PHILADELPHIA — As recently as two years ago, alarm bells were sounding at Constar Inc., then the largest blow molder in North America.
Profit margins were declining because, as the soft drink industry switched to single-serve bottles, Constar was stuck with inefficient plants geared toward 2-liter bottles.
More-nimble competitors were making headway in other PET markets, but Constar was enmeshed in a painful restructuring that closed six of its 20 plants and shed more than 40 percent of its hourly and salaried employees.
The company now is looking at cracking those new markets with several barrier and coating technologies, including a coating process that can be more expensive in smaller volumes, but that the company believes offers long-term recycling advantages.
``The restructuring accomplished everything we established as objectives, and substantially more than that,'' Constar President Frank Mechura said in a June 23 interview at the Philadelphia headquarters of parent Crown Cork & Seal Co. Inc. ``We are cost-competitive with the best operators in our business.''
The bottle-making business remains a battleground — Constar's sales shrank last year because of falling PET prices, competitive markets and lighter-weight containers.
But the company argues it has turned the corner and is poised to reap the benefits of a rapidly expanding conversion to PET, particularly in technology-intensive applications such as beer and juices.
The chairman of Crown, William Avery, no longer says he would consider selling the plastics business, and recently told a packaging industry conference the unit is a ``keeper.''
Industry analysts say Constar, now North America's second-largest blow molder behind Owens-Brockway, has improved.
``It's better than it was, but there is going to have to be some hefty improvements to get to the company's return-on-invested-capital goals,'' said Tim Burns, president of Cranial Capital Inc. in Cleveland.
Mechura declined to talk about Constar's financials, and Crown public documents do not break them down. While Mechura said the restructuring has worked, he added that the company has to step carefully.
``The PET business is an incredibly capital-intensive business, and high-performance PET in particular is an incredibly capital-intensive business,'' Mechura said. ``The single-worst mistake you can make is overcommitting capital and then not finding it fully utilized. We are going to be very careful before we make a significant technology bet, in beer or anything else.''
Mechura said he is not completely sure where and how quickly the next big conversion to PET will take place: beer, juices, smaller soft drink bottles, wide-mouth containers or a dark-horse application.
Beer has been the high-profile market lately, but Mechura said he does not expect to see a large fraction of glass bottles convert to PET in the United States.
``I'm `guesstimating' there will be installed capacity of at least 1 billion bottles in the United States by the end of next year, if I had to make a wild stab,'' he said. ``It's nothing more than a wild stab. That kind of commitment has not been made by anybody.''
PET remains more expensive than glass for beer, Mechura said.
``I don't know that anybody can say we will be cost-competitive with glass,'' he said. ``In fact, that's not the target. The target is to be technically and commercially successful and let consumer preference drive the conversion.''
Another growth area could be 12-ounce PET soft drink bottles. Pepsi-Cola Co. will test 12-ounce Constar bottles in traditional vending machines this summer.
The plastic bottles cost more than cans and will require expensive retooling of high-speed filling lines. But the bottles could be used widely if they boost consumption, which is what soft drink makers are hoping.
``If it increases the per-capita consumption of soft drinks, to help them deal effectively, let's say, with half-liter water [bottles], it will be a successful program,'' Mechura said. ``The fastest-growing beverage today is half-liter water. ... That is not lost on soft drink manufacturers.''
Water, of course, remains a huge growth market for PET, he said.
The largest volume of conversion from glass is likely to be single-serve juices and teas, he said. Only about 10 percent of the single-serve hot-fill market — 16 ounces and smaller — is now plastic, he said; in five years, that market will be mostly plastic, he said.
Another big market is wide-mouth jars for jams, jellies, tomato sauce, pickles and relish, he said: ``All of those products will begin to convert in the next 24 months.''
He said wide-mouth jars also will play to one of Constar's strengths, its combination closures — caps that have metal disks for barrier protection surrounded by a plastic ring for protection against tampering.
Constar is seeing its closure business grow rapidly in North America. The business is adding technology from other Crown units in Europe, such as dispensing closures, and is using the new products to make market-share gains, he said.
Some companies in the PET industry are seeing gains in the milk market, but Mechura said Constar does not have an active milk development program. Milk is dominated by self-manufacturing, and PET lacks high density polyethylene's ultraviolet-protection attributes, he said.
Less-touted markets that could grow for PET are motor oil and wine, he said. Constar has done some PET motor oil bottles, and the firm is working heavily on converting less-expensive wines to PET packaging, Mechura said.
Predicting which of those handful of markets will bring in business is tough, he said.
``I think profitability is still an unknown,'' he said. ``Single-serve soft drinks, juice, iced teas, beer packages, the wide-mouth jar, wine — all of these are technically able to convert. The question is how fast and who will get them.''
Constar would like its new products to make up a larger portion of its business, not because it is less interested in soft drinks, but because more growth can be found in new applications, Mechura said.
``We are not backing away from soft drinks and water. It's our bread and butter.''
As part of the firm's restructuring, it increased spending on plastics research and development, including a $1 million line in Wantage, England, to develop and test coatings. The firm has invested in machinery there and in Alsip, Ill., to make preforms, blow bottles and injection mold closures for new applications, he said.
``Over the past three years we've increased the proportion of our R&D spending that is committed to plastics vs. metal,'' he said.
Much of that work has gone into coatings and barrier layers, where Constar is pursuing a multipronged approach it calls Starshield.
The firm has an oxygen scavenger dubbed Oxbar that is used as an inner layer in bottles. It has filed a lawsuit accusing Continental PET Technologies Inc. of violating its patent by using Oxbar in Miller beer bottles.
Another option is to use a coating that has oxygen and carbon-dioxide barriers and that can contain coloring. That coating can be removed easily in the recycling stream, Mechura said.
For that, Constar is using the Bairocade coating developed by PPG Industries Inc.
The coating offers enough protection for soft drinks, but beer demands both the coating and the oxygen scavenger to get enough carbon-dioxide retention and oxygen protection, he said.
The marketplace probably will settle on several options for high-performance PET bottles. Those could include Sidel's new plasma-deposition technology, but for now that is too new, he said.
``We believe we have options that will make any of the high-performance PET bottles recyclable,'' he said. ``I don't think there is anybody with a better suite of technological options.''
Miller's rollout of PET beer bottles met with opposition from local officials and recyclers who were concerned that its oxygen barriers would pose problems and that its amber-colored resin would not be as valuable to recyclers.
But Mechura said Constar's approach puts the coloring in the coating, which can be washed away easily by equipment that most recyclers have. That leaves each beer bottle as recyclable as a clear PET soda bottle, he said.
``You know what happened with the beer thing — the recycling issue wasn't properly addressed upfront,'' he said. ``Had it been addressed upfront, it wouldn't have been an issue. Now that other marketers have watched Miller, and Miller has worked its way through its own trials ... they will be able to effectively deal with this.''
Mechura said the proper role of the bottle industry is to help develop markets for recycled PET, and to boost collection. But he said beverage marketers need to encourage more use of recycled content.
``I think in the long run there's got to be more recycled content in bottles,'' he said.