Restaurant Consulting | Frozen Yogurt’s Two Minute Problem

Frozen Yogurt’s Two Minute Problem

The low barriers for entry cause all parties involved to ignore the obvious: It only lasts two minutes.

Penguins, Pinkberry and a hundred other copycats: These and countless other frozen yogurt stores go in and, all too often, out of fashion cyclically. At first glance, they are a very attractive business model both for property owners and for operators. The licensing cost of opening and required equipment is inexpensive; one can build out and open a store in very little time and at a relatively low cost compared to a more traditional food and beverage option.

They fill spaces for developers in strip malls to drive traffic and occupy spaces where property owners will frequently offershort-term leases. They bring footfall and fun and the aura of a craze, which these brands often are. They can enliven a once-vacant spot – a seemingly win-win for everyone involved.

In some scenarios, a “free market” void of entrance barriers for new participants creates an environment where competition flourishes. But arguably this is not the case with the frozen yogurt market.

Frozen yogurt businesses are not always built with sustainable strategies. They can lack the necessary depth of business ideas to ensure their life cycle extends beyond the ‘craze’ stage. They rarely have an abundance of value-add options to increase the dollar spend per customer and transactions. Still, some might argue that this concern is mitigated by the throughput of customers and lack of required preparation or direct cost per customer.

Instead, the cannibalism that occurs in the market creates a “house of cards” syndrome that eventually catches up with the company. Historically, this almost always causes a restructuring and closing of locations. While this is not singularly epidemic of these concepts, it is exasperated by the furious proliferation of locations every time there is a new success story.

It often is said that the lower the barriers to entry, the more unstable the business – anyone and everyone can ‘join the party’ without having much insight into licensing, fundraising or build-out problems. By default, frozen yogurt is just that: A market that is too easy to enter and as such, is ripe for short-term mass growth, leading to over saturation and eventual failure.

As these concept stores can be opened quickly. There are often ten units underway and in construction before the saturation level of the market – or success of a company’s second location – has had time to be determined. If you were to scale back each of the markets locations to, perhaps, two or three each, they likely would experience tremendous success for years.

Another significant problem that is all too often ignored, specifically with the frozen yogurt concepts: An entire business is opened around a product that has a two-minute shelf life. It cannot travel, it cannot be re-frozen and, more often than not, the selling locations have little or no seating (the physical spaces are designed to get customers in and out quickly, providing no opportunity for customers to enjoy the product without going elsewhere). So this formula can work well in areas that are pedestrian-friendly, have public seating, etc. but not so well in locations lacking these amenities.

Since the simple economics of the concept do not allow for sizable quantities of “dine-in” consumers, these businesses must be driven by foot traffic. This means parking is less important than the consistent footfall of consumers passing by during business hours.  Arguably, there are only so many locations in so many cities where these circumstances exist. This makes models of this nature harder to expand into multiple units meaning that, while there is a place in the market for these frozen yogurt concept types, they cannot succeed at a growth rate comparable to venues with more complex food and drink offerings.

With all that said, the goal for these concepts is not to avoid saturation in the market – you cannot control who else is going to open up a location near you. Rather the more appropriate strategy is to find a location that mitigates the risk of cannibalism. Ways to achieve this include searching out a location in a pedestrian-heavy neighborhood which, by sheer lack of available locations, prevents the possible opening of two or three similar concepts nearby. Also, finding a site in an entertainment complex that contractually will not allow other similar concepts to open delivers a captive audience while managing the risk of competition.

The problem in this, for most frozen yogurt businesses, is an inability to pay the high rents associated with these success-driving locations. This means prospective business owners must diligently seek out locations where the economics make as much sense as the location, giving them a better opportunity to create a viable businessbeyond the “opening buzz”. A compromise here of even a few percentage points can be the swing between success and failure.

Frozen yogurt concepts are a niche market. Allow this knowledge to factor prominently throughout the decision-making process – from the location search to the grand opening. Keep in mind that whilst these concepts easily can be opened in virtually any location they most definitely should not be. If you are looking at a concept of this sort, learn from your predecessors and recognize that it would be difficult – arguably impossible – to create a mega multi unit chain in this sector. Chose carefully, chose wisely.

OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com

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