Years ago I was returning to San Francisco on a plane. The fellow next to me and I got into a conversation. Seems he had just been fired as the assistant controller for a fast moving company, and chain restaurant franchiser. He volunteered that he had just been fired for telling an uncomfortable truth.

The company had just bought a bagel company based in Berkeley, but their bread and butter was a chain of comfort food restaurants. They had gone public and were the darlings of Wall Street. It seemed as if they could do no wrong. They were fodder for the so-called business news. In all the papers. They were expanding rapidly. Revenues were exploding.

The uncomfortable truth this fellow had uncovered was that they were in trouble. Seems sales in existing stores was down, year to year, for the previous five years. They were raking in money in investment from their IPO, and their expansion, but the fundamentals were not sustainable. He put this into the draft annual report, and they fired him, at least, according to him.

A few months after that flight, the company went bankrupt.
Too often companies try to solve deeply ingrained problems by growing. In fact, business schools teach the myth of “Grow or Die.” Sometimes growing bigger is not better. Growing too fast can be a cancer.

I know some artisan cheese producers that crashed or had to sell, for similar reasons. For the love of Mary, not all mind you, but some.
One was offered a once in a lifetime chance by a large natural food chain. The chain gave them a grant and helped them find loans to pay for the expensive new equipment they would need to install to meet the stores’ proposed demands.

Problem was, those stores had been having trouble with the store to store profits. From the outside, and to many in the company, they appeared flush with cash because of a recent IPO, and rising stock value due the rapid rate of expansion. But their store to store operational problems, hidden by growth, reached the choke point. Not long after the cheese maker purchased and installed the new equipment, they cut their orders. Not long after, the cheese maker was gone. He could not meet his loan payments on the diminished sales.

I know of another, one of the best cheese makers in the country, mind you, who borrowed heavily to expand as things were not working when small. Similar result, but they talked to me before they had no options and took my advice to find some local people to buy their business. The founder is gone. But they made a graceful exit. The cheese continues.

Another fairly large producer told me they had 5 tons of excess inventory. I told them to sell it off at pennies on a dollar and move on.

They couldn’t, as their line of credit was guaranteed by the size of their inventory. After a few years of selling older than should be cheese, their sales had diminished so much that they had to sell out to a huge Canadian cheese company. The Canadians sold off all the excess inventory immediately, at pennies on the dollar, and turned the company around in a few months. They have gone on to win many a top award with the cheeses originally created by the first owners. A little tragic.

Whole Foods may have run into a similar conundrum. The drive to grow to show their Wall Street investors growing revenues, ran up against problems in profiting store to store, year to year. In the end they joined the behemoth Amazon, making a tidy sum for the owners, but changing the character of stores that had been something special when they started.

Perhaps the same pot of gold mentality struck them as well. Profits hard to make...you gotta grow!

In the case of my alma mater, Andronicos, they grew fast during a boom, and died slowly thereafter after a bust. Expansion can cover up deeper problems. Those problems can fester. By the time the excitement of growing dies down, those problems can become fatal.

Which brings me to Fairway. It was a sad day when Fairway sold to speculative investors. I knew it, but I do not think they or the media did. Once in the same regal category as Stew Leonards and Zingermans, they measured their shelf sales by the linear inch, not by the linear foot.

Steve Jenkins signs were legendary, and they sold cheese. People flocked just to read the latest signs. It was my first stop when visiting New York, even before Zabars. Many of those who went on to create other well known gourmet brands, got their feet wet with Steve behind his cheese counter. They had only one store at the time, and then the Grow or Die mindset set in. They expanded, ran short on capital I suppose, so they brought in investors. The investors then bought the chai. They planned massive expansion, and plunk.

When I first heard they were having problems I called a friend who worked there. I offered to have a look and see if I could help. He laughed, saying: “They could use it, but they think they know everything already. Lord knows I have tried.”

Fairway Market files for bankruptcy and plans to sell its stores -(from https://www.businessinsider.com/fairway-files-bankruptcy-plans-to-sell-stores-2020-1)

Which brings me to a small cheese maker I know in the mountains of Minas Gerais, in Brazil. His name is Alyrio, and he makes an incredible cheese: “Ferreira Campos.” When I first met him, he had only eight cows and made only two wheels a day. He also made a profit. on them; a small one perhaps, but nonetheless, a profit.

My point being, what makes you think growing will solve your problems, if you can’t figure out how to make money when you are small? Sometimes it is more like grow and die than grow or die. You have to master your fundamentals. DS
.

Dan Strongin is a former president of the American Cheese Society, chef and business coach for small to medium value added businesses. Dan can be reached via email at dan@danstrongin.com

The views expressed above do not necessarily reflect those of Cheese Reporter.

Dan Strongin

Dan Strongin is a former president of the American Cheese Society, chef and business coach for small to medium value added businesses, and the owner of the sites learn.managenaturally.com, and the Facebook group Enjoy Cheese. His online course: “Cheese: How to Buy, Store, Taste, Pair, Talk About and Serve”, is available at enjoycheese.net. Dan can be reached via email at dan@danstrongin.com.

Recent Columns