Pinkberry Craze

Frozen yogurt is hot again? Well, sort of. Given the implosion of the last frozen yogurt phase, you are wise to be cautious. The last frozen yogurt craze in the 1980’s and early-1990’s was lead by TCBY. According to the International Council of Shopping Centers, TCBY’s same store sales fell 10%-15% annually between 1997 and 2004, particularly when the low-cal and low-fat versions were introduced. The International Dairy Foods Association reported frozen yogurt production in the U.S. went from 118 million gallons in 1990 to 65 million gallons in 2005, a 45 percent drop.This time Pinkberry sure seems to be all the buzz lately, even being features in a recent American Express ad and having their hip tart frozen yogurt dubbed “Crackberry” playfully implying an addiction is possible. Here are photos of a Pinkberry in Manhattan. Founded by Shelly Hwang (coming off several failed small restaurant ventures) and Young Lee (a solo designer), they effectively brought to Los Angeles the tart frozen yogurt now famous in South Korea.Pinkberry has apparently been stretching the healthiness of its yogurt, and in early April 2008 settled a law suit where it was accused of misrepresenting its product as “frozen yogurt” and making bogus health claims, including that the dessert was “all-natural.” Pinkberry admitted no wrongdoing but is paying $750,000 to a local food bank and $5,000 to the “victim”. The article implies that the recipe is not all natural and has higher calories than the founder claims.Nevertheless, sales of the tart frozen yogurt are impressive. Pinkberry has put forth in the media unit sales of $250,000/month and has generated a plethera of copycats across the country, including Berrie Good, Yogurberry, BerrySweet, Red Mango, and recently Berry Chill here in Chicago. Pinkberry has supposedly ceased selling franchises for now.

The Concept

The hip tart frozen yogurt concept is simple:

• a few basic flavors of tart all-natural frozen yogurt
• a variety of berry and exotic real fresh-cut fruit toppings in addition to cereal and cookies
• curvy counter and furniture; accented with colorful hip floors and wall coverings
• at least 4 plasma TVs showing something “cool” like music videos or Japanese game shows
• at least 4 plasma TVs above the counter with an animated menu
• charge about $4-$7 for a tart yogurt and 3 toppings of brand-name cereal, fresh fruit, candy, and pastries.

Should you buy a franchise or role your own?

You can easily roll your own. Here are some basic supplies you’ll need to get started:

• get your 2 ice cream machines from Taylor, ($36,000 each)
• tart frozen yogurt mix from YoCream,
• cups from Jas Wholesale (supplies price sheet ) (500 ct = $59)
• ultra modern flooring, counters, cabinets, and furniture from Ikea (~ $3,500)

I may be more biased to the “role your own” after seeing the success of a single-unit startup in Chicago called Berry Chill. It occupies a small storefront on State Street a few blocks of Michigan Avenue (the Magnificent Mile). The entrepreneurs got the location right, and executed the “feel” of the asian-inspired Pinkberry clones well enough. Berry Chill opened a few months ago during the middle of winter when the weather was below freezing.  However, while most of the frozen custard places close for the winter, there was almost always a line at Berry Chill.  I attribute most of their early success to copying a proven concept and selecting an excellent main street location with lots of tourists and local high-rise condo residents.   I’m sure the store will do well over $1 million in sales during the calendar year. Coincidentally, there is a Cold Stone Creamery (with Soup Man) 1.5 blocks away with a larger store but *probably less than a third of the street foot traffic and it rarely has a line except in the evenings of summer days…what a difference a few blocks and hip attitude make.Would I buy one of the aforementioned franchises? Probably not. I’m a strong believer in historic trends, and I would not want to be financially tied to a concept so easily copied or a category that tanked so quickly in the past few decades. I would be very hesitant to open a unit in a suburban outdoor strip mall, as heavy immediate foot traffic seems to be part of the successful formula.If I was to franchise, I would go with the brand with the high exposure and recognition, which at this time is Pinkberry, unless one of the franchise clones have extremely flexible terms in the Franchise Agreement, such as permitting me to essentially change my store brand if I choose not to renew, and permit me to transfer all assets to my new business without penalty or encumbrance, and if the Franchise Agreement did not require me to refrain from competing for any period of time after owning a franchise. If the concept doesn’t work, I want out of the franchise obligations but I want to still have the option to utilize the assets I paid for (either sell them or use them in a similar/renamed business).

Industry Developments

Forbes has a good article on the current status of the Frozen Yogurt industry. Reformulations of the frozen yogurt to a low-fat with fruit mix seem to be working:

MaggieMoo’s International also reformulated its smoothie line, changing it from non-fat to a low-fat, lactose-free ice cream or fruit smoothie called Zoomers. The company made the change after conducting blind taste tests with consumers, 67% of whom preferred a tasty, low-fat smoothie to a non-fat smoothie, says Debbie Benedek, senior vice president of brand marketing. Flavors include a Triple Berry Pomegranate that’s packed with antioxidants.

After changing its frozen yogurt production process, within six months Dreyer’s/Edy’s Slow Churned watched a double-digit decline in frozen yogurt business turn into double-digit growth, says Suzanne Ginestro, senior brand manager for Dreyer’s and Edy’s Slow Churned ice cream. (Dreyer’s is known as Edy’s east of the Rockies.) By using the slow churn method, fat is better dispersed throughout the product, making it feel richer and creamier. A similar change also boosted the brand’s light ice cream sales.

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