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Nonprofit group gets boost from Postal Service

Robert Franklin, Star Tribune

January 11, 2005 - Minnesota Diversified Industries (MDI) is counting its good fortune in the millions these days -- a $22 million contract from the U.S. Postal Service, meaning a $5 million increase in sales this year and production of 6 million plastic bulk mail totes.

The nonprofit, which is based in St. Paul, has a mission of employing disabled and disadvantaged workers. It also announced Monday that it has been named a finalist for the Postal Service's 2004 quality supplier award.

The latest Postal Service contract includes making plastic sheeting material for the South Texas Lighthouse for the Blind in Corpus Christi, which manufactures a smaller version of the totes.

MDI is adding a second plastics extrusion line this spring to its plant in Grand Rapids, Minn. It also will renovate its facilities in Hibbing.

The organization had sales of about $31.6 million last year and donations of about $3 million, said Mark de Naray, president and chief executive officer.

Robert Franklin is atrfranklin@startribune.com

After several years of shrinking, Minnesota Diversified Industries is rebuilding
Robert Franklin, Star Tribune
December 12, 2004

It wasn't a household word, but it was Minnesota's largest social service nonprofit five years ago.

With gross revenue of $66.8 million, Minnesota Diversified Industries (MDI) was bigger than the then-United Way of Minneapolis Area, bigger than the state's affiliates of the American Cancer Society, Lutheran Social Service or Catholic Charities.

That was then.

Now MDI, which has a mission of employing handicapped and disadvantaged workers, is No. 9 on the social service list with less than half as much revenue -- $32.4 million last year.

The organization became a victim of the vagaries of government funding -- mainly spikes and valleys in purchasing by its major customer, the U.S. Postal Service -- and of its own failure to diversify.

Now, however, with installations in Hibbing and Grand Rapids and a 330,000-square-foot warehouse in St. Paul that once belonged to Montgomery Ward, the nonprofit says it's coming back, branching out and even expanding.

Benefactors have taken notice. On Thursday, the Blandin Foundation of Grand Rapids announced a $2.5 million grant that will help MDI triple the size of its plant there, to 80,000 square feet, and add a second plastics extrusion line.

MDI did an "almost remarkable job" in growing sales by 20 percent over plan to turn a projected $1.7 million 2004 deficit into a break-even year, said Wade Fauth, senior grants officer for the foundation. "That's what's given us the confidence to move forward with the grant request."

As government agencies change focus, institute efficiencies and tighten domestic spending, some nonprofits expect to gain more pain.

The $388 billion spending bill that Congress passed last month for 2005 will cut programs for housing, education, national service and other social services, the Chronicle of Philanthropy reported last week.

And government money can be the largest source of some nonprofits' revenue, with the government either buying services -- the social service work that nonprofits do -- or buying goods that its agencies need.

For MDI, it's both.

It gets some training grants to help its workers, but a major product was plastic tubs and trays for the Postal Service. It seemed as if that business "was driven by budgets almost more than need," said Betsy Jaros, MDI's vice president for corporate and government development.

Other nonprofits have had some similar experiences. In the early 1990s, the Duluth Lighthouse for the Blind, which packaged as much as half the toilet paper for federal agencies, lost $5 million after the government cut back on its contract.

MDI's revenue spiked to $66.8 million in 1999 with a 44 percent gain from the previous year. Grants and donations accounted for only 1.1 percent of that. The organization lost business, slowed production and cut jobs before employment bottomed out at about 410. It had a $1.3 million deficit last year.

Jaros and Mark de Naray, a veteran executive of air-bed maker Select Comfort Corp. who has been MDI's president and chief executive for about 18 months, now see reasons for optimism:

• "We're flat out of capacity" to produce enough plastic at the Grand Rapids plant, de Naray said, and MDI is in the "quiet stage" of a capital campaign to raise $8 million, mostly for the Grand Rapids project. As Fauth put it, "They have to expand in order to diversify, and they have to diversify."

• The nonprofit has moved more into packaging and fulfillment items, nutritional drinks and household cleaners as well as stamps and commemoratives. Government business, which was 91 percent of sales in 2003, dropped to 82 percent this year and could fall to 65 to 70 percent next year, de Naray said.

Now, MDI is getting repeat customers rather than one-time jobs, commercial business has doubled and, he said, "we have not lost one customer this past year."

• De Naray, who helped transform Select Comfort from a start-up to the nation's fifth-largest mattress manufacturer, said attitudes are changing, too. "We will pursue work that has a future, not just work that our employees can do."

"We had to manage our existence better," de Naray said.

But that's not always popular on the shop floor. Levine Randle and Elfida Morales, working last week at MDI to package energy drink bottles, said they'd much rather be packaging stamps.

Layoffs can be devastating to MDI employees, de Naray said, because it's "not just a place to work. It's their social network. It's their world."

But rather than laying off, the nonprofit has been hiring, adding about 70 full-time workers in the past year.

Of MDI's 490 workers, about half have developmental or physical disabilities and another quarter are disadvantaged, refugees, people who speak little English or have spotty work records, Jaros said.

MDI's pay and benefits total $9.15 to $12.15 an hour, de Naray said, with medical, dental and life insurance plans and a matching tax-deferred savings plan.

The nonprofit's hopes for the future include more training for employees, more possibilities of placements elsewhere for workers who want to move on and perhaps a plastics technology class in Grand Rapids in conjunction with the local community college.

There will be more fund-raising to lift donations and grants beyond MDI's traditional 1 percent or so. "How many nonprofits are self-sufficient?" Jaros asked.

And there likely will be more products. MDI has been working with a double-faced corrugated laminate plastic sheeting. Not only is it washable and more durable than cardboard for boxes, but the technology could produce building insulation, de Naray said.

Most of MDI's workforce is in its St. Paul facility, where workers have painted the warehouse pillars with the colors of Vikings, Packers and Gophers teams. In Grand Rapids, where the 55-member workforce is poised to expand, Blandin's Fauth sees two advantages to MDI's growth that are consistent with the foundation's goals.

"It strengthens our local economy," he said, "at the same time we're working with a population of our most vulnerable people."

Robert Franklin is at rfranklin@startribune.com.

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