Changing the business game in a declining market

A funny thing happened on the expected journey to wind down production: Business started to grow.

Amaray, for years now, has understood it is in a contracting business, making media cases for DVDs and video games.

Fewer and fewer games and movies are being sold on discs as our lives become more digital. So Amaray started making plans to buckle up and ride the market down for as long as it could while diversifying.

But Amaray has been able to survive where others have failed due, in part, to its intellectual portfolio, including hundreds of patents, and high level of automation, CEO Jim Sykes said.

He was brought on board in early 2014 to help chart a plan for growth outside of media packaging while still maintaining Amaray's share of that business.

"It is absolutely an effort to diversify our business mix into more growth industries and applications," Sykes said.

"We had to define what we were good at. Where we can add value? And where we landed was really our core value proposition was around high volume, highly automated, highly efficient plastic solutions in high-cost labor geographies. So we landed on certain markets, CPG [consumer packaged goods], personal care, some niches in food and beverage," Sykes said.

"The new businesses and the new industries and the new applications that we're integrating are not too dissimilar to what we're really good at," Sykes said.

And that's running highly automated operations that provide a series of secondary processes. For DVD or gaming cases, that means injection molding polypropylene cases, stamping logos and welding outside film sleeves to hold covers, for example. From there, the cases are stacked and packed without any human intervention.

The company can incorporate "up to six secondary processes per molding machine cell with no direct labor," Sykes said.

"That is the concept we're looking to bring to these new markets. It's not necessarily rocket science. ... But we can compete because we have a large buy and leverage on the resins side, the materials side, and because we can contain direct labor [costs] as good as I've ever seen it done.

"We can control the primary cost to manufacture a plastic product," Sykes said.

However, the company is not looking to commoditize its services and become known just as the firm that can shave a few percentage points off the bottom.

When Sykes arrived three years ago, the plan was to limit the company's capital investment in the media packaging business as it was eroding. But capturing additional market share has the company actually making investments this year.

Sykes estimated his company has about half of the market and Viva Group of Hong Kong holding about half as well with a handful of smaller players still in the business.

Amaray has been experiencing what Sykes called "mild growth" in media packaging, "but we're still diversifying."

Some of the new markets have different requirements and approaches as well as added complexity compared with the company's legacy business, the CEO said.

"But it's not night and day. In fact, it's pretty similar services. We're bringing in rail cars of pellets, we're pushing them through silos as fast as possible and high velocity system type flow," he said.

The company has expanded into areas including caps and closures, consumer packaging and personal care products as part of diversification.

Amaray has 150 injection molding machines split between manufacturing facilities in Pittsfield, Mass.; Elizabethtown, Ky.; and Corby, England.

"When I saw that [capability], I saw the potential for other markets. Other markets who had need for high volume, highly automated, highly efficient manufacturing services," he said. "That's what tripped my trigger. That's what brought me to Amaray."

While Amaray did not reveal specific customers, the company now garners 26 percent of its sales outside of media packaging.

When Sykes arrived, the company had about 98 percent of its revenue coming from media cases — "boxes that held discs, basically," the president explained.

The goal is to have no more than 40 percent of business come from one business sector, but that does not mean cutting back on the legacy business. Amaray still sees an opportunity to gain market share in that declining market and is putting capital toward that this year.

The market for media cases is projected to continue to erode from its current worldwide sales of 1 billion units a year by about 13 percent annually until it flattens out at about half of the current market size, Sykes said. And that is a reason to say in that sector.

"It's still a monster business and could be a big chunk of business," Sykes said.

Amaray is part of ASG Worldwide, which is owned by private equity firm Atlas Holdings LLC of Greenwich, Conn.