Case 1.1: Ecopellet - environmentally friendly biofuels and pet products from sustainable raw materials - Estonia
Name of the company: Ecopellet OÜ
Country: Estonia
Size of the business: 3 employees
Website: http://www.ecopellet.ee/en/, www.greenfull.eu
Background
The idea for the production of wood pellets came up 10 years ago, when local business partners investigated whether and where wood pellets are produced and sold, and whether there is interest in wood pellets in the local market. As it turned out that there was interest, financial and reliability study was performed together with cost-benefit analysis for production. The calculations gave a positive result, and half a year later, from the birth of the production idea, at the end of 2010, a small wood pellet production company Ecopellet was established in Western Estonia. However, not everything went as originally planned and the first profit was made in the fifth year of operation. Two business partners were involved in setting up the company. Later, a third business partner was added.
Main activities
The company’s main and only activity is wood pellet production. Different types of wood pellets are produced: heating pellets, pet pellets and pellets for barbecue. Both coniferous and hardwood sawdust, planer chips, wood processing residues and chips made from debarked fine logs are used for the production of heating pellets. The main raw material for barbecue pellets is gray alder. Separately, bio granules are produced for cat litter, which consists of softwood sawdust and hay biomass. Compared to the early years of the company, the range of products has changed. In some years, straw pellets and hay pellets were also produced. As the market for straw and hay pellets gradually disappeared, the production of these pellets became uncompetitive and production ceased. The production of pet pellets and barbecue pellets replaced them. Heating pellets have remained the main product for many years. In the sector, the other pellet producers usually specialise on heating pellets, and 99% of their production is heating pellets. At Ecopellet, the share of heating pellets in production has decreased over the years. As of 2020, the share of heating pellets in production in different seasons is 35-45%. Despite its small size, Ecopellet has become the largest exporter of pet pellets in Estonia and the only producer of barbecue pellets in the Baltic region.
The size of the company has also changed over time. With the introduction of modern technology, i.e. the automation of production, the number of employees in production has decreased compared to the earlier years. Ecopellet is the only small pellet producer in Estonia that has a full production cycle (raw material preparation and crushing, drying line, production line, packaging line). The company has received the necessary permits for its operations.
Market
The main customers of heating and pet pellets are wholesalers and retailers in Estonia and Finland. The largest customers in Estonia are a local retail chain and specialized pet stores. The sales partners of barbecue pellets in Estonia are a large specialised retailer for barbecue supplies and other sellers of barbecue pellets. The company’s products can also be found in the retail chains of neighbouring countries distributed through wholesalers.
Over the years, various marketing channels have been used to reach new customers: teleshopping, web marketing, participation in exhibitions, fairs, etc. There are two internet channels. The company has an internationally registered trademark Greenfull, which has a separate website, and the other is the website of Ecopellet, which is more aimed at the Estonian local market.
Using sales representatives in specific countries have proven to be the most effective marketing channel. In retail chains, the nomenclature of products is decided by the heads of particular product group, and once they have chosen their favourites, it can be quite difficult, if not impossible, to make changes in the selection of products. Thus, the relationships determine a lot in retail market access and further expansion plans.
Challenges and solutions
One of the biggest challenges in the near future is to increase the market share of grilling pellets in Europe. The use of grilling pellets is very common in the USA, but the barbecue pellets are a relatively new phenomenon in Europe, and 90% of barbecue pellets sold in Europe today come from the North America. It is estimated that the annual need for barbecue pellets in Europe is about 8-9 thousand tons. Ecopellet, as a niche manufacturer, would be able to cover about 10% of this need. To meet this challenge, Ecopellet has begun looking for a strategic partner to increase the market share of its products in Europe. Gaining trust in the market without a suitable partner is a very long and complicated process. The company is well positioned to increase the market share of barbeque pellets in Europe. The company improves the quality of products, develops the competence and experience of its employees in the production of barbecue pellets. In Estonia, there is sufficient amount of biomass for production of barbeque pellets and expansion of the market.
Funding
When establishing the company, public sector support was used, more precisely, the start-up capital was received from the Enterprise Estonia that is a national foundation for enterprise support. That start-up capital was vital for establishing the production until income was earned for starting to cover the running costs. The required start-up capital was calculated during the preparation of the business plan and included all costs, including investments. The start-up capital was supplemented by owners own capital investments and external loans and leases from different lenders. The minimum investment for starting a small-scale production of wood pellets is about 0.5 million euros. The objects of investment are primarily production technology, equipment and buildings.
What makes this case innovative?
Ecopellet is one of the few companies in Estonia that makes pellets from different types of wood and biomass. The wood species preferred by large producers are mainly spruce and pine, but Ecopellet also produces hardwood and hay pellets. The production of hardwood pellets requires more skills and technology adaptation than the production of softwood pellets.
In addition, bio granules are produced for litter cats and other small animals. Bio granules are a good substitute for cat litter made of clay, because the used bio granules can be composted in the garden. All Ecopellet granules are made without additives and are a pure natural product.
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Case 4.1: Przedsiębiorstwo Energetyki Cieplnej – energy efficient district heating system – Poland
Case 5.1: SunPine – an entrepreneurial bio-refinery – Sweden