As prices for electricity and natural gas fluctuate, so do the fortunes of small business – particularly manufacturers that rely on affordable power for industrial processes.
Manufacturers such as Romance Foods of Kenosha.
The sole proprietorship, which employs 35, produces stuffed pasta products such as tortellini and ravioli. The pasta products are designed to be very quickly prepared in a microwave oven or by rapid boiling. The specialty pastas are accompanied by a line of gourmet sauces, as well as “long goods” – fettuccini, linguini and angel hair pasta. Romance manufactures more than 2 million pounds of pasta and sauce a year. Its 44 stock-keeping units are marketed through grocery stores, and revenue from the branded product line is supplemented by private label manufacturing.
Apart from rapid preparation, Romance products are designed for long shelf life – about 75 days under refrigeration. In order to accomplish that, Romance does not use preservatives – it uses a whole lot of electricity and natural gas. Pasta products are blanched and, after packaging in barrier plastic, are sent through a microwave convection oven to kill remaining bacteria.
“We fill a niche in the pasta industry,” says Robert Ramsay, company president. “We use no preservatives, yet offer a 75-day refrigerated shelf life. And we service food service as well as retail grocery stores.”
Filling that niche profitably, however, means bridging the fiscal gap created by rising energy prices. Ramsay is relying on wisdom gleaned from his extensive business experience and education to weather the storm. Ramsay purchased Romance Foods from Johnsonville Foods of Kohler, in October of 1999. He is a West Point graduate and MBA who has held executive positions with General Motors, Philip Morris and CitiBank. He has also taught finance and entrepreneurship at Hartwick College in Oneonta, N.Y., and managed federal prison factories for the U.S. Department of Justice. Before purchasing Romance Foods, Ramsay was president of Steeltech, a former Milwaukee-based defense contractor.
Energy a major expense
To accomplish the goal of producing fresh, ready-to-heat pasta that doesn’t turn to mush after a week, Romance Foods’ 25,000-square-foot facility is packed with equipment that contributes substantially to its plug load and natural gas consumption. Much of the excess energy goes for refrigeration.
Not only is refrigeration necessary for storage – but by government mandate. Due to the lack of preservatives, Romance Foods is constantly monitored by the Food and Drug Administration (FDA) as part of the Hazard Analysis and Critical Control Point (HACCP) system. Because Romance uses poultry in some of its products, it falls under the regulations of the HACCP system.
Because of the delicate nature of the manufacturing process, HACCP requires maintenance of specific
in-process temperatures during packaging. Therefore, as Romance Foods looked at ways to reduce its energy consumption, there were some portions of its operation that were off limits.
Economizing carefully
“We do use a lot of gas and electricity, and don’t have a lot of luxury because we have areas where the finished goods are kept, and of course those areas need to maintain a consistent temperature 24 hours a day, seven days a week,” Ramsay says. “We have been able to conserve energy in the case-packing area. In order to conserve energy, we don’t keep the area fully air-conditioned on the weekends. In order to reduce electrical usage, we are doing a better job of scheduling our production. We get orders in weekly, and tend to make products to order. We never know what the products ordered will be – or the amounts that will be ordered. But as energy cost savings become important, we might make additional product on each run, and then pull it from inventory as additional orders come in. Because of our extended shelf life, we can do that.”
Keeping the two microwave convection systems in top working order also saves electricity, according to Ramsay.
“The magnetrons that emit microwaves can go down on occasion. It does not affect the ability of the microwave convection oven to operate, but does require more power. We still have temperature control. The system compensates by running longer or at a higher level. We’ve been taking extra care to make sure all the magnetrons are running properly.”
Ramsay said he is also looking at altering the manufacturing schedule to increase efficiencies. Start-up of the manufacturing line consumes 15% of the energy cost of a day’s production. Not only that, but the line must be cleaned each day regardless of the amount of product that has been sent over it.
“We take care of our sanitation at night. We have to steam-clean the plant. Whether we manufacture one pound or a hundred thousand pounds, we still have to clean. Rather than five partial days, we might run four full days, and use a Friday to bring materials into the plant,” Ramsay said.
Fuel surcharges
As a manufacturer that relies on trucking not only for delivery of raw materials but for distribution of finished products to retailers, Romance Foods is getting hit with a double whammy as trucking companies add fuel surcharges to compensate for increasing gasoline and diesel prices.
“Everything that comes in and is shipped out has an added energy surcharge,” Ramsay said. “We are trying to look for trucking companies that are looking for return business – so they don’t have to go back empty. We are using competition to lower our freight costs.”
Romance Foods also has its own refrigerator trucks for local use, and can deliver product to nearby stores such as Woodman’s in Kenosha. But most of the time they are not used as refrigerated carriers – rather they are used to transport non-sensitive materials like cartons.
While trucking firms can add a fuel surcharge, Ramsay said buyers in his business are sensitive to price fluctuations, and that a price change on a branded product – or on the large number of private label products Romance Foods manufactures – would require a lot of notice.
“Obviously I’d like to be able to consider price increases,” Ramsay said. “Typically, you have to announce those in advance. You have list prices and then you have allowances for discounts below the list price. For us, maybe it’s a matter of allowing less of a discount on your per-case list prices.”
Future focus
While Ramsay makes adjustments to his existing operations to compensate for rising fuel prices, he is also looking to the future. Romance Foods’ 25,000-square-foot building lacks the space required for anticipated growth. The company is considering expending into a 38,000-square-foot facility at 8922 102nd St. in Wispark’s Lakeview Corporate Park. The building has been vacant since Wispark completed constructing the shell in 1998, and would be used to store refrigerated ingredients such as milk and cheese, and dry ingredients such as flour and tomato paste. It would include 2,000 square feet of office space and 11,000 square feet of storage and production area.
“We just need to sign on the dotted line,” Ramsay said. “We are waiting for various opportunities to firm up – some specific contracts for pieces of business.”
When the time comes to grow into the new facility, though, Ramsay said energy efficiency will be a top priority.
“In Michigan, they do have a deal where there are grants available if you make your facility energy-efficient,” Ramsay said. “I am wondering if they have a similar program here in Wisconsin.”
Ramsay said he would also consider retrofitting Romance’s boiler to be convertible from natural gas to an alternative fuel source as a hedge against price fluctuations.
“I’m sure we could make those changes,” Ramsay said. “I saw one school in Milwaukee that is doing a similar conversion. But any conversion means you have to shut down for some period of time. If you have a second facility you can transfer the production that would come from one facility to the other during that installation. I would certainly consider any of those things. I’d like to see if there is technology we can use that would make it more energy-efficient for production and refrigeration. I want to make this a showpiece for the outside, and on the inside I want it to be energy-efficient.”
July 6, 2001 Small Business Times, Milwaukee
