– Segezha Packaging LLC, a part of Segezha Group, is constantly ramping up its capacity. What is the point, if you are already ranking number one in Russia and second in Europe for output of paper bags?
– We are, indeed, the leader in production of paper bags in Russia. The company is nearly the only manufacturer in the country to offer technology-intensive, environmentally superior and aesthetically attractive packaging products.
Although our market share has been decreasing in the recent years due to low investment activity levels, we did our best to maintain our competitive advantages over foreign suppliers, while many local manufacturers have experienced a reduction in performance. We have been tasked by the shareholder and president of the Group to restore the market share, and we are doing so by increasing the production performance and efficiency of managerial decisions.
Segezha Group intends to increase its market share in the Russian bags and packaging market from 52% to 70%, and also to achieve significant growth in CIS markets. It is not without a reason that the Group is going to invest about EUR 100 million in production of paper packaging in Russia and abroad until 2020. For example, only in 2015, the Group invested about 2 billion rubles to develop the production of paper bags. A market-based investment strategy and high-tech production facilities enable us to supply the required quantity of finished products of proper quality to our partners in a quick and timely manner.
Fierce competition forces us to leverage our capabilities to the greatest extent possible. We have completed the first phase of Segezha Group’s investment project to ramp up the capacities of Segezha Packaging LLC. Let me remind you that the first phase included the installation of a unit for production of industrial bags with a capacity of up to 90 million bags per year and the first 8-color printing machine. Now we have three converting machines and two modern printing lines. Another important component of the phase was the launch of the first line at the Salsk factory in Rostov Region, where we have also installed new high-performance equipment capable of multi-color printing.
We have removed the bottlenecks and increased the range of capabilities. The third machine was installed in July, resulting in doubling the capacity of production of consumer packaging. The capacity of this masterpiece of industrial production by Windmoller & Holscher, Germany is 24 million pieces of packaging per year. The line is designed to operate on a 24-hour basis and can produce high-strength paper bags and sacks.
Notably, as a young employee, I participated in the commercial launch of a similar machine at the end of 2005. It has passed the test of time and has not failed us. At that time, the equipment had no equivalent in Russia and allowed the consumer packaging facility to produce 55 to 60 thousand paper bags with automatically glued in handles per shift. It was a pleasure to see people carrying foodstuffs in paper bags instead of chemically smelling plastic ones.
The launch of the new equipment has increased the company’s capacity for production of the consumer packaging sought after by world’s largest retailers almost two times, up to 50 million pieces per year. Investment in this machine only amounted to about 150 million rubles.
The second phase of the investment project to ramp up our capabilities is to be implemented in the near future. It is important that the launch of the new line will allow us to fully meet the consumers’ demand which until recently exceeded our production capacity. The capacity of the facility in Segezha was increased by 115 million bags per year and the output reached 540 million pieces of packaging per year.
– Why have you chosen Rostov Region? They have no raw material sources. Is this really cost effective?
– We selected a site based on the proximity to customers and availability of a large market. It’s true, the region has no raw material sources, but there are none in the majority of other southern regions and countries (all paper is imported). The raw material we need is paper made from high-quality “northern” pulp, and in Russia, it is only produced by Segezha PPM.
In terms of the business strategy, the region provides growth potential. We are going to meet the needs for high-quality packaging in the entire Southern Federal District and then enter the Transcaucasia. It is important to quickly respond to customers’ needs. Our regular customers include large stores, supermarkets, manufacturers of dry mix mortars and charcoal, packers of bulk dry food, and many other entities who need us to act quickly, provide stable volumes and ensure high quality of our products. Our business is very efficiency sensitive, so we have big plans for the development of the new multifunctional factory of Segezha Packaging. The paper we bring here is not personified and can be used for any brands.
The first turn of the factory was launched in March 2016. The project investment was 1.5 billion rubles. The capacity of the new facility is 90 million bags per year. The project has created new high-skilled jobs, and for the first year of operation only it will pay about 53 million rubles in taxes to budgets of all levels. We intend to start the installation of the second production line this September and the third line in 2017.
– Do you purely rely on the transfer of state-of-the-art technology or also use technology developed in Russia?
– Unfortunately, technologies for converting or manufacturing of industrial bags are virtually lacking in Russia. Moreover, the available international technologies are also limited.
Therefore, we work exclusively with the mechanical engineering leaders in this specialization. Traditionally, this segment is represented by leading European companies, in particular from Germany.
We are actively cooperating with companies who have a well-designed system of quality management and partnerships. So far, unfortunately, it is too early for us to speak about the replacement of these technologies with Russian equivalents. At the same time, we can see progress of certain Russian mechanical engineering companies who produce high-quality spare parts of high-grade steel. In this context, for complex spares there are real prospects for import substitution.
– Do you have plans to use recycled materials for your products? This kind of packaging is becoming increasingly popular abroad.
– Waste paper recycling is relevant to manufacturers of other types of packaging, other than from kraft paper. We produce packaging for bulk dry materials which is very sensitive to the strength of the bag. We use kraft paper made of northern softwood pulp, and this, among other things, is an important competitive advantage of our company. At the same time, some types of consumer and industrial packaging can be produced using recycled kraft paper and we have experience giving a second life to sulfate fiber and re-using it in a bag or consumer package (packet, sack). The use of recycled materials significantly reduces the environmental footprint, as wood waste and black liquor generated in the production process are burnt and the resulting steam is used for process needs, such as heating or electricity generation.
– Could you please tell us a little about your approaches to production?
– Although our paper bag factory in Segezha is the largest in Europe, our priority is to use an individual approach to each partner and product of each customer. In fact, we work as a “personal tailor”. Our bags are not “haute couture” of course, but we understand that each product is, in fact, an advertising medium, “the company’s face”. “Fine dress helps to impress” in business too. Therefore, our high-strength paper sacks and bags are almost unique in each order. They “breathe” (have a high air permeability level) and help preserve the quality under changes in temperature and humidity. Process engineers select the best design for a paper bag depending on its designated purpose.
For example, we produce super strong bags for dry mix mortars, including cement, lime, chalk and gypsum. By working with each customer on an individual basis with due consideration to their requirements, Segezha Packaging is able to offer the best and most cost-effective packaging solution. All paper bags meet the environmental standards and requirements for packaging. To produce paper bags, packets and sacks, we use high-quality, “semi-stretchable” high-porosity kraft paper made of 100% sulfate pulp. The only enterprise producing paper of this level in Russia is Segezha PPM. We do our best to protect the product as much as possible and extend its ‘life in bag’.
In addition to aesthetic and quality characteristics of our products, we work with partners to improve their performance. They sell bags with their logos and we want them to be the best among their competitors.
– To what extent is your product environmentally friendly?
– The stakes are too high to afford a carefree attitude to technical and environmental reliability of production. We act in accordance with the principles of environmental safety and rational use of natural resources. It is a priority in our professional activities.
Segezha Group, of which we are a part, is interested in maintaining the balance between the active business activities and environmental preservation of woods. We are fully aware of the responsibility we have for potential environmental consequences of our production and do our best to continuously reduce the environmental footprint.
Segezha Packaging values its business reputation. After all, we are building a business not for a year, and even not for five, ten or twenty years. We face the future with confidence and we want to be supplying packaging to our customers for many years to come. This is possible if production uses a renewable resource.
Our approach is responsible forest management, and the inks we use are water-soluble and completely safe. As for the bag itself, the products of Segezha Packaging have been certified in accordance with the FSC standards and criteria (FSC®C-). The stakes are too high to afford a carefree attitude to technical and environmental reliability of our production.