Starch-based loose fill has since gained about 20% of the peanut market, but growth is leveling off. Jim Jensen, marketing manager of Free-Flow Packaging, in Redwood City, Calif., which makes both plastic and starch peanuts, thinks starch will never claim more than a 30% market share. He cites quality concerns (more dust, less resiliency), weight problems (starch is three times heavier), and cost (peanut prices are all over the map--from less than 50¢ to more than $1 a cubic foot--but starch peanuts command a 30% premium).
Meanwhile, the polystyrene industry has begun to shuck its environmental stigma. Consumers who care now have the option of tapping into Peanut Pipeline, a nationwide network of merchants and shippers willing to accept foam peanuts for reuse.
Biofoam's initial targets have been retailers who want to send a green "We care" message to consumers (and brag about it with a Biofoam-supplied insert). Current accounts include Fuller Brush of Great Bend, Kans., and MicroAge, a computer reseller based in Tempe, Ariz.
Eventually, though, Alfke knows he must break out of the green ghetto and into the broader market. That means closing the gap between value and quality on one hand and environmental consciousness on the other. He wants to give customers a compelling, no-brainer option: to be environmentally responsible without having to pay more or sacrifice convenience. "No hassle, no added cost" is what Alfke promises.
The Key Innovation. Biofoam's proposal to install a machine on the customer's premises and charge only for the product is not original. It's how the Haloid Co. (now Xerox) once sold copies, and how Tetra Pak sells juice boxes and milk cartons. There's even a precedent in the packaging industry: Ranpak sells its customers rolls of paper and charges only a maintenance fee for the custom-built machine to shred it. None of those companies, however, sells the excess output of those machines to other customers, and that aspect might rankle the Biofoam hosts.
Biofoam's $250,000 production units can be an intrusive presence. Three machines--an extruder, a conditioning chamber, and a de-duster--are joined by ducts and conveyor belts. They occupy 1,500 square feet of plant space. The noise (like a giant air conditioner) makes conversation impossible in the immediate vicinity, and the smell (like the inside of an old barn) could easily offend. Heat from the machines is potentially an issue; so is electricity consumption.
But there are definite advantages for Biofoam's host customers: a price that's competitive with that of polystyrene; reliable, immediate delivery (a big issue for shippers who can't always anticipate demand but are loath to stockpile bulky loose fill--with Biofoam, they'll never run out); on-site service; and a five-year price guarantee, which Biofoam throws in to fluff the deal.
Glitches. Last October, Biofoam was sued by Warner-Lambert (inventors of a process for making starch-based injection-molded products), Enpac (the licensee), and Novon International (distributors of Envirofill), which all claimed patent infringement. The nut of the issue is Biofoam's alleged use of "destructured starch," which is ordinary starch (corn or grain) that's been manipulated at the molecular level. "If a product contains that kind of starch, then it's our position that it infringes on the patent," says Randall Redd, president of Enpac.
"Biofoam did not infringe," insists its attorney, Craig Lundell. "If the patent is interpreted broadly enough to cover Biofoam's process, it's invalid. The suit was simply filed in an effort to force the company out of business."
The lawsuit (or "smear campaign," as Alfke calls it) is emblematic of the rough-and-tumble arena Biofoam has entered. The polystyrene loose-fill industry is a dense, fragmented patchwork that includes oil companies, chemical producers, manufacturers, and regional distributors, all of which would suffer from Biofoam's success.
Alfke seems stunned by the tone and volume of the opposition he has encountered. Biofoam has filed a $50-million counterclaim against Enpac, alleging a systematic campaign to discredit its product and intimidate potential customers (one of whom, PaperDirect, is a codefendant with Biofoam in the original suit). Alfke claims that someone has broken into Biofoam's computer network and that intruders have ransacked its paper files three times in search of trade secrets. Security is tight at Biofoam's pellet-production plant in Rapid City, S. Dak., where Bif, a rottweiler of certified East German guard-dog lineage, now patrols the premises.
The Bottom Line. Biofoam hopes to do what no starch-based product has done: compete on price with polystyrene. To do that, it has to make on-site production work. "We couldn't match polystyrene's price if we produced and distributed our product the normal way," says Alfke. Shipping costs alone add about 10% to the wholesale price of foam peanuts, Alfke estimates. Rent and utilities add 7% or 8% more. The Biofoam model reduces or eliminates all those factors.
Sales of Biofoam loose fill topped $2.5 million in fiscal 1996, a fivefold increase in Alfke's first full year. His steeply ascending projected sales curve hits $80 million by 2000 and yields pretax profits of almost 30%. Alfke's projections are not based on sales of loose fill only. If you visit his office, he can't resist showing you a chunk of stiff packing material made from Biofoam, telling you about exciting experiments with injectable Biofoam, or hinting at Biofoam's amazing capacity to absorb oil spills. But if you bring up rumors of possible medicinal applications, he frowns, squints his blue eyes, and changes the subject. He's afraid no one will take him seriously: "It's important right now that we try to stay focused."
