One is in our Food markets, on a normalized basis, i.e., you’re not winning more business than you’re losing. I think of it as a net churn perspective. You’re looking at low single-digit volume growth, right? And so your opportunity set in that, if you’re performing well commercially is GDP plus, right? Very similar if you look at Protective, I put it in that same kind of category, slightly ahead of Food, but again, low single-digit volume growth. Now in our fluids and liquids business, it’s different in the sense, very similar to the comments we made about trays, where you have an opportunity for mid-single-digit, high single-digit growth because you are shifting other applications into that particular space. It’s not just underlying demand because those markets are also very similar in terms of the end markets.
And the worse, food service would be in low single-digit growth, but because you’re disintermediating rigids and converting them into flexibles, you can see an uptick that will be there for quite some time as that market continues to shift into the fluids and liquids space.
Operator: And our next question coming from the line of Kurt Woodberg with UBS.
Unidentified Analyst : Yes. Thank you. Good morning. I was hoping you could unpack a little bit more of, I guess, some of the structural dynamics at play in fulfillment. You talked about fiber taking share as well as companies seeking more optimization of pack type or changing the way they’re kind of going to market. Is that — how structural do you view some of those trends? And then what’s your opportunity to maybe pivot more into fiber-based solutions?
Dustin Semach: So I’ll start with some of the market trends, then I’ll have Emile kind of jump on to some of the other — the fiber-based pieces from a portfolio perspective. So if you start with the trend, there’s really — there’s an obvious — and when I speak about this, I’m speaking really, which is a portion of the Protective overall, which really serves that fulfillment, kind of e-commerce end markets, right? Because industrials behave very differently. It’s actually quite unique in 2023 that they both behave very similarly. So when you think about kind of fulfillment e-commerce, it’s really a very huge positive up and then a net down, right? And the net down is the items we mentioned, which is if you think about overall e-commerce, it continues to — it’s kind of back on its normalized growth trajectory, right?
So it went through a transitory phase during COVID, where it picked up dramatically, fell back in line with historic growth rates, but it’s still continuing to grow in this kind of mid-single digit, high single-digit kind of structural growth rate that continues to move, right, which obviously drives more consumption around our packaging solutions, right? If you think about void fill, right, the air pillows that go into the box, if you think about whether it’s flexibles and/or fiber-based solutions, if you think about mailers and so on and so forth. Now, what comes off that growth rate, right, is the shift to fiber, which we had not done a great job of capturing in the past, that we’re looking to accelerate and make sure that we participate in the marketplace going forward.
And the second piece, which is shipping of container and kind of buy now and then pick up at the store. And so both those pieces netted down, but we still see it as a low single-digit growth once you net that down, right? And so that’s the opportunity set in it, within it, with the exception of the moves that we need to make in the fiber place to make sure we participate. Go ahead, Emile.
Emile Chammas: Yes. And I’ll just add a couple of pieces to that. So obviously, fiber is 1 piece of it, right? And we are — we were late to the game, but we are introducing there, both in terms of the mailer, with our paper bubble mailer, on our AUTOBAG platform, which is a great platform because not only does it addresses the shipping needs, but also the automation benefits. And there, we’re just coming out with our first generation of paper AUTOBAG. But also in terms of addressing the sustainability trends, we are launching our high recycled content for void fill as well as for cushioning solutions. And we have in our — but these are early in our R&D pipeline, in terms of new paper forming capabilities that we are trying to develop.
On the automation side, so that’s why I mentioned our partnership there around the box rightsizing. So today, we have a 2D box rightsizing capability in our B plus platform, and we signed there a partnership to expand that capability to bring in the 3D rightsizing piece. So again, depending on the customer and the markets, there are different needs there, and we are actively working to address them either through recycled content, recyclability as well as further accelerating our capabilities in fiber and automation.
Operator: Our next question coming from the line of Michael Roxland with Truist Securities.
Michael Roxland: Hi, guys. Thank you, Dustin and Emile, Brian, for taking my questions. Congrats on a nice finish to the year. My question is just — can you talk about the competitive advantage you have in protein? And while your peers may not be able to compete as effectively as you can, is it due to equipment? Is it due to service? Is it only in roll stock where there’s less differentiation? Or are there other places — other parts of the business, too, where you have more effectiveness in terms of the competitive effect that is relative to your peers?
Dustin Semach: Mike, this is Dustin speaking. I’m going to start off, and then I’ll give Emile an opportunity to jump in. But first, thank you for the comment on finishing the year. Jumping into your question, the heart of it, which is what is our competitive differentiation within the protein space. You actually nailed two legs of the stool already, right? So if you think about those three legs, it really is — it starts with differentiation and materials, right? So we do — we still believe we’re best-in-class relative to competition in terms of our differentiated material science and there are — our ability to produce those films that help increase the shelf stability of the proteins that they’re packaged in. The second piece, which you mentioned, raised the automation capability, right?
And then the third is service. And it’s really those three aspects, they are best-in-class, each on their own, but when they come together, they really truly create that differentiated solution set that really puts a competitive moat around that particular business. Now, when I say that business, I’m really specifically talking about in a lot of ways, fresh red meat. If you think about other applications, whether it’s poultry and so on and so forth, and think about it as going back to roll stock, whether it’s film, overwrap film or if you think about different roll stock applications, we are working to continue to build those three legs of the stool. What Emile alluded to in our prior conversation, which is we’re working to build that complete solution set.
And one of the differentiated approaches that we’re taking, alluded to it with the partnerships and even in protective in the 3D box rightsizing as well as you think about the solutions and roll stock is that in the past, we haven’t had that full solution where, as an example, when you did a sale, an equipment manufacturer may be coming in and bringing the thermoformer or whatever type of roll stock type equipment, and then we’re bringing in the materials and someone’s [inaudible] particularly bringing service. We are now building those partnerships, which is great because it’s an asset-light approach from a capital allocation perspective to build those solutions and going to market with those three legs of the stool in other areas. So we’re replicating the strength of what we already have in our straight bag business and other areas of the portfolio.
Emile Chammas: Yes. And you said it very well, Dustin. Just complementing to that. So again, on the roll stock side, we were playing in the — we call it, consumer ready space, in a niche area in terms of those very high value added, and we were only selling the materials science piece. So again, there, in terms of going after that market, which is a much larger market than today we play in is about bringing more materials innovation. Again, the compostable tray is one example. So two is those equipment partnerships so that we can leverage the equipment, but also our services in there. And then thirdly, a piece we haven’t talked about because again, it will not have much impact yet in 2024, is the work we’re doing on the digital printing side for consumer ready.
We are still ahead of the game in terms of what the capability is in the market in terms of introducing high-speed, economical digital printing capability to the consumer ready market, but that’s going to be more of end of ’24 or ’25 impact.
Operator: Our next question coming from the line of Lawrence De Maria from William Blair.
Lawrence Maria: Thanks. Good morning, everybody. I know you discussed some of these things, but I just wanted to just dial down on where are we really with on the e-commerce side on paper mailers and the ability to drive some more specifically with the e-commerce? And secondly, there’s a lot of pressure with Amazon and Walmart to reduce void fill. I know you have some automation there. Is there any traction with that automation? Or is that more later ’24, ’25? Can you just talk about some of the commercial opportunities in those specific lines?
Dustin Semach: Larry, this is Dustin speaking. So a couple of things. We discussed last year, in 2023, that we began to really step into — you kind of bring in paper mailers to market, right? And one of the things that — if you think about 2023 is in a lot of ways, there’s introduction of some of our fiber solutions. And if you think about ’24, it’s about scaling, right? And what I mean by that is that even if you say, hey, I have paper mailers, it’s not just — it’s the combination of the equipment, the combination in terms of how many different sizes, how well you could print on it. And so those aspects of it, we’re beginning to bring up in a more scaled up way in 2024. However, it’s still a small part of our overall portfolio, right?
So having a meaningful impact to the business is really, if you think about it in ’25 and ’26 relative to be able to do that. Now on the flip side, as Emile related to the partnership in 3D box rightsizing, some of the automation opportunities, we see those as opportunities, whether it’s big boxes, like you talked about Walmart. We are seeing traction in that space. It’s still performing quite well. The backlog in that business is still strong relative to where we’re at in terms of equipment that we deliver. So it’s a bright spot in the automation portfolio that customers are still buying, I would say, despite some of the capital constraints. Part of it is the cost of solution, where some of our solutions that are — obviously, that capital constraint goes up as you tend to buy higher pieces of equipment.
And so that’s going to give you some of the detail there.
Operator: Our next question coming from the line of Adam Samuelson with Goldman Sachs.
Adam Samuelson: Yes. Thank you. Good morning, everyone. So I guess my question, I think, Dustin, in your prepared remarks, you alluded to about 50 basis points of lower volumes in each segment related to product exits. I was just hoping for a little bit more context on that. And I guess, specifically in Protective, where you’re seeing some different substrate ships that are moving. You’ve been maybe a little slower to adapt to. And you’re also seeing more pricing pressure in pockets of that portfolio, kind of as we sit here today, I know the company has been taking a closer look at this. What — how would you size, kind of the Protective portfolio, and the proportion of the business that you really think has seen more commoditization over the last couple of years, and maybe has more diminished growth prospects than it would have five years ago or pre-COVID?
Dustin Semach: It’s a great question. If you go back to just the first part of the question, that piece didn’t come through clearly.
Adam Samuelson: Sure. Just any color on the product line exits that you think — you talked about 50 basis points in each segment, impacting volumes. Any clarity on that, what are you actually moving out of? .
Dustin Semach: Yes, absolutely. So a lot of this — I’m really glad you raised that question because a lot of it relates to things that we’ve already announced, right? So we talked about the exit of our chemothermal temperature assurance business in 2023, right? Just as a reminder, those are those refrigerated kind of panels that would be used to keep refrigeration around things like COVID vaccines. That business performed very well during COVID, and then trailed off post-COVID, and so we exited that business. So it’s having a follow-on impact from a volume perspective because a lot of these businesses exited towards the end of 2020 for your candidly, even in the beginning. So that’s the first one in Protective that’s by far having the biggest impact.
The second piece in Protective is there’s some other reductions that we have, smaller pieces that were trending relative to our IFS is our fabrication business that we have, a little piece of this in the EMEA region right now that we’re turning back on, it’s not a whole scale in terms of different areas, but very regionally specific and where some of the solutions we’ve seen — what we see to be a permanent drop-off in demand. Then if you shift to our overall Food business, the first piece is it takes back to the plant-based roll stock that we talked about exiting during Q3. And that business really is beginning to, at this point in time, really. So once we announce it, you begin the ramp down, that ramp down is really concluding now at the beginning of — kind of right now around January, February, and you’re seeing now the impact full year to Food volumes as a result of that.
And the only other piece that we really discussed today for the first time is our overall Argentinian business today. And thinking about it, you’re looking at, it’s kind of low — kind of low double digits relative to revenue impact there, relative to specific pieces related to business that we’re importing into Argentina that due to some of the FX issues as well as economic instability, it doesn’t make sense at this point in time to continue to pursue that business, [inaudible] going forward and that primarily impacts Food. And then going back to your point about Protective in terms of commoditization. If you think about it, we’ve talked consistently around this 30% to 40% of the overall portfolio. Where you are seeing pricing pressure is what we call our utility business, and if you think about lightweight foam, if you think about bubble wrap, so on and so forth, that’s where you’re seeing the most pricing pressure, right?
And then going back to your question about substrate transfer, it really goes back to some of the prior questions that we had. And where you’re seeing it most predominantly is and void fill, right? So you think of it as the air pillows continuing to shift into paper, which is also being disintermediated by shipping in own container, right? So the removal of all secondary packaging and shipping in just primary packaging, right? And then the second is even when you don’t have a box that’s an overwrap, that secondary packaging becomes a mailer and there’s a big shift, obviously, from flexibles or hybrids into pure fiber-based mailers, right? And those are the two areas that we’re — we have paper systems today that compete directly as an example with Ranpak.
And on the void fill side, and then on the paper, other side, as we talked about earlier, really, we have products in market but it’s about scale, right, in terms of how broad that offering set is and how many different businesses you can actually work with and that our solutions can actually fit within those business models. And again, 2024, 2023 is a year of introductions, and ’24 is a year of scaling in those particular areas.
Operator: And our next question coming from the line of Arun Viswanathan from RBC Capital Markets.
