Sandwich maker's multi-million grate idea

By Dita De Boni

Mal Smith calls his initial business concept a "no brainer" - just a simple idea which filled a gap in the market and grew into a multi-million dollar breadwinner.

He's right about the simple idea bit.

Smith was a sandwich bar employee in central Auckland in 1982 when he realised that it his job would be much easier if he could use pre-shredded cheese instead of grating up mammoth 5kg blocks himself.

And so a business now employing 85 employees and generating sales of $100 million was born.

Although he and partner Bill Walker now process the same amount of cheese in a day that Smith churned out on his own in his first year, the duo are humble about the humbly-named juggernaut that is the Grated Cheese Company.

Smith realised he was on to a winner when it took him just 20 days to recoup his set-up costs.

"I just saw a gap in the market, rang round every dairy company in New Zealand to get a supply of cheese, and invented and patented a machine to pack the cheese out of the 1000 square foot premise I had," he says.

"I worked alone and had to go out and sell and distribute myself."

Mal Smith's antics soon caught the eye of Country Foods, a major food distributor and supplier of most of the cheese used by the food service industry in this country, who realised the potential Smith's grated-chesse (also known as shredded or diced cheese) would have for foodies.

Then-sales and marketing manager Bill Walker contacted the young entrepreneur. He recalls thinking: "This guy's pinching my markets."

Walker suggested a partnership, which would see both entities make the most of a new process Smith had been tinkering with - known as gas flushing - which prolonged the shelf-life of nationally-distributed grated cheese from 14 days to three months.

The contract with Country Foods in 1985 saw turnover quadruple and volumes rise from 100 ton a year to 5-600 tonnes, - and Smith took on a few more workers.

"The interesting thing is that within three years of grated cheese hitting the market, 80 per cent of cheese used in food service was grated pre-packed," he says.

"And 90 per cent of that market was ours."

Although there were competitors - Mainland was grating cheese in Dunedin and Anchor was the first to supply packs of grated cheese to the retail market - the Grated Cheese Company under Mal Smith was constantly trying new variations on the product to entice markets, both consumer and industry-oriented.

"For example, we developed a smaller, fuller range of consumer packs including Mozzarella for the consumer market and developed new packing and sealing machines. The key was variety," Smith says.

The company has since lost half its consumer market - a market of about about 1500 tonnes in total - to Mainland, but has more than regained business in other areas including contract processing for other labels including Anchor and a lucrative export market borne out of the marketing efforts of their half owner, the New Zealand Dairy Board.

After Walker left Country Foods in 1989 and the local market was grown, a convoluted succession of mergers and buyouts led, in 1992, to the company being admitted to the "closed shop" as the two men describe the dairy industry in those days.

"We became truly part of the dairy industry at that point," says Walker. "It was great because we could secure our cheese supply and use their massive resource base to build the company."

In late 1992 the Grated Cheese was approached by the Dairy Board with a once-in-a-company's lifetime offer to supply Pizza Huts in all countries outside the United States and Europe with grated mozzarella cheese - an order which has grown from 700 tonnes in 1993 to 14,0000 tonnes this year. The order was made possible only by the company's ability to reduce costs by increasing container loadings by 30 per cent using Smith's patented DYI technology.

Grated Cheese also adopted IQF, or Individual Quick Freeze technology, which made it the first New Zealand company to use liquid nitrogen to cryogenically freeze cheese - a process that "snap freezes" the cheese at its functional best allowing it to avoid turning to mush when thawed.

Today the company supplies around 75 per cent of its annual 20,000 tonnes of grated cheese to export markets, a fact Smith and Walker are anxious to attribute to the might of the Dairy Board.

"We think the new [Dairy Board] merger is going to be good for us," says Walker. "One of the objectives of Mergco is to develop more branding and value-added processing, which we think we can offer."

Says Smith: "There is always a place for value-added processing, and if you have that, a simple idea and cutting-edge technology to stay ahead of the competition, great things can happen."