Entering the ice cream business: A case study of kleinpeter farms dairy

INTRODUCTION Stepping into a quiet corner down the hallway from the buzzing noise of the auction, Jeff Kleinpeter smiled as he spoke into his cell phone, "Sue Anne, we are in the ice cream business. "There is no turning back now. We just spent $58,000 on one piece of equipment." "Jeff you know that I trust your judgment, but this is a bit over the top, don't you think? Are you sure about this?" Sue Anne questioned in reply as any CFO worth their salt would do. "I know that this is going to be a huge investment for us. We discussed this at length with dad before flying out here to Dallas. Joe May, our ice cream plant consultant, is here with us and he assures me that this is a great deal for us," answered Jeff. "From the time I received a notice in the mail that a huge ice cream company here was closing down; I thought that this might be our chance to buy ice cream making equipment at bargain basement prices." "Why did they close down?" asked Sue Anne. "They said their biggest account had pulled out overnight. It was 60 percent of their business. That was it--they had to shut down," Jeff replied. "I am glad that Joe is there for the technical advice. We know about milk and the dairy business, but ice cream is new for us. You are sure about this now, Jeff?" asked Sue Anne again. "In the auction, we bid the $58,000 on the ice cream freezer itself--the thing that pumps the air in and has the blades that turn to make the ice cream. It has three barrels and makes 1200 gallons of ice cream per hour. Additionally, we bought six fine pieces of equipment for about 10 cents on the dollar. It is beautiful, brand new equipment--state of the art. Don't worry; Joe is advising us on the technical aspects of fillers and shrink-wrappers." GROWING THE COMPANY: THE NEED FOR ICE CREAM With the purchase of the ice cream equipment in Dallas, Jeff had started the family business on a great adventure, maybe the biggest risk taken in 95 years at Kleinpeter Farms Dairy. The idea was not new with Jeff. For years, the Kleinpeters had thought about and talked about ways to grow their company and entering the ice cream business in particular had been considered many times before, but this time was different. Jeff remembered a recent conversation with his father, Ben Kleinpeter, just before Jeff flew to Dallas to look at the ice cream equipment. "I love ice cream and I have wanted to get into the ice cream business. People have asked me about it for years, but I always thought it would cost too much," said Ben. "I think this time we can make some super purchases on the right equipment to get into the ice cream business," replied Jeff. "In many ways, the production of ice cream would be a natural fit for our company. We all know that we need an outlet to sell or use the surplus cream from our milk production," mused Ben. "Yes, consumers are demanding more low-fat or skim milk. We have always removed the cream from our milk, but now we have to do this even more so. The days of high demand for Golden Guernsey rich, thick creamy milk are past. I don't think the trend toward low- fat products will change." Jeff added. "We do sell some butter and whipping cream and half-and- half, but not enough to invest heavily in plant and equipment." "There are other alternatives, Jeff. We could increase our revenues with other products besides milk and ice cream," Ben conjectured. "Yes, Dad, you are right. We do bottle juice and water. We buy the water from Kentwood, which is natural spring water. We would have to do things like reverse osmosis with our water in order to use it, not that our water is bad. Plus, they buy the plastic bottles from us to put the water in. We have a reciprocating relationship," said Jeff. "Another option would be to invest more heavily in the production of cheese." "Yes, I have thought of that as well, but which one is going to solve our problem the best? …