Food Franchise Industry Reports:
From its beginning in the 1940s the ice cream franchise industry has been a sweet way for entrepreneurs to pursue their business goals. Carvel is believed to be the first to have franchised a retail ice cream store in the United States in 1947. Over time, the industry has developed in many ways, ranging from kiosks and ice cream truck franchises to store locations in shopping malls and strip centers. Franchises within this industry generally serve their namesake product along with milkshakes, smoothies, and a variety of desserts and toppings.
A not-so-distant relative of ice cream franchises, frozen yogurt franchises (also referred to by the abbreviation FroYo) came to prominence in the 1980s with chains such as TCBY. Frozen yogurt franchises experienced a boom of success in the United States until a drop off in the late 1990s. In the mid-2000s, the industry re-emerged through the founding of frozen yogurt concepts like Pinkberry and Red Mango. An increase in health-conscious consumers was a main contributor to the frozen yogurt resurgence.
Other related offerings within the industry include gelato, an Italian frozen yogurt similar to ice cream, and shaved ice (snow cone) franchises.
Traditionally, in turbulent economic times, the sales of discretionary items tend to decrease. According to IBISWorld researchers, this general pattern hasn’t affected the sales of items in this industry: “Despite low disposable income and consumer sentiment, consumers indulge in inexpensive luxuries like frozen yogurt and other comfort foods during gloomy times.”1
The majority of industry sales include traditional ice cream based products. Nevertheless, within the last decade stores have been diversifying product lines to fit various lifestyles and taste preferences. Ice cream customers can now find reduced-fat, fat-free, and sugar free options at their favorite ice cream franchise. In addition, an increase in customization concepts throughout society in general has had a dramatic impact on the overall industry.
Regardless of the item they are purchasing, customers seek commercial experiences that cater to them specifically. Ice cream franchises satisfy this demand by allowing customers to add their favorite additional ingredients. Cold Stone franchises allow customers to order a certain base flavor and then prepare their dessert from a selection of different ingredient options. Some popular ingredients include: candy bar pieces, gummi bears, cookie pieces, brownie bits and fruit.
Similar choices are available in frozen yogurt shops where customers can choose from various flavors and toppings. For example, Menchie’s customers have 100 rotating yogurt flavors and 70 rotating toppings to choose from.
The personalized consumer experience has become increasingly important to franchisors across virtually all industries. Studies of generation preferences (e.g. Millennials, those born between the early 1980s and late 1990s) have concluded customization is very important to current and younger generations. “Younger generations are all about finding their individual identities and brands that make consumers feel empowered and celebrated will gain their loyalty,” says Kerri Smith of iProspect.2
Franchises that allow for purchase customization—such as creating options for customers to choose the flavors and ingredients of their order—are even better equipped to serve future generation consumers.
Creating an Inviting Environment
Ice cream and frozen yogurt franchises—like other food franchises—fall under the umbrella of retail franchises. As discussed in the retail franchise report, pricing often decides how and where consumers spend their money, yet there are other key factors that contribute to the value of a consumer’s experience.
Enjoyable atmospheres created for consumers often increase the value of the experience and defray associated costs. The cost of an ice cream or frozen yogurt purchase becomes reasonable when the experience is enjoyable, customizable, and uniquely delivered. Much like coffeehouses, the setting of ice cream and frozen yogurt franchises attracts customers just as much as the actual products being served.
Generations ago when ice cream parlors were a place where families could enjoy an inexpensive treat, return business was the norm for those interested in enjoying something simple and sweet with familiar faces. Similarly, ice cream and frozen yogurt franchises today are social gathering settings where people come to interact and enjoy themselves.
Franchise locations such as this offer a pseudo living room experience where customers can enjoy working in a less structured environment and interact with friends. Ice cream and frozen yogurt franchises are “creating an ambiance, a point of relaxation, a meeting place,” says Red Mango chief executive Daniel Kim. Franchises are making their outlets more of a destination than simply a stop along the way by providing comfortable seating, free WiFi, and an occasional in-store musical performance.3
Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all provisions and fees related to investing in a specific franchise.
When many prospective franchisees first consider opening a franchise, their main concern is the financial aspect. There are several factors however that must be thoroughly considered before beginning the franchise opening process. One of those many factors is discussed here followed by a brief look at a couple of main financial considerations.
|FDD Profiles for Sample Ice Cream and Frozen Yogurt Franchises
Ben & Jerry's
Cold Stone Creamery
One chief consideration when deciding whether to enter this industry is how the weather in your particular area could potentially impact your business. Although these franchises are summer and warm weather friendly, the consumption of frozen desserts is more evenly distributed than it was a few decades ago. Franchisees can also decrease seasonal demand variability for their product by performing due diligence research to understand the demographics of the area in relation to the business. Areas with families, health-conscious residents and college campuses are often well suited for franchises in this industry.
The range of investment between franchises can be large due to variations in business systems and execution requirements. The following charts demonstrate this by comparing initial costs associated with opening one of the 10 sample franchises presented.
Initial costs associated with opening a franchise include the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), grand opening marketing costs, and more. One major variable in the initial franchise investment is the cost of real estate. Some franchisors may not include land or real estate costs in estimates because of the price variation between locations and whether their franchise system requires a new rather than leased building. For example, Dairy Queen includes an estimate for real estate costs in the graph below while several of the other franchises do not.
Estimated Initial Investment Ranges for Sample Ice Cream & Frozen Yogurt Franchises
A significant cost within the initial investment is the franchise fee. This part of the overall initial investment grants the franchisee the right to use the franchisor’s trademarks, service marks and other branding. It also gives the franchisee access to the franchisor’s business system, including training opportunities.
The length of the initial franchise agreement term for the 10 sample franchises ranges up to 20 years with 10 years being most common. Franchise term length is dependent upon not only the franchise system, but whether a franchisee is seeking a traditional or non-traditional location. Some franchise term lengths also depend on franchisee lease terms.
Throughout the length of the agreement there will be costs for being a part of the franchisor’s business system. These costs include items such as royalty fees, charges for technical support and marketing costs. The most common is the royalty fee and below is a look at royalty rates for each of the sample franchises.
Royalties for Sample Ice Cream & Frozen Yogurt Franchises
In addition to the regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved before investing.