Episode 34: The Cost of Corporate Culture and Why It Pays to Stay: M&M Industries Expands in Chattanooga, TNDecember 11, 2017
Patience Fairbrother (DCI): In November 2017, M&M Industries announced a $42 million expansion in Chattanooga, Tennessee, where the company has been based since its founding in 1986.
Andy Levine (DCI): The company looked at other locations in Tennessee, Georgia, Texas. They also took a serious look at Ohio, but ultimately, the project landed in Chattanooga.
Patience: While many factors played a role in the location decision, ultimately, it came down to the costs, both hidden and direct, of building a company culture.
Andy: So, welcome to Episode 34 of The Project, Inside Corporate Location Decisions. I’m Andy Levine of Development Counselors International.
Patience: And I’m Patience Fairbrother, also with DCI, and Andy ‘s co-host of The Project. So, this week, we bring you the story of M&M Industries’ $42 million, 110-job expansion in the Highland Park area of Chattanooga, Tennessee.
Andy : When I first heard “M&M,” I thought these might be the little colorful chocolates that I’ve enjoyed eating since childhood. It turns out, this is more the manufacturer of the containers of chemical, paint, and bioscience containers. The company counts major firms, like BASF, Lonza, and Bayer Corporation, among its customers.
Patience: So, to get the company’s perspective, we spoke with Glenn Morris, who’s President and CEO of M&M Industries Inc. Glenn has been on M&M’s payroll since June 1986, right when he graduated from the University of Tennessee and went into business with his father, Glenn Morris Sr., who founded the company.
Andy: M&M has grown steadily since its founding, both in Chattanooga, as well as in Phoenix, Arizona, where the company’s maintained a manufacturing footprint since 2008.
Patience: So, when M&M had outgrown its current facility in Chattanooga, Glenn saw two options, either expand in Tennessee in close proximity to the current facility, or several hundred miles away, where the company could tap into new markets.
Glenn Morris (M&M Industries): We’re to a point now in Chattanooga where we’ve just outgrown the facility, and we needed to expand, what we did, and have additional capacity. We looked at the Northeast, we looked at the Upper Midwest, and we looked in the Southwest, and we looked around in other areas of Tennessee.
Andy : More specifically, we learned that Columbus, Ohio, was a top contender. Nashville, Tennessee, Athens, Tennessee, areas south of Atlanta, as well as Midland, Texas, were also on the shortlist.
Patience: We asked Glenn about the top factors that influenced his decision to expand in Chattanooga. Number one was company culture.
Glenn: There were a couple of things that drove this decision. Whenever you put up another plant, and especially for a company that’s small like ours, but I would say any plant goes through this or any company goes through this, you go through a culture change, a growth area. When you start a plant, it’s more than a building and machinery. It takes on the personality of the people inside. So, what that is, what I call that, you know, would be your culture. And it takes about two to three years to really…and that’s when you’re fortunate…to get your culture established in a new facility so that that facility can know what the company expects of it without the company having to direct it. What is nice about Chattanooga is, we don’t have to go through that. We can actually take people that are here at this plant and begin to work them over there, and then as we bring people in, the culture will kind of already be established.
Andy: So, company culture was at the top of the list. That struck us as a little bit unusual for a manufacturing operation. The number two factor, access to rail.
Glenn: Rail is essential to what we do. I really can’t look at a manufacturing location without having rail because that is how all plastic resin of any volume is shipped in this country. It comes out in rail car. And so, that’s essential.
Patience: Number three was a bit less tangible than something like the presence of rail. It was Glenn’s desire to grow his company in an area that would allow his employees to walk or bike to work and enjoy the amenities that manufacturing companies located in industrial parks or in the suburbs simply can’t offer.
Glenn: This piece of property is an area of Chattanooga that has a sudden or certain charm to it. It is not industrial like most business parks. It is, you are in an area where there’s just really good people. And I had this Norman Rockwell picture in my head of, there’s an older company in Tennessee called Dixie Yarns, way back when textiles were an American trademark. Dixie Yarns used to, people, you would live in a place in Chattanooga called Lupton City, and walk, or take a short ride, or bike to work, and this is back in the ’30s, ’40s, and ’50s, and work at Dixie Yarns, and you just grew up hearing about that as a child. I’m not going to be…I don’t know that I’ll be as big as Dixie is there, but I will tell you that the idea of being in a neighborhood where it’s a possibility for people to walk or bike to work, and do their shift work and come home, really struck to me. That, just, that charm and that intensity really spoke to me, and so I tried to recreate that.
Andy: Finally, for Glenn, it came down to the incentive package, which he considers an important part of any business decision.
Glenn: You have to remember, when you do something, when you make a major capital investment like this, you’re basically putting a huge, if you will, for lack of a better word, a rupture on your balance sheet. You’re going to borrow money, use cash, drain assets, and build liabilities to build a facility because you’re building for the days to come. And when you go through such a major rupture to your financial statement or your balance sheet, any help is more, more than welcome, and it’s essential.
Patience: For the expansion in Chattanooga, M&M secured a seven-year PILOT, or payment in lieu of taxes deal, which will allow the company to pay about $800,000 less in property taxes. We asked Glenn if the company entered into incentive negotiations with any of the competitor locations.
Glenn: We did talk about incentives with other places, and in one area, a couple of areas, we were quite strong, but then we just got back to the fact that, logistically, there’s…I mean, the charm of the area is, no question, a big part of that, but also, logistically, that we could be able to do this, you know, start to play in a major role.
Andy: Another notable aspect of the location decision for Glenn was the great relationship he had with the Chattanooga Chamber. From his perspective, the Chamber had been attentive to their needs all along, so there wasn’t so much a distinct courting process for this expansion.
Glenn: The Chattanooga Chamber that I have come to know really and truly does, it just ingrains itself in the business community in a positive way. You feel as though you have a partner in the Chamber from the very first time you meet them. They are active. They’re more than active. They’re just proactive in what they do. They take the time to get to know people in Chattanooga in every company. They have an open-door policy with anybody that wants to be a part of this. So, the courting, that, I would say, is really in their everyday presence and their everyday attitude of pro-growth, pro-Chattanooga, pro-hometown “How can we help one of our neighbors out.”
Patience: To get the economic development side of the story, we spoke with Steve Hiatt, who is Director of Existing Business Development for the Chattanooga area Chamber of Commerce’s Economic Development Department.
Andy: Steve has been involved in economic development in Chattanooga for most of his career. Given his deep involvement in business retention in the area, he has an established relationship with both Glenn, as well as M&M Industries.
Steve Hiatt (Chattanooga area Chamber of Commerce): I’ve had a relationship with Glenn Morris for, you know, 10 years or so. I’m not sure. But, in just the course of my work, I have got to know Glenn and got to know his business. And I’m sure he told you all about it in his interview, about how his father started the company, and all the patents, and all that stuff. So, it’s a really cool homegrown Chattanooga story, but I just… And Glenn has been a volunteer on some of our education committees, too, so I’ve seen him in and out of the Chamber for years, but I’ve been, you know, in and out of his manufacturing plant many, many times over the last decade or so.
Patience: We asked Steve how the initial discussions began with M&M Industries surrounding the expansion.
Steve: Well, that’s one of the things, as a, you know, a retention person does in economic development, you stay in touch and build relationships with the existing industry base in your community. And when Glenn was going to do that expansion, he called me up on the phone, said, “Hey, I’ve got this thing going on. Let’s talk about it.” And that’s how it started, really.
Andy : Despite this existing relationship, the expansion in Chattanooga wasn’t a done deal. There were three hurdles to overcome, from Steve’s perspective.
Patience: The first hurdle was the fact that there was competition, not just from outside the state, but from within Tennessee, as well, and the other in-state locations had the advantage of more aggressive incentive packages because they were in more rural areas.
Steve: Well, incentives played quite a role, quite frankly, and I hate to… You know, a lot of people say incentives aren’t that important, but a lot of times they are. And I know that Glenn and his team looked at a couple other counties in southeast Tennessee pretty strong, pretty hard, and those are more rural counties, and those counties are much more aggressive in offering incentives. And, certainly, the state is more aggressive in their incentive offerings for those more rural counties that are more economically challenged. You know, the grant rates are higher and the tax credits are more aggressive in those rural counties, so they could, quite frankly, get a much better incentive package in those two counties they were looking at outside of Hamilton.
Andy: At the end of the day, the difference in the aggressiveness of the incentives was outweighed by the potential cost of running and managing a facility that was far away enough to be significant, but not far away enough to allow the company to tap into new markets.
Steve: I think, overall, and really and truly, you know, incentives can really sweeten the pot, but I think, in the long run, I think the company realized that, you know, they could build a plant 40, or 50, or 60 miles away from Chattanooga, but the extra cost in just running that and managing a remote facility like that, which is not even really remote, but, you know, just an hour’s drive away, I think he determined that that was going to be much more expensive and problematic than he thought it was originally.
Patience: The second hurdle was the need to build a rail spur in the area, and as we know from Glenn, rail is absolutely vital to the success of the business.
Steve: He needed to build a rail spur, so I made, you know, had lots of conversations with the railroad because we needed to get that rail spur built. It was kind of one of the things that made it a little complicated, at least on that first site he was looking at, was the fact that he was going to, to build his rail spur, he was going to have to take a piece of the county’s land that was dedicated as a detention area for storm water. And, you know, we worked out a deal with the county, where they would sell him, really, gosh, just like a tenth of an acre. Really, he didn’t need much at all, but he had to reclaim the holding amount of that retention pond.
Patience: Ultimately, after a series of negotiations with various county officials, the Hamilton County Rail Authority successfully designed a new rail spur for the plant.
Andy: So, we move on to the third and final hurdle, which was the pushback from the Highland Park Neighborhood Association. Their perception was that a plastics manufacturer was going to come to town and bring with it hazardous waste and other environmental issues. In fact, M&M does not technically manufacture any plastic. They basically manufacture buckets out of existing plastic. Steve and Glenn’s challenge was to correct this misperception and calm the community’s fears.
Steve: They have a very active homeowners’ association, a neighborhood association. The Highland Park Neighborhood Association, they’re very, very active, and they got wind of it, and they were just, their Facebook pages were burning up, you know. And I think, and Glenn and his VP of Manufacturing and I spent a lot of time talking to members of that association. I think it boiled down to the fact that it kind of hit them without them knowing that there was, you know, a company looking to purchase that building and fix it up. And they were understandably concerned, but once they, you know, heard about Glenn‘s plan to really make a nice facility and create 110 good-paying benefited jobs in their community, I think…well, I’m pretty sure we won most of, if not all of them, over. They just, it was a surprise to them.
Andy: Ultimately, Glenn’s desire to maintain the company culture, fulfill his Norman Rockwell vision, and revitalize the Highland Park area won the day. From Steve’s perspective, this is pretty unique for a manufacturing company.
Steve: I’m not sure I’ve ever worked a project where the company said, “Well, we want to be in an economically distressed area of town, and we want to be, you know, in an urban center where…” You know, you just don’t hear that. Most companies want to have 20 acres in the suburbs that doesn’t have any trees on it. You know? And there are a lot of added costs to developing projects in an urban area. There’s just more cost, and certainly, he could have gone to one of those more rural counties and had a better incentive package, and had lower taxes, and lower cost of doing business, and probably pay lower wages, but I think he thought that, you know, it was best for his company to be true to their values and try to give back to the community.
Patience: M&M Industries will invest nearly $3 million for renovation and nearly $24 million for machinery and equipment at the new site, where it will hire more than 100 new employees. The company aims to begin production in mid to late 2018.
Andy: So, Patience, we’re at the takeaways portion of the episode, my favorite part. Since you spoke to both Glenn and Steve, what stood out to you in this episode?
Patience: Well, I think you can tell by the title of this episode that company culture was a big theme throughout this, and I thought it was really unique that Glenn brought up the fact that there are these costs, both hidden and direct, that come with building a company culture that. You know, you can’t really put a number on it, but it ended up being the number one factor in them staying in Chattanooga. So, that was definitely my number one takeaway.
The second thing that stood out to me is, I just love Glenn’s kind of Norman Rockwell vision, as he calls it.
Andy: We really didn’t expect that from a manufacturing operation, someone that makes, you know, containers for paints, for example. That was sort of a surprise, eh?
Patience: Right, exactly. And, basically, he loves the idea of his employees being in a central area where they can walk to work, bike to work. It’s just not the image you typically have of a manufacturing plant, so I thought that was pretty unique.
And finally, I just think, one of the things that Glenn said that didn’t necessarily come across in the podcast itself, but I just wanted to bring it up, is the fact that business retention efforts by chambers and economic development organizations are so, so important. One of the things he actually said is, you know, we always celebrate when a new business comes to town and there’s a great deal of fanfare around that, but, you know, maybe chambers aren’t getting the credit where it’s due in terms of all the work that they do on a daily basis to provide the services that their current companies need.
Andy: What stuck out to me from your conversations with Steve and Glenn was, you know, this was not the first time that Glenn was speaking to the Chattanooga Chamber. He’d been involved in their efforts. He’d been, you know, basically, they had been, I think Steve at one point said, he’d been in their facilities like a dozen times in the last 10 years. So, they’re very familiar, and that, I think, gave Chattanooga a big leg up in winning this expansion.
So, that is a wrap on Episode 34 of The Project, Inside Corporate Location Decisions.
Patience: Our sincere thanks to Glenn Morris and Steve Hiatt for taking the time to speak with us. I really enjoyed our conversations.
Andy: We also want to thank Charles Wood and Sybil Topel, also from the Chattanooga Chamber, for their assistance in making these interviews happen.
Patience: The Project is sponsored by DCI. We are the leader in marketing places, and have served over 450 cities, states, regions, and countries. You can learn more about us at aboutdci.com.
Andy: So, after doing 34 episodes every two weeks, Patience and I are going to take a short break for the holidays, but we’re going to return on January the 8th with a discussion with some of the nation’s leading site selection consultants on their predictions for 2018. We hope you’ll keep listening. There are many more projects to come.