Ice cream provides tasty example of business ingenuity

By DAVID MOON, Moon Capital Management
August 26, 2001

I have a weakness for ice cream. My father had a weakness for ice cream. I assume his father would have shared our indulgence, except he did not have electricity until late in his short life. So he missed the chance to have a half-melted box of Moose Tracks or even a swirl cone of fake frozen artificial ice cream flavored product from a fast food restaurant.

It is easy to take life's simple pleasures for granted. From this day forward, however, when you have an ice cream cone or enjoy a pleasantly cooled house on a hot August afternoon, I hope you will think about what made those pleasantries possible: money.

While reading through the May issue of Mechanical Engineering magazine (I don't play golf but I do some strange reading), I discovered that the first complete, self contained system for building refrigeration was engineered specifically for the New York Stock Exchange building in 1901. The system had the cooling capacity of 300 tons of melting ice and served the building successfully for 20 years.

The tools necessary to provide electric refrigeration to an entire building were costly and complicated. It was far too expensive to make available on widespread basis. For years, the magic of conditioned air was only a curiosity for most Americans. To bring the technology to the mass public would take significant investment capital and technological expertise. In the early 1900s, this combination was found in the automobile industry.

Edmund Copeland, with an equity investment from the Chevrolet Automobile Company, formed the Kelvinator Corporation in 1914. General Motors (then a separate company from Chevrolet), purchased the Frigidaire Company in 1918. The Packard Motor Company was also in the rush to provide affordable home refrigeration. The race was on. By 1928, Frigidaire was the initial winner, selling a million electric powered, self-contained refrigerators. These magic units required no water or ice for operation. And they could actually cool portions of the unit below 32 degrees, providing homemade ice cubes for the first time.

It was from these humble, yet ambitious beginnings, that the cooling age emerged. Public theaters were the first places of widespread use of air conditioning, providing millions of previously sweltering movie-goers a chance to come in out of the summer's heat. Building on its success in refrigerators, Frigidaire introduced the first consumer "room cooler" in 1929. By the 1930s, window air conditioning units and air conditioned cars burst into the marketplace.

Even considering the possible effects of global warming, it is not significantly warmer now than 100 years ago. A 90 degree day is physically demanding, whether it is 1901 or 2001. Can you imagine a summer in Knoxville without access to air conditioning? I can, but it is not a pretty sight.

How did refrigeration progress from dream to necessity in 100 years? By the capitalist process. A man had a vision of a product for which there was no known need or market. There was significant skepticism if a viable market for consumer refrigeration would ever materialize. Amazingly, General Motors initially passed on the idea of working on refrigeration, until seeing the promise of the work being done by its competitors.

One man with a vision left his job and sought investment capital to create a tangible version of what then existed only in his mind. He needed money. And lots of it. He needed a manufacturing capacity. He needed the expertise of other engineers and the marketing capacity of an already successful industry. Even with access to these factors of production, Edmund Copeland's Kelvinator Company did not initially succeed. The early success was achieved by Kelvinator's competitors, who entered the fray only after seeing the potential of the market. Competition was the ultimate fuel that propelled the refrigeration industry into America's homes. The platform on which this success was built a hundred years ago was the world's most significant symbol of money and unabashed capitalistic competition: the New York Stock Exchange.

Think about that the next time you have an ice cream cone.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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