Economy, workers' comp force cuts at chocolate firm: Chocolates a la Carte's hand-made custom chocolates make efforts to boost productivity especially difficult.

A one-two punch from the economy and workers' comp insurance has Chocolates a la Carte quieting its sweet tooth for expansion.

The company has laid off nine of its workers and shortened its workshift to seven and a half hours from eight.

The changes are the latest in downsizing efforts that began about a year ago when Chocolates a la Carte laid off 25 percent of its workforce as a result of the downturn in the economy.

More recently, the Valencia-based maker of chocolate confections for the hotel, cruise and catering industry has seen its workers' comp costs balloon to $500,000 a year from $250,000, an increase that has taken a severe bite out of the company's profits.

"It's more than we would have hoped to make in profit," said Rick Pocrass, CEO of Chocolates a la Carte.

Chocolates a la Carte moved from Sylmar to its current Valencia facility in 2000 expecting to double its revenues and employee ranks. In addition to expanding its core business with hotel and cruise line customers, the company was beginning to develop a retail distribution product line, Signature Chocolates by Rena, for the first time.

But the attacks of Sept. 11 affected its main customers and sent Chocolates a la Carte sales shipping downward.

The company reduced its workforce to 150 from 200 and it began a program to improve productivity.

"As my wife Rena says, you can be a victim or a victor," said Pocrass of the co-founder of the company and its creative director. "'As a victor you'll find a solution."

Boosting productivity

Chocolates a la Carte has cornered a niche for hand-made chocolates custom designed for the companies that buy them, which has made instituting changes to boost productivity especially challenging.

"If it were a machine-made product, our customers wouldn't buy," Pocrass said.

Chocolates a la Carte could not automate production, but it could develop systems to assist the manual process.

"None of the equipment to do that exists," said Pocrass. So we're making it ourselves and it's not very easy."

Chocolates a la Carte hired an engineer from Europe and invested about $100,000 last year on new systems. The company expects to invest another $100,000 on new tooling this year, an expense Pocrass said can be recouped within the year in added sales.

Production increased to about 400 confections an hour, up from about 200 per hour without the power assistance. With continued effort, Pocrass hopes to double productivity yet again.

The trouble is that as productivity rises, so too do costs.

Besides the additional energy costs and added expense of providing health care benefits, rising workers' comp costs hit Chocolates a la Carte particularly hard.

Its hand manufacturing means that ailments such as arthritis can be traced to the workplace even if they are actually caused by other factors.

"As a handmade product, we're on sudden death that an employee who stays long enough and could have arthritis because of aging, now has a workers' comp disease," said Pocrass.

Pocrass says he takes no issue with the need for workers to have protections in the event of injuries, just with the way the system is set up.

The company now pays $18 for every $100 of salary paid to employees in production and $2 for every $100 paid to those in office support functions.

"If I didn't get a discount, the actual rating is really $23," said Pocrass.

When his premium costs doubled, Pocrass once again had to seek ways to cut costs.

Cutting the hours in a shift, he said, actually reduced the number of layoffs required from 20 to nine. He is hoping to resume full work shifts when the summer ends.

"Summer is our slow time and what we usually try to do is put stuff in inventory," Pocrass said. "With cash flow restrictions this year, we just cut the belt back as much as we can."

Chocolates a la Carte also suspended its 401(k) plan profit sharing contributions.

"We've done everything to be as lean and mean as a company," said Pocrass.

Growth revisions

Still, the company has had to revise its expectations for growth downward.

"Our vision was to go to 400 employees when we moved here, and it's completely changed," he said. "Our vision now is to hang on."

Without the anticipated profits it once expected, Chocolates a la Carte doesn't have the money to expand its Signature Chocolates by Rena distribution in the way it first planned. Although the line is gaining retail distribution, including placement at Costco, a large push for the holiday season has been put on hold.

"We're doing it on a boot strap basis instead of being able to invest in it," said Pocrass. "There's a lot of stores that would have taken this product for Christmas."

Meanwhile the company is seeking new avenues of distribution that can make use of its new manufacturing processes.

"We'll take some products that have larger volume potential, and if we can do it on a second shift, we all win," said Pocrass. "But we'll never build another plant in this environment."

The 30,000 additional square feet of space Chocolates a la Carte hoped would come into use when the company expanded has already been leased now. Now the company is seeking a strategic alliance with a company whose product line compliments the confections.

"There are a lot of ways we'll look for answers," said Pocrass, "but they'll be different answers."