BSTR301 Business Strategy

Question:

Case Study – Graeter’s ice cream

Graeter’s was founded in Preston in 1870 by a couple named Charlie and Regina Graeter, who made ice cream and lollies in the back room of their shop, sold them in the front room, and lived upstairs. Refrigeration was still unknown at the time, and ice cream was a novelty.

The company currently operates a few dozen stores in Melbourne and regional Victoria, and its products are available in hundreds of supermarkets throughout Victoria, Tasmania, and South Australia. Graeter’s built an additional production facility to support its continued expansion, and it operates a retail website where customers can order ice cream to be shipped anywhere in Australia. The company views its competition to include all upscale treats rather than just other ice cream brands.

Several factors make Graeter’s unique and help account for its long success. Perhaps the most important is the product’s quality. Throughout its history, Graeter’s has focused on using a unique manufacturing process that produces its signature ice cream flavours in small batches to preserve the quality, texture, and flavour. Graeter’s manufacturing method ensures that very little air gets into the product, producing a dens e, creamy texture that is not found in other brands. Another success factor is the use of simple, fresh ingredients, such as high-grade chocolate, farm-fresh cream, and fruits that are in season. The company ensures that all of the ingredients its sources are of the highest quality.

Today, Graeter’s is still owned by the Graeter family – now in its fourth generation. The business is still privately owned and operating out of Preston. Though the company has grown and expanded, particularly in the last ten years, its small-batch manufacturing remains similar to the company’s original handmade process. Compared to the competition which mass produces its ice cream, Graeter’s takes time with every batch and packs it by hand.

Graeter’s no longer maintains franchise operations, though it had licensed a handful of franchise operations over the past 20 years which proved to be financially lucrative. The company discovered that it was unable to control the quality of the product at franchised locations, which created substantial risk for the organisation. As a result, the management team at Graeter’s repurchased all of its franchised stores.

A key to the company’s success over the years is the fact that each generation of management has understood the importance of ensuring long-term survival even when it means keeping less profit in the short term. The company’s top management team currently consists of the great-grandsons of the original founders: CEO Richard Graeter and his cousins Robert and Chip Graeter. Although their functional roles vary considerably, the family members operate the business as an equal partnership, with every major decision being made on a consensus basis.

After three generations of mum-and-pop style operations, the company has undergone significant change in the current generation. One of the most significant changes has been the involvement of outside people into the corporate management team. The company brings in consultants to help refine its vision and develop a business strategy. Graeter’s also jumped at the unexpected opportunity to buy out the last franchise company operating Graeter’s retail stores, as well as its factory. Graeter’s went from operating one plant to operating three plants, but the management team believes this will provide them with more opportunities for expansion.

Although you might think working for an ice cream company would be motivating under almost any circumstances, Graeter’s doesn’t take its employees’ commitment for granted. The company employs about 800 hourly workers in three production facilities and dozens of ice cream shops in and around Melbourne. Over the last few years, it has benefited from tightening up some of its long-standing human resource management procedures, including those for hiring and evaluating employees. In past years, Graeter’s has operated its retail operations with a laisses-faire attitude, where goals and measurement systems weren’t strongly emphasised. But the company has since established measurement systems and is communicating expectations through its employee training program.

Turnover is low, with some employees spending their entire careers with Graeter’s and eventually retiring from the firm. Employees wear badges with their names and the number of years they have worked for the firm. One of the reasons for such low turnover is the company’s competitive benefits package. Graeter’s offers its employees’ benefits including flexible-hours, car plans, discounted lunches, generous superannuation payments, and profit sharing in the form of bonuses at the end of each financial year.

Graeter’s uses a number of marketing strategies to promote its line of products. Graeter’s considers as its competitors not only brands like Haagen-Dazs and Ben & Jerry’s, but also all kinds of premium-quality desserts and edible treats. Quality is what the current management team hopes will propel Graeter’s beyond its current market. For instance, it uses dairy products from hormone-free cows and has an artisanal production process that yields two gallons per machine every 20 minutes. These small batches ensure that Graeter’s maintains the highest in quality.

In 2008, Graeter’s got a big boost from some positive mentions on a few national TV programs including Good Morning Australia and The Project. National attention continues with occasional exposure on news and lifestyle programs. Still, Graeter’s faces the same challenge in new markets with a limited marketing budget. Through its South Yarra-based ad agency, Graeter’s does some local advertising, including point-of-sale displays, radio ads, print ads, and billboards. The company also uses non-traditional promotion methods, such as electronic couponing and social media. The company is able to reduce prices to some of its distributors, allowing for in-store product promotions. Although the company regularly launches promotions, brand loyalty has grown mostly through word of mouth that endures across generations.

Graeter’s has expanded its retail operation to South Australia in recent years. The company hopes to someday open stores in Sydney and Brisbane.

Graeter’s uses data and information to establish sales and performance measures that are then used to help establish strategic perspectives for the company. Once information is gathered, it becomes an input for management information systems, giving the Graeter’s management team a set of powerful decision-making tools. On the reporting side, Graeter’s controller is responsible for preparing financial statements, payroll, and various reports. Graeter’s has already experienced the benefits of having better information, particularly information about sales. When management noticed that bakery sales weren’t up to par in some stores, the company reduced the number of products sold in these locations.

A few years ago, the company undertook the construction of a second factory. A few months before the new plant was to open, Graeter’s was facing a buyout of its remaining franchisee, which included the sale of several stores and a factory. To pay for the unexpected acquisition, the company had to come up with millions of dollars in additional financing over and above what was borrowed to build the new plant.

Your task

Write a report in your own words, providing solutions to the following questions:

1. Knowing that Graeter’s competes with multinational corporations as well as small businesses, would you recommend that Graeter’s expand by licensing its brand to a company in another country? Why or why not?

2. Graeter’s hired management consultants to help improve its training procedures and expand distribution. “I think my cousins and I all have come to realise we can’t do it alone,” says the CEO. Why do you think the management team made this decision? Does the involvement of outside consultants move Graeter’s further from its roots as a family business?

3. Do you agree with Graeter’s decision to stop franchising? Explain your answer.

4. What have been company’s most important strengths? Can you identify any weaknesses that might affect its ability to grow?

5. Graeter’s is currently a non-union company. How might the experience of working there change if a union were to be introduced?

6. What are the elements of Graeter’s marketing mix? Which are most likely to be affected by external forces in the marketing environment?

7. Graeter’s ice cream line includes smoothies and sorbets. Do you think it should consider other brand extensions such as yogurt, low-fat ice cream, coffee drinks, or other related products? Why or why not?

8. Suppose you were writing a social media plan for Graeter’s, with two objectives: to improve brand awareness in new markets and to build online orders during holiday periods. What quantitative and qualitative measurements would you use to evaluate the results of your plan?

9. What kinds of questions do you think bank managers might ask Graeter’s owners before agreeing to loan the company $10 million for the “unexpected acquisition”?

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