2022 Paper, Packaging & Wide Format Outlook – Interview with Mac Papers CEO Charles Paquin

Mac Papers + Packaging is the largest distributor of paper, packaging, envelopes, and wide-format printing solutions in the Southeastern United States. Mac serves thousands of customers across a wide array of markets and industries, including commercial printing, manufacturing, retail, pharmaceuticals, food & beverage, hospitality, travel, government, education and fulfillment and distribution. Mac’s value-add services include the installation and technical service of packaging and wide format equipment, packaging design and kitting services and logistics expertise. The company also prints and converts up to 16 million envelopes per day at its state-of-the-art envelope converting facility and recently added a sheet conversion facility to its packaging capabilities in Miami.

Overall, how has Mac rebounded from the impact of Covid-19, and how has the business performed in 2021?

The business—and our team—has been extremely resilient. Like most companies, we experienced a slowdown immediately after the pandemic started, however, we were fortunate to see a resurgence in strong demand for our products and services in 2021. The demand rebound started with packaging, supporting customers’ eCommerce needs, and was soon followed by wide format equipment and supplies. Today, as our customers move toward varying phases of reopening, we see steady demand growth across all segments, including our fine papers line.

As demand returned in late 2020 and early 2021, we used the opportunity to reevaluate and focus on how to support our customers better. We made investments in dedicated customer service hubs, centralized logistics, and concentrated on building our bench strength in key functional areas to position the business for future growth. This work has paid off in the second half of 2021, driving financial results well beyond the targets we set at the beginning of the year.

Coming out of Covid, are there any lasting trends that will have an impact on the paper and packaging industry?

Packaging was a growth market heading into the pandemic, and that growth has only accelerated due to Covid. We expect this trajectory to continue for many years. The wide format market has resumed its pre-pandemic growth trend of about 5% a year, as businesses continue to transition from conventional print graphics to more advanced wide format options.

On the other hand, the fine paper market saw an acceleration of its secular decline in 2020 and early 2021. While the second half of 2021 will realize good year-over-year growth, it is unlikely that the fine paper market returns to 2019 levels, as the smaller or local players in the commercial printing space consolidate and consumers are migrating from paper to digital media. Just as the daily newspaper has moved online, the hospitality sector, for example, is shifting from paper menus to QR codes that direct your smartphone to an online menu. The continued shift to digital is a positive trend for Mac because it drives us to focus on paper products for eCommerce, the foodservice industry and other high-margin sectors.

Market supply and demand aside, another trend is the consolidation of the packaging industry. Over the last 18 months, the pace of mergers and acquisitions has accelerated, and we expect the industry will continue to consolidate into larger, diversified businesses (by line of product, geography, and vertical integration). Mac is an active acquirer of packaging assets and intends to be at the forefront of that trend.

Most, if not all, manufacturing and distribution businesses face challenges with their supply chains. What challenges are Mac facing today, and how are you handling them?

Like most companies, we have faced challenges with shipping logistics, port delays, labor shortages, and trucking capacity. In addition, we have also experienced supply allocations from larger paper and packaging producers across certain product lines, particularly in fine paper. We’ve probably turned away $3 to $4 million in paper distribution orders a month because the mills cannot produce and ship enough paper products to meet current demand.

We have addressed the lack of supply in both paper and packaging by using our regional scale to consolidate our supplier base and improve product availability wherever possible. This has turned out to be a win for our suppliers because they can optimize production capacity and reduce complexity.

We’ve also had success in mitigating some of the international shipping challenges by hedging foreign suppliers with domestic sources. While labor shortages are impacting many industries, Mac has a tenured and loyal employee base (the average tenure is 15 years) that has given us a tremendous advantage in the marketplace. We are proud of the environment and community we have created, and our team is forever grateful for the loyalty of our employees. We also maintain and operate our own truck delivery fleet, and we work very hard to keep the company’s drivers well paid, engaged and loyal to the business.

What are some of the operational and foundational improvements Mac has implemented since the onset of COVID last year?

COVID created an opportunity for the business to reevaluate much of what we took for granted in our business model. Through careful data analysis, we designed and implemented a series of initiatives to support our business plan and our journey to a more lean, innovative, customer-first business:

1. We optimized our footprint by closing one distribution center and repurposing non-strategic retail storefronts into remote pickup locations.
2. We centralized our logistics and load planning by leveraging technology to maximize both our cubage and weight, effectively increasing driver productivity. Combined with smarter inventory management, we were able to reduce the size our truck fleet by more than 20% while delivering the same, or greater, volumes to our customers.
3. To provide redundancy and scalability, we created two customer service hubs, centralizing some roles traditionally managed at our branches. This gave us bench strength as we managed through pandemic related absences. More importantly, it gave us a platform to map and optimize how we interact with customers, a platform we are now building on to improve every aspect of the customer experience at Mac.

Discuss how Mac continues to focus on growth opportunities within its packaging and wide format segments?

We have an impressive track record of growth in both segments—before, during and after the pandemic. Our most basic commercial goal is to continue to grow at an accelerated pace relative to the overall packaging and wide format markets.

Our strategy is to leverage our value-add services to capture incremental market share while continuing to grow with our existing customer base. This starts with our technical expertise and advantage in the underlying packaging and automation equipment. Mac is one of the only distributors which sells, services, and optimizes both packaging and wide format printing equipment. We operate a Design Center (for packaging products) and an Idea Center (for wide format products) to assist our customers with their needs and we offer turnkey solutions in design, distribution, and kitting. Both centers of excellence are relatively new and their relevance to our customer base should only grow over the next few years.

In addition, we have the best consultative sales organization in the industry. We don’t just take orders; we help our customers find the best solution for their needs and then we find a better solution. We plan to further expand our national accounts team in 2022 to better serve our growing list of national customers and to cross-sell packaging, paper and wide format products wherever possible.

You just acquired Dependable Packaging Solutions. What was the thesis behind the acquisition and what capabilities and expertise does Dependable bring to Mac?

Dependable Packaging Solutions, or DPS, brought two new verticals to the Mac system: agriculture and floral packaging products. Combining this expertise with the Mac’s extensive distribution capabilities will allow us to capitalize on both of these growing market segments across our extensive footprint. In addition, DPS operates a sheet conversion operation (a box plant) that can now be fed by the entire Mac system.

More generally, the DPS business is fairly large, and the acquisition made Mac a top packaging distributor in South Florida, a larger customer for critical packaging producers and a stronger packaging business overall. We are only a few months into the acquisition, but we believe that the DPS acquisition will significantly increase our organic growth in packaging over the next few years.

Do you think you will continue to be acquisitive? What is the profile of an ideal acquisition target for Mac?

Yes! We are actively pursuing three types of opportunities: (1) packaging acquisitions which introduce new products (or verticals) in our existing footprint—like DPS; (2) geographic expansion of our network to the West (maybe Texas) and the North (maybe Virginia and further penetration into Tennessee); and (3) large, high-overlap businesses, where we can realize strong cost and purchasing synergies.

My hope is that we do one to three small to medium size packaging acquisitions in 2022 and capitalize on a larger merger or consolidation opportunity in 2022 or early 2023.

What does the demand picture look like going into 2022?

We are bullish on 2022. We expect the recovery in fine paper demand to continue and, once supplier allocations ease, our paper segment should see a solid top-line increase over 2021 sales. Packaging—our growth engine—is poised for another good year of expansion as we “cultivate” the benefits of DPS across our footprint and continue to take market share. Wide format is an immature market, and we expect it to continue its accelerated growth profile. Mac is positioned to capture new wide format business as a recognized regional leader in choosing, supplying, and installing cutting edge technology. Finally, our investment in expanding our account manager team is expected to expand our customer base and continue growth in wallet share among our existing base.

In short, we expect Mac to grow significantly in 2022.

What are you most excited about for the future of Mac Papers + Packaging?

Growth, cash flow and profitability!

We’ve laid the foundation and we have a tremendous operating platform.
We have the right team.
We have the right footprint (which we can expand on).
We are well capitalized with a tremendous financial sponsor.
We are making investments in people and technology.
We have a differentiated service offering.
And we benefit from growth markets which lend themselves to innovation – our strength.

Monomoy Capital Partners is a private investment firm with over $2.7 billion in assets under management. Monomoy invests in the equity and debt of middle-market businesses that can benefit from operational and financial improvement with a focus on manufacturing, distribution and consumer product businesses in North America and Europe.