COPRODUCT¦ the Mid-Atlantic wood shortage—we couldn’t get any wood to make heating pellets—for most of the winter, we were sitting on a higher inventory of tonnage of Jim Beam barrel pieces than material to make heating pellets,” Lisle says. “When you’re looking for specific wood species and going outside of your territory, it creates a new challenge than you’re used to.” Besides storage and having to segregate wood species, says Stephen Faehner, president of American Wood Fibers, time in the production schedule must be set aside to functionally feed and control the grilling pellet process. “Some do this in a very rough way, but we do it in a very controlled, blended way, and it takes more equipment to do that,” he says. American Wood Fibers makes fuel and grilling pellets at its Ohio and Virginia plants, beginning production in 2005 and 2013, respectively. Its grilling pellet brand, America’s Choice Grate Flavors, includes flavors mesquite, apple, hickory and a hickory, maple, and oak blend. There is a challenge in manufacturing when minor ingredients and different woods are introduced, Faehner says. “How you manage all that, there is an art and trick to it, as well as controlling the manufacturing process and delivering on your product features and claims—are
you really putting in the right percentage? There are challenges to it all.” There are also logistics differences when it comes to shipping product—the customer radius of grilling pellets can extend far beyond that of heating pellets, and still be economical. “We’re going from heating pellets being fairly regional to national, and some cases, it’s international,” Lisle says. “We get requests all the time from outside the country for cooking pellets. There is that element with some of the heating pellet market—the export market—but in this situation, everything is just in a lot smaller quantities. We can ship to California, all of the West Coast, and in the past with heating pellets, that’s not something we could even come close to. If you’re shipping a user of barbeque pellets a bag or two across the country, they might have a dollar or two in logistics costs, but on a heating pellet, buying two or three tons, they could spend $100 on freight themselves.” As for margins, it’s difficult to put into numbers as several variables come into play. “Fuel pellets are a feast or famine margin,” Faehner says. “There are some good years, there are some bad years, and sometimes, trying to find the margin is tricky. Barbeque pellets have potential for a better margin, but they are tricky to make—to get the right blends
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takes a good bit of expertise and equipment, and you really have to know what you’re doing. Can you get a better cost for them? Yes. A better margin? Hopefully, but again, you have to know what you’re doing or you will spend all your time switching your formulas, and cleaning, resetting and starting up again.” The margins are definitely higher, but maybe not as high as people think, Lisle says. “If you’re an existing heating pellet manufacturer, you can go one of two ways, possibly both—copacking for the big guys, or developing your own brand. Copacking may be easier—you don’t need to develop a marketing strategy for a new brand—but the margins are way less.” The other strategy is brand development, which Lisle says might have a more profitable outcome, but requires much more time and investment. “There are a lot of upfront costs, you need to developing your own packaging bags, brand, trademark—so there is an added cost; it’s not as easy as everyone thinks—you have to be committed if you want to do it. I have walked into many retail stores and told them we are a heating pellet manufacturer but have started making cooking pellets, and they think they’re the same thing and we’re just looking to make more money.”
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