest in running the new machine. So you got to bring the work to the folks where they ultimately want to want to be. We think we're doing that with the investments that we're making.
Josh King:
Last year, talking about the various uses for the New York Stock Exchange building, we hosted the folks involved in the college football kickoff ringing the opening bell presented by Chick-fil-A. I want to dive a little deeper into this project that you're doing with them, a double wall fiber-based cup that Chick-fil-A is using to serve drinks without that annoying condensation that you get when you get a cup of coffee. Can you talk about the development process for the product and the potential impact that it might have on the industry?
Michael Doss:
Yeah, absolutely. So historically, a lot of cold and hot cups have been made out of the polystyrene resin. It's very cost-effective resin and it's got excellent thermodynamic capabilities. The only problem with it is once it's cracked, it stays in our planet for almost 400 years. So not great from an ESG standpoint. So many municipalities in states are banning that resin from being able to be used in primary packaging.
So it creates an opportunity that these customers are ultimately having to find a new solution for their beverage platform. You saw with Dunkin Donuts they made the transition out of foam and into paperboard, our paperboard cups a number of years ago. Now, we have Chick-fil-A that is actively working with us, and that condensation point, if you think about where a lot of those stores are, they tend to be in the US South. There's large cups of sweet tea and other things that they sell to their customers and they don't want that making a mess or being a bad experience for their customer.
So it's very important they find something that works very well for them. So we've been very maniacally focused along with them trying to find a solution that does that. The one that they're testing now at 10% of their stores across the US got some unique intellectual property where it's a double wall and there's barriers in between air, if you will, the two layers of paperboard that allows that thermal property to work where you don't get that condensation. So we're very encouraged in the early testing and I'm sure there'll be some tweaks as we continue to go along, but we're very focused on driving that to a successful conclusion.
Josh King:
How do you see consumer trends in the food and beverage industry evolving, and how is graphic packaging adapting to meet the changing consumer preferences?
Michael Doss:
Well, it's just really rewarding for me, as I alluded to earlier, having been in the business now for over 30 years, the embrace that the end use consumer and the education, the end use consumer is having now on making selections on products that actually are much more sustainable and recyclable. In some cases, these are a little more money. If you think about our KeelClip that we're doing for cans that's replacing the rings, the plastic rings that no one's liked forever that was around when I was a kid, pictures of fish and turtles and other things and-
Josh King:
That still gets cold in the house to cut them apart.
Michael Doss:
Yeah, exactly. Ultimately, the paperboard solution that we announced a couple years back and now have sold over 50 machines, a lot in Europe and now here in the US market as well, it's made out of 100% recycled fiber. The merchandising capabilities are fantastic. The marketeers love this because they can put the company's name on it and we've got technology that orients the cans perfectly where the labels are indexed out so they can get that brand appeal on the shelf, but it's probably another penny package if you think about it that way versus the existing state.
So you understand why customers make the decisions that they do because they're under a lot of pressure, their margins are under pressure, but again, it's that end use consumer that's pushing them to say, "Look, we're going to select things that ultimately we feel are going to be more sustainable," and that's causing some of that change and it's rewarding for someone that's made a career out of packaging.
Yet on the other side of things, we've got to continue to innovate. We've got to continue to drive our costs down and that's why, Josh, you've seen us spending so much money into our manufacturing platform to make sure that we're working both sides of that equation.
Josh King:
Talking about working both sides of the equation, we were all here, it wasn't too long ago during the pandemic, the spike in lumber prices and the slowdown in the supply chain a couple of years ago. Both must have impacted the company's ability to both produce and deliver products. Your customers are expecting the pallets of packaging to arrive on time at the plant so that they can fill them with both the dry and wet goods that you're making them for. Can you talk about your outlook for how you manage that and how pricing might be affected going forward?
Michael Doss:
Yeah. So maybe just a little bit of a positive, shout out to our 25,000 men and women around the globe that during the pandemic were truly essential frontline workers. We have large market share in the food and beverage segment, as I alluded to earlier in the podcast here. There were no work from home days for those folks. They were running the mills. They were running the converting plants. They were making sure that our customers had packaging that could be used because they were responsible for helping make sure that everybody stayed fed during the pandemic. So I couldn't be more proud of them grinding through that. It was not easy as you well know.
Then in early 2021 when winter storm Yuri hit, it lit a long tail fuse as you've alluded to on inflation, the dislocation of a lot of these commodities that for the first time in my career we just didn't know if we could get certain things we needed to manufacture, the end use products that we ultimately need to have and we're having to substitute and find different things and ship it in and pay more money, and the inflation over a two-year period of time was well over 600 million dollars for our company, which is a big number given the size cog base that we have.
So we're now to the point where we're actually in a little bit more normalized state where we're not dealing with force majeure issues like we were for the year and a half that we struggled through all that, but I'm proud of how our team performed on that. I think when you look at our customers, we hear a lot more from them around security supply than we ever heard before. I still expect them to be very aggressive in their purchasing methodologies. It's their job, but having a supplier like Graphic Packaging that's investing behind the business and ultimately making sure that they can service their brands because a stock outage for them, that's a big deal.
If you can't get the product that you always buy and you try something else and you like it, the terminal value of those cash flows over a multi-year period of time is massive and their marketeers know that and so do their CEOs. So that's why the focus is so high on making sure that you don't have any stock outages
Josh King:
After the break, Michael Doss, the President and CEO of Graphic Packaging Holding Company, and I are going to talk about the company's growth projections and their ESG goals in the coming years. That's all coming up right after this.
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Josh King:
Welcome back. Before the break, I was talking to Michael Doss, the President and CEO of Graphic Packaging Holding Company about the development of the company over his 33 years with the business. Mike, in 2020, Graphic Packaging set internal goals for its ESG efforts under what you called your Vision '25. You mentioned it earlier. Can you share more detail on the plan to achieve those goals and what impact it's going to have and has had on your operations?
Michael Doss:
Yeah. So again, we use a large amount of raw materials to make our products. Even though they're a hundred percent recyclable and start with trees, any project that we use or it can do that ultimately results in using less material is a good project for us. So when you look at what we're doing in Kalamazoo, the startup of that machine, we've reduced our carbon footprint in greenhouse gas emissions by roughly 10% across the overall platform. We've done that because everything's modern on the machine. So these are big numbers.
The only way you can do that type of thing is by making large scale capital investments like we're doing. You're not going to get to the goals you put in place by just relamping with LED lights. You should do that, but it requires scale, it requires capital. Again, that's the type of supplier we want to be for our customers and our customers are ultimately putting very large ambitious goals out there.
You've had some guests talk about becoming carbon neutral by certain dates. We're part of that answer, but the only way we're able to do that on scope one, two and three emissions that are there for us and for our customers is by investing in modern technology that's just a lot cleaner and better for the planet.
Josh King:
My colleagues over at ICE's Sustainable Finance Business have been discussing at length a big piece that appeared in the Wall Street Journal recently by Ryan Dezember about casting the lumber industry as a source for carbon capture and creating carbon credits. Do you have any thoughts on that piece and how adding that aspect to the pulp industry could be a multiplier for your recycling items?
Michael Doss:
Yeah. Look, I think the US forests, in particular North America, are some of the best carbon sink assets the planet has, and how we use those and how we manage those, because they need to be actively managed, is really important. Ryan wrote about that and it's through the lens of lumber, but pulp wood's also important. We play a vital role in our industry because we are not taking down the mature trees, we're taking down the thinnings, the calls because we only want the pulp. Then we clear those out and then ultimately let the landowner bring the good trees to full maturity, and they're used for our higher commercial content, light lumber. So it really compliments each other quite well. It's important that we're planting in the neighborhood of three or four trees for everyone that's harvested because for us, it's like a crop, and ultimately, we need to have that material to have a sustainable business.
Josh King:
Does pulp need to start with the living tree or can you harvest tree floor and things like that?
Michael Doss:
When it comes from a tree, it's from the actual fiber. There are some applications for grasses and wheat fiber. We don't use any of those, but there's experimentation going on with nano technologies and different things like that that ultimately may prove to be beneficial, but for now, it's about pulp. The neat thing is about that, Josh, is if you think about starting with a tree, by definition a hundred percent renewable resource, we harvest it and turn it into a primary package like a cup or a soft drink or beer carrier in its virgin format. We can recapture that package, as I mentioned, and recycle it six to eight times through our recycling operations, and then ultimately, the end of life is very responsible because it'll just go, it can be composted and back to its natural organic state.
So a lot of people talk about a circular economy. Our industry is really driving a circular economy and we're living in the intersection of that, and that's why we're investing so heavily back into recycling to make sure that we can clean up increasingly more dirty fiber as all of us throw all our stuff into a single stream recycling can and say, "Wooh! I did my part," but believe it or not, that's probably not the best way to commingle everything together because it creates some contamination.
Josh King:
Where will a consumer end up using that piece of fiber that's on its eighth life? What kind of forms do that take?
Michael Doss:
Well, if it's on its eighth life, it's probably not going to be too commercially capable for us because the fibers have been beat up so many times, they're not very long, they don't have any strength. Like I said, the next time you see that paper cup, it's going to be in a cereal card, a cake card or a carrier card and something like that.
Josh King:
A section of the article that Ryan wrote spoke about the speed of growth for trees, namely the part of the country that your company is headquartered in can raise trees in a fraction of the time that it takes trees up in Wyndham, New York where I have a place to root. How does Graphic Packaging source its trees, and once they convert them to pulp, how many times can your process be used to recycle materials?
Michael Doss:
What Ryan was speaking to is the Loblolly pine that's indigenous to the areas around our Macon and Augusta facilities in Georgia, as well as our West Monroe and Texarkana facilities in Louisiana and Texas, respectively. Those trees basically come to full maturity in under 30 years now. I like to joke, on a warm summer night, you can practically roll it on the window on the car and hear them growing. They grow very fast.
Josh King:
Is that natural or through hybridization?
Michael Doss:
Both. So it's a combination and we source all our fiber through sustainably certified forest. I, actually, as you alluded to in my bio, sit on the board of SFI, the Sustainable Forestry Initiative. Making sure that we plant and harvest fiber in a very ethical and responsible way is really important.
Josh King:
Speaking of the goals that you got, the Green New Deal and other proposed and past government regulations coming into effect globally to reduce climate change call for 100% recyclable or reusable packaging. How does the incoming regulation impact your TAM calculations?
Michael Doss:
Yeah. It informs it in a big way, and that's why it's grown. Our original Vision 2025, we had a TAM of about six billion dollars, and now it's up to 12 and a half billion. It's really all around counting up those types of products around the margin where we believe fiber-based packaging can replace single-use plastics.
Josh King:
You said, I'm going to quote you here, "We're not looking for perfection. We're looking for progress in sustainability. With so much plastic and with the power of rigid boxes, there's an opportunity for plastic needs to dissipate." We talked about plastic a lot on the show. What sets your company apart from competitors in terms of sustainable in packaging innovation?
Michael Doss:
We really focus on making incremental progress here because you see, and just use a metaphor, I'd rather have 80% of something than 100% of nothing. People sometimes spend so much time working on that perfection, and I admire that. I think that's really good, but there are real issues we've got to deal with now, and if we can be incrementally better and make progress or move the puck, to use a hockey term here as we were talking at the break, ultimately, that's what we do at Graphic I think better than most.
Josh King:
Bring us into your R and D office. If I walk in the door, what do I find? People in lab coats? Do you spend a lot of time with them?
Michael Doss:
We do, and I do. Ultimately, if you walked into one of those labs, you'd see a whole bunch of test equipment, and we've got small paper machines that we can try different types of coatings on. We've got microwaves where we can heat the material that we're using for plastic. We've got dispensers that dispense drinks. We've got store shelves that replicate what you'd find at a Costco or a Walmart so our customers can see what their products would look like on the shelf. We've got the ability to print packages and replicate them the day our customers are there so they can take these samples back and just miraculously show up on their executive's desks so that they can see what it would look like.
So we spend a lot of time making sure that we're looking at both the application and the science behind the packaging, as well as how we decorate the package. The decoration is really important. As I mentioned, I've been in the industry for over three decades. I'm old enough to remember when there were three primary channels. Now, at my house shamefully, I think I get 2,000 channels that I can choose from. Of course on our phone, our cellphone, our younger people get most of their news in their digital marketing. My daughter actually is in that industry so I've learned a little bit about it.
So if you're trying to build a brand with multimedia explosion like has happened, it's really difficult. So the average consumer goes into that store, they know they're going to buy bread, eggs, and milk. Everything else is an adventure. So they're going up and down the store shelves, and does that product catch the eye of the consumer? Because if it does, it very well may wind up in the cart. So that point of purchase is really important, so we spend a lot of time making sure that our printing and the quality of our paperboard is top-notch so that it really stands out and pops on the shelf.
Josh King:
Talk about the decision making and financial process you go through in a table like this with your CFO here, your head of marketing there to decide whether, "Hey, the people in the lab have come up with this innovation. CFO, how much can we spend on a new production line and, Head of Marketing, can you do some focus groups with consumers to determine whether its appeal is going to be there?"
Michael Doss:
I'll give you a real life example on our PaperSeal product, which is replacing polystyrene foam trays that still have a plastic over wrap and it's for protein packages and vegetable packages. This is a great example of progress. It's still not perfect, but your ability to pull that paper or the plastic away from the paper and then recycle the paper is far superior to the current set that's using foam tray.
I thought when that was first framed to us, because there's a special machine that has to be used to do it, that this was what I'll refer to as a boom splat, something that was going to be neat and then wouldn't go anywhere. To my chagrin here, much to my chagrin, ultimately, that product's really taken off. I was talking to our president of our EMEA business over in Europe. He was at Interpack all week. Customers are just really responding to that technology in a big way.
So the marketing folks made that pitch. We knew what it was going to cost. Our CFO, Steve Scherger, ultimately was able to find a way to fund it and free up some capex that allowed us to do that, and we made some bets and they're paying off. So I think you've got to be willing to listen, ask tough questions. Ultimately, our folks that are running those businesses are closer to them than even I am. I'm hiring them to drive those businesses and drive the growth and deliver both the top and bottom line, so I've got to be willing to make some bets. Sometimes they do it in a way that I wouldn't do it.
This is the evolution of me in my eighth year versus me in my first year. I've come to realize that giving them that latitude is actually quite good and it doesn't always turn out the way that I would've wanted it to turn out, but if they make the progress they need to and hit the objective, the organization's stronger. We have to build managers that are capable of making those types of bets and risks because we can't run the company of our size from the headquarters in Atlanta. That'd be foolish to think we could do it that way.
So empowering our business units to be able to go out and hit the objectives we put out there broadly as part of our Vision 2025 has been a key part of our success, and it'll continue to be the approach we use to run the company.
Josh King:
I keep a running list of trade shows that I want to go to around the world. Should I put Interpack on the list?
Michael Doss:
Yeah. I think that's a great one. Again, the trade shows in Europe tend to be the ones that are most heavily attended. You're going to see the newest materials out there. They've got the big message that convention centers that rival and exceed McCormick Place in Chicago.
Josh King:
So sustainability, Mike, just a part of the ESG process for Graphic Packaging. With operations across the globe, you have to have a diverse workforce. How does diversity contribute to the success of the company, and what steps are you taking to promote more of a culture of inclusivity?
Michael Doss:
Yeah. So it's an important part of us. If you think about the markets that we service and how the food is bought, whether it's QSR or food service or just our traditional food and beverage business, we've got a wide range of families and family formation that ultimately make those decisions. So having a more diverse group that brings an opinion and helps us understand how those purchasing decisions are made ultimately helps us resonate with the products that we ultimately supply our customers.
Josh King:
Can you talk about the job opportunities that are opening up a billion dollar plant in Waco will have in the local area, not just in the number of middle class jobs, but also the ability to support the local industry? We've done a couple shows of the migration of industry from northeast Midwest, down to southeast in Texas.
Michael Doss:
Yeah. So you asked a question about pulp, the indigenous trees, the Loblolly pine that are close to our virgin mills. When you make recycled paperboard, you want to be where the people are. So if you think about Kalamazoo, Michigan, it's almost halfway between Detroit and Chicago, so great basket to collect fiber in. Same thing with Waco. So we're going to spend a billion dollars down there. We're going to build a sister machine to the one we just got done building, but it's going to be a brand new mill, so there's a little bit more money that we have to spend. We got to put a wastewater treatment plant in. We're putting increased pulping and cleaning capabilities because we want to be able to take up to 15 million cups a day and turn it back into primary packaging. So more investment that's going on there.
Ultimately, we'll hire in the neighborhood 240 people, both hourly and salary that would go into that. We'll employ the better part of 2,000 contractors for about two and a half years to do all that. So it's huge impact for the Waco area. Why Waco? Well, if you look at Dallas to the north and you look at Houston to the southeast and then San Antonio to the southwest and draw a triangle around that, you've got roughly 20 million people that are generating products that need to be recycled.
Right now, there's really no major producer of paperboard or container board in that area. So it's a great fiber basket for us. There's a lot of military bases in that area as you know, and we hire a lot of folks that transition out of military into manufacturing. We find that those folks do extremely well in our environment. They're very sensitized to safety and running big equipment, and so they fit in really well with us.
Waco's is a nice town. You look at it, it's a little over a hundred thousand people. Got a great university there. Maybe I'm a little biased. My son-in-law went to school at Baylor, but it's one of those areas where we felt that we could build a good leadership team.
Josh King:
I live in New York City. We've got at the bottom of our apartment building a trash bin and a recycle bin, and New York City says, "Put everything you got that's potentially recyclable, your tinfoil, your little plastic lids, your plastic, all your paper products in this big thing and leave it to us. We will sort it and get it where it needs to be." Then some municipalities have no recycling process. Some consumers have different mindsets than other consumers and throw all of it into the trash no matter how recyclable it is. What do you see between governments and also consumer behavior in terms of getting the message and sorting this stuff and getting you the pulp and the paper products that you need to put it back into use?
Michael Doss:
There's a lot there. If I just break it apart for a minute. Single stream recycling is better than no recycling at all. As I mentioned earlier, it does come with its limitations because when you commingle everything, it's just hard to separate it and get commercial value out of it. If you look at more developed areas of recycling like Europe, for example, there's in the neighborhood of probably forest streams coming out of every household in business. It's going to take us a while to get there based on the mindset of the American consumer.
We live in a great country. As I like to say at times, in some ways we've got an embarrassment of riches. So we haven't had to be as focused on recovering and recycling everything as they are in Japan where everything's got to be shipped into the island because they don't have a lot of those natural resources like we do. So if you go to Japan and you go to a QSR restaurant, everything is separated and you know it's going to go back and be used again and recycled. It's part of the culture.
I think a lot of that comes with education. I am not a real believer in incentives, financial incentives or government regulation to do that. I think people, ultimately, when they understand what happens in the commercial value, you can get out of that stuff, that you can make progress on it. That's what we're trying to do in Waco. We're going to have to work with our customers, our QSR customers to get those cups, probably have a third party business that captures them and then get some back to our facility. We're willing to pay for that because it's valuable fiber for us. There's been exchanges for those fiber markets for over a hundred years.
So there's an infrastructure that's already there. We just need to expand upon it. Companies like Graphic Packaging need to spend the money so we've got the cleaning capabilities to clean it up. Then there's, look, if there's anything you don't want to do is bet against the creativity of the American entrepreneur because they tend to figure that stuff out every time.
Josh King:
Is there any guidance you want to leave our listeners with? Any consumer guidance you want to leave our listeners with about their own behaviors to say you put the plastic and the paper commingled together in the same thing, but heads up, consumer, that plastic has a very tough journey to reuse?
Michael Doss:
Yeah. I think the big thing I'd say is just, right now, if all you have is single stream, just make sure you're not putting legitimate trash in there because that's difficult for the municipal recycling facilities to deal with. They're putting robots and things in there. They'll get better. Again, it's a natural evolution, but if we can avoid putting trash in the recycling bins, that's really helpful.
Josh King:
The Waco facility that you opened, as you said, can replace a number of recycled fiber mills while increasing your output capabilities. You mentioned it is the second outgrowth of what you've done in Kalamazoo. What are the lessons learned from that build out and successes and failures in Kalamazoo that you brought to your learning in Waco?
Michael Doss:
So we did a lot of things right in Kalamazoo, and that's part of the reason we're so aggressive at moving so quickly to make another big investment in Waco, but if I was to point a few things that we learned really in the construction process, it's around making sure that your engineering drawings are darn close to 100% done. That seems like it's intuitively obvious, but most people when they start building big projects are maybe 60% to 70% of the way done and they're finishing those up on the fly. Ultimately, that creates, in some cases, some rework.
The other thing that we are doing in Waco that we didn't do in Kalamazoo is we're not going to do what's called stacking the trades because when you stack the trades, you've got the mechanics and the electricians trying to work in synchronicity. It sounds really good, but in practicality, they tend to get in each other's way. They need the same cranes, those types of things. So we actually gave our engineering group an extra six months to build out Waco so we didn't have to do that, and we're doing a lot less overtime as a result of that.
Our drawings are 100% done because we're building the same machine that we have in Kalamazoo down in Waco, not making really any changes at all. So I think being able to capture those types of things and integrate it into your planning process is a big deal. It saves you money and you have a better startup.
Josh King:
That mill in Waco is going to be able to produce CRB at a cost on par with Kalamazoo's most efficient machine coming in at I think less than $405 a ton. Reduced cost is good, Mike, but even better if paired with increased demand. Are you bullish on the potential growth in the coming years in demand for your products, both producing and converting?
Michael Doss:
The other thing I'd say is the quality coming off the machine is superior to anything else other than the machine we have in Kalamazoo. For the reasons I mentioned around market pop or shelf pop, it's really important that we've got that, but yeah, I think, look, the demand for recycled product, you're going to see quartered recycled paperboard in more places. We're going to be able to penetrate different parts of the market with different grades that we're going to be able to create. We announced the new one on our last earnings call called Renier. That's got the appearance characteristics of an SBS sheet, which is the virgin sheet that comes from virgin pulp at a price that's a couple hundred dollars a ton cheaper.
So customers are always looking for ways to save money, but they don't want to sacrifice the appearance of their product. So that's on us to innovate and find ways to do it with recycled material. We're going to have the capability to do that.
Josh King:
As we wrap up our conversation, we've been on this long journey of your life that started with that trip to the plant that had the James River sign on top of it. Over the 30 years since, Graphic Packaging has evolved a lot, both through organic and acquisition. As you look toward the future, Mike, what do you and your M and A folks look for in terms of things that you think you need to buy to make the company progress even more?
Michael Doss:
Well, the first thing we'll always do is to go through the lens of our operating model, which what we're really good at is fiber-based packaging, and our focus has been consumer fiber-based packaging, as you've asked about here in the podcast. So we need to make sure that we don't try to do something that we're not. I think a lot of companies do that and it doesn't work out really well for them. So we'll stick to our knitting, as they say. The good news for us is we've got a growing market. We've got very nice market share in North America. We've got growing market share in Europe. We've got innovation that's driving that demand that I talked about. We're investing heavily back into our business.
If you want to work in our industry, we're a great place to work because we're investing a billion dollars in a brand new mill. For many of those younger employees that'll work on that project, it's probably the only one they'll do in their entire career. So we actually have seven different younger, what we call leadership development people that are working for our core engineers that are doing that build up because we want them to get that experience and ultimately have that knowledge.
So it's a neat time to be part of our company. As I mentioned, recycling is in vogue now. The awesome part for us is we're able to invest big money and get returns on those projects. So it's a great story.
Josh King:
For the next CEO of Graphic Packaging whenever that may come, what is the world of packaging you think that they are going to steward the company through? Where do you see this business, this industry in five, 10 years?
Michael Doss:
Yeah. I think it's just going to be more acceleration of the trends we see now. You're going to see more sustainability focus. You're going to see more real effort on ESG because it's real. The end use consumer, as I've alluded to, over the last five years is really advocating for that and they do so with their purchasing dollars, which, of course, gets everybody's attention. So we're at the intersection of that. I think for the next leadership team and ultimately the CEO, they'll have a piece of white canvas like I did that they'll figure out how to build it out over time. It was a four billion dollar business when I became CEO. Now, we'll do 10 billion this year. I've got every belief that this company's got the potential to be 20 billion dollars over that timeframe, which is really, really exciting.
Josh King:
Thanks so much for joining us Inside the ICE House.
Michael Doss:
My pleasure. Great to be with you, Josh.
Josh King:
That's our conversation for this week. Our guest was Michael Doss, the President and CEO of Graphic Packaging Holding Company. That's NYSE ticker symbol GPK. If you like what you heard, please rate us on iTunes so other folks know where to find us, and if you've got a comment or a question you'd like one of our experts to tackle on a future show or hear from our list of company CEOs like Mike, email us at [email protected] or tweet at us @ICEHousePodcast.
Our show is produced by Pete Ash with production assistance, editing and engineering from Ian Wolff. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
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