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Ice Cream Franchise Study - Part 1

Ice Cream Franchise Study

This study gives a brief review of the U.S. Ice Cream franchise industry based on data from Franchise Disclosure Documents (FDDs), formerly known as UFOCs, of a representative sample of 18 Ice Cream franchises and from published industry sources.

 

Ice cream industry forecast:

What’s on the cards for the months to come in the ice cream franchise industry?  What impact will the current economic climate have on frozen treats’ consumption and on sales?  Historically, ice cream stores have survived and even grown during harsh economic conditions.  They blossomed through the deep depression following the 1929 stock market crash, and after the Second World War the frozen treat consolidated its position in the customs and traditions of the American people.  Figures from the International Dairy Foods Association reveal that 90% of American households consume ice cream and approximately 1.55 billion gallons of ice cream was produced in 2007.

According to Lynda Utterback, executive director of the national Ice Cream Retailer Association in Illinois, many operators have claimed their sales were up 20 % over the summer of 2008.  Not only has the recession had a positive impact on ice cream sales, it has also provided an ideal opportunity for franchisorsVintage ice cream to increase their presence in the market and open new franchise units. This is partly because consumers are seeking their products, but also because prime locations - storefronts in high traffic areas - are suddenly available and they represent great real estate deals.

Unlike the retail industry, which has suffered from its customers’ reduced spending habits, ice cream stores are positioned in an affordable treat niche market.  “A bad economy is always good for ice cream stores; it’s comfort food,” says Lynda Utterback. Spending $10 to $12 on a family outing is more budget friendly than the cinema or a sporting event and many store owners are optimistic about the months ahead.

 

A seasonal business

Let’s keep in mind that ice cream sales are closely dependant on the hot weather between April and August.  Sunny days and optimistic weather forecasts contribute to increasing sales of ice cream.  However the consumption of frozen dessert is more evenly distributed through the months than it was a few decades ago.  When we compare ice cream production figures through the years, there is less and less variation between summer production and winter production

 

Industry Overview


Industry size


Figures show that there were 13,143 ice cream store businesses in the United States in 2007, producing on average revenue of $348,536.  This represents a decline of 4.1% compared to 2004.  This is a sign of consolidation, since the top 10% of all ice cream store businesses have increased their sales by 32% compared to 2004, with an average of $850,171 in revenue.  The longevity of the stores in this industry is very good, with an average of 20.7 years in business.  They employ an average of 13 employees per store, with 6,130 stores employing between 5 and19 people, while 5,293 stores have between 1 and 4 employees1.

 

Ice cream consumption

The main target market for ice cream is children and families. Thirty four percent of such households consume four or more quarts of ice cream per month, which is significantly higher than the 20% of the family units without children.  Preferences vary according to the age and gender of the ice cream consumer2.  At the moment, the ice cream industry is driven by children but current demographic data indicates a decline in the youth population over the next few years.  This might push ice cream retailers and producers to attract a new age group, while trying to retain their current younger clients.  Young children are also more adventurous in their choices and eat a wider selection if ice cream flavors and frozen desserts.  African American households consume a larger range of products and also more servings over a 30-day period than the average American household.  Teenage girls tend to choose healthier products labeled as low-fat, mainly among the frozen yogurt products, while teenage boys still prefer the premium ice cream range.  Ice cream preferences normally cement during the transition towards adulthood, and adults tend to be faithful to their favorites. 


The emergence of healthier trends in the ‘70s led to the appearance of new products on the frozen treat market, such as frozen yogurts.  Frozen yogurt sales increased throughout the ‘80s and reached their peak in the mid ‘90s since when their sales had significantly slowed until recently.  Over the past couple of years however, frozen yogurts have made a huge comeback, with increasing numbers of franchises appearing, fuelling greater consumption.

 

Competition

Many new franchises have entered the ice cream industry in recent years, an industry that already contains some major players.  There are a significant number of “Mom N Pop” ice cream stores, competing with multi-national organizations such as Hagen Dazs, Dairy Queen, Ben & Jerry’s and Carvel.  These big names have developed their products and adapted their concepts through the years.  A number of new franchises are currently thriving, especially in the frozen yogurt industry; among them you will find Red Mango and Pinkberry.  Their increased popularity is particularly evident in the State of California but it is also spreading into Middle America.

The classic ice cream parlor has developed into many different concepts and each franchise has its own take on the ice cream store:

Dairy Queen:   This franchisor offers more than one type of franchise unit; they have developed 3 variations:

  1. Dairy Queen Grill & Chill – This franchise is a quick service food restaurant with indoor seating offering a full menu of soft-serve, drink and food items.
  2. Dairy Queen/Limited Brazier – These franchises are considerably smaller than DQ Grill & Chill restaurants and sell the full line of Dairy Queen soft-serve treat products and a limited number of food items.
  3. Dairy Queen Treat Center stores – This franchise includes the right to sell Dairy Queen soft-serve treat products and Orange Julius products.

Marble Slab:   This franchise system sells a superior grade ice cream, which customers can order in combination with Lady serving ice creamnuts, fruit and other "mixins".  Store personnel blend the mixins into a Marble Slab ice cream on a chilled marble or granite slab, which is the centerpiece of their stores.  Stores also offer freshly baked cones, frozen yogurt and soft drinks; some offer baked goods and gourmet coffee drinks.

Maggie Moo’s Treatery:   Maggie Moo’s Franchising pursues a distinctive format and system relating to the establishment and operation of frozen dessert retail businesses.  The franchise outlets are characterized by their interior and exterior decor, color scheme, design, and furnishings; specialized menus; proprietary recipes and formulas for food products.

Coolcycle Franchising:   The Cool Cycles™ unit is a specially designed and equipped motorcycle with sidecar from which a franchisee can sell products in neighborhoods and at events.  The Mobile Kiosk is a specially designed and equipped motorcycle trailer used to transport, re-supply and sell ice cream products.

The ice cream franchise industry still faces the competition of the independently owned ice cream stores, from the “Mom N Pops” to the mobile ice cream vans moving from neighborhood to neighborhood.
 

Product varieties

The International Dairy Foods Association reports that Americans consume about $21 billion in frozen desserts per year.  Below is a breakdown of the different products on the market: 

  • Ice Cream:  frozen dessert containing at least 10% milk fat and 20% total of milk solid.
  • Super Premium Ice Cream:  contains a low amount of air and high fat content, usually made with highest quality ingredients.
  • Sorbet:  a frozen dessert similar in composition to an ice.  It is a non-dairy product with relatively high sugar content.  Generally contains fruit, fruit puree or fruit juice.  Exotic flavors are often used and citric acid may be added to enhance the taste.
  • Frozen Yogurt:  low or no fat alternative using milk and yogurt in place of cream.  It yields a sensation of tartness.
  • Frozen Custard: smooth, very creamy and richer alternative.  It is generally not mass produced and available only at the point of manufacture.  It has high egg content.
  • Healthy Frozen Desserts: there is a wide range of health conscious options on the market, such as reduced fat ice cream, light ice cream, low fat ice cream, nonfat / fat free ice cream and zero added sugar ice cream.

 

1Source: Business Performance Dashboard; Ice Cream Shops,  http://www.entrepreneur.com/benchmark/details46.html ,accessed online 07/09/2009

2Source: “Screaming for ice cream: a rapidly growing market, ice cream nevertheless faces its share of possible demons. What will be the effect of changing demographics on the frozen treat, and how will manufacturers respond?” , BNET,   http://findarticles.com/p/articles/mi_m3289/is_4_173/ai_115490578/ , accessed online 28/08/2009.

 

    Next

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