MASON, MICH. (May 14, 3:55 p.m. ET) — From a cinder block building in Mason, the Dart family built an industrial monolith from humble beginnings and a humble product: the foam cup that lets a person hold hot coffee.
But while that ever-reliable cup, made from expandable polystyrene foam, has served Dart Container Corp. well over the past 50 years, a question mark looms large as the company begins the next 50.
Recently, scores of U.S. communities have banned the use of foam cups and dinnerware because the very thing that makes them great for food service — their refusal to become soggy — also makes them a bane when they aren't disposed of properly. It takes decades for an ordinary foam cup to decompose in a highway ditch or at the water's edge.
To hedge its bets, Dart this month completed the acquisition of its Midwestern competitor Solo Cup Co. for about $1 billion to widen its offerings and gain access to technology and markets for food service disposables made of paper.
“What's of greatest interest to us about Solo is they are very strong, not just in plastic but also in paper,” said James Lammers, Dart's general counsel and vice president of administration. “They have a broad line of paper-based food service products. We do not make anything out of paper.”
The fit between Dart and Lake Forest, Ill.-based Solo is good for another reason: Solo's strong retail presence among consumers.
“We are both in that space,” Lammers said. “You could go into a Meijer or Kroger supermarket and buy either Solo or Dart products, but they have a much stronger brand face with a consumer.”
Keeping things hot
As the world's largest supplier of foam cups, Dart has competed primarily on the superior function of foam food service disposables as well as quality and price, Lammers said.
After all, paper cups for hot beverages fell out of favor more than 50 years ago with the advent of foam cups. William F. Dart and his son, William A., shipped their first order of foam cups in 1960 to customers who were dissatisfied with the shortcomings of paper cups, which didn't retain shape and insulate well.
“W.A.” Dart, who died last December at age 84, is credited with coming up with the first reliable process of making high-quality foam cups. But today's customers are demanding more, Lammers said.
“In the past, our customers focused primarily on function and price, but now there is a third leg to that stool: environmental profile,” he said. “Consumers weigh many different things as they consider their purchases, and increasingly, environmental profile is part of that purchasing process.”
Not to say that Dart is abandoning either foam cups or the idea that foam-based packaging can be recycled properly. All of the corporation's 20 production facilities worldwide are public drop-off points for food service disposables and packaging, such as foam inserts used to protect items in boxes during shipment. Two Dart operations in
Michigan and one in Corona, Calif., process and re-extrude the plastic to turn it into pellets.
Dart engineers developed a process for washing and drying used food service disposables such as cups and school lunch trays so the polystyrene could be sold and reused as protective foam packaging, egg cartons, building insulation, videocassettes, toys and office desk products. In January, the California Department of Resources Recycling and Recovery recognized Dart as a winner in the state's Waste Reduction Awards Program.
Through a partnership program with school districts throughout California, Dart now collects and processes more than 1 million foam school lunch trays for recycling monthly.
“We are working with communities, especially in California, to facilitate their inclusion of foam in residential and commercial recycling programs, trying to get a broader infrastructure going,” Lammers said. “But it is tough work.”
Esther Palevsky, an analyst for The Freedonia Group Inc., a Cleveland-based research group that follows the food service disposable industry, said Dart's diversification into paper and other fiber-based materials is a response to increasing demand from customers for more environmentally favorable disposables.
“The growing number of bans on polystyrene foam disposables and indications of possible shifting away from foam cups by major users such as McDonald's will negatively impact the market for foam disposables, so the move positions Dart to supply alternative products,” she said.
High-end retailers such as Seattle-based Starbucks Coffee Co. nationwide and East Lansing-based Biggby Coffee in the Midwest serve products in paper cups, but the cups generally need sleeves or they become too hot to hold.
In response, Starbucks introduced disposable recycled-content cup sleeves to prevent the need for “double cupping,” and it recently began selling reusable sleeves on its online store for $4 apiece.
In January, McDonald's Corp. began testing double-walled paper cups for hot drinks at about 2,000 restaurants on the West Coast. Company officials said one factor in the decision was that more than 50 communities in California have banned the use of polystyrene takeout containers. But McDonald's has been looking for an alternative to foam for decades.
Officials of the fast-food chain also pointed out tradeoffs with going to paper. A paper cup weighs at least twice as much as a foam cup, and the paper isn't recyclable because it is coated with plastic to prevent seepage. Other fast-food chains have said they will stick with foam cups because of customer preference.
“If you go with paper, you either have the phenomenon of double-cupping or having a corrugated sleeve, and that brings additional cost to the delivery vessel,” said Dart's Lammers. “It just depends on what the customer wants.”
A vertical climb
The combination of Dart and Solo looks good on paper in terms of consolidating operations and product lines. Dart employs about 7,600 people at 20 production facilities in the U.S., Canada, Mexico, Argentina, Brazil, Australia and the United Kingdom. Of those, about 1,150 workers are in Michigan.
Dart's headquarters remains in Mason, just south of Lansing.
Dart and Solo officials estimate that it probably will take at least a year before the combined corporation makes any significant changes. While Dart and Solo both have operations in California, Georgia, Illinois, Texas, Canada, Mexico and the United Kingdom, they are quite different in terms of manufacturing processes and distribution, Lammers said.
“It's not like either company has a lot of idle capacity,” he said.
One striking difference is the degree to which Dart is vertically integrated. The company makes its own polystyrene, specialized production equipment and molds for making food service disposables, as well as inks and printing plates for packaging films. Dart even owns a fleet of delivery trucks.
“We are probably more vertically integrated in our industry than anyone else,” Lammers said. “And we very much envision integrating Solo into Dart — it will be a single company under Dart Container Corp.”
To the future
While the U.S. market in food service disposables is mature, both Dart and Solo see higher growth possibilities in markets in Mexico, Central America and South America, where the fledgling middle class is beginning to use disposables.
For the first year or so of the merger, Lammers said, Dart and Solo “will be dedicated to getting into the belly of the beast in terms of understanding exactly how they have been operating and look at the best from both companies. I think there's going to be a lot of analysis the first year on a variety of fronts before we make any real decisions.”
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