Graeter’s Manufacturing Company

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Graeter’s Manufacturing Company

2145 Reading Road
Cincinnati, Ohio 45202
U.S.A.
Telephone: (513) 721-3323
Fax: (513) 721-3385
Web site: http://www.graeters.com

Private Company
Incorporated: 1956
Employees: 60
Sales: $37.6 million (2005 est.)
NAIC: 311520 Ice Cream and Frozen Dessert Manufacturing; 311320 Chocolate and Confectionery Manufacturing from Cacao Beans; 311330 Confectionery Manufacturing from Purchased Chocolate; 311812 Commercial Bakeries

Graeter’s Manufacturing Company is a Cincinnati, Ohio-based family-owned and operated company known for its premium ice cream, as well as its handmade chocolates and confections, and its baked goods. What sets Graeter’s ice cream apart from most other brands is the company’s French Pot process of production. A proprietary recipe of egg custard and fresh cream and other fresh ingredients are mixed inside 2.5- to 3-gallon French Pot freezers, essentially a metal chamber within a spinning bucket. A solution of calcium chloride between the units freezes the mixture, and blades scrape the sides to fold the ice cream into the center. In this way, a minimum of air is whipped into the ice cream, making it much thicker and creamier than other ice creams, according to the company.

Graeter’s also takes a different approach to the way it adds chips. Instead of mixing in ready-made chocolate chips, for example, the company pours in liquid chocolate as the ice cream freezes. The freezing chocolate is then shattered with a blade to create different size chips. About the only concession the company has made to modern technology over the years has been the replacement of the original wooden buckets, once they became worn out, with metal pots specially designed by a machine shop.

Because the French Pot process takes 20 minutes to produce just two gallons of ice cream, Graeter’s ability to expand has been limited, but the Graeter family, with the fourth generation in charge, is less interested in growth than in preserving a tradition. While large ice cream manufacturers may turn out as much as 20,000 gallons of ice cream a day, Graeter’s produces about 1,000 gallons. As a result Graeter’s ice cream stores are found in only a dozen Cincinnati locations; 11 in Columbus, Ohio; four in Dayton, Ohio; four in Lexington, Kentucky; six in Louisville, Kentucky; three in northern Kentucky; and a single outlet in New Albany, Indiana.

Graeter’s also sells its ice cream over the Internet, shipping it packed in dry ice by UPS Ground within 200 miles of Cincinnati and UPS Air to more distant locations. Graeter’s handmade chocolates and confections can also be purchased online. Availability of the company’s ice cream cakes and pies and baked goods, however, is limited to the Cincinnati area. The company bakes a wide variety of breads, buns and rolls, doughnuts, Danish and sweet rolls, coffee cakes, pies, specialty cakes, and cookies, all of which are baked on a regular schedule.

ORIGINS

The history of Graeter’s may be traced to Louis C. Graeter. His family had emigrated to the United States in the middle of the 1800s and operated a farm in Madison, Indiana. Graeter was just 16 when he moved to Cincinnati and began making ice cream. In 1870 he opened a stand at the Court Street market to sell milk-shakes and then in the mid-1870s opened a shop at the corner of Gilbert and Curtis and began making candy in addition to ice cream. He was joined by his brother Fred and Fred’s wife Anna, and together they moved the operation to an even larger shop in 1880, which they ran until 1888 when Louis opted to move to California. Fred and Anna Graeter carried on without him, and a year later they relocated the business once again.

Ten years later, in 1899, Louis returned to Cincinnati, and now well into his 50s he married 26-year-old Regina Berger. They opened the Walnut Hills Ice Cream Depot on East McMillan Avenue, which would evolve into today’s Graeter’s Manufacturing Company. Regina gave birth to their sons Wilmer and Paul. After a few years they moved to yet another location, where they ran a shop in the front, made ice cream and candy in the back room, and lived upstairs. They opened a second store as well, where they took advantage of the refrigeration they had there to start a very different enterprise, an oyster parlor. Both stores offered milk-shakes, malts, and frappés, produced by a machine Graeter developed and sold to others, calling it the “Celebrated Eclipse Milk Shake Machine.”

In 1919 Louis Graeter died in a streetcar accident, leaving Regina and their teenage sons to carry on the business. While one went on to become president of the company, Regina was very much in charge. Known by everyone as “boss,” she proved to be a capable businesswoman. Soon after her husband’s death she oversaw a steady expansion of the business. In the 1920s the family began opening more stores in the Cincinnati area. Soon it outgrew its flagship location, and in 1934 the company moved to its current location where all manufacturing was conducted. It also housed a retail shop, which would remain open until the early 1960s, and an upstairs apartment where Regina lived until her death at the age of 80 in December 1955. Up until three weeks before she died, when she became ill, Regina remained very much involved in the business, which by this time included 17 Cincinnati-area stores.

While ice cream provided most of the company’s revenues, Graeter’s continued to make candy, which offered some seasonal diversity. Because the plant was not air-conditioned, Graeter’s avoided candy production because of the adverse impact of high humidity during the summer months, which were the peak season for ice cream sales. During the winter months, when ice cream sales dipped, the company was able to devote space to candy making. As was the case with its ice cream, Graeter’s preferred old-fashioned methods and refused to cut corners. Confections were hand-dipped, and the company even made its own marshmallows, despite the time and space that procedure required. Not only did the company keep starch-molding presses and boards on hand, but unlike most candy companies, it was willing to devote three days to make fresh marshmallows, which required about two days alone for the starch to dry properly.

BAKED GOODS REINTRODUCED: 1956

While founder Louis Graeter had done some baking in his day, he shelved that activity in 1878. In 1956, the company reintroduced German baked goods to its offerings. This was a period of transition for Graeter’s, which experienced a business slump. The company decided to add a product to augment candy sales in the winter and ice creams sales in the summer, and it settled on cakes and pies. It proved impractical, however, to sell just whole cakes and pies, and in order to successfully integrate baked goods, Graeter’s needed to produce an extended line of pastries and breads. Because Cincinnati was saturated with small bakeries, Graeter’s would have to be innovative in order to stand out in a crowded marketplace. Hence, Graeter’s offered such unique treats as caramel apple torte and peanut butter fantasy cake.

COMPANY PERSPECTIVES

We are the trustees of a tradition of quality established when our company was founded in 1870. It is our responsibility to uphold and build on this heritage by maintaining an uncompromising dedication to product quality and by providing an environment where families and friends can nurture the joyful memories that have made Graeter’s an irresistible part of their lives for generations.

The year 1956, following the death of Regina, also brought a change in ownership structure. The business was incorporated and Wilmer and his younger brother Paul took charge. Although they had clearly defined roles (Wilmer oversaw the plant and Paul ran the stores), they did not work well together. In 1957 Wilmer bought out Paul and brought in his three sons (Lou, Dick, and Jon) to help him run Graeter’s. A daughter, Kathy, also joined the company in the mid-1960s, when the third generation assumed control of the business.

The younger members of the family took over a company that required a good deal of nurturing. As a result, Graeter’s kept a tight rein on expansion, which was essentially limited to the amount of ice cream it could produce at its small plant. In fact, over the years the number of stores fell to just ten by the start of the 1980s, as unproductive outlets were weeded out.

The time was ripe, however, to expand the business, given the rising popularity of super-premium ice cream. During the first half of the 1980s the category enjoyed an annual growth rate of 20 percent. In October 1984 the company opened a prototype of a franchise store where it developed modified French Pot freezers that could produce ice cream on site that met Graeter’s level of high quality. There was certainly no dearth of people interested in securing a Graeter’s franchise, but only with the manufacturing question answered would the company even think about franchising the concept.

A separate company to franchise the Graeter’s name was formed, and the first franchise was granted to Lyle and Rosemarie Brumfield, who in September 1985 secured a licensing agreement to make and sell Graeter’s ice cream in Kentucky, as well as to offer toppings, syrups, and other products. The Brumfields opened their first store in Ft. Mitchell in northern Kentucky in June 1986. The Brumfields were chosen because of their commitment to maintaining the high quality of Grater’s ice cream. They agreed to discard any batches of ice cream that did not meet the company’s approval; Graeter’s made it clear that virtually every day a family member would be stopping by to test the ice cream. Moreover, Lyle Brumfield was an attractive candidate because of his experience in marketing and advertising, and Rosemarie was also well qualified to oversee front-end operations.

Although involved in franchising, Graeter’s was not interested in expanding too quickly or taking on too many franchise partners, proving to be extremely selective in the people with whom it would work. The Brumfields would open five more stores (four in Lexington), and a handful of other franchisees would be brought on board to expand into other markets. In 1989 partners Clay Cookerly and Maury Levine opened their first franchise store in Columbus, Ohio. Two more outlets followed in 1991 when a pair of prime sites happened to become available. They opened a fourth Dayton store in 1994. In the meantime, Graeter’s also began to make its ice cream available to several Cincinnati-area Kroger supermarkets, starting in 1990.

PLANT EXPANSION: 1995

Graeter’s enjoyed an annual growth rate of about 10 percent in the early 1990s. It had long ago outgrown its manufacturing capabilities and finally in 1995 the company expanded the facilities it had built in 1934. Space doubled to 28,000 square feet, which was really only sufficient to take care of current needs and did not take future expansion into account. The new headquarters also included a 2,000-square-foot retail store, the 12th company-owned outlet. By this point there were eight franchise stores in Columbus and Kentucky. Earlier in the decade Graeter’s advertised for the first time in its history and in its 125th year the company launched a marketing campaign that coincided with the expansion effort. Out of it came a new logo featuring Grandpa Graeter, an image that the company hoped would add a personal touch and provide some coordination between package design and advertising.

KEY DATES

1870:: Louis Graeter begins selling milkshakes in Cincinnati.
1899:: Graeter and wife Regina open a new shop.
1919:: Louis Graeter dies.
1956:: Baker products added.
1957:: Wilmer Graeter buys out his brother.
1986:: The first franchise unit opens.
1990:: Supermarket sales are launched.
2004:: The fourth generation of Graeter family assumes ownership.

Not only did the Cincinnati plant run out of space, the Columbus franchise operations were also soon feeling the pinch. By the end of the 1990s there were eight central Ohio stores, and the plant that serviced them also made ice cream for sale in 50 Kroger and Big Bear stores. Space was so tight that the company had to eliminate tours of the ice cream factory. Finally in the summer of 2000 a new facility opened in Columbus: a combination factory, store, and ice cream museum. The Columbus franchisee was able to add supermarket sales to the Meijer grocery chain and in 2001 open the first Graeter’s store in the Dayton market.

While Graeter’s expanded at a leisurely pace during the last 15 years of the century, a fourth generation became involved in the running of the business and faced the difficult problem of succession. In 1989 Jon Graeter retired. In their 70s, Lou and Dick Graeter were soon ready to retire as well, but their sister Kathy was younger and wanted to continue working. The third generation was also hesitant about turning over ownership of the business to the young members of the family until they proved they could work well together. To make matters more challenging, the franchise business was owned by the elders and the younger Richard Graeter, but not his two cousins, Bob and Chip. Thus, the family was faced with three choices: give half to Richard and quarter-stakes to Bob and Chip, or split it evenly among the three, who would then buy out their aunt. The inclination of the third generation was to divide the business equally, but convincing Richard, who everyone agreed was entitled to a half interest, took time.

With ownership roles confused and the question of succession proving a distraction, the company was having difficulty making some decisions as Bob Graeter noted in the Cincinnati Business Courier: “We were dysfunctional, the six of us.” Unable to reach an agreement on dividing the business, but still committed to running the company, the Graeter’s in 2001 hired a business psychologist, Michael Hartings, to help them work through the issues. Over the course of two-and-a-half years they addressed problems that had been hounding the company since the falling out between Wilmer and Paul in the 1950s. The three members of the fourth generation discovered a natural division of roles in the organization and agreed to an equal split of ownership, but not before coming close to dividing the company in two, with Richard assuming control of the franchise business and his cousins taking the dozen company-owned stores in Cincinnati. Dissatisfied with the plan, which the cousins agreed was a recipe for eventual failure, they agreed to equal ownership. Their elders accepted the proposal, which went into effect on the first day of 2004. Given that only an estimated 3 percent of family businesses are able to make the transition to a fourth generation, it was a notable achievement.

With the matter of succession dealt with, the Graeter family was able to focus on growing the business. The company revamped its Web site and began shipping an increasing number of ice cream orders beyond its market, which was already sizable, due in no small measure to Oprah Winfrey, who in 2002 declared on her popular television show that Graeter’s was the best ice cream she ever tasted. A new branding strategy was launched, resulting in new logos and packaging, and a revamped marketing program was instituted. Then, in 2005, the company opened its first new freestanding store since 1994 in Deerfield Township (Mason), Ohio. The larger format would also serve as a prototype for future stores and renovations.

Even as the Graeter family was preparing for the future it continued to cherish the past, committed to following the traditional methods of making ice cream and candy that Louis Graeter had employed more than 100 years before.

Ed Dinger