Strategy

Ice cream headache

Last fall, the Chapman’s Ice Cream factory in Markdale, Ont., burned to the ground. Mere months later, the beloved family-owned company is raising itself from the ashes and staging an improbable comeback.

The Chapman’s Ice Cream factory in Markdale, Ont., caught fire on a sunny morning last September, lit by a spark from a welder’s torch. The 85,000-square-foot complex, home to Canada’s largest independent ice cream producer, occupied an entire village block, but at its centre was a centuryold creamery, the first building that David and Penny Chapman purchased when they opened the business in 1973. The creamery’s wooden joists and rafters provided perfect fuel for the flames. A loud snap, like

When the fire was done, the factory’s corrugated metal siding sagged and buckled like a used Jiffy Pop container. The logo above the door, a pair of cherub-faced kids enjoying ice cream cones, was smeared and soot stained. In the freezer, workers found still-frozen chocolate caramel ice cream, insulated against the heat by the surrounding ice cream. Even these two-litre minor miracles were discarded because of the risk of contamination. Soon after, the Chapmans razed the factory’s remains, demolishing the business they had diligently built over nearly four decades.

But now, only six months later, after a series of major risks, leaps of faith and shrewd decisions (like a good insurance policy), Chapman’s is set for an improbable comeback. Not a single paycheque has been missed since the fire, their workforce is growing, and construction has begun on a new plant double the size of the old facility, an operation quaintly dubbed “Project Phoenix.” In the interim, a warehouse has been transformed into a makeshift production facility, and smaller producers across southern Ontario have been contracted to produce Chapman’s products. Ali Asgary, a disaster and emergency management professor at York University’s School of Administrative Studies, says Chapman’s recovery offers a blueprint for other imperiled companies. “Chapman’s story will be a successful business resiliency case ? in my courses for years to come,” he says.

Yet while they’ve been impressively fast in restarting production, fast isn’t necessarily good enough in the ice cream trade. Ice cream season is quickly approaching. Frozen-food manufacturers compete for a small amount of freezer space within grocery stores, and each must ensure they keep their hard-won space filled, lest the store cede it to a competitor. “Every shelf you fight over,” says Penny. “It’s not a can of peas where you can stick in on an end shelf.” The longer it takes to rebuild its factory, the more time competitors have to steal customers. Chapman’s will need to exhaust some of the goodwill they’ve accumulated. But if they succeed, they will prove beyond a doubt that old-fashioned values — like loyalty to employees, customers and community — can still pay dividends.

The size of Chapman’s hometown, its products’ folksy packaging and the company’s even folksier owners all belie the magnitude of its business. Its share of the $433-million ice cream market in Canada is sizable. It falls behind Nestlé and Unilever in terms of revenue generated, but in terms of sheer volume of ice cream sold, Penny Chapman says her company is No. 1. The discrepancy only exists, she says, because Chapman’s does not offer a premium brand, hobbling its revenue potential but honouring its principles. “We try to sell at a fair price,” Penny says. “The dollars don’t add up as fast as they do for Häagen-Dazs or the Ben & Jerry’s, which can sell for $7.49. For that price, you should get a little gold chain or some kind of jewelry.”

Penny and her husband, David, purchased the Markdale Creamery in the year they were married. They met at the Luttrell Loop Maple Leaf Dairy Bar in Toronto, where he was a vice-president and she scooped ice cream. They purchased the creamery for $69,000 and lived above the factory for the first seven years, raising their young family: daughter Frances, now a law professor, and son Ashley, a chef who joined the family business two years ago as a vice-president. They moved to Markdale, two hours northwest of Toronto and south of Owen Sound, because the plant already had a difficult-to-acquire operating license. In their first year, each of their six employees received a frozen turkey as a Christmas bonus. Employees received bonuses last Christmas as well, despite the factory fire. “It would have been very easy to say this year, ‘It’s a disaster, not going to do bonuses,’” says Penny, who wears a diamond-encrusted brooch in the shape of an ice cream cone affixed to a bright red blouse. “But no, those people worked every day for us. So then we had three bad months, does that wipe out the rest? No.”

From six employees, Chapman’s has grown to employ more than 300 people, making it big business in a village of 1,400. A one-stoplight town with a couple of banks, a few grocery stores and a decent German deli, Markdale used to be a small industrial hub, with a furniture plant and footwear manufacturer alongside Chapman’s. But those businesses left or closed, leaving Markdale reliant on the tourist trade from nearby ski hills and Chapman’s for its prosperity. For years, Markdale held an annual ice cream festival each summer, a sign of Chapman’s pride of place within the community.

“I’ve got to give them credit for staying here,” says Brian Mullin, the local mayor. “With manufacturing the way it’s been in southern Ontario, they would have had plenty of opportunities to move into larger facilities along the 401 [highway] corridor.”

Chapman’s willingness to temper its business acumen with loyalty and genuine concern has engendered plenty of goodwill. The company has found success by paying as careful attention to its customers as it does its employees. A few years ago, Penny Chapman noticed she was receiving letters from parents saying their children couldn’t eat ice cream at birthday parties because of a severe nut allergy. Chapman’s soon became one of the earliest purveyors of nut-free ice cream. Plans call for the converted warehouse to be used as a “nut house” when the new plant is complete, allowing ice cream with nuts to be made in an entirely separate facility. “So we did nut-free, and then we get letters from people who are allergic to dairy, so we did sorbet,” says Chapman, sipping coffee from a china teacup. “And then we had children who have diabetes, so they can’t have sugar, so we do one without sugar. Yet our core line is, you know, we make damn good ice cream.”

Making damn good ice cream enabled Chapman’s to compete against a pair of multinational corporations that would otherwise dominate the industry: Unilever, which owns Breyers, Klondike, Popsicle and Ben & Jerry’s, and Nestlé, which owns Häagen-Dazs. At first, Chapman’s distinguished itself from the competitors by offering variety, making orange-pineapple and rum-raisin when most manufacturers only offered chocolate, vanilla, strawberry and butterscotch. Not all the company’s experiments were successful; in one attempt, marshmallows disintegrated when frozen in chocolate ice cream, making it look more like Swiss cheese than dessert. But that spirit of icy innovation continues. Penny Chapman delights in describing a new Nanaimo bar delicacy. Plans also call for one involving macadamia nuts and shortbread.

The Chapmans announced plans to rebuild within hours of the fire. Despite their optimism, the destruction of the plant cast unease upon the community. All winter, business has been slow at the local grocery store, says Doug Crawford, the Foodland’s owner and president of the Markdale Chamber of Commerce. “I think it’s that old thing that if you don’t see that building there, you don’t see everything rosy, and you’re not as optimistic as you should be. I think it’s reflected in the way people shop.” ?

Six months after the fire, Penny Chapman stands in the middle of a soggy field where a mass of steel girders is rising out of the ground, and sweeps her arm across the 20-acre rebuilding site, just a few blocks from the old plant. “It will be 185,000 square feet when it’s finished,” she says.

Her son, Ashley, corrects her. The finished building will be a mere 165,000 square feet — spanning the size of two football fields.

“I always mix it up and say it’s bigger,” she says.

“It’s big enough, Ma,” says the son.

The new facility is a behemoth compared with the quiet surrounding village, but its size is in scale to the Chapmans’ business. The largest Canadian-owned ice cream company, the firm ships to all provinces and territories and operates a fleet of 60 trucks. In addition to its own products, 25% of Chapman’s business comes from manufacturing products for President’s Choice and other store labels. Its warehouse in Markdale, located down the highway from the factory, holds six million containers of ice cream. Until the new facility is completed, the Chapman family direct this operation from a converted teak furniture factory, hastily purchased in the week following the fire. Space is so tight that Penny and Ashley share the office. (“I finally got the office just the way I wanted it,” Ashley says of his space in the old factory. “Two weeks later, it burnt down.”) Behind Penny’s head hangs a sign that reads: “When Mama’s not Happy Nobody’s Happy.” The warning would have far more bite if Chapman wasn’t so unrelentingly cheerful.

In the days following the fire, the company’s senior management team, operating from the Chapmans’ kitchen table, crafted an ambitious blueprint for rebuilding. The company had already recently doubled the size of its dry goods warehouse. David Chapman saw potential in the bare-bones structure. “He said, ‘I think we can do ice cream here,” his wife recalls.

To transform the warehouse into a factory, drains and sewers needed to be installed, along with an electrical station, engine rooms and countless other bits of infrastructure. The company also needed equipment, and waiting for new machines to be built would have taken six months. Instead, Joe Jacobs, Chapman’s vice-president of operations, flew to Florida, where machinery from a shuttered ice cream plant was being auctioned off. “It was like, ‘Yes, we want this, yes, we want this, yes, we want this,’” says Penny. “And then you cross your fingers and hope — and by God, we got it.”

Within seven weeks of the fire, Chapman’s was once again manufacturing ice cream in Markdale. Offering a tour of the makeshift facility, Penny Chapman points at a 20-foot high silo, which greets visitors when they enter the production room. “That’s just full of liquid chocolate,” she says with verve. She also pauses to marvel at her husband’s ingenuity — he designed a tangle of tubes and nozzles that inject chocolate and vanilla ice cream into a carton in equal measure. When frozen, the ice cream slices into a checkerboard pattern.

At the time of the fire, Chapman’s had several months’ worth of ice cream in storage, but loyal Chapman’s customers looking to stockpile their favourite treats quickly ate, literally, into the reserve. To compensate for diminished production in Markdale, Chapman’s enlisted the help of other small producers, including Reid’s Dairy in Belleville, the Stoney Creek Dairy and Shaw’s in St. Thomas.

“They’re a family-run business and so are we,” says Kelly Heleniak, one of the three sisters who operated Shaw’s ice cream. “If we’d had a devastation like that, we would need help. We didn’t want to see a landmark manufacturer go up in smoke.”

In Shaw’s case, the company’s existing employees handled the increased production. In the other instances, Chapman’s employees travelled to the factories, producing familiar products in new locations, creating new logistical challenges. Chapman’s paid for their workers transportation on buses, found them hotels and even ensured each employee had a ride to the plant each day. Despite the nuisances, the move meant many Chapman’s workers returned to work far earlier than originally expected. Between insurance money and the mobile workforce, no Chapman’s employee lost pay because of the fire.

Goodwill and careful planning enabled Chapman’s to keep producing throughout the winter. But Victoria Day — when demand rises with the temperature — is now less than six weeks away and the new factory is not complete. Cold weather this winter made it difficult to pour foundations, and the completion date has been pushed from April Fool’s Day to Canada Day to Sept. 4, the one-year anniversary of the fire.

In addition to their particular challenges, Chapman’s must contend with some troubling industry-wide trends. Canadians spent $433 million on ice cream in 2009, a 3% increase over the previous year, according to the Nielsen Co., a market research group. Research also suggests that a diverse product line is wise. While the consumption of vanilla increased 1% and chocolate fell by 1%, the popularity of maple walnut hiked by 6% and cherry ice cream increased by 8%. Despite these gains, the number of ice cream servings consumed by the average Canadian has decreased over the past decade. Consumers are increasingly seeking out portable snacks, and while cones fit that description, a chocolate sundae does not. For their part, the Chapmans say their biggest business challenge comes not from yogurt cups, but from industry trends that sacrifice quality for profits. They continue to use Canadian milk in an era when much of the “ice cream” on the shelves is really frozen dessert, more vegetable oil than cream. Despite making a higher-quality product, the company is under constant pressure from retailers to match their competitors’ prices.

At home in Markdale, there are grumblings that local politicians have neglected the town’s best corporate citizen. As Chapmans dug the foundations for the new plant, they discovered a storm sewer that did not appear on municipal plans. They paid to move the 90 metres of pipe. They will also spend somewhere up to $2 million to build a private water tower and reservoir to supply the plant’s new sprinkler system. (Mayor Brian Mullin claims the municipality sped along permit approvals, and there are discussions of improving highway access from the new plant.)

Despite the logistical, commercial and bureaucratic headaches, the Chapmans remain committed to Markdale, their local team of employees and their traditional way of conducting their affairs. “Move? No. No,” says Penny Chapman, drawing each “no” out for effect. “Everything’s here. There’s no better control. Knowing your people and knowing their names.”