Compost Operators Forum: How To Succeed In Bagging While Really Trying

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Courtesy of BioCycle Magazine

 How To Succeed In Bagging While Really Trying

Your compost and mulch are producing great results, your customer base is growing, and you’ve decided to take the next step and put some of your profits into a bagging operation. Not so fast! Yes, if done right and marketed well, bagged products can spread your company’s name far and wide. They can provide another revenue stream and point customers toward larger purchases of bulk material. But before you design a nifty logo and buy a state-of-the-art system, it’s crucial to consider a number of factors that could determine whether bagging becomes a new growth area or a drain on capital, time and labor.

The starting point is to find out how state regulations would affect your endeavor. If the business operates in a state like Georgia, which has stringent labeling standards, your “professional potting mix” will have to be used by professionals before the bag can use that name. Getting regulatory approval for specialized products can be harder than for topsoil. However, some states are fairly lenient and do not even require the bag to state directions for use or to disclose the percentage of each ingredient.

Market Research

The next step is to evaluate the market for bagged compost and mulch products. What retail stores and other customers who are not buying in bulk can be reached with bagged material? While its brand name already was established when the company started bagging a decade ago, Garden-ville in San Antonio, Texas has used bags to get its foot in the door in areas such as Dallas/Ft. Worth. “We view that bagged product as a market entry point that will permit us to penetrate territories with bulk soils in the future,” says Jane Witheridge, president of Organics Management Company, which owns Garden-ville. “It’s much simpler to enter a market that way because a single customer can buy a few bags.”

The company ships bulk material up to 200 miles away, but tends to stay within 50 to 60 miles. “Distribution capability is far greater for bags,” explains Witheridge. “A single bag can be shipped via any means. A pallet can travel by any ground transportation, whereas that same ton or yard of loose soil requires a very specific means. That limiting factor creates a much higher cost.” Garden-ville’s bags not only reach customers throughout Texas, they are shipped as far away as California and New York through Internet orders.

Market research can uncover new opportunities, including typical bulk customers like major landscape contractors. Some prefer bagged products because they enable easier inventory control. “In a small subdivision, they can send out a crew and load up ten bags,” says Wayne King of ERTH Products, LLC of Peachtree City, Georgia. “There is less waste and they know exactly how much will be put out. There are some very large landscapers in Atlanta that will only do those jobs with bags. It’s much easier than doing them with wheelbarrows and shovels, and they can bring the empty bags back and charge for material accordingly.”

The next step is to determine whether product volume would be sufficient to justify a bagging investment. Like any capital expense, potential revenues have to be factored in with costs like equipment, a covered facility, loan interest rate, operating costs, etc. A large-scale composter, King believes that a bagging operation has to sell about one million bags/year to be profitable. For a smaller company, a much lower figure may be workable, particularly if bagging is intended, at least initially, more for market development than stand-alone profit. If enough labor is available, it might make sense to start by filling bags by hand and see how they sell.

Contracting Out

If putting out large quantities of bagged product is an important goal, but the economics don’t support the equipment investment, contracting the service to another company may be the way to go. It allows the compost/mulch producer to stick with the company’s core expertise, or at least to hold off on making a large capital expenditure until the bagged products have proven themselves in the marketplace. It also takes advantage of the bagger’s economies of scale for items like supplemental soil material and pallets.

Although contracting out bagging eliminates some headaches for the producer, it does involve considerable legwork. Choosing the right company can make or break the success of the bagging venture. An obvious consideration is location, as freight costs limit the range of product delivery. The contractor must have the ability to meet the customer’s production schedule. Getting details on the number of bagging lines in the plant and the number of bags filled annually is crucial.

Commitment to the customer is equally important. Take the case of a company that bought bagging equipment and found its product volume does not fill the capacity of the machine, says King. That business will bag for others to make use of equipment and labor, but when the busy season hits, those contracting for bagging may take a back seat. “Chances are the bagger will take care of his own bags first,” cautions King. “If you have a large contract to fill, that can hurt your business.”

On the other side, you may have to prove to the contractor that the product will sell after it is bagged. “It’s not likely that a major bagging operation that already is doing six or seven lines will take your product unless you have a contract to sell that material,” says King. “They want the assurance that it won’t just sit around. It you’re just getting started, it may be difficult to give that.”

In some cases, a compost or mulch company with a limited number of products may contract out bagging to expand its line. For example, when King bought his composting company, it had been bagging only compost. Because of the low volume, he wound up selling the bagging system and hiring a Florida bagger that provides other materials, such as cyprus mulch, pine bark and potting soil elements. “Contracting makes sense because we have to offer a full line of products,” says King. “He runs seven or eight bagging lines and we can take advantage of his materials.” That saves money on transporting noncompost products to the bagging operation and allows all of the space at ERTH’s site to be used for composting.

Garden-ville does its own bagging with a line that includes fabricated bagging machines and a Bouldin & Lawson bagger. Witheridge appreciates the advantage of having significant production capacity available on site.

 “The material is right where we have the baggers, so this is the cost efficient way to do it,” she notes. “If the company grows into new market areas, that won’t be the case. We may contract out bagging for the products delivered to areas distant from San Antonio.”

Equipment Choices

Whether buying your own system or looking for someone else to do the bagging, it is critical to have the right equipment in place. Several years ago, says King, choosing a manual system meant less speed and more labor, but greater reliability. In general, the bugs have been worked out of automated bagging equipment, he adds, and the industry seems headed in that direction.

The material to be bagged has a bearing on the optimal equipment option. Although there are excellent systems available to bag a range of materials, equipment great at handling the bulk density of mulch may not be optimal for compost. Production can be slowed if a system best suited for one use is bagging a different material, so it is important to get figures on bags per minute for each product. “Someone who has bought one piece of equipment and develops more product lines may have to buy another if he wants to be real good at it,” says King. On the other hand, equipment versatility may be important for someone eventually looking to offer a full range of products without making another major investment.

Design And Distribution

Once the equipment issue has been resolved, it’s time to focus on the bag itself. Bagging contractors are good sources for recommendations on designers and producers, and obviously, have samples on hand for evaluation. King believes in going the extra mile to have a graphic artist design the bag and make it unique. “But if you’re doing a six-color bag, the cost can run up,” he adds. “If you’re only putting out a few thousand, maybe you ought to take a less expensive approach.” Sample bags should be examined for features like tight seams that won’t break and proper color separations.

Getting an attractive bag into the marketplace takes plenty of groundwork, advertising and marketing strategy. ERTH Products paid its dues to earn a presence in large retail and chain stores. “It’s all about relationships and strategic alliances,” says King. “I’ve had tremendous involvement with state organizations. It’s a considerable investment in time and money — not something that you can crank up overnight. You have to attend trade shows, BioCycle conferences and green industry shows. At the same time, you have to develop enough interest in the product line based on its performance. If the bag looks attractive and you have developed good references, then you might get some interest from distributors working with the ‘big boxes.’ But someone who thinks he’s going to start a composting company, then march into Home Depot with his product and sell it is going to have a problem. If your best buddy is the purchasing agent, you might pull it off in a few stores within a select area, but that will be it.”

Garden-Ville also uses distributors, but its customer base is independent garden centers. The distributors give input on how bag design, pamphlets and shelf talkers move product. “Training their sales people is something that we’re happy to do,” says Witheridge. “To maintain good relationships, we make sure to generate enough volume consistently for a particular product that is hot. Managing inventory is an especially critical component for a smaller company.”

ERTH sells about 300,000 bags/year of biosolids compost — representing about 30 percent of total compost sales — and approximately 400,000 bags/year of ten other products. In most cases, King believes it is difficult to succeed in bagging without offering a full range of products. “If you’re running a tractor trailer load to a store, you’re not going to roll out 20 or more pallets of straight compost,” he explains. “You need other products to make the sale. Nurseries and the big boxes want two to five pallets of this and more pallets of that, and they don’t want to deal with a lot of different vendors to get them.”

Garden-ville also operates on the diversification principle, offering over 40 bagged and bottled products. “We like to be a one-stop shopping place for landscapers, and bagging is an important part of that,” says Witheridge. “At the same time, focus is the key. We continually strive to figure out what products should receive the most effort in terms of advertising, placement and bags. Just because you can bag all of your products doesn’t mean that you should.”

The benefits of diversification do not mean that a composter can not survive in the bagging market without it. Single product opportunities exist in smaller stores and the less populated areas and outskirts of soil products market areas, says King. He notes that ERTH has done enough business in straight compost to show that it could support a bagging operation by itself. The company recently shipped a large volume of bagged compost to Africa and expects a large order from Tanzania to be finalized soon. King may even buy his own bagging system for compost alone or bring in a mobile one if that happens. “It might be a situation where I would want to bag from two locations to handle the sheer volume,” he says.

Once the bagging process, distribution and marketing are all set, the remaining job is to ensure that the bags are being filled with quality products. The expectation level is higher for bagged material and it requires even more attention to quality than selling in bulk does. Screening must achieve the proper particle size and remove any contaminants. Compost must be cured and sufficiently dry so the bags do not smell bad or have mildew as consumers consider their purchase.

Other adjustments may have to be made as well. For example, Garden-ville sells a rose soil that twice has been used for the winning entry in the Nicolson Bowl, the international competition for amateur rose growers. Unlike Garden-ville’s bulk rose soil, the bagged product is supplemented with peat to lower pH and decrease compaction. “As you’re preparing material, you have to keep in mind that when people are buying bulk material, they will use it soon.

It’s very loose, and they won’t let it sit in the driveway very long,” says Witheridge. “In bags, that same material can be at the bottom of a one-ton pallet and densify as it sits for three or four months. It’s important to lighten up certain products so that shipping and storage don’t end up affecting their quality.” In the long run, the quality of what is in the bag will determine whether the bagging endeavor succeeds.

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