POP Means Business: Redemption Center FAQs

NOTE: All answers assume that the Tennessee General Assembly passes Senate Bill 1408 / House Bill 1829 (“Tennessee Deposit Beverage Container Act of 2007”) as filed. Answers may be somewhat speculative, since the bill has not been passed and rules have not been created.

What is a redemption center?

· Most redemption centers are freestanding small businesses whose main function is redeeming containers on which a Tennessee deposit has been paid, though they may also sell a limited selection of items such as beer or cigarettes. These centers count and sort containers by hand, then see that they are recycled by a centralized recycling facility.

· Some smaller redemption centers operate in conjunction with a convenience store. These are typically located in an outbuilding and are staffed only as needed. They also process by hand.

· Mobile redemption centers do not have a storefront, though many will operate in conjunction with a storefront redemption center. These will travel to homes, businesses and special events on a regular or one-time basis. These also process containers by hand.

· Reverse vending machines (RVMs) are electronic, self-serve redemption centers. These look much like soda machines and are typically placed near the entrances of large supermarkets. Though some RVMs accept all container types in bulk, most accept either glass, plastic or aluminum, fed into the machine one at a time. The machine scans the bar code, records the encoded information and then crushes or smashes the container into a collection bin. When all the containers have been processed, the machine issues the full 5-cent refunds, either electronically to a debit card; via a printed receipt that must be redeemed inside the store; or as a donation to the “charity of the month.”

· Drop-and-go CLYNK kiosks, introduced in conjunction with the Hannaford supermarket chain in New England in 2006, are the latest type of electronic redemption center. The customer drives up to the kiosk located outside the supermarket, leaves her bar-coded bag of empties with the staff (or in the night depository) and drives away. Her containers are taken elsewhere for processing via a high-volume, high-speed computerized processor. A day or two later her full refund is posted to her CLYNK account. To withdraw from the account, she prints out a receipt from an ATM inside the kiosk, then presents it for cash or purchases inside the supermarket. Donations to charity can also be made from inside the kiosk.

What happens at a manual redemption center?

· The customer hands the attendant a bag or bags of empties. These need not be sorted, but they do need to be intact and empty of contents. The attendant spreads the empties on the counting table, then starts picking up like containers two at a time while counting each pair as 1. Thus, a count of 5 equals 50 cents, a count of 25 equals $2.50 and so on. As he counts, he sorts the containers into lined Gaylords (for plastic and aluminum) or 55-gallon drums (for glass) according to material type: typically aluminum, steel, clear PET plastic, green PET plastic, blue PET plastic, clear glass, brown glass and green glass. (Tennessee’s bill is unusual in that it does not require sorting by distributor.) The attendant may pause periodically to record subtotals, but in general the counting goes very quickly. When he has counted all the containers, he calculates the total and gives the customer his refund, usually in cash, though some centers (those that sell beverages and other products) issue a paper receipt. In addition, most centers offer one or more options for donating to charity.

· Although Tennessee’s law allows the containers to be crushed by the redemption center (providing the counts can still be verified), most centers will leave them whole. The processed containers are stored in a secure part of the center, where they will stay until they are picked up (usually once a week) by an 18-wheeler sent out from a centralized recycling facility.

How does the “donate-to-charity” option work?

· Some centers set out permanent bins for a designated school, civic organization or other cause; customers simply drop their empties in these bins and go. The redemption center processes the containers during slow periods, records the totals and issues a check once a month. Other centers rotate their designated charities, posting the “charity of the month” on the wall. Customers can ask that all or some of their refund be credited to that account. Finally, many centers work with schools and other nonprofits in holding special fundraising events known as bottle drives. Such events can result in tens of thousands of containers collected in a single day, usually by going door-to-door or via a designated drop-off point such as a parking lot. Often the students sort the containers themselves, in return for which they might earn an extra penny or half-penny per container. Many redemption centers will even send a truck and one or two employees to the collection point, to oversee the sorting and transport the empties back to the center. Such drives can be enormously profitable, sometimes earning $5,000 for the charity and $3,000 for the redemption center in a single day.

Who can run a redemption center?

· Most redemption centers will be owned and operated by individual mom-and-pop entrepreneurs, but they may also be operated by business partnerships, nonprofit groups and local or county governments. The latter will likely put the center at an existing recycling station, virtually guaranteeing an increase in overall municipal recycling rates as well as significant new revenue for the town or county.

How does a person or organization qualify to operate a redemption center?

· The process won’t be finalized until rulemaking, but in general, applicants will have to meet several criteria regarding things like size, location, accessibility to the public, accessibility to 18-wheelers, hours of operation, hygiene, availability of toilets, running water and phone service, proximity to population centers, proximity to other redemption centers, worker safety, staffing and security. The state will consult with counties and recycling professionals to determine the maximum number of centers needed for a given region.

How much does it cost to start up and operate a redemption center?

· Storefront redemption centers tend to be modest, one-level frame or block buildings, perhaps 1,500 to 2,000 sq. ft., equipped with lighting, heating and cooling, running water, toilet facilities, secure storage space (indoors or out) and easy access from a large parking lot. The state will require a cash register and most likely a computer, a state-approved bookkeeping program and access to e-mail and the Internet. In addition, centers will need to buy various supplies, including gloves for employees, a fire extinguisher, first-aid kit, Gaylords, liners, 55-gallon drums, dollies and similar supplies for handling, moving and storing empty containers. Labor costs depend on the center, of course: the smallest may have only two or three parttime employees; the largest may have a dozen or more employees receiving such benefits as vacations and health insurance. In addition, some centers have a small advertising budget, especially during startup.

· Redemption centers that are part of an existing business, such as a convenience store, have the lowest start-up and operating costs, especially if they already have access to a secure outbuilding where containers can be counted and stored. Such centers typically use existing staff and equipment.

· Mobile redemption centers will likely require a large covered truck with a ramp or hydraulic ramp; a portable cash register, a cell phone and a secure storage area accessible to 18-wheelers. They obviously won’t have the physical requirements of a permanent storefront; but they will have significant fuel costs as well as higher advertising costs. In addition, they will have the same recordkeeping and communications requirements as storefront redemption centers and many of the same needs for safety, handling and storage supplies.

· Reverse vending machines are typically leased (not purchased) in groups of three: one for plastic, one for aluminum and one for glass. The monthly lease payment depends on numerous factors, including location, volume, service plan and so on, but a few hundred dollars a month per machine is typical. RVMs require an electrical connection in a reasonably protected location and a secure storage area for the processed containers.
They also require that at least one trained staff person be available to monitor the machines, deal with minor malfunctions, swap out the bins as they get full and perform daily maintenance. Someone must also be trained to review and download the computerized collection data, invoice the state and interface with the RVM company and the centralized recycling facility.

· Drop-and-go kiosks are feasible only in partnership with a centralized processor and a network of supermarkets or other large retailers.

· All centers must contract with a state-approved, centralized recycling facility; they must have a business listing in the phone book; and they must be certified by the state, which may require an annual certification fee. Owners may have to be bonded; they must submit to periodic inspection and auditing; and they must comply with state and federal safety, labor and other laws. Such details will be decided in the rulemaking stage once the bill is passed.

How does the deposit work?

· It starts with the distributors. For every listed beverage they sell in Tennessee (i.e., beer, soda, bottled water, etc.), they pay the state a 5-cent deposit. (At the same time, they pay the state a handling fee of 3 cents per container, to cover the costs of running the program as well as compensating the redemption centers.) The state puts all of this money in a designated fund, to be paid out as needed. Meanwhile, the distributors get back their 5-cent deposits as soon as they sell their product to the retailers. (This charge shows up as a simple line item on the retailers’ invoices.) The retailers get back their deposits when they sell the beverages to their customers. (Again, the charge shows up on customers’ receipts as a separate, non-taxed line item.) The customers get back their deposits when they return the empty containers to a certified redemption center. And the redemption centers get back their deposits when they invoice the state, which they may do every two weeks. If they recycle the containers, they also get the 3-cent-per-container handling fee.

So this 3-cent handling fee is how redemption centers make a profit?

· Yes.

How much money can a redemption center make?

· The average gross income for a redemption center in Tennessee will be $127,500, based on 800 centers sharing equally in 3.4 billion redeemed containers. Tennessee consumes more than 4 billion beverages a year, roughly 85 percent of which—3.4 billion--will be redeemed. That’s 4.25 million containers per center, at 3 cents each. Of course, some centers will make much more than the average, and others will make much less. Convenience stores operating a small redemption center on the side might make $25,000 to $50,000.

How does the state know that the redemption center is giving an accurate count?

· In the case of RVMs and other automated redemption systems, the counts are verified electronically. But in manual counting—the system that will be used for 80 to 90 percent of redemptions in Tennessee—counts must be independently verified. This will be done at the centralized recycling facility that picks up the containers, using a combination of weight and volume measurements. (This is possible because containers come in standardized weights, sizes and proportions.) It’s possible that the state will post an agent at each facility to check and certify incoming loads. In addition, the state will periodically inspect centers and their books to make sure they are complying with all rules and regulations. Violators face a penalty of $10,000 per incident.

Does the recycling facility pick up containers from all 800 redemption centers?

· Tennessee will likely have three centralized recycling facilities, one for each grand division. Each facility will operate a fleet of 18-wheelers that do nothing but circulate between the centers. Most centers will be visited once a week.

Is the scrap worth much money?

· At current values, the combined value of the aluminum, plastic and glass will be worth roughly $50 million a year, some $60,000 per center. Under Tennessee’s proposed law, the redemption center owns this scrap and may market it independently, providing the recycling facility has been approved by the state. However, for convenience and stability, most will choose to contract with one of the three centralized recycling facilities. These will provide regular pickup, transportation, verification, processing and brokering services in return for all (or some) of the scrap value.

How does the redemption center know that the containers were purchased in Tennessee?

· Because this information is encoded in the bar code, electronic redemption centers automatically detect ineligible returns, and the container is rejected. Workers at manual redemption centers face a greater challenge, but they develop numerous ways to spot fraudulent returns. First, of course, they can look for the “TN-5¢” marking on the container, which they will do periodically but probably not continually. In addition, most workers will glance outside when a car drives up, to check the customer’s license plate. If the vehicle is from another state, the workers know to be more cautious as they process the containers. Certain beverages sold in other states, for instance, may not be sold in Tennessee, and workers get to know what these are. They also get to know their regular customers, and they may look closely at an unfamiliar customer, especially one with a large return. Finally, there’s the threat of prosecution. Centers are required to post signs warning that fraudulent redemptions in excess of 24 containers are punishable by a fine of $100 per container or $25,000, whichever is greater. Tennessee’s law is unique in that it rewards a center’s vigilance by giving it half of any collected fines.

· Some illegitimate containers will always get through, but according to authorities and redemption centers in the 11 bottle-bill states, this is rarely a big issue.

For more questions about operating a redemption center in Tennessee, contact Marge Davis, coordinator, PRIDE OF PLACE/the Tennessee Bottle Bill Project, at (615) 758-8647 or margedavis@comcast.net. To learn more about the proposed container deposit legislation, go to www.tnbottlebill.org.