King crab

SunSpot Staff

Phillips began in the 1950s as a takeout counter in Ocean City. It now encompasses restaurants throughout the mid-Atlantic region and a string of Asian processing plants with thousands of employees. Mark Sneed, president of Phillips Foods and Phillips Seafood Restaurants, explains how they got from there to here.

Phillips began in 1956 as four-seat carryout crab shack in Ocean City. How have you grown?

We have seven restaurants, three restaurants in Ocean City, a restaurant in Baltimore, a restaurant in Washington D.C., a restaurant in Tysons Corner and a restaurant in Annapolis.

You also have a retail production side to the business. When was that launched?

Phillips Foods started processing crab meat in Asia back in 1990. We’ve been producing retail, value-added products like crab cakes and things since about 1997.

What about the number of employees or sales last year? Can you give us an idea of the economic size of Phillips?

We’re a privately held company, so the sales are kind of private to us. But we employ about 3,000 in the U.S. Overseas we employ about 15,000. So about 18,000 overall.

How many crab cakes do you sell a day?

In the restaurants we do about 450,000 crab cakes a year. So, you can get your calculator out. Then, on the retail side, we probably did close to four million. Here in Baltimore, at our manufacturing facility, we probably run about 200,000 a day now. We crank a bunch out.

Is the manufacturing facility just for the retail trade or does it also produce goods for the restaurants?

They make a limited number of items for the restaurants. We make our soups here. We make some of the basic sauces, like cocktail and tartar sauce here. Of course, we also make crab cakes for other restaurants that sell on the food service side. A lot of our business is actually to other restaurants throughout the country.

What is the bigger part of your business right now, retail or restaurants?

The Phillips Foods component is much larger. I’d say the restaurants are probably about 30 percent of our sales.

Most of your revenue then comes from retail sales.

That’s right. That’s been a tremendous growth vehicle for us. We’re not talking about dollar sales, but I can share these numbers with you: Since 1996, Phillips food sales are up about 850 percent. It’s been like a rocket ride.

What is that market, sales to restaurants and food service companies?

We have two primary channels of business. Grocery stores, we’re in about 8,600 grocery stores throughout the country now. Then, in the food service channel, we sell to big distributors like Sysco and U.S. Foodservice. We’re pretty strong now across the country. We have regional offices in New York, West Palm Beach, Fla., Chicago, Los Angeles, Dallas and London. Those offices service both regional and national accounts located in their geographic areas.

Do some of your restaurants do better than others?

Harborplace is certainly still our highest volume restaurant. We did a recent remodel here in January and February, and we’re really thrilled with the results so far. But, in terms of sales growth, our restaurant in Washington, D.C. on the waterfront has doubled its sales since 1996. It’s doing close to $12 million in sales this year. That’s our star in growth, but Harborplace is probably our most recognized restaurant.

Where is the Phillips chain ranked nationally? I read that about 10 years ago you were in the top five for sales.

In terms of revenue, we’re not quite that high anymore. One of the numbers we look at is the customer count. Many of the restaurants above us are high-end restaurants, $50, $60 per-person restaurants. Our check averages about $20. So, when you look at the number of people served, we’re probably the leading seafood restaurant in terms of guest count in the country. We’ve really tried to hold our price points down and offer value.

How are you able to do that? Seems like seafood prices keep going up and up.

An important part of that strategy was launched in 1989 when (Phillips CEO) Steve Phillips went offshore to source seafood. We started in the Philippines, looking to stabilize the fluctuation in crabbing, and just simply ensure availability. Often, in the wintertime, our restaurants had to serve inferior crab products because it just wasn’t available out of the south. Now we’re in a situation where we have plants in multiple sites around the world. We source not just crab but also tuna, grouper, snapper and mahi. We have shrimp products we are pulling out of various countries to serve in our restaurants. So, by cutting out middle people, buying product directly from fishermen and controlling quality all the way through the process, we are able to keep the prices reasonable.

How many plants do you have overseas?

We have two in the Philippines, five in Indonesia, two in Thailand, one in Mexico, one in Equador, one in East Malaysia and one in India.

Has it been tough from a marketing standpoint, selling these Asian products? Has there been any backlash locally?

Frankly, it hasn’t been that tough in terms of the consumer. The consumer is generally interested in value for their money. And the vast majority of the seafood consumed in the United States is imported. That’s just a fact of life. We just don’t have the resources that many other countries do. There certainly have been issues raised in the domestic crab industry and from the press. At the end of the day, there’s not enough crab produced in the United States to come close to filling the demand. It’s a fraction of what’s needed. So, it doesn’t make any sense to say we’re not going to buy imported crabmeat when really that’s the only option. It hasn’t really been that much of a challenge. I think people simply want quality seafood and they want it at an affordable price, and I think that’s what we offer.

So it was basically just a bottom line issue? You weren’t going to be able to get enough crab meat here and continue to grow.

Yes, absolutely. You look at the production on the Chesapeake Bay. I haven’t seen the final numbers for last year, but I think it was around 800,000 pounds were produced here. We would use that literally in two months for manufacturing, if we bought every pound. There’s just not enough available. The growth of our company -- the jobs that we’ve created -- are dependent on the ability to import seafood.

Do you still use local seafood as well?

We do. We have two plants on the Chesapeake Bay, A.E. Phillips and Island Seafood. We’re also working with the crab restoration program. It’s a partnership between ourselves, the University of Maryland Biotechnology Institute, the Maryland Watermen’s Association and the state. The concept, which we’ve witnessed overseas, is growing crabs through the metamorphic changes in a tank until they become small crabs and then release them in the wild. What that does is really increase the potential of that crab growing into an adult crab. We aided the program by providing some fund money -- $300,000 dollars. We’re raising some money in our restaurants to try and build a hatchery. We’re real excited about trying to get the population of the blue crab back up in the bay, so we can keep that way of life going.

Describe the manufacturing process. You have your plants overseas. Does that meat come back as crabs or does it come back as meat that becomes crab cakes here?

Basically, we buy crabs from the fisherman. We then take it to our processing plants that we own. Those plants cook the crab and extract the meat. They then put it in either metal or plastic containers and pasteurize it. Pasteurizing crab meat allows you to obtain about a year shelf life. This crabmeat is then put on container ships, refrigerated at 38 degrees and shipped over. It comes into the Port of Baltimore primarily. Ninety-five percent of our product comes into the Port of Baltimore. It goes to our distribution center on Monroe Street. From there it either goes to our manufacturing plant in between Frederick and Warwick or it’s shipped across the country in crab meat form to the Syscos and U.S. Foods and Costcos. It takes about 45 days to get here from Asia on the water and, by the time you ship it back across to California, it takes another seven days. So, maximum time might be 52 or 53 days.

How did you get involved with Phillips? Was it a big deal for them to bring on someone from outside the family?

I’ve been working here since 1986. It seemed like a big deal at the time. I think I had to go through 17 different interviews just to get the job. It wasn’t even a high-level job. I was the director of training for the restaurant side. So, there were a lot of hoops to jump through. It’s very much a family organization. We don’t bring that many people on from outside. Most of our positions are filled internally.

Describe your relationship with Steve Phillips. How do you divide the management responsibilities?

I pretty much do day-to-day stuff, focus on domestic sales and marketing. Steve does a lot of international travel, building new plants, developing new product lines. I’m the detail guy, and he’s the over-the-horizon vision guy.

What’s next for Phillips?

There are two areas where we are looking right now to put a new restaurant. One would be in Georgetown and one in Prince George’s County. We’re aggressively looking at that right now. In terms of other ways we can expand our restaurant side, we currently work with Host Marriott. They have a licensing agreement to use our name and our products. They are using that at the BWI and Charlotte airports. We produce the products, we provide instruction to their employees on how to prepare our products and we provide logos. In terms of Phillips foods, we just opened a sales office in Atlanta. We’re also opening up a fresh fish division based out of Miami. All of our fish right now comes over as frozen. We’re going to use this office to distribute fresh fish from Central and South America all across the United States. We also hope to build a new manufacturing building within the Baltimore area in the next year. We’re currently in about a 42,000-square-foot building. We’re looking to construct about a 300,000-square-foot building.

Will there be new jobs created?

There should be. We currently employ about 200 people at this building. We anticipate a building of that size, even with some automation, to employ 350 to 400.

Where are you looking to put it?

We’re working with the city and the state to locate a site. It needs to be a pretty good size, 16-acre site. We hope that within the next four months we’ll finalize that. We have the plans, we just want to start the construction.

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