BURLINGAME, CALIF. — Consolidations in the medical-device market are changing the playing field for independent custom thermoformer Merrill's Packaging Inc.
"It is happening with our customers, and it is happening with our competitors," sales manager Brian Meltzner said in an interview in Burlingame.
Higher-margin medical packaging is down to about 30 percent of the firm's business, from 40-45 percent in 1998, he said. Replacement work includes lower-margin packaging for food, electronic and consumer products.
"We are seeing a lot of medical companies being acquired," Meltzner said.
Buyers such as Tyco International Ltd., Medtronic Inc., Boston Scientific Corp. and Johnson & Johnson tend to absorb a business, eliminate competing product lines and rely on their regular packaging vendors, often in the East, Midwest or Mexico.
Major medical suppliers can leverage their size, present demanding bid packages and use sole-source awards to change packaging vendors.
"The relationships are lost ... and it really gets ugly," Meltzner said. "Several of the people with whom you have been doing business are losing their jobs or being relocated to other facilities."
Sometimes acquisitions mean a lost opportunity for packaging suppliers to develop new business.
"New ideas and entrepreneurial things don't occur in big companies," said Richard Meyst, vice president of Fallbrook Engineering Inc., a product development firm in Valley Center, Calif.
Too often, a buyer takes the patents and shuts down the site, Meyst said.
That leaves Merrill's and others pursuing replacement business.
"It gets to the point where these companies are so big and so cumbersome that it just typically goes from problematic to impossible," Meltzner said.
In one situation, a new owner called for 20 percent price reductions.
"These people have no clue about the margins involved in our business because it is impossible," he said. "Ultimately, we lost that customer because we could no longer provide that service."
Some competitors have succumbed, either going out of business or being purchased by a large packager such as Ivex Packaging Corp. of Lincolnshire, Ill., or Bemis Co. Inc. of Minneapolis.
Competition from Mexico is gaining.
"People have used Mexico mostly for low-end kiting-type product, but we are seeing more products and more complexity going to Mexico as well," Meltzner said.
Merrill's specializes in complex packaging with multiple cavities, critical wall configurations and locking mechanisms.
"It's the type of thing where people will come to us because of this expertise, and then we can lose that [business] because of an acquisition," he said.
Merrill's thought that issues of quality and Food and Drug Administration requirements would help protect its medical business, but the current market demurs.
The firm employs 75 in a 60,000-square-foot plant. It runs thin-gauge, high-speed, inline thermoformers and provides services including design, tooling and welding. Ken Merrill established the business in 1961 and continues as president.
Merrill's has alliances with thermoformers in Asia and Europe. The partners are Holfeld Plastics Ltd. of Wicklow, Ireland, and Texchem-Pack of Penang, Malaysia, a unit of Texchem Corp.
Merrill's is evaluating market niches, particularly in point-of-purchase consumer business.
"That is about 40-50 percent of our new business," Meltzner said. "In the western United States, the growth areas are not in medical."