New Cook in the Kitchen

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New Cook in the Kitchen
At left

When he was diagnosed with leukemia almost six years ago, Robert Yee suddenly had to envision his business without him.

Since he founded what was then called Passport Asia in 1978, Yee had watched it grow to the point where the Asian noodle and wrap maker was supplying national chains.

If you’ve bitten through the fried shell of a “wonton taco” at Applebee’s or munched on a crunchy avocado egg roll at Cheesecake Factory, then you’ve sampled Passport’s products.

Yee, who died in 2007, made the tough choice: Though some of his children were interested in taking over, he decided to go outside the family for a new chief executive.

It was a rough start. The company suffered two years of unprofitability, worsened by wild fluctuations in the price of flour and the slowdown in the economy.

“The viability of the company was an issue,” said Michael Yee, Robert’s son and the company’s chief financial officer. “I don’t think we were looking at the bank taking us over, but we couldn’t continue down that path.”

Some clients, including Cheesecake Factory, wondered if the company, which does business as Wing Hing Food Co., would make it.

“In the last few years we have seen a number of companies struggling with wheat prices come and go within the food service industry,” said Mike Chalmers, manager of food procurement for Cheesecake Factory. “We wanted to make sure Wing Hing wasn’t one of them.”

It would turn out that there was something to Robert Yee’s instinct to bring in outside leadership, but it wouldn’t be obvious until later. In 2008, the company’s board decided it needed to look for a second outside chief executive.

Dave Abrams came on board in late 2008, and rapid transformation followed. Within 60 days, the company was profitable again.

Today, the company has higher sales and a larger work force, and in January it made its first acquisition, positioning for future growth with Italian pasta offerings. To underscore that transformation, the name of the holding company was changed to Passport Food Group.

“From a technology platform and a process platform and a food safety platform, they’ve advanced the company from that small family-run business to a viable modern business,” said David Tashman, director of food purchasing and distribution at Chinese restaurant chain P.F. Chang’s. “They’re not just carrying on as before.”

Recipe for success

How did it happen? Despite the bumpy start, Yee was able to “take away from the family politics” by going outside the family for new leadership and board members, his son said. With Abrams, who had overseen dramatic growth as a hired gun at Ontario-based irrigation system manufacturer Aquarius Brands, the new board found the right guy who was able to clamp down on inefficiency.

“I thought someone from the family could run the business,” Michael Yee said. “But seeing how it’s done now, we couldn’t have done ourselves everything that Dave’s been able to do for us.”

When Abrams arrived at Passport in December 2008, he was able to re-examine its business practices with a fresh eye.

The company had strengths to build on: Abrams found that clients generally held the company in high esteem. While there are many regional makers of Asian noodles and wraps, not many can supply restaurants on a nationwide scale, giving Passport a natural advantage with national chains. (The product is delivered soft and fresh in nitrogen-filled packages.)

But since flour prices had been stable for years, the company was caught off-guard when the commodities market began fluctuating in 2007. The company was caught in low-price supply contracts and had to buy expensive wheat on the open market. To protect from future price shocks, Abrams waited for a dip in the market and locked in prices; the company has booked its flour through next year.

He also cut noodle product offerings by about one-third to eliminate shapes and sizes that accounted for less than 1 percent of revenue. In addition, an overnight third shift was added to cut down on overtime. Even small details became potential cost-savers: For example, he switched packaging from what he called “pretty color boxes” to plain brown corrugated containers, saving $120,000 a year.

“I told my team that any question that is answered with the phrase ‘Well, that’s the way it’s always been done’ should automatically be questioned for current validity,” he said.

Abrams likes to repeat a formula for the way he evaluates a business: people, systems, infrastructure. That means putting the right personnel in the right positions, finding appropriate metrics for success and preparing for growth.

To that end, he had replaced the Passport’s controller, chief financial officer and director of operations within four weeks of taking over. He also had the company begin to track several key metrics, including pounds per hour, labor cost per pound of output and on-time delivery rate.

“We didn’t have any data in real time,” he said. “We didn’t know until several weeks after the end of the month whether we were making money or not.”

Side of pasta

Abrams’s attempt to change the company’s infrastructure resulted in his boldest move so far: the acquisition of Chino-based pasta manufacturer Royal Angelus from Hormel Foods.

For decades, Passport had only focused on its fresh Asian noodles, and so it took some convincing to get the owners to expand into dry Italian pasta. But Abrams was able to get financing to help make a deal happen once the company became profitable.

“I told them, ‘If you want to grow it faster than single-digit growth, we’ve got to go outside of our comfort zone,’” said Abrams, who would not discuss financial details of the acquisition.

The pasta is sold under the Royal Angelus brand name. The newly acquired Chino plant has 26,000 square feet unoccupied, giving Passport room for expansion.

Abrams said he would like to tap into other markets for flour-based products besides fresh Asian and dry Italian foods in the future. Tortillas are one idea.

Kent Rhodes, a partner at Family Business Consulting Group, said founder Yee was able to prevent some common problems at family firms: infighting and a lack of direction upon the death of the founder.

“What’s unusual about this case is the father had the foresight of bringing in someone from outside, even though he had capable heirs. He may have seen conflict coming down the pike between siblings or grandchildren,” said the consultant, who was not involved in advising the family.

Rhodes generally tells clients that it’s most appropriate to pass a company on to another family successor when there is only one obvious and capable heir. He also advocates for bringing in outside board members, as Yee did before his death.

Chief Financial Officer Michael Yee said most family members at Passport have come to see his father’s decision as a wise one.

“Not everyone agreed with the decision,” he said, “but in the end he was right.”

Passport Food Group Inc.

HEADQUARTERS: Downtown Los Angeles

CHIEF EXECUTIVE: Dave Abrams

FOUNDED: 1978

CORE BUSINESS: Manufacturing Asian noodles and wraps, Italian pastas.

EMPLOYEES: 170 (up from 85 in 2008)

GOAL: Adding other ethnic food products.

THE NUMBERS: $30 million projected revenue this year (up from $18 million in 2008).

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