Most new companies in food and beverage businesses start small, and they get bigger if they are successful at meeting the expectations of their customers, but when growing, they have to deal with new managerial issues and face new challenges. To explore this topic today we are with Federico Grom, who is one of the founders and now the president of the board of Grom, an ice cream shop chain: one of the most successful cases in the food landscape in the last few years. Federico, good morning. Good morning Gabriele. Thank you for the introduction. I am just a scooper, just to clarify for everybody. Can you tell us a bit of story? So what is the idea behind the Grom project? In the beginning what was the idea? Actually, the idea didn't come from me. This is first a story of a great friendship, the friendship between Guido, my business partner, and myself. Guido at that time was a winemaker, and one Saturday in August 2002 he was in front of probably the most famous vineyard in Italy in Barbaresco, a vineyard called San Lorenzo. And from that vineyard every year there comes probably the best barbaresca wine that is Sori San Lorenzo of Gaja, great, famous producer. And Guido was there, just for trying to copy the best practice, and that day, that Saturday, Carlin Petrini, the president and found of Slow Food, really one of the big guru in Italy, wrote an article about gelato saying that the old art of making the best gelato in the world in Italy was lost. And the so called maestri were not able to use the best ingredients, and the market was driven and owned by the big companies making semi-worth product. So Guido came back from that day with an idea. Why don't we try to change this approach, selecting the best ingredients in the world. So he came, at the time I was CFO in a small company. Should be small because I was so young and I couldn't be CFO of a big company. And proposed me something strange, unusual. Saying listen, Federico, if we share our different experiences and we start to select the best ingredients in the world, like the big chefs do in the restaurant world, we can make the best gelato in the world. We need to be completely concentrated on the quality. We need to avoid any chemicals, additives. And we can do the best in the world. And I thought, this guy's crazy. We are in Italy in the middle of many mom and pop gelato stores. You cannot change a traditional world. But in fact, probably I was in a disruptive moment in my life. I was thinking to change something. And I started to study the business plan of this idea. It was not my idea. And after a couple of weeks I called Guido and said, listen, I want to tell you something. And I presented him in a simple bar here around in the suburbs of Turin, a plan, a 50 page plan, with a cash flow forecast, with all the hypotheses and the strategy. And the strategy was to open six stores in five years. We studied these analyses, I studied these analyses, so positive and negative points, even though I cannot teach to you those things. And I told Guido, listen, we have a very strong point, our friendship. We will have fun, it will be a great story and in any case it will be a great experience. And Guido looking at me told me, listen, yeah, and then the next positive point? No, sorry, this is the only one. So let's go with the negative point. Our idea is to make the best gelato in the world. It's very important to have a goal, the mission. Many times I noticed that there are many practices but not the mission. So we had the mission the first day, but we don't know how to make any flavor, any gelato. The first pillar of the camp. The second pillar was, we don't know how to open any store. We do not have any experience in retail. Second pillar. The third pillar was we do not have any money. And the plan at that time was purveying and that was the end of the initial story, was purveying 32,500 euros each as capital, as initial equity. And so with those three pillars, not knowing anything about gelato, anything about retail, and without money we started our company. And Guido, after this declaration of potential success, no, no, no, he looked at me saying, okay, let's do it 50%, 50%. And so then we started really studying and with patience looking into a new world with the open eyes of a young kid. This was really the initial moment. Very interesting. So now that much time has passed under the bridges, can you identify some stages in the development of the company, since the birth to today? Yes, the first part of the story was really the studying, the analyzing and the learning period never finished but starting from zero the learning curve was very difficult in the first period. And we started with the first nine months before the first opening. So since September 2002 when we decided to approach this new market, we started to study and to learn and to discover. At first in this period, we discovered the people that I call dream destroyers. In your dream you meet different people they always tell you, you cannot do it because it's different, because the marketing rules are saying something different. And this was the first difficult point in our first stage. And I'll give you a very clear example. It was November 2002. Our first fair show of a gelato. It was in the northeast of Italy. And we went there with a very clear idea, with no knowledge but with a very clear idea. Best ingredients, no additives. And for doing this, we need to have the old fashioned counter with the covered tubes. And we entered first in the fair, we arrived at the first exhibition of counters, and inside this part, this small shop, there was the owner of the company. And we asked him, listen, we want to have not those kind of counters, with all the visible gelato. We want to have the counters of the 50s, of the 60s, so covered. And he looked at us saying, listen, guys, you will go bankrupt in six months. You don't know. You didn't study the competitors. You don't know that there are rules to follow. The rule is that you should show your product to the customers. You should have nice mountains of gelato, well-decorated. You should have big cones and cups for a small price. And if you don't follow these rules, you will go bankrupt very soon. I learned a very clear rule managing our business, managing my business, I prepare offer, and I am make invoices to anybody that I think is able to pay me maximum in six months. I cannot prepare to you any offer, you will go bankrupt. And we went out to this first, it was our first meeting with an expert of gelato and a little bit demotivated, but with the clear idea that we were changing something. So a potential mistake, but a disruptive moment. And Guido was really passionate about this. He told me, listen we will be the first. We will change something. And we would propose something different with the old version of the counter. And it happened other times so, when we discovered that all the varieties of pistachios were full of colorants and when we decided to avoid any colorants, they told us, no, the pistachio should be green because the marketing experts say that it should be green. And we were thinking, we do not understand why. It should be good, not green. If the natural pistachio is brownish, it would be brownish. And then I can call ignorance that becomes creativity. If you have a specific ignorance but a larger culture in different fields, you can look at that small sector, a small area with clear eyes. And you discover that something that you don't understand maybe can be changed. And so this was the first phase. When we opened the first store we didn't know anything about managing a store and in 2005 we learned how to manage a store. In 2005 we entered into a new phase and I can say 2005, 2007-8, it was the phase of growth in Italy. Looking for finance for the growth and consolidation of the knowledge we gathered during the first two years. Then we entered into 2007, 2008 in a new phase that I would call, the agricultural age, the international age, which is a strange combination, but in 2007, we realized that without managing the agriculture directly, our dream to make the best gelato in the world was not possible. So we both in 2007, hectares and hectares of vineyards, the best land in Italy, we grow off of the vineyards and we created our farm, Mura Mura, where we cultivate different varieties of fruit, as an R&D space, in an open-air area in a fantastic valley surrounded by vineyards. And we cultivate four varieties of fruit, peaches, pears, apricots, and figs, that support 100% of our needs. The same year, we decided to approach the international market, and we discovered that the US, the average consumption per head in the US was much higher than in Italy, and we decided to open in New York. And we open in New York on May 5, 2007, the first store, and it was really a great moment. We had a huge, incredible press coverage without any investment in advertising, we had the one food page of the New York Times and different television had big interest, and that was probably one of the best weeks of our professional life. Then the next phase was that the approach with the crisis that arrived, and unfortunately over 12 years of the young story of our company, we had five, six years of a big, deep depression. First the U.S., so we had the negative decrease of the sales in New York and then in Italy. And the last phase that we are living is trying to live with the depression, working more with the cost, continuing our investment in the quality, and looking more at the each line of the P and L in order to fight away the Italian depression, and since 2012, I would say more focused on the international market. So we started in 2007, but we consolidate the international markets in 2012 and now we are opening other stores abroad. So, we are opening in the Middle East in Dubai. We will open soon in Jakarta, before the end of this year in Hong Kong. So, we are working to become more international than we are today. And staying on this point, trying to elaborate a bit more on this. Selling gelato to those very many different countries with their consumers who have different tastes, different cultures. How does it affect your way of approaching the market, approaching the business? It's a very interesting question. Actually it was the same question we had when we decided to open in Japan. We are not selling ice cream. Shortly, the answer is we are not selling ice cream. We are selling an Italian experience. When we opened the first store in Japan, and now I explain better my answer, we decided to have two flavors dedicated to the Japanese market, to the Japanese customers. One was a fior di latte with adzuki. Adzuki's the red bean, the sweet red bean. And the other was a matcha green tea, that is the best green tea that you can find in Japan. Very expensive. So two flavors fixed all over the year to sell properly to the Japanese. Then we, of course, we received every month the analysis of the sales, the analysis of each detail of products sold in the stores. At the end of the year we realized that the two worst flavors were green tea, matcha, and fior di latte with adzuki. Today it's easy to understand because you can find everywhere matcha green tea ice cream, but you cannot find it everywhere. stracciatella as they like to say, pistachio and the Italian heritage. So our mission is not to adapt the local flavors, but to export the Italian culture and heritage. Operating in international markets does not only mean to meet the tastes and the benefits of different customers, but also to have to do with many different suppliers, because some of your ingredients are not Italian, although the experience is Italian. How much does international exposure affect your choices in terms of Supply chain or raw materials? Not much, really. Not much, because any market we enter commercially doesn't change the idea of sourcing the best ingredients of the world. Trying to be focused in Italy but of course you cannot find the best cocoa in Italy or the best coffee. From a supply chain point of view, all the sourcing of the ingredients is concentrated here in Italy. So everything is delivered here in Turin. We make a first cleaning production, not the finished product. And we delivered the ingredients, selected here, controlled here, in every single store all over the world, where we whipped the final production. So we had a fresh, daily gelato done in every store. So you can notice that one of the concepts of our store is having a laboratory in each store behind the window. So every morning and every day we produce the fresh gelato there, but all the ingredients are delivered from Italy. So if we open a new market, we do not change the sourcing of the ingredients. We plan the increase of the needs that we have. So we need to play with agriculture first in order to have enough peaches for opening the stores in Indonesia from now in the next ten years. So we are planting now trees for the production that we will have from now in four or five years, but it's really more the logistics that change than the supply chain. So we need to be organized to deliver in Indonesia instead of to Hong Kong. And of course, we need to deal with every custom duties, with any public office, local public office, to be organized to have proper labels. Those are the bureaucratic problems we have. But here the real problem is to decide how many trees will we plant and what kind of manure we will use. And just to conclude with a very nice story, it was because I mentioned the agriculture and, I mentioned that at the end the supply chain is solely based on agriculture. It was 2008 at the time. Still today the company is pretty small, but at that time it was really small. And I was checking personally each single invoice daily, just trying to find numbers. Okay, I understand. I remember this supplier. I remember this sum. We need to pay this bank, that bank, etc. It was really everything managed personally. At a certain point I received an invoice. Mura Mura: our farm, manure. So for the people that don't know what is manure, it's cow shit. 7,500 euros. And it was a sum for us. I mean starting from zero, just a few years before, 7,500 euros of manure, it was something. So I called Guido, and I said listen, Guido, sorry, I have a problem. I have an invoice in front of me for 7,500 euros of shit. Do you understand it? And Guido, really happy, he told me yes, but it's a very good shit. And so I paid it. I paid that invoice. So just to conclude and summarize, all the supply chain is based on very good shit. Okay, thank you very much. Thanks to you.
