KAL-PLASTICS — Molding a Future

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KAL-PLASTICS HAS PROVEN TO BE AS MALLEABLE AS ITS MAIN MATERIAL, REINVENTING ITSELF CONSTANTLY TO SURVIVE CHANGES IN THE INDUSTRY AND ECONOMY

Tom York calls himself a roll-up specialist.

Twenty-five years ago, he took a single retail store and built it into a chain. When big corporate players moved in on his turf, he got out of that business and went searching for another firm to buy in some other fragmented industry dominated by small players. Again, his intent was to build that company into a major operation.

Vernon-based Kal-Plastics seemed like the perfect choice: the maker of plastic bins and moldings was a small player in a pool full of like-sized players. It was also in the manufacturing heartland of L.A., near rail yards just south of downtown.

So in 1988, York purchased the 31-year-old company from its one remaining founder, Nick Karvornrais, who was looking to retire. He kept the Kal-Plastics name, folding it under a new corporate entity called Tom York Enterprises Inc.

But as York soon found out, there was a big catch. Kal-Plastics’ biggest customers were airlines and contractors for the aerospace industry, which was about to tank and take the rest of the regional economy along with it. All of a sudden, instead of trying to grow into a major player, York was hanging on for dear life as customer after customer withdrew orders.

Even worse, Kal-Plastics was being undersold by competitors who were switching to a more capital-intensive process that turned out plastic bins and boxes on a cheaper per-unit basis, using a system called injection-molding, in which a mold is inserted into a sheet of plastic. Kal-Plastic was using and still relies on a process that employs a vacuum to force plastic sheeting onto a pre-existing mold.

“It was becoming next to impossible to sell our products,” York recalled. “Not only were our main customers disappearing, but those that were left were fleeing to the cheaper prices our competitors were offering.”


Switching to spas

York needed to find more customers in different industries in a hurry. So he decided to switch the emphasis from aerospace to the custom-order market, which typically consists of smaller, hard-to-fill orders. And he brought on a marketing team to find those customers.

After three or four very painful years, when annual revenue dipped below $1 million for the first time in a decade, orders started to flow in from new customers, such as Kwikset Locks and Disneyland, which hired him make lids for trash cans. (“They are rather ubiquitous items, but someone’s got to do it,” York points out.)

Kal-Plastics also tapped into new markets, like office furniture, toy products and beverage-dispensing machines. By 1995, revenue was back up over $2 million.

“Diversification was the key,” York said.

In 1997, York was able to move on to the next phase of his business roll-up strategy: he bought out a rival. But he soon found himself making major capital investments to replace the cross-town competitor’s equipment. It took another year or so to get that factory running at full tilt.

Now, York finds himself confronting a new set of challenges.

In early 1998, Kal-Plastics bid on and won work for Jacuzzi Inc., a Walnut Creek-based maker of whirlpool spas and baths. Kal-Plastics turned out the plastic sheets that the spas rest on top of. Jacuzzi was originally doing the work in-house, but decided to outsource to save money and free up space in its factories.


Big-customer syndrome

On the surface, it was excellent news for Kal-Plastics: a huge contract from a stable customer.

But Jacuzzi turns out between 1,000 and 1,100 bath units per day, and Kal-Plastics supplies the plastic panels for each and every one of them. The work has begun to strain the company’s manufacturing capacity and has prompted York to search for larger quarters. And it puts Kal-Plastics in the all-too-familiar situation of having many of its eggs in one basket: Jacuzzi now accounts for more than 20 percent of total sales.

“Although Jacuzzi seems to be in a stable industry, whenever you devote that much machine time to a single customer, it can be a bit risky,” said Peter Mooney, president of Plastics Custom Research Services in North Carolina, who works as a consultant to the plastic thermoforming industry.

To counteract this potential threat, York and his marketing team are continuing to search for new customers.

One of Kal-Plastics’ most unusual customers is the California Department of Transportation. The company makes the plastic molding that Caltrans contractors put on sound walls to protect the surfaces and cover panels of art. One advantage of this process is that the plastic-encased artwork is impervious to graffiti.

First tested along Orange County freeways, Caltrans is now putting plastic-encased art on sound walls throughout the region.

But while he continues to diversify, York faces another familiar threat: consolidation. For decades, the plastics thermoforming industry has been the province of small, local niche players. In the last year or two, that has begun to change.

Industry watchers note that until two years ago, the largest company in the thermoforming industry, Iowa-based Triangle Plastics, had a mere $80 million in annual sales. But it went on a buying spree beginning last year and then ended up getting bought out itself, by a much larger company in the general plastics industry.

“The consolidation on the industrial thermoforming side is beginning,” said Art Buckel, a San Diego-based consultant. “Big companies are seeing opportunities for economies of scale in what has until now been a very fragmented industry.”

This time, though, York is hoping to be one of the surviving big fish.

“I’m still on the lookout for other companies in this industry to acquire,” he said.

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