Box market share showdown: the clout of integrateds and national accounts is slowly squeezing independent converters out

Paperboard Packaging, Oct, 2004 by Mark Arzoumanian

Five years ago many integrated box plants could chug along, making a small profit, or even operating at a small loss, and corporate wouldn't hassle them. Those days are history. Today every integrated plant is subject to corporate analysis. If they don't meet the proscribed numbers, they will be shut down.

"Now integrated box plant executives are concerned, wondering if their box plant will be the next to close," states Mark Mathes, president of independent Vanguard Packaging, Kansas City, Mo. "And so they're taking volume at any price and doing really stupid things like guaranteeing no price increase for two years. Everyone knows there's too much converting capacity and no one wants to be the guy who's either run out of business or closed by corporate."

Why No Change?

If integrated box plants are now being forced to aggressively grow their operations, going after business until fairly recently left to independents, you would think there would have been a noticeable change in integrated versus independent market share. But FBA numbers don't reflect this. As the chart on page 24 makes clear, since 1996 independent's market share has remained very steady at 24 percent, with last year dipping to 23.2 percent. Why so stable? Diversification, says Vanguard's Mathes.

"If I had never started making displays, my box shipments would be down and I would probably not be in business," he says. "My displays are funding my box side right now. A lot of independents have gotten into point of purchase and specialty packaging to keep their heads above water."

Yet another player that didn't exist in any significant way even five years ago is the distributor, notes Rohleder. He believes that if the FBA surveyed integrateds, independents, and distributors, distributors' market share would show significant upward movement.

"Independents will tell you that they've lost business to the integrateds, they won't tell you they lost it to a distributor," he states. "The distributor is taking the requirements of three or four independent customers and leveraging them to get a better price with an integrated. The integrateds now have a logistics partner called the distributor." This isn't being done maliciously, he stresses, but the end result is lost business for independents.

"We're all fighting for smaller pieces of business," states Tom Hurley, president, Hurley Packaging, an independent sheet plant in Amarillo, Texas. "It used to be integrateds wouldn't take anything less than a full truck load. Now all of a sudden there's no order too small.

"We've had to increase our finished box prices. A lot of our customers want us to be healthy because we will keep the market stable. If all of a sudden you had all out of town box guys coming in--they don't care what happens to the market. They will just jerk prices up and clean out [the customer's] backyard."

"When one of my salespeople goes in with a [finished box] price increase, and says we have to raise prices 8 percent, the answer is, 'Well, I'm buying from PCA and they didn't give me a price increase,'" says Thomas Berenz, president, Berenz Packaging, an independent sheet plant in Milwaukee.