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Fro-yo segment heats up

Newer chains, older stalwarts ratchet up self-serve, flavor innovation

The frozen-yogurt war that began a little more than five years ago in Los Angeles when health-conscious crowds discovered Pinkberry’s tart treat has entered a new strategic phase, with a handful of category leaders reformulating their concepts in the increasingly heated battle for market share.

Along with introducing new product lines, such as smoothies or more exotic flavor combinations, players like Pinkberry, Red Mango, TCBY and others are rethinking their service styles, testing such features as online ordering, curbside pick-up and catering trucks, and aggressively pushing both domestic and international growth.

Such recalibrating is not surprising given that American consumers are snacking more than ever and looking for healthful snack options, said Bonnie Riggs, restaurant analyst for market research firm The NPD Group.

“The industry has gone through a really tough time, but they’re starting to see the light at the end of the tunnel, and that’s when you see creative juices flowing to get consumers back,” she said. “Fro-yo is perceived as a healthier alternative. To me, the category has everything going for it.”

For the 12 months ended in March, Americans ordered about 26 billion servings of frozen desserts for immediate consumption, and 137 million, or about 5 percent, of those servings were frozen yogurt, according to NPD’s CREST survey of consumer foodservice usage.

Since 2008, however, the number of frozen-dessert servings ordered has dropped steadily, with declines of 4 percent in 2008 and drops of 3 percent in both 2009 and 2010.

Meanwhile, frozen-yogurt servings increased year-over-year in 2008 by 5 percent, and jumped again by 7 percent in 2009. By 2010, frozen-yogurt servings were down 1 percent, but, Riggs noted, “considering the state of the industry, that product fared pretty well.”

The leading fro-yo players are private companies that have declined to offer sales information, but in its annual look at the Top 500 chains, research firm Technomic estimates the largest fro-yo chain, TCBY, ended 2009 with $140 million in sales, down 11.7 percent from a year earlier.

Technomic estimates that Pinkberry ended 2009 with 78 stores and sales topping $108 million, an increase of 13.7 percent from the prior year.

Golden Spoon, another old-school fro-yo brand offering a non-tart product similar to ice cream, had 100 units at the end of 2009 and sales of $52 million, according to Technomic. Meanwhile Dallas-based Red Mango and Anaheim, Calif.-based Yogurtland were rapidly catching up with sales of $46 million and $42 million, respectively, by Technomic’s estimate.

Yogurtland, headed by founder Phillip Chan, is now leading the pace of unit growth among the new wave of fro-yo brands. Yogurtland customers dish up their own yogurt among a rotating selection of flavors, spoon on their own toppings and pay by weight — roughly 39 cents per ounce. The almost all-franchised concept has 87 units open and plans to reach 130 by the end of 2010. 

Alexis Eldridge, Yogurtland’s vice president of marketing, said the brand’s self-service model appeals to consumers who want customization. “It’s about the in-store experience,” she said. “And we have a great value proposition.”

Unlike many yogurt companies that use an “off-the-shelf” yogurt base, she noted, Yogurtland uses only its proprietary yogurt, rotating among 16 flavors — both tart and sweet. All flavors are non-fat, except for the low-fat peanut butter.

Top sellers are vanilla and the plain tart, Eldridge said, but Yogurtland has had success with unusual limited-time offers such as red-velvet cupcake batter and yuzu tart. 

Another growing self-service brand is Menchie’s, based in Encino, Calif., which was founded in 2007 and now has 40 units open across the country, about 10 percent of which are company-owned. The chain plans to have more than 70 locations by the end of the year.

Amit Kleinberger, chief executive of Menchie’s Group Inc., said the brand is designed to appeal specifically to families with children. Plush toys, fake tattoos and stickers are for sale, along with both sweet and tart yogurt in kid-friendly flavors like bubblegum.

Menchie’s has franchise agreements to go international with units opening in Canada and Japan this year, followed by Australia, Dubai and Mexico in 2011. Like Yogurtland, Menchie’s is also shifting to a private-label yogurt base with the introduction of vanilla snow, the first in a line of proprietary flavors.

Seeing the appeal of a self-service model, TCBY’s parent company is scheduled to open a new swirl-your-own prototype in its hometown of Salt Lake City in July. The “new TCBY” has a hipper and more colorful design as well as a new logo and branding materials, officials said. TCBY, or The Country’s Best Yogurt, has more than 800 locations globally, and company officials said there are now 441 U.S. units.

Tim Casey, chief executive of TCBY parent Mrs. Fields Original Cookies Inc., said most TCBY locations going forward would be self-serve.

“There has been a shift in behavior that clearly indicates that consumers like choice, convenience and options,” he said.

Red Mango, traditionally a counter-service yogurt brand, also has developed a self-service option for franchisees, and the 71-unit chain currently has three self-service locations with more in the pipeline, officials said. 

Parent company Red Mango USA is branching out into smoothies and iced-tea chillers, taking on larger smoothie chains like the 745-unit Jamba Juice.

Reflecting the strategy, the company is changing its name to Red Mango Yogurt & Smoothies. The line of more than 20 smoothie offerings will be rolled out at the end of June, with an official debut scheduled July 4.

The 85-unit Pinkberry chain, based in Los Angeles, has long offered smoothies and other products, but the basic yogurt-and-toppings remain the focus.

Ron Graves, Pinkberry’s chief executive, said the chain has no intention of moving into self-service and is instead looking for new ways to reach customers wherever they are.

“We’re about continually raising the bar on the customer experience, but self-service has nothing to do with that,” he said.

Over the past 14 months, Pinkberry has been testing delivery, now available in New York City and from many stores in California. Delivery is free with a $15 order minimum.

Pinkberry also is testing online ordering and curbside delivery, and the brand now has a catering truck that can be used for events, Graves said — though he insists there are no plans to put a Pinkberry truck on the streets.

Like many restaurant companies offering smaller-portioned and lower-priced options, Pinkberry in March began offering mini-cones of frozen yogurt for $1.95, which Graves said have been a bit hit. 

Pinkberry also is aiming for what Graves described as “more provocative” flavor combinations. This summer, for example, the chain is launching a watermelon flavor as a limited-time offer available for half-price during daily “Happy Hours.” It is topped with watermelon purée and servers will recommend additional toppings of diced watermelon and diced Persian cucumbers.

It’s an example of how Pinkberry continues to push the envelope, Graves said: “Most people might say you don’t put Persian cucumbers on yogurt. Well, we do.” 

Ron Ruggless contributed to this report.

Contact Lisa Jennings at [email protected]

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