TerraCycle Goes the Distance
Eco-innovator TerraCycle (www.terracycle.net) charted new territory in the consumer goods industry in 2003 with one big idea: How can you eliminate the idea of waste? Back then, the company specialized in worm poop fertilizer packaged in old soda bottles. Its "upcycling" concept soon caught the eyes of consumer goods companies small and large, like Honest Tea, Kraft Foods and Clif Bar, who had their own garbage issues to solve. TerraCycle launched free waste collection programs -- called Brigades -- on their behalves for hard-to-recycle materials. TerraCycle then upcycles the waste into affordable green products. Now, TerraCycle is taking one giant green step further to recycle materials that until now have been considered "non-recyclable". Consequently, what started as a simple idea in 2003 has effectively changed the perception of waste worldwide.
Led by the eco-capitalist Tom Szaky and a staff of 75 "young, crazy, dynamic, out-of-the-box" thinkers, TerraCycle knows no limits as it takes on more and more unmanageable waste streams -- think dirty diapers, shoes, cigarette butts and cosmetics -- in countries that haven't even heard of the word "recycling" until now. Here, Szaky reveals the secrets to TerraCycle's success:
CGT: TerraCycle has grown leaps and bounds in a very short time. How and why did the business evolve beyond upcycling?
Szaky:When we started collection programs called Brigades for nonrecyclable waste streams, like juice pouches, yogurt cups and energy bar wrappers, the volume amassed was relatively small. In the first year of the juice pouch program, we collected 22,000 pouches. In the second year, we collected two and a half million, which was still relatively small. When you have a low volume of waste like that, upcycling is the absolute best thing to do because you value every aspect of the product. I can make a backpack out of 26 to 30 Capri Sun juice pouches. But our Brigade programs started growing incredibly fast. As an example, we now collect half a million juice pouches each day. That represents almost 1.5 percent of all the post-consumer juice pouches in America, which is pretty significant.
In effect, we would have to manufacture more backpacks than are sold in America to be able to move through all of the juice pouches. What we realized is that while upcycling is the very best thing to do with garbage, it's limited as to how much garbage can actually be eliminated.
We had to come up with other solutions to use the immense volume of waste that we collect. We brought on a team of scientists to look at how different waste streams can be manipulated into different materials. One of our first discoveries was that if you shred and compress the juice pouch, you can make a board, which can then be made in to furniture, clip boards, coasters, etc. What's interesting is that if you make a bench from this material, it uses a few hundred thousand juice pouches while a backpack uses only 26 or 30 at most.
Then we discovered that if you granulize the juice pouch into a powder, you can use it to make plastic lumber. The last manipulation that we're just about to commercialize comes from pulverizing the juice pouch and extruding it into a sewable fabric that can be used in luggage and so on. We developed material solutions like this across all of our 35 waste streams. And while we try to prioritize upcycling, everything else goes into material solutions, which one can call recycling.
CGT: How do you pick and choose the waste streams that you are going to collect and find solutions for?
Szaky:The fundamental reason that consumer goods companies partner with us is because they have a product that is traditionally nonrecyclable. Yet, TerraCycle can recycle them. The traditional Blue Box Recycling System is relatively limited, so TerraCycle has effectively created a national privatized recycling system that will collect and upcycle or recycle its clients' waste in mass quantities. We have never come across a waste stream that hasn't been able to be solved, from razor blades to dirty toothbrushes to feminine hygiene products. We have some very big projects coming out later this year, one of which is going to collect all 300 nonrecylable waste streams in America.
CGT: Is there any type of company that you would not partner with?
Szaky:We're in the business of solving garbage, so there is no company that we would not partner with if they wanted to solve a waste problem. If a cigarette company came to us -- and they have -- seeking a solution for cigarette butts, we would try to solve that problem even though the world would be a better place without cigarettes. We would be happy to start collecting shot gun shells as long as we're solving an active waste problem.
Where we are very cautious is in our public support or endorsement of a company. For example, NASCAR recently asked us to sponsor one of its cars. For TerraCycle, this partnership made no sense because NASCAR doesn't represent what we stand for. It is a pretty black and white organization that doesn't represent anything green. Now, if NASCAR asked us to collect worn out old tires, old oil drums or even just spare car parts, we would be the first in line to support them.
At the same time, we don't in any way comment or have an opinion on the sustainability practices of a company that we do partner with. We are always just extremely excited that they want to take a green step in the area of waste management. And if we can show that this small step toward going green can lead to a return on investment, then who knows what else they might try.
For example, Kraft Foods asked us to replicate the U.S.-based Capri Sun juice pouch system for its Tang brand in Latin America. The resulting program was so successful that Kraft in Brazil decided to change its entire marketing platform for Tang toward empowering kids to be green. The cornerstone of that change was TerraCycle, but Kraft was also focused on Tang's sustainability across the board, like energy and water savings. The results were amazing. I think they realized a 38 percent increase in sales. Now Tang's Argentinean and Mexican teams are also following suit and going full chips in on green messaging.
CGT: At the end of 2010, TerraCycle had operations in the United States, Canada, Mexico, Brazil, UK, Sweden, Turkey, Israel, Ireland and Argentina with new offices in all of the major Western European markets to open in early 2011. What challenges have you encountered in becoming a global business?
Szaky:Typically, one of our large multi-national clients -- like Kraft Foods, PepsiCo or Coca-Cola -- will ask us to replicate an existing program in another market. That has pushed our global expansion, which is really nice because we're reacting to existing opportunities rather than opening in a country and trying to find the opportunity. Obviously, expanding internationally is a huge growth engine for TerraCycle as every country in the world has a garbage problem. That's not a good thing, but a unifying thing across the board, which makes our job a little easier. The other good news for TerraCycle is that most of the brands are the same -- you can buy a Coke anywhere in the world. Once we know how to solve for a product in one country, it's a very logical process to replicate in another.
But there are challenges. The culture of recycling is very different in each country. America falls right in the middle on the global recycling matrix. Europe is very advanced while Latin America is relatively behind and so on. Argentina does not even have a recycling infrastructure. The word "recycling" simply doesn't exist so that poses a unique set of challenges in trying to get people to buy in to our concept.
Also, countries have varying degrees to which they use the Internet, which is an integral part of our programs. Mexico, for example, has a very low broadband connection rate, so we had to shift our system to be phone-centric. Instead of going to the TerraCycle Web site, people in Mexico call our customer support center for shipping labels.
But overall, the system has generally been 90 percent replicable in every country we enter, which is encouraging because again it makes it easier for us to grow very quickly. From a numbers standpoint, in 2010, TerraCycle reported $13.5 million in sales, of which a little over $2 million was international. Now in 2011, we're projecting $20 million in sales, of which $5 million to $6 million will be international.
CGT: Despite the positive responses from consumers and clients, TerraCycle operated at a loss every year until 2010. What changed in your business model that allowed for profitability?
Szaky:TerraCycle started with 150 workers bottling worm poop fertilizer in used soda bottles. As we started taking on more waste streams, we increased our manufacturing processes. Consequently, our margins went way into the negative. In 2008, on $6.6 million in sales, we reported a loss of $4.5 million. So we stopped manufacturing entirely and moved into a licensing model over a one year period. Now we develop materials from the waste and teach companies how to incorporate those materials into their products. The end result is a product manufactured elsewhere but marketed either under the TerraCycle logo or as a co-brand. Now, instead of reporting losses, we're experiencing gains. In 2010, we reported $13.5 at a profit. In 2011, we're hoping for $20 million with over $1 million in profit.