Sealright Co., Inc.
Sealright Co., Inc.
Sales: $295.07 million (1995)
Stock Exchanges: NASDAQ
SICs: 2656 Sanitary Food Containers, Except Folding; 3565 Packaging Machinery; 3556 Food Products Machinery; 3081 Unsupported Plastics Film & Sheet; 3089 Plastics Products, Not Elsewhere Classified
Sealright Co., Inc. is the largest manufacturer of frozen dairy dessert packaging in North America, the third-largest company in the larger U.S. sanitary food container industry, and the fifth-largest company in the overall U.S. container industry by revenues. Sealright designs and manufactures rigid (paperboard) and flexible (plastic) packaging for the food, dairy, beverage, and household products industry. Best known for the round tapered paperboard containers used by premium ice cream manufacturers like Haagen Dazs and Kemp’s, in 1992 Seal-right’s shipments to the $10 billion U.S. frozen dessert industry were its most important business segment. In the mid-1990s the company sought to supply the packaging for an ever-larger proportion of the 1.6 billion gallons of ice cream, ice milk, frozen yogurt, water ices, and sherbet sold annually in the United States while continuing an aggressive expansion into other nondairy packaging markets.
Sealright’s rigid packaging operations produced five basic paperboard-based containers in the mid-1990s: Bulkan, a one-to six-gallon cylindrical container used to package bulk frozen dessert for restaurants and dip-store frozen dessert shops like Baskin-Robbins; Convocan, a smaller cylindrical container used to package ice cream and other frozen desserts for supermarket and retail sales; Nestyle, a small, round, tapered container used for retail ice cream, frozen snack food, cookie, and carryout food sales and designed to be “nested” inside other Nestyle containers for compact shipping; Ultrakan, a cylindrical container whose dimensions and composition can be matched to the customer’s needs and the product’s market; and Vektor, like Ultrakan a customizable container, but with flat sides for more prominent graphics.
Sealright’s flexible packaging operations manufacture soft plastic food storage products (such as its Pinch-N-Seal reclosable package for the dried fruit market) for the snack foods, bakery, candy, condiment, household goods, personal care, and medical supplies industries. Sealright is also engaged in package labeling and the manufacture of aseptic packages for puddings, fruit, and sauces (in which the package and its contents are sterilized separately). In 1996 Sealright maintained manufacturing plants in Fulton, New York; Akron, Ohio; Los Angeles and San Leandro, California; and Raleigh and Charlotte, North Carolina, as well corporate, engineering, and packaging technology operations in Kansas City, Missouri.
Sealright was founded in 1883 by Forrest Weeks as the Oswego Falls Pulp and Paper Company in Fulton, New York. While apprenticing to become a blacksmith, Weeks discovered the natural power of the Oswego Falls (northwest of Syracuse, New York, on Lake Ontario) and resolved to harness it by establishing a wood pulp mill there. The venture was a success, and in 1898 Weeks added a paper mill, in which paper sheet was made by turning the wood pulp generated by his mill into a cellulose fiber and then stripping it of impurities with a chemical reagent. In the following years Weeks made his son-in-law H. Lester Paddock a partner and in 1901 added a new cylindrical paper machine. Oswego’s principal early product was newsprint for the newspaper industry, but Weeks and Paddock soon branched out into butcher wrapping paper, wallpaper, and a high-quality paperboard (like paper, made from wood pulp, but thicker), which quickly became known as “Fulton Board.” Because of its natural sanitary qualities it was used in milk bottle caps to prevent spoilage.
In the early years of the new century Paddock came across a new kind of cylindrical paper container made of a spirally wound paper with superior properties for sanitary uses. Because the container, “Liquid-Tight,” was ideally suited for moist dairy products like cottage cheese and ice cream—a market Oswego was already supplying—Paddock acquired the rights and brought the inventor, Dr. Wilbur L. Wright, into the company. The new product was christened “Sealrights.” Extolling the product’s ability to save housewives from the “every-day household tragedy” of spoiled food, Oswego’s early advertising savvily stressed the hygienic benefits of food “untouched by human hands” and also enjoined shoppers to send Oswego the names of any dealer not yet stocking Sealright-packaged goods—“we will see that he is supplied.”
Because of the rapid success of the Sealright product line, Oswego incorporated the Sealright Company as a subsidiary in 1917, and the company was soon operating under the moniker Oswego Falls-Sealright Co. Inc. In 1917 its paper containers were being used for everything from draught beer to oysters. Anticipating the day when its paperboard milk bottle cap liners would become obsolete, in 1921 Oswego introduced the first milk container made entirely of paper. Trademarked as the Sealright Kone bottle, it was the true precursor of the modern assembly-line-produced paper milk carton. In the same year Oswego added the first of what would become seven new factory facilities in Fulton, New York.
1920s: Rapid Growth
By the mid-1920s, consumers still purchased ice cream almost exclusively at traditional ice cream parlors. To broaden Oswego’s markets, Eugene W. Skinner, hired in the previous decade to manage the company’s marketing, ran a single-page ad in the popular Saturday Evening Post in 1926 to convince consumers that ice cream, hygienically packaged in Sealright containers, was now a luxury that could be enjoyed in the comfort of one’s own home. Anticipating a tough door-to-door sales campaign to follow up on the ad, Skinner instead found himself so inundated with orders that Sealright’s Fulton plant had to scramble to keep production flowing. Buoyed by new growth, Oswego expanded into Canada in 1926 with Sealright Canada Ltd., opened Sealright Pacific Ltd. in Los Angeles in 1931, and added a Kansas City division in 1932.
Oswego’s deft marketing and exploitation of new consumer preferences enabled it to survive the years of the Great Depression. Indeed, as Oswego’s plants continued to churn out Seal-right containers throughout the 1930s, Fulton, New York, became known as “the city the Depression missed.” Two new product lines helped to keep Oswego ahead of the packaging innovation curve. Its trademarked “Nestyle” carton offered a variation on its paper-based approach to packaging ice cream and cottage cheese for home storage, and its descriptively named Bulkan (“bulk““can”) container for bulk ice cream packaging subtly suggested the thrust of Oswego’s corporate goal: to render obsolete the traditional practice of packaging dairy products in returnable and reusable metal cans. Combining its proprietary Bulkan assembly machine with a cleverly to-the-point marketing slogan—”Sealright Sanitary Service” —Oswego drove the final nails into the coffin of the U.S. metal dairy-product can industry.
In clear anticipation of today’s standard all-paper squeeze-to-open milk carton, Sealright introduced heat-sealed paper-board pouring hoods for the glass milk bottle industry in 1939. Trademarked as the Sealon Hood, the product took advantage of emerging plastics technology, which enabled a thin plastic coating to be bonded to paperboard. World War II furthered Oswego’ s goals by providing it with a wide open overseas military market for paper-packaged food goods while the U.S. government diverted all metal for consumer goods to the war effort. Sealright continued to apply plastic coatings to its products after the war’s end, introducing the familiar square-shaped no-wax paper milk carton in 1948 in response to customer complaints that wax coatings tended to dissolve into the milk. Promoted as “another first from Sealright,” these Sealking containers enabled dairies to package milk in one-gallon “twin packs,” complete with a handy carrying strap. The product’s marketing slogans—“pour one, store one” “with patented aluminum shield protection”; and “exclusive flame sterilized carton” —struck all the appropriate chords: improved sanitation for spoilable dairy products, convenient storability, and the benefits of modern manufacturing technology in the home. Plastic-coated beverage cups were a natural extension and filled the need for a disposable beverage cup that did not spoil the flavor with the taste of paper. Soon Sealright was using plastic coatings in its cylindrical and Nestyle paperboard containers as well. Like the metal can before it, the days of the glass dairy bottle appeared to be numbered by the 1950s, and Sealright began proclaiming from billboards around the nation that “36 million” Americans used Sealright products every day.
The future begins with a belief in the power of customer partnerships. We expressed that belief in 20 words we call Vision Sealright: ’The new Sealright and its people will grow and prosper through multifaceted, enduring relationships with leading consumer-products companies worldwide. ’ Vision Sealright affirms our commitment to focusing on our customers’ needs at all times and on meeting and exceeding their expectations. Vision Sealright recognizes that the new Sealright, its employees, and its stockholders will grow and flourish worldwide with our customers as we help them succeed and profit.
Although Sealright had for years been a closely held public corporation, in the 1940s it began operating as a publicly traded company and enjoyed sales growth of 63 percent in the decade after World War II. The rapid pace of change in the dairy product and packaging industries began to overtake even Seal-right in the 1960s, however. Its traditional customers, small-and medium-sized dairies, began to give way to large consolidated dairy producers, and mergers and sellouts left Sealright (now known as Sealright-Oswego Falls Corporation) struggling to maintain itself as a major supplier. The demise of the glass bottle milk packaging industry, which, ironically, Sealright had done so much to bring about, eliminated such traditional Seal-right product lines as milk bottle caps, closures, and Sealking paper hoods for glass milk bottles. Adjusting to the new environment, Sealright introduced its Plastyle-brand plastic-coated paper milk carton in 1957, which proved such a success that forty years later it was still in production. Now under the stewardship of Henry C. Estabrook, in the early 1960s Sealright also pursued such nontraditional markets as aluminum foil and fiber oil container production.
1960s: Association with Phillips Petroleum
Although Sealright’s sales rose from $58 million in 1961 to $63 million in 1962, they dropped back down to $60 million a year later, and in 1964 Sealright agreed to a $37.8 million exchange of stock with Phillips Petroleum, the eighth-largest oil company in the United States and a major supplier of the polyethylene-based plastic coatings used in Sealright’s containers. Besides giving Sealright (renamed Sealright Co., Inc.) the financial security of a large corporate parent, the acquisition strengthened it in the areas of oil can container manufacture and new patent acquisition and enabled it to develop new varieties of plastic and coated paperboard containers using resins from Phillips’s plastics division. In 1968 Sealright branched out into the production of clear poly vinyl chloride bottles for the shampoo, mouthwash, lotion, and household chemicals markets and, more importantly, unveiled its round Convocan ice cream container package, which gave consumers the option of seeing the ice cream itself through a transparent window in the lid. The Convocan, moreover, could be assembled, filled, and sealed in the ice cream manufacturer’s plant on Sealright’s proprietary machinery, cutting the expense of shipping and storing pre-constructed containers and, not accidentally, increasing Seal-right’s sales of production machinery to its customers.
The Convocan led in the 1970s to the introduction of Seal-right’s Ultrakan package, a tall, round, rigid-walled container that utilized Convocan’s in-the-plant assembly concept by exploiting Sealright’s huge inventory of aging milk carton machines to create packaging for such new uses as oatmeal and stuffing mixes. Sealright engineers next set about designing a more compact and efficient version of the packaging system for customers who needed to be able to assemble the packaging for their products in their own production facilities. Two holdover products from the 1930s—the Bulkan and Nestyle containers—helped Sealright become the market leader in the manufacture of ice cream shop bulk containers and nested containers, respectively, in the 1980s. Sealright’s round container concept was expanded from its original ice cream niche to products as diverse as finger foods and cereal. By the mid-1980s Sealright was designing and manufacturing most of the machines used by its customers to assemble, fill, and seal containers. Typically, it leased the machines to ice cream makers, shipping the semifinished containers’ walls, bottoms, and covers to the plants for final assembly.
After eighteen years as a corporate subsidiary in 1982 eleven of Sealright’s managers joined with private investment company George K. Baum in a leveraged buyout of all Sealright stock from Phillips Petroleum. After an initial public stock offering four years later, Sealright was again a publicly traded company, and Sealright’s now familiar tapered Convocan ice cream container was becoming synonymous with the increasingly popular high-quality “premium” and “superpremium” ice creams exemplified by producers like Haagen Dazs and Ben & Jerry’s. Market research surveys were showing that four out of five consumers preferred ice cream served from round containers to traditional square cartons, and two-thirds preferred see-through container tops. Sealright’s sales seemed to corroborate the findings: its round windowed ice cream containers were typically accounting for three-quarters of Sealright sales per year.
Sealright’s management was wary of relying too heavily on a single line of packaging for its future growth, however, and in the 1980s it set about diversifying its product mix so its paper-board packaging customers would never comprise more than 50 percent of sales. “We want to be able to offer food companies a fuller line of packaging,” Vice-President of Finance John Wempe explained in 1988. “It’s to our advantage to make a variety of packages.” To that end, in 1986 Sealright acquired Packaging Industries Inc. of California, a manufacturer of flexible (i.e., elastic or pliable) packaging for the food industry. The purchase spawned Sealright’s Flexible Packaging Group, enabling it to produce flexible packages for such products as snack foods, sauces, puddings, and candy. By 1989 the percentage of Sealright’s sales accounted for by frozen dessert packaging had fallen to 62 percent, followed by nondairy food packaging at 23 percent and nondessert dairy product packaging at nine percent. In 1990 Sealright, now headed by former Phillips veteran Marvin W. Ozley, added Jaite Packaging of Akron, Ohio (founded as a flour sack and grain bag mill in the early 1900s), a producer of labels for soft drink bottles as well as a printer and converter of flexible packaging for condiments, household goods, candy, snack foods, medical supplies, cheese, and meat. Energized by the acquisition, by 1995 Sealright had made its goal of a fifty-fifty split between its dairy and dry grocery packaging sales a reality.
In 1992 Sealright expanded its new Flexible Packaging Group again, acquiring Venture Packaging Inc., a North Carolina manufacturer of wraparound sleeve labels for beverage bottles as well as bags for disposable diapers, label application machines, and laminates for the snack food, bakery, and processed meat industries, and Styrotech, Inc., a North Carolina-based producer of beverage bottle sleeve label application equipment. The following year, it announced plans to construct a 400,000-square-foot frozen dessert packaging plant in DeSoto, Kansas, and in 1994 introduced its fifth major packaging product type, the Vektor container, a square-shaped container with rounded edges and a “billboard”-style front panel for more striking graphics, which could be assembled from parts in the customer’s plant.
Competitive Pressures, 1990s
In the early 1990s, competition in the U.S. packaging industry intensified, and Sealright was forced to sharply reduce its prices to preserve market share, exacerbating already strained profit levels caused by excess plant capacity and weakening demand in the frozen dessert industry. New federal product labeling regulations were also forcing Sealright’s customers to use up their inventories of outdated containers before restocking, and more significantly, Sealright’s principal customers—small, regional ice cream makers—were losing business to huge national firms. Although Sealright could claim roughly five hundred customers nationally, half its sales went to thirty-five firms, and these were increasingly situated on the east and west coasts. Sealright’s chief competitors had already abandoned the regional approach to manufacturing—in which plants producing identical product types are distributed regionally to serve specific geographic areas—but Sealright itself still divided its operations between the Midwest and the two coasts. After six years of steady growth in profits and sales through 1991, Sealright’s profits consequently dropped to only $1.1 million in 1993 before plummeting to a net loss of $.8 million 1995, one of Sealright’s worst years ever.
Within six months of replacing Marvin Ozley as Sealright’s CEO in mid-1995, Charles F. Marcy, a food industry veteran, announced a major restructuring of Sealright’s organization and market strategy with the goal of returning the company to its historical profit levels by 1998. The company’s work force was to be cut by 12 percent; its information systems/customer communications operations would receive a $7 million facelift, and the firm would concentrate on cost-cutting procedures and new partnerships with major customers that would enable it, now reincarnated as a customer-driven “specialty packaging manufacturer,” to be more responsive to market forces and expand into the Pacific Rim and South America. Crucially, the company would also abandon its regional, decentralized structure of three rigid packaging and five flexible packaging plants for a centralized approach in which a single plant would manufacture a particular packaging product for the company’s entire market. In early 1996, Sealright’s Fulton, New York, and Los Angeles facilities thus absorbed the frozen dairy dessert container manufacturing operations of the brand new De Soto, Kansas, plant, which was converted into the firm’s new headquarters and R & D center. Explaining Sealright’s situation to Kansas City newspapers, Marcy said, “we have become so decentralized that we have the same activity going on in three or four or five different places. By centralizing more, we can create tremendous economies of scale. .. . The truth of the matter is we’re in too many businesses. We’re looking to consolidate down to a much more manageable product portfolio where we can really add value... . We need to concentrate on the key customers with the greatest potential for growth.”
Less than a year into the restructuring, the signing of two new international contracts seemed to suggest that Sealright’s goal of leaping from a $300 million U.S. packager to a $400 million multinational by the turn of the century was feasible. In April 1996, the company announced it would be supplying McDonald’s South African and Chinese restaurant operations with its packaging forming and Quikspread condiment dispensing equipment, and less than a month later it announced a $3.5 million contract with Australia’s Coca-Cola Amatil firm to produce 650 million beverage bottle labels for the Australian market. The deal complemented Sealright’s existing six-year-old presence in Australia’s frozen dessert packaging market and appeared to set the stage for an even larger Sealright presence internationally in the years to come.
Jaite Packaging, Inc.; Sealright International, Inc.; Venture Packaging, Inc.; Indopak (d.b.a. Packaging Industries, Inc.); Sealright Packaging Co. of Australia, PTY. Ltd.
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—Paul S. Bodine