So here I am writing about GLGI again. I told myself two posts was enough because I don't want to be the blogger who constantly writes about the same thing...but I just think about GLGI too much and what's more fun on a Friday afternoon than speculating about your stocks? I have done a lot of sleuth work trying to figure out what is going on between GLGI and AB so at least this is an opportunity for me to organize it all in one place.
You can read my other GLGI posts for some background, though unfortunately one is behind the pay wall over at Seeking Alpha. Greystone Logistics (GLGI) is a manufacturer of 100% recycled plastic pallets. They grind up plastic items like car bumpers to make their pallets. I think they are one of the larger plastic recyclers in the country but I can't remember where I read that. GLGI buys back broken pallets from their customers then regrinds them to make new pallets. GLGI's major customer, Miller Coors (MC), accounts for about half of their pallets sales and one reason MC chose GLGI as a supplier was their ability to produce in high volume (read page 58 of the MC 2011 sustainability report). MC began their relationship with GLGI in 1999.
In Dec 2013 GLGI put out a press release announcing that they had shipped some test pallets to Anheuser Busch (AB). In Feb 2014 GLGI mentioned terms specifically for AB in an SEC filed loan document. I believe this news alone caused much of the higher prices for GLGI stock in 2014.
Where are we now:
GLGI stock is down from the 2014 highs and I think one reason is the failure to mention anything else about AB. Due to AB policy, GLGI cannot comment about AB so we are in the dark. I believe the relationship continues and GLGI has made a pallet mold specifically for AB.
Anheuser Busch and plastic pallets:
AB has been using plastic pallets for many years. In 2002 AB commissioned a study by university professor, Marshall White, "Comparative performance evaluation of two 37 x 32 prototype plastic pallets for use by Anheuser Busch." In the same year AB commissioned a report on wooden pallets "Comparative strength, stiffness, and functionality of new and remanufactured 37x32 plywood deck Anheuser Busch block style pallet." In their 2004 Environmental, Health & Safety Report AB mentions "The company has also continued the conversion from hardwood and plywood pallets to polypropylene pallets...The new pallet design is 100 percent recyclable." (note they say recylable not recycled...more on that in a minute).
As far as I can tell AB uses now, and have always used, Rehrig Pacific for plastic pallets. I believe AB uses this 32x37 pallet, if you search online you'll see pictures of it. Rehrig introduced a new higher stiffness and superior impact resistance beverage pallet in 1999 after entering the pallet market in 1998. The first mention I can find of AB using Rehrig is in Sept 2008 and in June 2010 AB attended an event hosted by Rehrig focused on plastic pallet theft.
Anheuser Busch and the environment:
It seems to me that AB is very concerned with the environment and expends considerable resources to improve themselves in this light. All you have to do is look at the Responsibility section of their website which notes that they've spent "$1.4 billion on in corporate social responsibility programs since 1982 to support alcohol responsibility, the environment and our communities." They have reduced water use by 40% since 2007 and have a 99.6% recycling rate in their breweries. AB devotes much energy to recycling and is both a charter member and hall of fame member of the EPA WasteWise program. In fact AB won WasteWise awards every year from 2001-2005. WasteWise mentions "As a WasteWise partner or endorser, your organization can greatly reduce its climate footprint through waste prevention, recycling, and buying or manufacturing recycled products or by promoting these activities to others."
Many of the "Buying/manufacturing recylced" WasteWise goals specifically mention using recycled content in everything from manufacturing to logistics:
- "Increase percentage of post consumer recycled content in HDPE purchased for use in manufacturing process"
- "Evaluate purchase of recycled-content materials for product lines"
- "continually review the recycled content in all products purchased"
- "set purchasing policy to favor recycled-content products, such as price preference
- "research new products with recycled content"
- "investigate recycled-product alternatives for existing products"
The materials use and reycling page of their website states
- "At AB InBev we continuously strive to reduce the amount of material we use, recycling everything we can, integrating the use of recycled inputs into our packaging and ensuring that our packaging is recyclable whenever possible. This commitment is reflected in the exceptional progress we are making toward our 2017 packaging reductions goal"
- "We strive to use high recycled content in our packaging to strengthen recycling markets and reduce packaging input costs."
- "...we are using ... returnable plastic pallets" (note they use returnable pallets not recycled pallets...)
Rehrig has been around for 100 years and as far as I can tell they are huge. Unfortunately they are privately owned so I can't see their financials but they make all sorts of plastic containers such as garbage bins, litter containers, and bakery trays in addition to their plastic pallets. It looks like they make every type of plastic container or tray imaginable. Rehrig says their pallets are "reusable, ready to carry the load for the long haul, and ultimately 100% recyclable." Rehrig says "Today we use only 100% recyclable materials throughout our product lines." and "our products are designed to contain as much as 100% recycled material, depending on customer requirements."
Note those quotes from Rehrig. Their pallets are recyclable and contain somewhere between 0 and 100% recycled content. I think the pallets use 0% recycled content otherwise they would be advertising recycled pallets. I think when Rehrig receives back a pallet they recycle it into one of their lower strength products like a bakery tray then use virgin plastic to make a new pallet. This is a key difference between Rehrig and GLGI.
I tried to find out other differences between Rehrig and GLGI with no luck. I emailed back and forth with someone at Rehrig but they stopped communicating once they realized I wasn't going to buy any pallets. I emailed the professor who tested pallets for AB but got no response.
I have read that virgin vs recycled plastic pallets are very different from each other. "There are only a couple of manufacturers in North America that have been successful at reducing material variability with recycled resins, because this is an extremely difficult task." I have tried to find other 100% recycled plastic pallet makers but have been unable to find anyone other than GLGI who makes a suitable beverage pallet.
Back to GLGI and AB
So where does all this possibly meaningless research leave us? We know that AB has been using plastic pallets for over a decade and as far as I know the complete volume of that has been with Rehrig. Why would AB then contact GLGI in Dec 2013 with a request for pallets? That is the question that started me down this path. Are they upset with Rehrig? Do they just want a second supplier to offset risk or raise volume? I believe GLGI has created a mold specifically for AB so the next question is how big will the orders be? The original press release states that AB "has purchased pallets to supplement their existing plastic pallet pool". It seems strange to me that after a 10 year partnership AB would just decide one day that they need a second pallet supplier. There are 3 possibilities at this point:
- AB buys no pallets from GLGI
- AB buys some pallets from GLGI and some from another manufacturer (Rehrig)
- AB buys all pallets from GLGI
And here comes my conspiracy theory. AB cares a lot about the environment. AB strive to use recycled content wherever they can and have decided they should use recycled pallets. Rehrig cannot, or will not, make recycled pallets. GLGI can grind up old plastic stuff to make new pallets. So AB is going to phase out all old Rehrig pallets as they break with new GLGI pallets. AB will ship the broken Rehrig pallets to GLGI who will grind them up to make new pallets.
I have emailed GLGI and asked if they could grind up a competitor's pallets or if anyone had ever asked them to do so. I got no reply.
What would this mean for GLGI if they got all the AB pallet business? MC owns about 27% of the USA beer market while AB has 46%. GLGI had $21.8M in pallet sales in 2013 with $13.7M of that going to MC. If we scale those numbers for market share then GLGI would have $45.1M in pallet sales which is 107% more than 2013.
So there you have it. Lots of googling just to come up with the answer I wanted to hear... Only time will tell.
Disclosure: Long GLGI
Disclosure: Long GLGI