Ron Mittelstaedt has been CEO of Waste Connections for more than 20 years and is arguably reaching greater heights in the industry than ever before. He's not often one for extended public commentary, but had plenty to say this week in Nashville, Tennessee.
Mittelstaedt sat down with SWANA CEO David Biderman for an hour-long keynote interview during WasteCon that was chock full of quotes and details. Following a major merger with Progressive Waste Solutions in 2016, Waste Connections is now third-largest in the U.S. and second-largest in North America. The company continues to expand through acquisitions — in what Mittelstaedt has described as the best environment to do so in decades — and now operates in 40 states.
Despite its size, the company often keeps a lower public profile than others. Following the keynote, Waste Dive sat down with Mittelstaedt for an exclusive interview.
The following interview has been edited for brevity and context.
In the latest earnings call, Mittelstaedt said his company was neutral on a proposed franchise zone plan in New York, but recognized its potential merits. Waste Connections is the only national company running trucks in the city today and he described it to Biderman as a "very tough market."
WASTE DIVE: You came into New York with the Progressive deal in spring of 2016. The city's Department of Sanitation announced support of franchise zones later that summer. Did that play any role in you deciding to stay in the market?
RON MITTELSTAEDT: Yes and no. I would say mostly yes. We are a big franchise company. As a percentage of revenue of all the public companies we're far and away the largest franchise company. So we know franchises well. We like them. We think New York is a market where — it depends on how it's structured — that could make sense. I say that because we don't know how it's going to be structured. So it may or may not.
We participated in the Los Angeles franchise bidding process. That was a competitive market that went to franchising and we were not a finalist there. Everyone that was a finalist and won had assets in place ... So, you know having assets is very important. We've got three transfer stations in New York.
Among the industry's top CEOs, Mittelstaedt has been the most apt to talk national politics on earnings calls recently. During the keynote, he discussed how a potential change in the balance of power on Capitol Hill after this fall's midterm elections could slow down the current economic expansion because of business uncertainty. As he did at Waste Expo, Mittelstaedt also mentioned how limited immigration policies are hurting an already tight hiring market.
Could a potential shift in the political balance of power have a side benefit of changing immigration policies?
MITTELSTAEDT: I don't know. The reality is that we've had the Democrats in power and we didn't get immigration resolved. We had Republicans in power. We didn't get immigration resolved. It looks like we could potentially have a split House and have detente, which how are we going to get anything solved? So I'm not confident, unfortunately.
I think it's terrible ... I think people coming to this country, employers working trying to hire people in this country, we need to know. Right now it's sort of unknown and it's not uniformly enforced.
So because of that you have less flow into the country of people that would potentially work in our sector — at any level. I'm a fan of having a policy so that we as a company, and people immigrating to this country, know the rules.
I know that industry recruitment efforts are multi-pronged, including vocational training and other areas, but from a rough percentage standpoint how much does immigration matter? Is it just helpful or could it be a huge chunk of new people?
MITTELSTAEDT: I think it's a huge chunk. [I would estimate] approximately 35-40% of the employees hired over the last decade in this industry were immigrants.
And that's quite a bit higher than say 18- or 19-year-olds coming out of high school?
MITTELSTAEDT: Oh 5 times, 10 times. Much bigger
Like everyone you've been trying new things on retention. One was to raise your base wage to $12 an hour, among other investments. Others are doing bonuses. Why take that approach?
MITTELSTAEDT: We did four things. One is in  we are changing our 401(k) match from effectively ... I'm going to use this — 50 cents on the dollar, with a cap, to dollar for dollar. So you put in 5% we put in 5%.
As we sit and look out, we feel the biggest thing coming in 10 and in 20 and in 30 years is there is no retirement plan for so many of these people. They are completely relying on social security. They are struggling ... That has been incredibly well-received by our people.
The second thing we did is we allocated a pretty substantial amount of money [$10-15 million more per year] to facility improvements above and beyond normally scheduled ones. Something we would have not got to for maybe 5-10 years. Improving employee parking areas, lighting, break rooms, bathrooms, shower rooms.
That I think helps retain quality people and obtain a higher caliber of person.
Mittelstaedt goes on to describe how about 1.5% of his 17,000 employees across North America, and 2.5% within the U.S., weren't earning $12 per hour prior to the raise.
What kind of positions were affected? MRF sorters?
MITTELSTAEDT: Yeah, largely MRF sorters. Or laborers at a landfill, truck washers, certain tire men at a yard.
So we just felt you should give those with the least the most. That was sort of our philosophy ... try to help those that are most impacted and having the hardest time as much as you can.
In talking about how the success of these efforts will be measured by changes in the company's retention rate — assuming a stable GDP and unemployment market — Mittelstaedt mentions the high costs of turnover.
MITTELSTAEDT: You know, our drivers aren't really productive and safe and courteous and good on the equipment generally for 6-12 months, to really become exceedingly proficient.
You're investing a lot of money if you're turning those people over, in a year or less.
Whether that's because you made a decision or they made a decision. Our statistics are of the people we lose about 60% decided to leave and about 40% are asked to leave.
Mittelstaedt went into more detail during the keynote about how his company maintains a strong safety reputation in part by terminating new employees that don't meet standards. Of the 40% that go, 75% of those cases are due to safety issues.
The keynote also included plenty of talk about recycling, as is the new norm these days, and Mittelstaedt reiterated past comments about how recycling prices need to rise. This line of business used to account for 3.5% of Waste Connections' revenue and is now down to 2%. He also shared skepticism about whether customers would be willing to pay much more.
While he agreed that new domestic end markets would be helpful in the coming years, Mittelstaedt had a more frank projection about what would happen in the near-term, saying, "There will be less recycling, less diversion and customers will pay more."
Before any of this started, I would describe you as kind of agnostic on recycling. Do it where you can, do it where the policies dictate, and Waste Connections wasn't part of these nonprofits or working groups as others are. Was that a business choice?
MITTELSTAEDT: Well I don't know what others are doing so I can't speak to them.
You know, donating to The Recycling Partnership or sitting on boards of other groups like that.
MITTELSTAEDT: Yeah ... how's that worked out?
It is hard to make a blanket statement and say recycling is a bad business or recycling is a good business, because the truth is it has many components. Commercial recycling. That's a good business generally. Single stream with 12 items in certain markets. That's a good business. Single stream with 70 items with a 30% contamination factor. That's not great business.
Again, in some states we do tremendous amounts of recycling and others we do none because that's what the customer wants, meaning the residential or the commercial customer, or the municipal customer ... But we don't take a view that "we're in this market we need to have recycling." The market dictates that. The customer dictates that.
Texas has no recycling laws on the books ... and we have huge recycling throughout Texas, because that's what the city, the community wants. Look, you will never hear me say "hey we're doing residential household garbage here. Let's go introduce them to recycling because it's going to make more money." No, it's not. It's going to lose money the day you make that decision.
We're not just going to do that [for the goodness of] the Earth. I mean, we're a for-profit company, we're a public company and our public shareholders expect performance, right? That business is, components of it can be, a very poor business. So we try to avoid poor businesses if we can.
To me that raises the ongoing question of what comes next. In this decentralized structure, no one really knows who to look to for definitive guidance. Some look to their service providers. Some look to their mayors or governors. We can have discussions all day long, but how do we pull it all together?
MITTELSTAEDT: When you go to a customer and you explain, "You're paying three dollars a month for your single-stream recycling and $15 a month for your garbage" — I'm just using that "and here's what's going on in the industry and what's happening," they are willing to pay somewhere between $1 and $2 more to recycle.
Otherwise, they'll tell you put it in [the trash]. 96% of people are not going to pay more than two bucks.
So we're really green until it comes to paying for it.
Does that mean we need to expect more from the packaging companies?
MITTELSTAEDT: Well, you know, it certainly could.
You have bottle bills in certain states, illustratively, and the aluminum industry has that right? [Look] the biggest problem in today's single-stream — nothing else is even close — is junk mail. What used to be being sold to China as mixed paper. You can't sort it. There's nothing you do with it really. What do you do with that?
Because people aren't willing to pay a lot more, and we and others aren't going to lose money forever on it, we're going to have to say, "Look we've got to get these 70 items down. Here's the 40 that make up 2% of your diversion. If we could go down to these 30, these have value and we don't have to change what we're doing and the price."
But they've got to politically decide, do we have the wherewithal to take those 40 out and say why we're doing it? That's a challenge.
And those who have the longest lists are probably the least apt to do it.
MITTELSTAEDT: That's right.
Where do you see organics recycling heading these days? No one seems to be predicting a boom anytime soon.
MITTELSTAEDT: It's too expensive.
If recycling costs three to four times per ton, what's that ratio for organics?
MITTELSTAEDT: 10x trash. $250-300 a ton ... That's an in-vessel compost system. [That's roughly] a $20 million investment for something that's going to do 30 tons a day.
We're just opening one in San Luis, Obispo, California. We got a franchise and they want it and they're paying for it. We're bringing in a European technology that they picked and they wanted. We'll see, but you do the math on it. It's $250-300 a ton. So you know again, for what? For how much more incremental diversion?
What could force those economics to change? We have a fair amount of disposal capacity left here in the U.S., some states more than others. You've got an average of 30-plus years left, but some sites have more than 150 years. Do you think that ever forces the issue?
MITTELSTAEDT: I think ultimately what happens is you have an intersection of technology and lowering the cost to do it, and you have an ever-increasing consumer demand on politicians to get it done. And at some point those intersect over time and it becomes viable.
A lot of people say, "I just don't understand, you know in Europe, in Germany they've got a small little container for their garbage and diversion's 90% and everybody does this." Yeah, so let's go through all that. So in Germany, they use incineration. Their cost is $250-300 a ton tip fee, and they put it in the tax base. So are we in America ready to have a cost that's 10 times the average cost of today? Doesn't matter how it's ultimately paid, somebody's paying for it and ultimately the user is paying for it.
And they have the landfill tax.
MITTELSTAEDT: They have effectively a landfill ban, as you know, because of the taxation.
On U.S. landfills, many are farther out but the ones that are closer to communities seem to be causing plenty of challenges. You've got Chiquita Canyon [in California] and Colonie [in New York] to name a few. No one seems to escape unscathed on that. Is that getting harder, or are we just seeing more news stories?
MITTELSTAEDT: It's getting harder.
So how do you convince people they want to live near a landfill?
MITTELSTAEDT: You don't ... it's hard.
The irony is that was the intention of Subtitle D in 1989, right? When Subtitle D was passed under [the Resource Conservation and Recovery Act] in 1989 it had a grandfather provision, a sunset provision, in it that was five years out. So there were 8,200 landfills in this country open and at the end of '94 there were 2,300. The idea was to put landfills more remote and make them regional and use a transfer network.
Well what's happened is developers have gone and developed around what was intended to be away from everybody. That's what's happened. Now, there are exceptions to that like in [Los Angeles], but that's what happened. So is that going to get worse? Yeah, I think it is.
Even with the best-managed sites?
MITTELSTAEDT: We have a lot of facilities where we have a lot of people who live right by us and we have no ... we have very good relations and they're very comfortable and housing prices appreciate.
And they probably get a good, healthy community payment every year.
MITTELSTAEDT: Absolutely. There are several communities where we are clearly the largest revenue source in that community. But people still just innately don't want to live adjacent to or next to one, or want one built in their backyard.
But they also don't want to pay more for recycling? That's hard to square.
MITTELSTAEDT: Yeah it is, and that's why there's a reckoning coming.
This pendulum swung way far over with these [cities] all trying to one-up each other. "I got 68 things. I got 72. And let's say that this envelope and this cellophane and this plastic bag and this rubber glove and this textile [all go in]," You know, more and more and more, because "Oh landfilling is bad." That fed that frenzy.
Now it's going to take time to swing this pendulum and that's called three decades. The first curbside programs that ever happened were Huntington Beach, California. That's the first one that came out in 1988. I was there when it did ... So this has been building for 30 years. It's not going to swing back in a year or two.
In another 30 years do you think we're doing similar or more in terms of diversion, or hard to say?
MITTELSTAEDT: I think we go back up.
And Waste Connections could derive a higher percentage of revenue from recycling?
MITTELSTAEDT: I don't think there's any question that will be the case. I don't think it's 30 years out, but it's 10 to 20. 10 years plus, you'll look and it'll be a much bigger component of the business.
There's a lot of good things about the recycling. And you know really where this needs to get to, I mean it's a longer conversation, is to reuse.
Europe, if you've spent time there, is not a complete consumer- (other than London) saturated society. They use real plates every night. [They don't] buy a meal and throw out whatever it's in. We are a consumer-fueled society in America.
Ultimately, reuse is the pathway that will help diversion by non-generation.
How does one measure or monetize that?
MITTELSTAEDT: That's a ways out, but it's happening. It will happen. There will be legislative things ... that will happen that will affect this. The cost of solid waste will rise. Technology will over time bring down the cost of recycling. And as those costs converge then things start to make economic sense.
The problem you have right now is there's no economics in the industry in recycling. Everybody's losing money. So why is that a business that's going to attract capital? It's not. So unless it's subsidized, which is what's been happening by the garbage side, it's dead.
But not forever?
MITTELSTAEDT: Not at all. This is just an evolutionary thing, in my opinion.
We've had a lot of improvements in recycling. We'll go through a tough time and it'll flatten out some and we'll develop markets, we'll get better at it, we'll get more technology, we'll get more programs. All that will advance and then it'll go up again. I think it's a natural evolution.