As a Peace Corps
volunteer on islands in Micronesia it was a delightful to adopt the islanders’
use of banana leaves for everything from baking a sweet potato to serving a picnic
lunch to storing leftovers. The giant
banana trees in the garden were so convenient.
Moreover, the banana leaf could not be beat for environmental
friendliness. Once used, the leaves were
tossed aside to become mulch for the garden.
Of course, back
in the U.S.A. it is not practical to rely on banana leaves to wrap a Big Mac at
MacDonald’s or ship electronics from Amazon.com. Nonetheless, there must be something better
than the current practice. Natural resources are used in large scale to package
and ship goods and then these packaging materials wasted in landfills or worse
clog waterways or foul land. Consider
that 20 million trees are felled each year to make paper cups. About 8% of the world’s oil production is
used to make plastic and 40% of plastic produced is used to make packaging.
The last two
posts featured packaging companies large and small that are applying innovative
technologies to packaging. Their
solutions promise a reduction in resource waste and packaging cost. However, it takes more than new
technology. Manufacturers and even more
importantly consumers need to be on board.
This post features four
manufacturers and retailers who have put new packaging into use - or
at least talk about it.
Going Green
Swiss Style
Nestlé SA (NESN:
SW) seems to have taken a sip of the
environmental cool-aid and then gulped down the whole cupful. The company made has made a loud commitment
to reduce packaging used in shipping and selling its products. In 2015, Nestlé pledged to reduce packaging
by 140,000 metric tons by 2020. At year-end 2017, the company had already
reduced packaging by over 103,000 metric tons.
Additionally, Nestlé aims to make 100% of its packaging fully recyclable
or reusable by 2025.
The company has
signed onto the circular loop concept that prevents packaging materials from
exiting a virtuous cycle among consumers, retailers and manufacturers. In late 2018, Nestlé announced the creation
of the Nestlé Institute of Packaging Sciences to spearhead research on
environmentally-friendly packaging solutions.
There are plans to build a state-of-the-art laboratory that will employ
about four dozen people.
Funding
think-tanks will not be enough. Nestlé
owns several different bottled water brands, including PureLife, Nestlé Waters, Poland Spring, and Acqua Panna. It is single
use plastics for bottled water like these that create the most pollution. This puts Nestlé dead center in the plastic
pollution problem.
To migrate these
and other brands to fully recyclable bottles, the company is teaming up with
Quebec-based Plastrec, a supplier of recycled PET resins. In 2018, Nestlé has released a 100% recycled
PET bottle under the PureLife brand
using Plastrec’s resin. The company has
also teamed up with Danimer Scientific, featured in the
last post “Private Players in Packaging” on February 12th. Danimer proposes to make a biopolymer called
polyhydroxyalkanoate, a polyester produced in nature by microorganisms. The biopolymers will be made from compostable
materials. Nestlé is also collaborating
with another of the private companies in the last post, PureCycle Technologies, to produce
food-grade recycled polypropylene.
PureCycle’s technology removes contaminates from plastic waste, making
it possible to recycle a wider range of plastics.
Of course,
investors get a lot more than a few new packaging ideas when buying a share of
Nestlé stock. Besides all that water in
plastic bottles, Nestlé owns a broad portfolio of consumer products from
Nescafe coffee to KitKat chocolates to cosmetics. The company has been struggling to update its
product portfolio to meet shifting demand for healthier, natural foods and
personal products. Nestlé recently
divested its Gerber Life Insurance subsidiary and is exploring strategic
options for its Skin Health segment.
Efforts have begun to pay off and in recent quarters the company has
recorded 3% year/year organic sales growth.
The stock now sells for 32.7 times trailing earnings. That may seem expensive against growth rates,
but do not forget an ample 2.8% current dividend yield on Nestlé shares.
Not All That’s
Green is Environmentally Friendly
The Kroger Company (KR:
NYSE) has been around since the late
1800s. It has developed into a major
retailer of a broad range of food products in its supermarkets that also
feature specialty sections such as pet centers, electronics, apparel, toys, and
pharmacies. Kroger stock is selling at a
bargain multiple of 6.6 times trailing earnings. The 2.0% current dividend yield is icing on
Kroger’s cake.
Kroger is
distinguished among other grocery retailers with its pledge to achieve zero
waste. The company is aiming to recycle
or reuse at least 90% of its waste.
Sustainable product packaging is a central part of its zero waste
plan. For example, Kroger is using a new
plastic milk jug that requires 10% less plastic compared to regular plastic
jugs. The company is also revising
instructions on its Our Brands
private label to promote recycling.
Before investors
run out to buy the valued-price stock of a seemingly ‘green’ grocer, it is
worthwhile to look more closely at Kroger.
It is apparent the company works closely with its suppliers on packaging. The company issues annually its “Packaging Supplier Resource Guide”
to set standards for packaging. However,
the guide is all about artwork and branding.
The word ‘recycling’ appears only twice in the guide and then only in
reference to the mandatory logo of circular arrows prescribed for all
industries. A great deal could be
accomplished toward eliminating packaging waste if Kroger used its position
with suppliers to encourage better packaging, but at least this one of its
regular communication mechanisms with its suppliers is silent on the topic.
Indeed, at this
point Kroger seems to talking about zero waste, but in reality adding to
waste. Kroger Ship was initiated in 2018, to capture a share of
the rapidly expanding market for grocery delivery to the home. That is certain to ADD to the packaging waste
problem even as the Kroger executives tout their zero waste plans. Even Kroger’s own advertising images show a
pile of cardboard on a front porch.
The missed
opportunity is similar to the company’s performance in removing toxic chemicals
from foods. Kroger
earned a D+ grade from Mind the Store, a non-profit
industry watchdog that rates retailers on product toxicity. The company has eliminated beauty products
with parabens, phthalates and formaldehyde but still sells canned food with BPA
(Bisphenol A) content in the can liners. Surprisingly, Kroger ranks 20th
among 40 different retailers in its peer group, revealing that half of
retailers in the group have a score of D or F. Kroger seems quick to showcase new programs
that ‘look and sound’ environmentally friendly, but its regular operations and
market initiatives seems be moving along with yesterday’s practices.
Super Heroes Go
‘Green’
Captain Marvel
will arrive in a plant-based box if toy manufacturer Hasbro, Inc. (HAS:
NYSE) carries out its plans. A year ago the toy maker pledged to use
plant-based PET (polythylene terephthalate) or BioPET for at least 30% of the blister
packs and plastic windows used to ship and display everyone’s favorite super
heroes. This is not the first of
Hasbro’s attempts at more responsible packaging. By 2015, the company was using recycled and
sustainably sourced paper for 90% of its packaging and in-box content. Additionally, by 2016, Hasbro had already
begun using recycled PET, eliminating the use of additional fossil fuels and
removing plastic waste from the environment.
Hasbro has taken
a number of other actions to reduce packaging waste. Interestingly, most in the list below is just
a matter of good sense and smart planning.
·
Eliminate tissue paper in shipping
cartons
·
Single-walled shipping cartons
instead of double-walled
·
Eliminate wire ties for toy
stability during shipping and display
·
Replace non-recyclable PVC
packaging with fully recyclable PET packaging
·
Source recyclable paper for packaging
and in-box content from sustainable sources
These efforts
and others have earned good marks for Hasbro.
Newsweek ranked Hasbro as number 3 out of 500 publicly traded companies
for environmental performance. The
company was ranked number 1 out of 100 on CR Magazine’s Best Corporate Citizens
list.
Environmental
action has not stopped Hasbro from delivering strong financial performance. In the most recently reported twelve months
the company earned a 7.2% operating margin and converted 14.1% of every sales
dollar to operating cash flow. A
naturally-cash generative business model helps maintain an attractive dividend
and the stock is currently price with a forward dividend yield of 3.0%. Investors will have to pay 17.3 times
earnings expected in 2019 to get a share of Hasbro, which compares well to the
current S&P 500 Index forward price-earnings ratio of 17.5 times. While HAS may be fairly priced, investors
cannot regard the stock as an environmental gem.
Skin in the Game
Specialty
retailers are also joining the packaging revolution. REN Clean Skincare is a good
example of a retailer that is making environmentally-friendly packaging part of
its offering. The company kicked off the
campaign with a splashing Earth Day celebration featuring its new partner, the
Surfrider Foundation. The campaign was
aimed at making REN customers aware of the need to conserve water and keep
beaches clean and plastic-free.
The company is
selling some of its skincare products in bottles made from plastic reclaimed
from the ocean. The bottle is part of
REN’s Clean to Planet initiative to become a 100% zero waste company by 2021. The bottle is made by TerraCycle, a recycling based in
New Jersey. TerraCycle specializes in
materials that are hard to recycle. The
company claims to have collected over 300,000 pounds of beach plastic in
cooperation with collection partners.
The recycled
plastic bottles get quite a bit of attention.
However, REN is doing far more that is less noticeable. The company is cutting down on paper waste by
eliminating card board boxes for some products.
REN is also removing double labels, relying on a new single-layer label
to display legal requirements and product instructions.
REN Skincare was
acquired by Unilever N.V. (UN: NYSE) in
2015. The unit is estimated to
contribute $9 million in annual sales.
In the greater scheme of things at Unilever, its shares do not reflect
REN and its efforts to clean up and make useful ocean plastic. Nonetheless, REN’s efforts show that one step
has been taken in the right direction to make Unilever a part of the solution
and not just a part of the problem of packaging waste.
Neither the author of the Small Cap Strategist web
log, Crystal Equity Research nor its affiliates have a beneficial interest in
the companies mentioned herein.
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