Episode 361: The Matzo Economy : Planet Money How do you make money manufacturing a dry, bland cracker that a tiny percentage of the population eats just one week a year?
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Episode 361: The Matzo Economy

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Episode 361: The Matzo Economy

Episode 361: The Matzo Economy

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CAITLIN KENNEY, BYLINE: Hello, and welcome to PLANET MONEY. I'm Caitlin Kenney. Today on the show, we go inside what might be the most heavily regulated business in the world. I'm talking, of course, about the matzo business. Now, some of you listening might be very familiar with matzo right now. In fact, you might be sick of the stuff. But in case you've never had it, it's a flat, dry bread, a lot like a cracker. The show we have for you today is one we did a few years back. Alex Blumberg hosted with Adam Davidson. But we wanted to bring it back for you this week because the majority of matzo is consumed right now during this week - the week of Passover, the Jewish holiday.

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KENNEY: OK. So here's the show from 2012, which starts with a very good question from our own Adam Davidson.

(SOUNDBITE OF ARCHIVED BROADCAST)

ADAM DAVIDSON, HOST:

How do you make money manufacturing a dry, fairly flavorless cracker based on a several-thousand-year-old recipe that a tiny percentage of the population eats just one week a year?

ADAM BLUMBERG, HOST:

It turns out this very niche industry holds several pretty profound lessons for the economy as a whole.

DAVIDSON: I found these lessons recently when I visited a place. And all week long, I was joking that I had gone to the third-holiest place in Judaism - the Manischewitz Company food production factory in an industrial park outside Newark, N.J.

BLUMBERG: Now, Manischewitz, even for an extremely lapsed, non-practicing Jew like myself with a Catholic mother, I know Manischewitz is synonymous with Jewish food.

DAVIDSON: Yes. It's the biggest manufacturer of kosher food, Jewish ethnic food, in America. I went there, and I was sort of surprised that the guy showing me around - the big boss, the guy who runs the line, was someone named Randall Copeland.

BLUMBERG: Randall Copeland is not a Jewish name, is it?

DAVIDSON: No, not at all.

RANDALL COPELAND: I was raised Southern Baptist, and my wife is Roman Catholic. And I'm running operations for the country's largest Jewish food company - only in America (laughter).

BLUMBERG: I feel like he's delivered that line before.

DAVIDSON: Yeah, that might have seemed a little practiced, I think. Randall is awfully used to sort of joking about being the Southern Baptist who feeds more Jews than anyone else in the world.

BLUMBERG: Right.

DAVIDSON: But he explained to me that much of his job is, like, you know, any food industry production line manager. He has to keep the lines moving quickly, efficiently, safely and, of course, profitably. But his job is a lot harder than most because there are all these regulations he has to follow. There's the FDA; there's OSHA, of course; he's in New Jersey, so the New Jersey Department of Health. But in addition to all the government regulators, he has this other set of incredibly difficult regulations. And these regulations are not imposed by, like, an occasional visit from a health inspector - no. Randall works day by day with a guy named Rabbi Yaakov Horowitz, who makes 100 percent sure that every piece of food that comes out of the Manischewitz factory follows an incredibly complex array of ancient Jewish laws. Rabbi Horowitz took me to his office at the plant, which looked a lot more like the library at a yeshiva. He pointed out his bookshelves.

RABBI YAAKOV HOROWITZ: The top is the Talmud. We have Talmudic commentaries. We have, obviously, a large amount of traditional law texts behind you. That's the Shulchan Aruch.

DAVIDSON: Rabbi Horowitz said that he frequently consults these really complex texts when Randall comes up to him and says, oh, we want to move this line over here, is that kosher? Can we do it? And what's interesting is Rabbi Horowitz does not work for Manischewitz, even though he's at the plant all day, every day. He has an office there. He works for the Orthodox Union. That's the body that decides whether Manischewitz is allowed to call its food kosher.

BLUMBERG: So those books, those hundred- and thousand-year-old texts on his shelf, those are the regulations. Rabbi Horowitz and his people, they're the regulators.

DAVIDSON: Exactly, and he told me that there are a whole host of rules that govern just regular kosher - year-round kosher - you know, no bacon, no shrimp, no cheeseburgers - all these different rules. But then there's a whole set of laws that apply just to this week, the week of Passover. So the key rule, the central rule of kosher for Passover is that you can only eat unleavened bread. But what does it mean to be leavened? The Rabbis - this was, you know, long before anyone understood, you know, microorganisms in yeast and anything like that. So the Rabbis spent centuries debating this, arguing it, and they determined that one way to be sure that bread is unleavened is to make a rule that the second you make any dough, it has to be cooked very quickly. It can't just be left out and somehow become leavened. Randall, the Southern Baptist kosher scholar who runs Manischewitz production, said they follow this rule to the letter.

COPELAND: We operate under a strict, 18-minute maximum rule. That rule says that once the water and the flour have kissed and formed that batch and you start agitation, you have to have it in the oven cooking in 18 minutes.

BLUMBERG: So 18 minutes from the time the water touches the flour till it goes in the oven. I'm assuming that's different than most other bread production.

DAVIDSON: It's very different. There are clocks, stopwatches everywhere, so you know, are you two minutes to go? Are you seven minutes to go? Now, when everything's going fine, when everything's working as it should, it's not that hard. They actually said they usually get it in in 15 minutes. They have plenty of time to spare. But any time you have a manufacturing process, something slows down a little bit. Something makes the line go - have to stop for a minute or two. Someone has to check something, fix something, whatever it is. Now, most factories, it wouldn't make a big difference. Who cares if it's 15 minutes, 23 minutes? It doesn't make a difference. At this factory, if there's a slowdown...

COPELAND: We have to stop, clean those lines, strip off all that dough, throw it away, clean the lines just as if you were starting fresh for the day and restart the whole process.

BLUMBERG: Wow. And I'm picturing, like, a big, long machine. It's a pretty big machine, right?

DAVIDSON: Yeah, it's like a city-block long, so it's a lot of dough that all of it has to be thrown out.

BLUMBERG: Hundreds of pounds?

DAVIDSON: I assume so. I mean, it's a huge amount of dough, but they can't use it. It's not kosher for Passover anymore, so it has to be thrown out. And I mean, it's like everywhere you turn, there's some other rule that makes it even more difficult. So you want the line move fast, right? You don't want ever bump up against that 18-minute time limit, but matzo by Jewish law has to be made with only two ingredients - flour and water. And it turns out flour and water make for some very hard-to-process dough.

COPELAND: It's very dry. It's very tough. You're making matzo. I don't get use dough conditioners. I don't get to use shortening. I don't get to add in other ingredients that make it easy to machine and do all kinds of tricks with it. My ingredient list is pretty short - Passover flour, water - end of story.

BLUMBERG: It sounds like he's, like, actually talking a little bit longingly about working at a plant where you could actually use a conditioner now and then, you know?

DAVIDSON: Absolutely. Are you kidding me? If you're running a breadline, you know, they told me you throw in some sugar, for example, and it makes the heating much more efficient. There's all sorts of things you can do without even getting into nasty additives that just make the process more uniform. And I got to say, these are just a couple of the rules. I can't even begin to tell you all the rules they told me, and they told me a tiny fraction of all their rules that exist. The matzos cannot be, at all, folded or misshapen. The temperature of the oven can't drop below 600 degrees, even though they could make matzo perfectly well in 400-degree oven. So they have to expend all that extra energy.

BLUMBERG: All right, so I have a question. What's to stop Randall from doing something that you occasionally hear corporations doing - skirting the rules, evading the regulations somehow?

DAVIDSON: Rabbi Horowitz, Yaakov, has stationed five kosher law experts throughout the factory. Everything is constantly monitored.

BLUMBERG: And they're there every day.

DAVIDSON: They're there every day. We saw them - you know, they had clipboards and white smocks over their, you know, traditional, like, Hasidic black jackets. One guy was wearing a hard hat with the word rabbi printed on front. And they will intervene automatically. If they see something that they don't like, there's levers they can pull that just redirects the matzos into the garbage, just gets rid of them altogether.

BLUMBERG: Wow, like a fire alarm or something.

DAVIDSON: Yeah, they can shut the line down. They can fire any employee on the spot. There's a special negotiation Manischewitz had with its union saying, we'll follow all the traditional procedures for dismissing people, unless we catch them violating kosher law, and then they're just instantly fired.

BLUMBERG: Wow, so these guys make, like, OSHA regulators look like pikers.

DAVIDSON: Absolutely. I mean, could you imagine that many people constantly monitoring you all the time? And one thing that government regulators say these days a lot - it's very popular to say - we're not trying to get in the way of business. We want regulations that business can work with easily that doesn't interrupt their flow. Rabbi Horowitz said no, no, no. Kosher for Passover laws have to be difficult. They have to be a pain in the tuchus.

BLUMBERG: We want to interrupt your flow.

DAVIDSON: We want to interrupt your flow because remember what Passover is. Passover is when Jews remember that we were once slaves to pharaoh in Egypt. And we eat matzo not 'cause it's some delicious, lovely treat that we look forward to every year, but because it is the bread of our ancestors. It's the bread of affliction, is what we call it. Take the hardship out of matzo-making, and you take the meaning out of matzo, out of the entire Passover holiday. The very idea of easy matzo is pointless.

HOROWITZ: It's a contradiction in terms. You know, forgive me for my humor, it's like, you know, an easygoing mother-in-law. Those terms don't usually go together. You know, Passover - easy Passover is not - I mean, Manischewitz has gone out of its way - has been very creative to make Passover as easy as possible, but it's not something which would imagine goes together. Passover is a tough time.

BLUMBERG: So, Adam, I mean, you got all these rules - you got to heat the oven 200 degrees more than it needs to be; the dough is hard to work with; if you don't get it into the oven in time, you got to shut down the entire line. Like, this must really add to the cost of making matzo, right? It must be so much more expensive than just, like, a regular cracker or bread factory.

DAVIDSON: That's just the start of it. They have to buy special, more expensive flour. One of the biggest expenses they have - maybe the single biggest - is they really need happy, engaged employees - smart, educated employees. Most of the people working the factory are not Jewish. And, you know, just imagine what dozens and dozens of people - anybody could accidentally make a mistake or worse - someone could deliberately sabotage the line. And Manischewitz's century-old reputation for reliable kosher food could be destroyed.

So what that means in dollars and cents is they have to pay a lot more for their workers than a comparable factory. And then they explained to me this machine that I was watching - this gleaming, silver machine that makes the matzo - it's brand-new, less than a year old. And they weren't able to just go to the cracker machine-making company - these things do exist - and just buy the off-the-shelf regular bread-and-cracker-making machine. Rabbi Horowitz and a team of engineers had to custom-make this one.

HOROWITZ: It was more than $14 million worth devoted to build this new matzo bakery, which is the state-of-the-art matzo bakery in the world. So this is like - it has its own air conditioning system. It was designed to be sequestered and to be maximum efficient for kosher purposes.

BLUMBERG: Maximum efficient for kosher purposes is like saying maximum efficient for a process that is designed to be inefficient.

(LAUGHTER)

BLUMBERG: And, you know, one thing I thought listening to this, you hear a lot - business people and CEOs complaining about the cost and burden of regulations. But these guys, I mean, they have all the normal regulations - the federal, state, whatever - and then there's this huge bundle of ancient regulations piled on top of that. They must just, like, hate it, right?

DAVIDSON: Actually, not at all - the opposite. This is lesson one.

BLUMBERG: Right, remember we promised lessons at the beginning of this program? Here's lesson one.

DAVIDSON: Lesson one - sometimes, for certain companies and certain industries, huge amounts of really complicated, incredibly difficult-to-follow, expensive regulation is the best thing. It is their competitive advantage.

BLUMBERG: And this is such a counterintuitive idea, but it's really a powerful one. And Manischewitz is a great, almost textbook, example.

DAVIDSON: Right, Manischewitz has spent over 120 years mastering how to make lots and lots of food, make a living out of it and still follow all those complex kosher laws. Yes, it's hard. It's expensive. And that's why Alain Bankier - he's the co-president and one of the owners of Manischewitz - says he doesn't have to constantly worry that some competitor somewhere is just going to show up out of the blue and take away all his business.

PAUL BANKIER: The capital investment in the matzo line, those are huge barriers to entry that no business person would really start thinking that they could get around without a huge capital investment. They'd want to buy our company before - you know, that's the only way it could make economic sense.

DAVIDSON: This reminds me of something, Alex, that you and I kept hearing when we started covering the financial industry, that financial firms always say, oh, there's too much regulation; it's too complicated. But many of the biggest financial firms, one of the advantages they have is they have all of these lawyers and other experts on staff able to maneuver around those crazy complexities of government regulation.

BLUMBERG: And that's why you don't see a lot of small startups coming along and taking huge market share in the banking or insurance industries. Those industries are so heavily regulated. And the companies that are already there have gotten so adept at managing the regulations, it's really hard for new guys to break in.

DAVIDSON: Exactly. You don't see a Google or an Amazon of banking, some company nobody ever heard of that in 5 or 10 years suddenly takes over the entire industry. Now, however, Manischewitz is not the only one that knows how to do this kosher regulation stuff. There is a whole country that is filled with food companies that have specialized in exactly the same competitive advantage, how to make lots and lots of profitable kosher food. So I've come to call it the China of the kosher food industry, the State of Israel.

BLUMBERG: So you're telling me Manischewitz is being undercut by cheap, Israeli-made matzo?

DAVIDSON: Absolutely. It is - if you want to get an American matzo manufacturer really furious, just start asking any questions about Israeli matzo production. They'll say, they're dumping; they're just sending it to it for free just to take our business share. And this is a fairly new trend. I mean, five years ago, there was not a lot of Israeli matzo in the U.S. Now it's everywhere. It's really, really eating into their market share.

BLUMBERG: So despite the advantage that Manischewitz gets from being able to deal with this huge regulatory burden of kosher law, they are facing the same competitive pressures that all U.S. manufacturers are facing in the global market.

DAVIDSON: Exactly. And that brings us to lesson two.

BLUMBERG: Ding ding ding.

DAVIDSON: Ding ding ding, the other big lesson. Now, this one, I've got to say, is not particularly new. I feel like this is the big lesson that could be on, like, every story we ever do about manufacturing. Don't make commodities. Don't make things that other companies can just copy and make for a lot less than you can make. Know your customers really well, and create the stuff they're willing to pay for a premium for. And there's one thing Manischewitz knows that Jews really love.

BANKIER: Chocolate-covered matzo. It's a mint that's basically minty chocolate that covers a little - a little piece of matzo. It's fantastic.

BLUMBERG: Wait. Did you try some chocolate-covered matzo?

DAVIDSON: I did. And I am sorry, Manischewitz people. You were very nice. But the chocolate-covered matzo was not for me. But the point is if the basic matzo cracker is the commodity of the kosher food industry, the chocolate-covered matzo is the specialized product of the future. And, I should say, if chocolate-covered matzo is not your thing either, they've got many Tam-Tam matzo crackers with lots of flavorings on them. I love those. Those are addictive. I ate, like, a whole box. They have this red velvet cake made out of ground-up matzo meal. It's a little crumbly, but it's really delicious. I really enjoyed it.

BLUMBERG: So this is a strategy. They're just trying to move matzo beyond a food for Jews at Passover.

DAVIDSON: Exactly. Their matzo will always be kosher. Of course, they're sticking with the kosher line. But Alain Bankier and his partner, Paul Bensabat, say that's not a limitation.

BANKIER: You see it as a base that we can't - that we're stuck in, a box that we're stuck in. We see it as a box that we can get on and reach even higher.

PAUL BENSABAT: A lot of people have been discovering matzo and discovering that it's actually a fantastic, quote-unquote, "cracker" that tastes great, that is very versatile in the way you can use it, that you can use that pretty much all year round, that is all natural, you know, that is basically a very nice product.

DAVIDSON: So maybe to Jews matzo is a reminder of the meager food we had when we were refugees from slavery in Egypt. But, these guys say, to non-Jews, it's a non-fat, additive-free, vegan, low-carb bread substitute.

BLUMBERG: (Laughter) I love it.

DAVIDSON: And the other thing that they've learned - and market research has confirmed this - is the kosher label on the box is not just of interest to, like, people with thick beards in Brooklyn. A survey by the market research firm Mintel confirms that two-thirds of people who buy - consciously, deliberately buy kosher food believe - and this isn't necessarily correct, but they believe it - that kosher foods are made with higher quality ingredients. More than 50 percent of kosher food buyers believe - and this is totally incorrect - that kosher food is healthier than non-kosher equivalents. And only around a quarter of people who buy kosher buy it for religious reasons. And buy the way, that's not just Jews. Seventh Day Adventists and Muslims will also buy kosher if their own dietary roles aren't available.

BLUMBERG: So they're doing what a lot of manufacturers are doing right now. They are trying to expand beyond their existing market, and their trying to specialize.

DAVIDSON: Yeah, exactly. I'm going to call it the matzo principle. Do something really difficult, really annoying, that you know how to do better than anyone else. But don't rest on that. Keep innovating. Keep coming up with new products.

BLUMBERG: As always, we'd love to hear what you thought of today's program. You can email us at planetmoney@npr.org.

DAVIDSON: Or you can find us on Facebook, Twitter or Tumblr. I'm Adam Davidson.

BLUMBERG: And I'm Alex Blumberg. Thanks for listening.

(SOUNDBITE OF SONG, "IT'S YOUR THING")

THE ISLEY BROTHERS: (Singing) It's your thing. Do what you want to do.

KENNEY: Thanks for listening to PLANET MONEY. And if you're looking for another great podcast to check out, we recommend StoryCorps. Dave Isay, the founder StoryCorps, recently gave his own TED Talk. You can hear parts of his talk along with other great stories on this week's StoryCorps podcast. Get it now at npr.org/podcasts.

(SOUNDBITE OF SONG, "IT'S YOUR THING")

THE ISLEY BROTHERS: (Singing) It's your thing. Do what you want to do. Don't let me tell you who to sock it to. Let me hear you say it's my thing. I do what I want to do...

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