Some lessons in how to beat the recession Time-honored principles help companies survive hard times

March 29, 1992|By Kim Clark | Kim Clark,Staff writer

Late last fall, the folks at Mary Sue Candies began to think that everything they had learned about the economy and the chocolate business was wrong.

The family company's 50-year run of strong demand for chocolates and taffies looked like it would be broken when executives at troubled firms started slashing their Christmas gift budgets.

But then, two weeks before Christmas, last-minute orders for boxed chocolates poured in, pushing the Baltimore company's sales up for the year.

Now, Mary Sue Candies' 40 workers can't keep up with the demand for their hand-made chocolate Easter eggs. And president Mark Berman is planning to spend $250,000 to expand production.

As economists gather signs that the economy may be improving, they say this recession was unusual: Previously stable industries such as defense and banking foundered, and consumer confidence fell to levels never seen amid such relatively mild (7.3 percent) unemployment.

Even so, a few time-honored principles may explain why some Maryland companies can look back and say they bucked the recession.

The winners have been those that were necessary, inexpensive, new, fiscally conservative, well-diversified -- or lucky.


Mary Sue hasn't felt past recessions and survived the most recent one because chocolate, believe it or not, is an inexpensive necessity, Mr. Berman said.

People need a little treat in their lives, he said. "Even if a family is down and out, they are going to find some way to buy" their children a chocolate Easter egg for a few dollars.

Similar forces have kept companies ranging from spice giant McCormick & Co. to Pfefferkorn's Coffee Inc., on East Grindall Street in Baltimore, sailing along.

"When times are booming, we don't enjoy the big boom. We're more of a steady kind of thing. The food business is that way," said Louis Pfefferkorn, grandson of the coffee company's founder.

Indeed, recessions can help some providers of necessities, such as health care, says George Shipp, a stock analyst for Richmond, Va.-based Scott & Stringfellow Investment Corp.

People don't stop getting sick or growing old during recessions. And rising unemployment helps to cut labor costs at nursing homes, he said.

That's why local companies such as Silver Spring-based Manor Care Inc., which operates more than 150 health-care facilities, saw profits and sales grow in the past 18 months.

And if you can't convince your customers you provide a necessity, the next best option is to convince them you offer the best value, Mr. Shipp said.

Marylanders have seen discount chains ranging from Wal-Mart to Savage-based Cosmetic Center Inc. expand in the last two years, while dozens of pricier and better-known retailers have faltered.

In the past three years, for example, the Cosmetic Center has grown from 21 discount outlets to 34 in Maryland, Virginia and Illinois. And sales have grown from $58 million to $88 million.

When money is tight, "everybody looks for value," Mr. Shipp said.

That kind of reasoning convinced Rick Kunkel to start up a homebuilding company last May -- at the depth of the recession.

Mr. Kunkel's Patriot Homes now has 18 employees at its Columbia offices, and has built 30 relatively inexpensive homes in Howard County.

"When we first started, we questioned whether it was the best time," he said of a period that saw the lowest construction activity in more than a generation. "But we felt there was an opportunity. . . .The market had shifted to a more basic value-oriented home."

Mr. Kunkel's houses range in price from $150,000 to $240,000, lower than the $245,000 average new-home price in Howard County.

Mr. Kunkel's lots are a little smaller than those of nearby homes. And his homes aren't quite as fancy. "We use aluminum siding," which is about $3,000 cheaper than wood on an average house, and bathroom fixtures are "quality but not the luxurious models," he said.

New ideas

Other companies that bucked the recession were those that developed new technologies or improved solutions to old problems.

At Columbia-based Signs By Tomorrow, a 6-year-old chain of sign makers, the only effect of the recession was to slow the addition of new stores.

The chain, which updates the old hand-painted sign business by using computers to produce signs quickly, opened three franchises last year, said Vice President Joe McGuinness.

"That was below our expectations," Mr. McGuinness said. The company got plenty of inquiries, but is only now beginning to see those inquiries turn into sales.

It wasn't just new strategies that produced winners. For a few area financial institutions, old-fashioned strategies enabled them to survive a devastating shakeout.

For example, Baltimore-based Mercantile Bankshares Corp., owner of 18 small bank companies, is now considered one of the nation's strongest and most profitable banks.

John Heffern, an analyst for Alex. Brown & Sons, said that last year, by some counts, Mercantile was nearly 40 percent more profitable than the average large bank he follows.

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