The Innovation Imperative

To satisfy demanding customers like Procter & Gamble, Tredegar Film Products is relocating its R&D operations to Richmond. The anticipated result: greater creativity in product development.

by Robert Burke

Deal-hungry retail customers are a tough crowd to please. Prowling the aisles of big-box stores like Target and Wal-Mart, they demand products that are better, faster, new and improved, and they’re not loyal to merchandise that can’t keep up. Oh yeah, and it has to be cheaper, too.

Weary retailers, though, aren’t trying to answer that demand by themselves. They pass it on to the product manufacturers that supply them, who in turn push it on their suppliers – such as Richmond’s Tredegar Film Products, a subsidiary of Tredegar Corp. Tredegar had $413 million in revenues last year in the personal care, household care, packaging and specialty markets.

That pressure to come up with the latest eye-catching innovation is a big reason why Tredegar is revamping its product-development effort. Last fall the company announced plans to move its research and development and technical centers in Terre Haute, Ind., and Lake Zurich, Ill., to Richmond this year to a 45,000-square-foot facility in the Richmond Technical Center, just a few miles east of the Tredegar corporate headquarters. The move, when completed later this year, will give the company something it’s never had – product developers, plus marketing and sales teams and senior management, all in the same place.

The goal is to make the process of developing new products and getting them to market faster and leaner, says Tredegar Film Products President Thomas G. Cochran. “Our strategy is based on bringing consumer-noticeable innovation to our customers. To do that well, it’s vitally important that we co-locate our research and development with our employees who really are experts in the marketplace,” he says. “It became something that would be extremely difficult to accomplish if we conducted our R&D in different headquarters.”

By far, Tredegar's biggest buyer is Cincinnati-based Procter & Gamble. Last year P&G comprised nearly 55 percent of its revenues, and Cochran says Tredegar is increasingly being woven into P&G’s strategy for delivering new products to consumers. “They wanted to see more of the brainpower come from us,” he says. “They certainly consider themselves innovation leaders… but they wanted us to also bring concepts to them, and they want us to be able to contribute more to our joint projects than perhaps we had done in the past.”

Tredegar supplies the films and non-woven fabrics used in products such as diapers and feminine hygiene products. The company has developed a plastic film with a honeycombed structure that goes below the soft layer that touches a baby’s skin and can hold moisture until the absorbent material in the diaper can take it in. It also has developed a patented process for making elastic materials, typically of synthetic rubber, that make baby diapers or adult incontinence products fit better but still feel like cloth.

Cochran says the move also should help Tredegar find some new markets. “One of the strategies is looking for adjacent markets where we can use the same types of materials or similar materials to the ones we already produce,” he says. “Our marketing experts are here in Richmond, [and] part of the benefit of this move is to co-locate the developers with this market expertise.”

Tredegar has also been cutting costs in recent years, closing a plant in North Carolina and making plans to sell another plant in Georgia. Cochran says the new Richmond R&D facility will reflect that cost-cutting strategy as well. Researchers will pick their projects more carefully “but do them faster and better,” he says. And, new equipment will allow more trials of new products, he says, “so our overall process can move faster and also be less expensive.”

While cutting costs, Tredegar lately has been sinking capital into its product development. Capital expenditures averaged $50 million the past three years, double its spending in 2001-2002. And, its integration into Procter & Gamble’s process has a key advantage for Tredegar, says Robert Norfleet III, an analyst with Davenport & Co. in Richmond. “They’re not just supplying material, they’re using their own expertise” to support Procter & Gamble’s efforts. “It’s a higher value-added process” and thus more profitable, he says.

Davenport has put a neutral rating on Tredegar, though. Norfleet says the company’s aluminum extrusions business seems to have turned the corner, and the films segment “is showing very good volume growth,” with net sales up to $413 million in 2004 from $366 million the year before. “The one headwind the company faces is very high raw material costs,” Norfleet says. Resin prices rose 27 percent in the second half of 2004. “As long as those costs are out there, it’s going to have an impact” on earnings, he says. “But in the long term we’re still favorable.”

Tredegar has been looking to Asia for growth. The company opened a new plant last year in Guangzhou, China, where it has seen the number of customers grow from just one in 1999 to more than 50 today. Sales in Asia made up 16 percent of 2004 revenues, up from 13 percent the previous year.

The challenge of moving employees from two entrenched locations halfway across the country is daunting. The first workers from Tredegar’s Indiana and Illinois locations will arrive in Richmond in the second quarter of this year, and by next year the move will be essentially done. The new site, announced in late February, is less than a mile from Richmond International Airport and will have two R&D pilot lines along with physical analytical laboratories. It’s expected to be ready for occupancy by the end of May.

Tony Silwanowicz, Tredegar’s director of research and development, says the company knows “that relocation might not be right for everyone’s personal situation. But part of the attraction of the Richmond area is that… it has a pretty strong university base that you can use to recruit good technical talent.”

What’s more, Tredegar’s decision to consolidate its brainpower in the Richmond region underscores the roots that advanced materials manufacturing already has there. Tredegar was spun off in 1989 from Ethyl Corp., and is part of a cluster of companies there that includes industry giants such as DuPont and Honeywell, whose polymer technologies are used in high-performance products from body armor to towing cable.

The addition of Tredegar’s R&D and technical centers will strengthen an intellectual base that the region already has, says Gene Winter, senior vice president of the Greater Richmond Partnership. “This move makes sense for them,” Winter says. The area already has a work force experienced in the fields of advanced materials and chemicals. “If Tredegar wants to be quicker to market, they won’t find anything here to slow them down.”

-- March 17, 2005