Success in the Bag

©Jonathan Kantor/Getty Images

 In less than a year, Sugianto Tandio has captured 80% of the market for shopping bags used by Indonesia’s biggest retailers. Now he’s breaking into the U.S. market.  

By Ardian Wibisono

Sugianto Tandio has risen far fast. In less than a year, his company PT Tirta Marta has become the largest maker of plastic shopping bags for major retailers like Carrefour and Hero, controlling an estimated 80% of the market. His edge? Tirta Marta’s bags are 100% degradable using proprietary technology developed by Sugianto, yet cost almost the same as conventional plastic shopping bags.

To spiff up their eco-credentials, the country’s biggest retailers, including Alfamart, Bata and Giant, have all signed up for the bags, marketed under the Oxium brand. As upscale grocer Kem Chicks says on its bags: “Switch to our eco-friendly fully degradable plastic bags.” Also driving the switch was an agreement signed February by the Indonesian Chamber of Commerce and Industry (Kadin) and the Jakarta city administration to encourage retailers to phase out regular plastic bags starting next year, and instead offer non-plastic bags or degradable bags. Sugianto’s bags perfectly fulfill the latter guideline.

Now that Sugianto has captured a big chunk of the Indonesian market, he is eyeing the even-bigger U.S. market. After regular trips to the U.S., he’s already gotten some impressive customers, such as the Mall of America, retailer Club Monaco and sportswear maker Hurley. In the U.S., Sugianto is selling a different bag, the Ecoplas, made from tapioca and which biodegrades in ten weeks. To prove it, Sugianto sometimes buries his Ecoplas bags in the ground, and then dig them up a few weeks to show the degradation.

The bag is also price competitive, costing one third that of rival bags made from corn starch -- although Ecoplas still costs about 15% more than ordinary plastic bags. Oxium bags, in contrast, are close to the price of regular bags, but not as eco-friendly. They are only “degradable,” meaning they will crumble into a fine powder in two years but don’t fully disappear like a Ecoplas bag (see illustration).

Source: Tirta Marta

Sugianto is no stranger to plastic. His family company Tirta Marta, of which he owns 60%, has been in plastic manufacturing since 1971, making everything from traditional shopping bags to agricultural seed bags. With 300 staff, it has sold to clients such as Unilever, Motorola and Hitachi. Sugianto learned to appreciate innovation from U.S. manufacturer 3M, where he worked as an engineer for five years in the U.S. before returning to Indonesia in 1994 to take over the family firm (3M is known for innovative products like Post-it Notes).

In 2000, he started work on his bags. The lack of demand for such bags back then didn’t bother him. “Green business will eventually be a good business as awareness of environmental issues grows,” says Sugianto of his rationale for starting the research. Still it took eight years and millions in research to develop the technology. Eventually he developed a special additive, which makes up about 10% of the plastic used in the bag, that speeds up the breakdown of the plastic from hundreds to just two years. The Ecoplas bag, in contrast, is a more straightforward mixture of tapioca starch and other ingredients to form a plastic. To make the bag more politically correct, Sugianto uses only organic tapioca bought from farmers under fair trade principles. Sugianto claims it is also more durable than the corn starch-based competitor.

Development of the bags also came at a heavy cost to the company. In 2006, high oil prices drove up plastic manufacturing costs that, combined with the millions spent on research, put a huge strain on Tirta Marta’s finances. That year he sold 40% of his company to U.S.-based private equity firm Aureos Capital for $5 million, valuing the company at the time at $12.5 million. “We were facing difficulties because price hike of raw materials,” says Sugianto. “So we decided to seek a partner.” The Aureos involvement provided not just cash but also marketing expertise, and Aureos hopes one day to take Tirta Marta public. “We're lucky to find this company and have the opportunity to invest in it. It has strong potential since it developed a product that no other Indonesian company has,” says Aureos spokesperson Harianto Taruna.

Sugianto’s breakthrough came in June 2009 when one of the country’s largest convenience store chains, Indomaret, became his first customer. His sales pitch was simple -- just try the bag, it won’t cost any more than a regular one. So Indomaret did, and discovered that sales improved when they used the Oxium bags. Today Indomaret buys 201 tonnes of Oxium bags a month to supply to the 4,200 stores in its chain.

All told, Sugianto is selling more than 3,000 tonnes a month of Oxium bags, and revenues have hit $10 million. Demand is so strong that he has had to farm out production to ten other companies to meet his targets (Tirta Marta gives them the special additive to produce Oxium bags). Rivals, however, have noticed Tirta Marta’s success. A competing degradable plastic made by Canadian firm EPI is being used by upscale grocer Ranch Market in its bags. Petrochemicals giant Chandra Asri is said to be developing its own degradable plastic. “Competition is always good, it makes us more motivated,” says Sugianto, who closely guards his technology, discouraging reporters from visiting his factory where he makes the bags. He also has to monitor his quality control – once discovering a wholesaler had branded ordinary plastic bags as Oxium (the wholesaler was promptly fired).

Sugianto says the market has been barely tapped in Indonesia. After dominating the major retail market, Sugianto is looking to sell his bag in other sectors that use plastic bags, such the huge informal retail market. He estimates that he has tapped a mere 2% of the total potential market in the country. He is also applying his Oxium technology to other forms of plastic beside bags. “We are currently developing molded products using degradable plastic to be marketed soon,” says Sugianto. With his newfound success, Sugianto has learned that his plastic is fantastic. 

(the story is taken from Forbes Indonesia Magazine)