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Pandemic’s Headache for Managers: Downs, Ups and … Now What?

July 31, 2020 4:30 PM | Anonymous member (Administrator)

Phil Tulkoff’s family has owned a Baltimore condiment company for more than 90 years, and he’s uneasy. Not because business at Tulkoff Food Products is bad — he lived through that this spring — but because it is suddenly good.

“I don’t know what to expect,” said Mr. Tulkoff, the company’s president, who employs about 100 workers. “I watch the news and think it has to go down again.”

After a slump in April and May prompted a shutdown of three of four production lines at his factory near the Port of Baltimore, demand roared back in June as restaurants and retailers hungered for products like minced garlic, horseradish and cocktail sauce, which are among Tulkoff Food’s most popular offerings.

Mr. Tulkoff is grateful for the rebound, but his apprehension is shared by thousands of other business owners: While sales have returned to healthy levels, the surge in coronavirus cases in many parts of the country threatens the comeback.

Indeed, the economy’s uncertain trajectory is reflected in recent employment data. On the one hand, the Labor Department reported that payrolls grew by 4.8 million in June, including a gain of more than two million in the hard-hit leisure and hospitality sector, which includes bars and restaurants.

Yet on Thursday, the government reported that new claims for state unemployment insurance topped one million for the 17th week in a row.

So even as millions go back to work, millions of others are newly unemployed, threatening both their personal finances — particularly with a $600 weekly federal supplement to unemployment insurance about to expire — and their ability to help drive the economy’s recovery.

The situation at Tulkoff Food Products is especially perilous because half of the company’s orders come from restaurants and bars, a sector that collapsed in March as the coronavirus pandemic spread and stay-at-home orders went into effect.

After a gradual reopening, indoor dining in many parts of California, including Los Angeles and San Francisco, was newly banned this month. In Texas and Florida, bars have been shuttered after initially reopening and attracting hordes of quarantine-weary patrons. Mr. Tulkoff hasn’t seen any impact from these moves, but he knows from the wave of shutdowns in March how rapidly things can change.

“The downturn came on so quickly, it was like someone pulling the plug from a bathtub,” he said. Orders were canceled so fast that cases of sauce already on their way to customers had to be shipped back to the factory. Some went into inventory while others went to local food banks or were discarded.

Rather than lay workers off, Mr. Tulkoff took advantage of a Maryland program that allowed him to cut employee schedules to four days a week, with the state picking up the cost of the fifth day. He also received a loan of just over $1 million from the federal Paycheck Protection Program.

“We definitely had more people than we needed, but we didn’t want to let anyone go,” Mr. Tulkoff said. Working in staggered groups, production employees spent time on the one line that was still in operation during the trough.

The paycheck protection loan was a welcome cushion, but Mr. Tulkoff intends to return the money because the rebound has made it unnecessary. The company took other steps to survive the lean period: Matching payments on the employees’ 401(k) plans were halted, Mr. Tulkoff took a 20 percent pay cut, overtime was stopped, and temporary positions were eliminated.

Mr. Tulkoff shut the company’s California plant in May, eliminating 34 jobs, in a move that had been planned for a while but was sped up because of the coronavirus outbreak. Much of that output will be taken over by a new plant that is getting up to speed in Cincinnati. It will eventually employ as many as 70 workers.

At the main factory in Baltimore, roughly 60 hourly employees are working 40 hours per week, plus overtime. The company is looking to fill five more slots, which start at $12 per hour.

“It’s been a roller coaster,” said Buddy Dietz, the chief operating officer. “It’s hard for us to tell whether it’s for real or not.”

“What we believe has happened is that customers depleted their inventories,” he added. “Now they’re trying to refill the pipeline. We’re anticipating that orders will fall off again, but there’s no way for us to know.”

If things turn down again, the company plans to repeat the cost-saving measures imposed last time, like the elimination of the 401(k) match and overtime. Another option would be to slow spending on the Cincinnati factory, Mr. Tulkoff said.

To be sure, Tulkoff Food Products has survived other challenges, including the Great Depression and World War II. The company was founded by Mr. Tulkoff’s grandparents Harry and Lena, immigrants from Russia whose freshly ground horseradish was a hit at the grocery store they operated.

“It’s pretty amazing, but after all these years we’ve stuck to our roots — horseradish, garlic, and cocktail sauce,” Mr. Tulkoff said.

An engineer by training, Mr. Tulkoff, 59, grew up in Baltimore and graduated from Bucknell University in Pennsylvania, but didn’t join the family firm initially, instead working on the space shuttle program at the National Aeronautics and Space Administration.

“I spent 11 years in aerospace engineering,” he said. “Then I ran a software business. But when this opportunity came along, I wanted to take on that kind of challenge.”

He has two children in their 20s; one is a nurse practitioner in Washington, D.C., the other an industrial designer in Kansas City, Kan. Neither has shown an interest in running the business, but another fourth-generation family member, Jordan Gershberg, is at the company, working on getting the Cincinnati plant up and running.

As chief executive for the last 15 years, Mr. Tulkoff expanded the firm’s co-manufacturing business, in which it makes sauces and condiments for other brands and packages them for sale in retail outlets under those brands’ names.

While many consumers may have eaten products made by Tulkoff Foods, they wouldn’t recognize the name unless they lived in Baltimore, where Tulkoff-branded horseradish can be found at supermarkets. Restaurants are supplied through food service distributors like Sysco and U.S. Food.

“Food service in restaurants was very weak, but co-manufacturing held up OK,” said Ben Sipola, Tulkoff Foods’ chief financial officer. “Those customers that weren’t in restaurants were buying more food in grocery stores.” Co-manufacturing accounts for half of the company’s sales.

Mr. Tulkoff has run the company conservatively, averse to debt or risky new product lines. When the pandemic hit, the company had enough cash to last a year, and with losses running at $250,000 a month, the Paycheck Protection Program loan bought it four months, if it needed to use the money.

For now, the company is solidly profitable, Mr. Tulkoff said, and workers in the factory like Maria Bunce say they are more focused on fulfilling the daily quotas than worrying about what they can’t control in the future.

“I’m in the moment,” said Ms. Bunce, a floor supervisor. “We’re so busy we don’t have time to think about what’s going on.”

Mr. Tulkoff, on the other hand, finds himself worrying about what the resurgence of the virus could mean for his company and its employees. “It keeps me up at night,” he said. “It’s my biggest nightmare to see all that equipment idle again.”

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