Special Report — Fighting Back: Riding the Roller Coaster

Lot 336 is a polymer grinder. Let’s start at $500,” says the auctioneer. People shuffle about the giant warehouse as the price suddenly jumps to $1,900. “Sold for $2,500 to bidder 900.” The crowd shuffles off to the next room, past a goodbye notice to all employees of Yorkbridge Packaging Inc. still pinned to the wall. As the auctioneer moves impersonally from item to item, making jokes and sometimes selling things for less than the starting bid, one wonders what happened to this company that recently reached sales of $13-million. A confidential report on the fire sale of its items reveals that Yorkbridge — a Mississauga-based company that once provided packaging for the likes of Guess Supply, Canada Pure and Crabtree & Evelyn — lost $1.8 million in the year 2000, $1.2 million the year before and so on.

“Quite frankly, I don’t know if they knew how to price correctly, which means they probably didn’t know their costing correctly,” says Peter Tordy, president of Blowmoulding Parts and Systems Inc. (BMPS) in Concord, ON. BMPS is a broker for new and used equipment.

David Birkby, who bought Yorkbridge’s western plant in Calgary and now runs it under the name Westbridge, has a different take. He says the company set up an office in Pennsylvania that cannibalized business in the Ontario office. “About 25 to 30% of that business went to Pennsylvania, which is a big chunk,” he explains. “The owners felt it was no big deal that they’d just go and get the business back, but it’s not like picking fruit from a tree.” They did get back about 10 per cent of the lost business, but it was too little too late, Birkby says.

But adding insult to injury, Yorkbridge was also likely a victim of that nasty “R” word currently being bandied about by business experts across North America. “We’re in a recession since last year,” Tordy says, daring to categorize his opinion of the downturn. Quebec, for example, has suffered, with about one third of Montreal’s equipment for sale (approximately 61 blow molding machines) and no one to buy it, he says. Westra, a 36-machine company serving a niche market, has gone belly up, while Graham Packaging, once operating 10 machines, has closed its plant in that region. And Toronto, says Tordy, isn’t much better off at the moment. “It’s pretty much the same in the U.S., too,” he adds.

Although the outlook sounds bleak, it isn’t all bad for the packaging sector of the plastics industry. Larry Dworkin, director of government relations for the Packaging Association of Canada (PAC) says packagers aren’t being hit nearly as hard as other areas of the plastics industry, such as automotive parts suppliers or moldmakers.

” I think a large part of the consumer packaging, particularly food and pharmaceuticals, has been pretty steady. Where you’ll find some downturns will be in such things as toys and games [and] in perhaps other things such as cosmetics of certain kinds.”

Food is one of the key reasons the packaging industry isn’t slumping under this slowing economy as much as other sectors. But the other major one is water.

“As the world demand for water increases, the Canadian amount of water consumed in 1/2-litre PET bottles goes up every time you have another Walkerton,” Tordy says, referring to the disastrous water contamination episode in a small Ontario town. “So that is growing at 20% in North America, approximately. Within a third-world country, it’s growing faster than that based on the amount of investment anyone can put into that country. So that’s our little secret. We try to sell drinks and food-packaging stuff. Because everybody’s got to eat and everybody’s got to drink. And if we sell a few things to the car industry, that’s nice. If we do, we do, but if we don’t we don’t.”

Westbridge is also doing well because it makes beverage and shampoo containers. Like Tordy, Birkby, whose mid-sized molding company does beverage packaging for the likes of Mike’s Hard Lemonade, Black Velvet Whiskey and Starbucks, believes that’s the sector to be in during any economic downturn.

“The reality is, in our business, if there’s an economic downturn, we’re recession-proof,” he says, laughing and noting that people tend to drink more beer and alcohol when the economy is poor.

Still, the company is running a tight operation and has definitely made budget cutbacks. Westbridge has not been running at its full capacity — it’s operating at about 60% at the moment — but Birkby says that’s more due to Yorkbridge closing and customers not knowing what was happening than anything else. “We’ve been in operation for a month and we’ve retained all of our employees and 90% of [Yorkbridge’s] customers. We’re really pleased,” he says optimistically.

But if success were that simple, we wouldn’t have the Yorkbridges and the Westras that we do today. Tordy takes his advice for business survival from a book he read before the ’91 recession. Recessions, he says, come in seven to 10 year cycles, which means some years you sell and some years you buy. But more importantly, you must know where your markets are.

For BMPS, this has been a buying year. Tordy bought up 175 lots at the Yorkbridge auction and has moved his company to a bigger warehouse. His success is because BMPS is a mainly export-driven company. “I’ve just come back from Africa, the Middle East and Europe, because that’s where sales are. They aren’t here,” he says, explaining that he’s selling all of this machinery he bought up “cheap and cheerful” to foreign markets.

Despite mixed reports in newspapers about where the economy is headed, times are tough, and besides knowing your markets and pricing correctly, Tordy advises to survive, “you’d better have enough money to sit it out.”

But Dworkin, who is also an economist, is optimistic. “I don’t think this is going to be a deep downturn in the economy,” he says. Of course a lot depends on economies around the world, he adds, as people in the industry export to the Far East, Mexico and Europe as well. “Right now we’re looking for recovery in the U.S. economy — it could be as early as the first or second quarter of next year. We just don’t know how much and how prolonged that may be.” Giving credence to his optimism, the results of a survey of exhibitors from a major packaging show, PAC-EX held in Toronto this past May, showed a record number of sales and quality sales leads.

“We estimate our industry is about a $12-billion-a-year industry. About 20 to 25% of our production is exported. Export sales, not including this year, were growing anywhere about 8 to 10% per annum.”

So, it’s like Tordy says, look for markets outside Canada, because that’s where the money is right now.

By Shelley Snowdon