NEW YORK -- One thing Richard Smith says he has learned is that you can make more by marketing highly competitive products than by manufacturing them.
'My grandfather and father manufactured ice cream in New York and at 15 I worked in my Dad's factory in summer making popsicles at high speed in molds that rode through a brine tank,' he recalls. 'Today that's all done by automated machines, but when I was a kid it still was backbreaking labor and the brine put big raw sores on your hands.'
But the hard work was only one thing Richard observed. What really impressed him was that he saw over the years that the American business climate was changing so that in highly competitive products like ice cream, the profit opportunities all are in marketing, not manufacturing.
'The changes inexorably squeezed the manufacturers' profit margins painfully thin while the margins of the marketers spread and bloomed.'
That's the basic philosophy behind the marketing empire Smith has built for his Dolly Madison and Frusen Gladje ice creams. He controls their manufacturing standards but doesn't actually make them -- he markets them in 30 states and is in the process of invading Japan and Canada with them.
There's also a touch of P.T. Barnum in Smith. The great nineteenth century showman believed people loved to be fooled by hokum and would pay well to be thus entertained -- but you must give them full value for their money.
So it is with Smith's Frusen Gladje premium-priced ice cream. The name means Frozen Delight in Swedish and the packaging and advertising lets customers infer that Frusen Gladje is made in Sweden from an old Swedish recipe. There is a company in Stockholm that has issued a license to Smith's American company for the formula, but that's just the crowning Barnumesque touch. Smith admits he bought the Swedish company as an afterthought to lend some artistic verisimilitude to the Frusen Gladje story.
Actually, Smith says he developed Frusen Gladje in retaliation for the refusal of the makers of Haagen-Dazs to sell him their premium priced ice cream in two and a half gallon containers.
'I was distributing Haagen-Dazs in pint packages for them but they were afraid of what I might do with the bulk ice cream since they are starting their chain of dipstores,' he recalls. 'I told them if they refused to sell me Haagen-Dazs in the bulk containers, I'd start my own premium brand with a funny sounding name.'
The premium-priced ice creams with the funny sounding foreign names which Haagen-Dazs pioneered have been an enormous success. The name Haagen-Dazs sounds Danish but really isn't and it doesn't mean anything. It's another Barnumesque stunt. There's a third of these ice creams on the market, called Alpen Zauber, made in Brooklyn.
The story of Smith's Dolly Madison Industries, which originally was Smith Brothers Ice Cream Co. starts early in this century when his grandfather arrived at Ellis Island from Russia. The immigration officer couldn't pronounce his Russian name but another immigrant told him it meant 'blacksmith.'
'That's too long,' the official told Smith's grandfather, 'from now on you're just plain Smith.'
So the newly-named Smith settled down in New York, got a job delivering coal and rather quickly went into business for himself. He also brought his father over from Russia.
The coal business was terrible in summer so Smith branched out like other small coal dealers into ice and then ice cream. The ice cream was made in the basement of a candy store and the great grandfather Smith delivered it to stores in downtown Manhattan by a horse-drawn wagon.
'Those were rough times,' Richard recalls. 'There were constant struggles between small businesses over routes and some dirty tricks were played like poisoning delivery horses.'
But the business prospered and a factory was opened.
Richard's grandfather was a very progressive manufacturer for his day, one of the first Manhattan ice cream makers to go to electric refrigeration instead of old fashioned ice and salt.
Richard's father, who had worked his way through Ohio University at Athens, Ohio, sold the business in 1968 to Dolly Madison Industries and his son, Richard, who also had worked his way through Ohio U, went to work for Dolly Madison.
Richard says the main things he learned working for Dolly Madison were what not to do in business.
Dolly Madison was an unusual conglomerate run by an accountant who had built a successful vertically integrated furniture company and thought he could do the same with other businesses, but the whole thing fell apart like a house of cards.
Richard had left Dolly Madison and set himself up at the age of 28 as a small independent ice cream distributor. When Dolly Madison crumbled he bought its trademarks and embarked on a long-range national marketing campaign for what had been essentially a small two-state brand in the East. He also ceased big scale manufacturing.
Talking with Richard Smith about the growth of his business, one gets the distinct impression that he not only has the kind of imagination P.T. Barnum had -- but Barnum's brass and boldness as well.
For example, when he decided to invade the West Coast, he called on Foremost-McKesson and the other big makers of ice cream up and down the coast and told them he wanted them to make and sell his brands under his formulae and methods.
'We need you like we need a hole in the head,' a Foremost-McKesson executive told him bluntly.
'Some day you're gonna need me more than I need you now,' he retorted. And in a comparatively short time he had Dolly Madison ice creams going like crazy in several Pacific Coast supermarket chains.
'Very soon then Foremost-McKesson came to me and wanted to make my brands after all,' he says.
Smith says his father never quite understood why he wanted to expand so much. 'I'm not sure I understand why, either,' he admits. 'Some people think I'm just driven by the desire to make money, but I doubt that. I think creative marketing itself drives me more than the money it brings in.'
His love of creativity was expressed in the great lengths he went to develop a new type pint container for Frusen Gladje. The container manufacturers wouldn't listen to his idea for a plastic container with a screw top and a foil seal so he had to hire a designer and contract the manufacture of the container out.
'Then a big container maker came to me and asked for the job of making it,' he smiled.