Anyone who has been to Baltimore, Md., or the Eastern Shore of Maryland in the last century likely has consumed crab meat harvested and processed right there in the region. And although there are plenty of restaurants and retail brands offering crab cakes and other delicacies, most visitors to the region will have visited Phillips Seafood at least once during their visit — a small regionalized chain of restaurants owned by Phillips Foods, a 100-year-old, vertically integrated seafood company headquartered in downtown Baltimore. 

Indeed, Phillips Foods has expanded its business model several times in its long, storied history on the Eastern Shore, to become a global seafood powerhouse in the foodservice and retail space. The company started in 1914 as a seafood trading and processing company with its own picking facility on Hoopers Island, Md., by A.E. Phillips, grandfather of current CEO Steve Phillips. As the Chesapeake Bay was teeming with aquatic life, the lifestyle and culture of the Eastern Shore revolved around the water.

“A hundred years ago, the Chesapeake was basically a highway: Everything went by water on big sailing schooners and ships from Point A to Point B,” Phillips recalls. “And there used to be an unbelievable bounty [of wildlife], with rock fish, trout, blue fish, bass, shad, oysters, softshell clams and crabs. Years ago, this was the No. 1 oyster-producing body of water in the world, with hundreds of two-masted, one-masted skipjacks sailing the water, dredging for oysters.”

Phillips’ grandfather made the move from a schooner sailor to a seafood processor based on that bounty, and young Steve Phillips learned the seafood industry accompanying him in his work.

“I used to go oystering with him during the wintertime and crabbing during the summertime as a young boy, and I used to make crab pots with him too,” he says. “Pretty much 100 percent of the people on this island derived their livelihood from working the water — the men would go out on the boats every day, … and the wives would work in the seafood factories.”

Business rolled along well during the first half of the 20th Century for A.E. Phillips & Son, but when Steve’s father, Brice, returned from service in World War II, it became apparent that the little seafood facility on Hoopers Island was not going to be enough to support two families. So, Brice and Steve’s mother, Shirley, traveled across the peninsula to resort town Ocean City, Md., and opened a small “crab shack” carryout restaurant in 1956.

“We opened at 6:30 in the morning, sold bait to fishermen, and crab meat, bushels of crab and soft-shell crabs to customers, but the people wanted us to cook it, which is how we became a seafood carryout restaurant,” Steve Phillips says. “The second year, we built a little porch with 40 seats, and we thought that’s all we’d ever need. But the next year we were so busy, we built a dining room with 125 seats, and then another 100-seat dining room the next year — and that restaurant today seats 1,400 people.”

Soon, Phillips was opening two new restaurants in Ocean City, and in 1980, the chain opened its first Baltimore location right on the waterfront downtown (that operation recently relocated to the current Power Plant location, a few hundred yards away from its original location, still on the waterfront). As the popularity of its restaurant items grew, Phillips expanded his operations to the retail business, starting out as a regional seafood processor and slowly growing outward as demand warranted.

Exploring new waters

Yet, over the many decades, as the popularity of the seafood from the Chesapeake Bay grew, supply dwindled and began to weigh on processors’ abilities to meet demand. With continued company growth in his sights, Phillips needed a new sourcing strategy, one that would not compromise the quality of the crab meat items his company produced, but also would ensure a steady, safe supply of crabs.

“Twenty-five years ago, I read an article on the emerging prawn industry in the Philippines, and in one of the photos, they had a dock scene, and over in the right-hand corner I saw a basket of crabs,” he says. Phillips didn’t know that the waters off the Philippines had any crabs, let alone a supply worthy of a business venture, so he decided to fly to Manila, meet with the Department of Agriculture and do his own feasibility study.

At first, the Filipino men he met  thought he was looking to investigate the prawn industry, and corrected him when he said he was interested in the crabs.

“They told me that we call prawns ‘shrimp’ not ‘crab,’ and I told them, that indeed, I was there to see crabs, not shrimp,” Phillips explains. “And they started laughing, and said, ‘Oh, well, you’ve wasted your time, because crab is worthless,’ to which I said, ‘Maybe that’s a good thing.’”

Phillips found out where the crab populations were located, hired a Filipino fisherman and his boat, made his own crab pots and began working to figure out the feasibility of sourcing crabs from the Philippines.

“I studied the crabs at certain depths, certain salinity levels, and certain coral, muddy and sandy bottoms to determine the population densities of the crab, and I came back after that first day having caught probably 10 pounds more crab than any fisherman out there,” Phillips says.

The study was successful, and Phillips decided this was an untapped gem of a resource in which he needed to invest. However, the local prawn-processing facilities did not suit him to process his crabs based on some poor food-safety and sanitation practices he witnessed while there. Instead, Phillips purchased land and built the company’s first international processing facility in 1990. Today, Phillips Foods has 18 FDA-registered processing facilities in 10 different countries around the world.

As the Phillips Foods Web site states, “the company has successfully taken the pressure off the crab resource in the Chesapeake Bay by finding a similar crab in Asia,” and today those plants combine to produce more than 11 million pounds of crab meat per year.

Phillips is particularly proud of the fact that the company has been able to extend its beliefs and culture to its overseas locations as well. It all started with that first plant in the Philippines.

“We formed a waterman’s association modeled after the Maryland Waterman’s Association, and we had 1,600 fishermen join,” he says. “Right from Day One, we instituted a size restriction on the crab, and we didn’t buy any female egg-bearing crab. … We put in a conservation program right away, because I’ve seen the decline in the resources in the Chesapeake, followed by the deterioration of the whole lifestyle and culture that I grew up in, and I didn’t want to see that happen there.”

Push into retail channels

U.S. per capita seafood and shellfish consumption peaked at 16.6 pounds in 2004, and has slowly slid down to 14.4 pounds in 2012, according to the latest data available from the National Marine Fisheries Service. Meanwhile, business for Phillips Foods and its restaurants continues to improve, Phillips says.

“Most of our business is done in the mid-Atlantic, but we’ve been able to successfully put crab cakes on many menus throughout the United States in restaurants and hotels,” he says. “We continue to build restaurants, having just opened a location in Atlanta’s airport and getting ready to open locations in Washington, D.C., and Las Vegas.”

Without the international supply, however, Phillips knows that his company wouldn’t be expanding and exploring innovative business ventures. Phillips Foods’ entrance into the frozen seafood segment, for one, demanded a more reliable source that allowed the company to deliver on its quality standards to all channels.

“[Our retail partners] were looking for innovation and creativity in the products, and there wasn’t really a quality crab cake available because of the shortage of crab meat from the Chesapeake Bay,” he explains. “Most of the restaurants would even have to take whatever was available, but now with the Asian crabs, we had enough supply to do crab cakes, crab miniatures, soups and things of that nature in a retail program.”

Eventually, Phillips Foods expanded its international operations to encompass other varieties of fish and seafood products, such as dips, sauces and several species of fish. Today, Phillips says, the company has begun investigating ways to enter the fresh side of retail through the full-service deli.

“If you look at growth in the deli over the last 15 to 20 years, it’s been huge, especially versus the growth in the seafood sector, which has lacked innovation and creativity in its offerings,” he explains. Thus, creativity is the thrust of the Phillips Foods efforts here — focusing on fresh crab cakes that aren’t heavily breaded and feature simplicity in their approach.

“We’re working with some delis on doing a fresh crab cake, or a lobster salad, shrimp salad,” he adds. “We’re also looking at some fresh seafood dips that we can introduce to try and reach that supermarket consumer.”

However, Phillips reminds everyone, it’s often “easier said than done,” especially when it comes to some of the perceptions of seafood amongst today’s consumers. Unlike previous generations, today’s consumers have neither the ability nor time to buy whole fish or shellfish, clean, cut, bone, cook and serve it.

“They often don’t know how, they’re afraid of it and it’s just not appealing to them,” Phillips says. “So we have to come up with convenient products, and a lot of times what you’re selling today, almost more than the seafood itself, is the consumer’s time. They don’t have two to three hours to prepare a seafood dinner.”

Well aware of that need, Phillips says convenience items will be front and center for the company’s development teams. A wild card in future growth, too, stems from the potential rebound of oysters in the Chesapeake Bay. Diseases ravaged the oyster population for many years, but those that survived have begun to re-populate the waters. Phillips says once the population reaches a sustainable level, the company will get more involved in that species, looking at oyster-centric value-added items, such as oyster pot pies, Oysters Rockefeller, etc.

Production advances

Despite the long-term growth in popularity of seafood amongst consumers, one thing that hasn’t advanced as quickly has been the technology around processing crabs. Phillips Foods is an interesting juxtaposition of traditional processing versus modern, even within its own processing walls.

In the Chesapeake Bay integrated system, Phillips Foods still receives and picks crabs the “old-fashioned” way — using manual labor. There is no rumbling of conveyors or banging of cutting equipment or even a very large processing floor. The Phillips Foods picking room, in fact, isn’t much larger than, say, a large company’s training auditorium might be.

Two- to three-dozen crab pickers sit at tables and pick crabs by hand, removing the precious meat inside at a speed at which most consumers (this reporter included) would likely poke themselves or worse. The picking crew works all morning, picking the crabs that were delivered the afternoon prior and packing the steamed crab meat into tubs for shipment to the company’s restaurants.

This process has worked for 100 years and for the regional Chesapeake Bay crab production, but when Phillips Foods expanded internationally, technology followed. Operationally, the foundation and end product quality is the same, but the means by which the products are harvested and produced may be wildly different.

Certainly, Phillips is proud of his company’s trailblazing efforts to develop the crab-processing industry from nothing in the Philippines, as well as its efforts to improve the seafood industry in all of its operations.

“With regard to our Asian operations, we were the first to produce crab meat in pretty much every one of those countries,” he says. “We also developed the pasteurization process for crab meat that allows us to take fresh product, pasteurize it, put it on a container ship to the U.S., and still have a very high-quality, fresh product that’s never been frozen.”

Growth across the entire industry, however, has been limited by a similar challenge that other protein-processing industries have faced — a shortage in quality labor. Fortunately, Phillips says, technological advances already have begun to help.

“If we get the oysters back in the Chesapeake, it will still be a challenge, because it takes a long time to really be proficient at extracting the oyster meat correctly,” he explains. “If the oyster supply does come back strong, I think we’re going to have to look really hard at utilizing high-pressure processing to do those products.”

Beyond the food-safety ramifications of processing shellfish using HPP technology, the machines do an “amazing” job separating the meat from the non-edible parts, Phillips adds.

“[HPP] kills Listeriaand Vibrio, and then around 35,000 to 40,000 psi, it shucks the oysters — at that pressure, the protein layer that separates the muscle from the shell totally dissolves,” he says. “So when you pull that oyster out of the chamber, the shell is gapped about a quarter inch and the meat falls right out perfectly shucked.

“You don’t have any residue on the top or bottom of the shell, it kills the bacteria and increases the shelf-life, there are no shell fragments or nicks on the membrane from an oyster knife, and you get an increase in yield of 17 percent,” he adds.

Phillips says that HPP technology has been developed to handle oysters, clams, mussels and even Maine lobster. Yet, he still views it as a technology on the cusp of a breakout.

“I don’t believe the potential of this technology has been tapped yet to a very great extent,” he says. “If you look at seafood, cost is among the biggest challenges because of the manual labor and handling costs, so as technology develops, it’s going to play a significant role in seafood processing in the future.”

As Phillips Foods moves into that new world of processing technology, Phillips is proud of his company’s role in advancing the industry overall, and he also beams at the idea that the next generation has taken initiative and become highly involved in the business. Several of his children hold high positions in a variety of roles in the company, making the fourth generation of the Phillips family well-prepared to carry on their forefathers’ vision.

After a lifetime of seafood harvesting and processing, it’s no surprise that the king of Phillips Foods’ crab and seafood empire claims to have “saltwater in my veins.”

It’s one thing to be trained as a waterman, focused on the catch of the day — Phillips Foods has taken that mentality and expanded upon it, always keeping customers at the top of the priority list, and building off the restaurateur strategies that give it such a solid reputation in the mid-Atlantic foodservice marketplace.

That background coupled with emerging technology on the operations side, gives Phillips Foods a lot of opportunity to grow and expand its successful story well into its second century of business.