The Snack Food That's Packing America

A profile of a start-up that is producing an all-natural packaging material.

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Anatomy of a Start-up

What do you do when you invent a snack food no one wants to eat? Reposition it as a packing material, of course

The Concept. Consider the foam peanut. Introduced circa 1970, it quickly became a symbol of our mail-order culture, an amazing product when you think about it: lightweight, inexpensive, and resilient, it conforms in bulk to any shape, protects superbly, resists shifting in transit, and leaves no dusty residue. Also, it's indestructible--which is the problem, of course. Like diamonds, polystyrene peanuts are forever. Every one that's ever been made--and the stash is growing yearly at a rate of at least 50 million pounds, or 300 million cubic feet of peanuts--is still with us, somewhere, blowing in the wind or taking up space in a landfill, and will stay with us, scientists say, for the next 500 years.

A young Phoenix company, Biofoam, thinks its all-natural peanut (also called Biofoam) makes more sense--for shippers, consumers, and Mother Earth. Biofoam is made from grain sorghum. Stripped of its nutritional value, pressed into pellets, and conveyed through a giant popper, the stuff comes out looking like so many tan cheese doodles. (When Biofoam cofounders Tom Martin and Jerry Sullivan began experimenting with grain sorghum, back in the mid-1980s, they had in mind snack food, not packaging material, but that's another story.)

Chief executive Ed Alfke claims that Biofoam does just as good a job as the best foam peanut, doesn't cost any more, and, by the way, doesn't stick to nylons (no electrostatic charge) or outlive sequoias. The stuff is "absolutely, frighteningly natural," says operations vice-president Tom Schmiegel, a veteran of the plastics industry. Disposal options include the trash can, the front lawn (Biofoam dissolves in water), the compost bin, the dog bowl, and the party platter. "Try it with salsa," Alfke suggests.

Before Alfke arrived, Biofoam operated quietly out of a warehouse in Tempe, Ariz. Martin and Sullivan devoted most of their meager resources to research and development. Sales were an afterthought. By 1994 the pair had reached their limit and were looking for help, in cash and in management expertise.

Enter Alfke, then 44, a blond, blue-eyed college dropout from Dawson Creek, British Columbia, who had founded Rent-a-Wreck in 1976 and sold the North American operations 10 years later for undisclosed millions. "I'm looking for a large deal," Alfke had been broadcasting to his contacts, naming three criteria: the company had to have a large scope, it had to have large margins, and it had to be environmentally positive. The green component was partly his conscience talking and partly his gut. Alfke believes that green companies stand to profit in a big way from a global regulatory climate that's increasingly hostile to polluters. "The writing is on the wall for companies that are not environmentally friendly," he says.

Alfke bought a controlling interest in Biofoam in May 1995 and set the company on a fast-growth track. He assembled a high-powered board that includes a former deputy secretary of the interior, a past chairman of the Canadian National Railroad, and two members of the elite Bohemian Club. He quickly raised $8 million of the $20 million in investments he had hoped to pull in by the fall of 1996. He designed a national sales campaign and, what's most intriguing, reinvented the way loose-fill products are manufactured and distributed.

For volume users, Biofoam will install a production unit free of charge inside the customer's factory and supply a bonded, insured Biofoam employee to operate it. The customer benefits from just-in-time delivery and competitive pricing made possible in part by reduced shipping costs (one truckload of pellets equals 50 truckloads of peanuts) and the absence of intermediaries. Biofoam benefits from the intimacy of setting up shop inside its major customers' plants, but that's a bonus, not a reason to do it. What Biofoam is really after is a rent-free network of regional manufacturing facilities. In a typical setup, Alfke believes, the host company will consume only about one-third of the production unit's capacity. The rest Biofoam hopes to sell to smaller customers in the surrounding area.

Down the road, Alfke sees exciting new applications for Biofoam: molded packing material, cafeteria trays, sandwich clamshells for the to-go market, oil-spill-cleanup stuff. He thinks he's sitting on top of a new-product volcano. "I see a lot of deals," he says, "and I've never, ever seen a deal as good as this one."

Markets and Competitors. Big shippers like QVC and Home Shopping Network consume 10 to 20 truckloads of loose fill a day at peak volume. Biofoam would love to sign up both of those retailers, and any other company that ships products that need careful handling.

The size of the market depends on who's doing the estimating. Plastics-industry executives insist it's puny, worth no more than $150 million. "Bull," says Alfke, noting that waste producers have every reason to downplay their impact on the environment. He's telling potential investors the truth lies closer to $500 million. Al Striano, vice-president of marketing and sales at Ranpak, which sells shredded-paper filler, defines the market more broadly as "in-the-box packaging" and says it totals $1.4 billion in the United States and about $4.5 billion worldwide.

Biofoam is fighting for market share on several fronts: against the likes of Ranpak; against the old-line plastic-loose-fill makers; and against newer companies such as Enpac, a DuPont/ Conagra joint venture that makes Envirofill, one of several water-soluble (if not entirely chemical-free) starch-based peanuts that began appearing in the late 1980s.

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