How Graeter’s Inc. handled exponential growth without compromising its identity

Interviewed by Dustin S. Klein

In 2007, Graeter’s Inc., a maker of ice cream for its own branded scoop shops as well as consumer packaged products sold at grocery stores, was on the cusp of making decisions that would greatly impact its future.

It was still in its old plant, which President and CEO Richard Graeter’s great-grandmother had purchased. It was also still operating in the mentality of a small manufacturer.

In the coming years, the company would make key changes that would result in significant growth — an amazing 31,900 percent. Most importantly, however, the company gained valuable experience about how to be a national player while protecting its identity as a maker of craft ice cream.

Shifting mentality

Graeter met with consultants in 2007 after navigating a difficult generational transition a few years earlier to determine the company’s strategic direction.

“And what we decided was we did not want to franchise,” Graeter says. “Franchising is really a financial game … It’s all about finances and my family is not that. We’re ice cream makers.”
He says that he didn’t want the company to be a brand that put a priority on fast growth only to have what made them a household name for the past 100 years fall apart. He bought back two of the three existing franchises, and was working on the third.

“They were happy and they wanted to grow, and I had lots of requests to expand franchising, and we just were afraid that that would put our brand at risk,” Graeter says.

Having decided that Graeter’s was all about ice cream, the next step was to work on making more of it. One of the consultants, an operations expert, helped the company improve efficiencies at the existing plant. Coming out of that consultation was the need to shift mentality from that of a small business trying to save every penny to thinking like a big manufacturer.

“We would wait until a drive belt on a machine broke before we replaced it,” Graeter says. “Operations experts will tell you that you need a plan for preventative maintenance. When that belt hits 90 days old, you replace it regardless. That way you’re never down. So, you know, we saved $10 on a belt under the old method, but you’d have overtime because you were out of production. Things like that increased our capacity in our little plant by about 50 percent.”

Having improved its manufacturing process, the company started looking at where else it could sell its ice cream. At that time, the company was in 20 Kroger stores, selling more there than Häagen-Dazs and Ben & Jerry’s put together.

Seeing the opportunity, Graeter and his team met with Kroger, a fellow Cincinnati business. As luck would have it, the company’s executives were not only familiar with, but personally enjoyed Graeter’s ice cream. The numbers, they found, backed up an expansion of the relationship.

“Their Dunnhumby data showed that we had just off-the-charts customer loyalty,” Graeter says. “And they, I think, wanted to explore that and see how we would do in other divisions to see how maybe they could find other specialty niche products and other parts of the country and do the same thing that we were able to do.”

After Kroger’s successfully tested the ice cream in Denver, it expanded the offering to Texas, then Atlanta.

“And that’s when we started thinking, ‘Okay, now we’re going to need to build a new plant,’” Graeter says.

Between 2008 and 2009, Graeter hired an architectural firm and began the year of planning, which led to a new plant opening in June 2010 — a 25,000-square-foot, purpose-built facility with a dedicated level capable of producing 1 million gallons of ice cream, nearly triple its previous capacity gained after efficiency improvements.

“And with the two shifts we’re running, we could really crank it up and probably get another half million gallons of ice cream out, if we really worked hard, annually,” Graeter says.

At first, Graeter’s focused its production efforts on meeting Kroger’s demand.

“And frankly, we couldn’t have done much more anyhow. It was all we could do to learn how to feed them,” he says. “It’s kind of striking now to think back at just how ignorant we were and how little we knew.”

The Sam Adams of ice cream

The company didn’t have a broker, so the Kroger team helped by connecting them with one of the national brokers.

With that in place, Kroger’s recommended a senior-level salesperson to manage the broker, which set the company on the course to build out its senior management team. Now, Graeter’s was after new accounts. It started with local and state grocers, but it was chasing something bigger, which presented new challenges.

“Kroger was easy because they wanted to expand this to every division and we had this great relationship, and we did,” Graeter says. “Other retailers, it’s more difficult. Publix, for example, has been more of a challenge because they didn’t know us from anybody.”

He says it was difficult at larger retailers, such as Wegmans and Whole Foods Market, to appreciate the uniqueness of Graeter’s brand, the unique process and loyal following.

“That process is a point of difference that their customers will pay for, because the product is different. When you eat it, you can tell it’s different. And we have those giant chocolate chips, which nobody else has,” he says.

There are regional brands of ice cream, considered premium, such as Pierre’s and UDF Oberweis.

Then there are super-premium brands like Häagen-Dazs and Ben & Jerry’s.

“And we’re basically like the Sam Adams of ice cream,” says Graeter. “What Sam Adams did to the beer category, which is create this appreciation that basically creates demand for a product that didn’t exist before, is kind of what we’re doing in the ice cream category.”

Graeter’s, he says, has always been craft ice cream. The goal of the company is to get retailers to create a door of their frozen aisle that’s dedicated to that product niche.

“And it’s not just us,” he says. “We picture ourselves as the premier craft ice cream. It’s artisanal, it’s small batch, it’s great ingredients. There are other brands that fit this definition, and we say we should all be in a category unto ourselves. Like Sam Adams is probably the largest and most famous of the craft breweries, we want to be the largest of the craft ice cream makers.”

The Graeter’s approach

In 2007, Graeter’s was available in about 25 retail stores. The moves it has made since has put its products in more than 8,000 national and regional grocery stores, which it accomplished through a very simple process.

“Persistence,” says Graeter. “You just have to keep at it. I mean, we would be at these (trade) shows, we’d see the buyers and you make the appointment, you go in and you get 15 minutes and they say no. And you flew all the way up to New York City to do all that. Well, next year you fly up again, and you do it again, and you just keep pushing at it.

“The other thing that changed is we were available in other stores in Manhattan — D’Agostino’s, Fairway, Kings, Fanucci’s — and customers started talking about it and asking, ‘Why aren’t you at Whole Foods?’ And I would say, ‘Well, we’d love to be? Why don’t you request it?’ So, consumers requested it, but I think that really, ultimately it was building a relationship with purchasing.”

Growth at Graeter’s, however, is controlled so as not to dilute the essence of the product.

“We’re being careful with growth,” Graeter says. “Wal-Mart came to us twice and wanted us to sell in their stores, and we said no twice. It’s not a volume game for us. It’s careful, controlled growth. We want to work with those retailers who believe in a win-win relationship and not all of them do. I think opening up our retail stores in this growing Midwestern area is critical to that success because as we open those we’ll be more successful in the retailers in Chicago and in Nashville. I think that that’s our real goal is to be the biggest little guy.”

Wal-Mart isn’t the only retailer Graeter’s has avoided. Winn-Dixie, Ahold, Stop & Shop and Safeway are also retailers whose concepts don’t fit with Graeter’s approach.

“Being able to say no is an important part of the growth,” Graeter says. “Harder for my sales guy. Not so hard for me.” ●

How to reach: Graeter’s Inc., (800) 721-3323 or www.graeters.com

Takeaways

  • Determine who you are and maintain that identity.
  • Learn from the experts.
  • Be willing to say no to growth if it isn’t the right fit.