Phillips Foods, Inc.

views updated

Phillips Foods, Inc.

1215 East Fort Avenue
Baltimore, Maryland 21230
U.S.A.
Telephone: (443) 263-1200
Toll Free: (888) 234-2722
Fax: (410) 837-8526
Web site: http://www.phillipsfoods.com

Private Company
Incorporated: 1990
Employees: 2,500
Sales: $200 million (2006 est.)
NAIC: 722110 Full-Service Restaurants; 722310 Food Service Contractors

Phillips Foods, Inc., is a family-owned Baltimore, Maryland-based operator of seafood restaurants and processor of seafood products for sale to the foodservice, retail, and mail-order channels. The anchor of the business is the company's slate of full-service restaurants, located in Baltimore, Ocean City, and Annapolis, Maryland; Atlantic City, New Jersey; Philadelphia, Pennsylvania; Washington, D.C.; and Myrtle Beach, South Carolina. The company also operates four seafood buffets, five "express" concept eateries, and six airport restaurants. In addition, the company owns an Ocean City hotel, Phillips Beach Plaza Hotel, and seafood markets in Baltimore and Myrtle Beach. Foodservice products include crab cakes, crabmeat, seafood cakes, seasoned fish, appetizers, and soups, including New England clam chowder, cream of crab soup, and lobster and shrimp bisque. Phillips' supermarket offerings include soups, sauces, seafood seasonings, canned crabmeat, and refrigerated and frozen appetizers and entrees, including a line of Thai food items sold under the Asian Rhythms label. Crabmeat and crab cakes can also be purchased in bulk via mail order. Long dependent on Maryland blue crabs, the company has opened crabprocessing operations in Southeast Asia, and Central and South America, to provide the company with an abundant year-round supply of crabs to support expansion.

EARLY 20TH-CENTURY ORIGINS

Phillips Foods traces its roots to Captain Augustus Elsworth Phillips, Sr., who as early as 1914 was believed to have started a crab-packing plant on Hoopers Island, Maryland. Around 1921 the company took the name A.E. Phillips and Son. It was the son of A.E. Phillips, Jr., Brice Phillips, born in 1921, who would begin to build the family business into a multifaceted concern. Before that time, however, the plant was washed away by a hurricane in the 1930s and relocated to where Phillips continues to maintain a processing operation. After serving in the military during World War II, Brice returned home to run the family business, taking over for his father, who by this time was experiencing health problems. Brice assumed responsibility during a time of transition for the crabbing industry. Restaurants began demanding larger live crabs to steam whole for serving. The rise of the whole-steamed-crab house restaurant business required packers like A.E. Phillips to spend more money to cull the large crabs from the assembly of crabs to be picked for processing, as well as to transport them quickly to the crab houses in Baltimore. All too often, however, the restaurants placed their orders with more than one supplier, leaving Phillips with a load of live crabs that would have to be returned to Hoopers Island, which was a waste of effort and money. Instead of a boon, the whole-crab business, due to the unreliability of restaurant customers, was a disappointment. After some debate, Brice and his wife Shirley decided the best course of action would be to steam and sell their own large crabs. In effect, the crab houses had succeeded in creating their own competition.

FIRST RESTAURANT OPENS: 1956

Initially the Phillips family decided to operate a seasonal carryout shop in Ocean City, Maryland. In the mid-1950s Ocean City was still a small resort town, essentially open for business from Memorial Day to Labor Day each year. With young sons Steve and Jeff in the family, Brice and Shirley Phillips decided to run the carryout business while giving their children a chance to enjoy the shore life in between school years. Thus, in the winter of 1956 they acquired a former hardware store, and that summer they went into business at the cost of $2,000, running a four-seat crab stand and carryout business on the ground floor and living upstairs.

Unfamiliar with Ocean City, however, they failed to realize that their location was too far north to catch the bulk of the tourist trade. In fact, just about the only other establishment nearby, boarded up when they paid their winter visit, was the town's only crab house. Instead of an idyllic family summer, the season turned into three months of hard work, with the boys spending a good part of their time folding carryout boxes on the curb. At least the family turned a $1,000 profit, primarily because of the blend of seasonings that Brice Phillips concocted for steamed crabs that would become popular among Ocean City steamed crab devotees.

For the second season the family decided to add some tables, which would require servers. Four young women were brought from brought Hoopers Island to wait tables. They became the first of the "Phillips Girls," the start of a tradition for the family restaurant. It was also during that second summer that Shirley drew upon Hoopers Island cuisine to develop a crab cake recipe that would become another of the restaurant's signature dishes and would play an instrumental role in the company's success. With a growing table business, the operation was able to secure bank loans to add two more dining rooms. Soon the upstart takeout shop bought the established crab house next door as well. After being in business for just eight years the Phillips family was running a restaurant that could seat 1,400 people and had assumed its homey ambiance, much of that due to Shirley Phillips' penchant for inexpensive decorating.

With the restaurant having reached its physical limits, the Phillips family business expanded in 1967 with the purchase of the Beach Plaza hotel, one of Ocean City's leading hotels in the late 1950s and early 1960s. Here in 1973 a second restaurant was opened, Phillips By The Sea, and still the family could not keep up with demand as Ocean City continued to develop as a popular resort town, enjoying especially robust growth in North Ocean City. In 1977 a third eatery, the 350-seat Phillips Seafood House, opened in this part of the community. At the same time, many of Phillips' Baltimore customers began clamoring for the family to open a restaurant in Baltimore. One of them, William Donald Schaefer, would become the mayor of Baltimore and later governor of Maryland. In the late 1970s Schaefer was spearheading an effort to revitalize Baltimore's inner harbor and along with developers The Rouse Co. convinced the family that for the Harbor-place project to succeed it needed a Phillips restaurant. Baltimore's harbor was an eyesore in such disrepair that the family was at first afraid to become involved, but in the end Steve Phillips became excited by the idea, which would provide him with his first restaurant to manage. By this time Brice and Shirley's sons were actively involved in running the business, although Jeff, the victim of an automobile accident, had been in a coma for several months, and was able to handle only limited managerial responsibilities. Jeff's accident also served to motivate Steve to become a more serious person, and in time his ambition transformed the family business into an international concern.

COMPANY PERSPECTIVES

Mission Statement: To make Phillips Foods and Seafood Restaurants the leading integrated global producer, supplier and retailer of a high quality, safe and consistent family of brands of seafood and cuisine.

The 870-seat Phillips Harborplace restaurant opened in July 1980 and became an immediate success. Soon it was ranked among the country's dozen top grossing restaurants. With Steve taking a more decisive role in directing the company's future, Phillips looked to the nearby Washington, D.C., market as the next site for expansion. In December 1985 Phillips Flagship, a 1,000-seat restaurant, opened on the Southwest waterfront in the nation's capital. Around this time the family also toyed with a fast food concept, opening a Phillips Seafood Shoppe in Norfolk, Virginia. The concept did not pan out, however. The company had better success in the 1980s with the launch of a lunchtime cafeteria concept at the Baltimore unit called Phillips Express, which catered to a time-pressed business clientele. During the evening hours the space was used for full-service dining. By 1988 the family business, which now had Steve as president, was generating about $42 million among its six restaurants.

PHILIPPINES PLANT OPENS: 1990

The success of the Phillips restaurant chain was very much dependent on domestic blue crabs, which accounted for 60 percent of the menu and about 65 percent of sales, but the supply was not large enough to meet the chain's year-round needs. To find a new source of crabs, Steve traveled to Asia. Checking out a rumor of crabs in the Visayan Sea area of the Philippines, he paid a visit to the islands, traveling from one small village to the next, talking to local fishermen about crabs. Finally he found what he was looking for at Bantayan Island, where the fishermen reminded him of their counterparts on Hoopers Island. The area crab also tasted similar to the Maryland crab, as well as being bigger.

On a second trip to Asia, Steve took some Hoopers Island fishermen to conduct commercial feasibility studies in both Thailand and the Philippines. Steve decided to open a processing plant in the Philippines and because the government wanted to stimulate growth in the rural areas he found official support in the venture. Thus, in 1990, the Phillips family bought land on Bantayan Island and opened a processing plant. In that same year, Phillips Foods, Inc., was born to handle the new venture. In time it would outstrip the restaurants in revenues and eventually subsume the restaurant operations.

The Bantayan Island plant only solved the supply problems temporarily. As the restaurant and foodservice businesses grew, so too did the need for more crabmeat. As a result additional processing facilities, including a number of mini-plants, were opened in the Philippines, followed in 1994 by a move into Indonesia, and into Thailand in 1996. Still the demands were such that in 2000 more plants were opened in India, Mexico, and Ecuador.

The success of Phillips Foods was not assured, however. Although the Phillips name was well established with restaurant goers in the Maryland–Washington, D.C., area, it meant little to seafood buyers for the wholesale and retail channels. Not only did the company lack a reputation, Phillips was selling a premium product at a high price, which scared away buyers. The company's major break came when Brooklyn, New York-based M. Slavin & Sons Ltd. agreed to take 500 cases, but only after Phillips' executives pursued vice-president Barry Slavin for about two years. When he agreed to taste the company's crabmeat after finally granting a brief meeting, he liked the product enough to place the order. Phillips had some credibility in the marketplace and was able to win over more buyers, focusing at first on crab cakes and building from there. While the foodservice and retail business was finding sound footing, the Phillips restaurant chain resumed its growth as well. It entered the state's capital, Annapolis, in 1999, opening Phillips Annapolis Harbor along the city's waterfront, offering indoor and outdoor seating for more than 400.

KEY DATES

1914:: Captain Augustus Elsworth Phillips, Sr., launches crab-packing plant.
1956:: First restaurant opens in Ocean City, Maryland.
1973:: Second Ocean City restaurant opens.
1980:: Phillips Harborplace opens in Baltimore.
1985:: Phillips Flagship opens in Washington, D.C.
1990:: Phillips Foods established; Philippine processing operation begins.
2000:: Processing plants open in India, Mexico, and Ecuador.
2003:: Myrtle Beach restaurant opens.
2006:: Atlantic City restaurant opens.
2007:: Philadelphia restaurant opens.

At the start of the new century, Phillips found its very existence in jeopardy after competitors complained about its international processing operations through the Blue Crab Coalition, an organization representing the domestic seafood industry. The U.S. International Trade Commission (ITC) investigated whether Phillips Foods, as well as some other importers, were unfairly hurting domestic crabbers. In the second half of the 1990s domestic crabmeat production fell from 19.9 million pounds to 10 million pounds, while imports exploded, from 3.2 million pounds to nearly 21 million pounds. Although most of Phillips' 14 million pounds of crabmeat produced each year came from overseas, the company continued to operate a pair of Maryland processing plants, which it continued to upgrade. Phillips maintained that it would have gladly limited its operations to the Chesapeake Bay, but local crabs simply could not meet its growing demands, especially during the winter months. The company said that it was simply going where the crab was. The Blue Crab Coalition called for a 40 percent tariff on imported crabmeat. In the end the ITC rejected the proposal. Had the tariff been imposed, Phillips Foods would have been hard pressed to survive.

After generating sales of about $1.1 million in 1990, little more than breaking even, Phillips Foods a decade later posted sales of $108 million and a profit of $13.5 million. In the new century the foodservice businesses continued to grow while the company enjoyed steady growth in the retail sector, developing a broad line of products that were carried by an increasing number of supermarkets. The restaurants helped to nurture the brand through their expansion. Part of that growth was expected to come from a new "fast-casual" restaurant concept called Phillips Famous Seafood. It featured a limited menu, less-expensive items, and counter service, essentially seeking a niche between full-service restaurants and fast-food concepts like Long John Silver's. The first unit, 3,000 square feet in size and seating 65, opened in a Rockville, Maryland, shopping center in 2003. The goal was eventually to open 500 units across the country, but by early 2005 the plans were put on hold.

Although fast food and fast-casual concepts did not work as well as planned, Phillips continued to enjoy success in the full-service category. In 2003 the company tried its first restaurant outside of the Mid-Atlantic region, opening a 500-seat eatery in the resort community of Myrtle Beach, South Carolina. Phillips looked northward as well, opening a restaurant in Atlantic City, New Jersey, in October 2006. A Philadelphia restaurant capable of accommodating 250 people opened in May 2007. In the meantime the company joined forces with HMSHost Corporation to develop Phillips Seafood Express, a concept aimed at travelers. In 2006 a unit was opened at the Maryland House on Interstate 95, followed by airport operations in Baltimore, Charlotte, and Savannah. A year later Express units were opened in Atlanta and Norfolk.

Ed Dinger