Smooth Operators

After a few ups and downs, the frozen yogurt business seems to be leveling off as consumers find its "better-for-you" ingredients and customizable menu items appealing.

Case Study: U-Swirl, Durango, Colo.

U-Swirl-yogurt-machinesU-Swirl’s culture shift focuses on supporting its franchisees and concentrating on profitable markets.Like many foodservice segments, frozen yogurt has experienced its ups and downs over the years. From the heydays of the '80s and '90s to what many contend is now an oversaturated market, it would seem that banking on these concepts could be risky.

Franchisors face not only substantial support requirements, but also require sizeable store counts to properly fund the business. "In 2012 and 2013, the frozen yogurt segment was oversaturated, and growth just stopped," says Alan Stribling, president of U-Swirl, based in Durango, Colo. He previously served as CEO of Phoenix's Yogurtini. "Once that started happening, the fee revenue was gone, and many companies couldn't afford the administrative staff needed to support franchisees."

During this period Durango, Colo.-based Rocky Mountain Chocolate Factory, an international franchisor, confectionery manufacturer and retail operator, saw an opportunity to consolidate its own brand, Aspen Leaf Yogurt, with the Yogurtini and U-Swirl brands. "The folks at Rocky Mountain realized competing with other frozen yogurt shops directly wasn't a good business model, so the company moved to acquire controlling interest in U-Swirl, purchased Yogurtini and put all of the brands together under the same corporate structure. Since U-Swirl had the largest number of locations and was publicly traded, they decided to keep the operations under that name," Stribling says.

Overnight, the company went from overseeing 3 individual chains with limited store counts to handling about 90 stores. Not only did this allow the company to increase its footprint across the country, it also provided the means to combine administrative resources and significantly reduce operational overhead. Throughout the subsequent months, the acquisition model took hold, with U-Swirl purchasing Josie's,
CherryBerry, Fuzzy Peach and Yogli Mogli.

"Last summer, Rocky Mountain saw the need for making some changes to U-Swirl's administrative team and decided to take control of U-Swirl," Stribling says. "As a result, all acquisitions were put on pause last July in order to rework the business model and change the company's focus."

The plan kicked back into high gear last September, with Rocky Mountain taking over U-Swirl and Stribling becoming the company's president. A complete restructuring of U-Swirl's supply chain included new partnerships and unique pricing arrangements.

There also has been a shift in culture. Rather than focusing solely on growth by acquisition, the company now centers on franchisee support and marketing efforts. "Administrative and overhead consolidations will enable us to increase our profitability as a franchisor, substantially, since the restructuring," Stribling says.

Now more than 250 frozen yogurt shop locations reside beneath the U-Swirl umbrella, and the chain expects this number to grow significantly during the next year. With U-Swirl experiencing increases in same-store sale comps for the first time in the last year, it appears the new business model is working.

"So many chains made the mistake of building out stores and didn't pay attention to real estate," Stribling says. "We're seeing that well-run stores in good locations, where there was thought behind the site selection, are succeeding."

At press time, U-Swirl was planning the acquisition of three more chains as well as looking to purchase other struggling frozen yogurt franchise companies. So far, the biggest challenge with this business model has been coming to agreement on what each brand is worth. "We've put together a program that offers both sides a fair deal," Stribling says. "It's a shared-risk program that allows us to be more generous with our compensation, but protects our interests so we can add as many locations as possible."

Looking at each market individually and assessing the profitability of long-standing dessert operations provides much insight on the number of yogurt shops that can be supported in the area. "It's easy to look at markets and see how many yogurt shops can be supported," Stribling says.

With the growth of self-serve frozen yogurt concepts, there also is more opportunity for equipment innovations unique to this segment. "In terms of equipment, there has been very limited innovation, so now is the time for manufacturers to consider unit designs specifically geared for self-serve yogurt," Stribling says. "So far, the most significant development I have seen has been the creation of devices by third-party companies that simplify cleaning and maintenance of the equipment."

The fact that yogurt is highly desired by the public and has been a huge part of the frozen dessert industry for decades is a definite plus for U-Swirl. "We believe the yogurt business is very strong, since it does better than just about any competing ice cream business," Stribling says. "If we continue to follow our model of growth by acquisitions and acquire other brands that are struggling, we can support franchisees in the way they need to be supported."