 Okay, Ryan. Well, good morning, everyone, and welcome to Contract Packaging Associates State of the Industry Report webinar. I am Ron Puvak. I'm the managing director of the Contract Packaging Association and moderator for today's session. Recently, in fact, last week, we released the fourth edition of the State of the Industry Report. It is a comprehensive inside view of the contract packaging and manufacturing industry, and it serves the food and CPG sectors. We actually previewed this report during our annual meeting in New Orleans recently, and it received a lot of positive feedback and excitement. And we're hoping today, during this broadcast, you get to catch that enthusiasm and excitement. And more importantly, we hope you leave with some very pertinent data and knowledge. Today, we're lucky to have presenting for us is Carl Melville of the Melville Group. Carl's Firm is conducted the research for the report, including over 120 interviews and combined primary and secondary research. Carl's company works exclusively with contract manufacturing packages, helping them grow their business and attract new customers and create new value. And I think that's pertinent to know about this report, which is unique, is the fact that this report is generated from data coming directly from the contract packages and manufacturers. Before we get started, of course, there's always a few housekeeping items. Everyone is muted. We want to hear from you, though. So today, there'll be a dialogue box in the screen for questions. And if you have one, please type it in, and we'll be looking at those questions and trying to get as many as we can towards the end of the presentation. And afterwards, if we don't, we'll try to answer and get back to you. Also, I just want to make mention that if you're not part of our LinkedIn group, you really should be. We have over 4,500 members right now, and we'll be continuing to have dialogue about the report and the data it presents. Carl, are we ready to begin and share a small sampling of this expansive research you've done? Give the word, Ron. Let's go. OK, well, good morning or good afternoon, everyone, depending on where you are. As Ron said, my name is Carl Melville, and we were the architects of this report. It's based on about 120 interviews with industry owners, executive CEOs, and others, along with a lot of qualitative and quantitative primary and secondary research. It's a unique view in the contract packaging industry. The actual report is about 100, and actually it's like 150 semi-pages, about 135 of core content. We can't do all that today, but the goal is to give you a flavor of the report and give you some information you can walk away with. Before we begin, I'm going to make two promises to you. The first is that you will leave here today with information that you can use and that you will find valuable in your business. So you can hold me to that. And the second is that you'll leave here with some sincere interest in considering using the state-of-the-art report, excuse me, state-of-the-industry report in your business. The style I like to use is engaged and enlightened and entertained. I'll strive for all three of those. The learning seems to go easier and better when that can happen. So with that said, let's see if we can begin here. As far as audiences, we will cover who those are, and then we are going to cover what you see here, which is you'll find this in this table of contents of the report. It's a little bit more, there's a few more than these, but these are the types of areas we will be going over when we get into the meat of the report. After that, we'll bring it in for a landing with conclusions. After that, I want to tell you about the Resource Center, which is new, and you'll like to hear about that. And then the six-month update, this is brand new. There's many members of the CPA that don't know about this yet, some may be on the phone going, what? And lastly, we have a special offer for anyone that attended the webinar today, which right now is about 53 people, it looks like. So we'll go through this. After that, we will leave as much time as possible for a Q&A session. So that's kind of a lay of the land. Ron mentioned, I believe, the question box, in case he didn't or you missed it, you have a question box there, please fill it out. We will answer some of them in real time. If not, we'll handle them in the Q&A. If it's something that's answered later, no harm, no foul. Just go ahead and ask it now. Ron, by the way, is running Color Commentary, so he may jump in here from time to time, and that's always a welcome lifeline. So if you haven't been to this site yet, you might want to jot this down, contractpackagingreport.com, it's the official report site of the CPA. It's where you'll find a great deal of information about the report, some FAQs, Table of Contents Indices. You can download that. It's also where you can link to the CPA store to actually buy the report, and we would encourage you to take a look at that. I want to spend a minute covering, by the way, we move quick here. There's a lot to cover, so hopefully we're not speaking too quickly for you, but moving through some things quickly. There's four types of information consumers, and it's important to know who you are, and I'm guessing everyone probably does. This person we may have some of, but probably not. An information tourist loves information. They consume it, they watch cable news, they watch the History Channel, they read manuals. They don't do anything with it though, and we really don't have much of an offer for them other than enjoy the webinar. These people won't be on the show today because they don't believe anything that they can't see themselves, so things like the report really don't interest them. This guy you've all seen, you work with him, he's a little dangerous. He can explain a rainy day away, sometimes he's in sales, sometimes in operations, sometimes in engineering, but he's got a reason for everything and why it doesn't apply to him. He also has a problem with issues like fact-based data. This person, however, uses it very powerfully. These are people that take information and use it as a strategic weapon or a tool, if you will, to outflank competitors, to move more powerfully in the market, and most importantly, to create new value for customers. So if this is you and this is how you use information, please do some active listening today because we promise to give you some things you can use. By the way, true story, someone that already has the report that had been bothering before, please, please, please, we need it quickly. Got it to him as soon as we could. I inquired what the immediacy was. I was glad that he wanted it. He said, you don't understand. We're taking this to the ops team, the sales team, the finance team, we're breaking it apart. We already have meetings scheduled around this. We want to see if we can do any better with this information. I don't know that we will, we're going to take a look at it. So by the way, they're also one of the most successful companies in our industry. Could be a coincidence, maybe not. So we've all seen this and today we're bringing you the data. One of the things the data will show is what I call the perfect storm. Take a look at those terms and think about them as we go through here today because you will see something happening in our industry that it's been happening for a while but is really literally coming to a perfect storm this year. Depending on who you are, you'll look at this report differently. These are the principal audience groups for it. A private equity person will look at it differently than an industry supplier, for example, but they will all find resonance and value in it. All right, let's jump right into the first category. It's where people like to typically start revenue and industry growth. And here we'll report and are very happy to report that the industry is growing at an 11.9% keger has been doing that for a while. That's the overall keger of all sectors, all years. We break that down into five different categories in the report, as you can see. Packaging, CPG, manufacturing, secondary packaging, and we break it out by year. But the overall is 11.9, which by the way, for those of you playing the game at home, that's about three times faster or more than the industries we support. So the industries we support are slow growth but that does not apply to our industry and it's been growing at that rate for a very, very long time. And as you can see at the bottom right there, we're anticipating $75 billion market for our services by 2020. And we really believe that was a conservative number and we went with conservative numbers in this report. We drill into more detail here, but one of the things I'll point out is that donut graph, you notice that food is about twice the size of non-food CPG, which is why we break it out because it is such a big component of overall CPG. The other reason we break it out is within our industry, obviously it's handled differently, especially in the manufacturing side. So we go through that in the packaging and manufacturing side. From there, let's talk about growth. That 11.9 sounds like a nice, smooth number, but it hides a lot of turbulence under the waves. If you look deeper, you'll see that not everyone is growing at that rate. We have in fact about 18 or one out of five, almost one out of five members of CPCM. By the way, the term CPCM is shorthand and we'll use it a lot in this report for contract packages, contract manufacturers serving the food and consumer products industries. All of that compresses down to CPCM. So it's an acronym we use extensively in the report and today, but about one in five members, as you can see, are flat to negative revenue growth. So even with that, we're getting the overall growth of 11.9, it doesn't mean these folks aren't profitable, but they're not growing with the tempo of the time. So it was an interesting stat and it surprised us. Size and scale is another thing as far as diversity goes, 20% almost, 19% of members are under $5 million in revenue. Many of them are startups, some are small family-owned concerns. At the other end of the spectrum, 6% of CPCMs are now in excess of a billion dollars. So it's a really big spread and again, it's one of the things that stood out. With all of that, the majority of those interviewed are still quite bullish in spite of some headwinds that the industry's facing. We'll talk about those headwinds today, but even with that, the industry's quite strong on its belief that continued strong operating margins and growth will continue. One of the questions that's reasonable to ask is, if we're growing three times faster than the industry, we support what kind of headroom do we have? Well, as you can see, we have tons of it. The industry is growing at three times the rate, but it is so small compared to the overall food and CPG sector that that is not an issue. I talked to someone yesterday who said, well, wait a minute, there's tolling charges in there. It's computed differently and he's correct, but if you go in and do the math and account for the percent that is tolling, you maybe add a percent and a half to that total. So no matter how you measure it, and by the way, that's also a very conservative number for food and CPG overall. We really stripped out everything that typically isn't handled by our industry. So you can see there's a lot of headroom left. So now let's jump to demographics. We did a lot of demographic work when we went through this and I tried to pick out a few things you might find interesting. This is just an oddity about ratios of owned versus leased operations. It is important. It's an indicator of how people view their business and it varies with company age and company size, as you can see in some of the smaller graphs on the side. Here's one that has to do with the perfect storm we spoke about. Take a look at that green column. This has to do with owner's average age in privately held concerns, which is the majority of our members and majority of the industry. 36% are at age 56 to 65 or what you would typically call legacy years. 16% are beyond that, they're over the age 66. So 52% of the respondents are at legacy or greater at a time when their business is worth more than it's ever been worth before. Now, a lot of these folks have legacy plans in place. A lot of them are family businesses that will pass generationally, but there are a fair number that are going to move into a merger and acquisition mode. There will be any selling mode over the next time horizon, and that's one of the things driving this perfect storm. So keep that number in mind as we go forward. We'll cover some more about mergers and acquisitions later. When we look at regions by volume, this is something that's very steady in our industry. We could have looked at this five years ago and it would be very similar to where it is today. The one growth component that has moved quite a bit is Mexico as a region rank. So we take this, I think, in the report through 2020. And again, I think the Europe and Asia Pacific may shift slightly and then Mexico does go up. This is a, there's a shortage in our industry and I wanted to share it with you today. It's also a business opportunity. We only have about 4% of businesses that we could identify that are either minority owned or women minority owned. This is a problem for many of the major customers that the industry serves because they like to award a certain amount of business, as many of you know, to businesses that fit this category. And there's a shortage of them. So I know of at least several organizations, three that I can think of that are involved in some sort of JV or other arrangement that they're in the process of setting up to live by the letter and spirit of this and yet provide more opportunities for customers. So that's just an interesting point. Let's take a look at CAPX. The economy is booming and what does that say about capital expenditures? Well, this would have looked very different three years ago and markedly different six years ago, but today a 90% of interviewed CEOs and owners plan on spending more in 18 than they did in 17 and another 38% have already committed or did commit during our discussions to commit to spending even more in 19 and beyond. So CAPX is not only consistent, it is growing and I think that speaks for the confidence and tempo of the times. Also, the vast majority, 81% have sufficient or greater. You have 71% plus 10 in this chart. Sufficient capital or greater to fund their organic growth needs. So again, this would have looked different six years ago and it's certainly good to see today. I will point out however, there's 19% if you do the math that are struggling to find sufficient capital and keep in mind the previous slide that said 19% of businesses have flat to negative growth. Now there was some correlation between those two groups but obviously we couldn't speak to causality. We didn't go into that nor would we but you do see a mapping there. So let's talk about the sales process. Before we get into this, the reason we brought it up and covered it is there's so much change going on in this area. The business development side is evolving rapidly because of new market pressures. So we took a look at that. One of the first things that stood out those of you that have been this industry a while or been a customer of this business, the owner CEO used to be a guy. He was the one that would do all the selling and I'm using a male pronoun there because it's almost ubiquitous and for this category in this industry. So today that's down to 24% where the owner CEO or he or she is the principal sales agent and responsible primarily for revenue about 33% have some small group of executives that also hold other roles, 39% professional sales organizations and as you scale up in size, so as you get to organizations of a particular size that number gets much higher. So we have a lot of professional sales organizations displacing those older numbers and that 24 has never been that low and it looks like it's going nowhere but down. So we ask a number of questions about sales process and we cover these in detail in the report but I'll ask so a few of them here. Number of people involved in the buying process, what has happened there versus three years ago? The number of opportunities, are they going up or down? How is your lead flow? Do you have enough of them? Are you being awarded more or less projects? How have you changed your pipeline? And then lastly, does your sales process consume more time than before? And then at the very end, what about customers or things better for customers or not today than they were three years ago? So the bottom line is most people believe the buying process involves many more people which makes it much more complicated. The number of opportunities has gone up and yet leads have not and that's kind of a dichotomy but people were very clear about that. They do believe they're being awarded more projects but they're harder to get which I guess would mean they're working harder. But yet customers are benefiting from this and we should not be afraid of this as CPA members because it's easier for customers to find vendors which that means is if you're a good vendor it'll be easier for them to find you. If you're a mediocre vendor, mediocre provider, mediocre service provider, then that would be a threat to you but if you're a strong operator that's probably net, net, net a good thing because you'll be found by more customers even though you may have more customers within a given opportunity. Guess what? You're going to be hiring some more salespeople. If you work in this industry, 60% of you basically said you will be hiring more salespeople this year, 59%. 40% will stay the same but the average turnover and something else you can benchmark it's not a stat in the report or in the summary but the average tenure for a salesperson is about four and a half years in this industry. So some of this 40 will also be replacing some folks and you have only 1% decrease. So sales organizations are growing. Again, a sign of the economic times and the growth in our industry. Also the complexity of the sales process. A few more things, 53% of the companies we spoke with now are using CRM applications to manage the sales process. That number has more than doubled in the last, certainly in the last five years. Going out a little further, 52% have already implemented email marketing campaigns. Now you'll see a number later where they're not that pleased with these but they have at least started them. They've initiated the process for a lot of folks it's using constant contact or something at least getting something out there. And it's a big change. It's now over half of organizations we spoke with and only 12% purchase leads anymore. Purchasing leads is usually a sucker's bet. They're very, it's very hard to find good ones and unless you have the right criteria and know what you're buying they tend to be a dead end and most folks have run into that. So that came out of this data as well. So some of the other items that came out of this business development side only 15% have found social media to be valuable or effective. This is a common complaint in and out of the industry. It's basically an echo, not an echo chamber. It's an amplifier. So if you don't have a sound strategy that suits amplification you probably shouldn't be doing it because it can get very expensive and time consuming. And because of that a lot of members have soured on it came out of our data. They've also souring on their email campaigns. And again, that is in my view probably an execution function but some are doing well with it like everything else in our industry it comes down to execution but those were the stats. We are a B2B business however as I like to say belly to belly and 85% say networking and personal referrals are still the most effective way to grow their business. So I don't know that that will ever change. Some of the other tools and processes and best practices perhaps can make that more efficient though. Someone asked, Brad I'll cover this in real time. Beverage is included in this but it is a contract manufacturers of beverage. It does not include private label which is a distinction I'm going to make. I'm going, are we having a sound problem by the way? I'm getting a note here. Okay, I think we're okay now. So private label, what's that Ron? We're good. Okay, thank you sir. So they can't hear me it kind of defeats the purpose. So here we go competitive environment someone asked about beverage private label. I'm going to a side note. I didn't include it in here but it's a reasonable question. We only looked at private label producers that are provide specific contract packaging services contract manufacturing, contract packaging and just the percentage of their business that is involved in that. Any private label work is excluded. The reason we needed to do that not just in beverage but everywhere is because private label is so much larger it would swamp the boat. So it would make the rest of this somewhat irrelevant. Their private label is huge. So we back all that out but if there is a private label producer that has a contract packaging contract manufacturing function beverage or not that is included. So competitive environment. We'll start with an and soft graph that says basically there's only four places anybody can get business. You can get existing business from existing accounts, new services to existing accounts, existing services to new accounts and then new services to new accounts. And this is what it looks like today. So you can benchmark this against your business when you get done with the call. You may have these stats in your head but it says 56% overall of your revenue comes from existing customers and existing businesses. So there's a fair amount of new service development and new product development going on already but that is going to shift markedly in the near future. This is actually is 18 through 20 where people see a significant increase in non-core business. So that shows a great deal of new business development above the previous average and new service development as well. Churn rate, we don't share the numbers here but churn is interesting. The churn rates in some sectors are high and we took a look at those. It's not a problem. We're used to having to replace a great deal of business every year but it's always a, it's always, well I shouldn't say it's not a problem. It's a challenge we meet but it happens every year. One of the things that's changing and it continues to change is the preference towards turnkey models. Those of you that are CPCMs on the phone can take a look at your own business and see where you stack up with this. By the way, this is based on total transactions not on size of the transaction and turnkey is up to about 48 or 49% right now where towing continues to decrease and cost plus continues to decrease. Most cost plus by the way is in secondary packaging operations that are run by three PLs. That's where the percentage is highest although it does appear in other places. Few more key industry stats. 53% of those interviewed believe skew proliferation and shorter product life cycles are going to continue to drive change in our business. So some of that change is good for us and some of it is a challenge. I guess it's all a challenge but skew proliferation and shorter life cycles work better in our environments in our rapid change, high turnover, slightly lower volume environments. We do well there and most people believe that's going to continue. Also, this is a really big deal. Customers have cut, cut, cut, cut, cut, cut, cut and now they really need some of those R&D resources and they are turning more and more to our channel to contract manufacturers and contract packages for R&D which before might have been not invented here. They're grabbing with both hands right now. If we can give them help in this area they're open to it and many CPCNs have gone after this aggressively and it shows in their results. By the way, 22% of you believe that offshore will be a factor in the next three years. Here's the interesting part and I don't think we cover it, so I'll cover it here. If you include Mexico in that question that number goes to 46%. So there's a fair amount of concern about Mexico much more so than non-Mexico offshore and obviously Mexico is not offshore but you understand the point. As soon as you include Mexico that number goes up markedly. Let's talk about M&A, we have a little bit in here. Goes back to that perfect storm I was speaking of. Compare this to your own experience. Here's what we found. 24% of you say there's a 50-50 shot that you will engage in an M&A transaction this year. Could be buy it, could be sell. That's a huge number, that is a big sea change. Almost half of you received five serious, I don't mean the occasional phone call but five serious M&A inquiries last year. The anecdotal evidence so far this year of those I spoke to in March said it's already over that. The calls keep coming in. So there's a lot of folks looking at this industry right now. 27% of you, so one in four, this is like look to your left, look to your right are actively researching at least one M&A opportunity today. Multiples, this is another element in the perfect storm. There was a time, those of you that have been in the industry awhile, not that long ago when seven was considered a good multiple in an M&A transaction. We're now seeing numbers of 10 and based on some meetings I had at the New Orleans meeting and some others, you'll see numbers of 12 and possibly even higher this year which is crazy, crazy big. Part of that is the overall economic climate but the other is a strong interest in the growth potential of our industry. So all that is coming together to produce what we call the perfect storm. Let's talk about some trends. I may have to speed this up a little bit or skip a few things so we have time. 90% believe that consolidation in our industry and we've already said it's a fact. It's happening now and it's speeding up is going to have an impact. Now someone said, well, if I'm not one of the ones being consolidated, why does that matter? Well, it does because there's bigger competitors, there's foundation businesses, there's the way customers perhaps are looking to reduce, they've always been looking to reduce their number of suppliers. This may give them more capability to do that. So this has a lot of implications for all businesses and it's happening in a very big way but it isn't just our industry that's consolidating. Food industry has been consolidating in the CPG industry for a very long time. 1985, you may remember was the craft general member, general foods. That was 32 years ago now and they really haven't stopped since. Now you have an entirely new wave with 3G for example, coming in with Kraft Heinz as the one that most people refer to when I bring this up. But it's happening across the board and it's not a bad thing. It is what it is. It creates a changed battlefield and most of the CPCMs we talked to believe that it does produce opportunity but in the short term it is a challenge because there's new people involved, there's changing processes, et cetera. Also our customer's customer continues to evolve. We'll talk about those drivers in just a minute but the net net net is that more and more retailers and grocers are struggling. You have a few big grocers on top. You do have the specialty foods coming out now, specialty stores and then you have like Amazon coming in buying whole foods. So all of that is creating a great deal of consternation for our customers which in turn flows to us in that value chain. Speaking of which, Walmart, if you went back and looked at this industry 20 years ago you wouldn't recognize it and a lot of that is the Walmart effect. Most people believe it's going to continue to drive our business. We didn't talk about the Amazon effect much newer and much scarier to our members. And I first thought it was scary just because it's new. Walmart, they are at least comfortable. They know it's coming, they don't know what it is but that's always going to be something. With Amazon they're not sure. I mean they even have Walmart on defense to some extent. When I dug into this a little bit and I found this interesting it isn't just because we the CPCMs don't understand e-commerce yet anybody can ship a book or a computer cable it's or deliver a television. It's how do you handle high weight, low volume, heavy goods that have to go out constantly and how do you do that and do it profitably? We don't know how to do that but more importantly our customers haven't figured it out yet. And a lot of our customers, customers haven't figured it out yet. And then you have a guy out here that really is working very hard to figure it out. So there's a lot of concern about that and what will that look like? We just don't know yet. There's also a great deal of conversation about the regulatory environment. Some believe that the current administration is loosening of some regulations is good. The majority still believe that we are over-regulated and that it does impede commerce and doesn't add enough value for what it costs. And I'll leave everyone to their own opinion on that but it definitely came out of the data. We take a quick look at services here because we could spend a lot of time where a lot has changed in contract packaging. There are some core services that still provide the bulk of central services and we take a look at those. We also then look at supply, oh, I don't have it in here. We also look at the supply chain services and value chain that is expanding. An example of that is R&D that we mentioned earlier. There's also some logistic services, a number of services that have been added into the mix that are much more prevalent than they were before. We're gonna look at customers briefly here. This I thought was interesting, compare this to your business. 87% of you now earn over 60% of your revenue from long-term contracts. So the transactional business model is slowly receding. It's always going to be there. It's the nature of our business but we are seeing some significant change here in long-term, by the way, long-term should be hyphenated there. In case I get a note from someone, a percentage of business equal in 80% of revenue, this is an interesting chart. We don't have the data provided for you here but we go through how many customers it takes to make up 80% of your revenue. We have people that we interviewed where it takes 100 customers to make 80% of their revenue. Wow, that's an interesting business to run. We have others where it is only a handful and the rest are somewhere in between but you can see there is a sweet spot and we did take a look at that. Another thing about customers that we took a look at is measuring customer satisfaction. 38% still use the, hey Bob, how you doing? How's business approach? And there's nothing wrong with that but 62% of you, the vast majority, have now implemented more formal processes to measure customer satisfaction. The reason this is important, my view, is the business cycle has become more complicated and this is a response to that. The interesting thing, if you look at that purple slice, 15% now are actually implementing formal evaluation tools in order to help standardize this process. It also, as you know, is a defensive because you can say, well, here's what you said the last quarter. Here's what you said, we have it. So top-to-tops are still very popular and will continue to be, the personal interaction of a phone call is valid but the standardized and formalized processes are definitely gaining. We did a lot on information technology and let me tell you why before we dig into this. This industry has always been an industry laggard as long as I've been in it and that's over 20 years. We treated technology as a shield and not a sword. We did the minimum we needed to do. This is an average, there was always exceptions but that has changed and it's amazing how much it's changed. 53% of CPCMs we interviewed have an ERP system in place. For some of them, it's something like SAP at the very high end. Some of them have gone with custom solutions for our industry such as the products Noology produces. Some have gone with those that are built for very small environments and everything in between but over half of these companies have ERP systems. There's also a very big number that are currently evaluating them. That number is significant. So if you're selling IT, this is a report you might want to have. HRIS systems, this number was quite low not that long ago and this is a response to the tightening labor market. I mean, full employment sounds wonderful until you have to go out and find 50 people. So we as an industry are investing heavily and aggressively in HRIS. The number that are looking at them this year is also quite how we go in evaluating and planning to implement. We look at this, I think, at five different levels. And lastly, I mentioned earlier 53% had CRM. This question was asked differently. This is enterprise-wide CRM, so it's a slightly lower number. But 49% have enterprise-level CRM systems, again, to help manage that ever more complex sales process. That's a huge number. That definitely would have been single digit six years ago. The HRIS would have definitely been single digit three years ago. So we're continuing to move here aggressively in a number of technology fronts and we cover those in more detail in the report. Sustainability is always a hot button. We drill into it a little bit. I'm only going to cover one slide here for the sake of time, about half of customers, about 49% view on sustainability has gone unchanged. It could have been high before. It doesn't mean that it's low. It just means that it's unchanged versus three years ago. But 33% of full third of customers are more interested today than they were three years ago. And this was very specifically asked about supply chain sustainability. So they're doing whatever they're doing on their own, but then looking up at their network and saying, I want my network to be more green. I want my network to focus on these things. That's changing. And 33% of customers versus three years ago are now looking at this more intently. It really hasn't gone down anywhere. It's decreased slightly, 12%. So it's a significant shift. And then we go into the types of sustainability on the report, everything from LED lighting on the high end to like wind and solar on the far end, which really doesn't make sense for most folks in our industry. So we look at all of that. Let's take a look at talent, labor, human resources, and how are we doing on time? Actually, we're doing good. I thought we would be running short. So that's why I've been going through this rather quickly. Talent and human resources. Right now, zero, see full employment or near zero unemployment is creating some challenges. So we asked folks, how big of a challenge is this in your business? And here's the response. 94% of you believe that this is not a short-term problem. Only 6% believe it's going to go away sometime soon. So, barring an economic calamity, I can't imagine how it could. The clients we work with, they're running all kinds of campaigns, temp agencies, they're turning everywhere looking for people. But beyond finding labor, another big problem is talent. There is a strong belief that the talent gap is getting worse. So if you're feeling this in your business, you are not alone. 82% believe the talent gap is getting worse. It's harder to find the right people for the open positions that you have or the growth that you're anticipating. 78% of those responding would really like to see the industry have some kind of an apprentice program. The bakery industry, for example, for those of you that are in it, now has one. The snacks industry, separate from that, has one. And other industries do as well. This is the kind of thing the CPA is great at because when they saw this number, they said, you know, we were thinking about this already and this is a great validation. Well, most companies could not afford to do this on their own. This is something the industry can look at and say, is this something that we can provide? Are we even set up for this? Can we at least help coordinate it? So those of you that are not CPA members, and this is a brief pitch for that, this is one of the things that the CPA does for you even if you're not a member. Now, if you are a member, they do quite a bit more. But an apprentice program is something there was a great deal of interest in. So what about labor and talent? Let's talk a little bit more about this. 88% of you believe that the labor shortage is going to spur more rapid automation investments. We drill into this a couple of different ways in the report. But the bottom line is, this is one more driver that is causing CPCMs to say, you know, I could replace four people with this one machine and it's going to be a three year ROI, but I'm having a heck of a time with staffing. So now it makes more sense where before I wouldn't have. Equipment vendors out there that are looking for single, they're now offering single touch systems where you press a button, you don't need a mechanic, the line runs by itself. Those were a significant upcharge. There's a lot of that new technology coming in the market now. And the difference is the justify, the justifications now go beyond ROI just because what does it cost me to not staff a line properly? I could lose a project. So it's even more than the hourly rate. So a lot of that is driving automation investments. And we talk about that in the report. 14% of you, I should say this in reverse so that it's positive, 86% of you are unwilling to loosen hiring guidelines. To me, this is huge. This says, you know, we know we have a problem, we know it's tough, but lowering our standards is not the solution. And we were heartened by this number. Actually, it surprised me. I thought it would be a little bit different and it was quite good. So that's a brief walkthrough through the report. Ron wanted me to have 20 minutes left and I've got 21, but I have a few things left to talk about here. Let's talk about conclusions. First of all, what we hope to convey today is that our industry is vibrant, strong and growing. It's experiencing long-term double digit growth in both up and down economic cycles. It's growing at, actually that two is way too conservative. It's growing at about three times as fast as the industries it supports. There are some niches in there, which is why we put in two, but it's really about three. Then we have food and CPG is now a strategic resource. And you know this already, if you're in this business or if you buy from this business, you are being invited into rooms and into meetings that you simply were not involved in before. We're rapidly evolving on a number of demographic fronts. This was the perfect storm that I talked about. There's also mega trends, for example, consolidation, Walmart, and Mexico. I don't mean to read it to you, but they're in the process of reshaping their industry. Labor shortages that we just talked about and also shifts in consumer tastes and behaviors are driving a lot of change. So there's a tremendous amount of niche small food companies emerging and most of them are turning to us. They're saying, contract manufacturers and contract packages, we know this isn't a core competency, but we know the market and we wanna bring this product. You probably get scores of these leads and a lot of them are unqualified. I get that. We probably throw away 50 leads a day from different sources of time. Not throw them away, but we can't work with them because they're not a fit. But within that, there are a lot of small companies that fit that bill that would make good developmental customers. And on the other end, you have the large customers that are getting their heels nipped at, that are coming out with all of these small new products and niches and product extensions that they can't really run in their big boxes. So all of this is really, really good for our industry. As I said earlier, the future is quite bright, but it is not a straight line. There are a lot of things going on. The private equity rise, rise of private equity is driving both consolidation and platform formation. Platform formation, if just in case anyone's not familiar with the term is when they buy company A and then they put company B, C and D with it to perform, to perform, to create company Z. And now that company moves materially different in the market. It's funded different, it's structured different. And it has things that none of the components had before and we're beginning to see more and more of that in our industry. Is it a competitive threat? It's a competitive change and companies are responding to it. You also, as an independent entrepreneur, have the flexibilities that a platform may not have. So it isn't a win-win, necessarily a win-lose rather. So the need for flexible solutions in a complex environment, this is another way of saying what we set up above. I think that the companies that we spoke with that understand this the best also happens to be the ones that are performing the best. They're able to turn in a dime, they understand their competitive value comes not from producing product, but from being able to rapidly change to the changing needs of their customers. And right now that's flexible, high-quality solutions. There's a lot of new entrants that are bringing new technology practices and expertise. I mentioned some of the new packaging technologies that are out there. You go to the shows just like I do. You see all the new things that are out there. And your customers are aware of some of these and are looking for projects to bring them in. We also looked at things like shared capital and how likely are customers to co-invest in projects. There's a lot of questions. The actual report, as I said, is about 130 pages and about 70 charts. So I tried to give just a veneer of this today and then bring this up for summary and conclusion. So let's take a look at the resource center. I want to tell you a little bit about it and it goes online May 1st is the first thing I'd like you to know. The second is it is available to anyone that has purchased the report or does purchase the report. You get one year access to the resource center. This is separate from the CPA website, which is also a great resource, which you also get. But in the resource center, we find a great deal of things. We cover them in the summary document I mentioned where you have access, there'll be access to databases for M&A, private equity, venture capital, contract manufacturers and packages. We're going to be hosting videos there, presentations like this, a great deal of resources that go beyond the report. There'll also be extensions to the report and we'll be hosting those there. And if you're a member, if you own the report, you automatically have one year access to the resource center. So that goes online May 1st and it will continue to grow after it launches. There's also something new that we have and you'll be hearing this for the first time. There are members that don't know about this yet. There was so much more that we wanted to put in this report and there's so much changing right now in our industry. It's a, I don't know of a year that's changed this much since I've been in this industry. So we're going to do a six month update. What is what it is? I just said why I told you why and when, well six months I guess I answered my own questions here. So the six month update will be out. The price point for that has yet to be determined but it'll be a significant upgrade, not upgrade but enhancement to the existing document and that will then become the new document. The webinar attendee offered today is that anyone that purchases the report, and I think Ron said 15 days of the reports or April 15th, I beg your pardon, a purchase, that's a date you won't forget, right? April 15th, purchase the report by April 15th will get the six month update, regardless of the price points that will get it included. So when that comes out, you will automatically get it if you're one of the initial purchasers of the report. So that's for webinar attendees and anyone else that has purchased the report before April 15th, we're going to include that as a thank you for getting in early and doing that. So right now, one last bit of business, this is the CPA report website, I brought it up at the beginning, I'm bringing it up now so you can get that URL, you can go there, you can learn more about the report, download the preview which basically gives you the table of contents, the full index, an FAQ and some other information, maybe some things that weren't covered today. And from there, you can purchase the report and go through to the CPA website and do that. There's also an executive summary available, it doesn't have near as much information in it but it has more certainly than we covered today and that's also available to you. So Ron, I don't know what I missed, I did my best and we have about 15 minutes left. Okay, Carl, thank you very much and I appreciate the enthusiasm and intensity on the report and the delivery. We do have a few questions that have come up and if you have additional questions, again, please remember to type them in and we will get to them in due course. Let me talk with the first one here. What form of apprenticeship program would be enticing for a company to participate in? So talking about that comment about the industry wanting an apprenticeship program, any fuel, Carl, from the data that suggests what that would look like? Well, if you're a CPCM company, it needs to be wonderful and it needs to be free, right? That's the same thing I would ask for. But I think, no, in all seriousness, there's really two ways of looking at that. One is business skills and the other specific technical skills and there are a lot of resources out there to turn people into better managers and that training is out there but there can never be enough of it and then on the other side, you have technical training. So what do I need my first line leaders to know? Actually, frontline leaders kind of need both, right? They need to be better managers because it's typically the first time they've been doing it and they also need better technical skills. So the program ideally would cover both of those and that makes it a little trickier. Maybe you do part of that and then use another source of fulfillment for the other. That was kind of a summation of what we heard. How does that fit with your experience, Ron? No, I think that's correct. It's kind of a blend in this industry. So I think that's a good response. Couple other questions that come through. Did your research indicate how folks are dealing with this growth? What is, is there a clinician? Is there an organic path? Is there an acquisition path? What do you see? Can you be a little more clear on that so I answer the right question? Yeah, the industry is facing this huge growth. How are the people you talk to responding to this growth challenge? Because we believe people aren't sitting around with, you know, assets that are just languishing. You know, how are they dealing with this aesthetic growth? Did you get any indication? Absolutely, one of the things we hear a lot, by the way, we also talk about the number of facilities and number of companies that are still single facility operations. And they're facing a unique problem because a lot of them are out to the walls. So now they need to make a big investment. Do we go out and take down another building or do we take storage offline? Do we start putting trailers out in the yard? What are we going to do because we've run out of options? So that's one, you know, because now you've got a leap. So okay, in order to grow our business X percent, we need to take, we need to make a major investment and starting up a facility is not for the faint hearted. So there's that, a lot of them, as you saw, are funding it out of organic growth. So, but resource capacity is a concern. It used to be, you know, amortized capital, right? I need to go out and buy new equipment. Well, now the totaling charge that was great before isn't so good because I've got this $3 million piece of stainless steel here. That isn't as big a deal today from what we heard as people. I want this business. Am I going to be able to get the people to staff it? And the other side of that is I need this manpower problem solved, excuse me, labor problem manpower, people problem solved because I can't put a relationship at risk, which is, you know, then you're talking negative growth. So it was mainly around expansion out of, do I need to increase my footprint? And that's a big bet. And then I need people. Okay, all right, good. One of the questions is, does report breakdown the information between contract packages and contract manufacturers? Yes, no, and sometimes it depends. So we do it on the growth side. We do it on the, excuse me, on the revenue side. As you saw, we don't get into too many specifics, especially if there was a lot of unanimity. For example, in technology platforms, there was not a lot of difference. What we can do is if someone has a specific, if a report, someone purchases a report and they have a question, I don't want to create an open ended invitation for custom research. But if someone does have a request like that, we'll see if we can accommodate a specific question. We do it, the short answer is we do some of that in the report. It is not broken out extensively. Okay, one of the bullet points that you brought forward was food and CPG companies now view CPCMs as strategic business resources. What was the data telling you that occurred over the last, since the last report? What happened? What did you see? Okay, well, let me clarify that. First of all, the statement is absolutely true. And I think anyone that has experiential experience with that would agree with it. But what's changed over the last three years, a lot of companies have been called into those meetings in the past. So it isn't just, it wasn't happening three years ago. It's happening more and more and more, especially much more so than say six years ago, we go back to reports. And we did not do those reports, by the way. What's changed is there is the concern of these small upstart companies that are nipping at the, if you're a bazillion dollar company, this little guy is not going to be a threat to you, but he can be a threat to one of your product lines. So if your XYZ snack or beverage product lost four points because he stole it, and even though he's growing the category, that's a concern. So those are the folks that are out looking for innovation and they are now turning to their network. They're saying, these guys make a lot of stuff. They know how to handle a lot of different SKUs and they see a lot of things. So why aren't we talking to them? There seems to be more of that than ever before. And that came out of interviews. And also, it also comes out of a lot of the research I do for clients independently where I can't, I can't get into details because it's client, but I can give the top line and say, it's absolutely happening. There's no doubt about it. Okay. Is there ideas out there in the report or generated from the report, ideas to solve the people problem, the issue with staffing resource? You know, here's some of the things we hear. We're using more, we talk about how we're using more agencies and people respond to that. The problem is there's only so many agencies and those agencies have the same problem that you do. They're all looking at the same pool of labor. Some are using, here's the one that has been most successful by far are companies that have taken the time, the pain and the expense, because it is a pain and it is an expense to do career branding. So we're going to go out and we're going to tell the market why we're good and why we're different from a career standpoint. And if you go and look at what the best people in the industry are doing that most successful in terms of getting people, that's what they're doing because they can't afford to pay any more than the next guy. You know, we have to be typically in that middle, maybe the middle quint at best, because we can't afford to pay what a branded company would pay, right? It's the nature of our industry. So we can't afford to give any more money. Benefits are driving everybody nuts. What can we do? Well, we can look like, act like a more attractive place to work. Now you can be that on the inside and I hope you are. So there's that. But then there's, what does your front door look like? How attractive are you to new recruits? And the best practices in the industry right now are to look heavily at career branding. We do a lot of it is why we know, but so we get questions about it. And those that are doing well are doing career branding. So there's agencies, they can provide some help, some relief. There is obviously personal networking. There is working job boards heavily being involved in more places. There's being visible in areas where recruits are going to be looking and there's having a compelling story to tell from a career branding standpoint. Long answer, but there's a lot to unpack there. Okay. Obviously you've enticed some folks about the six month update. Where will you be getting information for your six month update? All information will be hosted at the report site and it will be there as more information becomes available. Actually, what we should probably do is make it a, we maybe make it a tab on that report. We can take a look at that site and see the best place to put that in, but I think it needs to be there. Well, I think the question is, where are you getting this information in the six month update? In other words, what's transpiring? I'm sorry. Yeah. So there's two sources. One is we have additional research that we simply could not get into the report in time. There's things that have changed since the report was, since the data was gathered. And there'll also be additional interviews. One of the things we started doing and we will continue to do is take a handful of the owners and CEOs we spoke with call and do more in-depth phone-based or in-person interviews. And they'll know that the information is going to be shared. And so that is going to be added as well. There's also new industry stats coming out all the time. We're also going to, we're also running the data. Right now it runs through 2020. We'll be taking it out to 2021. I don't want to promise more than that, but certainly through 2021. So the hard stats on growth will also be going up based on industry data. Okay, good. There's another question on hiring. Hiring, what hiring guidelines exist? Are there certain job functions that are in most demand? So it goes back to this resource question. What hiring guidelines exist? Well, that varies by, right by employer. Maybe I'm misunderstanding the question, but they're, those are obviously set by an employer. And if you're requiring a college education for a packer, you probably don't have a lot of packers. So there's that. But beyond that, I'm not quite sure what they mean. So if you could clarify that a bit, are there existing job functions that are most in demand? Absolutely. Certainly labor is an issue everywhere and is somewhat malleable, but frontline supervisors, frontline leaders are difficult to find. You know, we need to take people and we need to give them the training they need to be that frontline leader. And they make or break a facility. I mean, I'm talking to operators here and I'm not an operator. So I'll speak with humility when I say that, but it's been our experience and with companies I've worked with, your frontline operators make and break an operation and getting good ones is an ever, is a never-ending saga. Then you get into specifics like mechanics, Q and quality areas like that where special training or certifications are an issue. Those vary by company, but there's always shortages in those areas. Okay. One of the data points you put out was the high churn rate. And did you get an indication from folks when you interviewed them how they were addressing that? I mean, obviously churn rate is a little bit hard. So how were they trying to reduce the churn rate? Well, the good news is it's going down and the reason it's going down is because contracts and relationships tend to be longer. We're replacing transactional deals with long-term relationships and with turnkey pricing. So that's all good. The problem is when those go away, they tend to create a bigger hole and they take longer to get. So it's kind of a double-edged sword. Net-net-net churn is going down. What's happening though is the number of accounts that churn represents goes up. So before if you lost two accounts, you lost X percent. Now you lose two accounts, you might lose forex. You might lose a lot more potential revenue. So the holes become bigger as you lose them and they take longer to fill. That is more of a concern than the net churn increase because the churn isn't the problem. It's the nature of replacing churn that's changing. And again, I make that sound like it's a uniform statement. It varies by company and by the industry, but in general, it's absolutely true. Okay, we're coming to the end of our time, Carl. I just have one more I think we can squeeze in here. And that is the question on R&D and I'm gonna slash innovation. How did you see people addressing those needs if people were coming to them for those R&D innovation needs? How did you see in the interviews people were trying to address those? Yeah, so you have folks that are making investments in those areas and it's a little difficult because here's the problem. Customers aren't going to pay you for it. They just want your help. And when I said they're not going to pay you for it, what we typically heard was it's the cost of doing business. We can build it into the price or the cost of the project, but we can't do like a consulting firm and hand them an invoice for this work. It isn't that type of relationship. And again, there's maybe exceptions to that. So we're hearing, we need to staff for it. Some are aggressively hiring R&D people, they're hiring more commercialization people. Some are opening R&D, excuse me, R&D kitchens if they're on the manufacturing side, expanding resources. Others are partnering, looking for folks that they can partner with to bring new ideas to customers. It varies widely. It is not something though that typically in our experience, in our conversations that customers are willing to write a check for, which is why they're coming to you. They're saying, we're going to be giving you this business if you can help us with these problems and getting it. So does that answer your question? That does, thank you very much. And let me, if Carl, if you wouldn't mind going back to the previous slide, I wanted to call people's attention to something on the website that I think is very important and we might have glossed over a little bit. See the little button says preview. For those of you who are looking for more information and details before you even go to the executive summary, this preview is a free downloadable document which has some data in it, a little bit of tease in it, tells you the table of contents, a few other things. I really suggest if you're interested in more detail in the report, start with that and that will get you some great information. We're coming to the end of our time. I do appreciate everyone's time this morning, early afternoon, here on East Coast. Carl's out on the West and enjoyed the webinar. And Carl, thank you very much. And as we're signing off as CPA and police, use us as a resource, go to the website, not only CPA website, but also report website and we'll be happy to help you where we can. Thank you all today and we're done. Thank you. Thank you everyone.