Clint Betts

Kevin, thank you so much for coming on. It means a lot. You're the CEO of Emerald Packaging. Why don't you tell us about the company and also how you became CEO of it?

Kevin Kelly

Well, it's a story. So the company was founded in 1963, so this is our 60th anniversary and we're located in the San Francisco Bay area. I basically grew up in the business. My father founded it with three partners back in '63 and over time bought them out and we became a family business around 1993. We manufacture packaging, almost entirely produce packaging, so if you were to go to the store and walk into the produce section, about half of what you see in there that's in bags, whether it's, say, spinach in a package or salad in a package or carrots in a package, that's us. So we're the produce packaging kings of the United States, sort of a niche we focused on and conquered, and it's a really chaotic sector because these are basically farmers who don't believe their crop is ever going to come in until the moment it does so they order just in time, and I'm talking sometimes days.

The communication between grocers and packers is still archaic, so they never seem to know when something's going to go on. So we've survived by mastering the art of chaos. I think it is a strategy that evolved out of happenstance because when I became CEO in 2002, we just took off on this huge growth spurt and we didn't have enough capacity to handle it. So we were always going in and out of jobs and that seemed to just be also at the same time reflective of the needs of our markets. So the chaos I introduced with fast growth then evolved into just handling how we handle the chaos even with the right amount of capacity of the sector we now primarily serve.

I became CEO after 10 years, a decade of being a reporter of Business Week magazine, a national business publication. I covered manufacturing and airlines and I got the desire. Obviously there was a family business here, but I developed over time a desire to see what it was like to actually run a business as opposed to just writing about business. I got the yearning to do something, not that writing isn't doing something, and I have enormous respect for journalists, enormous respect for the craft and the difficulty of writing or interviewing as you're doing and doing it well, so I transitioned over to the family business.

And I think being a journalist really didn't lend itself to actually being a business executive, but one thing I could do was I could write and I could think. And my deductive reasoning skills I think ended up lending themselves to running a business, but it was very much learning by doing. And I've always felt that I owed a resounding apology to all those people I wrote negatively about because this is a lot harder, I think, than I ever imagined it would be before I came in and now that I've been doing it since 2001, 2002, I can say I've survived, but boy, it's been anything but what you would read about in a business book for the most part. So there wasn't much prep and I'm not sure though there could have been much prep anyway.

Clint Betts

Yeah, that's my sense of it too. I'm not sure that you can really prepare for running a business that's so unique. You have figured out how to conquer produce packaging. How did you do that? How did Emerald Packaging do that?

Kevin Kelly

Well, so we're in the San Francisco Bay area and we're just an hour and a half north of Salinas and about four hours north of Bakersfield, about three hours north of Fresno. So it was a market that sat in our backyard and its short run, high response. And so my father in the late '70s picked up a broker in Salinas or he picked up my father, I should say, and brought us into the produce market back then. It completely made sense given the logistics. They developed some technology together that kept a head of iceberg lettuce fresher longer so it could make it from Salinas to New York without rotting, and that was well before the whole fresh cut craze. This was just the good old iceberg lettuce head still around, still beloved.

We still make millions upon millions upon millions of iceberg lettuce bags because we still ship the dang things from Salinas or Yuma cross country and they still need it for protection, but it really, I think, was finding the happenstance of getting a guy who really knew how to sell into Salinas and my father having the capacity and being at that time in Berkeley and they just ended up being a match made in heaven. I came in and always thought we would diversify. First of all, I thought the bags, the pre-made bags would give way to these really technical films that allow us to extend the shelf life of salads. But the bag has proved mightier than the salad, and we still do billions of bags a year out of this facility.

So one, I always thought we'd be out of the simple bag business, which is considered a commodity except no one makes them anymore. So it's not so much a commodity and we're the last of the Mohicans there, but I always thought I'd diversify us out of produce, and all I did actually over time was get us deeper and deeper and deeper into produce. To the point today where out of our $100 million in sales, about $95 million are strictly in the produce sector.

I told my sales staff to quit claiming that we were in dog food because it was an aspiration and it is just never going to come to pass. We're set up as a produce packaging supplier and as a produced packaging supplier, I'll die. So we're in the sector for good.

Clint Betts

What have you learned about farming and food production and working with farmers? What has that experience been like?

Kevin Kelly

That's the first time I've ever been asked that question.

Clint Betts

Really?

Kevin Kelly

It's a good question because it really defines the contours, I think, of my life and the life of this business. Farmers are farmers, whether they're billion dollar companies or they're $50 million companies, just to go back to the earlier thought, they just never trust that the crop is going to come in until it's here. And so for instance, every October I can guarantee you I'm going to run 50, 60, 70 million celery bags in the run up to Thanksgiving, the celery crop's coming, people buy it to make dressing. I know it's going to happen. It's happened every year for the last 30 years. And every year for the last 30 years, we've tried to get our celery customers to order in August or July so that we can get ahead of the demand and they'll never do it. I am lucky if I see orders by mid-September.

And it's not laziness. I think it's just a fundamental distrust of the ground, the weather, the seed, everything, and so until it's here, they don't believe it and until they believe it, they don't order because they don't want to get stuck with the supplies in case the crop doesn't come in.

So there is certainly that. On the other hand, farmers are also incredibly sophisticated thinkers and business people. If you're running a farm in the United States today, especially one that isn't highly subsidized by the federal government, leafy greens don't really get much at all. I call it the leafy greens. We're in the lettuce category, so they really have to be on top of everything. There's going to be no government bailout if the crop fails or the weather is a problem. They really have to manage their water resources. They're incredibly concerned about sustainability because of the concern about water and the concern about costs. So most of my customers are 80% solar base, for instance.

In some cases it has to do with an environmental concern. In other cases, it's just the cost of energy to run the kind of facilities they have, which makes the payback and solar really easy. So they're pretty sophisticated and deep thinkers about their businesses as well. They're also family and we're still a family owned business. We're not, I would say, family operated much anymore. We have a professional team running it, and I'm the last of the Mohicans here at the executive level. My siblings are the owners though, and my brother still goes out and sees major customers. And that connection, that family connection, I think, really plays an important piece.

It means something to the De Rigo clan or the Tanimura clan or the Antles that the Kellys are here and it means something to us that they're there and there's a respect for the kind of work that goes along with running a family business, because you're not just managing the business, you're also managing family, and they all know that one of the topics around the kitchen table, whether it's nightly or Christmas day, is going to be some aspect of the business because the business is inside us and it's part of our legacy as a family as it is part of their legacy as a family.

So those connections, I think, matter, those familial connections. And so this isn't the auto industry where we're just dealing with nameless parts suppliers or even if they're not nameless, parts suppliers who are getting the snot knocked out of them by GM every other week. In this instance, I think our customers are as committed to our survival as we are to theirs. So our commitment to them is never to run them out of packaging, and their commitment to us is not to come beat us over the head for the lowest price every year so that we can invest in the type of equipment that allows us to remain nimble enough to actually meet their ever-changing needs and ever shifting demands.

Clint Betts

What have you learned about the vulnerability of the food system, period? It actually sounds like it might be more vulnerable than people think, or is it the opposite? Hearing you talk about it seems like, "Man, a lot goes into getting food into grocery stores."

Kevin Kelly

Well, think about that salad. They go out into the fields and it's very much in the fields. It's still very much like the 1930s. If you were to read Steinbeck, it probably wouldn't be much different today than then. It's people in the fields with machetes cutting heads of lettuce, whether it's iceberg lettuce or three heart romaine. They've attempted to mechanize it, they can't. Because of the rain — you get a machine into the fields, you're dealing with dirt, you're dealing with moisture, you're dealing with mud. There's just been very little success mechanizing lettuce picking. So you're vulnerable to human beings cutting the lettuce, maintaining hygiene.

You are very subject to the labor shortages that are bedeviling the country and you add on top of that immigration policy because most of the folks in the fields are from Latin America. Getting those folks into the country legally, as you know, I'm sure, is difficult and highly politicized. So just even on the human level, there are problems. Then you have to ship the stuff, cool it, that involves bringing it down to near freezing temperatures from, say, 70 degrees. It demands a lot of energy to do that. And when you get it in, you actually have mechanized industrial facilities, highly reliant on machinery, chopping and washing and washing and chopping again and sorting and then weighing and dropping into bags and sealing and then packing it and getting it across country and keeping it alive as it gets across country.

So you need the packaging to be absolutely dead on perfect, allowing the correct amount of oxygen in and the correct amount of CO2 out or that stuff will be rotten by the time it gets across the country. It has to then endure incredible abuse because the product might get off a truck in New York City in the middle of summer and sit on that dock for three hours. So it's going from 35 to back up to 72, back down to 35 because they actually do eventually get into the cooler. Then it has to ship all over. Just the supply chain alone, let alone getting all the ancillary things like trucking and packaging and everything and coordinating it all, it is a miracle sometimes I think, and Americans as we are apt, don't really appreciate how complex this whole process is.

So when you start talking about, "Well, let's eliminate all packaging," the only thing that allows us to have the distributed system we have where it's optimal to grow in California and shipping where all the people are, Chicago, New York, Florida, is by having this incredibly sophisticated supply chain that if you take any one piece out, it just collapses.

So solving the packaging problem, if you will, solving the single use plastic problem, which I'm backing into here, and I didn't mean to, but really involves supply disaggregating how we actually deliver food to market. Right now I shop once a week. I do the family shopping. I don't do the list, I do the shopping. And so I'm buying for five and the only time I have to do that is on Sunday. So I'm out there on Sunday making four stops, bringing everything back home.

First of all, there's no neighborhood market. I don't have time every night to go shopping anyway, nor do I have the energy. So if we're really going to be operating on a system where you go to Safeway or Albertsons or Whole Foods once a week to do your shopping, dropping a lot of money at one time or Walmart or Sam's, dropping even more because you're buying more probably, you're not going to be able to get rid of the whole model of trucking to market, needing the packaging and operating out of a single low cost location where the land and the people really exist to produce the products we need. Detroit is ideal for cars because of the talent that's there. Salinas is ideal for agriculture because of everything that goes with it, the weather, the ground, the people, everything's there.

So as long as we're going to be a specialized economy operating according to the principles of Adam Smith within a single country by region, where you're going to produce that which you're most capable of producing, where economies of scale exist, well then we need the system we have and Americans need to appreciate why we have what we have. And that's not just true in farming, of course, that's true in general. We tend to "woe is me" and be at each other's throats, but we have it pretty good here and I think we need to appreciate that a little bit more often.

Clint Betts

I'm not sure that another system would work. In the way it sounds, every single operator in the system has to have their own single motivation in order to not break it down.

Kevin Kelly

That's right. We talk about, "Well, we can start growing locally or hydroponically," but the scale of all of this, right?

Clint Betts

Yeah, the scale is crazy.

Kevin Kelly

Think of it. Okay, let's replace plastic with something that's compostable. Scaling to produce compostable packaging is almost impossible when you think of the billions of pounds used per year to package product, to get it to market, to keep it shelf stable. The scale required to do any of these things is just huge. And unless you understand that and the amount of investment that goes into being an important part of the wheel and holding up your end of it, it's just not something easily replaced.

You would probably have to have a command economy doing it, an industrial policy dedicated to it, that would take 10, 20, 30 years to make any dent in the current system. And so what we need to do is try and figure out how to make the current system work and work better, more efficiently, demanding less energy, maybe a little less packaging, less greenhouse gas, but we need to figure out how to optimize the system we have. If we try to reinvent it, then you might as well just throw in the towel right now. I can't imagine the chaos that would take place.

Clint Betts

Oh, yeah. I think you're absolutely right. I wonder, hearing all of this, what does a typical day look like for you?

Kevin Kelly

We were just talking about that. I check in with my business partner every Sunday and I ask her, "So, what's on for your week?" And I think every third Sunday she says, "I don't know. I know I have this, that, and this." But I think just dealing with people, there's a certain unpredictability, unpredictability just not to them, but to ourselves. So you try to control what you can, but it is very hard to do. Let me give you an example. About two months ago, a couple of employees decided that one way to stay awake at their machine all night would be to use cocaine, which we have a video system all over the outside of the factory. They decided to go out and buy it around midnight. They overdosed in the factory.

We ended up having police galore down here at 2:00 in the morning. The two guys recovered, but it turned out the guy dealing the drugs was a former employee. So suddenly you end up in this world where you're hosting the police, everybody's wondering what's going on. They're holding plant meetings about drug use in the facility and reminding everybody to do drug testing. You just don't know. I didn't expect COVID to dominate my life the way it did for a year either. On March 15th, 2020, we sent everybody home and I thought in the office, the factory kept running through the entire period and I expected them to be back in three weeks and they weren't back for a year and a half.

And we then spent a year sweating, keeping people safe in the factory. We didn't want an outbreak. We didn't want people to come to work and get sick, and at the time you thought there was a high chance of sickness and a high chance of death or a possibility of it. So I think that was a year of complete agony. We had 300 shift meetings in the course of about 500 days to go over protocols, to remind people, to make announcements, to reassure people, to try and get people to get vaccinated.

The whole fight about getting them vaccinated and whether to require it and whatnot. It just seems like the last three to four years bracketed by a national crisis on drugs and a national pandemic, international pandemic, the last three years have been more or less defined by, "How do you manage those things that are outside your control? How do you respond to them?" And how you respond to them I think really determines whether you're going to be a success. We can't shape a pandemic. We can respond to it, and we managed to continue to produce through the entire period, including through inflation and shortages and whatnot because we have a great team on the operations side with great relationships with suppliers who know how to use and redeploy different kinds of plastic to meet demand when we can't get other kinds of plastic. We knew how to talk to the employees to keep them calm, keep them coming to work.

We kept attendance high, which really mattered because in March, 2020, our sales were flat for the month through the 15th. By the end of the month, sales were up 200%. So if we didn't have people to work, we would've been out of business simply because we couldn't deliver. So I know there's things I'm good at. I'm good at dealing with crises, I'm good at dealing with strategy and I'm decent at finance. I'm really bad at sales, I'm not the guy. I get myself in trouble too often, I think, with customers by being direct or overly direct, maybe perhaps being a little bit too blunt which some appreciate, some don't.

But in general, I think it's that ability to dance and be willing to not get overly frustrated any given day that what you were hoping to do is not what you ended up doing. I think that is what defines any given day. When the kids ask, "What are you going to do today?" And then ask, "What happened today?" It's usually two different answers, two unrelated things, and I've gotten used to that, although I used to have completely black hair up until about five years ago.

Clint Betts

That's awesome. What about artificial intelligence? What do you think about that? Because that is the topic of most tech companies or banks or finance, just name it, it's going to affect every industry in some way. I wonder how you are thinking about it in the packaging business and if you have any insight on maybe how farmers are thinking about it even.

Kevin Kelly

So we're printers and partly what we do is print on packaging. And so one of our big problems is these big sophisticated machines that cost $4 or $5 million break down, especially when you're running them seven days a week, 24 hours a day, 362 and a half days a year. You're keeping them going, going, going, going, because demand is always there. We've always wanted predictive maintenance. We've always wanted some way to get a read on the readouts of motors or drives that end up failing, it seems, at the worst possible moment. And I think what we're going to see in the next couple of years on our equipment is just that intelligent machines that can tell you when they're about to break down as opposed to breaking down and telling you by breaking down. So that would be enormous for us.

Our machines all come from Germany. The parts are either in a warehouse in Rhode Island, but they are mainly in Germany. Sometimes they can take a day to get here, sometimes they can take a week to get here. We've had machines that go down for a month and we simply can't afford that. So if we're able to know that we have hours or days before a part fails and can get it ordered in advance, shut down, do the maintenance, get it back up and going, having that kind of intelligent manufacturing would just be absolutely huge.

Ultimately, I think where it goes for us, particularly on the bag making side, which is highly labor-intensive, will be adaptable robots. Right now, robots really don't work in our business because we have lots of different packaging sizes and robots are good at doing one thing consistently right now. Having them be able to learn and adapt and handle many different packaging sizes, will I think allow us within a decade to finally bring the dream of robotics into package making and will allow us to redeploy people to places where we need them.

Because ultimately AI, I think, will A, make people's jobs easier and B, sure it's going to replace some jobs, but when you have 3.5% unemployment all the time, all the time, even with 63% labor participation, which is low, but it's not incredibly low in terms of US historical standards, we need this technology. There's just no way around it. We can all panic about it on some level where we think all the kids are going to start getting their homework done by AI, but in manufacturing, I think, it just has enormous promise.

In packaging, I think, and this was probably true even before AI, being able to build intelligence into a package so it can for instance, read not just a simple used buy or sell by date, but actually know when the product is about to start turning and, say, flash it up on your iPhone and suggest a recipe that you can use based upon knowing what kind of food is also in the refrigerator or what your typical shopping looks like, or any of those things will of course help us rid ourselves of this problem of food waste, which is a huge problem in the United States and a huge contributor to greenhouse gas. The off-gassing of methane, even in compost facilities, is a huge greenhouse gas issue.

And so intelligent packaging, intelligent machines, I think, just hold an enormous amount of hope. Our scheduler too, I can't replicate her. Miranda, who has been our scheduler for the last many years, sees a factory in its full dimension and in 10 different departments can ship jobs around to meet the demand. The customer calls, our typical lead time being four weeks, a lot of customers call a week ahead of run out, sometimes hours before run out and she has to change a job without shutting down a machine elsewhere.
So I think that having some way of helping Miranda to be able to do those things and yet still have her overseeing the process, I think it would help me sleep better at night because right now, if I were to lose Miranda, and if she's listening, she already knows this anyway, she's indispensable. So having some help for her, and I think AI would, from everything we're reading and you're reading, would seem to be able to be well-placed to handle an issue like a forever moving schedule. I'm excited by it. I'm excited by the possibilities of it.

Clint Betts

Kevin, I can't thank you enough for coming on. Seriously, I could talk to you for hours about this stuff. I want to be respectful of your time though. We end every interview the exact same way, and that is at CEO.com, we believe the chances one gives are just as important as the chances one takes. When you hear that, who gave you a chance to get you to where you are today?

Kevin Kelly

I think the first, if I can, I'll cheat here. I'll cheat here. My father convinced me to come into the business and was a good teacher. Our plant manager at the time, Troy Watson, taught me a lot and had a lot of confidence in me to learn the job and then really encouraged me to go forward. And I am lucky to have a lot of young people, but particularly our company president, Pallavi Joyappa, behind me now pushing me forward and making sure the company remains on the cutting edge so that it survives and thrives going forward.

Because a lot of times, I'm sorry, 62 year olds begin to lose our edge a little bit, become maybe a little bit more conservative than we should when opportunity presents itself. And she really has helped me thrive towards the latter part of my career and helps me still feel relevant. So I'm lucky to have had those folks in my life over a 25 year career in this business. And the memory of them and the fact of them being present really keeps me going and keeps me going with a smile.

Clint Betts

That's beautiful. Kevin, thank you so much. Really appreciate you coming on. Best of luck with everything.

Kevin Kelly

Thank you.

Clint Betts

I'm sure we'll talk to you because again, I could talk to you forever. So thank you so much. Have a good one.

Kevin Kelly

No, thanks and great questions. So thank you very much.