Richard Graeter knew there were dark days ahead even before Ohio Gov. Mike DeWine and Department of Health Director Dr. Amy Acton issued a stay-at-home order for the state on March 22nd. Considered an essential food industry business, Graeter’s Ice Cream did not have to close its Cincinatti factory or any of its 55 retail stores, the bulk of which are in Ohio and Kentucky, with a scattering of locations across Indiana, Illinois and Pennsylvania. But with brick-and-mortar accounting for 70% of sales and foot traffic all but shut down, Graeter braced for the sharpest decline in sales the company has seen in decades—if not ever.
The impact was sharp and painful as predicted: April retail sales were down 35%. “If not for COVID-19, I’d have had a stroke and died” hearing that number, says the CEO, who has worked in the family business for more than 30 years. “But given COVID—well, let’s just say I’m happy that we were only 35% down.”
The blow was softened a little by a 30% boost in grocery sales and growth of the e-commerce business (figures for online sales were unavailable). Thanks to a prescient tech investment last year and months spent on back-end integration with the POS and payments systems and with the loyalty app—”a ton of work,” he says—the company had a brand new online-ordering system ready to launch just prior to the crisis. The timing “was sheer dumb luck,” says Graeter—although he grudgingly accepts a small measure of credit for investing in innovation to improve customer access to the company’s product. With the new technology, customers can place an order through the app or the website and then either pick it up curbside or have it delivered. “So that is one of the reasons that our brick-and-mortar sales didn’t fall further,” he says.
Graeter fully expects this to be the new normal for the next 12 to 18 months, which has forced the company to postpone its celebration of a big milestone: 150 years in business. While he thinks the company is doing all it can right now to keep sales up through virtual channels, he acknowledges that it’s tough to lead when so much is still unknown. “The future’s kind of a black hole,” he says. “My expectation is sales will be down for the rest of the year and this will be the first year I expect to lose money—a lot of money. But I also expect that we will survive.”
Indeed, Graeter’s is one of the few companies that can say it has survived not only the Great Recession, but also the Great Depression. “And don’t forget the Spanish Flu,” he says. “My great-grandmother was here for that in 1918. We survived that and two World Wars,” he says. “I draw strength from knowing that our business has been through all of this before at some point in our history and we’ve survived. That’s inspiring.”
On the practical side, Graeter’s got a boost from the Paycheck Protection Program; despite having more than 500 employees—and as many as 1,500 during the summer months—it was able to qualify because no one location has more than 30 people. He makes a point of clarifying the difference between Graeter’s and big franchisers. “We are not like Shake Shack,” he says. “They’re a franchise and a public company so they can raise capital through equity and bond and commercial paper—all those channels we don’t have. We’re not a big company—we’re 55 very small [private] businesses under one umbrella.” Ultimately, the PPP will allow the company to “tread water for longer—hopefully long enough that when a vaccine finally does come and we can get back to normal, we’ll be ready.”
Meantime, Graeter has his alarm set to remind him to tune in to Gov. DeWine’s daily press briefings and he offers high praise for both DeWine a Republican, and Kentucky Gov. Andy Beshear, a Democrat, for “not politicizing the crisis and showing the importance of good leadership.” Until further notice, Graeter says his company will make sure that, whatever other shortages supermarkets might experience—“I’m still scratching my head about the toiletpaper”—shoppers will always be able to get Graeter’s handcrafted French pot ice cream. “Because if you’re a shopper and you walk down the freezer aisle and those shelves are empty, well, that’s scary, right? It’s like, ‘Oh my God, it’s the zombie apocalypse.’”
By being proactive and moving quickly, Graeter’s was able to secure lucrative end-cap space in grocery stores because bigger companies weren’t able to keep up with demand. “Kroeger’s had all this prime retail space that was empty and they were losing revenue, nobody could keep it filled,” says Graeter. “I have my trucks delivering our ice cream, my team putting it on the shelf, my merchandisers setting it up—everybody has worked overtime, even my VP of sales went to work in the field to get those shelves stocked. Our mission changed from, ‘hey we’re here to celebrate all the happiness in the world’ to, ‘hey we’re here to bring you a little comfort food to help get you through these anxious times.’ That is our new mission for the duration of this: life is tough and things are going to be different, but together we can get through this—and it’s going to be okay.”
In the expanded Q&A below, Graeter shares insights about pivoting in a pandemic, taking care of employees and why, in order to survive the worst, a company must stay true to its roots.
How did you make sure your factory and your retail stores were ready to operate under the new restrictions?
We went to the CDC website and OSHA has a manual and Ohio specifically, I think of all the states, has been the most exemplary in proactively dealing with this and providing information and guidance. So all those resources basically told us what to do and how to do it—from sanitation to the six feet apart and taping things on the floor and all of that. So we basically just took guidance from those materials and followed it. It really isn’t rocket science. It’s basically read and do.
Have you had to make any drastic staff changes?
Fortunately, we have not had to furlough any employees. We gave employees the option to stay home if they felt that coming to work represented a risk to them or to someone in their household because of a unique medical condition. We basically said you can stay home, take leave of absence, access your PTO and we will continue your benefits. A few people for individual reasons have availed themselves of that, but not many. We have cut back on the hours, like our stores are open fewer hours right now, which was part of the guidelines so that we can do more intensive cleaning more frequently. We initially cut back on production at our factory, dropped a day of our shifts, but we’ve since restored that. So luckily for us, because we’re an essential business and are allowed to remain open— although under significantly more different operations—we’re still open. But we have not had to furlough anyone, thankfully.
Gov. DeWine just announced a staggered reopening for some retail businesses. How will that impact you?
I don’t expect that that’s going to impact us at all. It means that other businesses that have been shut down entirely can reopen if they do the things that the businesses like Graeter’s and other essential businesses have already been doing. Since our neighbor businesses that had been closed will now be open, I expect foot traffic will pick up, which will be nice. But again, that brings the challenge of continuing to maintain social distancing because our employees are trained, but you know, when customers come in, you have to sometimes remind them—that’s just part of the new normal and I think that’s going to be our normal for the next 12 to 18 months. I say, keep calm and carry on, [borrowing] the World War II mantra from London, we can’t do anything about COVID-19, we just keep calm and carry on and that means you follow the guidelines, train your employees, give them masks…and every day is just the next day, until a vaccine comes.
Family businesses often flame out by the third generation—Graeter’s now has fifth generation employees. You’ve survived multiple wars, depressions, recessions and the Spanish Flu. What makes your company so resilient?
I would simply say it’s our stubbornness to not change. You know the author Jim Collins—in Built to Last, he wrote that those companies that have survived for over 100 years, they all have one thing in common and that is that they preserve the core [of the business] and, at the same time, they stimulate progress. It’s not an “either-or” decision—it’s an “and” decision. So we can stay true to who we are. And that means [keeping our] French pot process, which is a super crazy way to make ice cream because it’s inefficient. We don’t have one big machine that continuously spits out ice cream like everybody else in the world does. We have 37 little machines spinning in our plant making ice cream, 2.5 gallons at a time per machine, very labor intensive. You have to hand pack it at the end because the ice cream is so dense when it comes out of that machine. It’s inefficient—but that’s what makes Graeter’s ice cream. That is our point of difference. It’s something that, when you taste it and you feel it in your mouth, you know—wow, this is special. So we preserve that. We’ve never changed that. My generation had the chance in 2010 when we built a modern plant, we could have changed how we made the ice cream, but we didn’t.
Was it tempting to switch to a more efficient process?
Of course it’s tempting and I did think about it. As part of building that plant, we went to a big trade show at the McCormick Center in Chicago and I met other equipment makers and talked to them and thought about it for half a second. But the French pot process is just embedded in our DNA. It’s who we are. If we ever succumb to that temptation, I think it would be the last generation for the family, because without it, we’re just like everybody else.
But at the same time that we’ve preserved that core, we’ve had to stimulate progress and change things that are non-core. In that plant, everything that comes before and after those French pot freezers is very modern—up to and including a robot in our freezer that builds pallets. My father couldn’t even imagine that, right? So it’s doing both. And that I think is what has really been one of the secrets of our success. We’re always worried, it never stops, about how do we improve the guest experience? How can we make it better? We also have just a great team that has really stepped up during this even more crazy time. If we didn’t have the people we have, we wouldn’t be doing what we’re doing even if were allowed to stay open forever. At the end of the day, you’re only as good as the people on your team and we’re blessed to have a fabulous team.
The other secret is, you know, you still gotta you live within your means. We keep most of the capital in the business. We have nice lives and I have a nice home, but, you know, I don’t have a Leer jet. We’re a Cincinnati family. We’re just normal people. You can live a nice life, but you leave the money in the company. That’s the message I give to our next generation [so they don’t end up] like so many other stories of family businesses—the first generation works their butt off to build the business and the second generation then sits on their butt and they blow it. That’s typically what happens. We have managed to not do that through each successive generation. Each generation kind of looks at themselves as the custodian of the business. And our job is to build on what has been bequeathed to us and appreciate that and pass it on better to the next generation. And you can add to it—one generation added stores in other states; another added bakery—as long as you preserve what got you here.
What did your generation do?
Before our generation, it was all Graeters [family members] that ran things and you had a lot of employees. Now our leadership team is predominated by non-family members and we have an incredible team. Our CFO [Craig Eten] came from Sunny Delight [Beverages], our VP of national sales [George Denman] came from Dannon—we’ve been able to attract that talent because, while they might be able to make more money at other places, here they’re part of the leadership team. That’s our generation’s biggest accomplishment— building that non-family power team that can take this business to the next generation. And if that generation chooses not to be active in the business, I’m confident that our non-family leadership team can lead our company into the next generation.
Another reason we’ve been able to survive is, we’re just not that greedy. We should be paid more for our product because of the quality, but we can live on what we’re getting for it. It’s a fabulous product, but it’s an affordable luxury. In the end, that really describes what we are and what our mission is—to be that luxury that everybody can afford to put on their table. That’s who we are.