frozen yogurt industry market analysis: introduction · tea yogurts. even ice cream franchises such...

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Frozen Yogurt Industry Market Analysis: Introduction

The frozen yogurt industry has seen a sharp growth in the early years of its resurgence from 2005-2012 and

consequently, equally as sharp decline in the last couple years in U.S. markets. This growth and decline pattern is

typical of a trendy single item market, comparable to bubble tea fad of mid 90s and cupcake fad of early 2000. We

can understand this pattern as market stabilization. As many poor performing businesses exit the market, it creates a

big space for new businesses with the right business model and effective strategy. I believe we have the strategy and

knowledge to position us for growth in this market.

Please see the article below from www.franchisehelp.com for an independent analysis of the market.

Frozen Yogurt Industry Analysis 2014 - Cost & Trends

Frozen Yogurt Industry in 2014 at a Glance

Americans may be more aware of their diets these days, but they certainly have no less of a sweet tooth. Frozen

yogurt, a hybrid between the traditional ice cream dessert and the healthier (and hipper) yogurt based products, is an

innovative way for customers to “have their cake, and eat it too.” Although the popularity of the frozen yogurt

franchise industry suffered a decline in the late 1990’s, the category has been making a colossal comeback in the last

decade, with a new generation of flavors, toppings, and store settings leading the charge. With this new wave of

frozen yogurt franchises blossoming, new franchisees will find that this industry is nowhere near its freezing point.

Back n’ Better than Before!

1980 marked the beginning of the first wave of success in the frozen yogurt franchise industry. For the next decade,

frozen yogurt franchises sprung up in every street corner and mall plaza, dominating America’s industry for frozen

desserts. However, after 10 years of froyo franchise madness, the most popular frozen yogurt franchises like TCBY

and I Can’t Believe It’s Yogurt began to lose ground to competing ice cream shops and coffee houses. According to

the Agricultural Marketing Resource Center, retail sales of frozen yogurt fell between 1998 and 2003, while ice cream

sales grew by 24%.

However, with new frozen yogurt franchises like MY Culture, 16 Handles, Farr's Fresh, The Fuzzy

Peach, Yogurtini, Pinkberry, and Yogurtland blending innovative varieties of flavors and toppings, the frozen yogurt

industry is now back on track and more popular than ever before. Focusing on providing delicious yet diet-friendly

treats to its health-conscious consumers, this new hybrid of frozen yogurt is tangier, more tart and lighter than original

frozen yogurt products. Unlike older franchises whose frozen yogurt was intended to mimic ice cream products, these

new franchises go beyond the typical ice creams flavors, offering creative inventions like cran-raspberry and green

tea yogurts. Even ice cream franchises such as Cold Stone Creamery and Baskin-Robbins are beginning to

incorporate the frozen yogurt concept into their businesses. Oh, how the tables have turned.

Nowadays, customers aren’t just coming in for the frozen yogurt, but also for these franchises’ "chill" store settings.

Trending away from the outdated ice-cream parlor environment, modern froyo stores include high-end furniture, Wi-Fi,

flat-screen televisions, and live musical performances. “We’re trying to create the coffeehouse environment,” says

chief executive of Red Mango, Daniel Kim. “We’re creating an ambiance, a point of relaxation, a meeting place.” In

addition, this trendy setting is a hot spot for not only teenagers and college students, but also business professionals

who desire a more casual atmosphere to chat with their clients. Best of all, with this refreshed decor, franchise

http://www.franchisehelp.com/

https://www.franchisehelp.com/industry/frozen-yogurt-franchises

https://www.franchisehelp.com/industry/frozen-yogurt-franchises

https://www.franchisehelp.com/franchises/my-culture

https://www.franchisehelp.com/franchises/16-handles

https://www.franchisehelp.com/franchises/farrs-fresh

https://www.franchisehelp.com/franchises/the-fuzzy-peach

https://www.franchisehelp.com/franchises/the-fuzzy-peach

https://www.franchisehelp.com/franchises/yogurtini/

https://www.franchisehelp.com/franchises/pinkberry/

https://www.franchisehelp.com/franchises/yogurtland

https://www.franchisehelp.com/franchises/cold-stone-creamery/

https://www.franchisehelp.com/franchises/baskin-robbins/

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owners can bump up their prices to $5 for a large serving of frozen yogurt or even $7 with additional toppings without

taking a hit on their rate of customer return.

Millions of Combinations, Millions of Opportunities!

There's a large variety of treats for consumers and franchisees to consider when opening up their frozen yogurt

franchise. While some franchises specialize in soft-serve yogurt, other franchises offer a little bit of everything. Here

are some of the different flavors of frozen yogurt franchises to consider before determining which choice is most

suitable for you.

Soft-Serve Soft-serve yogurt is a favorite in this reincarnation of froyo products. These treats are

typically tarter and plainer than hand-scooped flavors, letting customers experiment with

toppings without being overwhelmed by the sweetness of the yogurt. Soft-serve yogurt

can either be charged by number of servings or by weight.

Hand-Scooped Hand-scooped frozen yogurt, a healthier twist to the original ice cream parlor concept,

presents an opportunity for franchises to get fully creative with their froyo flavors (Anyone

up for a sample of strawberry colada cheesecake?).

Cakes and Pies Can’t decide between cake and frozen yogurt? Save yourself from this impossible

decision, and opt for a franchise that serves frozen yogurt filled cakes and pies. These

delectable desserts are a favorite during birthdays and holiday celebrations.

Smoothies In response to the current health foods trend, some frozen yogurt franchises have

decided to sell vitamin or protein enriched smoothies. These smoothies are typically made

with the same soft-serve yogurt that is already sold in the store - simply blend in fresh fruit

and juice.

Arguably the greatest advantages that the frozen yogurt franchises have in the frozen dessert market are its

versatility and room for innovation. The major benefit of this is that each time a customer comes to a frozen yogurt

franchise, they can have a totally unique experience. For example, one fro-yo fanatic participated in the “Yogurtland

Experiment” and tasted 100 of the 100 million possible combinations of Yogurtland yogurt flavors and toppings. The

other major advantage that froyo franchises provide is that many of them are self-serve, which results in significantly

lower labor costs when compared to most food franchises.

Fro-Yo Forever?

Despite downward trends in the past, the success of big-name frozen yogurt franchises indicate long term expansion

in the future. For instance, froyo big shot Red Mango recently raised $12 million and plans on adding 550 locations

within the next five years. Additionally, Canadian franchise Yogen Fruz has diversified to several international

locations, including Brazil, Vietnam, and Switzerland. Nation’s Restaurant News food editor Bret Thorn says, “Yogurt

will likely be a longer-lasting trend, and I see no reason why the frozen variety should fade out.” NRN also reported

that the last two years demonstrated a “steady increase in interest in probiotics,” microorganisms in yogurt cultures

that have been proven to improve immune system and digestive health.

In 2009, the International Franchise Association (the "IFA") reported that the overall number of franchise

establishments was expected to drop by 10,000 that year. The frozen yogurt industry, however, was expected to

grow by a few percentage points, a notable statistic for any market in the midst of the economic recession.

Even though frozen yogurt franchises may be highly saturated in warm regions such as Los Angeles (250 individual

shops in L.A. Country in early 2009 according to the Los Angeles Business Journal), there are still many opportunities

http://www.franchise.org/

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to expand beyond these froyo condensed locations. In fact, there a number of areas, both internationally and in the

United States, that have yet to discover the latest froyo concepts. Although weather and location may indeed be

concerns when opening up these summer-friendly franchises, being one of the first franchisees in the area is an

opportunity in itself. In addition, frozen yogurt franchises are especially popular on college campuses and

communities with more health focused residents.

U.S. Market

The frozen yogurt industry has experienced an unprecedented resurgence in the mid 2000s. The frozen

yogurt industry led by TCBY in the 80s has resurrected with a new taste and business model that literally swept the

country from coast to coast. The market saturated quickly by big franchises and small “mom-and-pop” stores and

everything in between. Consequently, the market is on the decline and stabilizing. Currently, three of the top six

national franchises are up for sale which is indicative of the market as a whole. Smaller “mom-and-pop” stores and

franchises have either closed or have been bought out by bigger franchises. U-Swirl, the only publicly traded frozen

yogurt franchise (SWRL), grew exponentially in the last couple years via acquisition of smaller franchises like

Yogurtopia, Cherryberry, and Yogli Mogli and other mom-and-pop frozen yogurt establishments. Yet, their stock

has plummeted in the last year or so. The fastest growing franchise in the industry, SweetFrog LLC¸ is also

experiencing an alarming number of its franchises struggling, closing, or selling. Below, we outline possible causes

of this and how a new franchise with a new conceptual twist can thrive in this market.

Causes

Every industry based on single trendy product will go through a sharp bell curve and eventually stabilize.

We are at a point of sharp decline and the market will stabilize over the next couple years. If one wants to enter the

frozen yogurt industry at the current market, it is important to understand the causes of the market decline and have

a strategic plan in place to overcome these challenges. We will list few causes of this market trend.

Single Item Industry

Every single-food-item industry will eventually fall without adding new items. This is especially true of

the frozen yogurt market. Even through market saturation and decline, frozen yogurt businesses are still entering the

market with the same single product and same self-serve model. Many frozen yogurt businesses were able to thrive

on single product line because of the unique self-serve business model. It was an attractive and new business model

that appealed to U.S. customers. However, once the novelty of the self-serve model wore out, you are still left with

just one product line. Even after a decade, this self-serve frozen yogurt shops have not adjusted their concept with

the ever changing market.

Therefore we recommend expanding the menu portfolio. We recommend combining several trendy items

into one establishment to create a new market. Menu portfolio is to be created with the following criteria in mind:

Must complement frozen yogurt,

Can easily be implemented with existing self serve model

Must supplement off-season sale

Must work together as a whole to create an efficient work flow as well as circulate stock to eliminate waste

Undistinguishable Product

Not only is it a single product line, but the product is undistinguishable because 99% of the frozen yogurt

businesses are supplied by single major frozen yogurt mix company YoCream. YoCream’s product provides

convenience to the operators since you simply have to thaw the frozen mix and pour into the machines. However, it

has major challenges that are difficult to ignore. The taste is the biggest challenge that cannot be ignored.

Additionally, the ready availability by anyone who wants to purchase it makes it difficult for retailers to offer a

unique product to their customers. Stock control is also difficult since you are limited in freezer and refrigerator

space. Also liquid frozen mixes are priced higher because distribution method has to accommodate the frozen state

of these mixes.

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Therefore, dry powder mixes are a better option for long term success in this industry. Dry mixes are

superior in taste and texture. Dry mixes eliminate the need for large freezers and refrigerators. Dry mixes are

prepared fresh and on as-needed basis which eliminate waste and lends itself to easy stock control. Using fresh

yogurt also guarantees live probiotics that liquid simply cannot guarantee.

Rising Cost of Supply

As the cost of raw ingredients increase, the cost of frozen yogurt mix also increases. Because the liquid

mixes have to be transported in a freezer truck, it leads to additional increase in the cost for the business owner. In

order to offset the rising cost of supply, businesses have to increase their price which leads to a price range above

what customers are comfortable with, which leads to lower sales. This is the proverbial declining cycle. However,

manufacturing your own proprietary dry mix eliminates this problem. Manufacturing your own mix using our mix

system will virtually give the corporate the ability to offset the rising cost. This becomes a major point of appeal for

future franchisees. When you have a practical solution for declining sales, future franchisees will choose you over

your competitors.

International Market Every major U.S. franchise is focusing on the international market. To be sure, international market is a

relatively untapped market. This is the market where powder mixes thrive. Our recommendation is to explore the

international market aggressively and expand to every continent. We constantly receive inquiries from international

customers wanting to bring this industry to their country. The advantage of the international market is that they can

learn from U.S. market trends and prepare themselves for a long term success. I believe our company has a good

pulse on the international market to help businesses lead this market in their country. Implementing our portfolio of

menus along with our powder mix system, you are certain to achieve great success. Even though many U.S.

franchises have expanded internationally, no one has the solid business model and strategy that we have.

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Yo Mama USA

Our Strategy Create a “blue ocean” market

Our recommendation is first of all to offer a unique line of products that combine several independent

markets to create a new market. This would include bubble tea, smoothies, candy, candy bouquet, shaved ice, etc.

These are all legitimate single item markets on their own. If we combine these items and bring them all under one

retail, then we create a new thriving market. In combination with other strategies below, this eliminates future

competitions by making it impossible to imitate. This would effectually eliminate any competition and create a blue

ocean. This will render current competition irrelevant. Please see our licensed location where this concept was

implemented at https://www.facebook.com/yomamagreenbrier. This location is operating at about 75% of what our

plan can actualize.

Production Line System

Manufacturing just base mixes and

implementing an efficient flavoring system can

result in up to 50% savings for the franchisee as well

as create another revenue stream for the franchisor.

There are five base mixes, original tart, tart base,

nontart base, no-sugar-added base, and nondairy

base that the corporate company can manufacture

and distribute within U.S. and overseas. An efficient

flavoring system can be utilized by the retailer to

create their flavors. Centralized ordering system can

also leverage buying power for additional savings.

Aggressively explore international market

As mentioned before, the international market is an untapped market. We currently have customers in

Puerto Rico, Costa Rica, Saudi Arabia, China, and India. With aggressive marketing and effective strategy in place,

international market can become a major revenue stream. Dry mixes thrive in the international because of its ease of

shipping and stability under normal conditions. The option of ‘water-only’ mixes for countries that do not have

access to consistent bulk supply of fresh yogurt offers great flexibility to international customers. Dry mix

manufacturers are considered “re-packers” which make it relatively easy to receive necessary certifications for

export. This eliminates the use of export brokers. Export documentations can easily be done in-house through

training.

https://www.facebook.com/yomamagreenbrier

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Advantages over existing franchises in U.S.

We have outlined the distinction that we have over the existing frozen yogurt retail establishments in the U.S.

Increase sales Decrease cost Bubble/Boba Tea:

* 25-30% increase in sales

* Minimal investment in equipment

* Common flavorings with frozen yogurt,

coffee/espresso, and smoothie

* Consistent off-season sales

Powder Mix System

* $14,000-$28,000 savings on mixes for the franchisee

* Eliminates waste by circulating common flavoring

throughout various products

* Flexibility to create unique flavors as well as Greek,

vegan, and sorbet with base mixes

Candy:


* Minimal initial investment

* Common raw material for candy bouquet

* Exponential sales around holidays


Discount by volume:

* Distributor level of discount from flavoring vendors

* Typically 20-30% discount on wholesale price

Candy Bouquet:


* Untapped market

* Comparable to “Edible Arrangements”

* Exponential sales around holidays and special

occasions

* Minimal investment


Corporate Revenue Increase Powder Mix Manufacturing

* 2M+ potential revenue for the corporate by

manufacturing 5-6 base mixes for domestic franchisees

* Training for every aspect of running an efficient

manufacturing facility

.

Coffee/Espresso Drinks:


* Increase sales in off-season

* Common flavorings for exotic flavors

* Commercial grade espresso machine used to make

hot bubble/boba teas

International Market:

* Manufacture “water-only” mixes that are optimal for

international clients

* Training for every aspect of the exporting process

* High revenue potential

Smoothies:


* Frozen yogurt base

* Common flavorings


Summary:

* 50-70% potential sales increase with less than

$15,000 investment (excluding stock).

* Menu profile is designed with minimal investment,

efficient work flow, and strong off-season sales in

mind.

* Mix recipes have been perfected over six year period

and tested in a fully operating retail context.

* Mixes are being exported to China, Pakistan, Costa

Rica, Puerto Rico, India, and Saudi Arabia.

* Extensive research, expertise, and experience are

invaluable assets that come with this package.

Snow Cone/Shaved Ice (halo-halo, bingsoo):


* Use existing items


Special Occasion Destination:

* Additional menu items especially candy makes it

marketable for people looking for a place to

celebrate special occasions.

* Potential 10-15% increase in sales

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Yo Mama USA

Best Product on the Market

We have developed and perfected our product line for over six years. Our products are second to none in

quality and value. We stand firmly behind our products. All our products are field tested in our retail facility before

it is made available to our customers. We have over 130 flavors and constantly adding more flavors. We have tart,

cream, no-sugar-added and ‘water-only’ varieties that offer great customizability and flexibility. Our products can

easily by tweaked to create nondairy, vegan, Greek, and organic frozen yogurt and soft serve ice cream.

Experience

Not only the best product, but also experience in every aspect of retail and manufacturing operation. We

have experience in exporting, obtaining certifications, and research and development. We also have experience in

building out a new location for we have a licensee that opened another store. We will share all our experiences with

you to ensure that you start where we left off and continue to grow as a company.

Knowledge

You will be hard-pressed to find anyone who has more knowledge

about this industry than us. We have an extensive knowledge on retail

operation which is the key to developing a healthy franchise. We also have

extensive knowledge on the science of making frozen yogurt which is the

key to the manufacturing business. We have a keen knowledge of how

different ingredients react and respond. We also have experience in work

flow efficiency in manufacturing. We are also experts in creating other

menu items such as coffee/espresso drinks (certified barista training), bubble

tea and smoothies. We even have technical knowledge about soft serve

machines that will save thousands of dollars for your customers. All of our

knowledge base will become the foundation of your business.

Strategy

We have a strategy in place to make the transition as smooth as

possible. We will also work with your people to give full pre- and post-sale

support.

Itemized List

All equipment for immediate production

Full disclosure of our recipes for over 130 flavors

On going businesses from current clients domestic and international

Full training for efficient operation of retail and manufacturing facility

Full education of the science of making mixes

On-site consultation

Current Production Capability: 1000 bags per day.

Fully operating website (www.yomamausa.com)

Unique Opportunity

I believe this is a unique opportunity for a business to position itself for success in this market.

Manufacturing capability is an incredibly valuable tool for any franchise to have. However, without the

technical knowledge of how to make the mix, proven by years of research and field testing, you cannot obtain

this valuable tool. Your potential franchisees have no reason to go anywhere else if you are offering a unique

proprietary product that surpasses its competitors in taste and texture and is more economical! You are able

to offer a better product for less because you are the manufacturer! That savings can be passed on to the

individual franchisees. Furthermore, adding items like boba tea, candy and other dessert items makes your

franchise a one-stop dessert place! These items use same flavoring agents which will circulate stock and

eliminate waste. Our expertise will be passed on to your R&D department. This is a business model that is

sure to succeed that your competitors simply cannot imitate. All in all, this is an opportunity of a lifetime for

franchises in this industry.

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Where our business becomes especially valuable is in the international market. To thrive in the

international market, one must be able to ship the product easily under normal shipping conditions. Dry

mixes are the only option that meets this standard. Additionally, dry mix system must have the flexibility to

accommodate the unique circumstances of each region in terms of availability of clean water, fresh yogurt

and/or milk. Our mix system has the flexibility to adjust to these situations. We can create a mix that can be

used in any combination with water, yogurt, and milk, depending on what is readily available in the region.

This flexibility can only come from extensive knowledge of the science behind these mixes. This knowledge

will never be available on the market again. This truly is the opportunity of a lifetime.

Projections

Current profit margin is 35-45%. This will increase to 50-60% if only manufacturing base mixes, which is

what we recommend for U.S. markets. We currently have 35 U.S. customers and 7 international customers from

Puerto Rico, Costa Rica, Mexico, China, and Saudi Arabia. We are constantly fielding inquiries from potential

international customers.

Our projections are based on three revenue streams for the corporate company: manufacturing and

distribution in U.S. market, international market, and revolving franchise royalty. Additional revenue streams are

one-time initial franchise fee ($20-30k per store) and savings from volume orders on flavorings and supplies.

U.S. Market

In the charts below, we have detailed our projections if you had 50, 75, and 100 U.S. customers that use Yo Mama

Mix System respectively.

Projections for Corporate Revenue from Powder Mixes (50 US Customers)

1 bag per day per flavor (400k) *

0.5 bag per day per flavor (200k) *

0.25 bag per day per flavor (110K) *

Monthly demand (bags) 24000 12000 4800

Monthly Sales at $8 per bag 192000 96000 38400

Monthly Profit at 50% markup 96000 48000 19200

Operation Cost 10000 10000 10000

Monthly Net Profit $86,000 $38,000 $9,200

Average Monthly Net Profit $44,400

Average Annual Profit $532,800

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Projections for Corporate Revenue from Powder Mixes (75 US Customers)











Projections for Corporate Revenue for Powder Mixes (100 US Customers)










Average Annual Profit $1,185,600

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International Market

For international markets, we operate out of 35% margin simply because of additional costs involved with

flavorings, documentations, and shipping cost. Below are projections form 50, 75, and 100 international customers

respectively.

Projections for Corporate Revenue

For 50 International Customers










Projections for Corporate Revenue For 75 International Customers










Projections for Corporate Revenue For 100 International Customers










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Royalty Revenue

Corporate Revenue from Royalty

Annual Sale Per Store $200,000 $250,000 $300,000 $350,000 $400,000

Franchise Fee (5%) $10,000.00 $12,500.00 $15,000.00 $17,500.00 $20,000.00

50 Franchises $500,000.00 $625,000.00 $750,000.00 $875,000.00 $1,000,000.00

75 Franchises $750,000.00 $937,500.00 $1,125,000.00 $1,312,500.00 $1,500,000.00

100 Franchises $1,000,000.00 $1,250,000.00 $1,500,000.00 $1,750,000.00 $2,000,000.00

Annual revenue from royalty evenly distributed among 5 sales levels:

50 franchises: $750,000.00 75 franchises: $1,125,000.00 100 franchises: $1,500,000.00

** Initial one time franchise fee ($20-30k per store) is a significant additional revenue that is not included in

these figures. **

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Scenarios-Based Projections

Scenario 1: Franchise with 25 stores domestically and 10 stores internationally



Scenario 1 Scenario 2 Scenario 3

U.S. Mix Distribution 266,400 859,200

1,185,600

International Mix

Distribution

159,963 399,840

799,680

Franchise Revenue 525,000 1,125,000

2,250,000

Total Revenue 1,316,400 2,384,040

4,235,280

SweetFrog:

Started in 2009 with a single store

Currently has 350 stores in U.S.

Only offers single item

Uses frozen yogurt mixes that are available to all retailers

Experiencing sharp decline in sales and rising cost of supplies

Yogurtland:

Started in 2009

Currently has 298 stores

Recently started their own production of mixes

Planning to become a publically trading company in 2015.

Tutti Frutti:

Started in 2008

600 retailers in over 40 countries

Started U.S. franchises with their own powder mix company, Yo Flavor.

Fastest growing internationally due to their proprietary powder mix.

They are able to lower overhead cost of their franchisees due to their manufacturing capability.

SUMMARY:

1. Franchises that have their own manufacturing facility, i.e. Yogurtland and Tutti Frutti, are growing

amidst declining market in U.S. Contrarily, franchises that are using third party suppliers are facing

rapid rate of decline and do not have any viable solution. Many are trying to sell or consolidate.

2. Franchises that have their own manufacturing facility are expanding internationally and have

already established their presence in the international market. Contrarily, franchises that are using

third party suppliers are now trying to break in to the global market with limited success.

3. In conclusion, if a start-up company has a manufacturing capability, it is years ahead of existing

franchises and is difficult to imitate by future competitors.

frozen yogurt industry market analysis: introduction · tea yogurts. even ice cream franchises such...

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