Assignment
Independent and family-owned for more than 140 years, Graeter's has successfully made the transition from a 19th-century mom-and-pop ice cream business to a 21st-century corporation with three manufacturing facilities, dozens of ice cream shops, and hundreds of employees. Much of the company's success over the years has been due to the family's strong and enduring entrepreneurial spirit. SMALL BUSINESS, BIG AMBITIONS The road to small-business success started with cofounder Louis Charles Graeter, who developed the startup's first flavors, insisted on only the finest ingredients, and made all his ice cream by hand in small batches to ensure freshness and quality. After his death, his wife and cofounder Regina maintained the same high level of quality as she led the company through three decades of aggressive growth. Her great-grandson, CEO Richard Graeter II, says that "without her strength, fortitude, and foresight, there would be no Graeter's ice cream today." Richard, Bob, and Chip, great-grandsons of the founders, are the fourth generation to own and operate Graeter's. They grew up in the business, and now they share responsibility for the firm's day-to-day management and for determining its future direction. Bob worked his way up to vice president of operations, starting with a management position in one of the Graeter's icecream shops.
Chip, currently vice president of retail operations, handled all kinds of jobs in Graeter's stores as a teenager. He uses this first-hand knowledge of customer relations to fine-tune every store function. Richard Graeter became the company's CEO in 2007. "Even though I have the title of CEO, in a family business titles don't mean a whole lot," he comments. "The functions that I am doing now as CEO, I was doing as executive vice president for years . . . It really was and remains a partnership with my two cousins . . . Our fathers brought us into the business at an early age . . . I think most important is we saw our fathers and their dedication and the fact that, you know, they came home later, they came home tired, they got up early and went to work before we ever got up to go to school in the morning, and you see that dedication and appreciate that-that is what keeps your business going." Graeter continues, "It can be challenging to work with your family. My father and I didn't always see things the same way. But on the other hand, there is a lot of strength in the family relationship . . . we certainly had struggles, and family businesses do struggle, especially with transition . . . but we found people to help us, including lawyers, accountants, and a family-business psychologist." GROWING BEYOND CINCINNATI To expand beyond Cincinnati without diverting resources from the existing stores and factory, the third generation of Graeter's family owners decided to license a handful of franchise operators.
One franchise operation was so successful that it even opened its own factory. A few years ago, however, the fourth generation switched gears on growth and repurchased all the stores of its last remaining franchisee. "When you think about Graeter's," says the CEO, "the core of Graeter's is the quality of the product. You can't franchise your core. So by franchising our manufacturing, that created substantial risk for the organization, because the customer doesn't know that it is a franchise. . . . They know it is Graeter's. . . . You really have to rely on the intention and goodwill of the individual franchisees to make the product the way you would make it, and that is not an easy thing to guarantee."
After working with consultants to carefully analyze the situation and evaluate alternative paths to future growth, the founder's great-grandsons decided against further franchising. Instead, they pursued nationwide distribution through a large network of grocery stores and supermarket chains. They also built a new facility to increase production capacity and hired experienced executives to help manage the expanded business. As a private company, Graeter's can take actions like these without worrying about the reaction of the stock market. Specifically, Graeter's is an S-corporation, which allows it limited liability protection coupled with the benefit of not being taxed as a corporation. Instead, the three owners-who are the stockholders-pay only personal income taxes on the corporation's profits. In the event of significant legal or tax code changes, Graeter's owners do have the option of choosing a different form of corporate organization.
Questions
1. Graeter's current management team bought the business from their parents, who did not have a formal succession plan in place to indicate who would do what. Do you think the current team should have such a plan specifying who is to step into the business, when, and with what responsibilities? 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 realize 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
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.