Sonoco’s History of
Innovation, Risk Taking and Growth
Charlie Coker
Sonoco’s sixth president,
CEO and chairman (1970-2005)
r
April 11, 2014
Sonoco was born of innovation and risk taking!
These trails have been engrained into our culture along with our very strong people oriented
philosophy. We would not be here today if not for our past history of teamwork, innovation and risk
taking­—and you will not get where you want to be unless change becomes even more intense in every
aspect of this company.
A company is never static. If left alone, it will wither. Over 100 years ago our founder, put it this way:
“Change is an immutable law; eternal adaptation is the price of survival.”
Jack said it well in a recent video—noting that the world today is much more complex and that you
must have more and better ideas, more experimentation and more change.
During the last seven or eight years the company’s profits have been somewhat stagnant. Although
sales have grown, margins have slipped. I was very much involved during some of the early years of
the last decade—so share the responsibility and, of course, the global economy has not helped. But—
the best companies find ways to grow profits regardless of the strength of the economy!
It’s all about re-inventing ourselves—ust be done. Over the years we have “hit the wall” a couple of
times—wondering how to get going again, but found opportunities.
Our family came over from England in the mid 1660s. Thomas Coker served as a Lieutenant under
General Francis Marion during the Revolutionary War and for his services was granted 1,000 acres
of land near Society Hill. He later bought farmland in Hartsville. A grandson, James Lide Coker, was
born here in 1837.
James was severly wounded by a mini ball through his hip during the Civil War. He reached the rank
of Major and was known as “the Major” until his death at age 81 in 1917.
In 1884, the Major’s oldest son, also named James, enrolled at the Stevens Institute of Technology in
Hoboken, New Jersey. He wrote his thesis on “the sulfite process of manufacturing cellulose for paper
making” and dreamed that southern pine trees could be used.
His father was skeptical but young James prevailed. In 1889 they organized the Carolina Fiber
Company. The company struggled for years but finally produced good pulp only to discover freight too
expensive to ship to northern markets. So, in 1892, they bought a paper machine to utilize the pulp.
The first product was brown butcher’s paper; however, the market soon shifted to white bleached
paper. They decided not to reinvest and instead began looking for local markets, which led to paper
cones, as the textile industry moved south.
With technology acquired from New England, they entered the cone business, establishing the
Southern Novelty Company in 1899. Cones fueled the company’s growth for decades. Over 50 years
later when I came to work here, millions of cones were being manufactured annually. Today, we
produce only a few in Asia. The world changes.
The two companies, Carolina Fiber and Southern Novelty, later merged into Sonoco Products
Company.
Those 10 start-up years, nearly bankrupted the family. It is difficult to even imagine the risks and
problems they had to overcome:
The south had been devastated during the Civil War and was still recovering
Hartsville was just a cross roads of about 300 people
No power of any sorts—they had to dam up the creek and produce their own
No railroad
No one had successfully produced pulp from southern pines
They had to learn papermaking as well as cone manufacturing technology
Looking at these years, management had a vision for the future—a viable pulp, then paper business.
They were absolutely committed. Only by their tenacity did they make their dream a reality and it
was, to say the least, difficult and exhausting.
The entire community of Hartsville was vitally interested in what went on at the mill. We can
speculate how the town and the company grew up together—and were inseperable. This realization is
terribly important even today, the company’s culture is closely linked with this small community.
Moving forward to the Great Depression, over 100,000 businesses failed in this country. Yet, Sonoco in
1930 posted a profit of about $20o,000 on sales of just over $1,500,000.
Management did not surrender to the difficult economic times but rather moved beyond its base of
textile customers to produce tubes for other markets. Two tube plants were added in New England
and one in Canada in 1933. Another paper mill was added in 1939. The company also moved into waste
paper recycling, becoming a leader among recyclers.
World War II brought some interesting innovations while tubes and cones flourished because of
military demand for textiles.
Paper tubes were developed for pouring concrete footings for military barracks—paving the way
for sonotubes later on
Tubes were used for shipping bombs and shells
With metal in demand for the war effort, paper tubes were impregnated with resin and
pitch for transporting liquids, paving the way for duro pipe
Paper cones were used for talcum and tooth powders and even for motor oil. These were our
first consumer products
During these years, as demand for the company’s products soared, so did employment. The
welfare of Sonoco’s people has always been a concern of management. Some of the innovations
from that era helped define today’s philosophy that “people build business.”
A newspaper was established with company news as well as news about sonoco people in the
services
An idea system was installed with the slogan, “let’s have your ideas”
The Sonoco Advisory Board was organized in 1943 with employee and management
representatives
Group medical insurance was provided
A first aid station staffed with a registered nurse was set up in Hartsville
The labor union movement was going strong in the early 1950s. An effort was made to organize the
Hartsville plant, with the union soundly beaten by employees 70 for and 1,500 against.
Why such a lop-sided vote? Because employees trusted management and felt they too were an integral
part of the corporate family. Two important aspects of our culture can be credited with this victory.
On the one hand­—things were pretty good. Change and innovation were accepted and viewed as
essential for everyone’s future. On the other—we’re in this together—each of us is important—we’re a
team and all shall benefit as the company prospers.
I joined the company in 1957.
Growth soon became a critical issue. About 60% of our revenue was tied to cones and tubes – mostly
for textiles. The textile industry began to use fewer cones and more tubes and to move manufacturing
out of the country.
It became abundantly clear that we must find new growth opportunities. We had “hit the wall” again.
We had no other obvious foundation to build upon, so tended to seize opportunities to add revenue
wherever we could. That is clearly not the best way to grow, as we learned from some ill-conceived
ventures.
For example, with success of tubes for concrete forming and pitch impregnated tubes for drainage,
we decided to expand into the very large, growing construction market. In 1962, we acquired a metal
building company in Wisconsin and later added two more locations. But soon exited.
We thought about chemicals as a growth area—after all, we made our own adhesives! We even
attempted an acquisition.
Fortunately, we never became a conglomerate of unrelated businesses. In retrospect, in our quest for
growth during these years, we tried to buy our way into some big highly competitive markets.
After a few other boneheaded moves, we backed off and defined who we were, what were our
strengths and weaknesses as well as what determined success. We concluded that we were an
industrial packaging company but should aspire to also grow into consumer packaging. We also
concluded that success was dependent upon eventually becoming one of the leaders in any market we
entered.
Having lost most of our textile market, we began again to reinvent the company. Some fundamental
changes were made in our approaches to innovation and growth:
Growth and innovation became “must have” features in our culture
We insisted that the company leaders were responsible for innovation and growth and
would be evaluated accordingly
We began holding meetings on campuses as well as away-from-the-office devoted mainly to
these subjects
We established a goal of 10% growth annually in sales and profits irregardless of the health
of the natural economy
We required growth and innovation discussions in all multi-year business plans by each
operating division—large or small
A professor of mine used to say, “the greatest incentive is the footsteps of the boss.” Change and
innovation have to be a way of life. The company must be managed accordingly.
We also established at corporate an experimental shop and a product development department to
support divisions in their new product efforts.
We began looking for growth initiatives which took advantage of our strengths—especially
technology and manufacturing know how.
In the early 1960s we saw potential for Sonoco in composite cans which seemed to mitigate very
substantial risks:
We were the leader in spiral winding
We made paperboard, which might replace the kraft used by others
We had tube plants in this country and perhaps could add can lines
We manufactured adhesives and machiery
We should be able to acquire metal end technology
But there were huge problems:
We did not have a product
We could not license the patent covering folding the inside aluminum liner to make the can
airtight. Other competitors had access to that technology
There were many competitors. The two leaders in all paper cans had taken the lead in
composite. Every large metal can company began producing them. Several large paper
companies were trying to get in
The deck was stacked against us. It was all-uphill—an almost impossible challenge—and certainly
very risky.
Kirk Dunlap and his experimental shop solved the first two problems by developing a narrow
aluminum strip which wound over a heated mandrel sealed the inside seam. We avoided the patent
and now had a product.
Many trips to Houston landed the Esso (now Exxon) oil can business in Charleston—giving us
credibility in the market.
The next big move to composites was citrus. How to get Minute Maid to work with us? We could not
take a “me too” approach to them so—offered a joint venture where they put in half the investment
and shared profits— it worked.
Adequate profits did not come for over a decade. We hired McKinsey, the consultants, to help us
decide what to do. They concluded—“grow or get out”. A financial analyst who followed the company
closely also suggested we divest cans and again focus on paper and tubes. We remained committed
and eventually purchased assets from or acquired most of the composite can competitors. Then in
2001, we acquired Phoenix, putting us solidly into metal ends.
One final story about cans—which reflects the organization’s commitment and persistence. This
time with some very innovative thinking from our board of directors. Somewhere along the way
our lawyers said we could make no further can acquisitions since our share of market was so high.
At a board meeting Tylee Wilson, chairman of R.J. Reynolds tobacco, suggested that we get new
lawyers, which we did. They had us fill a basket with different packages for orange juice—metal cans,
aluminum cans, tetrapack, class containers, milk cartons and composites. By defining the market to
include all forms of packaging, we prevailed with the justice department.
You know the rest of composite can story.
In the 1980s we acquired the drum business of Continental Can Company for about $65 million
dollars. This made sense—round fiber bodies, which might use our paperboard. We later added
intermediate bulk containers and plastic drums. Sales reached $250 million. We did not focus enough
on the maturity of fiber drums or on the recapitalization costs for plastic drums which gained rapid
market acceptance. Then too, we never got regulatory approval for our paperboard. We sold out to
Greif for a handsome gain.
In 1993 we acquired Engraph for its label business, paying just under $400 million. Like construction
and chemicals in the 1960s, we brought absolutely nothing to the party—but this time were buying a
leading position in what appeared to be an attractive growing market. Every package requires a label!
We did not fully appreciate the regional nature of the label market, nor the fact that Engraph’s many
small regional facilities were fairly independent and, in fact, competed against each other. Their
culture did not fit well with ours—and frankly, I think we mismanaged the integration of their
business into Sonoco.
We sold off Engraph’s label business in 1998, taking a sizeable loss.
However, from Engraph we retained their Morrell Press division, giving sonoco a good position in
Flexible Packaging, which today should be very important for our future.
In the 1980s, we made a very bold move which successfully changed packaging for an entire market,
converting by internal development the grocery industry from paper to plastic carryout sacks.
Our strengths were simply management and technology. In 1980 we hired Ben Williams to run a new
special products division. After a year or so he convinced us that he could bring along a management
team as well as technology—which he did and that we could become the market leader in grocery
sacks—which happened. Our sales topped $300 million and profits $50 million. The Chinese invaded
the market and environmental issues heated up. We sold out for $140 million and a good return. Our
timing for getting in and out was fortunately pretty good.
Here is a case where a champion whom we knew and respected laid it all out for us and convinced our
board that he could deliver. Importantly over several years we got the product and technology right
before charging ahead with three large plants.
It is very difficult over the long term to make good returns in a commodity business—the raw material
was commodity as was the finished product. Prices were $38 per 1,000 plastic sacks when we entered
and approaching to about $10 when we exited.
One final interesting story about the grocery sack venture, which demonstrates the importance of
creative thinking in all aspects of the business. To combat environment pressures, Ben hired an
archeologist, whom we later called our garbologist, to dig deep into landfills in Los Angeles County
to show that paper—specifically phone books—does not biodegrade quickly in the absence of air and
moisture.
It is obvious that much of Sonoco’s growth over the years has come from acquisitions, but it is very
important to regognize that internal development in most cases produced the seeds for our growth.
We developed products first, establishing market footholds, acquisitions then expanded our positions.
Paperboard led to cones; cones led to tubes; tubes led to composite cans; tubes led to protective
packaging and to fiber drums; cans led to fiber caulking cartridges which then led to plastic
cartridges—and perhaps now to other plastic packages.
Except for labels—we did not jump into big markets via acquisitions just to get better. Most of the
acquisitions were small tack on’s to existing businesses.
In the case of Flexible Packaging, this came to us as part of the Engraph acquisition—but as it
develops more new products like “Snack & Seal” and grows internally, this may give confidence for a
larger venture in the future.
There are common threads now running through our divisions. All are industrial or consumer
packaging.
This suggests that our best hope for the future is to build upon what we have. It also suggests that
product development is more important than some may think. “From little acorns grow big oak trees”
Jack’s goal of $200 million new product sales for 2014 is appropriate. We need many, many small ideas
—some of which might take off, but could take lots of time.
Let’s take a deeper look at this—our large composite can business started one product, one market at
a time—oil cans, then juice, snacks, coffee and others. Each new application required some product
development or modification. Only as the business grew did we make several acquisitions. We did not
acquire Boise Cascades’ can division until 1986—over 20 years after producing our first can.
It helps to have a champion like Ben Williams for any new venture. Several of us championed
composite cans and fiber drums. In each case, the support of our technical, marketing and financial
groups was fantastic and the team deserves credit for our successes – but champions kept the team
and management focused.
Remember this:
To try and not succeed is not failure—especially if you learn something from the effort.
But
Not to try—that’s failure.
Many of our product development efforts did not succeed. Just a few examples:
We developed pitch impregnated paper for siding and roofing of turkey houses. We never
anticipated that the amonia from the bird droppings would cause the stuff to disintegrate
We worked on self-heating cans and experimented with tracking devices
We expermented with tracking devices in cans
At the urging of alcoa and iron city brewery of pittsburg we shipped beer in our cans to
Hartsville—which arrived a mess
At least we tried!
Over the years very few good ideas have come from outside of the company—even so, keep your eyes
and ears open and get to know competitors and by all means ask your customers for ideas and their
views about future trends.
Relationships are terribly important. We courted John Ferry, chairman of Boise Cascades and Bruce
Smart, chairman of Continental Can Company for years before their circumstances changed. Then the
calls came to us. Boise’s can division and Continental’s fiber drum business were never offered for sale
in the market. We preempted this.
Challenge all of our 20,000 employees worldwide for ideas—I rather like asking every business to
present in their plans ideas for growing to some goal—perhaps 5%. This forces ideas no matter how
wild and provokes discussion. Some divisions, especially the older ones, may view themselves as “cash
cows,” suggesting they exist to harvest, not grow. I don’t buy this notion. Every business should search
for ideas to grow and optimize their profitability.
Never “bet the farm” by spending too much on acquisitions or new ventures. If you drive the
company’s debt-to-capital ratio up, have a plan to bring it back down to reasonable level soon.
Always remember: profit is the reward for risk—reasonable risk, that is.
The company is going to have to spend to encourage ideas and develop new products. How much
depends on what you see at the end of the rainbow.
The good news is that you are again reinventing the company with emphasis on innovation and
growth. You have a number of exciting platforms for the future which are grounded in talent,
technology and know how. Add to that your focus on knowing and working with customers—and this
company will continue to be a big winner.
You are a great team; I am pleased that you are maintaining change, innovation and of course, people
as the key elements of our culture—because somewhere out there you are likely to “hit the wall” yet
again and may need all of the ideas you can get.
I hope I have been helpful.