January 5, 2007
For a listing of other previous Retail Watch stories, please see our Retail Watch Archive.

By Kate Sander

LOS ANGELES — Chateaux Cheese Corp. is on the cusp of significant change. A longtime supplier of bulk pasteurized, process cheeses, Chateaux Cheese has been a mainstay for West Coast foodservice companies for a number of years.

Now, though, the company is branching into the slice business. Mac Moore, vice president, Chateaux Cheese, says that although California is the most populous state in the nation and foodservice demand is strong, up until now there have been no process slice suppliers west of Utah. The executives at Chateaux Cheese saw the business niche and now aim to fill it.

“We have pretty good saturation of the process cheese block business, but we’re not going to just sit here,” says Peter Ernster, company president, who jokingly says that the decision to put the slice line is due, in part, to his “youthful exuberance.”

For quite a while now, Chateaux Cheese has been a stalwart member of the industry, consistently supplying cheese to customers. The company was founded as Excelpro in 1973 by John Ernster, Peter Ernster’s grandfather, and primarily focused on blending dry dairy ingredients.

The company was built up over the years by John Ernster and his sons, including Mike (Peter’s uncle), who focused on the company’s move into process cheese in addition to dry dairy blends. In 1998 the company officially split into two operations: Chateaux Cheese, which handles the cheese side, and Excelpro, which handles dry dairy proteins. Mike Ernster developed most of the company’s highest performing products and, with his technical expertise and focus, set the stage for the development of the slice line, Peter Ernster says.

All of this was done fairly quietly, though, until Peter Ernster — seeing the need to expand the business to make it even more profitable so that members of family’s third generation can be involved — started clamoring for the slice line.

Peter Ernster joined the company after college in 2000, first working at the company’s Utah plant (which since has been sold). In 2001, he moved to California to work closely with Mike Ernster, who had been diagnosed with cancer and who passed away in the spring of 2006. The younger Ernster says that although it would have been too much for his uncle to take on by himself, with the right staff in place, the family began to see why a slice line would be a prudent move.

Two and half years ago, the company decided to install the line, which was manufactured by Hart Design & Manufacturing. Now, with the line up and running for the better part of a year, attention has turned to building a customer base for the new slice line. Currently, the company manufactures approximately 17 million pounds of processed cheese per year, and it’s in a position where doubling that is easily within reach, Peter Ernster says. In fact, in five years, he hopes that’s the case.

All joking about Ernster’s youthful exuberance aside, the decision to go into the slice business was the right one and probably could have happened sooner, says Moore, who has worked in sales and marketing for numerous West Coast cheese companies and who was brought on by the Ernster family this past summer to begin making the sales of the new slices.

“Pretty much most of our growth will be in slices since we enjoy most of the block business to be had in the West,” Moore says, noting that the company expects easily to see 10 percent growth annually just due to the increasing cheese needs of its foodservice customers. In reality, though, that means Moore expects the growth to be much more than 10 percent.

“Ten percent is just standing still,” he says.

Logistically, it makes a great deal of sense to have a slice company on the West Coast, Moore says, noting the savings in freight. Not only that, but the company’s medium size and singular focus on pasteurized process cheese means that it has the ability to work closely with customers to develop exactly the cheeses they need.

“We have the technology to manipulate the cheese to meet the customers’ exact expectations. We can adjust slice, color, flavor, meltability — you tell us what you want, and we’ll make it,” says Brent Dobson, director of quality assurance. “We are able to respond to customers’ demands and needs quickly.”

Dobson, who has a Ph.D. and more than 20 years of experience directing quality and research and development for major dairy operators across the nation, was asked to join Chateaux Cheese to ensure that all customers’ technical needs, including safety and product quality, are met.

Still, it’s not easy to woo foodservice customers — especially big chains which count on consistent cheese and stringent food safety criteria.

“All of these operations are very sophisticated in how they choose their suppliers,” Moore says.

As a result, if foodservice customers have found a cheese they like at the right price, they’re not too likely to want to change.

That’s OK, Moore says.

“We don’t want them to change easily … then when we become their supplier, we know they’ll stay with us,” Moore says.

Chateaux Cheese is courting the foodservice customers closest to its home in Southern California and moving out from there, according to Moore. The company is getting on pre-qualifed lists so that when contracts do come up for renewals, Chateaux Cheese will be among the companies considered.

Chateaux Cheese has done extensive work to ensure that its cheeses meet all of the safety standards required of the largest foodservice chains, Dobson adds. His job is to put a number of firewalls in place to prevent the potential for microbiological contamination, including qualifying Chateaux’s suppliers just as Chateaux’s customers qualify their suppliers.

And while price isn’t the be all and end all, as long as Chateaux can meet or exceed what foodservice customers currently are buying, it’s a safe bet that lower freight charges will help tip the scales to Chateaux’s advantage, according to Moore.

“The truth is, you have to meet all of the standards first before you’re pre-qualified,” Moore says.

Moore says a great deal of effort goes into relationship building with new customers, and he says a similarity in corporate culture — Chateaux Cheese doesn’t like change either — helps in developing those relationships.

The company also offers personal touches — like the fact that its founder John Ernster, who at 85 still serves as chairman, eschews voice mail and insists that a person answer the phone and take messages. In addition, there are several members of the family involved in the business, including Peter’s father, Peter Sr., and Peter’s brother James who operate Excelpro, an uncle who is the company’s attorney and an aunt who designs packaging.

“This company has been built on slow change, but the critical pieces for growth are in place,” Moore says, noting for example that the company paid for its slice machinery up front, meaning that it doesn’t have to worry about debt concerns.

“Chateaux Cheese has been built on solid foundations and expectations,” Dobson agrees.

The company now can manufacture 10,000 pounds per hour, equal to 29 million pounds of cheese annually. This approaches double the 17 million pounds of cheese it currently is producing.

“All we need to grow that much is refrigeration,” Peter Ernster says. “If there are any barriers, it’s refrigeration but we have 4 1/2 acres of undeveloped land where we could expand.”

Currently, the company is operating one 12-hour shift a day.

“In five years, I see us running slices 24/7,” he adds.

CMN