business case

Part 1. Running a Business

Only a tiny fraction of family-owned businesses are still growing four generations after

their founding, but happily for lovers of premium-quality ice cream, Graeter’s is one of

them.

Now a nearly $50 million firm with national distribution, Graeter’s was founded in

Cincinnati in 1870 by Louis Charles Graeter and his wife, Regina Graeter. The young

couple made ice cream and chocolate candies in the back room of their shop, sold them in

the front room, and lived upstairs. Ice cream was a special treat in this era before

refrigeration, and the Graeters started from scratch every day to make theirs from the

freshest, finest ingredients. Even after freezers were invented, the Graeters continued to

make ice cream in small batches to preserve the quality, texture, and rich flavor.

Book Title: eTextbook: Foundations of Business Part 1. The Environment of Business Part 1. Running a Business

Let’s Go Get a Graeter’s!

After her husband’s death, Regina’s entrepreneurial leadership became the driving force

behind Graeter’s expansion from 1920 until well into the 1950s. At a time when few

women owned or operated a business, Regina opened 20 new Graeter’s stores in the

Cincinnati area and added manufacturing capacity to support this ambitious—and

successful— growth strategy. Her sons and grandchildren followed her into the business

and continued to open ice-cream shops all around Ohio and beyond. Today, three of

Regina’s great-grandsons run Graeter’s with the same attention to quality that made the

firm famous. In her honor, the street in front of the company’s ultramodern Cincinnati

factory is named Regina Graeter Way.

The Scoop on Graeter’s Success

Graeter’s fourth-generation owners are Richard Graeter II (CEO), Robert (Bob) Graeter

(vice president of operations), and Chip Graeter (vice president of retail operations). They

grew up in the business, learning through hands-on experience how to do everything from

packing a pint of ice cream to locking up the store at night. They also absorbed the

family’s dedication to product quality, a key reason for the company’s enduring success.

“Our family has always been contented to make a little less profit in order to ensure our

long-term survival,” explains the CEO.

Throughout its history, Graeter’s has used a unique, time-consuming manufacturing

process to produce its signature ice creams in small batches. “Our competition is making

thousands and thousands of gallons a day,” says Chip Graeter. “We are making hundreds

of gallons a day at the most. All of our ice cream is packed by hand, so it’s a very

laborious process.” Graeter’s “French pot” manufacturing method ensures that very little

air gets into the product. As a result, the company’s ice cream is dense and creamy, not

light and fluffy—so dense, in fact, that each pint weighs nearly a pound.

Another success factor is the use of simple, fresh ingredients like high-grade chocolate,

choice seasonal fruits, and farm-fresh cream. Graeter’s imports some ingredients, such as

vanilla from Madagascar, and buys other ingredients from U.S. producers known for their

quality. “We use a really great grade of chocolate,” says Bob Graeter. “We don’t cut

corners on that … Specially selected great black raspberries, strawberries, blueberries,

and cherries go into our ice cream because we feel that we want to provide flavor not from

artificial or unnatural ingredients but from really quality, ripe, rich fruits.” Instead of tiny

chocolate chips, Graeter’s products contain giant chunks formed when liquid chocolate is

poured into the ice-cream base just before the mixture is frozen and packed into pints.

Maintaining the Core of Success

Graeter’s “fanatical devotion to product quality” and its time-tested recipes have not

changed over the years. The current generation of owners is maintaining this core of the

company’s success while mixing in a generous dash of innovation. “If you just preserve

the core,” Bob Graeter says, “ultimately you stagnate. And if you are constantly stimulating

progress and looking for new ideas, well, then you risk losing what was important.… Part

of your secret to long-term success is knowing what your core is and holding to that. Once

you know what you’re really all about and what is most important to you, you can change

everything else.”

One of those “important” things is giving back to the community and its families via local

charities and other initiatives. “Community involvement is just part of being a good

corporate citizen,” observes Richard Graeter. When Graeter’s celebrated a recent new

store opening, for example, it made a cash donation to the neighborhood public library. It

is also a major sponsor of The Cure Starts Now Foundation, a research foundation

seeking a cure for pediatric brain cancer. In line with its focus on natural goodness,

Graeter’s has been doing its part to preserve the environment by recycling and by

boosting production efficiency to conserve water, energy, and other resources.

Graeter’s Looks to the Future

Even though Graeter’s recipes reflect its 19th-century heritage, the company is clearly a

21st-century operation. It has more than 200,000 Facebook “likes,” connects with brand

fans on Twitter, and invites customers to subscribe to its email newsletter. The company

sells its products online and ships orders via United Parcel Service to ice-cream lovers

across the continental United States. Its newly opened production facility uses state-of-

the-art refrigeration, storage, and sanitation—yet the ice cream is still mixed by hand

rather than by automated equipment. With an eye toward future growth, Graeter’s is

refining its information system to provide managers with all the details they need to make

timely decisions in today’s fast-paced business environment.

Graeter’s competition ranges from small, local businesses to international giants such as

Unilever, which owns Ben & Jerry’s, and Nestle, which owns Haagen-Dazs. Throughout

the economic ups and downs of recent years, Graeter’s has continued to expand, and its

ice creams are now distributed through 6,200 stores in 46 states. Oprah Winfrey and other

celebrities have praised its products in public. But the owners are just as proud of their

hometown success. “Graeter’s in Cincinnati is synonymous with ice cream,” says Bob

Graeter. “People will say, ‘Let’s go get a Graeter’s.’”*

Questions

1. How have Graeter’s owners used the four factors of production to build the business

over time?

2. Which of Graeter’s stakeholders are most affected by the family’s decision to take a

long-term view of the business rather than aiming for short-term profit? Explain your

answer.

3. 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?