The Corner Candy Store: A Lesson in What Ails Small Business
Goetze's Candy Company in Baltimore, Md., is remarkable microcosm of small business in America. Not only is it firmly rooted on Main Street -- it was founded in 1895 and is still owned by the same family -- but it is also a player in the global economy. It's a manufacturer, a retailer, and, most significantly, it's one of 270,000 small U.S. firms that export overseas.
After five generations in business, the company is a case study of all the hurdles that small companies face to do business in today's global economy. If lawmakers want to understand what needs to be done to boost business and spur the recovery, they need to look no further than the corner candy store.
President and CEO Mitchell Goetze is the fifth generation to run the family business. It was founded by his great, great grandfather August Goetze and today the company has more than 100 employees. It specializes in Caramel Creams and Cow Tales, soft, chewy, caramel-wrapped candy with a sweet center that not only has found a market across generations but around the world.
Within the candy industry, nearly 40 percent of companies export and, similar to Goetze, the majority of these are small, with less than 250 employees, he told the House Small Business Committee at a recent hearing. For Goetze, the desire to grow exports is a matter of simple math.
On average the domestic candy industry is growing at a rate of 2.8 percent per year, which pales in comparison to international confectionary sales, which grew by 6.9 percent last year. His company sells about 30 million pounds of candy each year, but right now only a little over 1 percent of that is sold internationally. It's easy to see where the market is, but getting there is another matter.
"We welcome the opportunity to grow our exports, but there are several bureaucratic obstacles to export growth for small confectioners like Goetze," he said. The story is much the same for the industry. The candy is a $30 billion domestic industry. Nearly 3,000 new products are introduced into the U.S. market each year and many have great export potential. Yet, international sales last year amounted to only $1.25 billion, he noted.
But when it comes to building sales overseas, Goetze and other small business owners face some significant disadvantages. First and foremost, he said, manufacturing cost are higher in the United States compared with other nations, and many small companies also lack the resources in time, money, and personnel to adequately research global markets and execute sales orders. That tilts the playing field right off the bat.
But larger policy issues also work against confectionery exports. As a basic manufacturer, for example, Goetze faces the same problems as U.S. Steel: it must deal with volatile commodity prices. But instead of iron ore, its main raw material is sugar. "Sugar is the most widely used ingredient in the confectionery industry, and the current U.S. sugar policy is woefully outdated," he explained.
"Under the 2008 farm bill, domestic sugar supplies are restricted by 'market allotments' that can never be lower than 85 percent of domestic demand. Marketing allotments are legally binding sales limits on sugar processors. As a result of this 'domestic content' requirement on the U.S. sugar market, and other provisions of the 2008 farm bill, U.S. companies are forced to pay nearly twice the world price for sugar," he said.
"The fact that most imported candy enters the U.S. marketplace duty free creates a major economic incentive for manufacturers to seek co-manufacturing partners abroad to make their candies, or relocate plants and factories outside of the United States," he said. In short, U.S. policy encourages the export of jobs overseas.
"Companies today are moving operations to Canada and Mexico to take advantage of lower business operating costs and avoiding the U.S. sugar restrictions," he said. "At Goetze's, I am fighting to not only maintain my U.S. market share, but to keep manufacturing jobs here in Baltimore.
The government's current policy on sugar was directly responsible for the loss of 112,000 jobs, between 1997 and 2009, according to the U.S. Department of Commerce. For every job created by sugar growers through artificially high prices, three U.S. manufacturing jobs were lost. "It is a remnant from the past -- a market totally controlled by the federal government," Goetze said.
Health care costs have been another major burden for the family-owned business. Between 2000 and 2010, Goetze's costs to provide health care to employees rose more than 250 percent. Although the company pays 80 percent of the total cost, employees are opting out of its health care plan because they cannot afford the other 20 percent. "In many cases, it is the difference between paying that premium or putting dinner on the table," he said. "Adding insult to injury, my employees have also told me that they are opting out because they can go to the hospital for free.'"
As a family-run company, Goetze has also been enmeshed in the estate tax debate. When his grandfather passed away recently, the company was thrown into a crisis. "If it were not for my family savings, the structure of our company would have drastically changed, or worse, possibly lost our business. I believe that a full repeal of the estate tax is necessary to keep family-owned businesses in business," he said.
As a result of his experience with estate taxes, you might think Goetze is an anti-government zealot so often cited by the National Federation of Independent Business. But he is anything but. "Promoting federal government services available to small businesses must be increased," he said.
"The services, expertise, knowledge, and dedication from representatives of the Foreign Commercial Service, Foreign Agricultural Service, Small Business Administration, and many others are first class, but I can attest that most small businesses don't know about them, nor do they have the first clue as to how to take advantage of these programs," he added.
Finally, lawmakers must get off the mark on free trade agreements with Colombia, Panama, and South Korea, which have been tied up in Congress for months. The independent U.S. International Trade Commission estimates that the three agreements would increase U.S. exports by $13 billion, and create more than 250,000 jobs, according to Committee Chairman Sam Graves, R-Mo.
So, if lawmakers need a roadmap on what needs to be done to spur small business hiring and revive the economy, they need to venture no further than the corner candy store. And while they are there, they should try out the Caramel Creams and Cow Tales.
