Home Magazine The merchant model

The merchant model

Features - Municipal Recycling

Processing-oriented “merchant-style” MRF operations encounter definite business benefits—as well as a few unique challenges—that don’t always apply to their more integrated counterparts.

Lisa McKenna May 28, 2014

In contrast to the large, integrated waste and recycling service providers with vast national collection networks, some material recovery facility (MRF) operators have taken a different tack. Instead of collecting residential recyclables to process, these companies depend on hauling and collection companies for their incoming materials, buying recyclables to keep their processing lines busy. Having acquired this feedstock, these so-called merchant-style MRFs can ultimately focus on their modus operandi: the processing and sale of commodities.

A case in point is MRF operator Resource Management Cos. (RMC), based in Chicago Ridge, Illinois. Over the years the company has focused on materials processing and commodity sales through its three large MRFs based in the Midwest.

It’s a system that has served the company well: Today RMC ships out more than 600,000 tons of secondary commodities each year. (The company was profiled in the January 2014 issue of Recycling Today.)

“There are plenty of companies like ours,” says Cal Tigchelaar, president of RMC. He and other similarly minded processors also explain some of their very intentional reasons for following this philosophy in today’s market. And while executives of these merchant MRFs can state both benefits and drawbacks to the strategy, it seems they would have it no other way.
 

Built to process

RMC is one MRF operator that has some experience on the collection side, having dabbled in this business segment by way of its single collection contract in Naperville, Illinois. The company actually got its start in 1991 by winning that town’s hauling contract, but RMC never expanded that side of the business further, Tigchelaar says.

“We don’t want to be in competition with our suppliers,” Tigchelaar explains.

In keeping with that intent, RMC’s expansions have centered on the buying, processing and selling recyclable materials, a strategy that has allowed the company to expand on the processing side. Today, RMC operates three MRFs: two in the Chicago area and a third near St. Louis. These strategically located facilities have been appealing to regional hauling companies looking for MRFs to process their collections. They also attract business from the major integrated firms too, Tigchelaar says.

“We’ve worked with pretty much everyone,” Tigchelaar says, explaining that while most national waste and recycling companies have their own MRFs, at certain times or in certain regions, using RMC’s facilities may be more efficient.

One recycling company that only recently entered the single-stream landscape as a merchant-style MRF is Dem-Con Cos. LLC based in Shakopee, Minnesota. The third-generation family-owned company got its start as a landfill operator and expanded into construction and demolition recycling and a continued focus on landfill diversion. Today Dem-Con operates a full-service environmental campus.

The company made recent headlines based on the December 2013 opening of its new Minnesota MRF. The facility is now processing approximately 5,000 tons per month, says Bill Keegan, vice president of Dem-Con.

A key advantage of this facility, Keegan says, is the large geographical area it can serve, which yields the company a larger market presence. For instance, Keegan says Dem-Con is supplied by direct-haul trucks from a 25-mile radius, plus transfer trailers from surrounding states. It’s this large service footprint, he adds, that makes the economics work.

“Being a merchant-style facility, you have a very broad customer base and geographic coverage,” observes Keegan. “We service all the haulers, so we have coverage across all of the cities and counties across Minnesota.”

Among the most well-known processing-oriented MRFs is ReCommunity, founded in 2011 and based in Charlotte, North Carolina. Similar to Dem-Con and RMC, ReCommunity has emphasized its “pure play” recycling strategy, which is designed to avoid any conflicts of interest, says Jeff Fielkow, executive vice president of revenue and growth for ReCommunity. “We don’t own landfills, collection trucks or paper mills,” Fielkow points out.

The company operates some 35 MRFs throughout the country, including a Wilmington, Delaware, MRF that opened in the fall of 2013 to serve the entire state. The company also may benefit from Detroit’s recent move to privatize its waste and recycling collection and processing, as the company has three Detroit-area MRFs.

Fielkow says orienting the company’s model this way ensures that business decisions are made solely on the basis of maximizing recovery for communities. “Most of our competitors have conflicting business lines, and thus, conflicting economics for recycling,” he says.

He also explains that the business model harmonizes with community recycling goals. “Recycling advocates and municipalities want to know that every decision is made in order to maximize recovery and revenue, with the highest and best use in mind,” says Fielkow. “Our business model allows that to happen.”
 

Beyond the curb

Although the merchant MRF philosophy tends to be based on residential collections, many operators say these facilities can be appealing to commercial accounts and municipalities looking for nonbiased processors.

Keegan says the merchant MRF philosophy can make sense to commercial customers as well as to municipalities that want a guaranteed processing location, regardless of the hauler they choose. And when it comes to commercial processing contracts, Keegan says, for Dem-Con, they can be set up any number of ways. “It works both ways on the commercial side,” he says, explaining that the hauler can bring the business, or Dem-Con can contract with accounts which then select their haulers.

Fielkow says ReCommunity has found the strategy to be particularly appealing to municipalities. “Because we focus on maximizing recovery, we tend to be very flexible in helping develop recycling programs, campaigns and in our ability to design, build and/or operate MRFs,” he says. The company’s public-private partnerships are typically customized and extremely flexible, Fielkow adds.
 

Supply concerns

Both Keegan and Tigchelaar say they’ve made the conscious decision not to compete with their customers. “The people that we depend on for our supply are all in the collection business,” says Tigchelaar. “We leave that to them.”

And Keegan says he believes the merchant philosophy may even provide Dem-Con with a competitive advantage at times. “We think that oftentimes they choose our facility because we’re not competing with them,” he observes.

However, a few disadvantages are inherent to the strategy. One of them, Keegan says: Merchant MRFs are wholly dependent on third-party volumes. Another factor is the diversity of the inbound material’s composition, which tends to pose processing challenges. On that note, Tigchelaar says controlling inbound quality has been a growing issue in recent years.

“In our region it’s almost 100-percent-single-stream collection,” he says. When material is commingled in this way, he explains, there’s more chance for contamination. The widespread switch from open-topped bins to larger lidded carts is another factor that has contributed to higher contamination, Tigchelaar says.

Incoming quality concerns aside, merchant MRFs emphasize that end product quality meets or exceeds industry standards. This fact, they say, is a cornerstone of their business.

“We have end market specifications we have to meet, whether we’re a merchant MRF or not,” says Keegan. He says having a more diverse customer base might mean more processing is needed, and without proper education of haulers, residue rates might be higher, “but the quality of the outbound materials is the same.”

Similarly, Fielkow says ReCommunity’s strategy is based on the assumption that the company can offer the highest quality commodities. “For a financial perspective, it is a necessity for us to recover as much as possible, make sure it is the highest possible quality and create as much revenue for our community partners as possible,” he says. “That is our only business model.”

 


The author is an editor with the Recycling Today Media Group and can be reached at lmckenna@gie.net.

Sponsors

Current Issue

Follow us on Twitter
Follow us on LinkedIn
x