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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
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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
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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.
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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:
* 10-15% increase in sales
* Minimal initial investment
* Common raw material for candy bouquet
* Exponential sales around holidays
* Consistent off-season sales
Discount by volume:
* Distributor level of discount from flavoring vendors
* Typically 20-30% discount on wholesale price
Candy Bouquet:
* 5-10% increase in sales
* Untapped market
* Comparable to “Edible Arrangements”
* Exponential sales around holidays and special
occasions
* Minimal investment
* Consistent off-season sales
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:
* 2-3% increase in sales
* 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:
* 3-5% increase in sales
* Frozen yogurt base
* Common flavorings
* Minimal investment
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):
* 1-2% increase in sales
* Use existing items
* Minimal investment
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)
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) 36000 18000 7200
Monthly Sales at $8 per bag 288000 144000 57600
Monthly Profit at 50% markup 144000 72000 28800
Operation Cost 10000 10000 10000
Monthly Net Profit $134,000 $62,000 $18,800
Average Monthly Net Profit $71,600
Average Annual Profit $859,200
Projections for Corporate Revenue for Powder Mixes (100 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) 48000 24000 9600
Monthly Sales at $8 per bag 384000 192000 76800
Monthly Profit at 50% markup 192000 96000 38400
Operation Cost 10000 10000 10000
Monthly Net Profit $182,000 $86,000 $28,400
Average Monthly Net Profit $98,800
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
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) 2400 12000 4800
Monthly Sales at $14 per bag 336000 168000 67200
Monthly Profit at 35% markup 117600 58800 23520
Monthly Net Profit $117,600 $58,800 $23,520
Average Monthly Net Profit $66,640
Average Annual Profit $799,680
Projections for Corporate Revenue For 75 International 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) 36000 18000 7200
Monthly Sales at $14 per bag 504000 252000 100800
Monthly Profit at 35% markup 176400 88200 35280
Monthly Net Profit $176,400 $88,200 $35,280
Average Monthly Net Profit $99,960
Average Annual Profit $1,199,520
Projections for Corporate Revenue For 100 International 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) 48000 24000 9600
Monthly Sales at $14 per bag 672000 336000 134400
Monthly Profit at 35% markup 235200 117600 47040
Monthly Net Profit $235,200 $117,600 $47,040
Average Monthly Net Profit $133,280
Average Annual Profit $1,599,360
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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 2: Franchise with 50 stores domestically and 25 stores internationally
Scenario 3: Franchise with 100 stores domestically and 50 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.