How Ian Hutton made a fortune grating cheese

If anyone was going to work out how to add value to humble cheese, it was Ian Hutton. His father regularly took him into the dairy where he worked and, as a teenager, he worked there himself part-time. When he left school he knew exactly what his first job would be: "At that time in Yorkshire you had a choice of working in the quarry, becoming a farmer or joining a dairy". Hutton signed up for the Associated Dairies' training scheme.

The job was the start of a decade-long masterclass in the cheese industry. Hutton learned about making, selling and marketing cheese. He even had a stint as a dairy broker. By 1990, Hutton was convinced he had spotted an opportunity.

"I realised that small firms selling cheese to supermarkets were on a hiding to nothing. Cheese was becoming commoditised and margins were falling." Hutton wanted to sell to food manufacturers. His plan was to take bulk cheese and cut, grate and slice it into the shapes and sizes needed for ready meals and sandwiches. In short, he wanted to "add value to cheese".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

However, aged just 29, he lacked funds to start up on his own. Banks refused to take him seriously. "I got kicked out of one meeting after just 35 minutes they couldn't understand how I would make money from grating cheese." Fortunately, a meeting with "one of the last old school bankers' around" won him a £100,000 loan to start Ash Manor Cheese.

Hutton rented an industrial unit and kitted it out. The next step was to win customers. "I didn't want to go after my old customers. If I annoyed my excompany, it had the clout to cut its prices and force me out of business." Instead, Hutton went looking for small-time bakers, sandwich and ready-meal makers.

"I couldn't compete on price so instead I offered the best customer service." For example, Hutton offered tiny deliveries one pallet of different cheese sizes. "It was a lot of trouble but it felt safer. I'd rather have ten customers ordering one pallet than one customer ordering ten." Hutton also won over customers by offering bespoke cuts of cheese. "They wanted their workers to be able to open a bag and put it straight in, without having to measure it out."

Ash Manor started to win business. Timing was on Hutton's side in the 1990s, British consumption of ready-made sandwiches soared. "Travellers don't sit down for a meal at a restaurant anymore. They grab a sandwich and carry on up the motorway." Larger numbers of working mothers also fuelled demand for ready meals. Both trends boosted demand.

Midway through the 1990s, Hutton won a nationwide contract with Greggs bakers. But the Yorkshireman refused to get carried away: "We turned down a lot of big deals because we didn't want to stretch ourselves too thin". His caution paid off when the financial crisis hit: "We were one of the few firms our size lending to the banks instead of the other way around".

Last year, annual sales hit £15m and Hutton is considering an exit. "I am 52 years old and have been working hard most of my live." Big dairy producers are also now wanting to "add value to cheese", so he shouldn't be short of suitors.