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Neal Arakaki sells candy. But maybe he should
consider a career making beverages. If the old adage
about facing adversity creatively were true — making
lemonade out of lemons — then Arakaki, president of
Menehune Mac, would have created about a half dozen
different flavors of the drink by now. The small
businessman competes in Hawaii’s crowded chocolate candy
industry (squeeze). Two years ago, he and his family
bought back their business, which they had sold to a
Japanese company, and retooled and refocused it in
response to Hawaii’s sluggish tourist industry (squeeze,
squeeze). Then last year, the Sept. 11 terrorist attacks
shutdown his markets, quickly and nearly completely
(squeeze, squeeze, squeeze).
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| THE CANDY MAN CAN: In response to
a fickle economy, Neal Arakaki has had to remake
his company several
times. | |
However, despite the catastrophe and the catastrophic
consequences, Arakaki was able to adapt, innovate and
even grow in some areas.
"In my 21 years in the chocolate industry, I’ve never
seen anything like what happened after Sept. 11. I’d
imagine this is what it was like when the Great
Depression hit. It was that sudden," says Arakaki. "It
was like jumping off a cliff and you couldn’t see the
bottom. You didn’t know if the fall would be 10 feet or
10,000 feet."
 According to Arakaki, who is also
the president of the Hawaii Food Manufacturers’
Association, the chocolate industry suffered a 90
percent decrease in demand immediately following the
terrorist attacks. Menehune Mac felt the effects within
a couple of weeks, suffering as high as an 85 percent
drop in sales. For the year, Arakaki’s business was down
35 to 50 percent from his approximately $5 million in
revenue in 2000. The drop necessitated that he cut his
staffing from 40 employees to 24.
For Arakaki, the first order of business post-Sept.
11 was to sell down the company’s inventory, several
hundred thousand dollars of back stock that filled his
warehouse. The attack had come at the time of the year —
close to the holidays — in which the company was
carrying a large volume of unsold product. Arakaki then
had to step up his product diversification efforts while
trimming down production. He channeled more resources
and time to manufacturing cookies, candies and other
amenities for hotels in Waikiki. Because his operation
is fairly small and employees flexible, Arakaki was able
to retool relatively painlessly. "It’s pretty easy to go
from making candy to wrapping gift baskets," says
Arakaki. "And basically we had more time on our
hands."
Next, Menehune Mac looked beyond the tourist industry
and doubled efforts to sell its chocolates on the
mainland. For several years, Menehune Mac had been
selling its macadamia nut candies directly to vendors
from Los Angeles to New York but with the market even
tighter than before, Arakaki began setting up stronger
distribution systems, sharing facilities with others in
the chocolate industry on the mainland. "We know our
market very well. It was fairly stable, you used to see
certain products sell then you could make adjustments
over the next season or two," says Arakaki. "But that’s
not the case now. All that knowledge goes right out the
door."
However, there is no substitute for experience.
Neal’s father, Patrick, bought Menehune Mac, originally
founded in 1946, in 1972, one of only three chocolate
manufacturers in the state at the time. The elder
Arakaki quickly realized that there weren’t enough
mouths in the state to eat all the chocolate that the
growing industry would produce. The future was in the
burgeoning tourist market, specifically with the
gift-happy Japanese. Patrick decided that his niche
would be higher-end candies so he developed a darker,
richer, hand-made chocolate designed for Japanese
tastes. The result of all the tender-loving care is that
Menehune Mac chocolate isn’t quite as sweet as its
competitors but has a creamier texture and a flavor that
lingers longer in the mouth. This extra richness is due
to the fact that the company heats and mixes its
chocolate in significantly smaller batches, getting a
more complete melt and blend.
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| HANDS ON: Menehune Mac candies are
manufactured in small batches and formed by
hand. The result is a richer flavor and creamier
texture. | |
But Menehune Mac isn’t too small. According to
Arakaki, at one and a half million to two million pounds
of chocolate a year, Menehune Mac is the largest
producer of handmade chocolate in the world.
With a well-positioned product, Menehune Mac aligned
itself with several of the largest Japanese tour
companies, selling omiyage (gifts) to tourists before
they left on their trip to Hawaii. Other manufacturers
also saw growth and opportunity. Today, the marketplace
is crowded with more than two-dozen different companies,
many from overseas, using nuts grown and candy processed
outside of the islands.
In 1989, the Arakakis sold their business to one of
their largest customers, the Kawami Co. based in Tokyo.
A liquor distributor company with close ties to Kikkoman
Shoyu, the Kawami Co. continued to employ the Arakakis
in what was then basically a one-product company with a
very tightly focused market. More than 90 percent of
Menehune Mac’s market was in the Far East. The strategy
worked for approximately a decade until the bottom fell
out of Asia’s economies and Japan’s financial crisis hit
home. Forced to cut its overseas holdings, the Kawami
Co. sold Menehune Mac back to the Arakakis in the summer
of 2000.
Back as a decision maker in the company, Neal Arakaki
saw a market in transition, and he realized that for his
newly reacquired company to survive and thrive, it had
to change and change quickly. Menehune Mac needed more
products and a greater reach.
"When we were a part of a larger company, we had to
operate like a large company," says Arakaki. "When we
were back on our own, we regained our edge of speed. We
were able to make changes and enter the market in a
timely manner."
Arakaki started by beefing up the company’s
infrastructure, revamping its accounting system and
re-focusing managerial positions. He also brought in
outside expertise in areas that he wanted to expand. And
there was a lot of expansion to come. Over the course of
a year, Menehune Mac put more than 400 items into
research and development - involving everything from
conventional creations, such as vanilla-flavored
macadamia nut candy and strawberry guava melt-away
cookies, to the exotic like kava chocolates, to the
downright scary: chocolate-covered wasabi peas.
"In 2000, we saw the need to diversify much more than
we did in 1990," says Arakaki. "We found that the market
had many more niches than we thought. We noticed that we
were getting a lot of repeat customers from Japan, and
they didn’t want to buy the same thing."
 Meanwhile, Menehune Mac
strengthened its core business, inking a contract to
manufacture chocolate-covered macadamia nuts for upscale
retailer Neiman Marcus. In November 2000, they picked up
a couple of new contracts with Japanese tour companies
and grew an existing contract with the Japan Tourism
Bureau to provide omiyage for its clients.
"Increasing our tourist business was a major, major
achievement for us. The JTB requested that we make a
line of products that we didn’t have the capacity to
make," says Arakaki. Within two and a half months we
went from zero equipment to full production. We easily
increased production by 30 percent to 40 percent."
By the end of 2000, the future looked bright for
Menehune Mac. Its core market was as strong as ever, and
its product line was significantly diversified. For
2001, Arakaki had anticipated anywhere from 15 to 30
percent growth. Then came Sept. 11. Today, the chocolate
macadamia nut industry looks as though it will return,
but Arakaki isn’t sure how much it will rebound or how
long the recovery will last. However, he’s confident
that the retooling he did late last year has prepared
his company for the rocky and uncertain future ahead.
The key for Arakaki and his company is to stay flexible,
and, most importantly, responsive.
"The situation is so fluid, so it’s very difficult to
do any projections," says Arakaki. "We are trying to
increase production. We aren’t digging a hole and
waiting for this to pass by. What would take most
companies nine months to do, we can do it in six weeks.
We’ll find opportunity whichever way this economy
goes."
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