All it takes is a trip to PECO Pallet’s headquarters to see the difference between it and CHEP, the other major pallet rental company serving the U.S. market. PECO operates out of a converted warehouse building in Yonkers, N.Y. CHEP runs its global business out of an upscale office building in Orlando, Fla.
New PECO CEO, David Lee joked about a fly from the warehouse part of the building having floated into the conference room due to the open floor plan of the PECO headquarters. No large corner offices or posh furniture, PECO runs a lean and mean operation. CHEP’s headquarters, on the other hand, looks the part. Its impressive facilities are designed to wow customers.
The differences that I have noticed between PECO and its larger rival go beyond just the décor. PECO has built its business slowly, focusing initially on regional private label manufacturers. In recent years, it has extended its service to supply national accounts, both major grocery manufacturers and distributors. But, PECO only allows its customers to ship to companies within its network, unlike CHEP’s non-participating distributor program. This strategy helps reduce pallet retrieval costs and protects the assets within the pool.
David Lee, PECO’s new CEO, said "PECO’s focus is to continue to appeal to those who are looking for a high quality option in pallet rental and our customers support our approach," said David.
PECO is following a slower growth strategy than CHEP used when it first entered the U.S. in the early 90s. CHEP had the benefit of P&G’s backing when it started. Support from major manufacturers helped CHEP grow quickly. It had lots of cash and investment capital too.
David said, "With this business we cannot ignore the reality. We are doing it differently than CHEP did when it first launched in the United States. We are quietly growing the business with those who share our attitude toward protecting our assets and share our value proposition."
PECO is following a lane dominated expansion strategy where it grows slowly so that it can do what it says it can do and not grow beyond its capacity to serve customers and keep proper system controls in place.
When it comes to financing, PECO is in much better shape than it was a number of years ago. Back then, it was struggling to find venture capital as investors were much more cautious after the dotcom bubble burst.
Today, the rental company has a wide variety of backers including industry, institutional investors and traditional venture capitalists. Mike Tebay, PECO’s chief strategic officer said that one customer has even extended a line of credit to PECO to help fund its growth. According to Mike, PECO has been generating positive cash flow for over 15 months.
PECO now operates a pool of more than 1.5 million pallets and has the capability to service national accounts. Most of PECO’s current pool is block pallets, made from both domestic and imported Radiata Pine. But PECO still has some stringer pallets in the system, which are used for those of their customers still preferring stringer pallets over the increasingly dominant block design.
Key customers include many banner names in the grocery retail supply chain, including the club store sector.
PECO has strengthened its organization substantially over the last two years, adding a number of people experienced in pallet pooling and logistics. The hallmarks that have made PECO a preferred supplier for customers are gaining increasing popularity, including high-quality pallets, attention to customer service, a collaborative approach to working with customers, creative use of customer’s transportation lanes, and simple reporting and billing practices. Rather than a complex invoicing system of issue fees, daily rental, transfer fees, etc. PECO develops a rate on the average dwell time for each customer. This rate is adjusted twice per year based on actual usage. PECO’s approach allows customers to plan ahead and budget specific pallet costs. There are no unanticipated costs that customers must account for at the end of the year. PECO has even opened its books and shown reasons for cost increases to its customers.
PECO hired David Lee in late August to take its top spot. While at CHEP, David rose to become executive vice president in charge of all commercial and service programs throughout the Americas and president of CHEP’s operations in Mexico, Chile, Brazil and Venezuela. David was part of the executive management team that originally came over in 1989 to launch the CHEP pool in the United States. In 1998, David became CEO of GE Capital’s Transport International Pool in Europe.
James H. Ozanne, chairman of PECO, said, "With over 20 years of successful logistics and pallet pooling experience in the U.S., Europe and South America, Lee is well qualified to lead PECO through the next phase of its growth and expansion across North America. He joins PECO at a time when the business has improved its value proposition and is well poised for solid growth in all markets."
Why did David Lee join PECO? He said, "Pallet pooling is a business that I know. I love the United States and the dynamics of the market here."
Mike Tebay remains with PECO, shifting to the newly created role of chief strategic officer, with his major focus being the continued financial health of PECO & investor support, and Graham Connor remains president of the company, focusing on sales, national account management and market development. David, Graham and Mike work closely together as an entrepreneurial team, leading PECO’s growth.
PECO started out in 1997 as the brainchild of Pat and Denton Sherry, owners of Nepa Pallet and Container Co., Snohomish, Wash. Since then, PECO has grown successfully, as several institutional investors have financed the company and major customers have signed on. Originally funded primarily by a group of pallet industry leaders, today, pallet industry companies own less than 10% of PECO.
Many of PECO’s pallet industry shareholders manufacture, repair and store pallets for the company. When it comes to retrieval of lost assets, PECO has tried to take a more collaborative approach compared to the sometimes strong-handed methods used by CHEP in the past. PECO compensates recyclers for costs in handling/returning pallets that are acquired through normal course of business.
David commented about how he felt to be at PECO. He said, "PECO occupies a niche position at the moment. But we have an appetite for strong national sales growth. There is great excitement around PECO at the moment, which is somewhat similar to what happened at CHEP in the early years. This team is committed to delivering a service that is sustainable and that we will be proud of for many years to come."
