In Person: For new factory, Taphandles CEO Fichter prefers Woodinville to China
Paul Fichter has a 450-employee factory in China to produce distinctive tap handles for breweries, but now he's opening plants in Woodinville and Chicago as Seattle-based Taphandles expands its offerings.
Paul Fichter, founderand CEO of Taphandles
Education: B.S. in industrial engineering from Northwestern; MBA and master's in engineering management from Northwestern's Kellogg School.
Background: Spent much of his childhood in Europe, where his father worked as a Hewlett-Packard engineer. His family's Northwest roots go deep, though: His great-great-grandfather was Lewis A. Loomis, founder of Ilwaco Railway and Navigation, which built a rail line on the Long Beach Peninsula in the 1880s.
Company growth: Taphandles had about $11 million in 2010 sales and expects $14 million this year.
Company environment: "We do have a keg of beer always on tap... On a normal day it's probably bad form to go there before 4:30."
Source: Paul Fichter
Paul Fichter realized a decade ago that he could profitably make distinctive tap handles for breweries by outsourcing the detailed production work to China.
Recently, he realized something else: For practical reasons, the best place for his fast-growing, Seattle-based Taphandles to put two new manufacturing operations was in the U.S.
This fall, the company is opening a Woodinville facility for making bulky lighted signs and other displays, and a plant outside Chicago that will print beer logos on glassware.
"It's not a charity thing we're doing. It's not a PR thing," Fichter says. "This is a business decision."
Despite his MBA and training in engineering, Fichter isn't just a numbers guy — he's a beer guy, too. The company's website promises a "fun, beer-centric environment," and tells job applicants they need "a working knowledge of Ping-Pong" and a knack for discussing their favorite brew.
Fichter says he was an "unemployed business consultant looking for something to do" when he launched Taphandles in 1999. At first, he was working out of a one-bedroom apartment in Seattle: "I was actually painting handles on the balcony."
He soon moved the production to China, first to a contract manufacturer and then to a Taphandles-owned plant that now has about 450 workers.
Taphandles employs 33 at its downtown Seattle headquarters, and Fichter says within a few years, he aims to hire 150 in Woodinville and 71 in Bedford Park, Ill.
All the merchandising paraphernalia — especially the eye-catching tap handles, with designs ranging from the hilt of a samurai sword (Sapporo) to a prisoner's ball and chain (Jailhouse Brewing Co.) — serves the company's credo, "Sell more beer."
Fichter says studies have shown consumers' perception of what they are drinking depends heavily on what they know about it — the price, the brand, the story.
"Beer without the label is not as tasty as beer with the label," he says. Ultimately, "We're beer storytellers."
Fichter recently discussed the factors that led him to establish the Woodinville plant with Adriana Gardella of The New York Times. A condensed version of the conversation follows.
Q. Why did you decide to open your new factory in the U.S.?
A. The [extra] lead time for orders coming from China is three weeks, and all of our brewery clients want our products faster — that's the first thing they say when we meet with them.
Q. Were there other factors?
A. Once we started looking into it, we found the decision made business sense on many levels. Our Chinese labor costs have increased 300 percent since 2006 when we opened our factory there. Even at the higher wages Chinese workers are demanding, it's gotten harder to find labor. To stay competitive, we've also had to upgrade benefits, such as dormitories and food. On top of that, the Chinese currency continues to appreciate — it was valued at 8.28 to the dollar when I started the business. Now it's at 6.38. And I predict shipping costs will keep going up as a result of the rising cost of oil.
Q. Do you see other manufacturers making the same decision?
A. I think we're on the leading edge of a trend because the factors that are affecting us affect everyone.
Q. Why isn't it happening faster?
A. Change will take time. Five years ago, there was an absolute advantage to manufacturing in China. Today, some things are better produced here, and some are better produced there. It's 50-50. But I think the U.S. advantage will become clearer with time.
Q. Many owners complain about the quality of Chinese goods. Has that been a problem for you?
A. No, we opened our own factory in China in 2006. Quality there is good and has never been an issue. But we have had other challenges.
Q. Like what?
A. I like to do business by the rules, but as an American operating in China, the rules are not always entirely clear. For example, we lost power — and three days of productivity — at our Chinese factory in August. Maybe there was something we could have done to get our power turned back on. Meanwhile, our customers were screaming.
Q. How did you end up manufacturing in China?
A. In preparation for a job interview with Breadman, the bread-machine company, I'd done research on their Chinese manufacturing. I decided to use the Breadman model for my business, which would eliminate the high labor costs that contributed to the failure of that other tap-handle business.
Q. Which products will Taphandles manufacture in Woodinville?
A. While 98 percent of the tap handles will continue to come from China, we also make signs and displays — including the A-frame chalkboards you see outside bars. We want to grow this area of the business and had initially planned to do it in China. Instead, we'll be making these products, which are big, bulky and expensive to ship in Woodinville.
Q. How will your costs compare to what you would have paid in China?
A. We'll break even on production, but come out ahead once we factor in lead time. Right now, we're losing orders because of lead time.
Q. What type of workforce will you need?
A. Mostly skilled technicians who can use computer numerical-controlled machines, which allow us to cut many products at once. Because Boeing is nearby, we've got a great labor pool. The cost of computer automation in the U.S. has also dropped. In China, humans do the same work on much simpler machines. So, we're replacing Chinese labor with machines run by U.S. workers. The machines will make 10 times more product than a person could in China.
Q. Are you hiring people away from Boeing?
A. No, we don't expect to hire directly from Boeing. But we could wind up hiring people who have worked there in the past.
Q. How many jobs do you expect to create?
A. We're in the process of hiring our first five workers and expect to employ 150 at the factory by 2015. Starting base pay will range from $9 to $16 an hour.
Q. How are you financing your expansion?
A. Almost entirely with the tax savings we're realizing because of the law Congress passed at the end of 2010, which allows capital investments to be deducted immediately, not over time. Last year, my tax liability was more than $500,000. This year, because of instant deductibility (of Taphandles' $2 million investment in the Chicago plant), I won't have a tax liability. It's an extremely important deduction. Normally, taxes are pretty punitive on growing businesses.
Q. Why are you leaving the tap-handle manufacturing in China?
A. The tap handles have very intricate shapes that require detailed hand painting. It's labor that you can't automate. I've searched the world and not been able to find the same quality of labor elsewhere.
Q. Do you think Americans still know how to make stuff?
A. Absolutely. My baby's crib was made here, and that was important to me. I didn't have to worry about the safety of, for example, the paint used. The key to success for the U.S. will be using machines instead of brawn. When we surveyed other countries, including Vietnam, the Philippines and Indonesia, we didn't find the skilled labor base we needed. While I'm really proud of creating jobs here in America, it's not just an emotional decision. It makes sense.
Seattle Times deputy business editor Rami Grunbaum contributed to this report.
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